The European Central Bank has published a paper providing an overview of the stablecoins market and looking ahead to its future development. The paper contains no binding rules or guidance and is designed for information purposes only. It outlines how stablecoins have emerged as an alternative to highly volatile cryptoassets, such as Bitcoin, by incorporating "stabilization" mechanisms that back the value of the stablecoins by tying them to underlying assets such as fiat currencies or commodities. Facebook's unveiling of its Libra stablecoin has attracted much attention from regulators, demonstrating the ongoing challenges faced by the cryptoassets. It goes on to describe the different types of stablecoins, the current status of stablecoin initiatives and considers potential use cases for stablecoins, such as transferring money without using financial institutions or cash. The ECB determines that it remains to be seen how the more innovative types of stablecoin will develop given their greater volatility and foresees that improvements in stablecoin governance may need to be made.

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The U.K. Financial Conduct Authority has published a newsletter for primary market participants seeking feedback on draft best practice guidance for government departments, industry regulators and public bodies on the identification, control and disclosure of inside information. Comments on the best practice note should be submitted by January 15, 2020.

The FCA determined that new, up-to-date guidance on inside information was required to reflect recent legal and regulatory developments, including the introduction of the Market Abuse Regulation in July 2016. Certain of these developments are directly applicable to the actions of government departments, industry regulators and public bodies. The guidance is targeted at these entities and feedback on the guidance is therefore sought particularly from them. The note sets out certain relevant aspects of the Market Abuse Regulation and provides suggestions for how these entities can identify inside information that they become privy to, including questioning whether the information has been made public, whether it is precise and whether a reasonable investor might use it as part of the basis of an investment decision. It also provides suggestions on controlling and handling inside information once it has been identified and on the systems and controls that should be adopted around disclosing the information.

View the FCA's guidance.

The Basel Committee on Banking Supervision has today published its guiding principles for the operationalization of a sectoral countercyclical capital buffer (or "SCCyB"). The SCCyB complements the Basel Committee's countercyclical buffer by establishing capital requirements that could be imposed on a particular sector, in addition to the countercyclical buffer that is based on banks' total risk weighted assets. The SCCyB will only apply to jurisdictions that choose to implement it on a voluntary basis and will not form part of the Basel standards.

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A new EU Directive, known as the "EU Whistleblowing Directive", that aims to enhance the enforcement of EU law and policies by providing protection for individuals that report breaches has been published in the Official Journal of the European Union. The Directive will apply to whistleblowers working in the private or public sector, whether they are classed as workers, self-employed, shareholders or working under the supervision and direction of contractors, subcontractors and suppliers, as well as those who acquired information in previous employment or through the recruitment process for a job they are yet to begin.

The Directive will come into force on December 16, 2019. Member States must implement the majority of the provisions into their national laws by December 17, 2021.

View the Directive.

The U.K. Financial Conduct Authority has announced that it will introduce temporary product intervention measures for 12 months from January 1, 2020 to December 31, 2020 to combat risks to consumers of the promotion of speculative mini-bonds. The measures follow the high profile failure of mini-bond issuer London Capital & Finance plc, which has prompted an investigation by the FCA into the circumstances surrounding LC&F's collapse and the FCA's supervision of the firm. HM Treasury is also conducting an ongoing investigation into the wider policy questions raised by LC&F's failure, focusing on a review of the regulatory regime governing non-transferable debt securities and an assessment of Innovative Finance ISA rules.

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The Financial Stability Board has published an updated report on the regulatory framework for haircuts on uncleared securities financing transactions. The technical guidance on the implementation of the FSB's framework has been updated to provide clarification through text amendments and the addition of questions and answers.

View the report.

View details of the FSB's delay to the implementation timetable.

The Basel Committee on Banking Supervision has published a joint statement with the Basel Consultative Group on the proportionality of the implementation of the Basel Framework by the banks and jurisdictions to which it applies. The Basel Consultative Group is the Basel Committee's sub-group responsible for enhancing the Basel Committee's engagement with global supervisors, including those from non-member countries. The Basel Framework is the set of bank prudential standards established by the Basel Committee that Basel members have agreed to implement. The joint statement confirms the role of proportionality that is established in the Basel Committee's "Core principles for effective banking supervision".

The statement follows the Basel Committee's survey on proportionality in bank regulation and supervision, in which it found that a majority of Basel Committee and BCG jurisdictions apply proportionality measures in supervision of banks.

View the Basel Committee's statement on proportionality.

View the Basel Committee's Core principles for effective banking supervision.

View the Basel Committee's survey on proportionality in bank regulation and supervision.

The U.K. Financial Conduct Authority has published a Policy Statement incorporating its response to the feedback it received on its proposals for the implementation of the Proxy Advisors (Shareholders' Rights) Regulations 2019, together with the final rules. The final rules make amendments to the FCA's Decision Procedure and Penalties Manual and Enforcement Guide, reflecting the new Regulations that came into force on June 10, 2019.

The Regulations implemented new obligations imposed upon proxy advisors by the revised EU Shareholder Rights Directive into the U.K. statutory regime. The FCA has the power to discipline and investigate proxy advisors under the Proxy Advisors Regulations and changes were therefore required to the FCA's rules to take account of these powers. The following new provisions have been included in the Decision Procedures and Penalties Manual:

• the FCA will publish a statement about a proxy advisor who has breached a relevant requirement; it will impose a public censure in contested cases and allow decision makers to use executive powers to decide on settled cases;
• the FCA will decide when to impose a financial penalty on a proxy advisor; and
• the FCA will decide when to impose a restitution requirement.

The FCA has also included a new section in its Enforcement Guide explaining how it will use its powers under the Regulations. The intended approach will broadly mirror that taken by the FCA in conducting investigations, sanctioning and using its regulatory powers under FSMA.

View the FCA's Feedback and final rules.

The European Banking Authority has published a consultation paper on its draft Implementing Technical Standards for supervisory reporting and public disclosure of minimum requirements for own funds and eligible liabilities (or “MREL”) and total loss-absorbing capacity (or “TLAC”). Responses to the consultation should be submitted by February 22, 2020. The EBA expects to submit the final draft ITS to the European Commission in June 2020.

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The Eurozone Single Resolution Board has published a series of three opinions setting out its own internal rules for the circumstances in which it may restrict the rights of data subjects under Regulation (EU) 2018/1725, data protection legislation that is commonly understood as the public sector equivalent of the General Data Protection Regulation. The Regulation governs the use of personal data by EU institutions and agencies. 

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The Financial Stability Board has published the 2019 list of global systemically important banks. Alongside the 2019 G-SIB list, the Basel Committee on Banking Supervision has published further information relating to its 2019 assessment of G-SIBs, including:
 

• The denominators of each of the 12 high-level indicators used to calculate the banks’ scores under the G-SIB methodology;
• The 12 high-level indicators used to calculate these denominators; and
• The cutoff score used to identify the G-SIBs in the updated list and the thresholds used to allocate G-SIBs to buckets for the purpose of calculating the specific higher loss absorbency requirements.

The Basel Committee assessment was based on its 2013 methodology for identifying G-SIBs. A revised assessment methodology was published by the Basel Committee in July 2018, which is expected to be implemented by member jurisdictions by 2021.

View the 2019 G-SIB list.

View the Basel Committee's statement on its G-SIB assessment methodology.

View details of the Basel Committee's revised assessment framework for G-SIBs.

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The European Banking Authority has launched a consultation on its proposed draft Implementing Technical Standards on specific supervisory reporting requirements for market risk. “Market risk” relates to the risk of losses that banks face to their on- and off-balance sheet positions from adverse movements in market prices. The EBA was mandated to produce the ITS under the Capital Requirements Regulation II, published in June 2019, which made extensive changes to the EU’s capital requirements regime, including through the implementation of the Basel Committee on Banking Supervision’s international standards on market risk. 

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The European Banking Authority has published a roadmap for the risk reduction package that involved changes to the EU Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive. The EBA is mandated within the changed legislation to prepare technical standards, guidelines and reports on governance and remuneration, large exposures, resolution, reporting and disclosure. The EBA's roadmaps set out the timelines for delivery of all of the mandates, including where deadlines have been adjusted by the EBA.

View the EBA's roadmaps for the risk reduction package.

View details of CRD5 and CRR2.

View details of BRRD 2.

The New Technologies formation of the European Commission’s Expert Group on Liability and New Technologies has published a report on liability regimes for artificial intelligence. The report discusses existing laws concerning liability for emerging digital technologies and describes how those laws could be improved to cater for the new risks and challenges associated with new technologies. The New Technologies formation is a panel that was established by the European Commission in March 2018 and was asked to examine existing EU liability regimes and make recommendations for amendments to take account of emerging digital technologies where necessary.

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The Basel Committee on Banking Supervision has published a report on “open banking” and the use of application programming interfaces. The term “open banking” refers to the sharing and leveraging of customer-permissioned data by banks with third-party developers and firms to build applications and services, including for example those that provide real-time payments, greater financial transparency options for account holders, marketing and cross-selling opportunities. Application programming interfaces are software intermediaries that enable information to be exchanged between applications. 

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The U.K. Financial Conduct Authority has published a statement on conduct risk during the LIBOR transition, which is due to be completed by the end of 2021. The statement is in the form of questions and answers and sets out the FCA's expectations of firms relating to governance and accountability, replacing LIBOR with alternative rates in existing contracts, offering new products with alternative rates, communicating with customers about the transition from LIBOR and best practice for firms investing on behalf of clients.

View the FCA's statement.

The UK Jurisdiction Taskforce has published a legal statement on cryptoassets and smart contracts under English private law. UKJT is part of the LawTech Delivery Panel, an industry-led group established in 2018, with the aim of identifying barriers and opportunities for growth. The legal statement provides the UKJT's view of the principles applicable under English and Welsh private law for determining when a cryptoasset will be considered property and when an enforceable contract is concluded through a smart contract. The intention of the statement is to help improve confidence among market participants and investors due to the perception of legal uncertainty on the legal status of cryptoassets and smart contracts.

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The Vice President of the European Commission, Valdis Dombrovskis, has given a keynote speech at the Guildhall in London covering, amongst other things, the EU’s proposals for the development of the European sustainable finance framework and a proposed extension to the temporary equivalence regime for U.K. central counterparties.

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The co-Chairs of the Financial Stability Board’s Official Sector Steering Group, whose work focuses on interest rate benchmarks that are deemed to play a critical role in the global financial system, have written to the International Swaps and Derivatives Association requesting that it includes a “pre-cessation trigger” alongside the cessation trigger in its standard language in derivatives contracts, via either definitions for new contracts or in a single protocol (without embedded optionality) for outstanding contracts. The pre-cessation trigger would cause a LIBOR-based contract to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority, as the regulator of LIBOR, deemed that LIBOR was no longer representative. 

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The Basel Committee on Banking Supervision has opened two consultations on revisions to the Basel III Pillar 3 disclosure requirements, one related to market risk disclosures and one on sovereign exposures disclosures. Responses to both consultations should be submitted by February 14, 2020. No indication is given as to when the sovereign exposure disclosure requirements might be introduced. The Basel Committee intends to publish the revisions of the market risk disclosure requirements in time for implementation of the revisions by member jurisdictions by no later than January 1, 2022.

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The Financial Stability Board has published its 2019 Resolution Report, providing updates on its implementation of policy measures to enhance the resolvability of systemically important financial institutions.  

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The European Banking Authority has published draft amended Regulatory and Implementing Technical Standards regarding the exercise of credit institutions’ rights to freedom of establishment and freedom to provide services (i.e. passporting rights) under the Capital Requirements Directive. The EBA reviewed the original Technical Standards in 2018 and found several areas for improvement that would enhance the quality and consistency of passport notifications and the ability of EU national regulators to use them. It has produced the draft amended standards with a view to updating the information requirements that must be notified by a credit institution to its home national regulator. Responses to the consultation should be submitted by February 13, 2020.

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The European Central Bank has published a report by the working group on euro risk-free rates on €STR fall-back arrangements. The EU Benchmark Regulation requires regulated entities to have put in place written plans on the steps that they would take should a benchmark used in their contracts be materially amended or ceases. The Working Group recommends that instead of selecting an alternative rate, regulated entities should take into account the ECB's regular review of €STR's methodology and the policies and procedures for the possible cessation of €STR, together with the use of contractual fallbacks.

View the report.

Following its consultation earlier this year, the European Securities and Markets Authority has published final reports and the final technical advice on third-country CCP tiering, comparable compliance and fees under draft revisions to the European Market Infrastructure Regulation, known as EMIR 2.2. EMIR 2.2 will change the requirements for the supervision of both EU and third-country CCPs, and includes the controversial formal EU "location policy" for CCPs. The technical advice will assist the Commission in preparing the final delegated legislation that will supplement the EMIR 2.2.

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A Commission Delegated Regulation amending secondary legislation supplementing the Packaged Retail and Insurance-Based Investment Products Regulation has been published in the Official Journal of the European Union. 

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The Eurozone Single Resolution Board has launched a public consultation on its proposed “Expectations for Banks”, a draft document outlining best practice for banks in implementing resolution planning. The consultation is being undertaken as part of the SRB’s endeavours to work with Eurozone banks and other stakeholders and to demonstrate transparency in its approaches and decisions. 

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The U.K. Information Commissioner’s Office, the U.K.’s independent body for the upholding of information rights in the public interest, has issued a consultation paper on proposals that it be granted investigative and other powers under the Proceeds of Crime Act 2002. The proposals are in response to the increasing number of cases in which financial gains are made by criminals involved in the theft of personal data.

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A Commission Delegated Regulation amending the EU Auctioning Regulation has been published in the Official Journal of the European Union. The Delegated Regulation will apply directly in all EU Member States from November 28, 2019. The EU Auctioning Regulation provides for EU emission allowances to be auctioned and specifies key aspects of the auctions, including their design, timing and eligibility requirements. 

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The U.K. Financial Conduct Authority has welcomed the U.S. Securities and Exchange Commission’s extension of no-action relief addressing a potential conflict between U.S. regulation and the inducements and research provisions of the revised Markets in Financial Instruments Directive. One of MiFID II’s objectives is to give investors transparency into the cost of both research and trading commissions by requiring payments for these elements to be unbundled. 

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The European Banking Authority has published a report on non-performing loans in the EU banking sector, in which it finds that total NPLs have decreased from over €1.5 trillion in June 2015 to €636 billion in June 2019. The level of European NPLs was a key concern for EU supervisors and market participants following the financial crisis, triggering efforts to deal with the issue at a supervisory, political and market participant level.

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The Basel Committee on Banking Supervision has published a consultation paper on the “Introduction of guidelines on interaction and cooperation between prudential and anti-money laundering/counter-terrorism financing supervision”. Under the consultation paper, the Basel Committee proposes to amend its guidelines on the “Sound management of risks related to money laundering and financing of terrorism” to include guidance on the interaction between prudential and AML/CFT supervision in a bid to enhance the effectiveness of the supervision of banks’ AML/CFT regimes. Responses to the consultation should be submitted by February 6, 2020.

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The Financial Stability Board has met in Paris to review key issues facing financial markets, including vulnerabilities in the global financial system, FinTech developments and its 2020 work program. 

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The European Commission has published the results of its “fitness check” of EU supervisory reporting requirements.  The reporting requirements imposed by EU and national regulatory authorities require regulated institutions to provide information to their respective authorities regarding their financial condition and activities. The European Commission assessed the effectiveness, coherence, relevance and efficiency of existing reporting requirements in order to identify areas that may be simplified or streamlined.

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Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered "homogenous" have been published in the Official Journal of the European Union. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The RTS will apply directly across the EU from November 26, 2019.

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HM Treasury has published the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, providing U.K. government ministers with a temporary power to make equivalence and exemptions directions for the EU and EEA Member States under relevant financial services legislation. The temporary power will come into force on the date that the U.K. leaves the EU (currently expected to be no later than January 31, 2020) and can only be used for up to twelve months from that date.

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The European Central Bank has published a report by the working group on euro risk-free rates providing high-level recommendations for fall-back provisions in contracts for cash products and derivatives transactions referencing EURIBOR. The recommendations are not legally binding and market participants can decide whether, and to the extent to which, they wish to adopt them. EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation  and the methodology for calculating EURIBOR has been revised to be Benchmark Regulation-compliant, to be implemented by the end of 2019.

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Following its Call for Evidence issued in May this year, the European Securities and Markets Authority has launched a consultation on proposed revisions to the legal framework for position limits and position management in commodity derivatives. The position limits regime was introduced by the revised Markets in Financial Instruments Directive. MiFID II requires the European Commission to report to the European Parliament and the Council on the impact of the application of position limits and position management on liquidity, market abuse and orderly pricing and settlement conditions in commodity derivatives markets. ESMA must provide the Commission with advice regarding this new regime to support the Commission's preparation of the report, including any recommendations for changing the legislative requirements. Responses to ESMA's consultation should be submitted by January 8, 2020.

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The European Central Bank has published a report by the working group on euro risk-free rates on the financial accounting implications of the transition from EONIA to €STR and the introduction of €STR-based fallbacks for EURIBOR. 

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The International Organization of Securities Commissions has issued a statement confirming that it is possible, depending on their structure, for stablecoins to fall within the scope of securities market regulation. IOSCO has undertaken an in-depth study (not published) of stablecoins and has concluded that each proposed stablecoin, the manner in which it is intended to operate and the rights and obligations conferred on participants needs to be analyzed to assess the risks and benefits of the particular stablecoin. The statement is widely considered to be in response to Facebook's announcement about its proposed stablecoin, Libra. According to IOSCO, certain stablecoins may have features that are similar to securities and accordingly will be within the regulatory perimeter of some countries. IOSCO calls on entities that wish to launch stablecoins to engage with regulators so that any risks associated with the operation of the stablecoin might be mitigated.

View IOSCO's statement.

The U.K. Financial Conduct Regulator has published a “Dear Chairman” letter addressed to Authorized Fund Managers requesting them to review certain aspects of the liquidity management arrangements for the authorized funds that they manage. The letter follows the FCA’s recent policy statement establishing new rules for open-ended funds that invest in inherently illiquid assets and aims to address concerns that open-ended funds may not always be able to liquidate funds fast enough to comply with redemption requests. In its policy statement, the FCA acknowledged that its new rules did not capture open-ended UCITS funds such as the LF Woodford Equity Income Fund. This latest letter urges firms to recognise that effective liquidity management is a core function for all open-ended funds.

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The Financial Action Task Force is seeking feedback from private sector stakeholders on its draft guidance on the use of digital identity systems in customer due diligence. The guidance will supplement Recommendation 10 of the FATF's Recommendations regarding customer due diligence and demonstrates how authentication of customer identities in the digital finance and digital ID context supports broader anti-money laundering/counter-terrorism financing efforts. Stakeholders should submit responses to the consultation by November 29, 2019. The FATF intends to make further amendments to its draft guidance at its February 2020 meetings.

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The Basel Committee on Banking Supervision met on October 30-31, 2019 to discuss key policy and supervisory issues, including: (i) a proposed consultation on adjustments to the credit valuation adjustment risk framework; (ii) a proposed consultation on revised market risk and sovereign exposure disclosure requirements; (iii) a proposed discussion paper on the prudential treatment of cryptoassets; (iv) a proposed consultation on guidelines for enhanced cooperation between prudential regulatory authorities and anti-money laundering/counter-terrorism financing authorities; and (v) its reports into the implementation of the Net Stable Funding Ratio and large exposures standards in Argentina and China. All of the proposed consultation papers, as well as the NSFR/large exposures reports, are expected to be published in November 2019.

Other topics under discussion included benchmark rate reforms, the implementation of the Basel Committee's guidance on managing foreign exchange settlement risk and the usability of capital buffers. On the latter subject, the Basel Committee has also published a newsletter reiterating the importance of the capital buffer framework and emphasizing that the buffers are designed to be usable. The Basel Committee has announced that Canada will host the 21 International Conference of Banking Supervisors on October 21-22, 2020.

View the Basel Committee's press release on its October 30-31 2019 meeting.

View the Basel Committee's newsletter on capital buffers.

View details of the 21 International Conference of Banking Supervisors.

The U.K. Financial Conduct Authority has extended the date by which firms must implement Brexit contingency plans following the extension of the Brexit deadline from October 31, 2019 to January 31, 2020. Firms and funds should now notify the FCA for entry into the temporary permissions regime by January 30, 2020 and fund managers have until January 15, 2020 to notify the FCA if they wish to change their existing notification. Firms should continue to comply with transaction and trade reporting requirements under the Markets in Financial Instruments Directive and European Market Infrastructure Directive, respectively.
 
View the FCA's statement on contingency planning deadlines.

The European Banking Authority has published the second in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS payouts. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The third opinion will cover DGS funding and the uses of DGS funds. 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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The U.K. Government has published legislation extending the deadline for the U.K.'s withdrawal from the European Union, following an agreement reached with relevant European Union bodies on the extended Brexit deadline. The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 3) Regulations 2019 amend the day of the U.K.'s exit from the European Union from October 31, 2019 to January 31, 2020, granting the U.K. government an additional three months in which to ratify its proposed Brexit deal.

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The U.K. Financial Conduct Authority has published two amending Directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 extending the deadlines by which e-money and payment services firms should notify the FCA of their intention to rely on the temporary permissions regime following the U.K.’s exit from the EU. These firms should now make notifications by January 30, 2020. The extended deadline falls immediately before the revised Brexit deadline of January 31, 2020.

View the FCA's amended Direction on notifications for the e-money services temporary permissions regime.

View the FCA's amended Direction on notifications for the payment services temporary permissions regime. 

The European Banking Authority has published a report identifying potential barriers to customer choice and the cross-border provision of banking and payment services in the EU, together with proposals for how to overcome these issues. Building on the EBA's FinTech Roadmap and the European Commissioner's Consumer Financial Services Action Plan, the report sets out the areas where the institutions, including FinTech firms, may face challenges when seeking to provide intra-EU cross-border services, focusing on authorizations and licensing, consumer protection and conduct of business requirements and anti-money laundering and countering the financing of terrorism. The EBA makes recommendations for where changes to EU primary legislation or further guidelines could address the issues to enhance the EU's single market.

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The U.K. Financial Conduct Authority has published a Policy Statement, final Technical Standards and changes to the Handbook rules on strong customer authentication and common and secure open standards of communication to be applicable when the U.K. leaves the EU. The FCA consulted on the proposed SCA RTS in early 2019 when the U.K. was due to leave the EU on March 29, 2019, and before the EU SCA Regulatory Technical Standards application date. Since then, Brexit has been extended and the EU SCA RTS has applied directly across the EU since September 14, 2019. As a result, the EU SCA RTS would be onshored into U.K. law under the Withdrawal Act. However, in preparation for a no-deal Brexit, the U.K. Payment Services Regulations would require firms to apply the U.K. SCA RTS. As a result, the EU SCA RTS would be revoked and the FCA's SCA RTS will apply in the U.K. in the event of a no-deal Brexit.

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The Legal Entity Identifier Regulatory Oversight Committee has launched a consultation on the allocation of LEIs to government entities. LEIs are reference codes allocated to legal entities for the purposes of unique identification in financial transactions and for other public sector uses. General government entities are eligible for LEIs as they are legal entities, but many (such as Ministries, Agencies and Republics) are not incorporated or do not otherwise have legal personality

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The U.K. Prudential Regulation Authority has launched a consultation on the capital requirements that apply to credit unions. The PRA considers that credit unions approaching the thresholds of £10 million in assets or 15,000 members may find barriers to expansion under the current capital regime. It also finds that the risks that the capital regime endeavours to tackle could be addressed in a simpler manner than the link between capital and credit union membership size and activity which is currently used. The PRA also considers that engaging with small credit unions earlier could increase chances of a non-failure solution.

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