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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The draft Building Societies Act 1986 (Modifications) Order 2024 has been published, together with an explanatory memorandum. The Order amends Parts 7 and 8 of the Building Societies Act 1986 to assimilate the law relating to building societies and to companies concerning directors' retirement and balance sheet signature following modification of the statutory provisions in force in relation to companies. The draft Order will amend: (i) sections 60 and 61 of the Building Societies Act to remove all references to the normal retirement age or the compulsory retirement age for directors, as stated in the 1986 Act. This will update the 1986 Act in line with the Companies Act 2006, where there are no longer corresponding restrictions for company directors; and (ii) section 80(1) of the 1986 Act so that the current requirement for the balance sheet of a building society to be signed by two directors and the CEO is changed to allow one director to sign the balance sheet on behalf of the board. This amendment aims to modernize the 1986 Act, aligning the provisions with section 414(1) of the Companies Act 2006. This would reduce a small but unnecessary burden for building societies, providing building societies with the equivalent accounts sign-off procedures as to companies. The draft Order will come into force 21 days after the day on which it is made.

The Building Societies Act 1986 (Amendment of Small Business Turnover Limit) Order 2024 has been published, together with an explanatory memorandum. The Order amends section 7(10) and (11) of the Building Societies Act 1986 to increase the turnover limit in a relevant financial year for the definition of a small business in section 7(10) of the Act from £1 million to £6.5 million. It also makes a corresponding amendment to the reference to the equivalent limit in any other currency in subsection (11)(c). Under section 7(1) and (2) of the Building Societies Act, subject to some exclusions, building societies are required to raise at least 50 per cent of their funding from members' deposits; the rest can be raised from other sources, known as wholesale funding. Deposits by small businesses with a society, or any subsidiary undertaking of the society, are excluded from the wholesale funding limit by section 7(3)(aa). By amending the definition of a small business in section 7(10) of the Building Societies Act, the Order will exclude a larger range of deposits with building societies by small businesses from the funding limit, thereby providing building societies with greater flexibility in their funding sources. This amendment will also help building societies compete more effectively with ring-fenced retail banks for deposits from small businesses. The proposed new small business turnover limit of £6.5 million is already used to classify the smaller businesses whose deposits must be held within the ringfence. The Order comes into force on November 4, 2024.

The House of Commons has published a written statement by Tulip Siddiq, Economic Secretary to HM Treasury, on the status of reforms to the bank ring-fencing regime. Ms Siddiq states that the U.K. Government will implement a package of reforms as soon as parliamentary time allows. The reforms will aim to improve competition and competitiveness in the U.K. banking sector and support economic growth, while maintaining financial stability.

The reforms include:

• The introduction of a secondary threshold to exempt retail-focussed banking groups from the regime—where investment banking activity accounts for less than ten per cent of Tier 1 capital.
• New flexibilities to allow ring-fenced banks to operate globally, subject to the Prudential Regulation Authority's rules.
• Measures to encourage more investment by ring-fenced banks in U.K. SMEs.
• Measures to reduce the compliance burdens associated with the regime.
• An increase in the primary deposit threshold for ring-fenced banks, from £25bn to £35bn.

The Basel Committee on Banking Standards has published a progress report on the 2023 banking turmoil and liquidity risk. The report, requested by the G20 Brazilian Presidency, provides an update on the Basel Committee's analytical work on liquidity risk dynamics observed during the turmoil, building on the Committee's stocktake report published in October 2023. The report includes updated empirical analysis on a range of liquidity-related issues highlighted by the turmoil, including distressed banks' outflow rates, the materiality of different liquidity risk factors, and the role and use of supervisory monitoring tools. Drawing on the findings of this progress report, the Basel Committee plans to pursue a series of follow-up initiatives related to the turmoil, including: (i) prioritizing work to strengthen supervisory effectiveness and identify issues that could merit additional guidance at a global level; and (ii) pursuing additional follow-up analytical work based on empirical evidence to assess whether specific features of the Basel Framework, such as liquidity risk and interest rate risk in the banking book, performed as intended during the turmoil and assess the need to explore policy options over the medium term.

The U.K. Technology Working Group, supported by the Investment Association, published a report on the current and future usage of artificial intelligence in investment management. The U.K. Financial Conduct Authority and HM Treasury are observers on the Group and supportive of the agenda. The report outlines common use cases of AI, examines enablers and barriers for longer-term AI adoption, and makes recommendations for future AI integration in the investment management industry. Key recommendations include:

• establishing regulatory clarity and consistency to enable developers and users of AI to plan and invest with confidence. This would include closer coordination between regulators and the further development of AI standards;
• building a U.K. fintech ecosystem with strong international connections that investment management firms can leverage to gain access to innovative solutions, specialized knowledge, and valuable insights;
• joint public and private sector action on AI-enabled fraud, to combat malicious actors and fight cybercrime and misinformation; and
• managing systemic risk through collective understanding and identifying best practices in risk management. The changing profile of systemic risk in the financial sector should not be a reason to hold back from innovating.

The draft Consumer Composite Investments (Designated Activities) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations establish a proposed new legislative framework for the regulation of Consumer Composite Investments, formerly Packaged Retail and Insurance-based Investment Products. They replace the following assimilated law relating to PRIIPs: (i) the PRIIPs Regulation; (ii) the PRIIPs Regulations 2017; (iii) Commission Delegated Regulation (EU) 2017/653; and (iv) Commission Delegated Regulation (EU) 2016/1904. The Regulations take into account feedback that HM Treasury received on the original version of the draft statutory instrument, which was published for technical comments in November 2023.

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The U.K. Climate Financial Risk Forum (CFRF) has published three guides to help the financial sector develop its approach to climate-related financial risks and opportunities. The CFRF is a financial services industry forum established jointly by the U.K. Financial Conduct Authority and Prudential Regulation Authority and is comprised of senior representatives from across the financial services industry. The three guides are: (i) Nature-related Risk: Handbook for Financial Institutions - this provides an introduction for financial institutions to help frame nature as a risk, and discusses emerging practices in incorporating nature into financial risk management; (ii) Short-Term Scenarios - this discusses the use cases of short-term scenarios for banks/asset managers/insurers to provide more guidance to firms; and (iii) Mobilising Adaptation Finance to Build Resilience - this provides guidance for the industry to assess the physical risks they face and to facilitate increased levels of investment into climate adaptation to respond to those risks as an opportunity.

The Directorate-General for Financial Stability, Financial Services, and Capital Markets Union has launched a targeted consultation on the effectiveness of the EU securitization framework. Feedback gathered in preparation of the European Commission's report on the functioning of the Securitisation Regulation, and subsequent stakeholder engagement, indicates that issuance and investment barriers remain high in the securitization market, hindering the EU economy from fully reaping the benefits that securitization can offer. Originators and investors argue that issuance and investment barriers are partly driven by the conservativeness of specific aspects of the regulatory framework, such as transparency and due diligence requirements, as well as the capital and liquidity treatment of securitizations. The consultation seeks feedback on a range of issues impacting the EU securitization market, including: (i) the effectiveness of the securitization framework; (ii) the scope of application of the Securitisation Regulation; (iii) due diligence requirements; (iv) transparency requirements and the definition of public securitization; (v) supervision; (vi) the simple, transparent, and standardized standard; (vii) the securitization platform; and (viii) the prudential and liquidity treatment of securitization for banks. The deadline for comments is December 4, 2024.

The Council of the European Union has adopted the Listing Act legislative package, marking the final step in the decision-making process. The package consists of: (i) a regulation amending the Prospectus Regulation, Market Abuse Regulation, and Markets in Financial Instruments Regulation; (ii) a directive amending the revised Markets in Financial Instruments Directive and repealing the Listing Directive; and (iii) a directive on multiple vote shares. The regulation and directive amending MiFID and repealing the Listing Directive seek to streamline the rules applicable to companies going through a listing process or companies already listed on EU public markets. The aim is to simplify the process for companies, particularly SMEs, by alleviating administrative burdens and costs, while preserving a sufficient degree of transparency, investor protection, and market integrity. The multiple-vote shares directive creates a minimum harmonization at EU level that removes obstacles for the access of SMEs with multiple-vote structures to SME growth markets and any other multilateral trading facility open to trading of SME shares. The directive protects the rights of shareholders with fewer votes per share by introducing safeguards on how key decisions are taken at general meetings and also helps investors to take decisions by mandating transparency measures for companies with multiple-vote share structures.

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The U.K. Financial Conduct Authority has published a Dear CEO Letter setting out its supervisory strategy for financial advisers and investment intermediaries. The FCA's priorities over the next two years are reducing and preventing serious harm to consumers who rely on financial advice, monitoring and testing higher industry standards under the Consumer Duty, and enabling more consumers to pursue their financial objectives through the Advice Guidance Boundary Review.

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The draft Securitisation (Amendment) (No. 2) Regulations 2024 have been published, together with an explanatory memorandum. At present, U.K. investors in U.K.- or EU-origin Simple, Transparent, and Standardized securitizations can benefit from preferential prudential treatment due to a temporary arrangement. The time by which EU STS securitizations can enter the temporary arrangement will expire on December 31, 2024. This instrument extends the time by which such EU-origin STS securitizations can enter the temporary arrangement to June 30, 2026. The U.K. government is aiming to provide continuity and certainty to investors, until a non-time-limited assessment is undertaken. The explanatory memorandum explains that the three EEA-EFTA states will implement the EU Securitisation Regulation in their respective national legislation indicatively during 2025. It is preferable for the U.K. to undertake a single equivalence assessment at such a time when the EU and the three EEA-EFTA states have implemented the EU Securitisation Regulation uniformly, to reach a single assessment outcome for the EEA.

HM Treasury has published a policy statement on the treatment of overseas investment exchanges for the purposes of the U.K. Capital Requirements Regulation. HM Treasury initially proposed to expand the definition of 'recognized exchanges' in the U.K. CRR to include those in the Recognized Overseas Investment Exchange regime and those detailed in the U.K. Prudential Regulation Authority's technical standards that accompany the U.K. CRR definition. Following feedback that these proposals would be insufficient in restoring competitiveness with other jurisdictions (there are 30 exchanges in the ROIE regime compared to the EU's list of 108 exchanges), HM Treasury has amended its proposals. HM Treasury will add the link to the ROIE regime as initially proposed, but rather than refer to the PRA's technical standards, the CRR definition will refer to a set of conditions that will come to be specified in the PRA rulebook for the purpose of identifying recognized exchanges or assets traded on such exchanges. The PRA will therefore formulate new rules for the purposes of identifying recognized exchanges and intends to consult on these as soon as is practicable. Until the rules are made, qualifying exchanges will include those that are domestic U.K. investment exchanges and those in the ROIE regime, once the necessary legislation is made.

The draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations make transitional amendments to the onshored Packaged Retail and Insurance-based Investment Products Regulation and Commission Delegated Regulation (EU) 2017/565 (the MiFID Org Regulation), relating to cost disclosure requirements for U.K.-listed closed-ended funds (or "investment trusts"). The single aggregate costs figure currently being supplied to clients is not deemed to give an accurate representation of the actual cost of investment in shares in an investment trust. The draft Regulations therefore exclude investment trusts from the scope of the PRIIPs Regulation, meaning investment trusts (and anyone advising on or selling shares in them) will not be obliged to produce a Key Information Document. The draft Regulations also exclude costs of manufacturing and managing shares in a U.K.-listed investment trust from the aggregated cost disclosure requirements in the MiFID Org Regulation. The Regulations will come into force the day after the day on which they are made.

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The draft U.K. Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024 have been published, together with an explanatory memorandum. The purpose of the Regulations is to ensure that the revocation of the onshored Capital Requirements Regulation under the Financial Services and Markets Act 2023 (which is yet to take effect) will not impact the U.K.'s approach to implementation of Basel 3.1, which has been delegated to the U.K. Prudential Regulation Authority in accordance with the U.K. government's smarter regulatory framework. Regulation 2 amends the definition of "CRR rules" in the Financial Services and Markets Act 2000 to include rules made by the PRA as part of Basel 3.1 implementation to replace CRR provisions revoked under FSMA 2023. This ensures that the FSMA 2000 accountability framework will continue to apply to the PRA's new rules. Regulation 3 makes a related amendment to section 5 of the Financial Services Act 2021 to ensure that certain requirements apply to those rules. Regulation 4 expands the definition of a "recognized exchange" in the CRR so that a wider range of instruments can benefit from preferential capital treatment. It does this by allowing overseas investment exchanges to be brought into the definition. This will include those exchanges on the Recognized Overseas Investment Exchanges register, and eventually it will also include exchanges where they meet conditions set by the PRA, which will be consulted on shortly. The instrument will enter into force the day after the day on which it is made. HM Treasury has published a separate policy statement on the treatment of overseas investment exchanges under CRR.

The European Securities and Markets Authority has published its first annual report on EU carbon markets. The report delivers insights into the functioning of the EU Emissions Trading System market. Key findings highlighted by ESMA relate to:

• prices and volatility - the price of EU emission allowances declined in 2023, driven in part by lower demand for emission allowances from weak industrial activity, falling natural gas prices which led to a reduction in coal-based power generation and an increase in renewable energy, along with increased supply following the decision to auction additional allowances to finance the REPowerEU plan;
• auctions - the volume of emission allowances increased in 2023, and the primary emission allowance market remains considerably concentrated, with ten participants buying 90% of auctioned volumes in 2023, reflecting a preference by most EU ETS operators to source allowances from financial intermediaries; and
• trading and positions - the vast majority of emission allowance trading in secondary markets takes place through derivatives, reflecting the annual EU ETS compliance cycle where non-financial sector firms hold long positions (for compliance purposes) while banks and investment firms hold short positions.

The report concludes that no significant issue has been identified in the functioning of EU carbon markets. No major policy issues have been identified, although further analysis may be needed in the future as ESMA will continue to monitor carbon market developments.

The European Securities and Markets Authority has published a consultation on the review of regulatory technical standards on transaction data reporting and on order book data under the revised Markets in Financial Instruments Regulation. The proposed changes to the RTS stem from the MiFIR Review amendments. We discuss the overall MiFIR Review changes in our bulletin "MiFID II: the EU's latest adaptations". The deadline for comments is January 3, 2025. ESMA aims to publish a final report and submit the draft technical standards to the EC by the end of Q2 2025.

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HM Treasury has published a final draft version of the Payment Services (Amendment) Regulations 2024, enhancing efforts to address authorized push payment fraud. The draft Regulations amend regulation 86 of the Payment Services Regulations which require payment service providers to execute payment transactions within maximum time limits. The amendments give a payer's PSP the ability to delay the execution of certain payment orders where, within a specified time, provided the PSP establishes reasonable grounds to suspect the order has been made subsequent to fraud or dishonesty perpetrated by a third party (which may include the payee). The purpose of the delay is to enable the PSP to determine whether the order should be executed and must not exceed a specified time limit. Where the PSP exercises the ability to delay, the PSP will be liable for any charges or interest incurred by the payer resulting from the delay. The legislation is due to be laid before parliament shortly after the government's return from conference recess.

The Payment Systems Regulator has published a policy statement confirming the maximum level of Authorized Push Payment scam reimbursement. The statement follows the PSRs recent announcement confirming its decision to reduce the maximum level that payment service providers will have to reimburse victims of Faster Payments APP scams to £85,000 per claim, in line with the Financial Services Compensation Scheme limit. The statement provides an overview of the responses the PSR received to the consultation, sets out how the PSR has considered and weighed the responses and information received through the consultation in reaching its view and explains the reasons for its decision on the maximum level. The PSR explains that it will keep this level under review and consider it as part of its 12-month evaluation of the reimbursement policy. The Bank of England, as the operator of CHAPS, has also decided to set the maximum level for CHAPS APP scams to £85,000 per claim. The start date for the reimbursement policy is October 7, 2024, and the PSR reminds PSPs to continue the work already underway to prepare and ensure they are ready to implement the requirements.

The Bank of England has published the record of the Financial Policy Committee meeting on September 19, 2024. Headline judgements and policy actions from the meeting: (i) risks to U.K. financial stability are broadly unchanged since the June 2024, although significant financial market and global vulnerabilities remain; (ii) there was a significant spike in volatility across global financial markets in August. Although short-lived, the FPC notes that the extent of the moves, in response to relatively limited economic news, illustrates the potential for vulnerabilities in market-based finance to amplify shocks; (iii) the U.K. banking system remains in a strong position to support households and businesses, even if economic and financial conditions were substantially worse than expected.

The FPC decided to maintain the U.K. countercyclical capital buffer at its neutral rate of 2% and as part of its annual review of the leverage ratio Direction, the FPC confirmed that the U.K. leverage ratio framework remained appropriate. The FPC's next meeting will be on November 15, and the record will be published on November 29, 2024.

The Bank of England has published a joint press release with the Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates (Working Group) on the end of LIBOR. On September 30, 2024, the remaining synthetic LIBOR settings were published for the last time. All 35 LIBOR settings have now permanently ceased and the Working Group has been wound down effective on October 1, 2024. Moving forward, market participants are encouraged to continue to ensure they use the most robust rates for the relevant currency, such as SONIA for GBP and SOFR for USD. Market participants should ensure their use of term risk-free reference rates, such as term SONIA and term SOFR, are limited and comply with the best practice guidance. Market participants are reminded that credit sensitive rates should not emerge as successor rates, because they are not robust or suitable for widespread use as a benchmark. In particular, USD credit sensitive rates have the potential to reintroduce many of the financial stability risks associated with LIBOR.

The United Nations Environment Programme Finance Initiative has published a 2024 progress report produced by the Net-Zero Banking Alliance. Launched in 2021, the NZBA is a bank-led alliance of 144 banks globally voluntarily committed to aligning their financing activities with routes to net zero emissions by 2050. The progress report summarizes information received from 122 member banks and offers insights into members' progress on target setting and transition planning. Overall, the report shows that most NZBA banks are taking significant steps towards meeting their climate goals. In the report, the NBZA identifies areas where more work is required, such as setting decarbonization targets for banks, which remains a challenging exercise due to the quality of client greenhouse gas emissions data, unclear decarbonization pathways, and a lack of a supportive policy environment. Insights gained from the progress will inform the steps NZBA will take to support emerging market banks that need more time to meet milestones. Following the vote earlier this year by member banks to reinforce and update the NZBA target setting guidelines, NZBA banks with significant capital markets activities are due to update their targets to include related emissions by November 2025.

The Bank of England and Financial Conduct Authority have published a joint policy statement providing feedback to responses received to the Digital Securities Sandbox joint consultation (CP24/5). We discussed the proposals in April in "UK Regulators Consult on Digital Securities Sandbox". The policy statement covers the following topics: (a) the approach to regulating DSS firms; (b) the scope of the DSS; (c) settlement of the payment leg; (d) operation of the DSS; (e) Gate 2 and end-state rules; (f) supervision of the DSS; and (g) other general issues relating to the DSS. Overall respondents welcomed the regulators proposals, with no respondents explicitly disagreeing with the creation of the DSS.

In response to feedback, the BoE and FCA have made some changes to their proposed approach and guidance, such as: (i) extending the scope of the DSS to include non-GDP (non-pound sterling) denominated assets; (ii) a more flexible approach to firm-specific limits at Gate 2, moving from fixed 'go-live' limits to a flexible range; and (iii) reducing the minimum capital requirement for a DSD from nine to six months of operating expenses.

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The Single Resolution Board has published a communication on the changes to its minimum requirements for own funds and eligible liabilities policy to be implemented in line with the "Daisy Chains Directive" (Directive (EU) 2024/1174). That Directive amended the Single Resolution Mechanism Regulation and the Bank Recovery and Resolution Directive. The changes brought in by the Daisy Chains Directive mean that from November 14, 2024, the SRB will not determine the MREL for liquidation entities unless it considers it justifiable to set an amount exceeding the amount sufficient to absorb losses. In addition, provisions of the Capital Requirements Regulation under which resolution authorities may allow, subject to certain conditions being met, institutions to reduce eligible liabilities instruments, will not apply to liquidation entities for which the SRB has not determined MREL. As a result, reporting and disclosure obligations do not apply to the liquidation entities for which the SRB does not determine MREL.

The SRB confirms that the previously adopted decisions setting MREL at the level equal to the loss absorption amount will be repealed with effect as of November 14, 2024. Furthermore, the prior permissions granted to the same liquidation entities under CRR and the related process set out in Delegated Regulation (EU) 241/20146 with validity beyond November 14, 2024 are repealed as of the same date. This means that relevant liquidation entities will no longer be limited by the prior permissions and will be in the position to reduce eligible liabilities instruments without the SRB's prior permission.

The Joint Money Laundering Steering Group has published the amended version to Part II Sector 18 (wholesale markets) of its AML/CTF guidance for the financial services sector. Changes to the guidance include: (i) a new section relating to customer due diligence on authorized personnel acting on behalf of the customer. It includes a clarification that the identities of internal personnel who are authorized to sign contractual documents may be collected by a firm for AML/CTF purposes on a risk-based approach; and (ii) a new section on wholesale subscription finance in private capital funds. The revisions have been submitted to HM Treasury for Ministerial approval.

The European Securities and Markets Authority has announced the next steps for the selection of Consolidated Tape Providers for bonds, shares and ETFs. ESMA will launch the selection procedure for the CTP for bonds on Friday January 3, 2025, intending to adopt a reasoned decision on the selected applicant within six months of the launch, i.e. by early July 2025. In June 2025, ESMA will launch the selection procedure for the CTP for shares and ETFs with the objective to adopt a reasoned decision on the selected applicant by the end of 2025.

ESMA explains that each selection procedure will be launched with the publication of a contract notice and procurement documents on the EU Funding & Tenders Portal. Prospective applicants are invited to register and familiarize themselves with the Portal. In the coming weeks, ESMA intends to share additional guidance on the assessment of exclusion criteria. ESMA will be available to answer questions throughout the application periods, ESMA also confirms that applicants will be granted as much time as possible, within the boundaries of EU procurement rules, to provide details on their projects. ESMA states that it will publish in December the feedback statement to its proposed technical standards on CTPs and the assessment criteria for the CTP selection procedure. We discussed ESMA's draft technical standards in "European Securities and Markets Authority Proposes Draft Technical Standards for Consolidated Tape Providers".

The Financial Conduct Authority has updated its statement on forbearance in relation to investment trust disclosure requirements under the U.K.'s current Packaged Retail and Insurance-Based Investment Products Regulation. The Government announced earlier in September its intention to exempt listed investment trusts from the PRIIPs Regulation along with a statement on reforms to the U.K. retail disclosure regime through the introduction of Consumer Composite Investments regime. At the same time, the FCA announced it would immediately apply forbearance until the legislation takes effect. We discussed the earlier announcements by HM Treasury and the FCA in "UK Announces Final Reforms to Financial Services Retail Disclosure Requirements".

The updated forbearance statement provides great clarity on the implication of the forbearance as regards compliance by firms with other rules and regulations, including the Consumer Duty and communicating to consumers. The FCA confirms that the forbearance applies along the distribution chain to any firm carrying on business relating to the relevant investment trusts, including manufacturing, distribution or marketing. The FCA states that firms across the distribution chain will need to consider what approach will deliver good outcomes for their retail clients, including the product information needed to support retail investors.

The FCA expects firms in the distribution chain for securities issued by investment trusts to work together to determine and share the required information to enable the continued distribution of these products, in compliance with their more general obligations towards retail investors, in particular under the Consumer Duty.

The U.K. Accelerated Settlement Taskforce Technical Group has published a draft recommendation report and consultation. The Taskforce was established to examine the case for the securities settlement cycle to be shortened from its current standard of Trade Date plus 2 days, or 'T+2', to Trade Date plus 1 day or 'T+1'. The Taskforce's initial recommendation was that the U.K. should move to T+1 by the end of 2027, which was accepted by the previous government who asked the newly established Technical Group to make recommendations by the end of 2024 on implementing the move. We discuss that recommendation in "UK To Move to T+1 Settlement by Latest End 2027".

The Technical Group's draft report sets out a number of draft recommendations. The main recommendation, referred to as recommendation zero, looks at the scope of instruments that will be covered by the implementation of T+1. There are two scenarios: (a) the U.K. migrates ahead of the EU/Switzerland. In this scenario, some instruments such as ETPs and Eurobonds will be exempted pending a subsequent transition to T+1 of the EU and/or Switzerland; or (b) the U.K., EU and Switzerland migrate to T+1 together, in which case it would be a straight transfer of all instruments currently covered today Central Securities Depositories Regulation.

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The Financial Conduct Authority has published a new webpage on the repeal and replacement of assimilated law. The new webpage predominantly reproduces the FCA webpage on the replacement of retained EU law originally published in July 2023. The timings for the FCA's work on the following files has been updated:

Consumer Composite Investments
The FCA plans to publish a consultation paper in H2 and a policy statement in H1 2025.

Long Term Investment Funds
The FCA will review responses to its consultation on removing references to LTIF from the Handbook, aiming to implement any changes in Q4.

MiFID II Directive, U.K. MiFIR and Wholesale Market Review reforms
The FCA aims to start a tender process later in 2024 to appoint a single consolidated tape provider for bonds and will update on an equities tape before the end of the year. The FCA will also publish a policy statement on commodity derivatives and a discussion paper on transaction reporting in Q4, followed by a consultation paper in H1 2025. The FCA also plans to publish a consultation paper on the MiFID Organisation Regulation in Q4.

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