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.
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Mansion House 2024
November 14, 2024
Rachel Reeves, the U.K. Chancellor has set out a package of reforms in her Mansion House speech. The reforms aim to drive growth and competitiveness in financial services. Ms. Reeves stated that the regulatory changes post-financial crisis created a system which sought to eliminate risk-taking that 'has gone too far' and has led to unintended consequences. Ms. Reeves hopes to maintain the U.K.'s high regulatory standards while rebalancing elements of the regulatory system to drive economic growth and competitiveness. The package includes:- A proposed Financial Services Growth and Competitiveness Strategy
- Further reforms to the U.K.'s wholesale markets framework
- A new Payments Vision
- Confirmation of the introduction of PISCES
- A consultation on a proposed U.K. Green Taxonomy
- Confirms that the provision of ESG ratings will be brought within the scope of the U.K. regulatory perimeter
- Potential credit union common bond reform
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EU Listing Act Package Published in Official Journal of the European Union
November 14, 2024
The following legislation that comprises the EU Listing Act package has been published in the Official Journal of the European Union:- Regulation (EU) 2024/2809 amending the EU Prospectus Regulation, the EU MAR and EU MiFIR (the "Listing Regulation");
- Directive (EU) 2024/2811 amending MiFID II and repealing Directive 2001/34/EC (the "Listing Directive"); and
- Directive (EU) 2024/2810 on multiple-vote share structures (the "Multiple-Vote Shares Directive").
The Listing Regulation and Directive aim to streamline the rules applicable to companies, particularly SMEs, going through a listing process or companies already listed on EU public markets, by alleviating administrative burdens and costs, while preserving a sufficient degree of transparency, investor protection and market integrity. The Listing Directive also amends the EU requirements on how payments are made for investment research. EU firms will be permitted to choose whether to make joint or separate payments for third-party research and execution services. This follows the U.K. change to its rules, which took effect in August. We discuss the EU and U.K. changes in our note, "UK allows bundled payments for third-party research and trading commissions."
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Mansion House: UK Government Finalizes PISCES Policy
November 14, 2024
HM Treasury has published a consultation response, policy note and draft legislation to deliver its commitment to establish the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market for trading private company shares. The documents describe how the PISCES regime, which is a key part of the latest Mansion House reforms, will be established, reflecting the policy decisions and design choices of the government.
In its consultation response, the government notes that the proposal to establish a PISCES Sandbox was well received as an appropriate way to develop and test this new regulatory regime. The government confirms that it will proceed to establish PISCES in a sandbox, granting the Financial Conduct Authority the relevant powers to implement and operate it. The sandbox will run for five years. Firms that want to operate a PISCES platform will need to apply to the FCA for approval and those trading on such a platform will be subject to modified regulations. Future measures to make PISCES permanent will depend on the outcomes of the sandbox.
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Mansion House: Financial Services Growth and Competitiveness Strategy
November 14, 2024
HM Treasury has launched a call for evidence on a proposed Financial Services Growth & Competitiveness Strategy, a key part of the latest Mansion House reforms. Once developed, the Strategy will serve as the central guiding framework for the next ten years through which the government aims to deliver sustainable, inclusive growth for the financial services sector and secure the U.K.'s competitiveness as an international financial center. To meet its objectives, the proposed strategy sets out five core policy pillars central to sustainable growth: innovation and technology, regulatory environment, regional growth, skills and access to talent, and international partnerships and trade. The proposed strategy also identified five priority growth areas within the financial services sector: fintech, sustainable finance, capital markets (including retail investment), insurance and reinsurance markets, and asset management and wholesale services. Responses to the call for evidence may be submitted is December 12, 2024. HM Treasury intends to publish the strategy in Spring 2025.
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Updated Draft UK Short Selling Regulations Published
November 11, 2024
An updated draft version of the Short Selling Regulations 2024, alongside an explanatory memorandum and de minimis impact assessment, have been laid before Parliament. The draft Regulations establish a new legislative framework for the regulation of short selling, creating designated activities for short selling, giving the Financial Conduct Authority rulemaking powers related to these activities and powers to intervene in exceptional circumstances. The updated draft Regulations do not include any requirements for short positions in sovereign debt or sovereign CDS, including the related reporting requirements. This maintains the policy approach previously announced of revoking the short-selling regime for these instruments, for business-as-usual reporting. Sovereign debt and sovereign CDS will, however, be in scope of the FCA's powers in exceptional circumstances.
The updated draft Regulations amend some of the provisions in the original draft SSR and add new provisions.
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Draft Regulations on the UK Designated Activities Regime
November 11, 2024
A draft version of the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024, together with an explanatory memorandum, have been laid before Parliament. The designated activities regime 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 bulletin, "Financial Services and Markets Bill: The Designated Activities Regime in the UK".
The Regulations will amend the Financial Services and Markets Act 2000 with regard to the FCA's supervision and enforcement of DAR requirements. They enable the FCA to supervise designated activities by gathering information and launching investigations into persons carrying out designated activities, and to enforce its designated activity rules by publicly censuring or imposing financial penalties on persons that breach them. They also set out the procedures that will apply to the FCA giving directions concerning designated activities. The Regulations have been laid before Parliament and will enter into force on the day after they are made. -
UK Government Announces PISCES Stamp Taxes on Shares Exemption
October 30, 2024
As part of the Autumn Budget delivered on October 30, 2024, the U.K. Government expressed it is committed to delivering the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market for trading private company shares. In line with that commitment, the government announced a power-enabling HM Treasury to make Stamp Duty and Stamp Duty Reserve Tax changes in relation to financial market infrastructure sandboxes, as established under the Financial Services and Markets Act 2023. This power will be used to provide an exemption from Stamp Duty and Stamp Duty Reserve Tax for transfers on a PISCES platform and for onward transfers to end purchasers which result from trading on a PISCES platform. The exemption will be introduced on a similar timeline to the legislation establishing the PISCES regulatory framework. -
European Securities and Markets Authority Consultation on Technical Advice under the Prospectus Regulation and Call for Evidence
October 28, 2024
The European Securities and Markets Authority has published a consultation paper on draft technical advice under the EU Prospectus Regulation and a call for evidence on prospectus liability. The consultation recommendations aim to facilitate European capital market activity by streamlining and reducing regulatory burden. It also puts forward proposals for non-equity securities that are advertised with ESG features and proposals to update the data reporting requirements to consider the changes introduced by the Listing Act. The Listing Act calls for an analysis of the liability of the information given in a prospectus and an assessment of whether further harmonization is warranted in this regard. It also calls for proposals of amendments to the liability provisions to be presented if relevant. As such the call for evidence on prospectus liability aims to gather input to provide technical advice on whether further harmonization should be considered. The deadline for comments on both publications is December 31, 2024. ESMA aims to publish its final technical advice to the EC in two separate final reports based on feedback received in Q2 2025. -
FCA Financial Promotions Quarterly Data 2024 Q3
October 25, 2024
The U.K. Financial Conduct Authority has published its financial promotions quarterly data for Q3 2024. The FCA summarizes the data collected between July 1 and September 30, 2024 and the action it took against firms breaching financial promotion rules, and referrals and investigations into unregulated activity. The FCA also shows where it is working to improve standards across the market so that consumers are provided with clear and fair financial promotions which are not misleading.
Key messages include:- the FCA's interventions in Q3 resulted in 10,593 promotions being amended or withdrawn by authorized firms, including one firm who withdrew 6,792 promotions, many of which were historical promotions withdrawn as a precaution;
- the FCA issued 552 alerts on unauthorized firms and individuals, 12% of which were clone scams;
- the cryptoasset financial promotions regime came into force on October 8, 2023 and has now been live for a year. Over the last year the FCA has issued 1,702 consumer alerts about illegal crypto promotions, which has resulted in the take down of over 900 scam crypto websites and the removal of 56 apps from U.K. apps stores. The FCA are continuing to work with social media companies to remove and block illegal content on their platforms; and
- the FCA is actively engaging with firms who appear to be providing and advertising unauthorized debt advice and debt solutions to consumers via online promotions. The FCA continues to observe trends of aggressive sponsored promotions placed by unauthorized firms, particularly through TikTok and paid-for Google advertisements.
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EU Announces Next Steps for the Transition to T+1 Settlement
October 16, 2024
The European Commission, the European Central Bank and the European Securities and Markets Authority have published a joint statement on the next steps to support the preparations towards a transition to T+1. Under the EU Central Securities Depositories Regulation, ESMA is required to assess the appropriateness of shortening the settlement cycle in the EU and to propose a detailed roadmap towards a shorter settlement. ESMA plans to deliver its report to the Council of the European Union and the European Parliament in the coming months.
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Draft UK Consumer Composite Investments (Designated Activities) Regulations 2024 Published
October 10, 2024
The draft Consumer Composite Investments (Designated Activities) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations establish a proposed new legislative framework for the regulation of Consumer Composite Investments, formerly Packaged Retail and Insurance-based Investment Products. They replace the following assimilated law relating to PRIIPs: (i) the PRIIPs Regulation; (ii) the PRIIPs Regulations 2017; (iii) Commission Delegated Regulation (EU) 2017/653; and (iv) Commission Delegated Regulation (EU) 2016/1904. The Regulations take into account feedback that HM Treasury received on the original version of the draft statutory instrument, which was published for technical comments in November 2023.
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European Commission Publishes Targeted Consultation on the Effectiveness of the EU Securitization Framework
October 10, 2024
The Directorate-General for Financial Stability, Financial Services, and Capital Markets Union has launched a targeted consultation on the effectiveness of the EU securitization framework. Feedback gathered in preparation of the European Commission's report on the functioning of the Securitisation Regulation, and subsequent stakeholder engagement, indicates that issuance and investment barriers remain high in the securitization market, hindering the EU economy from fully reaping the benefits that securitization can offer. Originators and investors argue that issuance and investment barriers are partly driven by the conservativeness of specific aspects of the regulatory framework, such as transparency and due diligence requirements, as well as the capital and liquidity treatment of securitizations. The consultation seeks feedback on a range of issues impacting the EU securitization market, including: (i) the effectiveness of the securitization framework; (ii) the scope of application of the Securitisation Regulation; (iii) due diligence requirements; (iv) transparency requirements and the definition of public securitization; (v) supervision; (vi) the simple, transparent, and standardized standard; (vii) the securitization platform; and (viii) the prudential and liquidity treatment of securitization for banks. The deadline for comments is December 4, 2024.Topic : Securities -
Council of the European Union adopts EU Listing Act legislative package
October 8, 2024
The Council of the European Union has adopted the Listing Act legislative package, marking the final step in the decision-making process. The package consists of: (i) a regulation amending the Prospectus Regulation, Market Abuse Regulation, and Markets in Financial Instruments Regulation; (ii) a directive amending the revised Markets in Financial Instruments Directive and repealing the Listing Directive; and (iii) a directive on multiple vote shares. The regulation and directive amending MiFID and repealing the Listing Directive seek to streamline the rules applicable to companies going through a listing process or companies already listed on EU public markets. The aim is to simplify the process for companies, particularly SMEs, by alleviating administrative burdens and costs, while preserving a sufficient degree of transparency, investor protection, and market integrity. The multiple-vote shares directive creates a minimum harmonization at EU level that removes obstacles for the access of SMEs with multiple-vote structures to SME growth markets and any other multilateral trading facility open to trading of SME shares. The directive protects the rights of shareholders with fewer votes per share by introducing safeguards on how key decisions are taken at general meetings and also helps investors to take decisions by mandating transparency measures for companies with multiple-vote share structures.
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Draft UK Securitisation (Amendment) (No. 2) Regulations 2024 Published
October 7, 2024
The draft Securitisation (Amendment) (No. 2) Regulations 2024 have been published, together with an explanatory memorandum. At present, U.K. investors in U.K.- or EU-origin Simple, Transparent, and Standardized securitizations can benefit from preferential prudential treatment due to a temporary arrangement. The time by which EU STS securitizations can enter the temporary arrangement will expire on December 31, 2024. This instrument extends the time by which such EU-origin STS securitizations can enter the temporary arrangement to June 30, 2026. The U.K. government is aiming to provide continuity and certainty to investors, until a non-time-limited assessment is undertaken. The explanatory memorandum explains that the three EEA-EFTA states will implement the EU Securitisation Regulation in their respective national legislation indicatively during 2025. It is preferable for the U.K. to undertake a single equivalence assessment at such a time when the EU and the three EEA-EFTA states have implemented the EU Securitisation Regulation uniformly, to reach a single assessment outcome for the EEA. -
Draft UK Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 Published
October 7, 2024
The draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations make transitional amendments to the onshored Packaged Retail and Insurance-based Investment Products Regulation and Commission Delegated Regulation (EU) 2017/565 (the MiFID Org Regulation), relating to cost disclosure requirements for U.K.-listed closed-ended funds (or "investment trusts"). The single aggregate costs figure currently being supplied to clients is not deemed to give an accurate representation of the actual cost of investment in shares in an investment trust. The draft Regulations therefore exclude investment trusts from the scope of the PRIIPs Regulation, meaning investment trusts (and anyone advising on or selling shares in them) will not be obliged to produce a Key Information Document. The draft Regulations also exclude costs of manufacturing and managing shares in a U.K.-listed investment trust from the aggregated cost disclosure requirements in the MiFID Org Regulation. The Regulations will come into force the day after the day on which they are made.
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UK Policy Statement and Final Guidance on the Digital Securities Sandbox
September 30, 2024
The Bank of England and Financial Conduct Authority have published a joint policy statement providing feedback to responses received to the Digital Securities Sandbox joint consultation (CP24/5). We discussed the proposals in April in "UK Regulators Consult on Digital Securities Sandbox". The policy statement covers the following topics: (a) the approach to regulating DSS firms; (b) the scope of the DSS; (c) settlement of the payment leg; (d) operation of the DSS; (e) Gate 2 and end-state rules; (f) supervision of the DSS; and (g) other general issues relating to the DSS. Overall respondents welcomed the regulators proposals, with no respondents explicitly disagreeing with the creation of the DSS.
In response to feedback, the BoE and FCA have made some changes to their proposed approach and guidance, such as: (i) extending the scope of the DSS to include non-GDP (non-pound sterling) denominated assets; (ii) a more flexible approach to firm-specific limits at Gate 2, moving from fixed 'go-live' limits to a flexible range; and (iii) reducing the minimum capital requirement for a DSD from nine to six months of operating expenses.
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UK Conduct Authority Clarifies Forbearance for Investment Trust Disclosure Requirements Under PRIIPs Regulation
September 30, 2024
The Financial Conduct Authority has updated its statement on forbearance in relation to investment trust disclosure requirements under the U.K.'s current Packaged Retail and Insurance-Based Investment Products Regulation. The Government announced earlier in September its intention to exempt listed investment trusts from the PRIIPs Regulation along with a statement on reforms to the U.K. retail disclosure regime through the introduction of Consumer Composite Investments regime. At the same time, the FCA announced it would immediately apply forbearance until the legislation takes effect. We discussed the earlier announcements by HM Treasury and the FCA in "UK Announces Final Reforms to Financial Services Retail Disclosure Requirements".
The updated forbearance statement provides great clarity on the implication of the forbearance as regards compliance by firms with other rules and regulations, including the Consumer Duty and communicating to consumers. The FCA confirms that the forbearance applies along the distribution chain to any firm carrying on business relating to the relevant investment trusts, including manufacturing, distribution or marketing. The FCA states that firms across the distribution chain will need to consider what approach will deliver good outcomes for their retail clients, including the product information needed to support retail investors.
The FCA expects firms in the distribution chain for securities issued by investment trusts to work together to determine and share the required information to enable the continued distribution of these products, in compliance with their more general obligations towards retail investors, in particular under the Consumer Duty. -
UK Accelerated Settlement Taskforce Technical Group Publishes Draft Recommendations
September 27, 2024
The U.K. Accelerated Settlement Taskforce Technical Group has published a draft recommendation report and consultation. The Taskforce was established to examine the case for the securities settlement cycle to be shortened from its current standard of Trade Date plus 2 days, or 'T+2', to Trade Date plus 1 day or 'T+1'. The Taskforce's initial recommendation was that the U.K. should move to T+1 by the end of 2027, which was accepted by the previous government who asked the newly established Technical Group to make recommendations by the end of 2024 on implementing the move. We discuss that recommendation in "UK To Move to T+1 Settlement by Latest End 2027".
The Technical Group's draft report sets out a number of draft recommendations. The main recommendation, referred to as recommendation zero, looks at the scope of instruments that will be covered by the implementation of T+1. There are two scenarios: (a) the U.K. migrates ahead of the EU/Switzerland. In this scenario, some instruments such as ETPs and Eurobonds will be exempted pending a subsequent transition to T+1 of the EU and/or Switzerland; or (b) the U.K., EU and Switzerland migrate to T+1 together, in which case it would be a straight transfer of all instruments currently covered today Central Securities Depositories Regulation.
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Euopean Commission report on the future of European competitiveness
September 10, 2024
The European Commission has published a report on the future of European competitiveness, prepared by Mario Draghi, former President of the European Central Bank. The report aims to set out a new industrial strategy for Europe to overcome barriers to the EU's competitive strength. It sets out priority proposals in the short and medium term in key strategic sectors. For financial regulation, the report focuses on the completion of the Capital Markets Union and the Banking Union.
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UK Financial Services and Markets Act 2023 (Commencement No 7) Regulations 2024 Published
September 3, 2024
The Financial Services and Markets Act 2023 (Commencement No 7) Regulations 2024 (SI 2024/891) have been made. The Regulations revoke certain instruments listed in the Financial Services and Markets Act 2023 relating to securitization, specifically: (i) the Securitisation Regulations 2018; (ii) provisions of the retained EU Securitisation Regulation that have not already been revoked; and (iii) the retained instruments that amended or supplemented the Securitisation Regulation and Capital Requirements Regulation. These instruments are to be revoked so that the new U.K. securitization framework, established under the Securitisation Regulations 2024 can come into force on November 1, 2024 as provided for by the Securitisation (Amendment) Regulations 2024.Topic : Securities -
UK Financial Conduct Authority Updates on Consolidated Tapes for Equities and Bonds
August 13, 2024
The FCA has published two new webpages on its work establishing consolidated tapes for equities and bonds. The final FCA framework for the bond CT was published in December 2023, along with a consultation on proposed payments from the bond consolidated tape provider to data providers, as well as responses to the FCA's discussion paper on the design of the equities CT. Feedback to the FCA's discussion paper was divided as to whether, and how much, pre-trade data should be included in an equities CT. The FCA has now appointed consultants to analyse the potential impact of including pre-trade data on the stability and resilience of U.K. equity markets and the outcomes for different types of users of the market. The FCA intends to provide a further update before the end of the year. As regards the bonds CT, the FCA published a Handbook Notice in April 2024 confirming that it would not require the bond CTP to make payments to data providers. The FCA is finalising the tender design to appoint a bond CTP and expects to commence the tender before the end of the year. The FCA requests any who are interested in taking part in the tender process to contact them by September 13, 2024 to allow it to be in contact with all relevant parties when making decisions to finalise the tender process. -
UK Financial Conduct Authority Consults on Enhancing the National Storage Mechanism
August 9, 2024
The U.K. Financial Conduct Authority has published a consultation on proposals to change the requirements for submitting regulated information to the National Storage Mechanism. The NSM is a free-to-use online archive of company information allowing users to access information about issuers. Regulated information is that disclosed by regulated market issuers in accordance with the Disclosure Guidance and Transparency Rules, Listing Rules, and parts of MAR. The FCA proposes to introduce more comprehensive metadata requirements to improve the functionality of the NSM by making it easier for NSM users to find regulated information. This includes expanding the requirements for the filing of legal entity identifiers and to update some of the headline information that is used to categorize regulated information. The FCA also proposes to standardise the way that Primary Information Providers, those firms approved by the FCA to disseminate regulated information on behalf of issuers, submit information to the NSM using the same standard schema and Application Programming Interface. The FCA states that its proposed changes will enable it to implement improved data quality controls and make it easier for NSM users to find regulated information. The deadline for comments is September 27, 2024.Topic : Securities -
UK Financial Markets Standard Board Publishes Spotlight Review on Pre-Hedging Practices
July 26, 2024
The Financial Markets Standard Board has published a spotlight review on pre-hedging practices. The FMSB is examining the practice as it considers, in principal markets, that there remains uncertainty as to how and when pre-hedging may be undertaken, the rationale and client benefits deriving from the activity as well as the distinction between inventory management, pre-hedging and front running. The spotlight review considers trading practices, across the size and liquidity spectrum, in fixed income, FX and exchange traded funds. It also considers evolving risk management practices around new issuances.
The spotlight review supplements existing FMSB guidance applicable to pre-hedging deriving from the FMSB's Standard for the execution of Large Trades in FICC markets with a series of considerations, derived from case studies, debated by FMSB's Pre-Hedging Working Group. The spotlight review is intended to advance the industry debate on pre-hedging but not codify standards of behavior. In due course, the FMSB will determine if standard-setting would be beneficial in this area, also taking into account international regulatory developments with regard to pre-hedging. -
Financial Conduct Authority Consults on Rules for Admission of Securities to UK Trading Platforms
July 26, 2024
The Financial Conduct Authority has opened a consultation on proposed rules for companies seeking to admit securities to a U.K. regulated market or "primary" multilateral trading facility under the new Public Offers and Admissions to Trading Regulations. The Public Offers and Admissions to Trading Regulations, which were published in January, provide a new framework to replace the U.K. Prospectus Regulation. The FCA proposes to create a new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook, removing the Prospectus Regulation Rules sourcebook. The FCA will also add a new chapter to the Market Conduct sourcebook.
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Financial Conduct Authority Consults on New Public Offer Platform Regime
July 26, 2024
The Financial Conduct Authority has launched a consultation on proposed rules for a new public offer platform regime, which will allow public offer platforms to facilitate companies making public offers of securities to investors outside public markets when raising more than £5 million. The new regulated activity was created by the Public Offer and Admissions to Trading Regulations 2024, which will replace the current U.K. Prospectus Regulation. This new activity will supplement existing regulation, such as existing investment-based crowd funding that is already regulated. Firms wishing to operate a public offer platform will either need to vary their permissions, or seek authorization from the FCA.
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European Securities and Markets Authority Opinion on the Functioning of the Sustainable Finance Framework
July 24, 2024
The European Securities and Markets Authority has published an Opinion on the sustainable finance regulatory framework, setting out possible long-term improvements. ESMA acknowledges that while the EU sustainable finance framework is already well developed and includes safeguards against greenwashing, it does believe that, in the longer-term, the framework could further evolve to facilitate investors' access to sustainable investments and support the effective functioning of the sustainable investment value chain. The opinion builds on ESMA's progress report on greenwashing and the joint opinion of the European Supervisory Authorities on the review of the EU Sustainable Finance Disclosure Regulation. The opinion also represents the last component of ESMA's reply to the Commission's request for input related to greenwashing, next to the final report on greenwashing.
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Financial Conduct Authority Publishes Final UK Listing Rules
July 11, 2024
The Financial Conduct Authority has published a policy statement on the primary markets effectiveness review. The statement summarizes the main feedback from the responses to CP23/31 on the proposed reforms and sets out the final U.K. listing rules. The final rules are broadly as consulted on in CP23/31, with certain amendments that are described in the policy statement. They aim to encourage prospective issuers to choose a U.K. listing by streamlining the rules and removing the 'premium' and 'standard' listing segments in favour of a new commercial companies' category for equity shares. The new rules also remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. The changes are designed to remove frictions to growth once companies are listed, while continuing to place an emphasis on disclosure so that investors can make properly informed investment decisions. The new rules will come into force on July 29, 2024, when the current Listing Rules sourcebook will cease to have effect and will be replaced by the new Listing Rules sourcebook. The rules will also appear in the FCA Handbook on that date.
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Council of the European Union Agrees Negotiating Mandate on Retail Investment Package
June 12, 2024
The Council of the European Union has announced that it has agreed its negotiating position on the retail investment package and published the relevant texts. The package consists of an amending Directive, known as the Omnibus Directive, which revises existing rules set out in the Markets in Financial Instruments II package, the Insurance Distribution Directive, the Undertakings for the Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and Solvency II, as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products Regulation.
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European Securities and Markets Authority Statement on Good Practices for Pre-Close Calls
May 29, 2024
The European Securities and Markets Authority has published a statement on good practice in relation to "pre-close calls" (i.e. communication sessions between an issuer and analysts who generate reports on the issuer's financial instruments). The statement seeks to remind issuers about the applicable legislative framework for pre-close calls and encourages them to follow good practices when engaging in such calls, with the goal of maintaining fair, orderly, and effective markets. Following recent media reports suggesting a connection between episodes of high volatility in share prices and pre-close calls, ESMA reminds issuers that any disclosure of inside information should only take place in accordance with the EU Market Abuse Regulation. Consequently, issuers should only share non-inside information during these pre-close calls.
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EU Final Guidelines on Simple, Transparent And Standardized Criteria for On-Balance Sheet Securitizations
May 27, 2024
The European Banking Authority has published final guidelines on the simple, transparent, and standardized criteria for on-balance-sheet securitizations. The main objective of the guidelines is to provide a single point of consistent interpretation of those criteria and ensure a common understanding of them by originators, original lenders, securitization special purpose entities, investors, competent authorities, and third-party verification agents verifying STS compliance in accordance with Article 28 of the EU Securitisation Regulation throughout the Union.
The EBA has also published amending guidelines, which make targeted amendments to the existing non-asset-backed commercial paper and asset-backed commercial paper securitisation guidelines, for a specific number of these requirements, to ensure that the interpretation provided by the EBA is consistent across all three guidelines. The guidelines will be applied on a cross-sectoral basis throughout the EU with the aim of facilitating the adoption of the STS criteria for OBS securitization, which is one of the prerequisites for the preferential risk weight treatment under the CRR, supporting further lending to the real economy and thus contributing further to the objectives of the Capital Markets Union.Topic : Securities -
New UK Securitization Regime Set to Start on November 1, 2024
May 22, 2024
The Securitisation (Amendment) Regulations 2024 were made on May 22, 2024 and come into force for the most part on November 1, 2024. The Amending Regulations supplement the new U.K. securitization regime established under the U.K. Securitisation Regulations 2024, including establishing November 1, 2024 as the commencement date for the Securitisation Regulations 2024. The Amending Regulations do not revoke the onshored EU Securitisation Regulation 2017, which will take effect through commencement regulations. The Securitisation Regulations 2024 designate, under the new designated activities regime, certain securitization activities when undertaken by a firm in the U.K. and introduce a new definition of "institutional investor", removing overseas Alternative Investment Fund Managers that market or manage AIFs in the U.K. from due diligence requirements.
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UK Publishes Draft Securitisation (Amendment) Regulations 2024
04/22/2024
The draft Securitisation (Amendment) Regulations 2024 were published on April 22, 2024. In combination with the Securitisation Regulations (S.I. 2024/102), the draft Regulations will provide the U.K.'s new regulatory framework for securitizations as part of HM Treasury's Smarter Regulatory Framework. The Securitisation Regulations 2024 establish the designated activities relating to securitizations and repeal detailed legislative firm-facing requirements, which will move the rulebooks of the Prudential Regulation Authority and the Financial Conduct Authority. The Securitisation Regulations will enter into force when the existing Securitisation Regulations 2017 are repealed, which will be implemented by commencement regulations. The draft Regulations restate due diligence requirements for Occupational Pension Schemes and restate the prohibition on the establishment of Securitisation Special Purpose Entities (SSPEs) in high-risk jurisdictions, modifying it to apply to institutional investors, as well as originators or sponsors. -
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 To Move to T+1 Settlement by Latest End 2027
04/11/2024
The recently published Accelerated Settlement Taskforce report makes several recommendations to the U.K. government for moving to faster settlement of securities trades in the U.K. The main recommendation is that the U.K. should move to T+1 settlement by no later than the end of 2027. India is already on T+1 and the U.S will move to T+1 on May 28 this year (we discuss the U.S. move in our client note, "T+1 Settlement Coming May 28, 2024"). The Taskforce also recommends that the U.K. continues to explore the potential for alignment with the EU and other European jurisdictions (e.g., Switzerland). However, if that is not attainable, the U.K. should proceed in any event. Another recommendation is that certain operational changes be mandated from a date in 2025, including the establishment of market standards.
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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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UK Securitisation Regulations Published
03/04/2024
The Securitisation Regulations 2024 (SI 2024/102) were made on January 29, 2024, and will come into force for the most part when the Securitisation Regulation 2017 is revoked. This is part of HM Treasury's Smarter Regulatory Framework. The Securitisation Regulations 2024 designate, under the incoming designated activities regime, certain securitization activities when undertaken by a firm in the U.K. These are:- Acting as originator, sponsor, original lender or securitisation special purpose entity in a securitization.
- Selling a securitization position to a U.K. retail client.
The Securitisation Regulations 2024 introduce a new definition of "institutional investor," removing non-U.K. Alternative Investment Fund Managers that market or manage AIFs in the U.K. from due diligence requirements.
In addition, the Securitisation Regulations 2024 repeal detailed legislative firm-facing requirements. These requirements will be moved to the regulator rulebooks. Both the Prudential Regulation Authority and the Financial Conduct Authority consulted last year on their proposed approach and rules, and are expected to publish their final rules in Q2 this year. -
Fourth Commencement Regulations Under Financial Services and Markets Act 2023 Published
01/18/2024
The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023. The Fourth Commencement Regulations provide, among other things, for:- The repeal of HM Treasury’s obligation to review legislation in various financial services legislation, including but not limited to, the Short Selling Regulation, the Securitization Regulation, the Alternative Investment Fund Managers Regulations and the U.K. version of the European Market Infrastructure Regulation. These repeals took effect on December 15, 2023.
- The revocation from April 5, 2024 of the Data Reporting Services Regulations 2017 and related implementing legislation such as (i) the provisions in the onshored Markets in Financial Instruments Regulations that provide HM Treasury and the regulators with powers to specify further detail relating to data reporting services; and (ii) the provisions in the MiFIR Delegated Regulation on the provision of data on reasonable commercial basis. The revocation of these provisions on this date aligns with HM Treasury's aim of the draft Data Reporting Services Regulations 2023 entering into force on April 5, 2024. The draft Data Reporting Services Regulations 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The FCA has confirmed the final framework for a consolidated tape for bonds, which will also enter into force on April 5, 2024.
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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 Conduct Authority Sets Out Detailed Changes to Listing Rules
01/11/2024
The U.K. Financial Conduct Authority is consulting on detailed proposals to reform its listing rules which are focused on a single listing segment, a more disclosure-based regime and changes to the sponsor regime. The FCA is proceeding with its original proposal to introduce a single listing segment, which it put forward in its consultation last year, discussed in our client note, "FCA Moves Ahead with a Single Equity Listing Category". Taking into account feedback to its consultation, the FCA sets out how the proposed 'commercial companies' equity share listings framework would work, including eligibility, significant and related party transactions, dual/multiple class share structures and sponsors. The 'commercial companies' category would replace the existing 'premium' and 'standard' listing segments. The FCA also describes details of the other listing segments changes it is proposing to make.
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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 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.
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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. -
UK Draft Short Selling Regulations Published
11/29/2023
The U.K. government has published a draft version of the Short Selling Regulations 2024. The draft SSR 2024 will replace the existing U.K. Short Selling Regulation, which was onshored from the EU and which is being repealed under the Financial Services and Markets Act 2023. Alongside the draft legislation, HM Treasury has published a Policy Note, which sets out the final policy following the consultations on the short selling regime and on the regulation of sovereign debt and credit default swaps. The response to the first consultation was published in July this year, and the response to the second consultation was published in November 2023.
The draft SSR 2024 provides that the following are designated activities under the Financial Services and Markets Act 2000 (and so fall under the Financial Conduct Authority's remit whenever any regulated or unregulated person carries them out):- Entering into a short sale of a share.
- Entering into a transaction which creates or relates to a financial instrument other than a share, where an effect of the transaction is to confer a financial advantage on the person entering into that transaction in the event of a decrease in the price or value of a share.
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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. -
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 Financial Conduct Authority Consults on Securitization Rules
08/14/2023
The U.K. Financial Conduct Authority is consulting on its proposed rules for securitization markets, which will replace many of the firm-facing requirements under the existing U.K. Securitization Regulation. The U.K. Prudential Regulation Authority is separately consulting on its own equivalent rules for PRA-authorized firms, which together with the FCA's rules will create a coherent regime for securitizations. The regulators are being handed the power to make these rules under HM Treasury's proposed reforms to the U.K. securitization regime, which will repeal the existing U.K. Securitization Regulation, keeping part of the regime in new legislation and the remainder in the regulators' rulebooks.
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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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HM Treasury Publishes Response on UK Retail Disclosure Consultation
08/07/2023
HM Treasury has published a response to its consultation on the future of U.K. retail disclosures. HM Treasury's consultation (which we discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services") identified various problems with the Packaged Retail and Insurance-Based Investment Products Regulation which currently governs disclosures for complex retail investment products. These included that the PRIIPs regime could be overly prescriptive and potentially misleading in its attempts to make PRIIPs products comparable and that the rules were spread across a mixture of legislation and regulatory rules which led to a complex environment for firms.
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UK Government Consults on Revised Securitization Regime
08/04/2023
HM Treasury has published a near-final draft statutory instrument and related Policy Note setting out its proposed reforms to the U.K. securitization regime. Comments on the draft S.I. can be submitted until August 21, 2023. The final S.I. will be laid before Parliament before the end of 2023.
The PRA is separately consulting on proposed rules to replace its retained EU law securitization requirements for PRA-authorized firms. Responses to the PRA's consultation should be submitted by October 30, 2023. The FCA will publish a consultation on its securitization rules on August 7, 2023.
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