In order to ensure that banks are able to focus on key operations throughout the current COVID-19 pandemic, the European Banking Authority has announced a postponement and extension of certain activities.

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The Bank of England's Financial Policy Committee met on March 9 and 19, 2020, a time when the COVID-19 pandemic dominated the news and in turn presented challenges for markets.

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The International Organization of Securities Commissions has published a report analyzing the regulatory issues arising from the use of global stablecoins and setting out how the existing IOSCO principles would apply to a global stablecoin, depending on its structure. IOSCO states that global stablecoins, depending on how they are set up, share features with regulated securities and other regulated financial instruments and services. Using a hypothetical global stablecoin case, the report analyzes how the IOSCO Principles and Standards would apply and also considers some of the broader implications. The report also includes an analysis, jointly conducted by IOSCO and the Committee on Payment and Market Infrastructures, of the applicability of the CPMI-IOSCO Principles for Financial Market Infrastructures. The conclusion is that the PFMI will apply to global stablecoin arrangements involving the performance of systemically important payment system functions or other FMI functions.

View IOSCO's report on global stablecoin initiatives.

The U.K. Financial Conduct Authority has published a statement confirming that, in the wake to the COVID-19 pandemic, it is working with regulators in the U.S., the EU and elsewhere to ensure that the financial markets can remain orderly and open. Noting the recent volatility in the financial markets, the FCA confirms that the U.K. has not imposed a short selling ban and neither has the U.S. or any other major financial market. The EU has however temporarily reduced the threshold for the reporting of short positions. Net short position holders are required to notify the relevant national regulator of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold. This also applies to listed shares on UK markets.  It is not necessary to notify existing positions above the new lower threshold that were not previously notifiable, until new trading takes place.

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HM Treasury has published the Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020, exempting the COVID Corporate Financing Facility from the U.K.'s regulated activity regime. The Order will come into effect from March 23, 2020. The exemption means that the COVID Corporate Financing Facility is not subject to the U.K. prohibition on conducting regulated activities in the U.K. under section 19 of the Financial Services and Markets Act 2000. 

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The Financial Stability Board is coordinating with its members to support coordinated action required to preserve global financial stability. National regulators and financial institutions are encouraged to take advantage of regulatory flexibility to protect funding for market participants and the real economy, and international standard setting bodies are working together, including with reference to financial policy responses in their respective jurisdictions, to ensure the financial system can continue to finance growth.
 
View the FSB's announcement.

The European Securities and Markets Authority expects national regulators to de-prioritize their supervision of the new tick-size regime for systematic internalizers under the Markets in Financial Instruments Regulation in light of the challenges posed by COVID-19. Amendments to the MiFIR tick-size regime were introduced by the Investment Firms Regulation and are due to come into effect on March 26, 2020. ESMA's statement demands that national regulators do not prioritize supervisory actions in relation to the new regime from March 26, 2020 until June 26, 2020.
 
View ESMA's statement on regulatory forbearance for new tick-size regime.
 
View details of the Investment Firms Regulation.

The Bank of England has announced a series of supervisory and policy measures designed to help firms prudentially regulated by the U.K. Prudential Regulation Authority (banks, building societies, insurers and large investment firms) and BoE-regulated financial market infrastructures (CCPs, central securities depositories and recognized payment systems) with the impact of COVID-19. 

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The European Securities and Markets Authority has announced that it is extending the consultation response dates to assist market participants as they implement arrangements to ensure business continuity during the coronavirus outbreak.

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The European Securities and Markets Authority has published a statement on the telephone recording obligations in the Markets in Financial Instruments Directive. MiFID II requires records to be kept of all services, activities and transactions undertaken by an investment firm, including recordings of telephone conversations or electronic communications relating to: (i) transactions concluded when a firm deals on own account (proprietary trading); and (ii) the provision of client order services that relate to the reception, transmission and execution of client orders. Firms are also required to implement and maintain a policy for the recording of these telephone conversations.

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The U.K. Joint Money Laundering Steering Group has launched a consultation on its proposed new Guidance on how the U.K. Money Laundering Regulations apply to crypto-asset exchange providers and custodian wallet providers. The proposed Guidance will form a new Sector 22 section in Part II of the existing JMLSG Guidance. Comments on the proposed Guidance should be submitted by May 18, 2020.

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The European Commission has published a draft of the proposed agreement between the U.K. and the EU to govern the future relationship between the two, including provisions on financial services. The list of in-scope services includes all services under the Markets in Financial Instruments Directive, the EU Capital Requirements legislation, the European Market Infrastructure Regulation and other legislation. Other provisions of the draft bring market developments in scope and ensure that U.K. financial institutions can provide, subject to certain conditions being met, new services and products in the EU. Notably, the Commission’s draft text provides a carve-out that allows either side to adopt prudential measures for financial stability reasons or for the protection of investors, depositors, policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier. The draft text also includes a commitment by both the EU and U.K. to implement internationally-agreed standards for financial services regulation and supervision, anti-money laundering and counter terrorism and tax evasion.

View the European Commission's Draft Text of the Agreement on the New Partnership with the United Kingdom.

The European Securities and Markets Authority has announced a Decision to lower the threshold for disclosing short positions in shares. Effective March 16, 2020, all holders of net short positions in shares traded on an EU regulated market (i.e., exchange) must notify the relevant national regulator if the position reaches or exceeds 0.1% of the issued share capital. Net short position holders must notify the relevant national regulator of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold.

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The EU Working Group on Risk-Free Rates has launched a consultation on a proposed recommendation for voluntary compensation for legacy swaptions impacted by the CCP discounting transition to Euro Short-Term Rate (€STR). A Swaption is a type of interest-rate derivative contract. The CCP discounting switch from EONIA to €STR is planned for June 2020. The Working Group has identified that if the exercise date of swaptions is after the CCP transition date, the valuation of the products may change because of the discounting switch from EONIA to €STR. However, because the contracts are bilateral, the CCP compensation mechanism will not apply. The Working Group is seeking feedback on whether it should issue recommendations on the voluntary exchange of a cash compensation between bilateral counterparties to swaption contracts.

The consultation closes on April 3, 2020.

View the consultation paper.

The EU Single Resolution Board has announced that SRB staff will commence teleworking from March 16, 2020, following relevant decisions from the European Commission and Belgian government. SRB staff remain contactable via email or phone.

View the SRB's announcement. 

The European Central Bank has announced a series of measures designed to support banks to continue their vital role of funding the real economy in the wake of COVID-19. Banks will be permitted temporarily to operate below the level of capital required by Pillar 2 Guidance, the capital conservation buffer and the liquidity ratio. They will also be permitted partially to use capital instruments that do not qualify as Common Equity Tier 1 capital to meet Pillar 2 Requirements. The ECB hopes that, together with EU national regulators' relaxation of the countercyclical capital buffer, these measures will provide significant capital relief to banks.

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The European Banking Authority has published a statement on actions to mitigate the impact of COVID-19 on the EU banking sector. In the statement, the EBA states that it is working with the European Central Bank and EU national regulators to ease the immediate operational burden on EU banks and recommends that national regulators should use, where appropriate, the flexibility embedded in the regulatory framework.

The EBA views supporting banks' focus on core operations as a priority and has decided to postpone the EU-wide stress test to 2021. However, the EBA will conduct an additional EU-wide transparency exercise to provide updated information on banks' exposures and asset quality. The EBA also recommends that national regulators grant some flexibility on the remittance dates for supervisory reporting by banks.

The EBA states that banks should adopt prudent dividend and other distribution policies, including variable remuneration.

View the EBA's statement.

Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.

The Bank of England has published a Discussion Paper on central bank digital currency opportunities, challenges and design. The BoE is one of several banks exploring introducing a CBDC. The Discussion Paper describes a platform model of CBDC that demonstrates the issues raised by the concept of a CBDC, highlighting both the risks and opportunities. The BoE stresses that the model does not represent any decision by the BoE on the design of a CBDC and is merely intended to aid the overall discussion. Indeed, the BoE emphasizes that no decision has been made on whether to introduce a CBDC and that it would need to ensure that the benefits outweigh any risks. If a CBDC were to be introduced in the U.K. it would be denominated in pounds sterling and would exist alongside cash and commercial bank deposits.

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HM Treasury has published a policy statement on its proposals for the prudential standards in the U.K.'s upcoming Financial Services Bill. The Financial Services Bill will set out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The U.K. has historically wished and repeatedly sought to impose higher capital requirements on banks and investment firms than the EU has accepted, in part driven by the better capitalization of U.K. banks compared to some EU institutions. The new policy statement establishes four overarching principles which will govern HM Treasury's approach to prudential standards: (i) financial stability and high international standards; (ii) supporting growth, competition and competitiveness; (iii) giving U.K. regulators a central role in designing technical prudential requirements; and (iv) flexibility, allowing the U.K. to maintain its relationship with the EU and take account of U.K.-specific requirements.

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The Working Group on Sterling Risk-Free Reference Rates has published two documents relevant to the transition away from the use of LIBOR. The first is a statement on bond market conventions and the second is a path for discontinuation of new GBP LIBOR lending by the end of Q3 2020.

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The U.K. Financial Conduct Authority has published a call for input on accessing and using wholesale data. The FCA has launched the call for input to assess the use and value of data and advanced analytics in wholesale financial markets. The regulator would like to know if there are concerns about access to data and how it is priced and sold because the market may be causing harm to investors. The focus of the call for input is benchmarks, trading data and market data vendor services. However, the FCA welcomes input on whether there are other areas where data access is giving rise to issues. Responses to the call for input may be submitted until January 7, 2021 (extended in response to the impact of COVID-19). The FCA will publish a feedback statement setting out its analysis and next steps.

The European Commission has published a final Taxonomy report of the Technical Expert Group on Sustainable Finance. The EU Taxonomy is the EU's classification system of sustainable activities, the legal basis of which is set out in the proposed Taxonomy Regulation (agreed at political level in December 2019). The proposed Taxonomy Regulation sets the environment objectives for the Taxonomy and imposes new obligations for market participants, large companies, the EU and EU Member States. The Taxonomy Regulation will be supplemented by secondary legislation that will set out detailed technical screening criteria to establish when an economic activity can be considered sustainable. The Taxonomy Report provides the TEG's final recommendations to the European Commission on certain content for much of that secondary legislation and replaces the earlier reports of the TEG. 

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The Financial Action Task Force has published Guidance on how digital identification technologies can be used to conduct some aspects of customer due diligence for anti-money laundering purposes. The FATF presents a risk-based approach to the use of digital ID software, relying on a set of open source, consensus-driven assurance frameworks and technical standards for digital ID systems. In addition, the FATF sets out a series of recommendations for relevant authorities, regulated entities (meaning financial institutions, virtual asset service providers and designated non-financial businesses and professions) and digital ID services providers. The Guidance is non-binding, however, it clarifies the FATF's standards.

View the FATF's Guidance on digital ID.

The U.K. Financial Conduct Authority has published a consultation paper on proposals to enhance climate-related disclosures by listed issuers and to clarify the existing disclosure obligations of issuers in relation to climate, environmental, social and governance matters. The FCA proposals would implement the disclosure recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. Responses to the consultation may be submitted until October 1, 2020. 

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The U.K. Prudential Regulation Authority has published a letter addressed to the chairpersons of banks, large investment firms and insurance companies on board diversity. The letter is intended to remind firms of the importance of board diversity in achieving effective challenge and improving decision-making and of the need to comply with the PRA's rules. The European Banking Authority published a report on benchmarking of diversity practices in February 2020. The report shows a huge improvement in board diversity in banks and investment firms since 2015. However, the PRA notes that compliance is not comprehensive.

The PRA asks chairs of all firms subject to its diversity requirements to ensure that their firm is in compliance and to take remedial action if not.

View the PRA's letter on board diversity.

The U.K. government has published a document setting out its negotiating proposals for a future relationship with the EU. The U.K. left the EU on January 31, 2020 and is no longer an EU member state. However, during an agreed transitional period (currently scheduled to end on December 31, 2020), EU laws and regulations will continue to apply in the U.K. The EU and U.K. will be negotiating during that period on their future relationship.

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The outgoing Governor of the Bank of England has announced the launch of the COP26 Private Finance Agenda. In January this year, Mark Carney was appointed as Finance Adviser for COP26 to assist the U.K. Government to build a sustainable financial system that supports the transition to a net zero emissions economy. Andrew Bailey will replace Mr. Carney as the Governor of the Bank of England from March 16, 2020. The objective of the COP26 Private Finance Agenda is for every professional financial decision to take climate change into account.

View the Bank of England's press release of the launch.

View Mark Carney's speech to launch the COP26 Private Finance Agenda.

Andrew Hauser, the Executive Directive of Markets at the Bank of England, today announced the launch of two significant initiatives to boost the U.K.’s transition away from sterling LIBOR. Firstly, the BoE intends to begin publishing a compounded Sterling Overnight Index Average index from July 2020, enabling market participants to construct compounded SONIA rates which can be used as a replacement reference rate for term LIBOR-linked instruments. Secondly, from October 2020, the BoE will progressively increase the haircuts applied to LIBOR-linked collateral placed with the BoE as security against central bank loans, with a final haircut of 100% by the end of 2021.

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The Council of the European Union has authorized the opening of negotiations with the U.K. for a new partnership agreement between the U.K. and the EU. The Council's Decision (dated February 13, 2020) authorizes the opening of the negotiations, appoints the Commission as negotiator and stipulates that the negotiations must be conducted in consultation with the Working Party on the United Kingdom and in accordance with the Council's directives.

The EU intends to enter into a free trade agreement with the U.K. For financial services, the Council directs that the arrangements between the EU and U.K. should be based on their respective equivalence frameworks, complemented by close and voluntary cooperation and consultation and transparency on equivalence decisions. The EU envisages that the FTA should be in line with existing EU FTAs with other countries for specific sectors, including the financial services sector.

It is expected that the first session of negotiations will take place in early March.

View the Council's decision authorising the opening of the negotiations.

View the negotiating directives.

HM Treasury has published for feedback a draft statutory instrument to implement the revised provisions for CCPs in the European Market Infrastructure Regulation (known as EMIR 2.2.) into U.K. law once the Brexit implementation period ends (currently scheduled for December 31, 2020). HM Treasury is publishing the draft instrument to provide Parliament and stakeholders the opportunity to provide feedback on the proposed approach before the instrument is laid before Parliament. The draft instrument–Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020–is due to be laid before Parliament in the Spring.

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The International Swaps and Derivatives Association has published the results of its consultation on fallbacks to be introduced into standard ISDA documentation based on alternative risk-free rates for EUR LIBOR and EURIBOR. The fallbacks would apply if the relevant IBOR were to be permanently discontinued. Respondents to the consultation agreed with ISDA’s proposed approach of adopting a compounded setting in arrears rate with a backward-shift adjustment and historical median over a five-year lookback period approach to address technical issues associated with the fallback rates. ISDA therefore intends to develop fallback provisions on this basis. It will publish an anonymized summary of the consultation feedback in the coming weeks.

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The European Commission’s High-Level Forum on the Capital Markets Union has published an interim report setting out its vision for the future of European capital markets. The CMU is an EU initiative which aims to enhance integration of EU capital markets, further safeguard financial stability, strengthen the international role of the euro and diversify sources of finance for small- and medium-sized enterprises. The High-Level Forum was established in November 2019 and consists of experienced industry executives and international experts who will work together to propose policy recommendations designed to contribute to the CMU.

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The EU Working Group on Risk-Free Rates has published a report setting out recommendations for the transition of financial products from EONIA to the Euro Short-Term Rate (€STR). The recommendations aim to ensure liquidity in €STR cash and derivatives products and include practical recommendations, such as replacing EONIA with €STR products at the earliest opportunity and communicating with customers and other market participants about the transition.

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The European Systemic Risk Board has published a report on cyber-security risk, which it has identified as a source of systemic risk to the global financial system. The report notes that the increased digitalization and interconnectedness of the global financial system makes it heavily reliant on ICT infrastructure and vulnerable to cyber attacks. The report provides an overview of key regulatory and industry initiatives aimed at combatting cyber risk, which include: (i) the 2019 International Organization of Securities Commissions’ Cyber Task Force report on cyber regulation; (ii) the European Banking Authority’s Guidelines on management of information and communication technology and security risks; and (iii) the European Securities and Markets Authority’s 2020-2022 Strategic Orientation, which establishes the dangers of cyber threats as an area of focus for ESMA and the other European Supervisory Authorities.

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The European Commission has published a set of documents presenting its strategies for data and Artificial Intelligence. The main document is a Communication to the European Parliament, the European Council and relevant committees, entitled "A European strategy for data." The Communication describes the policy measures put forward by the European Commission for an EU data economy that aims to increase the use of, and demand for, data and data-enabled products and services in the EU over the next five years. The Commission argues for an attractive policy environment that provides for access to data, the flow of data across the EU, protection of personal data protection rights and an open yet assertive approach to international data flows that is based on European values. 

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The Financial Stability Board has written to G20 Finance Ministers and Central Bank Governors outlining the key focus areas for the FSB’s work ahead of the next G20 summit in Saudi Arabia in November 2020. The communication builds on certain areas highlighted as priorities in the FSB’s 2020 Work Program, published in December 2019.

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The European Systemic Risk Board has appointed Jan Reinder De Carpentier as its new Vice Chair. New board members Pedro Machado and Jesús Saurina have also been appointed. The new appointees will take up their positions on March 1, 2020 and will hold them for five years.
 
View the SRB's announcement.
 
View the Council Implementing Decision giving effect to the appointments of the Vice-Chair and Board Members.

The Single Resolution Board has launched a consultation on proposed changes to its policy on minimum requirements for own funds and eligible liabilities (MREL) for Eurozone banks, designed to bring the SRB’s MREL policy in line with the changes introduced by the 2019 EU banking package for EU banks.  MREL is the EU's precursor to total loss-absorbing capacity (TLAC) standards at international level.  The SRB is responsible for ensuring the compliance of Eurozone-based institutions that are subject to the Single Resolution Mechanism (primarily Eurozone countries) with their resolution and recovery planning requirements.  It works with national regulators from Eurozone countries to determine MREL requirements. Responses to the consultation should be submitted by March 6, 2020. The SRB expects to publish its final MREL Policy Statement based on these responses by the end of April 2020 and will apply the policy to MREL decisions taken in early 2021.

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The European Commission has launched a consultation on reviewing the EU Markets in Financial Instruments package. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation have applied across the EU since January 1, 2018 and regulate the functioning and transparency of EU financial markets. The consultation closes on May 18, 2020. The Commission is due to publish a legislative proposal to amend MiFID II and MiFIR in Q4 2020.

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The U.K. Payment Systems Regulator has published a policy statement setting out its final decision on varying Specific Direction 10, which requires payment service providers to implement the Confirmation of Payee system by March 31, 2020. Confirmation of Payee is a system which ensures that certain identifiers (including name, sort code and account number) of a payee are verified against the records of a payment services provider before a payment is made.
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Following its consultation last year, the International Organization of Securities Commissions has published a report on the key issues and risks related to trading of crypto-assets on crypto-asset trading platforms (referred to as CTPs). The report aims to assist IOSCO member jurisdictions to assess the issues and risks relating to CTPs and sets out key considerations to be taken into account, including related toolkits for regulators. The considerations are: (i) access to CTPs; (ii) safeguarding assets; (iii) conflicts of interest; (iv) operations of CTPs; (v) market integrity; (vi) price discovery; and (vii) technology. IOSCO states that where a regulator has determined that a crypto-asset is a security, the provisions on securities trading and regulation apply.

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The European Banking Authority has launched a consultation on proposed Guidelines on the appropriate subsets of sectoral exposures to which national regulators may apply a systemic risk buffer under the Capital Requirements Directive. CRD 5 amended the provisions on when a national regulator may set a systemic risk buffer for sectoral exposures.  The EBA is mandated to prepare Guidelines to enhance harmonization of the approach across the EU. CRD 5 must be transposed into Member State laws by December 28, 2020 and those laws must be applied from December 29, 2020. Responses to the consultation can be submitted until July 13, 2020. Once finalized, the Guidelines will apply to the relevant national regulators from December 29, 2020.

View the consultation paper.

View details of CRD 5 and CRR 2.

The European Banking Authority has published the third in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS funding and uses of DGS funds. It is dated January 23, 2020. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The second opinion, published in October 2019, was on DGS payouts. The opinions have been prepared to assist the European Commission in its obligation to report on the implementation of the DGSD.

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In a letter published by the International Securities Lending Association, the European Commission confirms that the reporting obligations of the EU Securities Financing Transactions Regulation will not apply to non-EU Alternative Investment Funds, even if the manager is an EU AIFM, except for SFTs concluded in the course of the operations of the non-EU AIF’s EU branch.

View the letter.

The Banking Supervision arm of the European Central Bank has opened a consultation on a proposed guide on assessing counterparty credit risk. The proposed guide sets out the ECB's approach to assessing the internal models that banks use to calculate their exposure to counterparty credit risk under the Capital Requirements Regulation. The proposed guide would apply to those Eurozone banks for which the ECB is responsible for direct prudential supervision as part of the Single Supervisory Mechanism, and that are permitted to use internal model methods. The consultation closes on March 18, 2020.

View the ECB public consultation.

The European Securities and Markets Authority has published a final report and recommendations on aligning the trading obligation under the Markets in Financial Instruments Regulation with recent changes made to the clearing obligation under the European Markets Infrastructure Regulation by the EMIR Refit Regulation. ESMA's report to the European Commission will support the Commission's report to the European Parliament and Council that is due by December 18, 2020.

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The European Systemic Risk Board has published a letter (dated February 3, 2020) to the European Commission on the weaknesses of the Alternative Investment Fund Managers Directive. The ESRB is responsible for macro-prudential oversight within the European Union. The AIFMD framework provides the ESRB with data to assist it to analyze systemic risks. The ESRB considers that the AIFMD reporting framework could be improved and wants the Commission to consider these issues as part of the review of the AIFMD. The letter sets out the ESRB's experiences with the scope and application of the AIFMD, in particular considering:
 

1. The suitability of the reporting framework and access to data for monitoring systemic risk: the ESRB highlights that the AIFMD framework could be improved, particularly with regards to fund identification, fund classification, information on the interconnectedness of funds, information on leverage and liquidity risk, reporting frequency and access to data.

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The International Swaps and Derivatives Association has announced that it will be issuing later in February 2020 a further consultation on how to implement pre-cessation fallbacks. A “pre-cessation” trigger in derivative contracts would cause LIBOR-based contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR no longer to be representative. 

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The European Securities and Markets Authority has announced an EU-wide common supervisory action in 2020 on the application of the suitability requirements under the Markets in Financial Instruments Directive. National regulators of EU member states will simultaneously assess compliance with the applicable requirements by market participants established in their jurisdictions. The knowledge and experience of the national regulators will be shared through ESMA to enhance the convergence of supervisory practices. ESMA's Suitability Supervisory Briefing and Suitability Guidelines are relevant to this initiative.

View ESMA's announcement.

View details of ESMA's suitability supervisory briefing.

View details of ESMA's suitability guidelines.

The European Banking Authority has launched a consultation on proposed revisions to the Risk Factor Guidelines for financial institutions to assess money laundering and terrorist financing risks. The proposed changes aim to take into account the most recent revisions to the EU Anti-Money Laundering Directive (i.e. 5MLD) and newly identified risks, including those specified in the EBA's implementation reviews. The consultation closes on July 6, 2020.

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