The U.K. Prudential Regulation Authority has published a Policy Statement and final rules to reciprocate the French measure on large exposures, following a recommendation by the European Systemic Risk Board. In July 2018, France's Haut Conseil de stabilité financière (HCSF) imposed a measure under the Capital Requirements Regulation that lowers the large exposure limit, from 25% to 5% of a firm's eligible capital, for French G-SIIs and French O-SIIs for their exposures to French non-financial counterparties that are 'highly indebted'. The PRA will apply the same 5% large exposure limit for exposures to certain French NFCs through amendments to the Large Exposures part of the PRA Rulebook. The measures apply on a consolidated basis to U.K. firms identified by the PRA as Global Systemically Important Institutions and Other Systemically Important Institutions from January 1, 2020.

View the PRA rules.

View the PRA Policy Statement.

The Financial Stability Board has published a report on the progress its member jurisdictions have made in implementing the agreed G20 reforms to over-the-counter derivatives markets in 2018. The report finds that good progress has been made in implementation of the agenda.

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The U.K. Fixed Income, Currencies and Commodities Markets Standards Board has published a statement of good practice for the FICC markets on conflicts of interest. The statement of good practice represents the FMSB’s view of best practice but is not subject to the FMSB’s adherence framework, so failure to comply will not indicate a failure to meet regulatory obligations.

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The Financial Stability Board has published a progress update on its ongoing work to tackle market fragmentation. The update follows the FSB’s June 2019 Report on Market Fragmentation, which explored the link between market fragmentation and financial stability and identified four areas for further work to address the issue: deference (e.g. the reliance authorities place on one another when regulating or supervising participants on a cross-border basis); pre-positioning of capital and liquidity; regulatory and supervisory coordination and information-sharing; and market fragmentation as part of the evaluation of reforms, starting with the “too-big-to-fail” evaluation.

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

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The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).

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The U.K. Financial Policy Committee has issued a summary of the resilience of the U.K. financial system to potential economic shocks and the vulnerabilities it faces. The summary follows the FPC’s meeting on October 2, 2019, at which the FPC agreed on its intended policy action going forward. The FPC is made up of Bank of England staff, the Chief Executive of the U.K. Financial Conduct Authority and certain external members who work to identify, monitor and take action to remove or reduce systemic risks to the U.K. financial system.

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The European Commission has launched a public consultation on aligning the EU rules on capital requirements to certain final outstanding elements of the Basel III international standards. On December 7, 2017, the Basel Committee on Banking Supervision published the last part of the Basel III reforms. The revisions were to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. It was agreed that the revised standards would be implemented from January 1, 2022, except that the output floor would be phased-in until January 1, 2027. The Commission's consultation closes on January 3, 2020.

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The U.K. government has published a response to the Treasury Committee's report on the Financial Conduct Authority's perimeter of regulation. The Committee's Report is part of its ongoing inquiry, The Work of the Financial Conduct Authority, which is considering: (i) the timeliness in which the FCA is able to take action; (ii) the transparency of the FCA's work and decisions; and (iii) the scope of the FCA's regulatory perimeter.

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The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a joint report on governance arrangements for critical data elements for over-the-counter derivatives. The report does not cover governance arrangements for the Unique Transaction Identifier and Unique Product Identifier, which are being reviewed separately by the Financial Stability Board. The report aims to contribute to international efforts to improve transparency, mitigate systemic risk and prevent market abuse in derivatives markets.

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The Financial Stability Board has published a report on governance arrangements for the Unique Product Identifier, a globally harmonized code identifying over-the-counter derivatives products reported to trade repositories. The UPI will enable authorities to aggregate data on OTC derivatives transactions, which will in turn help them to assess systemic risk and detect market abuse.

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

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

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The European Banking Authority has issued a further Communication on issues associated with the U.K.'s withdrawal from the EU, scheduled to take place on October 31, 2019. The EBA notes that financial institutions have made progress on their preparations for a no-deal Brexit. However, national regulators have highlighted concerns about the operationalization of relocation plans and customer communication. In particular, national regulators have noted that in some cases authorization has been obtained, but it remains unclear whether the firm has transferred assets, skilled staff and risk function to fully operationalize the new business. The EBA reminds firms of the principles it set out in its October 2017 Opinion on structures, and particularly the need for firms not to set up so-called "empty shells".

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The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on supervisory cooperation between EU national regulators and third-country national regulators. The Market Abuse Regulation requires national regulators, where necessary, to enter into cooperation arrangements with supervisory authorities in non-EU countries for the exchange of information and enforcement of market abuse obligations. ESMA is charged with preparing draft RTS containing a template for those cooperation arrangements. ESMA's template provides a flexible approach for national regulators by allowing only parts of the template to be used, depending on what is deemed as necessary by a national regulator.

ESMA's preparation of the draft RTS was delayed so that ESMA could take into account the entry into force of the EU General Data Protection Regulation. The draft RTS requires national regulators to have safeguards in place for the transfer of data from the EU to a third-country where the transfer of data takes place in the usual course of business and practice, and in the absence of an equivalence decision.

The final draft RTS have been submitted to the European Commission for adoption.

View the final report and draft RTS.

The European Central Bank's Banking Supervision arm has published the 2020 supervisory priorities of the Single Supervisory Mechanism and a risk assessment for 2020. ECB Banking Supervision has identified the following risks to the euro banking sector: (i) economic, political and debt sustainability challenges in the euro area; (ii) business model sustainability; (iii) cybercrime; (iv) execution risk related to banks' strategies for non-performing loans; (v) easing lending standards; (vi) repricing in financial markets; (vii) misconduct, money laundering and terrorism financing; (viii) Brexit; (ix) global outlook and geopolitical uncertainties; (x) reaction to regulation; and (xi) climate-change related risk.

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

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

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The U.K. Financial Conduct Authority has published an update to the Supervisory Statement on the operation of the transparency regime under the Markets in Financial Instruments Directive post-Brexit. The FCA published a statement on March 14, 2019 on the operation of the MiFID II transparency regime should the U.K. leave the EU without a deal on March 29, 2019. The FCA has updated the statement to reflect how the regime would work if the U.K. leaves the EU on October 31, 2019, without a deal.

View the FCA's update.

View details of the FCA's March 2019 Supervisory Statement.

The European Central Bank has issued a statement on the results of its 2019 supervisory stress test. The European Central Bank is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. It found that the vast majority of banks directly supervised by the ECB have overall comfortable liquidity positions, although there were some vulnerabilities that required further attention. 

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The European Securities and Markets Authority has published a consultation paper on aligning the trading obligation under the Markets in Financial Instruments Regulation with the recent changes made to the clearing obligation under the European Markets Infrastructure Regulation by the EMIR Refit Regulation. Responses to the consultation should be submitted by November 22, 2019. ESMA intends to submit its final report to the European Commission in early 2020, with the Commission’s report to the European Parliament and Council expected by December 18, 2020.

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The European Supervisory Authorities have published a joint opinion on the current anti-money laundering and counter-terrorist financing risks posed to the EU financial sector. The opinion is published in accordance with the requirements of the Fourth Anti-Money Laundering Directive, which requires the ESAs to publish a joint opinion on the AML/CTF risks affecting the EU’s financial sector every two years. The most recent previous opinion was published in February 2017.

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The European Securities and Markets Authority has published an opinion on frequent batch auctions and the double volume cap mechanism. The opinion follows ESMA’s report, published in June this year, reviewing firms’ use of frequent batch auctions and their potential as a means of circumventing the double volume cap and transparency requirements under the Markets in Financial Instruments Regulation and Markets in Financial Instruments Directive II.

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The European Securities and Markets Authority has opened a consultation on its draft technical advice on commercial terms for providing clearing services under the European Market Infrastructure Regulation. Responses to the consultation should be submitted by December 2, 2019.

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The European Securities and Markets Authority has launched a consultation on proposed changes to the EU Market Abuse Regulation. MAR requires the European Commission to report on certain aspects of the operation of MAR, including where appropriate, making recommendations for legislative change. The proposals will mostly affect issuers of financial instruments admitted to trading or trading on a trading venue, investment firms and asset management firms. ESMA is holding a public hearing on the proposals on November 5, 2019, and the consultation closes on November 29, 2019. ESMA expects to submit its report to the Commission in Spring 2020.

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The European Banking Authority has published two reports reviewing the impact of the EU’s implementation of the Basel III capital monitoring reforms and Capital Requirements Regulation liquidity measures. The EBA estimates that once the Basel III reforms are fully implemented, EU banks’ Tier 1 minimum required capital will have increased by an average of 19.3%. Liquidity coverage ratios, meanwhile, averaged roughly 149% in December 2018, significantly above the minimum threshold of 100% set out in the CRR.

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

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

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

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The Presidency of the Council of the European Union has issued a note inviting Ministers of the Permanent Representatives Committee to consider certain issues regarding the EU anti-money laundering and counter-terrorism financing framework. In July 2019, the European Commission published a Communication and a series of reports assessing the EU implementation of EU AML and CTF requirements and discussing whether further action is needed to improve the EU’s AML/CTF framework. In its Communication, the Commission identified certain issues that were likely to impede the effectiveness of the framework.

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The U.K. Prudential Regulation Authority has launched a consultation on its proposed expectations of how firms manage prudential risks associated with asset encumbrance. The PRA’s expectations are relevant to all PRA-authorized firms, other than credit unions and insurance firms. Responses should be submitted by January 17, 2020.

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The European Securities and Markets Authority has issued a call for evidence on the impact of its product intervention powers prohibiting the marketing, distribution and sale of binary options to retail clients and imposing restrictions upon contracts for difference that were marketed, distributed or sold to retail clients. ESMA is seeking feedback from all interested stakeholders, in particular investment firms and banks providing investment services (particularly those that provide CfDs or binary options captured by the product intervention measures) and consumer groups and investors. Responses should be submitted by November 4, 2019.

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The U.K. Financial Conduct Authority has finalized new rules governing certain types of open-ended funds that invest in inherently illiquid assets.

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The European Commission's Technical Expert Group has published a final report on EU climate benchmarks and benchmark Environmental, Social and Governance disclosures. The Commission set up the TEG on Sustainable Finance when it published its legislative proposal for amending the EU Benchmark Regulation as part of its action plan on Sustainable Finance. The proposed legislation will create two new categories of low carbon benchmarks: the EU Climate Transition Benchmark (EU CTB) and the EU Paris-aligned Benchmark (EU PAB). It also includes ESG disclosure requirements for all investment benchmarks. The final text of the proposal has been agreed and it is expected to be published in October/November 2019.

The TEG report provides technical advice to the Commission on: (i) the minimum ESG disclosure requirements for all benchmarks, except interest rates and currency benchmarks, and specific ESG disclosure requirements for EU CTBs and EU PABs; and (ii) the minimum technical requirements for the methodology of EU CTBs and EU PABs. In addition, the report includes recommendations on other areas of work that are connected to the benchmark ESG disclosures, such as the proposed EU Classification System of Sustainable Activities (i.e. the EU Taxonomy) and changes to the disclosure requirements in the Markets in Financial Instruments package to take into account ESG disclosures.

View the report.

The U.K. Prudential Regulation Authority has published a Policy Statement and final rules on resolution assessments and reporting amendments under the Senior Managers and Certification Regime. The PRA also published updated versions of "Strengthening individual accountability in banking" (SS28/15) and "Senior Managers Regime form: Statement of Responsibilities". The changes will take effect on December 9, 2019. The PRA has made minor changes to the drafting to take into account feedback and the measures announced on July 31, 2019 on resolvability assessments for all U.K. banks. The changes to the prescribed responsibility for recovery plans and resolution packs will impact U.K. banks and building societies with £50 billion or more in retail deposits. The changes to the Statement of Responsibilities will affect all PRA-regulated firms, unless they will not be subject to resolvability assessments in future.

View the Policy Statement.

View the updated rules and documentation.

View details of the final resolvability assessment framework for all U.K. banks.

The European Banking Authority has published its 2020 Work Programme. The Programme details six strategic areas of focus for 2020 and these are:
 

1. Support the development of the risk reduction package and the implementation of the global standards in the EU. The EBA will work on developing level 2 legislation required by the revised Capital Requirements Regulation and Directive, the revised Bank Recovery & Resolution Directive and the new Covered Bonds Directive and Investment Firm Regulation and related Directive (the latter two have not yet entered into force). The EBA will continue to work on the implementation of the market risk requirements, following the finalization of the Basel Committee on Banking Standard's fundamental review of the trading book (FRTB). In particular, in 2020, the EBA anticipates implementing the reporting requirement and certain aspects of the FRTB revisions for the internal model approach and for the treatment of non-trading book positions subject to FX or commodity risk. Another priority will be finalization of the EBA's roadmap for the internal ratings-based approach for calculating minimum capital requirements for credit risk.
2. Providing efficient methodologies and tools for supervisory convergence and stress testing. The EBA intends to consult on Pillar 2 changes during 2020 and will conduct the 2020 stress test for EU banks.

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The U.K. Financial Conduct Authority has updated the directions under the temporary transitional power granted to it in preparation for a no-deal Brexit. The TTP was granted to the U.K. regulators under the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 as a means of granting transitional relief from regulatory requirements where the requirements have been introduced or have changed as a result of onshoring financial services legislation. In July 2019, the FCA announced an extension of its use of the TTP from June 30, 2020 to December 31, 2020 in light of the change to the date that the U.K. was due to leave the EU to October 31, 2019. The updated directions reflect that extension as well as prudential instruments that have been published since the draft directions were originally published in March 2019.

View the FCA's press release and the related documentation.

The International Organization of Securities Commissions has published a report, "Thematic Review on Suitability Requirements with respect to the Distribution of Complex Financial Products". The report summarizes the outcome of the review IOSCO undertook of a sample of member jurisdictions' implementation of the IOSCO 2013 Suitability Requirements for the Distribution of Complex Financial Products, which aims to prevent mis-selling of complex products. The Suitability requirements comprise nine principles relating to classification of customers, general duties regardless of customer classification, disclosure requirements, customers protections, incentives and enforcement.

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The European Banking Authority has launched a consultation on its proposed simple, transparent and standardized framework for synthetic securitization. The paper also seeks feedback from stakeholders on a proposed list of criteria that should be considered when labeling a synthetic securitization an STS and on the introduction of different regulatory treatments for STS synthetic securitizations. The EBA will hold a public hearing on October 9, 2019 and responses to the consultation should be provided by November 25, 2019.

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The European Securities and Markets Authority has confirmed in a letter to the European Commission that it considers it inadvisable to conduct an annual review in 2019 of the Regulatory Technical Standards on the transparency requirements for trading venues and investment firms for bonds, structured finance products, emission allowances and derivatives (sometimes referred to as RTS 2). The requirement for an annual review is stipulated in the Markets in Financial Instruments package, and ESMA's report could lead to legislative changes subjecting more bonds and derivatives to the transparency requirements. ESMA's assessment of RTS 2 would be impacted by the uncertainty arising from Brexit, in particular, the potential for a no-deal Brexit, because the outcome would vary depending on whether U.K. data was included or not.

ESMA intends to conduct its annual review before July 2020 and to determine the impact on bond market liquidity of the U.K.'s departure from the EU.

View ESMA's letter to the European Commission.

The U.K. Financial Conduct Authority has appointed Sheree Howard as its new Executive Director of Risk and Compliance Oversight, replacing Barbara Frohn, who left the FCA earlier this year. Ms. Howard joined the FCA as a Senior Adviser in December 2017. Her new role as part of the Executive Committee will see her advising the FCA’s Board on the breadth of risk in the organization.
 
View the FCA's announcement.

The U.K. Financial Conduct Authority has published the outcome of its review of the research unbundling reforms implemented in the EU by the revised Markets in Financial Instruments Directive. MiFID II has applied across the EU since January 3, 2018. MiFID II restricts the payment or receipt of all fees, commission and non-monetary benefits ("inducements") unless these enhance the quality of service provided to a client, and do not impair an EU investment firm's duty to act in the best interests of its client. Any inducement that is a minor, non-monetary benefit is exempt from the limitation. Research provided by any third party (regardless of location) to an EU investment firm providing investment services or ancillary services will be regarded as an "inducement" and subject to the inducement prohibition, unless the research is received in return for either direct payment by the investment firm out of its own resources or payment from a separate research payment account (RPA). "Soft dollar" commissions are not allowed, unless these are done through an RPA. The rules have impacted buy-side and sell-side firms in the EU, as well as their non-EU counterparts.

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The European Economic and Social Committee has published an Opinion on the European Commission’s Reflection Paper, “Towards a Sustainable Europe by 2030”, which was published earlier this year. The Commission’s Reflection Paper considers Europe’s competitive advantages in delivering sustainable development, assesses the EU and global climate change challenges that must still be tackled, and sets out policy changes and proposals that will enable the EU to adhere to the UN’s 2030 Agenda for Sustainable Development and the 17 Sustainable Development Goals.

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

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The U.K. Prudential Regulation Authority has launched a consultation on its approach to implementing the European Banking Authority's Technical Standards and Guidelines on Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The consultation is relevant to U.K. banks, building societies and PRA-designated U.K. investment firms. Responses to the consultation need to be submitted by December 18, 2019.

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The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).

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The U.K. Competition and Markets Authority has formally announced its provisional decision to vary the Retail Banking Market Investigation Order 2017 by removing Part 6 of the Order, which governs automatic enrollment in personal current account alerts. The CMA has published a draft of its proposed Variation Order together with its provisional decision and is seeking comments on both, which should be submitted by October 15, 2019.

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The U.K. Financial Conduct Authority has published a press release announcing that it is stepping up its efforts to assist firms to prepare for a no-deal Brexit. Among other things, the FCA will be publishing a series of digital advertisements highlighting the FCA Brexit webpages, and it has set up a dedicated telephone line (0800 048 4255).

View the FCA's press release.

A U.K. statutory instrument has been published amending the existing U.K. legislation that gives effect to the EU Benchmarks Regulation. The new statutory instrument – the Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2019 – amends the definition of a “Miscellaneous Benchmarks Person” under the existing regulation and clarifies the scope of the U.K. Financial Conduct Authority’s powers to impose requirements on Miscellaneous Benchmark Persons. The amendments will come into force on October 14, 2019.

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Following the publication of a discussion paper in June 2018, the U.K. Payment Systems Regulator has published its response paper on the issue of data in the payments industry. The discussion paper outlined three potential areas where data use could directly affect the PSR's statutory objectives of promoting competition and innovation. These are:

• Reluctance of end-users to share payments data with third-party providers of other payments-related services (so-called "overlay services"), due to concerns over whether their data will be treated appropriately.

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The European Banking Authority has announced that it will clarify by mid-2020 the position of instruments that were both issued and qualified as "own funds" for capital purposes before December 31, 2011. When the Capital Requirements Regulation entered into force, transitional provisions provided that these legacy instruments would also qualify as own funds instruments under the CRR, even if they did not meet the enhanced requirements for own funds introduced in that measure. The transitional period for such instruments ends on December 31, 2021. The EBA has stated that it will provide clarification on the appropriate treatment of the legacy instruments to ensure that banks maintain high quality regulatory capital and that the rules are consistently applied across the EU. The EBA confirms that it will take into account recent changes to own funds requirements in CRR II as well as other linked changes under the Bank Recovery and Resolution Directive.

View the EBA's announcement.