The Bank of England, U.K. Prudential Regulation Authority, U.K. Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates have published a set of documents outlining priorities and milestones for 2020 on LIBOR transition.

Read more.

An EU Regulation has been published amending the European Supervisory Authorities' powers under various pieces of EU legislation. The Regulation grants ESMA additional powers to monitor market data and authorize benchmark administrators under the Markets in Financial Instruments Regulation and the Benchmarks Regulation, respectively. It also amends the legislation founding the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, granting them additional powers to facilitate their supervisory duties. The Regulation will enter into force on December 30, 2019. The provisions regarding ESMA's enhanced supervisory powers over market data and benchmarks will apply from January 1, 2022. All other provisions regarding the European Supervisory Authorities' enhanced powers will apply from January 1, 2020.

Read more.

The Working Group on Sterling Risk-Free Reference Rates has opened a consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR. The consultation focuses on cash products, including, but not limited to, syndicated loans, floating rate notes, retail loans, bilateral corporate loans and securitizations.  It only covers GBP LIBOR and credit adjustment spreads to be applied to a SONIA-derived rate. Responses to the consultation can be submitted until February 6, 2020.

Read more.

The Financial Stability Board has published a report on the vulnerabilities associated with leveraged loans and collateralized loan obligations. In the report, the FSB assesses how the leveraged loan and CLO markets have developed and analyzes the potential implications for global financial stability.

Noting that there are data gaps, the FSB makes the following conclusions:

• there are indications that weaknesses in the leveraged loan and CLO markets have increased since the 2008-09 global financial crisis;
• banks have the largest direct exposures to leveraged loans and CLOs. These exposures are concentrated among a limited number of large global banks and have a significant cross-border dimension; and
• non-bank investors, such as investment funds, insurance companies, pension funds, broker-dealers and holding companies, also have exposures to leveraged loans and CLOs.

The FSB intends to consider whether there is scope to close data gaps, but will continue to analyze the financial stability risks and will examine the regulatory and supervisory implications related to leveraged loans and CLOs.

View the report.

The International Swaps and Derivatives Association has launched a consultation in which it proposes to amend its standard documentation to implement fallbacks based on alternative risk-free rates for certain key Interbank Offered Rates - EUR LIBOR and EURIBOR. ISDA states that the back-ups will apply if the relevant IBOR is permanently discontinued, based on defined triggers. Responses to the consultation should be submitted to ISDA by January 21, 2020.
Read more.

The Prudential Regulation Authority has published a letter addressed to the Chair of the Working Group on Sterling Risk-Free Reference Rates. The letter responds to the Working Group's letter in October 2019 requesting regulatory forbearance or clarification from regulators on the impact that the LIBOR transition is likely to have on the prudential requirements for banks. The main issues raised by the Working Group include: (i) the potential for certain capital instruments to no longer qualify as regulatory capital; (ii) the potential for securitizations and MREL-eligible instruments to be considered as "new contracts" as a result of changes to contractual terms, leading to the need to insert bail-in or other bank recovery contractual terms; and (iii) that many banks will need to obtain regulatory approvals for alterations to the models used to determine their regulatory capital arising from their exposures and risks.

Read more.

The Financial Stability Board has published a progress report on reforms to major interest rate benchmarks. The report provides the FSB's annual update on progress taken by the official sector and market participants to move from interbank offered rates to overnight risk-free rates by the end of 2021 in line with the FSB's 2014 recommendations. The FSB highlights that the continued reliance by global financial markets on LIBOR poses significant financial stability risks and urges all participants to continue with their efforts to transition to the alternative risk-free rates. The FSB also warns regulated firms to expect increased examination from regulators of their efforts to transition as the end of 2021 approaches.

View the report.

A new Regulation and Directive amending certain provisions of the Capital Requirements Regulation on covered bonds and introducing standards on the issuance of covered bonds and covered bond public supervision has been published in the Official Journal of the European Union. The Regulation and Directive will both enter into force on January 7, 2020. The Regulation will apply directly in all Member States from July 8, 2022, while Member States must publish national legislation implementing the Directive by July 8, 2021 and must apply that legislation from July 8, 2022.

Read more.

The Financial Stability Board has published its work program for 2020. The FSB confirms that it will continue to monitor developments to identify and manage new and emerging risks, work to finalize the outstanding components of the post-crisis reforms and assess the implementation of reforms as well as their effects. Key areas of focus will be:

• LIBOR transition: the FSB will monitor implementation of the benchmark reforms and report on outstanding issues.
• Global stablecoins: the FSB will launch a consultation on global stablecoins in April 2020.
• Global payment systems: the FSB will work with other international bodies to develop and deliver a roadmap for using digital innovations to improve global cross-border payments.
• FinTech: the FSB will report on the perspective of emerging market and developing economies.

View the FSB work program for 2020.

The Financial Policy Committee of the Bank of England has published its latest financial stability report. The report sets out the FPC's view of the resilience of the U.K. financial system and the main risks to the U.K.'s financial stability as well as the work being carried out to address those risks. The FPC states that the 2019 annual cyclical scenario stress test indicates that the U.K. banking system would be resilient to deep simultaneous U.K. and global recessions. Furthermore, the U.K. financial system is resilient to and prepared for any disruptions that may arise from a disorderly Brexit.

Read more.

The International Organization of Securities Commissions has launched a consultation on methods of addressing potential conflicts of interest and other conduct risks that arise from market intermediaries’ participation in the debt capital raising process. Responses should be submitted by February 16, 2020.

Read more.

The European Securities and Markets Authority has published a list of the entities that are awaiting their national regulator’s approval for authorization and registration as EU benchmark administrators. Under the EU Benchmark Regulation, existing EU and third country benchmark administrators are entitled to apply for authorization to continue as administrators.

Read more.

The Committee on Payments and Market Infrastructures has published a report on wholesale digital tokens. The report focuses on how digital tokens might be used to effect settlement in wholesale transactions, replacing existing systems where such transactions are settled by updating balances in account records on a centralized register. The CPMI confirms that any wholesale digital token arrangement would need to comply with the applicable regulatory requirements, including, if the arrangement is systemically important, the Principles for Financial Market Infrastructure.

Read more.

A new Regulation amending the revised Markets in Financial Instruments Directive, Market Abuse Regulation and Prospectus Regulation has been published in the Official Journal of the European Union, introducing changes to support small- and medium-sized enterprise growth markets as trading venues. 

Read more.

The European Securities and Markets Authority has published draft Implementing Technical Standards amending the existing ITS that establish the standards for the main indices and recognized exchanges that can hold securities eligible as collateral under the revised Capital Requirements Regulation (or “CRR II”).

Read more.

The U.K. Financial Conduct Authority has published a consultation on its proposed changes to various aspects of the FCA Handbook.

Read more.

The European Banking Authority has published an action plan on sustainable finance, setting out how it intends to deliver on its aims to help combat environmental, social and governance risks and providing clarity on the direction of its policy in this area. The EBA has been mandated to contribute to work on ESG risks under various pieces of EU legislation and will focus on environmental factors and climate change in its initial phase of work. The action plan also sets out the EBA’s projected timelines and milestones on sustainable finance.

Read more.

The International Swaps and Derivatives Association has published a letter in which it responds to the Financial Stability Board's November 15, 2019 letter on pre-cessation triggers. The co-Chairs of the FSB's Official Sector Steering Group requested ISDA to include a "pre-cessation trigger" alongside the cessation trigger in its standard language in derivatives contracts, via either definitions for new contracts or in a single protocol (without embedded optionality) for outstanding contracts. The pre-cessation trigger would cause a LIBOR-based contract to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority, as the regulator of LIBOR, deemed that LIBOR was no longer representative.

Read more.

The U.K. FICC Market Standards Board is consulting on its draft Statement of Good Practice for Participation in Sovereign and Supranational Auctions in Fixed Income Markets. The FMSB is a standards setting body operated by wholesale market participants that was established in 2015. It is mandated to issue Standards that improve conduct in the wholesale Fixed Income, Currencies and Commodities markets. FMSB Member Firms are expected to consider their practices in light of the Standards, but the Standards are not binding and non-compliance will not affect whether a firm is deemed to have met its regulatory obligations.

Read more.

The U.K. Financial Conduct Authority has announced that it will introduce temporary product intervention measures for 12 months from January 1, 2020 to December 31, 2020 to combat risks to consumers of the promotion of speculative mini-bonds. The measures follow the high profile failure of mini-bond issuer London Capital & Finance plc, which has prompted an investigation by the FCA into the circumstances surrounding LC&F's collapse and the FCA's supervision of the firm. HM Treasury is also conducting an ongoing investigation into the wider policy questions raised by LC&F's failure, focusing on a review of the regulatory regime governing non-transferable debt securities and an assessment of Innovative Finance ISA rules.

Read more.

The U.K. Financial Conduct Authority has published a Policy Statement incorporating its response to the feedback it received on its proposals for the implementation of the Proxy Advisors (Shareholders' Rights) Regulations 2019, together with the final rules. The final rules make amendments to the FCA's Decision Procedure and Penalties Manual and Enforcement Guide, reflecting the new Regulations that came into force on June 10, 2019.

The Regulations implemented new obligations imposed upon proxy advisors by the revised EU Shareholder Rights Directive into the U.K. statutory regime. The FCA has the power to discipline and investigate proxy advisors under the Proxy Advisors Regulations and changes were therefore required to the FCA's rules to take account of these powers. The following new provisions have been included in the Decision Procedures and Penalties Manual:

• the FCA will publish a statement about a proxy advisor who has breached a relevant requirement; it will impose a public censure in contested cases and allow decision makers to use executive powers to decide on settled cases;
• the FCA will decide when to impose a financial penalty on a proxy advisor; and
• the FCA will decide when to impose a restitution requirement.

The FCA has also included a new section in its Enforcement Guide explaining how it will use its powers under the Regulations. The intended approach will broadly mirror that taken by the FCA in conducting investigations, sanctioning and using its regulatory powers under FSMA.

View the FCA's Feedback and final rules.

The U.K. Financial Conduct Authority has published a statement on conduct risk during the LIBOR transition, which is due to be completed by the end of 2021. The statement is in the form of questions and answers and sets out the FCA's expectations of firms relating to governance and accountability, replacing LIBOR with alternative rates in existing contracts, offering new products with alternative rates, communicating with customers about the transition from LIBOR and best practice for firms investing on behalf of clients.

View the FCA's statement.

The European Central Bank has published a report by the working group on euro risk-free rates on €STR fall-back arrangements. The EU Benchmark Regulation requires regulated entities to have put in place written plans on the steps that they would take should a benchmark used in their contracts be materially amended or ceases. The Working Group recommends that instead of selecting an alternative rate, regulated entities should take into account the ECB's regular review of €STR's methodology and the policies and procedures for the possible cessation of €STR, together with the use of contractual fallbacks.

View the report.

A Commission Delegated Regulation amending secondary legislation supplementing the Packaged Retail and Insurance-Based Investment Products Regulation has been published in the Official Journal of the European Union. 

Read more.

A Commission Delegated Regulation amending the EU Auctioning Regulation has been published in the Official Journal of the European Union. The Delegated Regulation will apply directly in all EU Member States from November 28, 2019. The EU Auctioning Regulation provides for EU emission allowances to be auctioned and specifies key aspects of the auctions, including their design, timing and eligibility requirements. 

Read more.

The European Central Bank has published a report by the working group on euro risk-free rates providing high-level recommendations for fall-back provisions in contracts for cash products and derivatives transactions referencing EURIBOR. The recommendations are not legally binding and market participants can decide whether, and to the extent to which, they wish to adopt them. EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation  and the methodology for calculating EURIBOR has been revised to be Benchmark Regulation-compliant, to be implemented by the end of 2019.

Read more.

The European Central Bank has published a report by the working group on euro risk-free rates on the financial accounting implications of the transition from EONIA to €STR and the introduction of €STR-based fallbacks for EURIBOR. 

Read more.

The International Organization of Securities Commissions has issued a statement confirming that it is possible, depending on their structure, for stablecoins to fall within the scope of securities market regulation. IOSCO has undertaken an in-depth study (not published) of stablecoins and has concluded that each proposed stablecoin, the manner in which it is intended to operate and the rights and obligations conferred on participants needs to be analyzed to assess the risks and benefits of the particular stablecoin. The statement is widely considered to be in response to Facebook's announcement about its proposed stablecoin, Libra. According to IOSCO, certain stablecoins may have features that are similar to securities and accordingly will be within the regulatory perimeter of some countries. IOSCO calls on entities that wish to launch stablecoins to engage with regulators so that any risks associated with the operation of the stablecoin might be mitigated.

View IOSCO's statement.

The U.K. Financial Conduct Authority has published a feedback statement on the discussion paper, “Building a regulatory framework for effective stewardship” that it published in January 2019 together with the Financial Reporting Council. The discussion paper called for input on how best to encourage the capital markets community to engage more actively in “stewardship” of the assets in which they invest. 

Read more.

The Joint Committee of the European Supervisory Authorities has published a Supervisory Statement on the scope of application to bonds of the EU Packaged Retail and Insurance-based Investment Products Regulation. The ESAs have issued the Supervisory Statement in an attempt to avoid the adoption of diverse approaches by national regulators across the EU as to when a Key Information Document is required for different types of bonds under the PRIIPs Regulation. The PRIIPs Regulation, directly applicable across the EU since January 1, 2018, imposes a requirement upon issuers of packaged retail and insurance-based investment products to issue KIDs to retail investors describing key features of their products, in order to enhance transparency and improve investor protection in the PRIIPs market.

Read more.

The Working Group on Sterling Risk-Free Reference Rates has written to the Prudential Regulation Authority raising issues in the banking prudential regulation regime that, in its view, will require changes and/or regulatory forbearance if a smooth transition from LIBOR to SONIA is to be achieved. Although the letter focuses on the U.K. regime, the issues are likely to be relevant globally.

Read more.

The G7 working group on stablecoins has published a report investigating the impact of global stablecoins. The working group is comprised of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, and is chaired by Benoît Cœuré (Chair of the Committee on Payments and Market Infrastructures). 

Read more.

The Financial Stability Board has published a report on regulatory issues arising with respect to so-called stablecoins. The FSB defines a stablecoin as "a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets" which may be "collateralised by fiat currency or commodities, or supported by algorithms".

Read more.

The European Central Bank has published a report on the risk management implications of the upcoming move away from the Euro Overnight Index Average (the overnight reference rate for the euro) and EURIBOR (the term reference rate for the euro) to alternative risk-free rates. Both EONIA and EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation. 

Read more.

The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors describing the progress of post-financial crisis reforms and key focus areas for the future. Over the past ten years, the FSB has proposed a number of reforms to the global financial system, working with international organizations on implementation to improve financial stability.

Read more.

The European Securities and Markets Authority has published a final report and final Guidelines on standardized procedures and messaging protocols for investment firms under the Central Securities Depositaries Regulation.

CSDR requires investment firms to take steps to limit settlement fails, including by ensuring that they have all the necessary transaction data on the day of the transaction. Investment firms must also have in place arrangements with their professional clients to ensure prompt communication of an allocation of securities to the transaction, confirmation of that allocation and confirmation of the acceptance or rejection of the terms in good time before the intended settlement date. The content of the messages and deadlines for sending them is contained in the Regulatory Technical Standards on settlement discipline (Commission Delegated Regulation (EU) 2018/1229). The Guidelines clarify the scope of these requirements and provide guidance on the standardized procedures and messaging standards to be used for firms to comply with the requirement.

Read more.

The European Securities and Markets Authority has issued four public statements on its preparations for a no-deal Brexit in the event the U.K. fails to agree a deal with the EU or extend the Brexit deadline before October 31, 2019. In its public statement on preparations for a possible no-deal Brexit, ESMA notes that it had already put in place no-deal contingency plans ahead of the U.K.’s previous Brexit deadline extension on April 10, 2019. 

Read more.

The EU Economic and Financial Committee sub-Committee on EU sovereign debt markets (the ESDM) has launched a consultation on its proposals to mandate the introduction of single-limb collective action clauses into euro area government securities issued from January 1, 2022. The ESDM has released a draft of the proposed CAC together with an explanatory note and seeks input on its proposals from selected market participants by October 28, 2019.

Read more.

The Joint Committee of the European Supervisory Authorities has published its 2020 work program, outlining revisions to the Joint Committee’s scope of work and the matters it will focus on in 2020. The Joint Committee consists of representatives from the European Banking Authority, the European Insurance and Occupational Pensions Authority, the European Securities and Markets Authority, the European Commission and the European Systemic Risk Board. 

Read more.

The European Securities and Markets Authority has published Guidelines on risk factors under the EU Prospectus Regulation that will provide guidance to Member State national regulators when reviewing prospectuses. The Guidelines will apply from December 4, 2019. Within two months of the date of publication of the guidelines in all EU official languages, national regulators must notify ESMA whether they comply with the guidelines and, if they do not, whether they intend to comply. If they do not intend to comply, national regulators must explain why that is the case.

Read more.

The European Securities and Markets Authority has published its Annual Work Programme for 2020. The Work Programme sets out ESMA’s focus areas for 2020 and provides details of expected outputs within each of the areas. In 2019, the European Council, Parliament and Commission agreed on new tasks for ESMA, meaning that ESMA will take on an enhanced role in areas including direct supervision, supervisory convergence and investor protection. The final Regulations amending the scope of the European Supervisory Authorities’ work mandates are expected to be published in the second half of 2019.

Read more.

Following its previous two consultations, the International Swaps and Derivatives Association has launched a consultation on the proposed final parameters that will apply to alternative risk-free rates if derivatives fall backs are triggered. Responses to the consultation should be provided by October 23, 2019. ISDA will amend the 2006 ISDA Definitions based on the feedback and also intends to publish a protocol so that market participants can include fall backs in legacy IBOR contracts, if needed. Both documents are expected to be finalized before the end of 2019, ready for implementation in 2020.

Read more.

The UK Law Commission has published a Call for Evidence on the system for intermediated securities. The Call for Evidence will inform the Commission's scoping study to assess the current state of the law and issues arising from intermediation, which the Department for Business, Energy & Industrial Strategy has requested. Intermediated securities are shares and bonds held electronically through computerized credit entries. The Call for Evidence describes how intermediated securities are held and recorded, noting the advantages of the system. It also raises practical issues with the system and presents some potential solutions.

Read more.

The Working Group on Sterling Risk-Free Reference Rates has published a summary of the responses it received to its March 2019 discussion paper on conventions for referencing SONIA in new financial contracts.

Read more.

The U.K. Financial Conduct Authority has published a Policy Statement and final Guidance on Crypto-assets. The Policy Statement summarizes the feedback received to the FCA's consultation on draft Guidance and sets out the FCA's response to that feedback. The final Guidance is, for the most part, the same as that on which the FCA consulted, except the FCA has made some drafting changes to provide further clarity and has added some guidance on stablecoins and airdrops. In addition, the FCA has revised the taxonomy by making a distinction between: (i) unregulated tokens, which are exchange tokens and utility tokens; and (ii) regulated tokens, which are security and e-money tokens.

The Guidance is intended to clarify the FCA's expectations for firms carrying on crypto-asset activities within the U.K. by providing insight for market participants on whether certain crypto-assets are within the FCA's regulatory perimeter or are otherwise regulated. The FCA highlights that the Guidance should be used by firms to understand the regulatory status of their crypto-asset activities, but assessing whether a crypto-asset or related activity is within the regulatory perimeter can only be done on a case-by-case basis. Firms should also refer to the FCA's Perimeter Guidance Manual (PERG) in its Handbook, and where firms need further clarification, they should contact the FCA and/or obtain external legal advice.

The Guidance provides an overview of the U.K. regulatory perimeter and discusses relevant concepts, such as "by way of business." It also refers to the territorial scope of the regulatory perimeter, referring to the detailed guidance in PERG and highlighting that where part of an activity is carried on outside the U.K., a firm may still be carrying on a regulated activity in the U.K.

Read more. 

Two equivalence decisions under the EU Benchmark Regulation have been published in the Official Journal of the European Union. The first decision declares as equivalent to the EU regime the legal and supervisory framework of Australia applicable to the administrators of financial benchmarks that are declared significant benchmarks by the Australian Securities and Investments Commission. The second decision declares as equivalent to the EU regime the legal and supervisory framework of Singapore applicable to the administrators of financial benchmarks that are designated as designated benchmarks by means of the Securities and Futures (Designated Benchmarks) Order 2018. Both decisions will enter into force on August 19, 2019.

Read more.

The U.K. Financial Conduct Authority has launched a consultation on draft technical standards on the content and format of STS notifications under the U.K.'s onshored Securitization Regulation. The consultation closes on August 27, 2019. Unless Brexit is delayed further, the FCA intends to publish the final or near-final technical standards on or very near to Exit day, which is currently due to be October 31, 2019.

Read more.

The European Money Markets Institute has announced that EONIA will be published daily at or soon after 9:15 CET, as from October 2, 2019.

Read more.

The European Money Markets Institute has published a Benchmark Statement on the administration of Euro Interbank Offered Rate (Euribor). Earlier in July this year, the EMMI obtained authorization as the administrator of Euribor, which is a critical benchmark under the EU Benchmark Regulation. EMMI has made reforms to Euribor in order to ensure it meets the requirements of the Regulation, including adopting a new hybrid methodology, the phased implementation of which will be completed by the end of 2019.

View EMMI's announcement and the Benchmark Statement.

Following its consultation earlier this year, the working group charged with implementing the European market's move away from EONIA, has published a recommended legal action plan for new and legacy contracts referencing EONIA. The implementation of the recommended legal measures is intended to address issues arising from the transition from EONIA to the euro short-term rate (known as €STR). €STR is a risk-free rate and, with a fixed spread, will replace EONIA as a reference rate in a variety of euro-denominated financial contracts, including derivatives, collateral remuneration for derivatives and cash products such as commercial paper, repurchase agreements and default interest payable under syndicated loans.

Read more.