The Financial Conduct Authority has published guidance on the challenges and expectations for principal firms with overseas appointed representatives. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA updated its AR rules and expectations at the end of 2022, which included introducing a requirement for principal firms to report additional information about the business conducted by their ARs and amending its rules and guidance on its expectations of principals and their responsibilities, such as the expectation that principals manage their arrangements with ARs so that there are no conflicts of interest and enhance their monitoring of a delegated task or function, and to specify that the principals' activities should not result in undue risk of harm to consumers or market integrity. The new rules also require principals annually to assess the fitness and propriety and competency and capability of individuals at ARs.

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The U.K. Financial Policy Committee has published the financial policy summary and record of the FPC meeting on June 11, 2024, as well as its June financial stability report. The FPC considers the overall risk environment to be broadly unchanged from Q1. Markets continue to price mostly for a benign central case outlook, and some risk premia have tightened even further, despite the global risk environment facing several challenges. Some of these challenges have become more concerning and proximate.

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The European Banking Authority has published an updated report on the monitoring of Additional Tier 1, Tier 2 and total loss absorbing capacity as well as the minimum requirement for own funds and eligible liabilities instruments of EU institutions. The update provides new guidance on the prudential valuation of non-CET1 instruments and on other aspects related to the terms and conditions of the issuances. The report builds upon the 2023 update with substantial amendments made.

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The European Banking Authority has published a press release welcoming the entry into force of the new EU framework establishing the Anti-Money Laundering and Countering the Financing of Terrorism Authority. The EBA also published a factsheet on how it is preparing for AMLA. Going forward, the EBA will retain its AML/CFT powers and mandates until December 2025 to minimize disruption and provide continuity, and it will also be working closely with AMLA. In particular, after transferring the powers that are specific to AML/CFT to AMLA, the EBA will remain responsible for addressing ML/TF risk across its prudential remit. The EBA will also be providing the European Commission with technical advice on important aspects of the future EU AML/CFT framework to ensure that AMLA can begin to operate efficiently and effectively as of its establishment. The EBA plans to provide this advice in October 2025. In the press release the EBA sets out its AML and CTF priorities for 2024/25, which include: (i) a methodology for selecting financial institutions for direct EU-level AML/CFT supervision; (ii) a common risk assessment methodology; (iii) information necessary to carry out customer due diligence; and (iv) criteria to determine the seriousness of a breach of AML/CFT provisions.

The following three regulatory technical standards supplementing the Digital Operational Resilience Act have been published in the Official Journal of the European Union:

• RTS on the criteria for the classification of ICT-related incidents and cyber threats, setting out materiality thresholds and specifying the details of reports of major incidents (Delegated Regulation 2024/1772).
• RTS specifying the detailed content of the policy regarding contractual arrangements on the use of ICT services supporting critical or important functions provided by ICT third-party service providers (Delegated Regulation 2024/1773).
• RTS specifying ICT risk management tools, methods, processes and policies and the simplified ICT risk management framework (Delegated Regulation 2024/1774).

The Delegated Regulations will enter into force on July 15, 2024, the twentieth day following their publication in the Official Journal.

The European Banking Authority has finalized its draft implementing technical standards on public disclosures by institutions that implement the changes in the Pillar 3 disclosure framework introduced by the third Capital Requirements Regulation, which stem from the latest Basel III reforms. The ITS implement the CRR III prudential disclosure requirements by including new requirements on output floor, credit risk, market risk, credit valuation adjustment risk, operational risk, and a transitional disclosure on exposures to crypto-assets. In addition, they aim to provide institutions with a comprehensive, integrated set of uniform disclosure formats. The ITS repeal the Commission Implementing Regulation (EU) 2021/637 on public disclosures, with a view to enabling the EBA to comply with its mandate to develop IT solutions, making the technical standards more user-friendly for institutions. Later in 2024, the EBA will complement these ITS with the CRR III disclosure requirements that are not directly linked to Basel III implementation, in particular the extension of the disclosure requirements on environmental, social and governance risks to all institutions in accordance with the proportionality principle, and new disclosure requirements on shadow banking.

The European Banking Authority has finalized its draft regulatory technical standards on the conditions for assessing the materiality of model extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the EU Capital Requirements Regulation. The final draft RTS differentiate between material extensions and changes under the internal models approach, to be approved by national regulators, and non-material extensions and changes, to be notified to national regulators four weeks in advance. This last category is further divided into two subcategories: extensions and changes notified with additional information, and extensions and changes with basic information. For the categorization of extensions and changes to the relevant categories and subcategories, the final draft RTS set out a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA own funds requirements and on the relevant components of the Fundamental Review of the Trading Book IMA, before and after the planned extension or change. The final draft RTS also include guiding principles that institutions should follow in the categorization process, provisions on the implementation of extensions and changes, and documentation requirements. With the submission of these final draft RTS to the Commission for endorsement, the EBA completes its roadmap on market and counterparty credit risk approaches published on June 27, 2019.

The Financial Conduct Authority has published a research note setting out the outcomes of an experiment to investigate the effect of digital engagement practices on trading behavior. The FCA tested an experimental trading app platform with over 9,000 consumers and found that DEPs, such as push notifications and prize draws, can increase trading frequency and risk taking. These features are able to attract consumer attention while conveying no additional information which could improve trading. The FCA has previously warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty's implementation. In its press release, the FCA has confirmed that with the usage and popularity of trading apps growing, it will be keeping them under review to ensure customers can make investment decisions that suit their needs.

The Council of the European Union agreed its negotiating mandate on the proposed Regulation amending the European Systemic Risk Board (ESRB) Regulation (1092/2010), EBA Regulation (1093/2010), EIOPA Regulation (1094/2010), ESMA Regulation (1095/2010), and InvestEU Regulation ((EU) 2021/523) regarding certain reporting requirements in the fields of financial services and investment support. The proposal updates existing rules on data sharing between the European Supervisory Authorities and other financial sector authorities with the aim of reducing the administrative burden for authorities in the financial sector. Changes to the European Commission proposal highlighted by the Council of the European Union include: (i) clarification that responsibility for the exchange of information should lie with the ESAs and the ESRB, which should share the information received from the national regulators with other ESAs and EU and national authorities and that it should concern only data stemming from reporting requirements under EU, not national, law; and (ii) removing the newly created AML/CTF Authority from the scope of the authorities that are allowed to issue a request for data sharing at this stage, with a reassessment of its inclusion within two years. As the European Parliament adopted its negotiating mandate on March 12, 2024, interinstitutional negotiations may now begin.

The Council of the European Union has agreed on a negotiating mandate on the review of the crisis management and deposit insurance framework for banks. The proposals consist of three pieces of legislation, the proposed texts of which the Council has also published: (i) a proposed Directive amending the EU Bank Recovery and Resolution Directive regarding early intervention measures, conditions for resolution, and financing of resolution action; (ii) a proposed Regulation amending the Single Resolution Mechanism Regulation regarding early intervention measures, conditions for resolution, and funding of resolution action; and (iii) a proposed Directive amending the EU Deposit Guarantee Scheme Directive as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency. In its announcement, the Council highlights its proposals, including in relation to the public interest assessment, using the DGS funds to "bridge the gap" after the minimum requirement for own funds and eligible liabilities, allowing them to subsequently unlock an intervention of the Single Resolution Fund, the hierarchy of claims, preventative and alternative measures, extraordinary public financial support, and SRB governance. As the European Parliament adopted its position in first reading on April 24, 2024, interinstitutional negotiations may now begin.

Directive (EU) 2024/1654 has been published in the Official Journal of the European Union, amending Directive (EU) 2019/1153 regarding access by national regulators to centralized bank account registries through the interconnection system and technical measures to facilitate the use of transaction records. The amending Directive aims to ensure more effective investigations into illicit finance by making it easier to retrieve data across borders from centralized bank registries. It mandates EU Member States to ensure that the information from centralized registries is available through an access point to be developed and operated by the European Commission. The Directive enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with the Directive by July 10, 2027, with the exception of Article 1(4) and (5), which relates to the bank account registers interconnection system, in respect of which member states are required to bring into force the necessary measures by July 10, 2029.

A package of anti-money laundering legislation has been published in the Official Journal of the European Union, which includes:

• the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Regulation (EU) 2024/1624) (AML Regulation), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. It will apply from July 10, 2027, except in relation to football agents and certain transactions conducted by professional football clubs, to which it will apply from July 10, 2029;
• the Regulation establishing the Anti-Money Laundering Authority (Regulation (EU) 2024/1620) (AMLA Regulation), which enters into force on June 26, 2024, seven days after publication in the Official Journal of the European Union. It will apply from July 1, 2025, with the exception of Articles 1, 4, 49, 53 to 55, 57 to 66, 68 to 71, 100, 101, and 107, which will apply from June 26, 2024, and Article 103, which will apply from December 31, 2025.; and
• the Sixth Money Laundering Directive (MLD6) (Directive (EU) 2024/1640), which enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to bring into force the laws, regulations, and administrative provisions necessary to comply with MLD6 by July 10, 2027, with the exception of Article 74, for which the transposition deadline is July 10, 2025; Articles 11 to 13 and 15, for which the transposition deadline is July 10, 2026; and Article 18, for which the transposition deadline is July 10, 2029. MLD4 will be repealed with effect from July 10, 2027.

The EU has published the final legislation implementing revisions to the EU Capital Requirements Regulation and Capital Requirements Directive (commonly referred to as the EU banking package) in the Official Journal of the European Union, namely:

• a Regulation amending the EU Capital Requirements Regulation regarding requirements for credit risk, credit valuation adjustment risk, operational risk, market risk, and the output floor ((EU) 2024/1623) (CRR III). The Regulation enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. CRR III will apply from January 1, 2025, with the exception of certain specified points of Article 1, which will apply from July 9, 2024; and
• a Directive amending the EU Capital Requirements Directive regarding supervisory powers, sanctions, third-country branches, and environmental, social and governance risks ((EU) 2024/1619) (CRD VI). The Directive enters into force on July 9, 2024, 20 days after publication in the Official Journal of the European Union. Member states are required to adopt and publish the laws, regulations, and administrative provisions necessary to comply with CRD VI by January 10, 2026, and to apply those measures from January 11, 2026, with the exception of Article 1(9) and (13), which shall apply from January 11, 2027. A further exception provides for measures necessary to comply with the amendments set out in Article 1(13) regarding Article 48k and 48l of CRD, which shall apply from January 11, 2026, and Article 1(9) regarding Article 21c(5) of CRD, which shall apply from July 11, 2026.

The Network for Greening the Financial System has updated its guide on climate-related disclosure for central banks. The guide calls on central banks to disclose their climate-related risks and opportunities. The updated guide is organized around the four thematic areas identified by the Task Force on Climate-Related Financial Disclosures—governance, strategy, risk management, and metrics and targets. It builds on and aims to complement the original TCFD recommendations, providing additional guidance for central banks. The updates include: (i) a new chapter on metrics and targets benefits from the NGFS' work on sustainable and responsible investment; (ii) additional support on the disclosure of internal operations, building on work conducted by the NGFS subgroup on greening central banks' corporate operations; and (iii) new sections on the disclosure on institutional functions, i.e. monetary policy, supervision, financial stability. Looking ahead, the NGFS will build upon the guide to further strengthen its role as a forum for central banks to share their practical experiences and support one another in enhancing their climate-related measures.

Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, made a speech discussing the importance of continuing to make progress on the Banking Union and CMU. Topics on the Commission's agenda to continue development include analyzing the EU securitization market. The European Commission will launch a public consultation in the autumn on how to make the market more attractive to issuers and investors. Ms. McGuinness also announces a delay to the date of application of the Basel Comittee on Banking Supervision's Fundamental Review of the Trading Book market risk reforms by one year, until January 1, 2026. Ms. McGuinness explains that it is now clear there will be a delay in the U.S. in implementing the reforms and therefore a delay in the EU is necessary to ensure a global level playing field. The delay will be adopted by way of a delegated act, which will take a minimum of three months.

Commission Delegated Regulation (EU) 2024/1728 has been published in the Official Journal of the European Union, supplementing the EU Capital Requirements Regulation with regard to regulatory technical standards specifying in which circumstances the conditions for identifying groups of connected clients are met. The definition of a group of connected clients in the CRR makes it possible to identify two or more natural or legal persons who are so closely linked by idiosyncratic risk factors that it is prudent to treat them as a single risk. Consequently, the purpose of the RTS is to set out clear circumstances where interconnections between clients by means of a control relationship and/or an economic dependency relationship lead to a single risk and thus a requirement to group those clients. The Delegated Regulation enters into force on July 8, 20 days after publication in the Official Journal of the European Union.

The Bank of England's Securities Lending Committee has published its Settlement Efficiency Report. The findings have been collated by a Working Group since H2 2023. The aim was to highlight the issues around settlement efficiency in the U.K., building on the work conducted by the International Securities Lending Association. The report confirms that the persistent level of settlement failure within the U.K. securities lending market would be significantly reduced with: (i) enhanced static data management; (ii) real-time communication of position-impacting data between parties; (iii) consistent trade and lifecycle event instruction discipline; (iv) increased investment in pre- and post-trade automation; and (v) a market-wide adoption of industry best practices. It lists a series of recommendations on ways to alleviate the current level of settlement fails. The Committee considers that the report can be useful to all market participants, given it relates to achieving a robust settlement rate alongside a more transparent, real-time framework to address failing and failed securities transactions.

The European Commission has published a consultation on the use of artificial intelligence in the financial sector. The consultation aims to aid the Commission in developing guidance for the financial sector across all market areas in preparation for the expected adoption of the AI Act in July 2024. The survey covers three aspects: (i) general questions on the development of AI, (ii) specific use cases in finance, and (iii) the AI Act in relation to the financial sector, focusing on the industry's needs in order to implement the upcoming AI framework. The Commission has specifically requested input from those financial services companies that are actively providing or developing AI technology. The deadline for comments is September 13, 2024. Alongside the consultation, the European Supervisory Authorities will run a series of workshops providing a platform for stakeholders to exchange knowledge about the latest industry developments and present their progress on ongoing projects. The workshops will take place during the Autumn with registration closing on July 26, 2024. If sufficient progress is made, the Commission intends to publish a report on the findings and analysis of main trends and issues arising with the use of AI applications in financial services.

Commission Delegated Regulation (EU) 2024/1700 has been published in the Official Journal of the European Union, supplementing the EU Securitization Regulation with regard to RTS specifying, for simple, transparent, and standardized non-asset backed commercial papers traditional securitization, and for STS on-balance-sheet securitization, the content, methodologies, and presentation of information related to the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors, was published in the Official Journal of the European Union. The Capital Markets Recovery Package amended the Securitization Regulation to provide originators of STS securitizations with the option to disclose available information related to the principal adverse impacts on sustainability factors of the assets financed by residential loans, auto loans, or leases. The Delegated Regulation aims to standardize the type and presentation of information an originator may opt to disclose about the adverse impacts of assets financed by underlying exposures, on the environment, and other sustainability factors. The Delegated Regulation also seeks to ensure as much consistency as possible with the European Supervisory Authorities' work in respect of sustainability-related disclosures in financial services under the EU Sustainable Finance Disclosure Regulation. The Delegated Regulation will enter into force on July 9, 2024, 20 days following its publication in the Official Journal of the European Union.

The European Supervisory Authorities have published a joint opinion assessing the EU Sustainable Finance Disclosure Regulation. The opinion proposes simplification of product categories under the existing regulation, following confusion among retail investors about SFDR templates and the labelling of products as "Article 8" or "Article 9" as a method of quality assurance, leading to greenwashing risks. It is argued that disclosures should be jargon free, empowering investors to understand the underlying sustainability profile of financial products. The ESAs recommend the introduction of a product classification system based on regulatory categories or sustainability indicators. The ESAs suggest two product categories, "sustainable" and "transition". The need for an unambiguous definition of "sustainability" that differentiates between "environmentally" and "socially" sustainable categories is noted. The ESAs strongly recommend the European Commission ensures that sustainability disclosures cater to different investor needs and that the Commission implement a sustainability indicator that grades financial products, indicating whether it is environmentally sustainable, socially sustainable, or both.

The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the delegation of power to adopt delegated acts conferred on the Commission under the EU Market Abuse Regulation. Under Article 35(2), the power to adopt delegated acts is conferred on the Commission for an initial period of five years, ending on December 31, 2024. In the report, the Commission explains why it considers that there is a clear need for the extension of this empowerment for a further period of five years. This is due to there being delegated acts that have not yet been adopted by the Commission—those under Articles 6(6) (extending the exemption from MAR to certain third-country designated public bodies that have entered into an agreement under the EU Emissions Trading Scheme Directive) and 38 (adjusting certain thresholds relating to reporting thresholds) of MAR. The Commission provides reasons as to why these have not yet been adopted and refers to the Listing Act legislative proposal for a Regulation containing amendments to MAR, in which co-legislators have agreed to renew the delegation of powers for a period of five years.

Commission Delegated Regulation (EU) 2024/1085 has been published in the Official Journal of the European Union, supplementing the EU Capital RequirementsRegulation with regard to regulatory technical standards on the assessment methodology under which national regulators verify an institution's compliance with the requirements to use internal models for market risk. The RTS identify all elements that are to be assessed by the national regulator when granting the approval to use an internal model approach to compute the own funds requirements for market risk. They are constituted by three main chapters: (i) assessment of qualitative requirements; (ii) assessment of the internal risk-measurement model used to compute the expected shortfall measure and the stress scenario risk measure; and (iii) assessment of the internal default risk model used to compute the additional own funds requirement for default risk. The Delegated Regulation enters into force on July 7, 2024, 20 days after publication in the Official Journal of the European Union, with the exception of Article 18(1)(a), regarding the environmental risk, Article 18(1)(c)(vii) and Article 18(2)(b)(v), which will apply from January 1, 2025; and Article 21(1)(b), which will apply from January 1, 2026.

The UK Payment Systems Regulator has updated its list of payment service providers that participate in the Faster Payments Scheme, and therefore may fall in scope of Specific Direction 20 and the mandatory authorised push payment fraud reimbursement requirement. The PSR does not guarantee that this is a complete list. Indirect access providers are required to provide monthly updates to the PSR on any changes to the PSPs to which they provide access to FPS.

The Council of the European Union has announced that it has agreed its negotiating position on the retail investment package and published the relevant texts. The package consists of an amending Directive, known as the Omnibus Directive, which revises existing rules set out in the Markets in Financial Instruments II package, the Insurance Distribution Directive, the Undertakings for the Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and Solvency II, as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products Regulation.

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The Financial Ombudsman Service has announced that its proactive settlement scheme will continue. The FOS explains that over the last couple of years, it has trialed a new way to help financial businesses and their customers to resolve complaints more quickly. By using "proactive settlement," financial businesses can make an offer to resolve a complaint before the FOS carries out a full investigation. Following the trial and reviewing feedback from participants, the FOS identified a few ways to improve the process.

From June 24, 2024, the FOS will introduce the following changes:

• For the proactive settlement process to apply, firms must make an offer within 14 days from when the case moves to investigation.
• When the FOS receives an offer, it will assess whether it meets the scheme criteria. If not, the FOS will let the business know why and that it will be investigating the case in the normal way.
• When the FOS communicates the offer to the customer, it will offer them guidance to help them decide whether to accept it.

The FOS has also changed how it works internally to embed the process permanently and ensure it can continue to send offers on to customers promptly. The FOS also updated its webpage on how it handles complaints and its guide on the proactive settlement scheme criteria.

The European Commission has published consultation for a draft Delegated Regulation supplementing the Markets in Financial Instruments Regulation as regards OTC derivatives identifying reference data to be used for the purposes of the transparency requirements laid down in Article 8a(2) and Articles 10 and 21 of MiFIR. Following the MiFIR Review, MiFIR now clarifies that the pre- and post-transparency requirements for non-equity instruments applies to both exchange-traded and OTC derivatives. The post-trade disclosure obligation for investment firms was also amended and that obligation no longer applies to derivatives "traded on a trading venue," but it does apply to OTC derivatives traded by an investment firm either on its own account or on behalf of clients. The transaction reporting obligation applies to both types of derivatives.

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The European Commission has published a report addressed to the European Parliament and Council of the European Union on the delegation of power to adopt delegated acts conferred on the Commission pursuant to the Benchmark Regulation. Under Article 49(1) of the BMR the Commission was empowered to adopt delegated acts for five years, which could be extended for a further five-year period unless the European Parliament and Council of the European Union oppose it no later than three months before the end of each period. Initially, the five-year period ran from June 30, 2016, until June 30, 2021. Regulation (EU) 2019/2089 amended Article 49(2) of the BMR extending the empowerment to December 10, 2024, and imposed a requirement on the Commission to prepare a report on the delegation of power. The report aims to fulfill that requirement. 

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The Financial Conduct Authority has published a new webpage on Mortgage Charter Uptake data. The webpage sets out the latest uptake data from firms who have signed the Government's Mortgage Charter. The Charter was introduced in June 2023 and contains commitments, over and above FCA requirements, made by mortgage lenders. There are 49 signatories, representing around 90% of the mortgage market. Key findings from the data include: (i) data suggesting that a minimum of around 1.1 million mortgages benefited from one or more of the options set out in the Charter, whether explicitly or through a business-as-usual channel; (ii) around 113,000 mortgages have temporarily reduced monthly payments via the new FCA rules; (iii) between July 2023 and April 2024, the monthly payments on around 159,000 mortgages were reduced as people switched to temporarily paying interest-only or extended their mortgage term; and (iv) 91 properties were repossessed within 12 months of missing the first payment; however, firms reported that these were for customer-driven reasons, for example, voluntary possessions or abandoned/vacant properties.

While it continues to ask firms to report on Charter uptake, the FCA plans to continue publishing the data quarterly. The FCA will continue to closely monitor the mortgage market, including through market and consumer level data and firm engagement, using the data on the uptake of the Charter to understand how it has been used and inform its policy and supervisory approach.

Commission Implementing Regulation 2024/1618 amending Implementing Regulation (EU) 2021/763, laying down implementing technical standards on supervisory reporting and public disclosure of MREL and TLAC, has been published in the Official Journal of the European Union. The amending ITS were created in response to changes to the EU Capital Requirements Regulation as well as to clarify requirements in response to the Single Rulebook Q&A process. In particular, the amending ITS adjust the templates and reporting instructions to reflect: (i) the requirement to deduct investments in eligible liabilities instruments of entities belonging to the same resolution group ("daisy chain" framework); (ii) the prior permission regime for buying back eligible liabilities instruments issued by the reporting entities and groups; and (iii) other minor updates to the ITS and the accompanying technical package to address some identified issues. The amending ITS will enter into force on June 27, 2024, and will apply from December 27, 2024.

The European Banking Authority has opened a consultation on a package of draft regulatory technical standards that aim to standardize the collection and the record of operational risk losses and to provide clarity on the exemptions for the calculation of the annual operational risk loss and on the adjustments to the loss data set that banks must perform in case of merged or acquired entities or activities. The package consists of:

• Draft RTS on establishing a risk taxonomy on operational risk, which provide a list of operational risk event types, categories, and attributes that institutions must use when recording operational risk loss events in line with the current framework and the international standards.
• Draft RTS on the conditions under which it would be unduly burdensome for an institution to calculate the annual operational risk loss. In such cases, the draft RTS allow for a temporary waiver from the requirement to calculate the annual operational risk loss.
• Draft RTS on the adjustments to an institution's loss data set following the inclusion of losses from merged or acquired entities or activities, which provide indications on the currency and the risk taxonomy to be used when incorporating the loss data set of merged entities or activities.

The deadline for comments is September 6, 2024. The EBA intends to finalize the draft RTS by the end of 2024.

The Prudential Regulation Authority has published a modification by consent of Rule 4.1 of the Resolution Assessment Part of the PRA Rulebook. The PRA explains that, as with previous general elections, it will be following the Cabinet Office's election guidance, which includes limiting communications activities until after the election. In line with this approach, the Bank of England and PRA have chosen to delay publication of the second Resolvability Assessment Framework assessment of the major U.K. banks to early August. The publication of the BoE's assessment was due by June 14, 2024, alongside firms' own public disclosures (as required by Rule 4.1 of the Resolution Assessment Part of the PRA Rulebook). As such, the PRA is offering a modification by consent to delay the deadline for firms to publish their RAF disclosures from the second Friday in June, to the second Friday in August at the latest. Each firm that wishes to take advantage of this modification should consider the terms of the direction.

The International Organization of Securities Commissions has published its final report on market outages. The report examines key findings from recent market outages on listing trading venues in IOSCO jurisdictions and builds on past IOSCO work on operational resilience and business continuity planning to identify good practices for listing trading venues that may enhance market-wide resilience in the event of a market outage.

The good practices include: (a) establishing and publishing an outage plan; (b) implementing a communication plan, which provides, through an appropriate communication channel, initial notice (as soon as practicable) of the outage to market participants and the general public and, thereafter, regular updates to all market participants on the status of the outage and the recovery pathway; (c) communicating information relevant to the reopening of trading in a timely and simultaneous manner to all market participants, providing clarity on the status of orders and ensuring an adequate period of notice before the resumption of trading; (d) ensuring the processes and procedures that trading venues will follow to operate a closing auction and/or to establish alternative closing prices are published in the outage plan and communicated to all market participants during an outage; and (e) conducting and sharing with the relevant regulators a lessons-learnt exercise of the market outage and adopt a post-outage plan, with clearly defined timelines and allocation of responsibilities for remediation, designed to reduce the likelihood of future incidents and to improve the ability of the trading venue to effectively respond to outages.

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The European Supervisory Authorities have published their final reports on greenwashing in the financial sector. Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that national competent authorities are already taking steps in the area of supervision of sustainability-related claims. The quantitative analysis of greenwashing in the EU shows a clear increase in the total number of potential cases across all sectors.

Each report provides recommendations for market participants, NCAs, the ESAs and the EC in relation to greenwashing. The recommendations include that market participants: (i) take all necessary steps to ensure that sustainability information provided is fair, clear, and not misleading; (ii) review and adapt their governance arrangements and internal processes to build safeguards against greenwashing, take a proactive approach in addressing data challenges, and consider the extent to which external verification and alignment with market guidance would support credibility of green or sustainable products and/or targets; and (iii) take a series of measures at both the entity level and the product level to ensure that sustainability claims are accurate, substantiated, up to date, that they fairly represent the institution’s overall profile or the profile of the product, and are presented in an understandable manner.

While the ESAs’ reports focus on the EU’s financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures. Building on the preliminary regulatory remediation actions identified in ESMA’s June 2023 progress report, ESMA will publish an opinion with views on how the EU regulatory framework for sustainable finance could further facilitate the investor’s journey.

The European Banking Authority and European Securities and Markets Authority have published a joint discussion paper on the potential review of the investment firms' prudential framework. The discussion paper aims at gathering early stakeholder feedback to inform the response to the European Commission's call for advice.

The EBA notes that it is of the overall opinion that the current framework reaches the original general objectives, providing a robust and risk-sensitive prudential framework tailored to the size, activities and complexity of investment firms regulated under the Markets in Financial Instruments package. Nonetheless, it notes that market participants and supervisors highlighted a number of issues or areas of potential improvements of the prudential framework that may lead to changes to either the Investment Firm Regulation and Investment Firm Directive or to the related delegated regulations.

Among other things, the discussion paper considers: (i) the implications of the adoption of the new EU Banking package (known as CRD VI and CRR III) concerning the trading book, the fundamental review of the trading book and credit valuation adjustments; (ii) prudential consolidation and a possible extension to crowdfunding and crypto-asset service providers; (iii) aspects related to compensation, including the scope of application, compensation policies, the requirements on variable remuneration, and their oversight, disclosure, and transparency; (iv) the treatment of firms currently non-prudentially regulated and active in commodity markets; (v) the categorization of investment firms; and (vi) reviewing the existing K‐factors to cover risks currently only addressed under the Pillar 2 framework or as possible alternatives to existing K-factors.

The deadline for comments is September 3, 2024. The EBA and ESMA plan to publish a final report by December 2024.

The European Central Bank has opened a consultation on a draft guide on outsourcing cloud services to cloud service providers. The guide aims to clarify both the ECB's understanding of related legal requirements, including those under the EU's Digital Operational Resilience Act and the Capital Requirement Directive, and its expectations for the banks it supervises. The guide sets out detailed supervisory expectations, drawing on risks and best practices observed in the context of ongoing supervision and dedicated on-site inspections. It covers topics including: (i) the governance of cloud services; (ii) the availability and resilience of cloud services; (iii) ICT security, data confidentiality and integrity; (iv) exit strategy and termination rights; and (v) oversight monitoring and internal audits. The deadline for comments is July 15, 2024.

The following Delegated Regulations supplementing Digital Operational Resilience Act have been published in the Official Journal of the European Union:

• Delegated Regulation (EU) 2024/1502 on the criteria for the designation of ICT third-party service providers as critical for financial entities.
• Delegated Regulation (EU) 2024/1505 determining the amount of the oversight fees to be charged by the Lead Overseer to critical ICT third-party service providers and the way in which those fees are to be paid.

Both Delegated Regulations will enter into force on June 19, 2024, except for the systemic assessment sub-criterion on the ICT third-party service provider's dependency on subcontractors, which will be effective as of January 16, 2025.

The European Securities and Markets Authority has published a public statement on the use of AI in the provision of retail investment services. When using AI, ESMA expects firms to comply with relevant Markets in Financial Instruments package requirements, particularly when it comes to organizational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

ESMA reminds firms that although AI technologies offer potential benefits to firms and clients, they also pose inherent risks, such as: (i) algorithmic biases and data quality issues; (ii) opaque decision-making by a firm's staff members; (iii) overreliance on AI by both firms and clients for decision-making; and (iv) privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

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The Payment Systems Regulator has published a policy statement on card-acquiring market remedies. The statement confirms the PSR's decision to update the list of directed firms and to introduce a new streamlined method for the transfer of legal entities. The PSR consulted on these changes in January, when it proposed a mechanism to automatically move the obligations of Specific Directions 14, 15 and 16 where the relevant business (i.e. the business of a PSP that caused it to be a directed party) moved to another PSP (whether as part of a reorganization of legal entities within the same group or a transfer to a third-party PSP). The PSR's rationale behind this decision was to provide a mechanism for capturing new entities without having to vary the existing directions. Overall, the PSR received broadly supportive responses to the proposal and is amending the Specific Directions accordingly.

The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) (Amendment) Order 2024 was published on May 29, 2024 and enters into force on December 31, 2024. The 2024 Amendment Order amends the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 (S.I. 2023/548) by omitting the provisions relating to the new ancillary activities regime.

The 2023 Order, which enters into force on January 1, 2025, among other things, paved the way for the Financial Conduct Authority to develop a simpler test for determining which firms need to be authorized as investment firms as a result of their commodities and emission allowances trading business, known as the "ancillary activities test". The ancillary activities test is an exemption from investment firm authorization requirements for firms that trade commodity derivatives or emission allowances as an ancillary activity to their main business, such as energy and other commodity trading firms which are active in both physical trading and financial instrument trading. Under the MiFID II regime, the ancillary activities exemption became based upon a hard-edged test with various financial thresholds. Some of these tests resulted in counterintuitive outcomes for firms, while other issues with the way in which the legislation had been drafted needed resolving via unusually narrow or arguably unnatural interpretations of the text, sometimes supported by regulatory or industry guidance. The 2023 Order simplified the process for determining when a firm satisfies the "ancillary activities" test in the post-Brexit U.K.

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The European Securities and Markets Authority has published a statement on good practice in relation to "pre-close calls" (i.e. communication sessions between an issuer and analysts who generate reports on the issuer's financial instruments). The statement seeks to remind issuers about the applicable legislative framework for pre-close calls and encourages them to follow good practices when engaging in such calls, with the goal of maintaining fair, orderly, and effective markets. Following recent media reports suggesting a connection between episodes of high volatility in share prices and pre-close calls, ESMA reminds issuers that any disclosure of inside information should only take place in accordance with the EU Market Abuse Regulation. Consequently, issuers should only share non-inside information during these pre-close calls.

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The Financial Conduct Authority has set out its observations and insights on the preparations firms have made towards complying with its operational resilience rules ahead of March 31, 2025. The FCA expects firms to use these observations to review their approach and assess their readiness on the following key areas of the policy:

• important business services;
• impact tolerance;
• mapping and third parties;
• scenario testing;
• vulnerabilities and remediation;
• response and recovery plans; and
• governance and self-assessment.

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The European Banking Authority has published final guidelines on the simple, transparent, and standardized criteria for on-balance-sheet securitizations. The main objective of the guidelines is to provide a single point of consistent interpretation of those criteria and ensure a common understanding of them by originators, original lenders, securitization special purpose entities, investors, competent authorities, and third-party verification agents verifying STS compliance in accordance with Article 28 of the EU Securitisation Regulation throughout the Union.

The EBA has also published amending guidelines, which make targeted amendments to the existing non-asset-backed commercial paper and asset-backed commercial paper securitisation guidelines, for a specific number of these requirements, to ensure that the interpretation provided by the EBA is consistent across all three guidelines. The guidelines will be applied on a cross-sectoral basis throughout the EU with the aim of facilitating the adoption of the STS criteria for OBS securitization, which is one of the prerequisites for the preferential risk weight treatment under the CRR, supporting further lending to the real economy and thus contributing further to the objectives of the Capital Markets Union.

The Payment Systems Regulator has published a letter it sent to payment service providers on the new authorized push payment scams reimbursement requirement. The letter highlights three key areas where the PSR would like firms to focus their implementation activities over the coming months to ensure effective and timely implementation by October 7, 2024, when the new requirement comes into effect. The three areas of focus are:

• Understanding the new reimbursement requirements—all PSPs participating in the FPS will need to consider whether the requirements apply to them either as a sending PSP or as a receiving PSP providing a relevant account to a service user. The requirements apply to both direct and indirect participants of the system.
• Claim management and data reporting through Pay.UK—Pay.UK has procured a reimbursement claim management system which firms will use to communicate with each other and to manage APP scam claims, as well as to report data to Pay.UK so it can monitor and manage firms' compliance with FPS reimbursement rules. Firms have until August 20, 2024 to register with Pay.UK.
• Consumer awareness—the PSR wants firms to be transparent in communicating the reimbursement requirements to consumers and take proactive steps to notify them of the protections available under the new reimbursement requirement.

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The European Banking Authority has published a report on the issuance of virtual IBANs (vIBANs). The report summarizes the EBA's observations from its fact-finding exercise on the issuance and use by payment service providers of vIBANs. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, national competent authorities and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. Uses of vIBANs include the automation of payment reconciliation and overcoming IBAN discrimination by associating the vIBAN with a particular Member State's IBAN country code.

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HM Treasury has designated a number of firms for the provision of cash access services, including setting the geographic baselines. The Financial Services and Markets Act 2023 introduced various measures to protect access to cash (e.g., via ATMs) for those reliant on it, in particular the elderly and vulnerable. In addition, HMT published the decision notices for those designated as operators of cash access coordination arrangements (i.e., firms which coordinate the provision of cash access services by multiple providers). Designated firms must ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The FCA is responsible for supervising the designated firms and can impose requirements to ensure that designated firms preserve reasonable cash access services. All the designations came into force on May 24, 2024.

The Bank of England oversees the wholesale cash industry to ensure it continues to operate effectively and remains sustainable and resilient. The wholesale cash system consists of a select group of key market participants which facilitate the production and distribution of banknotes and coins.

The European Securities and Markets Authority has opened a consultation on draft technical standards related to consolidated tape providers and data reporting service providers, and the assessment criteria for the CTP selection procedure. The Markets in Financial Instruments Regulation envisaged the establishment of a "consolidated tape" for all equity and non-equity transactions. The CTP would collect post-trade information published by trading venues and Approved Publication Arrangements, and consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the EU or the U.K. Following the March publication in the Official Journal of the European Union of the EU's MiFID Review legislation, the provisions in MiFIR on CTPs and DRSPs have been revised to, among other things, require trading venues and APAs (collectively referred to now as "data contributors") to submit market data directly and exclusively to the entities appointed by ESMA as the CTP for each asset class.

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The European Securities and Markets Authority has published a consultation paper on proposed changes to the rules for position management controls and position reporting. These proposals arise out of the MiFID Review, and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. MiFID II requires national regulators to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits apply to the size of a position that a person can hold, including any other positions held on behalf of that person by group entities. Trading venues are required to apply position management controls, including monitoring of open interest and obtaining information about the size and purpose of a position entered into, beneficial or underlying owners, concert arrangements, and any related assets or liabilities. Trading venues also have powers to require termination or reduction of positions and to require a person to provide liquidity back into the market at an agreed price and volume to mitigate the effect of a large or dominant position. The position reporting regime is intended to support the application and enforcement of position limits.

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The European Commission has launched a consultation to gather further insight into the markets and business models of non-bank financial intermediation, and the interconnectedness among them and with banks. It also aims to identify gaps in the macroprudential framework and other factors that may contribute to the build-up of systemic risks in NBFI.

The Commission hosted a technical workshop on May 22, 2024 to kickstart the initiative. The focus of the technical workshop was on: (i) the impact of NBFI on financial stability in the EU and how to ensure effective monitoring and risk management for investment funds; (ii) the role of macroprudential authorities in monitoring interconnectedness, deploying macroprudential tools, and ensuring cross-border coordination within the EU; (iii) international cooperation in the regulation and supervision of NBFI; and (iv) international experience and evidence regarding macroprudential policies for NBFI.

The consultation aims at identifying the vulnerabilities and risks of NBFIs and mapping the existing macroprudential framework, and seeks to gather feedback on current challenges to macroprudential supervision and discuss areas for further improvement.
The closing date for responses is November 22, 2024. The Commission will use the information gathered in this consultation to inform the policy planning of the upcoming 2024–2029 College of Commissioners.

The Securitisation (Amendment) Regulations 2024 were made on May 22, 2024 and come into force for the most part on November 1, 2024. The Amending Regulations supplement the new U.K. securitization regime established under the U.K. Securitisation Regulations 2024, including establishing November 1, 2024 as the commencement date for the Securitisation Regulations 2024. The Amending Regulations do not revoke the onshored EU Securitisation Regulation 2017, which will take effect through commencement regulations. The Securitisation Regulations 2024 designate, under the new designated activities regime, certain securitization activities when undertaken by a firm in the U.K. and introduce a new definition of "institutional investor", removing overseas Alternative Investment Fund Managers that market or manage AIFs in the U.K. from due diligence requirements.

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The European Securities and Markets Authority has launched its first consultation on regulatory technical standards arising from the MiFID Review and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. The MiFID Review amendments aim to enhance the availability of information on trading and companies for investors. ESMA's consultation covers:

• Amendments to RTS 2 - the amendments relate to pre- and post-trade transparency requirements for non-equity instruments (bonds, emission allowances and structured products), and aim at ensuring trade information is available to stakeholders by improving, simplifying, and harmonising transparency requirements, and combining the right balance between real-time transparency and the ability to defer publication.
• Amendments to RTS 23 - the amendments relate to the obligation to provide instrument reference data that is fit for both transaction reporting and transparency purposes. ESMA also proposes to align this data with other relevant reporting frameworks and international standards in relation to reference data.
• New draft RTS on the obligation to make pre-and post-trade data available on a "reasonable commercial basis"—this is intended to guarantee that market data is available to data users in an accessible, fair, and non-discriminatory manner. The consultation elaborates on the cost-based nature of fees and the applicable reasonable margin.

Responses to the consultation may be submitted until August 28, 2024. ESMA intends to submit the draft RTS to the European Commission by the end of Q4 2024.