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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The U.K. Financial Conduct Authority has published a feedback statement on the discussion paper, “Building a regulatory framework for effective stewardship” that it published in January 2019 together with the Financial Reporting Council. The discussion paper called for input on how best to encourage the capital markets community to engage more actively in “stewardship” of the assets in which they invest. 

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The Financial Action Task Force has published best practices on beneficial ownership for legal persons. Global standards require authorities to be able to ascertain the ultimate owner of a company or foundation to provide transparency and mitigate against the use of legal persons for financial crime purposes. The FATF's Best Practices document identifies the issues faced in achieving transparency of beneficial ownership and provides recommendations for an effective system that ensures accurate and up-to-date information to authorities in a timely manner. The FATF highlights that using a multi-pronged approach with numerous information sources is considered more effective and the document sets out the key features of an effective multi-pronged system.

View the FATF best practices on beneficial ownership for legal persons.

The Joint Committee of the European Supervisory Authorities has published a Supervisory Statement on the scope of application to bonds of the EU Packaged Retail and Insurance-based Investment Products Regulation. The ESAs have issued the Supervisory Statement in an attempt to avoid the adoption of diverse approaches by national regulators across the EU as to when a Key Information Document is required for different types of bonds under the PRIIPs Regulation. The PRIIPs Regulation, directly applicable across the EU since January 1, 2018, imposes a requirement upon issuers of packaged retail and insurance-based investment products to issue KIDs to retail investors describing key features of their products, in order to enhance transparency and improve investor protection in the PRIIPs market.

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The European Banking Authority has published an opinion recommending amendments to the regulatory treatment of the securitization of non-performing exposures. The opinion examines how securitizations may be used to fund the reduction of NPEs and outlines regulatory constraints imposed on the use of securitizations in this way, alongside its proposals for amendments to the regulatory framework.

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The Working Group on Sterling Risk-Free Reference Rates has written to the Prudential Regulation Authority raising issues in the banking prudential regulation regime that, in its view, will require changes and/or regulatory forbearance if a smooth transition from LIBOR to SONIA is to be achieved. Although the letter focuses on the U.K. regime, the issues are likely to be relevant globally.

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The European Securities and Markets Authority has published its annual Public Statement on European enforcement priorities for listed companies’ 2019 financial reports. The priorities will guide the areas of focus when ESMA and relevant national enforcement authorities assess the reports. 

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The European Commission has invited responses to its consultation on proposed changes to the standardized approach for market risk. The changes follow the Basel Committee on Banking Supervision’s revisions to the Basel III market risk capital framework, which were published in January 2019. 

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The Committee on Payments and Market Infrastructures has prepared a “toolkit” to assist central banks to reduce the risk of wholesale payments fraud related to endpoint security. The Financial Stability Institute at the Bank for International Settlements has also announced that it will make tutorials on wholesale payments security freely available to central banks on request.

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The EU and U.K. have, in principle, agreed new terms for the withdrawal agreement giving effect to the U.K.'s exit from the European Union. These include a revised political declaration and protocol concerning Northern Ireland replacing the controversial backstop. An amended unilateral declaration on consent in Northern Ireland by the U.K. has also been published. The new Withdrawal Agreement provides for a transitional period from the day the U.K. exits the EU until December 31, 2020. That period may be extended for a period of one to two years, if agreed between the EU and the U.K by July 31, 2020.

View the revised Withdrawal Agreement and Political Declaration.

View our client note providing comparisons to the previous versions.

The G7 working group on stablecoins has published a report investigating the impact of global stablecoins. The working group is comprised of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, and is chaired by Benoît Cœuré (Chair of the Committee on Payments and Market Infrastructures). 

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The Financial Stability Board has published a report on regulatory issues arising with respect to so-called stablecoins. The FSB defines a stablecoin as "a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets" which may be "collateralised by fiat currency or commodities, or supported by algorithms".

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The U.K. Prudential Regulation Authority has launched a consultation on proposed amendments to its Supervisory Statement, “The PRA’s approach to supervising liquidity and funding risk”. The amendments are intended to clarify the appropriate use of the Bank of England’s liquidity facilities and the credibility of recovery plans that rely on such facilities.  

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The European Securities and Markets Authority has published the results of its peer review into the supervisory actions of six national regulators in enhancing the quality of derivatives data under the European Market Infrastructure Regulation. EMIR requires EU counterparties to a derivative contract to report details of their contract to one of the seven registered trade repositories supervised by ESMA. 

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The European Central Bank has published a report on the risk management implications of the upcoming move away from the Euro Overnight Index Average (the overnight reference rate for the euro) and EURIBOR (the term reference rate for the euro) to alternative risk-free rates. Both EONIA and EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation. 

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The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for public disclosures by financial institutions under the Capital Requirements Regulation. CRR implements the Basel Committee on Banking Supervision’s Pillar 3 disclosure requirements, which require relevant financial institutions to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR was published in June 2019 and, for the most part, will apply directly across the EU from June 28, 2021.  It incorporates the revised Basel Committee disclosure standards into CRR and mandates the EBA to produce the draft ITS to ensure comparability of the disclosures made with international non-EU active banks. Responses to the consultation should be submitted by January 16, 2020. The EBA expects to submit the revised draft ITS to the European Commission in June 2020.

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The European Banking Authority has published an opinion stating its expectation that national regulators should enforce strong customer authentication requirements on e-commerce card-based payment transactions by December 31, 2020. The Opinion also describes the actions that regulators should take in the lead up to this deadline to ensure compliance. The EBA’s Regulatory Technical Standards on strong customer authentication and common and secure communication, published in accordance with the revised Payment Services Directive, came into force on March 14, 2018 and have applied directly in all Member States since September 14, 2019. In response to questions on the SCA requirements, the EBA also published an Opinion in June 2019, setting out market approaches to payment authentication that would be deemed compliant with the new SCA rules. The EBA acknowledged that some market participants may struggle to comply with the SCA requirements and allowed national regulators to grant e-commerce card-based payment transaction providers additional time to migrate to SCA approaches.

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The European Banking Authority has published a consultation on its proposed guidelines on the implementation of the structural FX position contemplated by the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae, but permits institutions to exclude positions that have been taken for hedging purposes and that are of a structural nature. 

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The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for financial institutions’ reporting requirements under the revised Capital Requirements Regulation. The draft ITS will amend the existing reporting regime applicable to banks subject to the CRR, taking into account certain amendments to that regime made by CRR 2 and the “Backstop Regulation”. Responses to the consultation should be submitted by January 16, 2020.

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The U.K. Financial Conduct Authority has published a feedback statement on its proposals for improving climate change disclosures and the information given to consumers about green financial products and services. The feedback statement follows the FCA’s discussion paper on climate change and green finance, in which it sought comments on potential changes to its regulatory approach in these areas.

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The Financial Stability Board has published its annual report on the 2019 progress made in the implementation of the G20’s financial reforms. The FSB published an interim progress report in June 2019 at the meeting of G20 Finance Ministers and Central Bank Governors in Japan, which summarized FSB member jurisdictions’ progress to date in implementing the recommended reforms. The annual report provides further detail on the progress made and sets out areas for future work.

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The Financial Stability Board has published a report on the progress its member jurisdictions have made in 2019 on the implementation of agreed G20 reforms to over-the-counter derivatives markets. The report finds that there has been limited additional implementation of the reforms since the FSB’s 2018 report.

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The Council of the European Union has adopted the amendments to EU law on CCP supervision. The adopted laws revising the European Market Infrastructure Regulation (EMIR 2.2) will change how both EU CCPs and third-country CCPs are supervised, and implement into legislation the controversial EU "location policy" for the largest third-country CCPs. According to the Council's press release, EMIR 2.2 is scheduled to be published in the Official Journal of the European Union on December 12, 2019 and would come into force 20 days later. The legislative process relevant to EMIR 2.2 has taken place with the U.K. exit from the European Union in the background and many of the changes relevant to third-country CCPs are effectively a response to the U.K.'s decision to leave the EU, given that two of the three largest European Union clearing houses are U.K.-based.

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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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