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Key Regulatory Topics: Weekly Update 19-25 February 2021

Our weekly update on key regulatory topics affecting the financial services sector.

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Please see the Other Developments section for the MoU agreed between the ECB, FCA and BoE on post-Brexit supervisory cooperation, effective from 1 January.

Capital Markets

Please see the Markets and Markets Infrastructure section for a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union on future regulatory developments.

Consumer / Retail

 Please see the Markets and Markets Infrastructure section for a statement by Steven Maijoor, ESMA Chair, to the EP’s Economic and Monetary Affairs Committee relating to GameStop share trading and related phenomena.

FCA finalised guidance for firms on the fair treatment of vulnerable customers

On 23 February, the FCA finalised its guidance setting out its view on how firms should comply with their obligations under the FCA’s Principles for Business and ensure that they treat vulnerable customers fairly. The FCA explains that to achieve good outcomes for vulnerable customers, firms should: (i) understand the needs of their customer base; (ii) ensure their staff have the right skills and capability to recognise and respond to the needs of vulnerable customers; (iii) respond to customer needs throughout product design, flexible customer service provision and communications; and (iv) monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening. The FCA sets out relevant actions firms should take under each of these headings. The guidance applies to all firms where the Principles apply, regardless of sector. It applies to the supply of products or services to retail customers who are natural persons, even if a firm does not have a direct client relationship with the customer. Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensures the fair treatment of all customers, including vulnerable customers.

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Please see the other sections for product-specific updates relating to Covid-19.


Please see the Markets and Markets Infrastructure section for: a statement by Steven Maijoor, ESMA Chair, to the EP’s Economic and Monetary Affairs Committee (ECON) relating to GameStop share trading and related phenomena; and a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union on future regulatory developments.

ECB Opinion on proposed Regulation on Markets in Crypto-assets

On 22 February, the ECB published an opinion on the proposed Regulation on markets in crypto-assets (MiCA). The ECB welcomes the initiative of the EC to establish a harmonised framework at EU level for crypto-assets and related activities and services, which forms part of the EC’s digital finance package. However, the ECB sets out its drafting proposals for a number of targeted amendments to the proposed regulation relating to: (a) the responsibilities of the ECB, the Eurosystem and the European System of Central Banks concerning the conduct of monetary policy; (b) the smooth operation of payment systems; (c) the prudential supervision of credit institutions; and (d) financial stability. Among others these include: (i) to confirm that the proposed regulation would not apply to the issuance by central banks of central bank money based on DLT or in digital form as a complement to existing forms of central bank money in order to avoid any potential confusion with regard to the legal nature and characteristics of crypto-assets (if and where) issued by central banks vis-à-vis central bank money; and (ii) to further clarify the scope of application on what constitutes a crypto-asset. In particular, to provide more clarity as to the distinction between crypto-assets that may be characterised as financial instruments (falling under the scope of the MiFID II) and those which would fall under the scope of the proposed regulation.

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Funds and Funds Regulation

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussing the FSB’s priorities for 2021.

EBA consults on draft technical standards to improve supervisory cooperation for investment firms

On 24 February, the EBA began two consultations on regulatory technical standards (RTS) and implementing technical standards (ITS) on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms, supplementing the Investment Firm Directive (IFD). The first consultation covers draft RTS on colleges of supervisors for investment firms groups and specifies the conditions under which colleges of supervisors exercise their tasks. The RTS are built on the experience gained over the years in the colleges of supervisors of credit institutions and larger and more complex investment firms groups that have been established in accordance with the CRD. The draft RTS are structured around four main sections: (a) establishment of colleges; (b) functioning of colleges; (c) planning and coordination of supervisory activities in going concern situations; and (d) planning and coordination of supervisory activities in preparation for and during emergency situations. The second consultation on draft RTS and ITS on information exchange between the competent authorities of home and host Member States address situations where investment firms operate in another Member State through branches or the free provision of services, where colleges may not be established. In particular, the draft RTS specify the information that host Member State competent authorities and home Member State competent authorities shall exchange with each other, whereas the draft ITS establish standard forms, templates and procedures for sharing the information specified in the RTS. The deadline for comments on both consultations is 23 April, and a public hearing will take place on 7 April.

Consultation on draft RTS on colleges of supervisors

Consultation on draft RTS and ITS on information exchange

Press release

Public hearing registration

Markets and Markets Infrasructure 

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussing the FSB’s priorities for 2021.

ESMA consults on guidelines on methodology to be used in exceptional circumstances and amendments to the guidelines on non-significant benchmarks

On 25 February, ESMA began consulting on guidelines on methodology to be used in exceptional circumstances to calculate a benchmark and amendments to the guidelines on non-significant benchmarks. The proposed guidelines address expectations around the: (i) transparency of methodology; (ii) benchmark statement; (iii) oversight function; and (iii) record keeping requirements. In particular, the guidelines seek to ensure that administrators of critical and significant benchmarks have in place a transparent framework when consulting on material changes to the methodology or using an alternative methodology in exceptional circumstances, together with an adequate oversight function. Additionally, the guidelines clarify and amend certain aspects of the guidelines on non-significant benchmarks (published in December 2018) concerning the oversight function of and the use of an alternative methodology in exceptional circumstances by administrators of non-significant benchmarks. ESMA proposes for the guidelines to apply from Q3. The deadline for comments is 30 April.

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ESMA first Q&As on Crowdfunding

On 25 February, ESMA published its first Q&As on the Regulation on European crowdfunding service providers for business (ECSPR). The Q&A provide clarifications on the use of Special Purpose Vehicles (SPV) under the ECSPR, addressing: (i) the circumstances and conditions in which an SPV can be created for the provision of crowdfunding services; (ii) the types of instruments that can be offered to investors via an SPV; (iii) whether an SPV can give exposure to more than one underlying asset; (iv) the type of underlying asset an SPV can give exposure to; and (v) when an asset should be deemed to be illiquid or indivisible within the meaning of the ECSPR.

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Working Group path to ending new use of GBP LIBOR-linked derivatives

On 24 February, the Working Group on Sterling Risk-Free Reference Rates published a path to ending new use of GBP LIBOR-linked derivatives, aimed at helping market participants meet its 2021 quarterly milestones. For the GBP LIBOR-linked derivatives market the recommended milestones established by the Working Group are: (i) by end-Q1 2021, cease initiation of new GBP LIBOR-linked linear derivatives that expire after the end of 2021; (ii) by end-Q2 2021, cease initiation of new GBP LIBOR-linked non-linear derivatives that expire after the end of 2021; (iii) during Q2/Q3 2021, cease initiation of new cross-currency derivatives with a LIBOR-linked sterling leg, that expire after the end of 2021; and (iv) progress active conversion of all legacy GBP LIBOR contracts where viable through to completion by end-Q3 2021. The Working Group’s key expectation for all market participants is that any new GBP derivatives that expire after the end of 2021, entered into after the recommended milestones, be based on SONIA. The Working Group recognises and sets out five limited circumstances when it may be appropriate to enter into new GBP LIBOR-linked derivative contracts that expire after the end of 2021, after the relevant milestone, for risk management of existing positions or exposure resulting from existing contracts, and to support active conversion. The intention is for continued use of GBP LIBOR via risk management exceptions to be kept to a prudent minimum. The Working Group also published an update version of its Priorities and Roadmap document

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Commissioner McGuinness speech on future regulatory developments including the MiFID Review

On 24 February, the EC published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU). Commissioner McGuinness discusses: (i) the recovery from the Covid-19 crisis and the importance of continuing to monitor financials stability risks; (ii) the CMU Action plan, particularly the review of the MiFID framework. The MiFID review will: (a) assess whether different execution venues operate on a level playing field and, whether transparency requirements need to be strengthened; (b) look at trading data and its quality. It will allow the EC to put in place the right conditions for a consolidated tape, which collects and aggregates indispensable trade transparency data reported by all European execution venues in equity and corporate bonds; and (c) focus on retail investment and investor protection more broadly. McGuinness notes that the EC intends to adopt a legislative proposal by year-end; (iii) ongoing sustainable finance developments, with the EC planning to present a renewed strategy this year; (iv) digital finance, and in particular the legislative proposals in the digital finance package; and (v) Brexit and the development of the framework for regulatory cooperation, which is due by March.

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ESMA guidelines to harmonise CCP supervisory reviews and evaluation under EMIR

On 24 February, ESMA published the final report on guidelines aimed at assisting competent authorities in the application of EMIR provisions that deal with the supervisory review and evaluation of central counterparties (CCPs). The draft guidelines aim at clarifying the common procedures and methodologies for the supervisory review and evaluation process of CCPs by competent authorities, in a manner that is appropriate to the size, structure and internal organisation of CCPs, and the nature, scope and complexity of their activities. This includes the evaluation of risks, covering requirements for CCPs to address financial, organisational, operational, and prudential risks as laid down in EMIR. The objective of these guidelines is to ensure consistency in format, frequency, and depth of CCP supervisory reviews and evaluation processes, in particular: (i) the review and evaluation of capital requirements; (ii) organisational requirements; (iii) business continuity; (iv) conduct of business; (v) prudential requirements; and (vi) interoperability arrangements. The guidelines will be translated in the official EU languages and published on ESMA’s website. This will trigger a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply.

Press release

Final report

ESMA second annual report on waivers and deferrals for non-equity instruments under MiFIR

On 24 February, ESMA published its second annual report on waivers and deferrals for non-equity instruments under MiFIR, for which ESMA issued an opinion to the NCAs in the period between 1 January and 31 December 2019. It also includes an overview of the deferral regime for non-equity instruments applied across the different Member States. ESMA explains that due to Covid-19 and Brexit developments the report was delayed and divided into two, one for equity and equity-like instruments and this, the second report on non-equity instruments. ESMA highlights that: (i) for pre-trade transparency waivers, the Netherlands submitted the largest number of waiver notifications in 2019 reflecting the establishment of subsidiaries of trading venues operating in the UK in the context of Brexit; (ii) 80% of the requests concerned the illiquid waiver; (iii) the non-equity waivers assessed related to a variety of non-equity instruments, but mainly bonds (19%), IR derivatives and equity derivatives (13% each); and (iv) for post-trade transparency, deferrals for LIS transactions are commonly used across trading venues for the different types of non-equity instruments.

Press release


ESMA Chair on GameStop share trading and related phenomena

On 23 February, ESMA published an introductory statement made by Steven Maijoor, ESMA Chair, to the EP’s Economic and Monetary Affairs Committee (ECON) relating to GameStop share trading and related phenomena. Mr Maijoor explains that the GameStop situation refers to the unprecedented trading situation centred in the second half of January on the shares of firms such as US videogame retailer GameStop, which saw their equity prices surge amid high trading volumes and extreme volatility. The shares were heavily promoted by certain internet sites and on social media, which encouraged massive purchases by retail investors using leverage, and was amplified by forced buying from short sellers and underwriters of options, resulting in a so called “short squeeze”. Mr Maijoor describes several regulatory and supervisory issues that this touches on: (i) investor protection concerns - ESMA has stressed the importance of gathering investment information from reliable sources before taking an investment decision and has alerted retail investors to the significant risks of investing in stocks characterised by very high price volatility, which will be even more profound for investors using leverage; (ii) the use of new technology – while it can help increase retail investors participation, there are concerns that specific aspects of online brokers’ business models may incentivise the adoption of risky short-term trading strategies by retail investors. Moreover, there are concerns about the transparency of the fee structure and Zero-commission trading. Mr Maijoor calls for: (a) the practice of payment for order flow to be carefully assessed against the MiFID II requirements on conflicts of interest, best execution and inducements; and (b) scrutiny as to the use of investment apps combined with the gamification of investing, potentially impacting retail investors’ risk awareness and contributing to the popularity of leveraged trading strategies; (iii) market integrity - the GameStop situation posed certain questions regarding the applicable market abuse regime requirements and prohibitions. Mr Maijoor emphasises that any trading strategy likely to give misleading signals as to the supply, demand or price of a financial instrument, or likely to secure its price at an abnormal or artificial level, may represent market manipulation; and (iv) the suspension of buy orders on certain platforms. Mr Maijoor notes that the likelihood of similar events happening in the EU appears limited.

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Payment Systems and Payment Services

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussing the FSB’s priorities for 2021.

EPC updates guidelines for appearance of mandates for SEPA direct debit schemes

On 23 February, the European Payments Council (EPC) published version 7 of its guidelines (dated 11 February) on the appearance of mandates for the SEPA Direct Debit Core Scheme and the SDD Business-to-Business Scheme.

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EBA calls on national authorities to take supervisory actions for the removal of obstacles to account access under PSD2

On 22 February, the EBA published an opinion on supervisory actions to ensure the removal of any remaining obstacles that prevent third party providers (TPPs) from accessing payment accounts. The EBA explains that it has continued to observe some barriers following the opinion it issued in June 2020. The EBA expects NCAs to assess the progress made in removing obstacles in account servicing payment service providers’ (ASPSPs’) interfaces. Where identified, NCAs are expected to take, by 30 April, supervisory actions requiring these ASPSPs to become compliant with the applicable law and to set a deadline to said ASPSPs for the removal of these obstacles. The supervisory actions may include issuing an instruction or warning to an ASPSP or requiring an amendment to an ASPSP's rules, procedures or systems. Should the ASPSP subsequently fail to remove the respective obstacles, NCAs are expected to take more effective supervisory measures to ensure compliance with the applicable law, including but not limited to the revocation of the exemptions from the contingency mechanism under Article 33(6) of the RTS on strong customer authentication and common and secure communication already granted to ASPSPs and/or the imposition of fines. The EBA will monitor the way in which the supervisory actions referred to in this opinion are taken into account. Where the EBA identifies inconsistencies in the application of the PSD2 and the RTS, it will take action.

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Prudental Regulation

Please see the Funds and Fund Regulation section for two EBA consultations on regulatory technical standards and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussing the FSB’s priorities for 2021.

Corrigendum to CRR II published in OJ

On 25 February, a Corrigendum to CRR II was published in the OJ. The Corrigendum’s amendments include to: (i) Article 6, Article 11, Article 13, Article 92a, Article 494 – in each case, deleting the references to “or that are part of a G-SII”; (ii) correct a number of incorrect cross references and use of defined terms across the regulation; (iii) Article 22 to include institutions whose parent undertakings where the parent undertaking is a financial holding company or mixed financial holding company have an institution or financial institution as a subsidiary in a third country (or hold a participation in such an undertaking); (iv) the formula and definitions in Articles 279a, 279b, 280a, 280c, 280d, 280e, 325r, 325w and 501; (v) include non-trading book positions subject to foreign exchange or commodity risk in the introductory parts of Articles 325bb and 325bd and in Article 325bc; (vi) include “capital items or instruments“ in Articles 428k, 428l, 428al, and 428am; and (vii) Article 500 to clarify that the benchmark is the “outstanding amount of all defaulted exposures as at the date of the first disposal”.

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PRA on the definition of ‘higher paid material risk taker’

On 25 February, the PRA published a statement on the definition of ‘higher paid material risk taker’. The PRA states that it has identified that there is an error in the ‘higher paid material risk taker’ definition in Rule 1.3 in the Remuneration Part of the PRA Rulebook, introduced as part of the PRA’s implementation of CRD V. The ‘higher paid material risk taker’ definition currently sets the requirement that an individual would be treated as a ‘higher paid material risk taker’ when: (i) their annual variable remuneration exceeds 33% of their total remuneration; and (ii) their total remuneration exceeds £500,000. However, the PRA states that this is an error – an individual should instead be treated as a ‘higher paid material risk taker’ where either condition (i) or (ii) is satisfied. This is in line with the PRA’s position outlined in Consultation Paper 12/20 and Policy Statement 26/20 on the CRD V. The PRA intends to consult on amending the rule at the earliest opportunity – in the meantime, the PRA expects firms to treat individuals as ‘higher paid material risk takers’ where either condition (i) or (ii) has been satisfied. To maintain alignment, the FCA also intends to consult on amending the Dual-regulated firms Remuneration Code at the next suitable opportunity.

PRA statement

FCA webpage

PRA statement on EBA Guidelines and EU RTS relating to approaches to credit risk following the end of the transition period

On 25 February, the PRA provided clarity on its approach to published EBA Guidelines and EU RTS relating to the Standardised and Internal Ratings Based approaches to credit risk following the end of the transition period. The statement covers the: (i) final draft RTS on the specification of the nature, severity and duration of an economic downturn – the PRA intends to consult in due course on proposals to incorporate these requirements into UK regulation, with expected implementation dates as set out in Policy Statement 11/20; (ii) guidelines on credit risk mitigation (CRM) for institutions applying the IRB approach with own estimates of loss given default (LGD) – the PRA states that guidelines on CRM do not apply in the UK, but the PRA will consider the contents when it takes decisions related to the CRM framework as part of its implementation of Basel 3.1 standards; (iii) final draft RTS on assigning risk weights to specialised lending exposures and the final draft RTS on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use the IRB approach – the PRA notes that neither of these RTS were onshored into UK legislation at the end of the transition period and therefore they do not apply in the UK; (iv) guidelines for the estimation of LGD appropriate for an economic downturn – as outlined in PS11/20 and SS11/13, the PRA expects firms to comply with these guidelines; (v) guidelines on the application of the definition of default – as outlined in PS7/19 and SS 11/13, the PRA expects firms to comply with these guidelines; (vi) guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures – as outlined in PS11/20 and SS11/13, the PRA expects firms to comply with these guidelines, with the partial exception of paragraph 135 (in this respect, the PRA expects firms to comply with paragraph 13.A1 of SS11/13); and (vii) RTS for the materiality threshold for credit obligations past due – the PRA notes that this RTS was onshored at the end of the transition period and continues to apply in the UK, and that firms should comply with the relevant PRA Rulebook requirements and associated SS11/13 expectations as set out in PS7/19.

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EBA final draft RTS on indirect exposures arising from derivatives underlying a debt or equity instrument under CRR II

On 19 February, the EBA published its final report on draft regulatory technical standards (RTS) for the determination of indirect exposures to underlying clients of derivatives and credit default derivatives under Article 390(9) of the CRR as amended by CRR II. The draft RTS propose a methodology for the calculation of exposures under Part Four of the CRR for options on debt and equity instruments, credit derivative contracts, and other derivatives having as underlying a debt or equity instrument. Only derivative and credit derivative contracts where the underlying of those instruments entails a default risk of the underlying reference names should be relevant for the calculation of the indirect exposures set out in the RTS. In addition, the draft RTS provide a separate methodology for the calculation of exposures stemming from contracts with multiple underlying reference names. In each case, a general methodology as well as a fallback approach is provided. In order to ensure consistency through the different pieces of the regulatory framework, these draft RTS build on the Basel standard. The final draft RTS have been developed in a way to ensure that they are compatible with the jump-to-default (JTD) approach under the Fundamental Review of the Trading Book and the CRR and the corresponding draft RTS on JTD that the EBA is currently developing. The EBA consulted on the draft RTS, and in response: (i) clarified the treatment of derivatives and credit derivatives allocated to the trading book or non-trading book; (ii) aligned the proposed rules applicable to multi-underlying derivatives with a structure (i.e. an index and collective investment undertakings) or without a structure; and (iii) introduced a partial look-though approach for this type of derivatives.

Press release

Final report

Recovery and Resolution

EC consults on review of the bank crisis management & deposit insurance framework

On 25 February, the EC began consulting on the review of the bank crisis management and deposit insurance (CMDI) framework focusing on three EU legislative texts: BRRD, the Single Resolution Mechanism Regulation (SRMR), and the Deposit Guarantee Schemes Directive (DGSD). The consultation seeks to gather stakeholders’ experience with the current CMDI framework as well as their views on the revision of the framework, which is part of the debate on the completion of the Banking Union and in particular its third and missing pillar, a European Deposit Insurance Scheme (EDIS). The consultation only concerns insolvency proceedings applying to banks. Among other things, the EC asks stakeholder views on whether (i) the framework has fulfilled the intended policy objectives and contributed effectively to the management of banks’ crises; (ii) the tools and powers in the BRRD should be made exclusively available in resolution or whether similar tools and powers should be also available for those banks for which it is considered that there is no public interest in resolution; and (iii) the future framework should maintain the measures currently available when the conditions for resolution and insolvency are not met (i.e. precautionary measures, early intervention measures and DGS preventive measures)? The deadline for comments is 20 May.

Consultation webpage

Consultation document

HMT consults on expanded resolution regime for CCPs

On 24 February, HMT began consulting on an expanded resolution regime for central counterparties (CCPs), in order to bring it in line with international (FSB) standards. An expanded CCP resolution regime would give the BoE additional powers to mitigate the risk and impact of a CCP failure and the subsequent risks to financial stability and public funds. These new powers would help to better protect financial stability by enabling the BoE to take full control of a CCP when necessary and use a number of tools without reliance on the CCP’s rulebook. This would mean the BoE could take faster and more extensive action to stabilise the CCP and would also limit risks to public funds by ensuring CCPs and clearing members ultimately bear the losses arising from a CCP failure, whilst still stabilising the CCP, preventing contagion and providing reassurance to the market. Consistent with FSB guidance, the tools would be designed to balance the incentives of clearing members and CCP shareholders to encourage appropriate risk management and behaviour ahead of, and during, a resolution, including, for example: (i) a requirement for cash contributions from clearing members in resolution; (ii) a tool to write down unsecured liabilities; and (iii) a requirement for there to be an additional tranche of a CCP’s own capital to absorb losses. To provide additional protection, a provision would be included to compensate CCP shareholders, creditors and clearing members if they are left worse off in a resolution than if the CCP were to fail (the “No Creditor Worse Off” safeguard). This provides additional incentives for clearing members to continue to centrally clear, as well as incentivising the BoE to ensure it carries out its resolution actions responsibly. HMT notes that its proposals are not significantly different from the EU CCP Recovery and Resolution Regulation, which was published in the OJ in January. HMT states that it will legislate to establish the expanded regime when parliamentary time allows. The deadline for comments is 28 May.

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BoE Dear CEO letter on Resolvability Assessment Framework

On 24 February, the BoE sent a letter to the CEOs of the eight UK banks in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle. The BoE sets out its expectations of banks in their preparations for submitting their RAF in October 2021. As set out in the RAF Statement of Policy (SoP), firms need to be able to achieve the three resolvability outcomes by January 2022: (i) have adequate financial resources in the context of resolution; (ii) be able to continue to do business through resolution and restructuring; and (iii) be able to coordinate and communicate effectively within the firm and with the authorities and markets so that resolution and subsequent restructuring are orderly. This will involve, at a minimum, having capabilities, resources, and arrangements in place to meet BoE and PRA policies relevant to resolvability. In addition, firms should consider how their specific structure or business model may prevent the resolvability outcomes from being achieved, including whether there are any additional barriers to satisfying the outcomes and how those barriers will be removed. The BoE also expects firms to identify and account for any interdependencies between the capabilities they need to develop to achieve the outcomes. The annexes to the letter provide further information, including indicative examples of good practice, to assist firms in their work to achieve the outcomes. Although this letter has been sent to the major UK firms, the Bank considers the information in Annex 1 useful and relevant to all firms who are in scope of and need to implement the provisions set out in the RAF SoP, in particular other UK firms with a preferred resolution strategy of Bank-led bail-in or partial transfer and the material subsidiaries of overseas-based banking groups. This includes ‘mid-tier banks’ (for whom the deadline to implement the RAF SoP and to achieve the three resolvability outcomes has been extended from 1 January 2022 to 1 January 2023). The annexes do not impose any requirements in addition to those set out in published resolvability policy. During the first RAF cycle, the BoE will place particular emphasis on examining how Boards and senior management have approached the responsibilities articulated in the letter. The BoE anticipates engaging firms later in 2021 on the operational arrangements for the first RAF cycle.

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Sustainable Finance

Please see the Markets and Markets Infrastructure section for a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union on future regulatory developments.

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussing the FSB’s priorities for 2021.

Joint ESA Supervisory Statement on the application of SFDR

On 25 February, the ESAs published a joint supervisory statement on the effective and consistent application and national supervision of the Regulation on sustainability-related disclosures in the financial services sector (SFDR). While financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March, the application of the regulatory technical standards (RTS) on the content, methodologies and presentation of sustainability-related disclosures will be delayed to a later date according to the EC’s letter to the ESAs of 20 October. The ESAs have proposed in the draft RTS that the application date of the RTS should be 1 January 2022. In the supervisory statement, the ESAs seek to mitigate the risk of divergent application of the SFDR within the period from 10 March to the application date of the RTS, recommending that the draft RTS be used as a reference when applying the provisions of the SFDR in the interim period. The ESAs set out in an Annex more specific guidance on the application of timelines of some specific provisions of the SFDR, in particular on the application timeline for entity-level principal adverse impact disclosures and for financial products’ periodic reporting. In addition, the Annex includes a summary table of the relevant application dates of the SFDR, the Taxonomy Regulation and the related RTS. In March the ESAs will begin consulting on taxonomy-related product disclosures under the Taxonomy Regulation which amends the empowerments in Articles 8(4), 9(6) and 11(5) of the SFDR.

Press release


IOSCO calls for globally consistent, comparable, and reliable sustainability disclosure standards and announces its priorities and vision for a Sustainability Standards Board

On 25 February, the IOSCO reported on progress made by the Sustainable Finance Task Force in its work on securities issuers' sustainability disclosures, asset managers' disclosures, and the role of ESG data and ratings providers. IOSCO sees an urgent need to improve the consistency, comparability, and reliability of sustainability reporting, with an initial focus on climate change-related risks and opportunities, which would subsequently be broadened to other sustainability issues. In particular, from its work on issuers´ disclosures, IOSCO has observed that investor demand for sustainability-related information is currently not being properly met. IOSCO identifies three priority areas for improvement: (i) encouraging globally consistent standards; (ii) promoting comparable metrics and narratives; and (iii) coordinating across approaches – driving international consistency of standards focusing on enterprise value creation, while also supporting mechanisms to coordinate investors’ information needs on wider sustainability impacts. IOSCO states that it is committed to working with the International Financial Reporting Standards (IFRS) Foundation Trustees and other stakeholders to advance these priorities, focusing on: (a) establishing a sustainability standards board under the IFRS Foundation structure with a strong governance foundation; (b) building on existing efforts in respect of the content of existing sustainability-related reporting frameworks; and (c) encouraging a "building blocks" approach to establishing a global sustainability reporting system.

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Other Developments

FCA makes senior appointments to drive its transformation to a data-led regulator

On 25 February, the FCA announced four further appointments to its executive team as part of its transformation programme to build a data-led regulator, which brought together 2 supervision divisions with the FCA’s policy and competition functions: (i) Stephanie Cohen will be the FCA’s COO; (ii) Jessica Rusu will join the FCA’s as its first Chief Data, Information and Intelligence Officer; (iii) Sarah Pritchard will become Executive Director, Markets; and (iv) Emily Shepperd will take up the newly created role of Executive Director, Authorisations.

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FSB outlines 2021 work programme

On 24 February, the FSB in a letter sent by Randal Quarles, FSB Chair, to the G20 finance ministers and central bank governors, discussed the FSB’s priorities for 2021, which include: (i) addressing Covid-19 related vulnerabilities - the FSB will provide the G20 an assessment of initial lessons learned from the Covid-19 pandemic for financial stability, with an interim report in July and a final report in October. In coordination with other standard setting bodies (SSBs), the FSB will look at financial institutions’ use of capital and liquidity buffers and how well crisis management and operational resilience arrangements have functioned; (ii) increasing the resilience of non-bank financial intermediation - a key deliverable this year will be policy proposals to enhance the resilience of money market funds (MMFs). The FSB will provide a consultative report to the G20 in July with policy proposals to enhance MMF resilience, and a final report in October; (iii) making cross-border payments cheaper, faster, and more inclusive - the FSB will deliver a final set of quantitative targets for pursuing these objectives in October for G20 endorsement, together with an overall progress report on the implementation of the roadmap. In October, the FSB will update the G20 on how national and international frameworks capture regulatory issues of ‘stablecoins’ in light of our high-level recommendations; (iv) developing understanding of climate-related risks - the FSB will also explore ways to promote globally comparable, high quality, and auditable standards of disclosure based on the recommendations of the Task Force on Climate-related Financial Disclosure; and (v) addressing other financial stability topics of ongoing importance, such as: (a) ensuring a smooth transition away from LIBOR; (b) enhancing central counterparty resilience, recovery, and resolvability. The FSB, CPMI, IOSCO and the FSB Resolution Steering Group will collaborate on further joint CCP financial resources work in 2021; and (c) addressing cyber risk.

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BoE strategy for transforming data collection from the UK financial sector

On 23 February, the BoE set out a plan for transforming data collection from the UK financial sector. In the paper, the BoE reports on the findings from its January 2020 discussion paper on data collection and sets out next steps. It has identified three key reforms: (i) defining and adopting common data standards that identify and describe data in a consistent way throughout the financial sector. These common standards should be open and accessible for use by all who need them; (ii) modernising reporting instructions to improve how the BoE’s reporting instructions are written, interpreted and implemented. There are a range of steps the BoE consider, from setting up better Q&A processes to potentially rewriting its instructions as code; and (iii) integrating reporting to move to a more streamlined, efficient approach to data collection. This reform includes making data collection more consistent across domains, sectors and jurisdictions, and designing each step in the data collection process with the end-to-end process in mind. To deliver these reforms, the BoE, alongside the FCA will set up a multi-year, and multi-phased, transformation programme. During each phase the BoE will aim to deliver a series of ‘use cases’ focusing on particular collections or types of collections. Each use case delivered will add value in its own right, as well as delivering improvements that can then be applied to other collections over time. The first phase will take place over the next 24 months, with the second phase taking place over the subsequent three years. The PRA and FCA have sent a related Dear CEO letter describing the key challenges and areas for reform. The regulators will be holding a town hall for dual-regulated firms in April.

BoE data collection transformation plan

FCA/PRA Dear CEO letter

MoU between FCA and Equality and Human Rights Commission

On 23 February, the FCA published a MoU agreed with the Equality and Human Rights Commission (EHRC), the regulator responsible for enforcing the Equality Act 2010. Since 5 April 2011 the Equality Act 2010 has introduced a single general Public Sector Equality Duty (PSED) which applies to public authorities and others who may be exercising public functions. Under this duty public authorities are required to have due regard to the need to eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the Equality Act 2010; advance equality of opportunity between people who share a protected characteristic and those who do not; and foster good relations between people who share a protected characteristic and those who do not. The FCA recognises that in the exercise of its public functions it must have due regard to the PSED, including where they relate to the firms and market participants that the FCA regulates. The FCA sets out how it discharges its PSED in its Annual Diversity Report. The FCA’s role in promoting diversity and inclusion goes beyond compliance with the PSED, and links directly to its statutory objectives as conduct regulator. Whilst the FCA does not have enforcement powers under the Equality Act 2010, which are the sole reserve of the EHRC, it is likely that a breach of the Equality Act will also be a breach of the FCA’s rules including its Principles for Businesses. The FCA can and does act in appropriate cases where firms are breaching its rules. The FCA can and will use its expertise of financial services markets to assist the EHRC in its enforcement work through the areas of co-operation set out in this MoU, for example by advising on the financial services markets it regulates. The MoU’s purpose is to establish a framework for co-operation, co-ordination and information sharing between the two organisations. Alongside the MoU, they will develop a more detailed action plan (not for publication) on how they will work together. The FCA and EHRC will monitor the functioning and effectiveness of the MoU and action plan, and will review it in one year.

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ECB publishes group of MoUs including FCA and BoE MoU on post-Brexit supervisory cooperation

On 19 February, the ECB published its MoU on post-Brexit supervisory cooperation with the UK authorities, effective from 1 January, alongside a number of other MoUs it has agreed with supervisory authorities in Sweden, Norway, and Denmark, among others. The ECB explains that to enhance transparency and accountability, the ECB’s Governing Council recently decided to publish existing supervisory MoUs and will publish future MoUs as soon as the other signatory authorities have consented. It aims to publish a second group of supervisory MoUs that have already been signed by the end of April 2021.

Press release

ECB, FCA and BoE MoU

MoU homepage