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The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • EU Consultation on Rules to Recalibrate and Further Clarify the Framework Under CSDR Refit
    July 9, 2024

    The European Securities and Markets Authority has published three consultation papers on different aspects of the Central Securities Depositories Regulation Refit. The proposed rules relate to the information to be provided by EU the Central Securities Depositories to their national competent authorities for the review and evaluation process, the information to be notified to ESMA by third-country CSDs, and the scope of settlement discipline.

    The draft rules are set out in three separate consultation papers, covering:
    • The review and evaluation process of EU CSDs, suggesting a harmonization of the information to be shared by CSDs on their cross-border activities and the risks to be considered by the relevant authorities for the purpose of feeding the overall assessment of the competent authorities.
    • Third-country CSDs, where ESMA is proposing to streamline the information to be notified, aiming for an accurate understanding of the provision of notary, central maintenance and settlement services in the Union, limiting the reporting burden.
    • The scope of settlement discipline, covering ESMA's proposals on the underlying cause of settlement fails that are considered as not attributable to the participants in the transaction, and the circumstances in which operations are not considered as trading.

    The deadline for comments is September 9, 2024. Following the consultation, the responses will be assessed to finalize the proposals, before submission to the European Commission in Q1 2025. ESMA states that other consultations about other aspects of CSDR will follow in the coming months.
  • EU Proposals on Supervisory Expectations for Management Bodies of Firms Directly Supervised by ESMA
    July 8, 2024

    The European Securities and Markets Authority has published a consultation paper on supervisory expectations for the management bodies of firms directly supervised by ESMA, namely credit rating agencies, benchmark administrators of EU critical benchmarks and third-country recognized benchmarks, third-country Tier 2 (i.e., systemically important) CCPs, data reporting service providers, securitisation repositories and trade repositories. The consultation paper sets out ESMA's supervisory expectations in relation to good practice in governance arrangements, such as on the role, operation, and effectiveness of the management bodies of these entities. The expectations set out in this consultation paper are intended to provide all of ESMA's supervised entities with the same reference point for ESMA's expectations regarding governance arrangements. ESMA believes that the publication of these expectations will ensure that all ESMA supervised entities are equally aware of ESMA's expectations in this area. It will also increase transparency for any potential applicant or future supervised entities as to what ESMA expects in this area.

    The deadline for comments is October 18, 2024. ESMA will consider the feedback it receives to the consultation with a view to finalising its supervisory expectations in Q1 2025.
  • Bank of England Securities Lending Committee Settlement Efficiency Report
    June 18, 2024

    The Bank of England's Securities Lending Committee has published its Settlement Efficiency Report. The findings have been collated by a Working Group since H2 2023. The aim was to highlight the issues around settlement efficiency in the U.K., building on the work conducted by the International Securities Lending Association. The report confirms that the persistent level of settlement failure within the U.K. securities lending market would be significantly reduced with: (i) enhanced static data management; (ii) real-time communication of position-impacting data between parties; (iii) consistent trade and lifecycle event instruction discipline; (iv) increased investment in pre- and post-trade automation; and (v) a market-wide adoption of industry best practices. It lists a series of recommendations on ways to alleviate the current level of settlement fails. The Committee considers that the report can be useful to all market participants, given it relates to achieving a robust settlement rate alongside a more transparent, real-time framework to address failing and failed securities transactions.
  • European Commission Reports on Extending Empowerment to Adopt Delegated Acts Under the Benchmark Regulation
    June 12, 2024

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

    Read more.
  • International Organization of Securities Commissions Report on Trading Venues' Resilience
    June 5, 2024

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

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

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  • UK Regulators Consult on Digital Securities Sandbox
    04/15/2024

    On April 3, 2024, the Bank of England and U.K. Financial Conduct Authority published a joint consultation paper on proposed rules for the incoming digital securities sandbox. The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowered HM Treasury to establish sandboxes to facilitate the use of digital assets in financial markets. HM Treasury confirmed its approach to the DSS, which is the first such sandbox, in December 2023. The DSS will offer eligible firms a modified set of rules and regulations for a period of five years, enabling them to test out services using technology such as distributed ledger technology and give the regulators time to finesse a regulatory regime. It is hoped that digital securities could bring advantages, such as streamlining processes and reducing settlement risk and settlement times.

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  • UK Public Offers and Admissions to Trading Regulations Published
    03/06/2024

    On January 29, 2024, the Public Offers and Admissions to Trading Regulations 2024 (SI 2024/105) were published. The Regulations implement the new Public Offers and Admission to Trading Regime, part of the new designated activities regime, and revise the existing prospectus regime inherited from the EU that currently sits in the U.K. Prospectus Regulation. The designated activities regime (DAR) is a new U.K. concept to give the Financial Conduct Authority rulemaking powers over financial sector activities, such as public offers and listing, which are not necessarily carried out by regulated firms such as banks (we discussed the DAR in our client note, "A Boost For UK Financial Services"). The new Regulations introduce a general prohibition on public offers of securities, coupled with a collection of exceptions from this prohibition. Many of the existing exemptions in the U.K. Prospectus Regulation, such as offers solely to qualified investors and offers made to fewer than 150 persons, are retained. Certain provisions, such as those establishing the new designated activities and provisions enabling the FCA to make rules, came into force on January 30, 2024. Most of the other provisions will enter into force once the U.K. Prospectus Regulation is revoked using powers under the Financial Services and Markets Act 2023. The FCA has engaged with stakeholders regarding many of the changes that will be housed in its rulebook in the future. It is expected to publish a consultation paper in Summer 2024 on its detailed proposals.

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  • EU Eases EMIR 3 Clearing Mandate
    02/19/2024

    The Council of the European Union and European Parliament have reached provisional political agreement on the latest revisions to the European Market Infrastructure Regulation, publishing on February 14, 2024, the agreed text of the EMIR 3 Regulation and EMIR 3 Directive. The controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products, has been substantially watered down from the European Commission's December 2022 proposal (we discussed the Commission's proposals in our client note, "Clearing in the EU After EMIR 3").

    According to the final draft text, in-scope counterparties for the new "active account" requirement will be required to open and maintain accounts with EU CCPs and clear some transactions through EU CCPs for in-scope products. However, the Commission's (and some member states') ambitious and misguided attempt to force market relocations into Europe seem to have faltered. Even the largest EU derivatives traders (with EUR 6 billion + of open positions) need only clear a minimum of five (5) trades per annum for sub-categories each of the in-scope categories of products. In-scope products are interest rate derivatives denominated in euro and Polish zloty; and Short-Term Interest Rate Derivatives (STIR) denominated in euro. It had previously been proposed for CDS denominated in euro to be included, but this product is no longer in scope. 

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  • HM Treasury Publishes Special Resolution Regime Code of Practice for Central Counterparties
    01/16/2024

    HM Treasury has published the Central Counterparties Special Resolution Regime Code of Practice, setting out guidance on the operation of the expanded resolution regime for CCPs established under the Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services). The FSM Act 2023 replicates some, but not all, aspects of the EU's CCP Recovery and Resolution Regulation (which came into effect post-Brexit), granting powers to the Bank of England, as the U.K. resolution authority, to safely resolve a CCP. The expanded U.K. regime came into effect on December 31, 2023 (by virtue of The Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023), applying to any resolution that commences from that date. The Code applies to the Bank of England as well as HM Treasury, the Prudential Regulation Authority and the Financial Conduct Authority (all of which have roles in the operation of the special resolution regime).

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  • UK Legislates to Implement the Digital Securities Sandbox
    01/12/2024

    Legislation implementing the U.K.'s first digital sandbox – the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 – came into force on January 8, 2024. The DSS Regulations enable the Digital Securities Sandbox to be established. The regulators are expected to consult soon on the proposed application process and rule changes.

    U.K. recognized investment exchanges, recognized central securities depositories and investment firms that are licensed to operate a multilateral trading facility or organised trading facility, as well as any other U.K. firms identified by the Financial Conduct Authority or Prudential Regulation Authority, may participate in the FMI sandbox as a "sandbox entrant". Sandbox arrangements carried out by a sandbox entrant must relate to either the activity of operating a trading venue or carrying on maintenance, notary or settlement functions in relation to in-scope instruments, or be ancillary to those activities. In addition to the ability of the primary sandbox entrant to carry out those activities within the sandbox, the following classes of firms may participate in FMI sandbox arrangements: firms using the services provided by the sandbox entrant; firms providing services to the sandbox entrant or its users; and firms carrying on activities or providing services in connection with an in-scope instrument used in connection with the FMI sandbox arrangements. By including this third class of firms, firms would be allowed to provide services that are ancillary or complementary to trading and settlement activities, such as clearing, within the sandbox.

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  • UK Extends Transitional Period for Third-Country Benchmarks
    01/08/2024

    The Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 were enacted on December 19, 2023. The Regulations amend two pieces of legislation that are set to be repealed by the Financial Services and Markets Act 2023, both of which are subject to a transitional period until that repeal takes place. HM Treasury is able to amend the legislation during the transitional period to ensure that it remains up to date.

    The Regulations amend the U.K. Capital Requirements Regulation to reintroduce the inadvertently removed "discount factor" that reduces the amount of capital that small- and medium-sized firms must hold for their trading and derivative activities. The amendment took effect on December 20, 2023. This move is in line with the approach of other leading jurisdictions and aligns with the government's policy to enhance the competitiveness of the U.K. markets. It also accords with the Prudential Regulation Authority's introduction of a simpler prudential regime for Small Domestic Deposit Takers.

    The Regulations also amend the U.K. Benchmarks Regulation to extend the transitional period for third-country benchmarks from the end of 2025 to the end of 2030. This change is in line with HM Treasury’s policy announced in November 2023. The extension took effect on January 1, 2024.
  • HM Treasury Confirms Equivalence of US Commodity Futures Trading Commission Regime for Central Counterparties
    12/18/2023

    A U.K. statutory instrument has been published specifying that the US Commodity Futures Trading Commission regime for central counterparties is equivalent to the U.K. regime (which is set out under the U.K. European Market Infrastructure Regulation). The new SI — The Central Counterparties (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2023 (with accompanying explanatory note) — will take effect from December 28, 2023. The CFTC equivalence decision will only apply to CCPs that are registered with the CFTC and have either been classified as systemically important by the CFTC or otherwise voluntarily comply with the CFTC requirements for systemically important CCPs.

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  • HM Treasury Confirms Approach to Digital Securities Sandbox
    12/12/2023

    Following its consultation earlier this year, HM Treasury has published a response to its consultation on the Digital Securities Sandbox, confirming that it will mostly adopt the approach consulted on to establish the DSS. The DSS, which will be the first sandbox to be established using new powers granted by the U.K. Financial Services and Markets Act 2023, is intended to facilitate the use of digital assets in financial markets. The DSS is designed to allow firms to: (i) establish and operate FMIs using digital asset technology; and (ii) perform the activities of central securities depositories and trading venues in relation to existing security classes.

    HM Treasury intends to lay before Parliament draft legislation to implement the DSS, which will be run by the Financial Conduct Authority and the Bank of England. The regulators will be consulting soon on their proposed approaches to the DSS, including the application process and proposed rule changes.

    Read more.
  • UK Regulators Propose Rules for Supervising Critical Third Parties
    12/12/2023

    Following feedback to their July discussion paper, the U.K. regulators—the Bank of England, Prudential Regulation Authority and Financial Conduct Authority—have launched a joint consultation proposing rules and regulatory expectations for critical third parties. This follows concerns that the financial sector relies heavily on unregulated service providers, particularly in the IT sector, for critical infrastructure whose failure could cause systemic issues or customer issues. The Financial Services and Markets Act 2023 gave HM Treasury powers to designate an entity as a "critical third party" if its failure would pose financial stability or confidence risk to the U.K. and the regulators will have new direct powers over third parties that provide critical services to authorized firms, their service providers and financial market infrastructures. The regulators' rules would only apply to the services provided by a CTP to one of those firms. Responses to the consultation may be submitted until March 15, 2024.

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  • UK Acts to Extend Transitional Period for Third-Country Benchmarks
    11/29/2023

    HM Treasury has published a policy paper and draft legislation for extending the transitional period for third-country benchmarks under the U.K. Benchmarks Regulation. The transitional period will be extended from the end of 2025 to the end of 2030.

    The U.K. Benchmarks Regulation provides that no financial instruments and financial contracts in the U.K. may start to reference a benchmark provided by a third-country benchmark administrator unless that benchmark administrator has approval through equivalence, recognition or endorsement. However, the applicability of these provisions to third-country benchmark providers has been extended numerous times. The government will consider whether the third-country benchmarks regime should be revised as part of the Smarter Regulatory Framework. The extension to 2030 is intended to provide certainty to market participants while that assessment and related work is carried out. The draft legislation is intended to come into force on January 1, 2024.

    In October this year, the EU extended to the end of 2025 the transitional period for third-country benchmarks under the EU Benchmarks Regulation.
  • HM Treasury Seeks Views on Clearing Exemption for Pension Schemes
    11/29/2023

    U.K. EMIR (the onshored European Market Infrastructure Regulation) generally requires the clearing at a central counterparty of all interest rate swaps and credit default swaps. As announced earlier this year, HM Treasury has launched a review of an applicable exemption for pension funds, with the publication of a call for evidence. Currently, pension schemes meeting certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR due to the difficulty that pension funds would find in funding margin calls; nominally, to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. In June, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 extended the temporary exemption for pension schemes to June 18, 2025.

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  • Bank of England Proposes Regulatory Regime for Systemic Payment Systems Using Stablecoins
    11/27/2023

    The Bank of England has published a discussion paper on its proposed approach to developing a regulatory regime for systemic payment systems using stablecoins and related service providers. The BoE’s paper follows the government’s recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins which confirmed that these types of stablecoins will be brought into the U.K. regulatory perimeter.

    This is part of HM Treasury’s plan to regulate cryptoassets, focusing first on fiat-backed stablecoins. The BoE will be responsible for the financial stability of systemic payment systems using stablecoins. The Financial Conduct Authority will supervise non-systemic fiat backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only, and has published a discussion paper alongside the BoE's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the bank' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems using fiat backed stablecoins.

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  • HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
    11/03/2023

    HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:
    • Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
    • Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
    • Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.

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  • HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins
    11/03/2023

    HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.

    The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.

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  • HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
    11/03/2023

    HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).

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  • EU Proposes Reducing Scope of the EU Benchmark Regulation
    11/01/2023

    The European Commission has published a legislative proposal for reducing the scope of the EU Benchmark Regulation. The EU BMR provides the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks.

    The Commission's proposal, designed to ease the burdensome requirements for smaller benchmark administrators, is to change the scope of the BMR by removing the requirement for non-significant benchmark administrators to obtain authorization or registration (EU administrators) or endorsement or recognition (third-country administrators). This will mean that the requirements for governance and control of administrators would no longer apply to these benchmark administrators.

    The approval and governance requirements would continue to apply to significant benchmark administrators, critical benchmark administrators and, irrespective of significance, to administrators of the EU Paris-aligned Benchmark or EU Climate Transition Benchmarks.

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  • EU Extends Use of Third-Country Benchmarks Until End 2025
    11/01/2023

    A Commission Delegated Regulation extending the transitional period laid down for third-country benchmarks has been published in the Official Journal of the European Union.

    The EU Benchmark Regulation limits the use by EU supervised entities of benchmarks provided by third-country benchmark administrators. Under transitional provisions, no financial instruments and financial contracts in the EU may start to reference a benchmark provided by a third-country administrator on or after December 31, 2023 (extended in 2022 from January 1, 2021), unless the benchmark and administrator are included in the register maintained by the European Securities and Markets Authority following an equivalence decision by the European Commission, or recognition or endorsement by a national regulator. However, a benchmark provided by a third-country administrator that is already being referenced in financial instruments and financial contracts in the EU on January 1, 2024, may continue to be referenced in those contracts and financial instruments.

    The Delegated Regulation, which takes effect on October 26, 2023, extends the transitional date from December 31, 2023 to December 31, 2025. The transitional provision does not apply to any EU benchmark whose administrators relocate to a third country during the transitional period.
  • UK Government Publishes Draft Regulations on CCP Recovery & Resolution
    10/20/2023

    The draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 were laid in Parliament on October 16, 2023. The draft Regulations provide for corporate law modifications and other amendments to ensure that the U.K. CCP resolution regime functions effectively. The Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for U.K. Financial Services") expanded the CCP resolution regime, giving the Bank of England, as resolution authority, additional powers to safely resolve a failing CCP. Most of the provisions of the expanded regime entered into force on August 29, 2023, under the first commencement regulations made under the FSM Act. Using powers conferred by the FSM Act, HM Treasury, through the draft Regulations, aims to ensure legal certainty and coherence by amending provisions of existing legislation, such as the Companies Act 2006 and the Bank Recovery and Resolution (No.2) Order 2014. The draft Regulations are intended to enter into force on December 31, 2023.
  • EU Authority Seeks Feedback on Potential Shorter EU Settlement Cycle
    10/16/2023

    The European Securities and Markets Authority has opened a call for evidence on shortening the settlement cycle in the EU. The existing EU settlement cycle for trades in transferable securities executed on trading venues is by no later than the second business day after the trade takes place, known as T+2. Responses to the call for evidence may be submitted by December 15, 2023. ESMA will report to the European Commission during 2024, although an earlier report may be produced if ESMA considers that regulatory action is needed in response to the move to T+1 or T+0 in other jurisdictions.

    ESMA is asking for feedback from financial market participants on the impact on their operations of a reduced securities settlement cycle to T+1 or T+0, what benefits and costs it would bring, and how and when a shorter settlement cycle could be achieved. ESMA considers that the EU landscape is more complex than that in other jurisdictions because there is no centralized EU post-trade financial markets infrastructure and no harmonized securities law. Finally, ESMA seeks input on the impact of developments in other jurisdictions, such as the intended move by the U.S. and Canada to T+1 in mid-2024 and the U.K.'s assessment of changing to T+1 or T+0, an initial report on which is expected by the end of this year (announced as part of the Edinburgh Reforms which are discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services").
  • UK Extends Temporary Recognition Regime for Third Country Central Counterparties and Transitional Regime for Qualifying Central Counterparties
    09/21/2023

    The Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2023 were made on September 13, 2023 and will enter into force on November 1, 2023, extending the U.K.'s temporary recognition regime for third-country CCPs to December 31, 2025. The TRR allows third-country CCPs to continue offering clearing services in the U.K., pending full recognition or equivalence decisions being granted. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") granted the Bank of England new rulemaking powers over CCPs and provides for the future framework for market access for overseas CCPs. The extended TRR will enable the current regime for overseas CCPs to continue while the U.K.'s new regime is developed, and ensures that certain overseas CCPs for whom recognition decisions have not yet been granted can continue to offer services in the U.K.

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  • UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
    09/14/2023

    The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.

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  • HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation
    08/14/2023

    HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.

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  • HM Treasury Consults on First Financial Market Infrastructure Sandbox – the Digital Securities Sandbox
    08/07/2023

    HM Treasury has published a consultation on the establishment of a financial market infrastructure sandbox, known as the Digital Securities Sandbox. The sandbox will be established using new powers granted by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"), empowering HM Treasury to set up individual FMI sandboxes. The sandboxes are designed to enhance understanding of the use cases for emerging digital asset technologies, including distributed ledger technology. HM Treasury can modify or disapply legislation and rules within the sandbox to permit different technologies to be tested that would not be possible under the existing legislative and regulatory framework, with the potential to make permanent changes to legislation based on the findings of the sandbox.

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  • UK Regulatory Guidance on Trading Venue Regulatory Perimeter
    08/04/2023

    The U.K. Financial Conduct Authority has issued final guidance to clarify the scope of the regulatory perimeter for trading venues and the regulatory approvals needed to conduct their business. The guidance caters for new platforms emerging from technological developments. The guidance is one of the outcomes of HM Treasury's Wholesale Markets Review (which we discuss in our client note, "UK Wholesale Markets Review"). Other aspects of the Review are being implemented through the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") or by amendments to FCA rules.

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  • EU Opinion on Trading Venue Perimeter
    04/03/2023

    On February 2, 2023, the European Securities and Markets Authority published a final report and an Opinion on the trading venue perimeter. The Opinion clarifies the definition of multilateral systems under the EU's revised Markets in Financial Instruments Directive and sets out guidance on when systems should be considered as multilateral such that authorization as a trading venue would be required. In issuing the Opinion, ESMA is seeking to address the regulatory inconsistencies that have arisen because there is no EU-wide homogenous view as to what constitutes a multilateral system and to provide more certainty about when a system will be considered multilateral, and therefore should apply for authorization as a trading venue. The U.K.'s Financial Conduct Authority recently consulted on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA is expected to publish its final guidance in Q2 2023. 

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  • UK Government Publishes its Proposals for Cryptoasset Regulation
    02/14/2023

    The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.

    The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.

    The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.

    We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation".
  • EU EMIR 3 Proposals Published
    01/19/2023

    The European Commission published proposals to amend the EU's European Market Infrastructure Regulation (EMIR) in December 2022 (EMIR 3). According to the Commission, some of these measures are aimed at improving the competitiveness of EU CCPs and of EU clearing activities, and to reduce existing reliance by EU counterparties on U.K. CCPs. Since the Brexit referendum, the EU has been grappling with the bloc's continued reliance on U.K. CCPs. The most controversial aspect is a new mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products.

    EMIR 3 would also bring in several technical changes relating to the clearing thresholds and how these operate for non-EU exchange trade derivatives (ETDs) and the exemption for certain intragroup transactions. Other proposals seek to mitigate some of the issues arising from the strain on the energy market, in particular the difficulties in fulfilling margin obligations.

    Our client note, "Clearing in the EU After EU EMIR 3" describes the EMIR 3 proposals in more detail.
  • Global Regulators Publish Discussion Paper on Central Counterparty Practices to Address Non-Default Losses
    08/04/2022

    The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a discussion paper on the practices that central counterparties use to manage losses arising from non-default events, e.g., operational risk, investment risk, custody risk and legal risk.

    Read more.
  • UK Regulators Propose Requirements for Critical Third Parties' Services to UK Regulated Firms
    07/21/2022

    The Bank of England, Prudential Regulation Authority and Financial Conduct Authority (together, the supervisory authorities) have published a discussion paper proposing measures to supervise and enhance the resilience of critical third parties (CTPs) to the U.K. financial sector. Responses to the discussion paper may be submitted until December 23, 2022. The supervisory authorities intend to consult on proposed requirements for CTPs in 2023.

    Currently, the supervisory authorities' direct powers over entities providing critical services to U.K. authorized firms, their service providers (authorized e-money institutions, payment institutions and registered account information services) and financial market infrastructures (together, U.K. regulated firms) are limited. The Financial Services and Markets Bill, introduced to Parliament yesterday, would grant HM Treasury and the supervisory authorities' new express powers to oversee such third parties. HM Treasury will be able to designate an entity as a CTP if it provides services to U.K. regulated firms and its failure would pose financial stability or confidence risk to the U.K.

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  • UK Proposals for Regulating Systemic Payment Activities
    07/21/2022

    HM Treasury has opened a consultation on payments regulation and the systemic perimeter.  The consultation arose out of the Payments Landscape Review and the government’s commitment to consult on bringing systemically important entities within payment chains under Bank of England regulation.  Market developments and innovation have changed how risks are dispersed across payment networks. It is therefore likely, according to HM Treasury, that some entities operating in the payments space are not subject to systemic supervision by the Bank of England and as a result pose systemic risks to the U.K. financial system or even to those entities that are subject to Bank of England supervision.  This consultation makes various proposals to address such risks or issues. Responses to the consultation may be submitted until October 11, 2022.  The government will respond to that feedback in 2023.

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  • Final UK Policy on Regulation of Central Counterparties and Central Securities Depositories Post-Brexit
    07/20/2022

    HM Treasury has published its final policy approach to the regulation of central counterparties and central securities depositories under the Financial Services Future Regulatory Framework Review. The response is published on the same day as the Financial Services and Markets Bill is introduced to Parliament, which will implement these changes as well as the reforms to the U.K.’s regulatory architecture post-Brexit. HM Treasury has also published its final response to the Financial Services Future Regulatory Framework Review in which it sets out the government's final policy approach to reforming the U.K.’s regulatory architecture post-Brexit.

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  • International Bodies Confirm Application of Principles for Financial Market Infrastructures to Systemically Important Stablecoin Arrangements
    07/13/2022

    The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.

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  • EU Consultation on Guidelines for Applications to Operate DLT Market Infrastructures under the EU Pilot Regime
    07/11/2022

    The European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:
    • the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
    • the method that applicants should use to provide the requested information and documents to their competent authorities.

    Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.
  • EU Distributed Ledger Technology Pilot Regime Published
    06/02/2022

    The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.

    Read more.
  • UK Task Force Publishes Recommendation for Improving Post-Trade Processes
    04/21/2022

    report on the Future of Post-Trade. The Taskforce is made up of financial market industry individuals involved in post-trade processing activities and was set up as part of the Bank of England's response to the "Future of Finance" report, which set out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that.

    Read more.
  • UK Financial Regulators' Statement on Suspension of Nickel Trading on London Metal Exchange
    04/04/2022

    The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have published a joint statement on the London Metal Exchange's suspension of nickel trading between March 8-16, 2022. Trading was suspended due to challenging commodity market conditions following Russia's invasion of Ukraine.

    Read more.
  • UK Prospectus Review: Government Confirms Policy for Reforms to Boost London's Capital Markets
    03/01/2022

    Following its consultation last year, HM Treasury has set out its policy approach to amending the U.K. Prospectus regime. The current U.K. Prospectus Regulation will be replaced by legislation when parliamentary time allows. The changes will, among other things, separate the regulation of public offers of securities from the regulation of admissions of securities to trading, as Lord Hill recommended. In addition, the Financial Conduct Authority will be granted greater responsibility for the detail of the new regime through rules. The complete set of reforms will only apply once those rules are implemented. The main changes are set out below.

    Read more.
  • European Securities and Markets Authority Publishes Call for Evidence on Climate Risk Stress Testing for Central Counterparties
    02/23/2022
     

    The European Securities and Markets Authority has published a Call for Evidence on climate risk stress testing for EU central counterparties. Responses should be submitted by April 21, 2022.

    Read more.

  • EU Grants Further Time-Limited Equivalence for UK CCPs
    02/09/2022

    An EU Commission Implementing Decision extending the equivalence of U.K. CCPs to June 2025 has been published in the Official Journal of the European Union. The equivalence decision applies to U.K. CCPs already established and authorized in the U.K. on December 31, 2020 and will apply from July 1, 2022, which is when the existing equivalence decision expires. Andrew Bailey, in his speech at TheCityUK Annual Dinner in February 2022, questioned why the equivalence decisions are time-limited. Most equivalence decisions for CCPs in other jurisdictions are not time-limited, although the EU is able to revoke a decision if a jurisdiction is deemed not to maintain equivalence with the EU regime.

    The Decision follows the announcement yesterday by the Commission on the extension and the launch of a targeted consultation on the review of the central clearing framework in the EU. The consultation is seeking views on ways to improve the competitiveness of EU CCPs and clearing activities while also ensuring the appropriate supervision of their risks. The consultation closes on March 8, 2022.
  • UK Government Consultation on Regulation of Central Counterparties and Central Securities Depositories
    01/17/2022

    HM Treasury has released a further consultation under the Future Regulatory Framework Review concerning the regulation of central counterparties and central securities depositories. The Future Regulatory Framework Review is designed to assess whether the U.K. financial services regulatory framework is fit for purpose, considering the U.K.'s exit from the EU, climate change and other global and technological challenges. HM Treasury has published a series of consultations on different aspects of the future framework, including the Phase II consultation in October 2020 and the Proposals for Reform paper published in November 2021. Responses to HM Treasury's latest consultation on CCPs and CSDs may be submitted until February 28, 2022.

    Read more.
  • UK Financial Conduct Authority Publishes Feedback Statement on Access to Wholesale Data
    01/11/2022

    The U.K. Financial Conduct Authority has published a feedback statement relating to the call for input on accessing and using wholesale data. In the feedback statement, the FCA summarizes the responses received and the FCA's findings on whether data are being priced and sold competitively. The FCA confirms that it will undertake the following work to gain a deeper understanding of the potential harm and, where appropriate, take steps to mitigate any harm. In particular, the FCA will focus on the following:
     
    1. Trading data: in Spring 2022, the FCA will run an information gathering and analysis exercise that concentrates on the pricing of trading data, underlying costs and the terms for the sale of trading data. The FCA's findings will be published later in 2022.
    2. Benchmarks: in Summer 2022, the FCA will launch a market study into how competition operates between benchmarks, which will include the pricing of benchmarks, contractual terms and obstacles to switching between benchmarks.
    3. Credit Rating Agencies: by the end of 2022, the FCA will begin a market study on the competition in the sale of credit rating data, including pricing, contractual relationships, difficulties in entry to the credit rating data market and innovation.
    4. Alternative data and advanced analytics: the FCA has commissioned research on the nature and scale of alternative data.
  • European Securities and Markets Authority Provides Regulatory Forbearance for EU CSDR Buy-In
    12/17/2021

    The European Securities and Markets Authority has issued a public statement on the supervisory approach to the implementation of the buy-in regime under the EU Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The settlement discipline regime is set out in EU Regulatory Technical Standards. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. CSDR and the RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a mandatory buy-in process. The application date of the settlement discipline rules has been postponed several times, most recently, citing the coronavirus pandemic, to delay the application date to February 1, 2022.

    Read more.
  • European Securities and Markets Authority Provides Regulatory Forbearance for EU Clearing and Derivatives Trading Obligations in Support of LIBOR Transition
    12/16/2021

    The European Securities and Markets Authority has issued a statement in which it states that EU national regulators should not, from January 3, 2022, prioritize supervisory action for any failures by firms to comply with the mandatory clearing obligation under the European Market Infrastructure Regulation, for interest rate derivatives referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and the derivatives trading obligation for IRD classes referencing GBP LIBOR or USD LIBOR. On November 18, 2021, ESMA submitted final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations in support of the benchmark transition to risk-free rates. However, ESMA is aware of the time that the approval process may take and therefore considers that regulatory forbearance is appropriate.
  • European Securities and Markets Authority Publishes Proposed EU Clearing and Derivatives Trading Obligations Changes for LIBOR Transition
    11/18/2021

    The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations for the benchmark transition to risk-free rates. To support the transition away from EONIA and LIBOR to risk-free rates such as €STR, ESMA is proposing to amend the scope of the derivatives clearing and trading obligations for interest rate derivatives denominated in EUR, GBP, JPY and USD. In particular, ESMA is proposing to:
    • Remove IRD classes referencing GBP and USD LIBOR from the clearing and trading obligations.
    • Remove IRD classes referencing EONIA and JPY LIBOR from the clearing obligation.
    • Introduce a clearing obligation for IRD classes referencing €STR, SONIA and SOFR.

    The draft RTS have been submitted to the European Commission for endorsement.
  • Bank of England Drops Warning Against Profit Distributions for Financial Market Infrastructures
    11/11/2021

    The Bank of England has written to the CEOs of all regulated U.K. financial market infrastructures notifying them that they are no longer expected to discuss prospective shareholder distributions with the BoE.

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