The U.K. Financial Conduct Authority and Prudential Regulation Authority have finalized their policy on the prudential assessment of acquisitions and increases of control. The regulators have published a joint policy statement, a PRA supervisory statement, and FCA non-handbook guidance. The documents cover: (i) how the regulators expect firms, acquirers, and increasing controllers to identify controllers for the purposes of the Financial Services and Markets Act 2000; (ii) the regulators' expectations for submitting the change in control notification; (iii) the assessment criteria; and (iv) how the regulators will use their respective statutory powers to impose conditions on an approval.

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The U.K. Prudential Regulation Authority has published a policy statement to its occasional consultation paper (CP6/24). The statement provides feedback to responses the PRA received to the consultation paper, as well as the PRA's final policy, as follows: (i) amendments to the Disclosure (CRR) Part of the PRA Rulebook; (ii) amendments to the Reporting (CRR) Part of the PRA Rulebook; (iii) amendments to the Regulatory Reporting Part of the PRA Rulebook; (iv) amendments to the Glossary of the PRA Rulebook; and (v) the addition of a new Rule 9.5A to the Policyholder Protection Part of the PRA Rulebook (Policyholder Protection).

The statement also provides feedback to responses in relation to a proposal in CP6/24, which was a joint consultation with the FCA (FCA Consultation paper 24/10). It also contains the PRA's and U.K. Financial Conduct Authority's final policy in the form of amendments to Binding Technical Standards (BTS) 2016/2251. The regulators are making consequential amendments to the BTS to ensure they reflect the expected changes to the U.K. version of the European Market Infrastructure Regulation that will be made in the Securitisation (Amendment) Regulations 2024. The implementation date for these amendments is November 4, 2024 with the exception of the amendments to U.K. Commission Delegated Regulation (EU) 2016/2251, which will be effective on November 1, 2024, which is when the final Technical Standards instrument by the PRA and FCA comes into force.

Commission Delegated Regulation (EU) 2024/2795 amending the EU Capital Requirements Regulation with regard to the date of application of the own funds requirements for market risk has been published in the Official Journal of the European Union. The Delegated Regulation inserts a new Article 520a into the CRR that states, until January 1, 2026, institutions must continue to apply Part Three, Title IV, and the market risk requirements of Articles 430, 430b, 445 and 455 of the CRR. CRR III introduced into the CRR specific disclosure requirements for market risk, tailored to the requirements laid down in the fundamental review of the trading book for the calculation of own funds requirements for market risk. This Delegated Regulation delays the date of application of these provisions to January 1, 2026. For reasons of consistency, the related specific disclosure requirements will also be delayed. The Delegated Regulation will enter into force on November 1, 2024, the day after its publication in the Official Journal, and will apply from January 1, 2025.

The Bank of England has published a speech by Sarah Breeden, BoE Deputy Governor, Financial Stability, on AI and financial stability. In the speech, Ms. Breeden explores the novel features of Generative AI, and how financial stability can be upheld whilst harnessing its potential benefits for economic growth.

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The Transition Plan Taskforce has published its final report on the progress achieved and the path ahead. The report marks the end of the TPT's efforts to establish a gold standard for private sector transition plans. The report identifies key opportunities and challenges for the global adoption of transition plans, including building market capabilities, sharing best practices, developing tools for decision-makers, and fostering global consistency in transition planning norms.

The final report reveals that more companies than ever are disclosing their transition plans and aligning their business strategies with net-zero commitments. Financial institutions increasingly leverage these transition plans to direct transition finance, driving investments towards sustainable solutions. Internationally, momentum continues to grow to establish consistent standards and regulations on transition planning. The TPT observes that a growing number of jurisdictions are adopting the International Financial Reporting Standards (IFRS) S1 and S2 Standards. With the IFRS assuming responsibility for the TPT's disclosure materials, these will be utilized worldwide to support the emergence of a global norm on transition planning. The report also highlights four key areas where collective efforts could be focused in the future, to mainstream effective transition plans across the economy: (i) building market capabilities, practice and sharing experiences; (ii) developing enabling tools and driving thought leadership; (iii) ensuring that transition plans are integrated into decision-making; and (iv) increasing global consistency in transition planning norms and expectations.

The draft Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations add to the list of "relevant enactments" for the purposes of sections 13 to 17 of the Financial Services and Markets Act 2023. Under section 13 of FSMA 2023, HM Treasury may make regulations which may modify the effect or application of such relevant enactments for the purpose of testing the efficiency or effectiveness of new technologies or practices in the carrying on of financial markets infrastructure activities, the FMI sandbox. The Regulations will bring the following relevant enactments into scope of the FMI Sandbox powers: (i) the Stock Transfer (Gilt-edged Securities) (CGO Service) Regulations 1985; (ii) the Government Stock Regulations 2004; (iii) the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; and (iv) the Prospectus Regulation. The effect is to include new relevant enactments within the list at section 17(3) of FSMA 2023 so that these enactments can be modified by FMI sandboxes. Bringing the Stock Transfer Regulations, the Government Stock Regulations, and the Money Laundering Regulations into scope is intended to facilitate activity in the first FMI Sandbox, the "Digital Securities Sandbox" and relevant amendments will be set out in detail in a later statutory instrument and accompanying explanatory memorandum. Bringing the U.K. Prospectus Regulation into scope of the FMI Sandbox powers is designed to facilitate the creation of PISCES. The Regulations have been laid before Parliament and will come into force the day after the day on which they are made.

In the U.K. government's Autumn Budget published on October 30, 2024 (paragraph 5.117), the government confirmed that it is proceeding with the introduction of the Reserved Investor Fund (Contractual Scheme). Related provisions will also make minor changes to the tax rules in respect of Co-ownership Authorised Contractual Schemes. Secondary legislation will be brought forward before the end of the tax year 2024-25. The date from which these reforms will have effect has not yet been indicated.

The European Supervisory Authorities have published their third annual report on disclosures of principal adverse impacts under the EU Sustainable Finance Disclosure Regulation. The report assesses both entity and product-level PAI disclosures under the SFDR. These disclosures aim to show the negative impact of financial institutions' investments on the environment and people and the actions taken by asset managers, insurers, investment firms, banks and pension funds to mitigate them.

Overall, the report shows that financial institutions have improved the accessibility of their PAI disclosures. There has also been positive progress regarding the quality of the information disclosed by financial products, and, in general, in the quality of the PAI statements although the share of products disclosing SFDR PAI information remains quite low. A few national regulators also reported slight improvements in the compliance with the SFDR disclosures in their national markets. The ESAs state that while the level of compliance with the SFDR provisions, both at Level 1 and implementing measures is not yet fully satisfactory, it is important to recognize that both national regulators and financial market participants have made significant improvements, but additional efforts to achieve full compliance are still needed.

The ESAs conclude the report by making a number of recommendations to the European Commission and to national regulators. They also reiterate the need for national regulators to reduce the frequency of their assessment of the PAI disclosures under the SFDR to every two or three years. The ESAs believe these reports are valuable, but a less frequent reporting timeline would allow the ESAs and national regulators to focus more resources on delivering a more meaningful analysis of the PAI disclosures and to draw lessons from previous exercises.

Alongside the U.K government's Autumn Budget delivered on October 30, 2024, HM Treasury has published two post-implementation reviews relating to small- and medium-sized enterprise credit.

The first review is of the Small and Medium Sized Business (Credit Information) Regulations 2015. These Regulations established commercial credit data sharing (CCDS), which aimed to lower the barriers to entry in the SME credit market by improving the availability of SMEs' credit data amongst lenders to reduce information asymmetries and therefore enable newer lenders to differentiate high and low risk SME borrowers.

The second review is of the Small and Medium Sized Business (Finance Platforms) Regulations 2015. These regulations established the bank referral scheme, placing an obligation on designated banks to refer SME business customers that they reject for finance to platforms that can match the SME with alternative finance providers.

In both reviews, HMT concludes that the schemes have broadly met their stated objectives, although the reviews identify areas where improvements could be made. In particular, feedback on the CCDS suggests that it may not be sufficiently flexible in responding to market changes such as the introduction of new products and the withdrawal of older products with low take-up. Similarly, feedback on the bank referral scheme suggests that participants in the scheme may experience frictions in the referrals process, which could be the result of significant differences in the way that designated banks have implemented referrals under the bank referral scheme. HMT plans to consult in spring 2025 on how it can further enhance the Credit Information Regulations and the Finance Platforms Regulations.

As part of the Autumn Budget delivered on October 30, 2024, the U.K. Government expressed it is committed to delivering the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market for trading private company shares. In line with that commitment, the government announced a power-enabling HM Treasury to make Stamp Duty and Stamp Duty Reserve Tax changes in relation to financial market infrastructure sandboxes, as established under the Financial Services and Markets Act 2023. This power will be used to provide an exemption from Stamp Duty and Stamp Duty Reserve Tax for transfers on a PISCES platform and for onward transfers to end purchasers which result from trading on a PISCES platform. The exemption will be introduced on a similar timeline to the legislation establishing the PISCES regulatory framework.

The European Banking Authority has launched, in cooperation with the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, a survey addressed to entities within the scope of the initial margin model authorization regime introduced by the European Market Infrastructure Regulation 3.

EMIR 3 will introduce new requirements such as: (i) an authorization regime for IM models used by counterparties in the EU; (ii) a new EBA central validation function for pro-forma margin models; and (iii) a supervision of IM models with greater focus on larger counterparties. The survey is seeking general information on entities within the scope of IM model authorization, as well as specific information relevant for fee calculation and on initial margins and IM models used. The information gathered will guide the EBA in the setup of its central validation function and inform the EBA's response to the European Commission's July call for advice on a possible Delegated Act on fees. The information will also be used to develop proportionate requirements for entities within the scope of IM model authorization, especially for smaller entities (the so called "Phase 5" and "Phase 6" entities) as part of upcoming mandates under EMIR 3.

The deadline for responses to the survey is November 29. Closer to the EMIR 3 publication, the EBA will publish on its website operational clarifications aimed to ensure a smooth, convergent entry into force of EMIR 3 requirements in the EU.

The Glasgow Financial Alliance for Net Zero has published a consultation paper on nature in net-zero transition plans, which supplements the guidance provided in its November 2022 financial institution net-zero transition plans report. The proposed guidance covers opportunities to reduce nature emissions or increase nature sinks (natural climate mitigation), as well as opportunities to support emissions reductions and sequestration through nature-related activities (natural climate enablers). GFANZ explains that collectively, these nature-related levers expand the toolkit for financial institutions to achieve their net-zero commitments and may identify more potential net-zero financing opportunities. GFANZ notes that general impacts on nature from climate change are beyond the scope of the proposed guidance but are discussed in the consultation paper as an area for ongoing consideration, which may lead to integrated transition planning in the future. The deadline for comments is January 27, 2025. GFANZ expects to publish the final supplemental guidance in Q1 2025.

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The European Securities and Markets Authority has published a consultation on amendments to the research provisions in the revised Markets in Financial Instruments Directive following changes introduced by the Listing Act. The Listing Act introduces changes that enable joint payments for execution services and research for all issuers, irrespective of the market capitalization of the issuers covered by the research. The consultation paper includes proposals to amend Article 13 of MiFID II to align it with the new payment option offered. The proposals aim to ensure that the annual assessment of research quality is based on robust criteria and that the remuneration methodology for joint payments for execution services and research does not prevent firms from complying with best execution requirements. The deadline for comments is January 28, 2025. ESMA aims to provide its technical advice to the Commission in Q2 2025.

The European Securities and Markets Authority has published a consultation on amendments to the research provisions in MiFID II following changes introduced by the Listing Act. The Listing Act introduces changes that enable joint payments for execution services and research for all issuers, irrespective of the market capitalisation of the issuers covered by the research.

The consultation paper includes proposals to amend Article 13 of MiFID II to align it with the new payment option offered. The proposals aim to ensure that the annual assessment of research quality is based on robust criteria and that the remuneration methodology for joint payments for execution services and research does not prevent firms from complying with best execution requirements.

The deadline for comments is 28 January 2025. ESMA aims to provide its technical advice to the Commission in Q2 2025.

The European Securities and Markets Authority has published a consultation paper on draft technical advice under the EU Prospectus Regulation and a call for evidence on prospectus liability. The consultation recommendations aim to facilitate European capital market activity by streamlining and reducing regulatory burden. It also puts forward proposals for non-equity securities that are advertised with ESG features and proposals to update the data reporting requirements to consider the changes introduced by the Listing Act. The Listing Act calls for an analysis of the liability of the information given in a prospectus and an assessment of whether further harmonization is warranted in this regard. It also calls for proposals of amendments to the liability provisions to be presented if relevant. As such the call for evidence on prospectus liability aims to gather input to provide technical advice on whether further harmonization should be considered. The deadline for comments on both publications is December 31, 2024. ESMA aims to publish its final technical advice to the EC in two separate final reports based on feedback received in Q2 2025.

The Financial Action Task Force has published a consultation paper on revisions to its anti-money laundering and counterterrorism financing standards relating to financial inclusion. The consultation is part of FATF's program of work to address the unintended consequences of AML/CFT measures.

The revisions focus on recommendation 1 (assessing ML/TF risks and applying a risk-based approach) and its Interpretive Note, with corresponding changes to recommendations 10 (customer due-diligence) and 15 (new technologies) and related Glossary definitions. The proposed revisions aim to better promote financial inclusion through increased focus on proportionality and simplified measures in the risk-based approach, and to give countries, supervisors, and financial institutions greater confidence and assurance when implementing simplified measures.

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The U.K. Financial Services and Markets Act 2023 (Commencement No. 8) Regulations 2024 have been made. The Regulations revoke certain pieces of EU law retained in the U.K. post-Brexit as well as bringing into force amendments made by the Financial Services and Markets Act 2023 to other such assimilated law. The regulations also bring into force amendments to FSMA 2000 made by FSMA 2023 giving HM Treasury the power to make regulations about unauthorized co-ownership alternative investment funds.

Revocations include: (i) removing LIBOR as a critical benchmark for the purpose of the U.K. Benchmark Regulations effective October 29, 2024; and (ii) revoking assimilated law versions of Commission Implementing Regulations (EU) 2018/33 and 2018/34 on October 29, 2024, which contain Implementing Technical Standards on the standardized presentation format of the statement of fees and the fee information document and their common symbol. These ITS supplement parts of the Payment Accounts Regulations 2015 that were revoked on January 1, 2024.

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The Taskforce on Nature-related Financial Disclosures has published a discussion paper setting out draft guidance on nature transition planning for corporates and financial institutions developing and disclosing a transition plan in line with the TNFD recommended disclosures. The TNFD explains that delivering the transition implied by the Kunming-Montreal Global Biodiversity Framework (GBF) requires significant changes to business practices across all sectors. The guidance covers all aspects of nature apart from climate change and greenhouse gas emissions as drivers of nature loss, and natural carbon stocks. The TNFD explains that transition planning for these topics is covered in guidance from organizations such as GFANZ.

Key focus areas of the discussion paper are: (i) a definition of a nature transition plan; (ii) an overview of related initiatives; (iii) guidance on what a nature transition plan should include; (iv) guidance on how a plan should be presented and disclosed; and (v) areas of further work needed to support development and assessment of nature transition plans. TNFD aims for the discussion paper to inform the development of TNFD guidance on the content and disclosure of nature transition plans, stimulate further work and collaboration to support nature transition plans including on transition pathways and transition finance categories and encourage organizations to pilot test the TNFD draft guidance. The deadline for comments is February 1, 2025 and the Taskforce plans to publish final TNFD guidance on nature transition plans in 2025.

The U.K. Financial Conduct Authority has published its financial promotions quarterly data for Q3 2024. The FCA summarizes the data collected between July 1 and September 30, 2024 and the action it took against firms breaching financial promotion rules, and referrals and investigations into unregulated activity. The FCA also shows where it is working to improve standards across the market so that consumers are provided with clear and fair financial promotions which are not misleading.

Key messages include:

• the FCA's interventions in Q3 resulted in 10,593 promotions being amended or withdrawn by authorized firms, including one firm who withdrew 6,792 promotions, many of which were historical promotions withdrawn as a precaution;
• the FCA issued 552 alerts on unauthorized firms and individuals, 12% of which were clone scams;
• the cryptoasset financial promotions regime came into force on October 8, 2023 and has now been live for a year. Over the last year the FCA has issued 1,702 consumer alerts about illegal crypto promotions, which has resulted in the take down of over 900 scam crypto websites and the removal of 56 apps from U.K. apps stores. The FCA are continuing to work with social media companies to remove and block illegal content on their platforms; and
• the FCA is actively engaging with firms who appear to be providing and advertising unauthorized debt advice and debt solutions to consumers via online promotions. The FCA continues to observe trends of aggressive sponsored promotions placed by unauthorized firms, particularly through TikTok and paid-for Google advertisements.

For more information on the issues and developments relating to FinTech, see our blog A&O Shearman on fintech and digital assets.

Commission Delegated Regulation (EU) 2024/2759 supplementing the European Long-Term Investment Funds Regulation with regard to certain regulatory technical standards was published in the Official Journal of the European Union. It covers RTS on circumstances in which the use of financial derivative instruments for hedging purposes is considered as solely serving the purpose of hedging the risks inherent to the investments of the ELTIF, the requirements for an ELTIF's redemption policy and liquidity management tools, the circumstances for the matching of transfer requests of units or shares of the ELTIF, certain criteria for the disposal of ELTIF assets, and certain elements of the costs disclosure. The Delegated Regulation entered into force on October 26, 2024, the day after its publication in the Official Journal.

The Financial Action Task Force has published the outcomes from its plenary meeting, which took place between October 23 and 25, 2024. Outcomes include:

• the approval of the last two assessment reports in the FATF's fourth cycle of assessments. FATF will now focus on its new round which will deliver more focused, risk-based mutual evaluations;
• the release for public consultation of proposed revisions to the standards related to FATF's ongoing focus on financial inclusion (see update above). FATF also approved new guidance on national risk assessments to support countries to understand the illicit finance risks they face;
• discussing standards changes related to cross-border payment systems and progressing work to identify the latest terrorist financing and proliferation financing risks. FATF also commenced a project to review its processes to ensure that countries do not misuse the FATF requirements to restrict the activities of non-profit organizations;
• reporting on the value of the horizontal review of designated non-financial businesses and professional compliance related to corruption to support necessary reforms. FATF decided to continue discussing follow-up on this issue at its next meeting; and
• taking stock of actions taken to improve gender diversity in the FATF, discussing further proposals to strengthen this work. FATF plans to launch a second mentoring program to strengthen inclusivity and diversity within the FATF and Global Network, building on the WFGN initiative under the Singapore Presidency.

The next FATF plenary will be held in February 2025.

The U.K. Financial Conduct Authority has published a series of portfolio letters it has sent to: (i) lifetime mortgage providers, which includes firms that provide lifetime mortgages, home reversion and later life lending products; (ii) non-bank mortgage lenders and mortgage third-party administrators; (iii) retail banks; and (iv) building societies, in each case setting out its key concerns and priorities in respect of each such portfolio in 2025.

The letters explain that the FCA plans to engage with relevant firms on their cultures and controls, focusing on the following consistent priority areas: (a) the Consumer Duty and for non-bank mortgage lenders, mortgage third-party administrators, retail banks and building societies, the treatment of customers in financial difficulty; (b) financial resilience (for non-dual regulated firms); (c) operational resilience; (d) financial crime and fraud; and (e) sustainable finance. For retail banks and building societies, the FCA identifies access as an additional priority; as firms transform their channels, products and services, it is vital that consumers are not unreasonably or unlawfully excluded from payment accounts and banking services.

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The U.K. Financial Conduct Authority has published the findings from its non-financial misconduct survey. The survey, sent to 1,028 wholesale banks, brokers and insurance firms in February, aimed to examine how firms detect and handle non-financial misconduct incidents. It found that the number of allegations reported increased between 2021 and 2023. The FCA's findings include:

• the distribution of non-financial misconduct types varied by sector, although bullying and harassment (26%) and discrimination (23%) were the most reported types of non-financial misconduct across all sectors. There were also 41% of non-financial misconduct incidents reported in the "other" category;
• firms identified 50% of incidents through reactive routes such as grievances or similar formal processes, as well as other reporting routes such as whistleblowing;
• disciplinary or "other" actions were taken in 43% of cases; and
• the total number of confidentiality and settlement agreements signed by complainants fell over the three years surveyed, according to the data from the wholesale banks sector. However, the data from other sectors showed no clear trend.

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The European Banking Authority launched a consultation on draft Regulatory Technical Standards on the treatment of structural foreign exchange positions under Article 104c of the EU Capital Requirements Regulation and on reporting on structural foreign exchange positions. The draft RTS largely retain the provisions of the EBA's 2020 guidelines. The key changes are: (i) the introduction of a clear quantitative threshold for a currency to be considered eligible for the structural FX treatment; (ii) the option for banks to consider only credit risk own funds requirements when determining the position neutralising the sensitivity to the capital ratios, as long as the credit risk own funds requirements are the ones driving the variability of the ratio against FX changes; (iii) clarifications around how institutions should remove the risk position from the own funds requirements for foreign exchange risk; and (iv) provisions relating to institutions' policies on currencies that are particularly illiquid in the market. The changes are not expected to lead to a material capital impact. The consultation also sets out a proposed policy framework for the treatment of structural FX positions. The deadline for comments is February 7, 2025.

The European Commission has adopted a Commission Delegated Regulation supplementing the EU Digital Operational Resilience Act with regard to Regulatory Technical Standards on harmonization of conditions enabling the conduct of the oversight activities. The draft RTS cover: (i) the information to be provided by an ICT third-party service provider in the application for a voluntary request to be designated as critical; (ii) the information to be submitted by the ICT third–party service providers that is necessary for the Lead Overseer to carry out its duties; and (iii) the details of the competent authorities' assessment of the measures taken by critical third party providers based on the recommendations of the Lead Overseer. Separate RTS will be adopted focusing on the criteria for determining the composition of the joint examination team, their designation, tasks, and working arrangements. The Delegated Regulation shall enter into force 20 days after publication in the OJ. DORA will apply as of January 17, 2025.

The U.K. Financial Conduct Authority has published a speech by Graeme Reynolds, director of competition on addressing vulnerability in the wealth management sector. Mr Reynolds discusses the good and bad practices that have been observed through its supervisory work. He sets out the FCA's key expectations for firms with regards to vulnerable customers, which include: (i) to have processes in place to recognize those who may need more help or who are engaging with services which may not meet their needs; (ii) to consider why people are using products and services, what the client's goals are, and how the "client journey" that firms provide supports the realisation of those goals; (iii) to issue clear, easily understood communications and promotions to enable people to make informed decisions, tailoring them where necessary; (iv) to develop well trained, empathetic client service taking account of the fact that vulnerabilities and circumstances may change and that the firm might need to adapt in response; (v) to think pragmatically and proportionately about what a 'good' client outcome is for those using a service; (vi) to use data to test whether clients are, in fact, in the target market, and receiving the service intended; and (vii) to digest FCA publications on how the Consumer Duty and vulnerability guidance is being implemented elsewhere, considering what lessons are relevant.

The Financial Stability Board has published a report on depositor behaviour and interest rate and liquidity risks in the financial system. The report draws on lessons from the March 2023 banking turmoil which saw the collapse of several banks, triggered by the confluence of interest rate increases and solvency and liquidity risks. The report identifies life insurers, non-bank real estate investors and banks as most vulnerable to solvency and liquidity risks. These entity types typically have a high proportion of interest rate-sensitive assets and liabilities and are affected by higher rates through various solvency and liquidity risk channels. It also observes that social media may have influenced some of the March 2023 bank runs, along with technological advancements that make it easier and quicker to transfer deposits.

The report finds that the speed of the recent runs means that banks and authorities may need to: (i) be able to react much more quickly to deposit outflows than in the past; (ii) find ways to address the liquidity and solvency vulnerabilities that gave rise to such extreme outflows; and (iii) consider whether monitoring of social media could be helpful as an early warning tool to flag potential stress at a bank or wider turmoil that might affect banks. Consideration could also be given to gathering and publishing data on bank deposits and unrealized losses on bank securities portfolios.

The European Commission has adopted the following legislation supplementing the EU Digital Operational Resilience Act: (i) Commission Delegated Regulation containing Regulatory Technical Standards specifying the content and time limits for the initial notification of, and intermediate and final report on, major ICT-related incidents, and the content of the voluntary notification for significant cyber threats; and (ii) Commission Implementing Regulation laying down Implementing Technical Standards with regard to the standard forms, templates, and procedures for financial entities to report a major ICT-related incident and to notify a significant cyber threat. The Council of the European Union and the European Parliament will now scrutinize the Delegated Regulation. If neither object, it will be published in the Official Journal of the European Union. The Implementing Regulation will be published in the Official Journal without further scrutiny. Both Regulations will enter into force 20 days after publication in the Official Journal of the European Union. DORA will apply as of January 17, 2025.

The U.K. Financial Conduct Authority has published its review of consumer credit firms and other non-bank lenders as the latest chapter in its ongoing supervisory focus on financial resilience. While the review specifically considered financial resilience, it is interesting to note that, where shortcomings were identified, they stem from common systemic issues that can impact a firm’s whole business model, in particular failure to effectively:

• Identify all of the risks to the business;
• Set risk appetite and establish appropriate systems and controls; and
• Undertake adequate stress testing and establish a proper wind down plan.

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The draft U.K. Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024 have been published, together with an explanatory memorandum. The Order makes changes to the U.K. Emissions Trading Scheme, including the following: (i) to include carbon dioxide venting from installations in the 'upstream' oil and gas sector as a regulated activity under the U.K. ETS and to introduce a new activity group for the verification of carbon dioxide venting emissions; (ii) to introduce two new penalties – firstly, where installations and aircraft operators fail to surrender allowances by the relevant deadline, a U.K. ETS regulator will be able to issue a "deficit notice". Should the operator not comply with the deficit notice, they will be liable to a penalty equivalent to the carbon price for each allowance they are in deficit for, multiplied by a factor of 1.5. Operators who continue not to pay this may be liable for a daily penalty. Secondly, a new penalty of £5000 will be introduced for certain operators failing to provide information in breach of article 27A of the Greenhouse Gas Emissions Trading Scheme Order 2020; and (iii) reducing the U.K. ETS cap on how many allowances can be created over the trading period and in each year (subject to certain exceptions) to bring it in line with the U.K.'s net zero commitments. The number of allowances auctioned from 2024 onwards has already been reduced in line with this new cap through amendments made to Auctioning Regulations in late 2023. The government considers that this reduction of around 30% in the cap for the trading period supports a smooth transition for the scheme's participants whilst sending a strong signal to decarbonize.

The Financial Stability Board has published a letter sent to G20 finance ministers and central bank governors providing an update on various workstreams, including on cyber and operational resilience. The FSB notes that cyber and operational resilience risks continue to pose a threat to financial stability and is therefore delivering, for public consultation, a common Format for Incident Reporting Exchange (FIRE). FIRE is designed to enhance convergence in incident reporting, address operational challenges arising from reporting to multiple authorities and foster better communication amongst authorities. After public consultation, the FSB expects to publish the final version of FIRE by Q2 2025. The FSB's other publications include: (i) G20 status reports on crypto-asset policy implementation; (ii) a report on the financial stability implications of tokenisation; (iii) G20 roadmap progress reports on cross-border payments; and (iv) a report on lessons learned from the March 2023 banking turmoil.

The Critical Benchmarks Regulations 2024 have been published, together with an explanatory memorandum. The Regulations come into force on November 13, 2024. The instrument specifies two benchmarks, the WMR Closing Spot Rates and the ICE Swap Rate, as 'critical' under Article 20 of the U.K. BMR. A benchmark is recognized as a 'critical benchmark' where it meets certain qualitative or quantitative criteria, such as where the value of the contracts referencing the benchmark is at least €500bn, where it has no or very few market-led substitutes if it were to cease being produced, or where it is not reasonably practicable for one or more users to switch to an available market-led substitute. As a result of this specification, the administrators of these benchmarks will become subject to more stringent regulatory requirements and the FCA will have greater powers to intervene to address any potential market disruption.

The FCA has announced that it is interviewing 20 'finfluencers' under caution who may be touting financial services products illegally. 'Finfluencers' are social media personalities who use their platform to promote financial products and share insights and advice with their followers. Their target audience is often comprised of young people, who are increasingly being drawn into investment scams which may have been promoted on social media. The FCA states that it has also issued 38 alerts against social media accounts operated by finfluencers which may contain unlawful promotions.

The U.K Prudential Regulation Authority began consulting on proposals to amend the prudential framework for large exposures. The proposals include changes to implement the remaining Basel large exposures standards, by: (i) removing the possibility for firms to use internal model methods to calculate exposure values to securities financing transactions; and (ii) introducing a mandatory substitution approach to calculate the effect of the use of credit risk mitigation techniques.

Other changes the PRA is consulting on include: (a) removing the option for firms to exceed LE limits for trading book exposures to third parties; (b) allowing firms to exceed LE limits for trading book exposures to intragroup entities, and simplifying the calculation of the additional capital requirements; (c) allowing firms to apply for higher LE limits to exposures to intragroup entities, and amend the conditions firms need to meet to mitigate the higher concentration risk; (d) removing the exemption from LE limits to firms' exposures to the U.K. deposit guarantee scheme; (e) removing the option for firms to use immovable property as CRM; and (f) removing the stricter requirements on exposures to certain French counterparties.

The deadline for comments is January 17, 2025. The implementation date for the changes would, except for the proposal on SFTs, take effect shortly after publication of the final policy statement. The proposal to remove the possibility for firms to use initial margin methods to calculate exposure values to SFTs would take effect on January 1, 2026. The PRA proposes to offer firms that currently have a modification by consent under rules 2.1 and 2.2 of the Large Exposures Part of the PRA Rulebook a modification by consent to maintain the current position until March 2026.

The Eurosystem revised its cyber resilience strategy to further address evolving cyber threats. The revised strategy updates the original 2017 Strategy taking account of the evolving threat landscape and leveraging industry best practices, lessons learnt from the original strategy and the practical application of the Cyber Guidance issued by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions.

Revisions to the strategy include: (i) the incorporation of new non-FMI entities that are overseen under the Eurosystem oversight framework for electronic payment instruments, schemes and arrangements – the PISA framework. These entities are encouraged to use tools developed by the Eurosystem to periodically assess and continuously enhance their cyber resilience; (ii) measures to address threats linked to geopolitical tensions or technological innovation such as artificial intelligence and quantum computing; and (iii) amendments to take into account recent EU regulation, namely the EU Digital Operational Resilience Act, which applies to certain FMIs covered by the strategy including central securities depositories and central counterparties. The strategy also includes a new overarching component for monitoring implementation, which is designed to promote harmonisation.

The European Securities and Markets Authority has launched a survey on legal entity identifiers to gather evidence on how the optionality in the use of legal identifiers would impact market participants were it to be introduced in future reporting regimes or in the review of existing reporting regimes. ESMA had proposed to mandate the LEI in technical standards under the EU Digital Operational Resilience Act and Markets in Cryptoassets Regulation, in line with G20/Financial Stability Board and European Systemic Risk Board recommendations, which advocate for the use of the LEI to identify all parties involved in financial transactions. However, in response to concerns raised by the European Commission on the mandatory use of LEIs by non-financial entities, the proposals now set the LEI as the default identifier for legal persons, but also allow for the use of alternative identifiers where an entity does not have an LEI. The Commission has advocated for allowing for the use of the European Union Identifier in the context of DORA, which does not contain the same level of information as the LEI.

ESMA's survey is intended to raise awareness about these recent developments and to collect feedback on the potential impacts of adding alternatives to the LEI. The deadline for responses is November 12, 2024.

The Bank of England has began consulting on proposals for its supervisory fees for financial market infrastructure firms for 2024/25. The proposals cover: (i) the fee rates to meet the BoE's 2024/25 funding requirement for its FMI supervisory activity and the policy activity that supports this; (ii) the BoE's proposed hourly rates for special project fees for 2024/25; and (iii) the fees for the 2023/24 fee year including rebate and recovery rates. The BoE explains that the most significant factor driving fee increases this year are its new FSMA 2023 rule-making powers and responsibilities, which have resulted in increased policy work including the creation of the CCP rulebook. The BoE proposes to spread related one-off costs across the next three years. The deadline for comments is December 18, 2024. The proposed implementation date for the proposals is Q4 of the 2024/25 fee year (December 2024 to February 2025), when invoices will be issued for the 2024/25 fee year.

HM Treasury has begun consulting on draft legislation regulating Buy Now Pay Later. HM Treasury is proposing to bring forward secondary legislation that would bring BNPL into Financial Conduct Authority regulation as soon as possible. The consultation sets out HM Treasury's intended policy approach to regulation along with the draft legislation. HM Treasury explains that the proposed legislation aims to ensure people using BNPL products receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise. 

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The U.K. Transition Finance Market Review published its report for scaling transition finance. The report sets out the TFMR's recommendations on how to scale a high-integrity transition finance market that can support both U.K. and global net zero ambitions. 

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HM Treasury has published a statement (dated September) by the G7 Cyber Expert Group on planning for the opportunities and risks of quantum computing. The Cyber Expert Group encourages jurisdictions to monitor developments in quantum computing, to promote collaboration among relevant public and private stakeholders, and to begin planning for the potential risks posed by quantum computing on some current encryption methods. The Cyber Expert Group explains that the development of an operational quantum computer (or hybrid computer) is increasingly possible within a decade, although its capability to undermine existing cryptography, at least initially, remains uncertain. However, as it may take significant time and economic effort for financial entities to coordinate activities to mitigate vulnerabilities in anticipation of a postquantum environment, entities should prepare for the emerging risks as soon as possible. The Cyber Expert Group recommends financial entities consider: (i) developing a better understanding of quantum computing, the risks involved and strategies for mitigating those risks; (ii) assessing quantum computing risks in their areas of responsibility; and (iii) developing a plan for mitigating quantum computing risks.

The Financial Conduct Authority has published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, on ten years of FCA innovation. In the speech, Ms Rusu announced the launch of the AI Lab, which will help the FCA in its mission to facilitate firms overcome challenges in building and implementing AI solutions, as well as supporting the U.K. Government's work on safe and responsible AI development. Ms Rusu explains that the AI Lab will play a critical role by providing AI-related insights, discussions, and case studies, assisting the FCA to deepen its understanding of potential AI risks and opportunities.

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The Financial Ombudsman Service has published updated versions of its guidance for businesses on: (i) handling complaints concerning Authorized Push Payment fraud and other scams involving authorized payments or withdrawals; and (ii) handling complaints concerning fraud and scams. The FOS's updated guidance reflects the new rules introduced, with effect from October 7, 2024, on Faster Payments and CHAPS APP fraud reimbursement.

The European Securities and Markets Authority has published an updated version of its manual on post-trade transparency and an updated version of its opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under the Markets in Financial Instruments package. ESMA is providing further practical guidance on the provisions following the statement from last March on the transition for the application of the MiFID II/MiFIR Review, to reflect the changes introduced. ESMA explains that the amendments are published with the objective of contributing to the smooth transition and consistent application of MiFIR, and complements the clarifications on the applicable MiFIR Review and Technical Standards provisions provided in the Interactive Single Rulebook earlier this year. ESMA also stated that it has updated its Q&As on transparency and market structure issues.

The European Commission, the European Central Bank and the European Securities and Markets Authority have published a joint statement on the next steps to support the preparations towards a transition to T+1. Under the EU Central Securities Depositories Regulation, ESMA is required to assess the appropriateness of shortening the settlement cycle in the EU and to propose a detailed roadmap towards a shorter settlement. ESMA plans to deliver its report to the Council of the European Union and the European Parliament in the coming months.

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HM Treasury has published a joint statement issued with the Swiss State Secretariat for International Finance on the first U.K.-Switzerland financial dialogue. The statement summarizes what was discussed at the meeting and the key outcomes. The discussions emphasized close, ongoing U.K. and Swiss cooperation in financial services and focused on several key themes, including the economic outlook and financial stability, the Berne Financial Services Agreement, sustainable finance, AI and technological innovation, capital markets. On the Berne Financial Services Agreement, finance ministries updated on the progress of their respective domestic implementation procedures, with the U.K. and Switzerland noting that the ambition is to complete implementation as soon as possible, by the end of 2025 at the latest, and enter the Agreement into force shortly thereafter. U.K. and Swiss supervisors also noted that negotiations of a supervisory cooperation memorandum of understanding supporting the Berne Financial Services Agreement are progressing with a view to reach their concluding stages soon. U.K. and Swiss representatives agreed to reconvene in the second half of 2025, emphasizing the importance of continued open dialogue on shared priorities.

HM Treasury has published a draft new chapter for the Special Resolution Regime Code of Practice that reflects reforms introduced by the Bank Resolution (Recapitalisation) Bill. This draft chapter sets out how the recapitalization mechanism will be used, including the firms that are in scope, how the Bank of England will determine the funds required from the Financial Services Compensation Scheme and assess the relative costs of using the mechanism compared to insolvency, and the Bank of England's accountability. It also clarifies certain aspects of the policy, following the U.K. Government's engagement with industry and Parliament. HM Treasury explains that the draft chapter may change, including as a result of any amendments made to the Bill during the parliamentary process and consultation with the Banking Liaison Panel. The Government intends to issue a finalized version of the Code in full when the Bill comes into force.

The U.K. Prudential Regulation Authority has published a consultation paper on the restatement of the remaining provisions of the U.K. Capital Requirements Regulation. The consultation paper sets out the PRA's proposals to restate the relevant provisions in the assimilated CRR in the PRA Rulebook and other policy material such as supervisory statements or statements of policy. The PRA also proposes to update the credit ratings mapping tables in some assimilated Technical Standards and to restate them in the PRA Rulebook. The proposals in the consultation consist primarily of the restatement of assimilated law into PRA rules and policy materials without modifications. There are a few instances where the consultation proposes to modify certain areas as part of their restatement. The PRA notes that more substantive proposals relate to proposed changes to the securitization requirements. The deadline for comments is January 15, 2025.

The Bank of England has published a consultation paper on amendments to its statement of policy on setting the minimum requirement for own funds and eligible liabilities. The proposals are designed to ensure that the U.K.'s MREL framework: (i) is simplified and consolidated where possible, to make it easier to navigate and implement; (ii) keeps up to date with, and is responsive to, wider developments in financial regulation and markets; (iii) remains aligned with international standards; and (iv) adapts over time to reflect lessons learnt from its implementation.

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The Committee on Payments and Market Infrastructures has published two reports to the G20 that offer key insights and recommendations on the interlinking and interoperability of payment systems to enhance cross-border payments. The first report, Linking fast payment systems across borders: governance and oversight, aims to support owners and operators of faster payment services when they are developing the governance and risk management of their faster payment services interlinking arrangement as well as overseers when they are defining their oversight approach. The report discusses the main decisions to be taken by operators in developing the governance approach for faster payment services interlinking arrangements. The report also sets out recommendations that overseers should consider when developing an oversight approach for the respective component faster payment services or a separate entity.

The second report, Promoting the harmonisation of application programming interfaces to enhance cross-border payments: recommendations and toolkit, presents the recommendations of the API Panel of Experts on the prioritization of harmonization. The report makes ten recommendations, divided into four categories: (i) recommendations that aim at facilitating the global API harmonization processes; (ii) recommendations that focus on API design principles and the use of existing international data standards; (iii) recommendations to enhance the developer experience; and (iv) recommendations to promote pre-validation APIs and implementation. Each recommendation is accompanied by a list of potential actions that stakeholders may consider as practical and concrete implementation measures. The recommendations are further supported by a toolkit to assist various stakeholders in assessing their current related practices.

A draft version of the Collective Investment Schemes (Temporary Recognition) and Central Counterparties (Transitional Provision) (Amendment) Regulations 2024 has been published, alongside a draft explanatory memorandum. The Regulations amend the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 to remove the requirement that a CCP must continue to be recognized in the EU to remain in the temporary recognition regime for overseas CCPs.

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