Key Regulatory Topics: Weekly Update 8-21 April 2022
21 April 2022
Over the Easter period, the FCA published its policy statement on its proposals to change the Listing Rules and the Disclosure Guidance and Transparency Rules regarding diversity and inclusion on company boards, and the PRA published its 2022/23 business plan. On the Fintech front, the European Commission launched the EU Digital Finance Platform to support the scaling up of digital financial services and the Council of the EU adopted the Regulation on a pilot regime for market infrastructures based on DLT. In the UK, the CMA provided updates on the Open Banking implementation roadmap.
EU Presidency compromise text on proposal for a Directive on consumer credits
On 21 April, the Council of the European Union published a Presidency compromise text, dated 2 March, on a proposal for a Directive of the EP and of the Council on consumer credits. Changes compared to the EC proposal are indicated in bold underlined for new text and strikethrough for deleted text. In addition, changes compared to the previous Presidency compromise are highlighted in grey.
HMT consultation response to the regulation of pre-paid funeral plans
On 21 April, HMT published a response to its consultation on the regulation of pre-paid funeral plans and the role of the Financial Services Compensation Scheme (FSCS) where a regulated funeral plan provider fails. The response sets out HMT’s final policy approach to amending the regulatory framework, which will ensure that the FSCS can operate most effectively for the consumers of pre-paid funeral plan contracts if a regulated funeral plan provider fails. All those who responded to the consultation supported or strongly supported HMT’s proposed approach to ensuring that the FSCS can operate effectively for the consumers of pre-paid funeral plans if a regulated funeral provider fails. The government will therefore bring forward its statutory instrument as planned. Following further consideration and engagement with the sector, the government has also taken the decision to go further to ensure that funeral plan consumers are adequately protected. The document explains two new provisions of the forthcoming legislation: (i) the government will place an additional statutory duty of co-operation on insolvency practitioners; and (ii) the government will make it easier for funeral plan providers that seek to exit the market to transfer their existing funeral plan contracts to another funeral plan provider for regulatory purposes. The government will shortly lay before Parliament the relevant secondary legislation. This legislation will come fully into force on 29 July - the same time as The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021.
FCA information on how to access credit ratings information
On 19 April, the FCA updated its webpage on credit rating agencies (CRAs) to explain how to access credit ratings information. The webpage explains how the FCA publishes CRA information, as well as individual credit ratings data, on the FCA’s Public Ratings Database (PRD). The PRD allows users to search for specific credit ratings and access public press releases reported to the FCA by regulated CRAs. The FCA has also made available credit rating activity and performance statistics on its Central Repository Statistics (CERES) platform. This website allows a user to view and download ratings statistics based on defined search criteria, using ratings data provided to the FCA by regulated CRAs. CERES serves three main purposes: (i) to provide transparency to the market and, thereby, contribute to the protection of investors by providing information on historical performance of credit ratings, including rating transitions and default statistics for a CRA; (ii) to make the data available in a standardised and consistent format to enable users to compare performance across CRAs; and (iii) to enable public access to the data so that the users can leverage this reduced cost of information for conducting detailed analyses of a CRA’s performance.
Corrigendum to Delegated Regulation amending RTS in PRIIPs KID Delegated Regulation
On 13 April, a Corrigendum to Commission Delegated Regulation (EU) 2021/2268 amending the RTS laid down in the Delegated Regulation on packaged retail and insurance-based investment products (PRIIPs) key information documents (KID) (2017/653) was published in the OJ. The RTS relate to the underpinning methodology and presentation of performance scenarios, the presentation of costs and the methodology for the calculation of summary cost indicators, the presentation and content of information on past performance and the presentation of costs by PRIIPs offering a range of options for investment and alignment of the transitional arrangement for PRIIP manufacturers offering units of funds referred to in Article 32 of the PRIIPs Regulation (1286/2014) as underlying investment options with the prolonged transitional arrangement laid down in that Article. The corrigendum reverses the changes made by the previous corrigendum published in February and also removes ‘2268’ from the title of the Delegated Regulation.
Financial crime and sanctions
Please see the ‘Other Developments’ section for eight reports published by the IMF as part of its Financial Sector Assessment Program, and the ‘Fintech’ section for the comparison table in trialogue negotiating positions on the proposed Regulation on information accompanying transfers of funds and certain cryptoassets.
FATF report on state of effectiveness and compliance with FATF standards
On 19 April, the Financial Action Task Force (FATF) published a report on the state of effectiveness of its anti-money laundering (AML) and counter-terrorist financing (CTF) standards. The report is based on data from FATF and FATF-Style Regional Bodies mutual evaluation reports since 2013, which assessed the strengths and weaknesses of national frameworks to tackle these crimes. Overall, the report finds that countries have made huge progress in improving technical compliance by establishing and enacting a broad range of laws and regulations to better tackle money laundering, terrorist and proliferation financing. In terms of laws and regulations, 76% of countries have now satisfactorily implemented the FATF’s 40 Recommendations. However, the report also highlights that many countries still face substantial challenges in taking effective action in line with the risks they face. The report informed the FATF’s strategic review, which aims to make the next cycle of FATF assessments more timely, risk-based and effective. The FATF took stock of the results of the current round of mutual evaluations (the fourth round) and used this information to make a number of changes to how the FATF will assess countries’ actions in the fifth round. Some of the changes to the fifth round of assessments will include: (i) a significantly shorter mutual evaluation cycle, so that countries get assessed more frequently; (ii) greater emphasis on the major risks and context to ensure that countries focus on the areas where the risks are highest and; and (iii) a results-orientated follow-up assessment process, which will focus on specific actions to tackle money laundering, terrorist financing and the financing of weapons of mass destruction. The FATF also published its methodology and procedures for the fifth round of mutual evaluations. These documents will apply when the FATF commences its fifth round of mutual evaluations and may be subject to change before the start of the fifth round.
Translations of revised ESMA MAR guidelines on delay in disclosure of inside information and interactions with prudential supervision
On 13 April, ESMA published the official translations of its revised guidelines on delay in the disclosure of inside information and interactions with prudential supervision under the Market Abuse Regulation (MAR).The guidelines: (i) provide a non-exhaustive and indicative list of legitimate interests of the issuers that are likely to be prejudiced by immediate disclosure of inside information and situations in which delay of disclosure is likely to mislead the public; and (ii) provide clarifications concerning the existence of inside information in relation to Pillar 2 Capital Requirements and Pillar 2 Capital Guidance. The revised guidelines will apply from 13 June, two months from the date of publication of the translations.
ECB opinion on proposed revised NIS Directive
On 13 April, the ECB published an opinion on the EC’s proposed Directive on measures for a high common level of cybersecurity across the EU, and repealing the Directive on Security of Network and Information Systems (NIS Directive) (2016/1148). Generally, the ECB strongly supports the objectives of the proposed directive to increase the level of cyber resilience across all relevant sectors, reduce inconsistencies across the internal market and improve the level of situational awareness and the collective capability to prepare and respond by ensuring efficient cooperation in the EU. The ECB acknowledges the importance of maintaining strong links between the proposed directive and the financial sector, which should remain part of the NIS ecosystem to promote the consistent assessment of risks related to ICT across the EU, and foster effective cross-sectoral information exchange and collaboration when dealing with cyber threats. To that end, it should be possible for the competent authorities under the proposed regulation on digital operational resilience for the EU financial sector ‘DORA’ to participate in the strategic policy discussions and the technical workings of the NIS Cooperation Group, as well as to exchange information and further cooperate with the single points of contact and the national Computer Security Incident Response Teams referred to in the proposed directive. The ECB provides its opinion in relation to the proposed directive’s scope, the ESCB and Eurosystem oversight competences, ICT third-party risk, management of large-scale incidents and crises, information-sharing and national cybersecurity strategy. The opinion states that where the ECB recommends that the proposed directive is amended, a specific drafting proposal is set out in a separate technical working document accompanied by an explanatory text.
FCA update on financial sanctions notifications
On 12 April, the FCA updated its webpage on financial sanctions to provide information on notifying the FCA and OFSI. Under Principle 11, the FCA expects authorised firms, including those operating under the temporary permissions regime, to notify the FCA if they (or their appointed representatives and agents) are subject to sanctions directly, or indirectly. This includes sanctions listed by OFSI and sanctions listed by any other country or jurisdiction. For firms such as electronic money institutions, payment services firms, cryptoasset businesses and annex I financial institutions, this is regarded as a material change of circumstance and the FCA expects to be informed if such firms or any connected entities are subject to sanctions. Dual-regulated firms should also notify the PRA. A firm could be subject to sanctions in several ways including if: (i) the firm is directly named on a sanctions list; (ii) the firm is indirectly sanctioned via beneficial ownership/controller/shareholder; and (iii) the firm has directors or employees that are named on a sanctions list. Authorised firms should notify the FCA in line with SUP 15 requirements through the usual reporting mechanisms. All firms can notify the FCA via the contact centre, submitting a SUP 15 notification or by contacting the relevant supervisor. For all enquiries about asset freezing or other financial sanctions, or to make a report if you suspect you or a customer of your firm have breached restrictions, firms should contact OFSI.
Comparison table on proposed Regulation on information accompanying transfers of funds and certain cryptoassets
On 21 April, the Council of the European Union published a three-column table to commence trialogues, comparing the negotiating positions taken by the EC, the Council and the EP on the proposed Regulation on information accompanying transfers of funds and certain cryptoassets. The Council agreed its negotiating mandate in December 2021. The EC adopted the proposed Regulation in July 2021 as part of a package of measures to reform the EU anti-money laundering and counter-terrorist financing regime. It is intended to revise and recast the revised Wire Transfer Regulation.
CMA provides updates on Open Banking implementation roadmap
On 14 April, the CMA updated its webpage on retail banking market investigation, and published a letter sent to the Open Banking Implementation Entity (OBIE) following an update from the OBIE on the status of Roadmap items for the final stages of Open Banking implementation. The CMA welcomes this update which reflects progress made following publication of the final version 3.1.10 of the Open Banking standard within the final Roadmap. The CMA also notes OBIE’s clarification regarding the status of the delivery of the enhanced management information (MI) submission mechanism within the Roadmap. It is not a mandatory item with implementation requirements for the CMA9. However, given the benefits of automated MI, the CMA encourages the CMA9 to continue to work to deliver this. The CMA’s position on determining completion of the Roadmap remains unchanged, with the exception that delivery of the enhanced MI submission mechanism will not be considered as a requirement for the CMA9.
EU Council adopts regulation on a pilot regime for DLT market infrastructures
On 12 April, the Council of the EU adopted the regulation on a pilot regime for market infrastructures based on DLT. The proposed Regulation will enter into force 20 days after it is published in the OJ and will apply nine months after the date it has entered into force, except for Articles 8(5), 9(5), 10(6) and 17, which will apply from the date of entry into force and Article 16 which will apply from 4 July 2023.
EU Digital Finance Platform
On 8 April, the EC launched the EU Digital Finance Platform. The platform intends to be a collaborative space bringing together industry and public authorities to support innovation in the EU’s financial system and help work towards a true Single Market in digital finance. Its main objectives are to overcome fragmentation and support the scaling up of digital financial services. It will initially consist of two main building blocks: (i) an observatory offering interactive features such as a Fintech Map, an overview of latest policy developments and a section where users will be able to share relevant research material; and (ii) a gateway which will act as a single access point to supervisors, with information about national innovation hubs, regulatory sandboxes and licensing requirements. This part of the Platform will also host functionalities linked to cross-border testing, enabling firms to involve multiple national authorities in the testing of new products or applications. Speaking at the launch of the platform, Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union discussed, amongst other elements, the second phase of the platform, to be launched in 2023. Building on user feedback, new features are set to be added, which could include a data hub, where firms could access and share data in order to test products and solutions. Ms McGuinness also confirmed that the EC, together with the ESAs, is setting up a digital finance academy. In a related speech, Verena Ross, ESMA Chair, focused on how the platform links to the work of the European Forum for Innovation Facilitators (EFIF) and the launch of the Cross-Border Testing Framework. Ms Ross provided an overview of the work that the EFIF has undertaken since its launch in 2019. The Cross-Border Testing Framework is one of the most prominent projects of the EFIF and will assist innovative FinTechs in their engagement with innovation facilitators cross-border through digital tools. The Digital Platform will act as its basis.
EC consults on functioning of MMF Regulation
On 12 April, the EC began a targeted consultation on the functioning of the MMF Regulation (MMFR), in order to feed into its report assessing its adequacy from a prudential and economic point of view, which is required in the MMFR to be published this summer. The consultation takes the form of a questionnaire with some general questions directed to all on the MMFR’s effectiveness, efficiency, relevance, coherence and value, followed by specific questions addressed to investors in MMFs and MMFs asset managers. The deadline for comments is 13 May.
Markets and markets infrastructure
Please see the ‘Prudential Regulation’ section for the EBA letter to the EC requesting deadline extensions for several legal mandates.
Post-Trade Task Force report on charting the future of post-trade
On 21 April, the Post-Trade Task Force published a report titled ‘Charting the future of Post-Trade’. The report offers a comprehensive diagnosis of the key problems in current post-trade processes, as well as recommendations for the next steps of market-led reform. The Task Force recommends the creation of a new post-trade industry leadership group to implement these recommendations. The report focusses on three core areas: (i) non-economic trade data. The leadership group should develop and promote a set of best practices around sharing LEIs early in trade life-cycles and efficient, electronic processes for sharing SSIs; (ii) uncleared margin. The leadership group should devise next steps to increase adoption of best practices; define, gather and publish industry-wide metrics, and investigate the creation of a fully digitised system; and (iii) client onboarding. The leadership group should convene forums to discuss standardising document requirements, making existing platforms more interoperable and creating a single passporting platform.
Delegated Regulation on RTS for application of position limits to commodity derivatives under MiFID II
On 20 April, the EC adopted a Delegated Regulation and Annex supplementing MiFID II with regard to RTS for the application of position limits to commodity derivatives and procedures for applying for exemption from position limits. The Delegated Regulation builds on Commission Delegated Regulation 2017/591 (RTS 21). RTS 21 sets out the standard methodology that should be used by National Competent Authorities in order to calculate and apply position limits in a harmonised way across commodity derivatives traded on trading venues and economically equivalent OTC contracts. RTS 21 provides for a baseline limit and ways to adjust this limit based on seven factors for spot and other months' physically settled and cash settled contracts. RTS 21 also contains provisions to specify the application of the methodology: how and when positions should be aggregated, when contracts should be considered the same; and when OTC contracts should be considered economically equivalent. Finally, the Regulation lays down rules to specify when a commodity derivative position can be qualified as reducing risk. The Delegated Regulation contains three categories of amendments compared to RTS 21: (i) amendments relating to the Capital Markets Recovery Package (CMRP) empowerments; (ii) amendments that are a direct consequence of CMRP changes; and (iii) amendments based on the experience gained over the last few years with the existing methodology. The existing RTS 21 will be repealed.
ESMA responds to EC consultation on options to enhance retail investors’ suitability and appropriateness assessments
On 19 April, ESMA published a letter to the EC, dated 13 April, responding to the EC’s consultation on options to enhance the suitability and appropriateness assessments under MiFID II. ESMA is fully supportive of the EC’s objective to take a holistic view of investor protection rules and to make the EU an even safer place for individuals to save and invest long-term and therefore to increase participation of retail investors in capital markets. However, ESMA brings to the EC’s attention the following points: (i) the proposal to apply a unique and standardised retail investor assessment regime that no longer differentiates among the various investment services might raise questions of whether a ‘one size fits all’ approach can effectively serve all different types of retail investors and situations. The design of a new standardised regime would need to fully take into account the needs of the different kinds of investors and safeguard the principle of proportionality; (ii) the proposals would have a significant impact on the current model for the provision of services. If the new framework were to be adopted, sufficient guidance and information would need to be provided to clients to help them understand the implications of the regime change and sufficient time should be given to firms for the implementation of the new rules which would seem to require significant IT changes to existing systems; (iii) ESMA is fully supportive of the aim to increase competition amongst intermediaries and to allow investors to easily switch between or use multiple brokers/financial intermediaries. However, there is some resistance from clients to share personal information, and ESMA believes that such concerns should be taken into account in order for any such initiative to be successful. Furthermore, if the EC proceeds with its proposal, GDPR implications should be further assessed, as the right to data portability set out in Article 20 of the GDPR does not seem to include personal data which are derived, computed or inferred from the data provided by the client; (iv) ESMA notes that if MiFID and IDD instruments were to be assessed jointly for the purpose of the suitability assessment, it would be essential to also ensure alignment of other relevant requirements (for example on the disclosure of information on costs and charges; reporting requirements on the depreciation of the client’s portfolio, where applicable) as it would be very confusing to clients, and also could be operationally difficult for firms, if different parts of the client’s portfolio (managed under a unique asset allocation) were subject to different disclosure and reporting requirements; and (v) ESMA notes that, in its consultation the EC does not mention knowledge and experience among information to be collected from clients. This information is important in assessing accurately clients’ profiles. ESMA therefore expects that knowledge and experience is included in the key components of a standardised personal investment plan.
Implementing Regulation amending ITS on disclosure of exposures to interest rate risk on positions not held in trading book
On 19 April, Commission Implementing Regulation (EU) 2022/631 amending the ITS laid down in Commission Implementing Regulation (EU) 2021/637 as regards the disclosure of exposures to interest rate risk on positions not held in the trading book was published in the OJ. Article 448 of the CRR, as amended by the CRR II, requires institutions to disclose quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non‐trading book activities referred to in Articles 84 and 98(5) of the CRD IV. The Implementing Regulation amends Commission Implementing Regulation (EU) 2021/637 by inserting a new Article 16a and Annexes. These set out qualitative disclosures on how institutions calculate their interest rate risk in the banking book (IRRBB) exposure values based on their internal measurement systems and on institutions' overall IRRBB objective and management. They also provide quantitative disclosures about the impact of changes in interest rates on institutions' economic value of equity and net interest income. This Commission Implementing Regulation will enter into force on 9 May.
BoE consults on FMI outsourcing and third party risk management
On 14 April, the BoE began consulting on proposals relating to outsourcing and third party risk management in financial market infrastructures (FMIs). These proposals are set out in three draft supervisory statements for central counterparties (CCPs), central securities depositaries (CSDs), and recognised payments system operators (RPSOs) and specified service providers (SSPs). The BoE explains that its policy objective is to: (i) facilitate greater resilience and adoption of the cloud and other new technologies as set out in its response to the Future of Finance report; (ii) set out the BoE’s requirements and expectations in relation to outsourcing and third party risk management in FMIs; and (iii) complement the BoE’s supervisory statements on FMI operational resilience. The BoE is also proposing to develop an outsourcing and third party risk management part to add to the Code of Practice that will apply to relevant RPSOs and SSPs. The deadline for responses is 14 July. The BoE plans to publish its final policy in the second half of 2022 and will allocate sufficient time for firms to implement this afterwards.
Delegated Regulation on liquidity thresholds and trade percentile used to determine SSTI of non-equity instruments under MiFIR
On 13 April, Commission Delegated Regulation (EU) 2022/629 amending Delegated Regulation (EU) 2017/583 which contains RTS on the adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (SSTI) applicable to certain non-equity instruments was published in the OJ. The Delegated Regulation amends Article 17 Delegated Regulation (EU) 2017/583 to move to phase three with regard to the liquidity assessment of bonds and with regard to the SSTI. The Delegated regulation will enter into force on 3 May.
RTS on risk retention requirements for securitisations
On 12 April, the EBA published its final draft RTS specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the Securitisation Regulation and as amended by the Capital Markets Recovery Package (CMRP). The RTS have been drafted in such a way as to ensure the alignment of interest (risks) between the securitisation sponsors, originators, original lenders, and, in the case of traditional non-performing exposure (NPE) securitisations, servicers, on the one hand, and the investors buying the securitisation positions or providing the credit protection in synthetic securitisations, on the other. The draft RTS carry over a substantial part of the provisions on risk retention set out in the previous RTS on risk retention adopted by the EBA in 2018. Several additional provisions have been included addressing the extended mandate under Regulation (EU) 2021/557, as part of the CMRP and addressing specific issues relating to risk retention. Several modifications have been made to existing provisions for the sake of ensuring consistency with the mandate focusing on the modalities of risk retention in NPE securitisations and the impact of fees payable to retainers on the risk retention requirement. Further clarity has been provided on the application of the risk retention requirement to re-securitisations, as well as the treatment of synthetic excess spread as a possible form of compliance. The final RTS will enter into force 20 days following its publication in the OJ. The RTS will replace the existing Commission Delegated Regulation (EU) 625/2014, however the Securitisation Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date.
ESMA guidelines on MiFID II appropriateness and execution-only requirements
On 12 April, ESMA published the official translations of its guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements. The guidelines will apply from 12 October, six months following the publication of the official translations.
ESMA complementary annual transparency calculations
On 8 April, ESMA began to make available the results of the annual transparency calculations for equity and equity like instruments. These parameters apply no later than 14 April 2022 and until 31 March 2023. ESMA invites market participants to: (i) monitor the release of the transparency calculations for equity and equity-like instruments on a daily basis to obtain the estimated calculations for newly traded instruments and the four-weeks calculations applicable to newly traded instruments after the first six-weeks of trading; and (ii) refer to Question 3, Section 4 in ESMA’s Q&As on MiFID II and MiFIR transparency topics, for the temporary parameters to be applied in the case of one or more of the transparency parameters is not published. The additional list of assessed equity and equity-like instruments will be available through FITRS in the XML (with publication date from 8 April) and through the register web interface.
Payment services and payment sytems
ECB repeals Guideline ECB/2012/27 and Decision ECB/2007/7 on TARGET2
On 20 April, the ECB published a Guideline (dated 24 February) (ECB/2022/8) on a new generation trans-European automated real-time gross settlement express transfer system (TARGET) and repealing Guideline ECB/2012/27, as well as a Decision (dated 19 April) (ECB/2022/22) concerning the terms and conditions of TARGET-ECB and repealing Decision ECB/2007/7. From 21 November, the current trans-European automated real-time gross settlement express transfer system (TARGET2) will be replaced by the new generation TARGET. As TARGET2 is governed by Guideline ECB/2012/27, this Guideline is therefore repealed and replaced by Guideline ECB/2022/8. The national central banks of the Members States whose currency is the euro must take the necessary measures to comply with the new Guideline and apply it from 21 November. They must have notified the ECB of the texts and means relating to those measures by 19 April, at the latest. In Decision ECB/2022/22, the ECB notes that repealing Guideline ECB/2012/27 required changes to the terms and conditions of TARGET2-ECB. For reasons of legal certainty, the ECB therefore needed to adopt a new decision to implement those changes, and Decision ECB/2007/7 also therefore needed to be repealed. The Decision will enter into force on the fifth day following that of its publication in the OJ, and will apply from 21 November.
Please see the ‘Other Developments’ section for eight reports published by the IMF as part of its Financial Sector Assessment Program.
PRA approach to capital arbitrage transactions
On 13 April, the PRA provided an update on its approach on capital arbitrage transactions. The PRA is aware that some PRA-regulated firms have conducted, or may be considering conducting, deficit reduction transactions with their defined benefit pension schemes that are structured to limit the regulatory capital impact that would otherwise result. In line with the BCBS statement of 2 June 2016, firms should not engage in transactions that have the aim of offsetting regulatory adjustments. Entering into such transactions may not be compatible with a firm’s obligations under the PRA’s Fundamental Rules. The PRA also draws firms’ attention to its approach to banking supervision, which states that the PRA expects all capital to be capable of absorbing losses in the manner indicated by its place in the capital structure and that its policies should be followed in line with their spirit and intended outcome, not managing the business only to the letter, or gaming the rules. The PRA will carefully scrutinise transactions, including any transactions that would allow firms to avoid regulatory capital deductions under Article 36(1) of the CRR (as transposed into PRA rules). Where any existing transactions are to be unwound, the PRA will look to agree with firms a reasonable timeline to achieve this.
EBA requests new time limits for various mandates
On 12 April, the EBA published a letter (dated 2 February) sent to the EC requesting deadline extensions for several legal mandates: (i) under CRR II – the Art. 325ap(3) RTS on emerging markets and advanced economies for equity risk under the FRTB-SA until 31 March, the Art. 394 (4) RTS on Large Exposures (Shadow banking) until 30 June, Art. 400, the report on the use of exemptions for LE set until 30 June and the amendment to the ITS specifying currency with constraints on the availability of liquid assets until 28 February; (ii) under the IFD – the RTS on liquidity risk measurement until 30 June; (iii) under the Securitisation CRR Quick Fix – the Art. 248(4) RTS on the exposure value of synthetic excess spread until 31 December; (iv) under Regulation (EU) 2021/557 – the Art. 6 (7) RTS on risk retention for NPEs securitisation until 31 December, the Art 26b (13) RTS on homogeneity criteria for on-balance sheet securitisation until 31 March 2023, the Art 26c (5) RTS on performance related triggers for on-balance sheet securitisation until 30 June and the Art. 45a report on developing a specific sustainable securitisation framework until 31 March; and (v) under the EMIR Refit the Art 11 (15) (aa) RTS on Initial Margin Model Validation until 31 December.
Recovery and resolution
SRB 2022 RPC booklet
On 20 April, the Single Resolution Board (SRB) published its 2022 Resolution Planning Cycle (RPC) booklet. This booklet informs stakeholders about the SRB’s resolution planning activities and describes the main processes and phases of the current RPC. The RPC aligns the resolution planning of the banks under the SRB remit on the same 12-month cycle running from April to March. The general policy implementation milestones in 2022 include: (i) updating the SRB policies and operational guidance documents, among others, taking into account the experience gained; (ii) conducting close monitoring of resolvability and preparation of the substantive impediments procedure for those banks which show insufficient progress towards achieving resolvability in line with the EfB; (iii) conducting ongoing MREL monitoring to ensure build-up towards the final targets by the 1 January 2024 general deadline, as well as monitoring the 2022 intermediate targets; (iv) further developing deep-dive assessments, paving the way for conducting future on-site inspections; and (v) starting the preparation of the 2023 RPC, taking into account that 2023 is the final year for all SRB banks to be fully resolvable, in line with the EfB; banks will receive bank-specific 2023 SRB priority letters in September. The SRB work priorities in the 2022 RPC include: (i) in the 2022 RPC, the SRB will focus its work with banks under its remit on three common priorities: (a) liquidity and funding in resolution. Banks must ensure to have the capabilities to mobilise collateral to maximise liquidity sources in resolution; (b) separability and business reorganisation plans. Banks have to provide additional reports on the potential reorganisation plans (required in the context of the open bank bail-in strategy) and on the transferability of parts of their business; and (c) information systems and MIS capabilities for bail-in and valuation data. All banks for which resolution is the preferred strategy are expected to conduct a bail-in dry-run and the self-testing exercise on MIS valuation by end 2022; (ii) the SRB communicated these common priorities, together with bank-specific priorities, to the bank through the SRB priority letters in September/October 2021; and (iii) for those areas of resolvability where banks did not show sufficient progress in line with the EfB, the IRTs initiated closer monitoring based on dedicated reporting by the bank on a quarterly basis.
FCA thematic review on wind-down planning
On 11 April, the FCA published a thematic review on wind-down planning; focusing on liquidity needs, wind-down triggers and intragroup dependencies. The FCA found widespread weakness in wind-down planning and the need for firms to improve their wind-down planning and processes as well as their wind-down planning documentation. Where they existed, most wind-down plans, processes and risk management frameworks (RMFs) remained at an early stage of maturity. Many have substantial gaps and do not reflect the minimum expectations highlighted in the FCA’s guidance on wind down planning or on assessing adequate financial resources The FCA’s key observations are: (i) significant further work is needed to ensure that the wind-down planning of firms is credible and operable. This particularly relates to liquidity and cashflow modelling, intra-group dependency and wind-down trigger calibration; (ii) firms should consider the impact liquidity needs in wind-down have on their assessment of resource adequacy, their risk appetite and point of non-viability; and (iii) testing the outcomes of wind-down planning is the best way of showing the firm’s Board/ governing body, as well as the FCA that the plan and process is credible and operable. The FCA encourages firms to review the observations and consider incorporating these into their own wind-down planning processes and documents, in a way that is proportionate to the nature, scale and complexity of the firm’s activities. The FCA may take these elements into consideration when performing a review of wind-down plans at a future date.
EBA opinion on EC’s proposed amendments to draft RTS for own funds and eligible liabilities
On 8 April, the EBA published an Opinion on the amendments proposed by the EC to the EBA final draft RTS for own funds and eligible liabilities. The EBA rejects the EC’s two substantive amendments, which relate to: (i) the provisions covering the notions of direct and indirect funding (Recital 5 and Article 9(2a)) – the EBA considers that the RTS already contain, from a supervisory perspective, the necessary principles or tools needed for capturing all cases of direct or indirect funding without any additional description; and (ii) the prior permission process for certain types of liquidation entities (Recital 14 and Article 32h) – the EBA considers that its prior permission regime is proportionate to the goals of the regulation. The EBA accepted the remaining changes on other parts that were not considered substantive. The EBA has submitted the amended draft RTS to the EC.
FSB letter to G20 finance ministers and central bank governors
On 20 April, the FSB published a letter, dated 14 April, sent by Klaas Knot, FSB Chair, to the G20 finance ministers and central bank governors ahead of their meeting on 20 April. The letter discusses the current outlook for financial stability and sets out the FSB’s plans over the coming months to assess and address emerging vulnerabilities. Key points include: (i) the Russian invasion of Ukraine triggered large price fluctuations in global financial markets. So far, the global financial stability impact of the war appears limited compared to the turmoil caused by Covid-19. Nevertheless, uncertainty remains high, with the return of inflation and the prospect of tighter financing conditions; (ii) other issues that warrant particular attention include linkages between commodity markets and the rest of the financial system, financial system leverage and possible amplifiers in the event of market stress, and cyber risks; (iii) for many emerging market and developing economies heightened geopolitical tensions and rising energy and food prices are adding to the economic strain from Covid-19, reduced policy space and tightening global financial conditions. The FSB’s forthcoming report on US dollar funding and emerging market economy vulnerabilities draws policy implications to address vulnerabilities related to external financing; (iv) as part of its work programme to strengthen non-bank financial intermediation (NBFI), the FSB is developing a systemic approach to NBFI and policy proposals that are effective from a system-wide perspective. In October, the FSB will deliver a comprehensive progress report on the various initiatives under the NBFI work programme to the G20 Summit, including on the main findings of relevant FSB and standard-setting body initiatives and on policy proposals to address systemic risk in NBFI; (v) the FSB is intensifying monitoring of current market developments and emerging vulnerabilities, with a particular focus on commodity markets, margining and leverage. The FSB’s ongoing work for the G20 on exit strategies from Covid-19 and measures to avoid scarring effects will also consider the possible implications of current developments for financial policies; (vi) the Ukraine war has reinforced concerns about the growth and potential use of cryptoassets. The FSB is taking forward work on the regulation and supervision of ‘unbacked’ cryptoassets and stablecoins; and (vii) the letter stresses the importance, and increased urgency, of the FSB’s ongoing policy work on addressing the financial risks from climate change.
FCA policy statement and final rules on diversity and inclusion on boards and executive management
On 20 April, the FCA published a policy statement on its proposals to change the Listing Rules and the Disclosure Guidance and Transparency Rules (DTRs) regarding diversity and inclusion on company boards and executive management. In light of the broad support for the main elements of the proposals, the FCA is proceeding with the proposed measures. However, amendments have been made: (i) the FCA removed the guidance on self-identification which accompanied the targets and data disclosure table and has given companies more flexibility to determine how best to collect data from employees, provided their approach is explained and applied consistently. For the numerical disclosures for instance, companies can report either on the basis of sex or gender identity; (ii) where issuers have members of their board or executive management situated overseas where local law prevents the collection and / or publication of relevant data, a company may instead explain the extent to which it is unable to make the numerical disclosures and complete the tables; (iii) minor changes have been made to the language used for the targets in relation to ethnic minority background, and provide that "Other ethnic group" now includes Arab; (iv) a new limb to the disclosure which requires transparency on the issuer’s approach to collecting the data was added. The FCA expects the explanation of a listed company’s approach to data collection to include the method of collection and / or source of the data, and where data collection is done on the basis of self-reporting by the individuals concerned, a description of the questions asked; and (v) the FCA is also changing the commencement date to financial years starting on or after 1 April (rather than 1 January). However, companies whose financial years began before then (from 1 January) are encouraged to consider reporting on the targets and making numerical disclosures in relation to their current accounting period on a voluntary basis. The FCA also states that it has decided not to extend its reporting requirements to representation on sexual orientation or other categories such as lower socio-economic background, although it encourages reporting on wider aspects of diversity through its changes to the corporate governance rules in DTR 7.
PRA publishes 2022/23 business plan and consultation on rates proposals
On 20 April, the PRA published its 2022/23 Business Plan, which sets out its strategy, work plan, and budget for 2022/23, as well as a consultation paper on its regulated fees and levies for 2022/23. The PRA has replaced its previous eight strategic goals with four strategic priorities (SPs). This year’s business plan is structured around the new SPs, which are: (i) retain and build on the strength of the banking and insurance sectors delivered by the financial crisis reform. The PRA will continue to support the Financial Policy Committee’s commitment to upholding levels of resilience within the banking sector, and for insurers; seek to avoid any material slippage through time in the level of protection afforded to policyholders through capital and provisioning levels. The oversight of firms aims to ensure strong governance structures and culture, so that risk-taking is conscious, controlled and supported by adequate financial resources, and information provided by firms is accurate and reliable; (ii) be at the forefront of identifying new and emerging risks, and developing international policy. The PRA’s horizon-scanning programme is at the heart of this priority. The PRA will seek out and tackle regulatory arbitrage, dangerous practices, and features of the regulatory regime that are not yet delivering the desired results. It will make clear, strategic choices about the areas in which it engages and leads; (iii) support competitive and dynamic markets. The PRA will appropriately balance its primary and secondary objectives, and, in particular, proportionality issues for small banks, such as variations in the use of risk-weights and internal models, in light of changes following EU withdrawal. There will be a renewed push on reducing barriers to growth as well as exit (working together with the BoE’s Resolution Directorate, thereby facilitating a more dynamic mid-tier banking sector, where new and growing firms can take on larger banks, and where struggling firms can fail without undermining the rest of the sector). The PRA will also develop its policies on competition (both domestically and internationally) to advance safety, soundness, competition, and competitiveness, and continue to make the UK an attractive place in which to do business; and (iv) run an inclusive, efficient, and modern regulator within the central bank. In order to deliver the ambitious priorities set out above, the PRA needs staff with the right skills and experience, complemented by efficient technology and processes. The PRA will keep building a place where staff feel safe and empowered, striving to be an organisation where decisions are taken at the right level, and that is inclusive in every sense of the word. Change will take into account developments in regulatory technology, addressing inefficiencies, while leveraging the benefits of being a regulator within the UK’s central bank. Regarding the consultation, the proposals would make amendments to the Fees Part of the PRA Rulebook, and include: (a) the fee rates to meet the PRA’s 2022/23 Annual Funding Requirement (AFR); (b) fees applicable to firms in the temporary regimes; (c) changes to the internal model application fees and the model maintenance fee; (d) changes to the special project fees for restructuring fees; and (e) setting out how the PRA intends to distribute a surplus from the 2021/22 AFR (Chapter 3), and the retained penalties for 2021/22 (Chapter 4). The consultation closes on 20 May, and the PRA proposes to publish the changes resulting from this consultation on 4 July, with the implementation date for the changes on 6 July.
The National Archives creates first publicly available government database of judgments
On 19 April, the Ministry of Justice and HMCTS announced that new court and tribunal decisions from the UK Supreme Court, the Court of Appeal, the High Court and the Upper Tribunals are now available on The National Archives Find Case Law website. Over the coming months and years, The National Archives will work with the Ministry of Justice and the judiciary to expand coverage of what is published and made accessible to the public, including judgments from the lower courts and tribunals.
FOS half-yearly complaints data
On 13 April, the FOS published its half-yearly complaints data for individual businesses covering the period from 1 July – 31 December 2021. 216 businesses feature in the complaints data compared to 249 in the previous six-month period. The FOS received approximately 73,200 complaints in H2 2021. The average uphold rate across all products was 37% compared to 34% in H1 2021. The FOS also reports on some of the cases it has settled pragmatically with firms, following the introduction on 1 November 2021 of temporary changes to reporting outcomes in order to tackle the backlog of complaints that had grown during 2020-21 and the Covid-19 pandemic. The published data reflects the last two months of 2021, during which time businesses proactively resolved 1,243 complaints. The remaining number of proactively resolved complaints (around 5,000 complaints) will be published in the January-June 2022 data release later this year.
BoE update on transformation of data collection
On 13 April, the BoE provided an update on the progress of the joint transformation programme, which is being led by the BoE and FCA with industry, to transform data collection from the UK financial sector. The key takeaways from phase one of the project are: (i) the ‘discovery and design’ stage ended at the end of March. The BoE is no longer extending the ‘discovery and design’ stage for the commercial real estate (CRE) use case until the end of May due to a lack of resource; (ii) the programme team are focusing their efforts on de-risking the transformation journey before phase two begins. In July and August the BoE will be planning phase two of the programme; and (iii) alongside the scaling sprint, the programme team are finalising the recommendations based on the phase one ‘discovery and design’ stage. The BoE expects to publish the recommendations, and the BoE and FCA’s response to the recommendations in July 2022. Looking ahead to phase two: (a) it will be delayed from June until September; (b) subject to resource availability, it will cover CRE data, retail banking business model data, incident, outsourcing and third party reporting, strategic review of prudential data collections from solo regulated firms and asset reporting for insurers; (c) the BoE is looking for around 20 FTE from firms to be part of the core delivery team from September until the end of May 2023, to work alongside an expanded BoE and FCA team; and (d) the nominations for the phase two process opens on 27 April. Nominations for committee members will close on 22 June, while nominations for delivery and TDC Advisory Group members will close when the resource limit for the delivery team is reached.
IMF financial sector assessment program UK assessment
On 8 April, the IMF published eight reports on the UK as part of its Financial Sector Assessment Program (FSAP): (i) Detailed Assessment of Observance of Insurance Core Principles Issued by the International Association of Insurance Supervisors; (ii) Some Forward Looking Cross-Sectoral Issues – the report focuses on the key aspects of the UK’s AML/CFT regime; (iii) Financial Stability and Managing Institutional, Technology, and Market Transitions – the report highlights that there has been a very smooth post-Brexit transition, with no material disruption nor any crystallised financial stability risks; (iv) Select Issues in Financial Safety Net Arrangements and Financial Crisis Preparedness – the report finds that there is a need to further enhance the special resolution regime, including its application to CCPs , and to introduce one for insurance companies. Elements of the deposit insurance system and firm-specific resolution decision-making should be strengthened, and implementation and reputation risk addressed; (v) Banking Supervision and Issues in Financial Stability – the report reviews the progress in addressing issues highlighted in the previous FSAP in 2016; (vi) Select Issues in Systemic Risk Oversight and Macroprudential Policy – the report reviews the UK’s performance in building systemic resilience through the financial cycle, including the market volatility resulting from the Brexit vote and the Covid-19 pandemic; (vii) Vulnerabilities in NBFIs, Market-Based Finance, and Systemic Liquidity; and (viii) Systemic Stress, and Climate-Related Financial Risks: Implications for Balance Sheet Resilience – the report analyses the Covid-19 pandemic’s potential “scarring” of banks, insurers, corporates, and households balance sheets, focusing on the interplay of macro-financial/structural conditions and financial vulnerabilities.