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Key Regulatory Topics: Weekly Update 1 - 8 April 2021

08 April 2021

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

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This week’s update includes, among other key items, the FSB’s report on its evaluation of the effects of too-big-to-fail reforms for systemically important banks. This report, alongside the FSB’s report on Covid-19 support measures and its work towards a roadmap on climate-related financial risks, are highlighted by the FSB in its letter to the G20 leaders ahead of their meeting which took place on 7 April. The communique from this meeting is also covered below.

Capital markets

Please see the Markets and Markets Infrastructure section for ESMA’s final report on the functioning of the regime for SME Growth Markets under MiFID/MiFIR.

Consumer/retail

LSB revised standards of lending practice for personal customers

On 7 April, the LSB revised its standards of lending practice for personal customers, outlining the way registered firms are expected to deal with their customers throughout the entire product life cycle. The standards set the benchmark for good lending practice in the UK and apply across digital, branch and telephony networks. Their protections cover overdraft, credit card, chargecard and unsecured loan products and services provided to customers. The LSB’s revisions to the standards, which will become effective on 1 July, include: (i) in recognising that customers are increasingly accessing credit and communicating with their lenders through a variety of digital channels, a new standard on product and service design. The LSB want to ensure that registered firms consider the needs of those customers who are at risk of exclusion, those who may be vulnerable or those who might at some point experience financial difficulty; (ii) expanding the money management standard to include, among other things, additional expectations on firms to encourage customers to contact them about changes in their circumstances that may affect their ability to repay and to use customer information to identify those customers who are exhibiting signs of financial stress; and (iii) new introductory wording to emphasise that the standards are intended to be “channel neutral” and therefore should be applied by firms whether engaging with customers via branch networks, telephone and online, or through digital only propositions.

Press release

Revised standards

FCA Q1 2021 financial promotions quarterly data

On 6 April, the FCA published its first financial promotions quarterly data showing the number of financial promotions that have been amended or withdrawn due to non-compliance with its rules in Q1 2021. The FCA reviewed 441 financial promotions identified through complaints it has received and its own proactive work. 38 cases resulted in 105 promotions being amended or withdrawn. 75% of these amend/withdraw outcomes related to either website or social media promotions. 47% of financial promotions reviewed related to retail lending, 26% to retail investments, and 18% to retail banking.

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Financial Guidance and Claims Act 2018 (Commencement No. 7) (Dissolution of the Consumer Financial Education Body) Regulations 2021

On 1 April, the Financial Guidance and Claims Act 2018 (Commencement No. 7) (Dissolution of the Consumer Financial Education Body) Regulations 2021 were published. The Regulations dissolve the Consumer Financial Education Body whose functions have been transferred to the Single Financial Guidance Body (the Money and Pensions Service). The Regulations make minor and consequential amendments to FSMA, the Financial Services Act 2010 (c. 28) and the Financial Services Act 2012 (c. 21). The Regulations came into force on 6 April.

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FCA finalised guidance on cancellations and refunds – Covid-19

On 1 April, the FCA finalised its guidance on cancellations and refunds. It extends the temporary guidance that was initially published in October 2020 and which sets out the FCA’s expectations of insurance and card providers when they are helping consumers who are trying to claim money back following a cancelled trip or event. All respondents to the consultation on the guidance agreed with the proposed extension although they had different views on how long it should be extended for. The guidance took effect on 2 April and will remain in place during the exceptional circumstances arising out of Covid-19 until varied or revoked. The FCA will keep this guidance under review as the wider situation relating to Covid-19 develops and will consider whether it should make the guidance permanent, either in its current form or with some changes to the guidance. The FCA will engage with stakeholders as it consider these options. Any permanent guidance will be subject to a full consultation.

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Covid-19

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

Fees/levies

PRA consults on regulated fees and levies for 2021/22

On 8 April, the PRA began consulting on its regulated fees and levies for 2021/22. The proposals include: (i) the fee rates to meet the PRA’s 2021/22 Annual Funding Requirement (AFR) of £291.6 million. This is 6% higher than for 2020/21, an increase driven primarily by increases in the PRA’s responsibilities following Brexit; (ii) fees applicable to firms in the temporary regimes. As a result of the change in status of these firms, the PRA proposes to remove the 50% and 90% discount (for banks and insurers respectively) on periodic fees for former EEA inward passporting firms, except those from Gibraltar; (iii) changes to new firm authorisation fees and variation of permission regulatory transaction fees; and (iv) setting out how the PRA intends to distribute a surplus from the 2020/21 AFR and the retained penalties for 2020/21. The PRA proposes to publish the changes resulting from this consultation on 6 July and they are expected to be effective from 8 July. The deadline for comments is 20 May.

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Financial crime

Please see the Other Developments section for the G20 communique, published following a virtual meeting of finance ministers and central bank governors, where they discuss ongoing work in relation to the FATF.

FCA speech on the importance of purposeful AML controls

On 1 April, the FCA published a speech by Mark Steward, FCA Executive Director of Enforcement and Market Oversight, on the importance of purposeful AML controls. Highlights include: (i) Two of the FCA’s biggest sanctions in the last 12 months related to failures to address financial crime and AML risks; (ii) on the one hand, effective AML systems create a control environment that is able to identify valuable signals in complex data, with repeatable interrogations geared to specific and reasonably foreseeable crime risks, to ensure decision-making is calibrated to those risks and to record accurately how those risks have been addressed. On the other hand, systems can become overly complicated, bureaucratised, vulnerable to gaming by less scrupulous players, and expensive. There is an inherent risk that complex systems lose a sense of what they exist for, where the management challenge to maintain the system becomes an end in itself, rather than the system or control acting as a radar to identify and manage the actual risks facing financial services firms; and (iii) the FCA currently has 42 AML investigations ongoing into firms and individuals. AML investigations are often complex because they are rarely transactional and require a systemic understanding of how a firm operates, its governance controls, its cultural habits, and the nuts and bolts of sometimes opaque systems. Mr Steward also discusses some emerging AML risks, where the FCA has increased its surveillance: (a) online investment promotions targeting offers from unauthorised firms, potential investment scams and other too-good-to-be true promotions, including lead generation sites. The FCA has issued alerts on its Warning List concerning well over 1,000 firms, and would like to see the list actively used, not only by consumers, but also by authorised firms; and (b) cryptocurrency firms. The FCA has developed a version of the Warning List, called the Unregistered Cryptocurrency Businesses List, to help identify cryptocurrency firms that appear to be carrying on business in the UK but are not registered with the FCA or have not sought such registration.

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Fintech

Please see the Financial Crime section for a speech by Mark Steward, FCA Executive Director of Enforcement and Market Oversight, on the importance of purposeful AML controls where he discusses the Unregistered Cryptocurrency Business List.

Please see the Other Developments section for the G20 communique, published following a virtual meeting of finance ministers and central bank governors, where they discuss ongoing work on global stablecoins.

Fund regulation

Please see the Other Developments section for a letter sent by Randal Quarles, FSB Chair, to G20 leaders, where he discusses the FSB’s ongoing work to strengthen the resilience of non-bank financial intermediation.

Markets and markets infrastructure

GFXC requests feedback on proposed changes to the FX Global Code and draft disclosure templates

On 8 April, the Global Foreign Exchange committee (GFXC) requested feedback on proposals arising from its 3-year review of the FX Global Code. The FX Global Code is a set of principles of good practice in the FX market, developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market. GFXC seeks feedback on: (i): anonymous trading – new guidance on best practice concerning data policies, tag management, credit policies and the identification of code signatories; (ii) algorithmic trading and transaction cost analysis – new templates to foster the provision of standardised information by providers of execution algorithms. This includes a transaction cost data template to support analysis by users of algorithms and an FX ‘algo’ due diligence template that would help assist in the disclosure of relevant information to users; (iii) disclosures – new disclosure cover sheets it has developed for both liquidity providers and FX venues; and (iv) settlement risk - to strengthen the Code’s guidance on the management of settlement risk, particularly concerning the use of payment‐versus‐payment settlement mechanisms where they are available. Changes to ten of the Code's fifty-five principles are proposed. The deadline for comments is 7 May. The GFXC intends to finalise the proposals for approval at its June 2021 meeting and to publish an updated version of the Code shortly afterwards. The GFXC has also announced that it is developing additional guidance material on the practices of 'last look' and 'prehedging'. This guidance material is intended to promote wider knowledge and understanding of these practices and highlight how they relate to the Code's existing principles for good practice in these areas. This material has already had feedback from local FX committees and is being revised to take account of that feedback. The GFXC then intends to seek further feedback on this material from the broader industry in May.

Press release

Request for feedback webpage

ESMA draft RTS on changes to CCP’s activities and models

On 8 April, ESMA published its final report containing draft regulatory technical standards (RTS) relating to changes to central counterparty (CCP) services and activities, as well as models and parameters under EMIR 2.2. EMIR requires a CCP wishing to extend its business to additional services or activities, that are not covered by the initial authorisation, to submit a request for extension of authorisation to its competent authority. Prior to making any significant change to its risk models or parameters, a CCP must also obtain validation from its competent authority and ESMA. The draft RTS specify: (i) the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation; (ii) the conditions under which changes to the CCP’s models and parameters are significant and therefore require a validation; and (iii) the procedures for consulting the CCP college on whether those conditions are met. ESMA has submitted the draft RTS to the EC for endorsement, following which the Commission Delegated Regulation will be subject to the non-objection of the EP and the Council.

Press release

Final report

ESMA annual peer review of EU CCP supervision

On 8 April, ESMA published its annual peer review report on the supervision of EU central counterparties (CCPs) by national competent authorities (NCAs), which measures the effectiveness of NCA supervisory practices in assessing CCP compliance with EMIR’s requirements on liquidity stress testing. The review also assessed whether NCAs in doing so are complying with the relevant general principles and criteria agreed at ESMA e.g. via EMIR Q&A, ESMA Guidelines and Recommendations, best practices, and in particular with ESMA’s opinion on CCP Liquidity Risk Assessment under Article 44(1) of EMIR of 2018. Overall, the review found that NCAs’ supervisory activities on CCPs’ liquidity stress testing are satisfactory. However, the peer review showed that the assessment of some areas of liquidity stress testing was not always performed or being evidenced sufficiently. In particular, NCAs should make sure that the settlement of obligations of defaulting clearing members are reflected in full in the liquidity stress testing framework. The report identifies several best practices and considerations to further enhance supervisory convergence with respect to CCPs’ liquidity stress testing. On the functioning of CCP colleges, the review of colleges’ activities during the reporting period remains overall positive. In particular, ESMA appreciated the efforts of chairing NCAs to meet the expectations and best practices highlighted in past peer reviews and to update the colleges on the recent market developments related to the Covid-19 crisis. ESMA will follow up on the report’s findings to identify, where relevant, the most appropriate tools to further enhance supervisory convergence.

Press release

Peer review report

ESMA final report on SME growth markets under MiFID II

On 7 April, ESMA published its final report on the functioning of the regime for SME Growth Markets (GM) under MiFID/MiFIR, which contains recommendations and possible amendments to the MiFID II framework to the SME GM regime which are needed to improve the attractiveness of the regime. The report suggests that the SME GMs regime in the EU, as it stands, has been relatively successful, with 17 multilateral trading facilities registering as SME GMs to date. ESMA’s proposals include: (i) that the EC take into account a potential harmonisation of requirements for SME issuers in the context of the discussion on the establishment of the European Single Access Point; (ii) an amendment of Article 78(2)(h) of Delegated Regulation (EU) 2017/565 in order to require firms to make financial reports in the year prior to admission to trading public where available, which could help investors to retrieve helpful information; and (iii) to extend the issuer non-objection requirement in the first part of Article 33(7) of MiFID II concerning the admission to trading of an instrument already admitted on SME GMs to any trading venue. ESMA believes that such extension would be beneficial in reducing the risks of fragmentation of liquidity. ESMA has submitted the report to the EC and the EC is expected to take it into consideration for further legislative proposals on the MiFID II SME GM regime.

Press release

Final report

ECB amending guideline on the euro short-term rate published in OJ

On 7 April, Guideline (EU) 2021/565 of the ECB was published in the OJ. The guideline amends guideline (EU) 2019/1265, which governs the euro short-term rate (€STR) and establishes the ECB's responsibility for its administration. The amending guideline updates: (i) the tasks and responsibilities of the ECB to include the calculation and publication of compounded rates; and (ii) the framework for the consultation of stakeholders to improve clarity. The amending guideline shall take effect on the day of its notification to the national central banks of the Member States whose currency is the euro (NCBs). The NCBs shall comply with the amending guideline at the latest by 15 April.

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FCA update on reporting LEIs of non-EEA third country issuers under UK SFTR

On 6 April, the FCA issued an update on reporting Legal Entity Identifiers (LEIs) of non-EEA third country issuers under the UK SFTR. Under Article 4 of the UK SFTR, reporting counterparties must use LEIs to identify entities when submitting transaction reports under the UK SFTR. In January 2020, ESMA granted 12 months of forbearance from the entry into force of SFTR reporting requirements in relation to the reporting of the LEIs of non-EEA third country issuers under the reporting technical standard. While the industry has made progress in encouraging more widespread LEI coverage among non-EEA third country issuers, the FCA recognises that there are still many non-EEA third country issuers without an LEI. To reduce market disruption, the FCA is extending the period during which reports under the UK SFTR without the LEI of a non-EEA third country issuer will be accepted until at least 13 April 2022. In the meantime, the FCA expects reporting counterparties to continue engaging with non-EEA third country issuers to acquire an LEI. The FCA also expects reporting counterparties to report an LEI for non-EEA third country issuers where available.

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ESMA updates MiFID II Q&A on market structures issues and SFTR Q&A on data reporting

On 6 April, ESMA updated its Q&A on market structures topics under MiFID II and MiFIR. A Q&A in the tick size regime section has been modified to reflect the amendment introduced in Article 49(1) of MiFID II which excludes Large in Scale transactions from the mandatory tick size regime. ESMA has also updated its Q&A on SFTR data reporting to simplify the reporting of SFTs when an external portfolio manager is used. The update complements ESMA’s guidance on reporting under SFTR.

MiFID II Q&A

SFTR Q&A

ESMA guidelines on reporting of periodic information and material changes by TRs under EMIR and SFTR

On 6 April, ESMA published its final report and guidelines (both dated 23 March) on the reporting of periodic information and material changes by trade repositories (TRs) to ESMA under EMIR and SFTR. The guidelines clarify the format and frequency of the different categories of information which ESMA expects to receive in its role as supervisor of TRs registered in accordance with EMIR and/or SFTR. ESMA expects the guidelines to: (i) reduce efforts to request this information sporadically and ensure that no information is omitted; (ii) reduce the processing time of information received; (iii) ensure a level playing field by establishing harmonised reporting templates; (iv) ensure complete information necessary for ESMA’s risk-based supervision; (v) improve the internal planning of ESMA’s supervision teams with regard to information review and facilitate processing; and (vi) standardise practices that are already implemented by TRs on a best efforts basis. The guidelines will apply from 30 June. All periodic information items that have annual frequency and a reporting deadline of 31 January should, in the first year, be submitted by 30 June.

Press release

Final report

Guidelines

Regulation amending the Securitisation Regulation to help recovery from Covid-19 published in OJ

On 6 April, Regulation (EU) 2021/557 amending the Securitisation Regulation and laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation to help the recovery from the Covid-19 crisis, and Regulation (EU) 2021/558 amending the CRR as regards adjustments to the securitisation framework to support the economic recovery in response to the Covid-19 crisis, were published in the OJ. The amendments to the Securitisation Regulation: extend the simple, transparent and standardised securitisation framework to on-balance-sheet synthetic securitisation as this type of securitisation is an important risk management tool for bank lending to corporates, in particular SMEs; and (ii) remove regulatory obstacles to the securitisation of non-performing exposures (NPEs) to enable broader use of securitisation by banks to free their balance sheets from NPEs. The previous framework was not designed for NPE securitisations and contained disincentives that might discourage banks from securitising NPEs. Both Regulations come into force on the third day after publication in the OJ, except Article 1(2) and (4) of Regulation 2021/558, which shall apply from 10 April 2022.

Regulation (EU) 2021/557

Regulation (EU) 2021/558

Payment systems and payment services

Please see the Other Developments section for the G20 communique, published following a virtual meeting of finance ministers and central bank governors, where they commit to a timely and effective implementation of the G20 Roadmap to enhance cross-border payments.

PSR current and future enforcement work

On 1 April, the PSR published the minutes of the meeting of the PSR Board held on 20 January, where, among other ongoing work streams, the Board received an overview of the PSR’s enforcement work in 2020/21 together with an outline of anticipated activity in 2021/22. The Board were also invited to consider whether, in light of the PSR’s ongoing strategy work, the enforcement team should begin work on developing a new, high-level enforcement approach to help direct its future decision making and ensure that it is aligned with the overall PSR strategy. The Board supported the enforcement team’s proposal. It indicated that any strategic approach should cover decisions made both pre- and post- the opening of an enforcement investigation, i.e. in respect of whether enforcement action was the most appropriate way of resolving an issue of non-compliance. It also noted that enforcement is an important regulatory tool and that the taking of formal enforcement action in suitable cases sends important messages to industry.

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BoE on accessing and using accounts in RTGS to hold funds and settle payments

On 1 April, the BoE updated its webpage on payment and settlement to add new sections in relation to accessing and using accounts in the BoE's real-time gross settlement (RTGS) to hold funds and settle payments: (i) omnibus accounts – these can be used by a recognised payment system operator to pool participant funds. This allows the operator to fully fund wholesale settlement – on their platform – with central bank money and mitigate credit and settlement risk. The funds in the account can be held both during and outside of RTGS operating hours and balances are remunerated at Bank Rate. To directly participate in the relevant payment system using an omnibus account, an organisation has to hold a reserves account. The BoE’s Omnibus Account Policy explains the eligibility requirements in detail. A payment system operator has to be recognised under the Banking Act 2009 to be eligible to hold an omnibus account; and (ii) prefunding accounts – these are for direct settlement participants to hold funds to cover the maximum possible net debit positions they could reach in certain retail payment systems. For organisations that hold a reserves account, these balances form part of their overall reserves balance and are remunerated at the same rate. Prefunding accounts are also available to settlement account holders, including non-bank payment service providers. If a participant defaults, the cash set aside can be used to complete settlement. This eliminates credit risk between direct participants. These accounts are provided to direct settlement participants in Bacs and Faster Payments and the Image Clearing System for cheques. Applications must be via Pay.UK as the operator of Bacs, Faster Payments and the Image Clearing System.

Payment and settlement webpage

Omnibus accounts access policy

Prudential regulation

PRA consults on the specification of the nature, severity and duration of an economic downturn in the IRB approach to credit risk

On 7 April, the PRA began consulting on its proposed requirements for specifying the nature, severity and duration of an economic downturn, for the purposes of calibrating both downturn loss given default (LGD) and exposure at default (EAD) under the internal ratings based (IRB) approach to credit risk. The EBA’s draft regulatory technical standards (RTS) on the specification of the nature, severity and duration of an economic downturn in accordance with Articles 181(3)(a) and 182(4)(a) of the CRR were not finalised and therefore not converted into UK law under the EU (Withdrawal) Act at the end of the transition period. Therefore, this consultation sets out the PRA’s proposed approach to implementing appropriate requirements as UK technical standards, and to update its expectations in Supervisory Statement (SS) 11/13 ‘IRB approaches’ accordingly. The PRA has used the version of the RTS in the EBA’s 2020 opinion paper as a start point for developing its proposed technical standards, and has provided additional clarity in some areas to further advance its statutory objectives. The PRA is also proposing to make additional minor changes to SS11/13 to reflect the UK’s exit from the EU. The PRA proposes that the implementation date would be 1 January 2022, in line with the implementation deadlines set out in Policy Statement 11/20 for IRB firms to implement all changes from the IRB roadmap. The deadline for comments is 7 July.

Press release

Consultation paper

EBA consults on list of advanced economies to determine equity risk under the new market risk regime

On 7 April, the EBA began consulting on its draft regulatory technical standards (RTS) on the list of countries with an advanced economy for calculating the equity risk under the sensitivities based method under the alternative standardised approach (FRTB-SA). The Basel Fundamental Review of the Trading Book (FRTB) provides a list of countries that are considered to be ‘advanced’ for the purpose of the FRTB-SA. The EBA considers that the list would benefit from a review before the FRTB comes into effect, as it has not been reviewed since the first version was published on 14 January 2016. The consultation replicates the FRTB list and seeks stakeholders’ views on sources of data and criteria that could be designed to identify other advanced economies and emerging markets for the purpose of FRTB-SA equity risk own funds requirements. In particular, the EBA would expect additional EU/EEA countries to qualify as advanced economies for the purpose of the computation of equity risk own funds requirements under the FRTB-SA. The deadline for comments is 2 July.

Press release

Consultation paper

BoE on the regulatory treatment of the UK Recovery Loan Scheme – Covid-19

On 6 April, the BoE published a statement setting out the PRA’s observations on whether the guarantees provided by the Secretary of State for Business, Energy and Industrial Strategy under the UK Recovery Loan Scheme ((RLS) also launched on 6 April) are eligible for recognition as unfunded credit risk mitigation (CRM) under the UK CRR. Under the terms of the guarantee, the Secretary of State may set a limit on the aggregate number of claims (the ‘Claim Limit’) that a lender can make for a future ‘Scheme Period’ in respect of an RLS facility. The PRA considers that for ‘Scheme Periods’ where the ‘Claim Limit’ is set at not less than 100%, the terms of the guarantee do not contain features that would render the guarantee ineligible for recognition as unfunded credit risk protection, and the effects of the guarantee would appear to justify such treatment. Were the ‘Claim Limit’ to be set lower for subsequent ‘Scheme Periods’ this guidance would not apply and the effect of the guarantee on regulatory capital requirements would need to be carefully assessed against the law and guidance applicable at the time. The PRA also note that not all the RLS guarantees include cover for interest and fees. In accordance with the CRR, firms recognising the RLS guarantee as eligible unfunded protection in relation to an exposure are required to adjust the exposure amount to exclude elements not covered by the RLS guarantee. The BoE notes that this does not provide an exhaustive description of the prudential requirements that apply, and firms are encouraged to review relevant articles of the CRR and any relevant PRA rules and guidance. 

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BCBS principles for operational risk and operational resilience

On 1 April, BCBS issued Principles for Operational Resilience which aim to make banks better able to withstand, adapt to and recover from severe adverse events. BCBS has also revised its Principles for the Sound Management of Operational Risk (PSMOR), reflecting the natural relationship between operational resilience and operational risk. With respect to operational risk, BCBS has made a limited number of technical revisions to: (i) align the PSMOR with the recently finalised Basel III operational risk framework; (ii) update the guidance where needed in the areas of change management and ICT; and (iii) improve the overall clarity of the principles document. The Principles for Operational Resilience build upon the PSMOR, and are largely derived and adapted from existing guidance on outsourcing-, business continuity- and risk management-related guidance issued by BCBS or national supervisors over a number of years. By building upon existing guidance and current practices, BCBS is seeking to develop a coherent framework and avoid duplication. The Principles for Operational Resilience focus on governance; operational risk management; business continuity planning and testing; mapping interconnections and interdependencies; third-party dependency management; incident management; and resilient cyber security and ICT. Both documents were consulted on in August 2020.

Press release

Principles for Operational Resilience

Principles for the Sound Management of Operational Risk

Recovery and resolution

FSB survey for FMIs on questionnaire on continuity of access for firms in resolution

On 6 April, the FSB began an online survey that seeks feedback on stakeholders’ experience of using its questionnaire on the continuity of access to financial market infrastructures (FMIs) for firms in resolution. To inform resolution planning, firms and authorities may have similar information expectations as they engage with FMIs on arrangements and safeguards that would affect the client’s access to FMI services in the run-up to, and during, its resolution. In August 2020, therefore, the FSB published a common template in the form of a questionnaire for FMIs to streamline the provision of this information. FMIs are expected to publish their responses to the questionnaire or make them available in other ways to their clients and their resolution authorities. Responses to the survey will inform the revision of the questionnaire by FSB member authorities. The deadline for comments is 3 May.

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FSB final report on the evaluation of too-big-to-fail reforms for banks

On 1 April, the FSB published the final report on its evaluation of the effects of too-big-to-fail (TBTF) reforms for systemically important banks (SIBs). The evaluation examines the extent to which the reforms have reduced the systemic and moral hazard risks associated with SIBs, as well as their broader effects on the financial system. The evaluation finds that TBTF reforms have made banks more resilient and resolvable, and that they have produced net benefits to society. Indicators of systemic risk and moral hazard moved in the right direction, suggesting that market participants view these reforms as credible. Increased bank resilience and greater market discipline have been tested by the Covid-19 pandemic however, banks (thanks also to the unprecedented fiscal, monetary and supervisory support measures) have so far been able to absorb the shock. Nevertheless, the FSB found some gaps that need to be addressed: (i) resolution reforms should be implemented in full to enhance the feasibility and credibility of resolution, minimising the need for state support of failing banks. This includes further work to enhance the resolvability of SIBs; (ii) there is still scope to improve public disclosures of information relating to resolution frameworks and funding mechanisms, the resolvability of SIBs and resolution actions; (iii) information may be needed for public authorities to assess the potential impact of resolution actions (such as bail-in) on the financial system and the economy; and (iv) the application of the reforms to domestic SIBs warrants further monitoring. In addition, risks arising from the shift of credit intermediation to non-bank financial intermediaries should continue to be closely monitored. The FSB also published an overview of responses to its public consultation and an Addendum to the technical appendix providing more information on the analytical updates. The next FSB evaluation will be on the effects of G20 financial reforms on bond market liquidity; the evaluation will be launched in mid-2021 and be completed in 2022.

Press release

Final report

Overview of responses

Addendum to the technical appendix

Sustainable finance

Please see the Other Developments section for updates relating to Sustainable Finance.

Other developments

Second G20 Finance Ministers and Central Bank Governors meeting Communiqué

On 8 April, the G20 published a communique following a virtual meeting of finance ministers and central bank governors on 7 April. The G20, amongst other things: (i) ask the IMF, in close cooperation with the Inter-Agency Group on Economic and Financial Statistics and the FSB, to prepare a concept note on a possible new Data Gaps Initiative; (ii) ask the FSB to work on evaluating the availability of data and data gaps on climate-related financial stability risks, and on ways to improve climate-related financial disclosures, and to report on these subjects in July; (iii) call on the FSB to continue to support international coordination on Covid-19 response measures in relation to financial stability, including through information sharing and through monitoring consistency with the agreed international standards; (iv) will work to strengthen the resilience of the non-bank financial intermediation (NBFI) sector, building upon the FSB “Holistic Review” of the March 2020 market turmoil; (v) commit to a timely and effective implementation of the G20 Roadmap to enhance cross-border payments, endorsed at the G20 Riyadh 2020 Summit, also to facilitate the flow of remittances; (vi) reiterate that no so-called “global stablecoins” should commence operation until all relevant legal, regulatory and oversight requirements are adequately addressed through appropriate design and by adhering to applicable standards; and (vii) reaffirm its support for the FATF and commit to further strengthening the FATF’s Global Network of regional bodies in order to reinforce the effective implementation of the FATF standards.

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FSB letter to G20 on Covid-19 support measures, SIB reforms, NBFI and a roadmap on climate-related financial risks

On 6 April, the FSB published a letter (dated 30 March) sent by Randal Quarles, FSB Chair, to G20 leaders ahead of their April 2021 summit. The FSB summarises its key G20 deliverables: (i) the FSB is working on drawing lessons from the Covid-19 pandemic for financial stability. The FSB has published a report to assist policymakers in forming views on whether, when and how to extend, amend or end their support measures; (ii) the FSB is submitting the final report, on the effects of ‘too big to fail’ reforms for systemically important banks (SIBs), both globally and domestically. The real life test provided by the Covid-19 pandemic has confirmed that the reforms have helped to reduce the risks previously posed by SIBs; (iii) following up on its holistic review of the March 2020 market turmoil, a key priority for the FSB this year is its ongoing work to strengthen the resilience of non-bank financial intermediation (NBFI). The FSB will submit policy proposals to enhance money market fund resilience to the G20 in July; and (iv) the FSB is also taking a lead role in coordinating work to better understand and address climate-related financial risk. The FSB is building on last year’s report on the financial stability implications of climate change, with three climate-related workstreams underway covering data, disclosures, and regulatory and supervisory practices. These workstreams will provide important input to the two reports that the G20 has requested from the FSB, on ways to promote consistent, high-quality climate disclosures based on the recommendations of the Task Force for Climate related Financial Disclosures, and on the data necessary for the assessment of financial stability risks and related data gaps. The FSB will develop a roadmap that will identify where climate-related work on financial risk is underway, what work is needed, and how the different workstreams fit together. This will leverage work being carried out by standard-setting bodies and international organisations while simultaneously using the FSB’s mechanisms to identify vulnerabilities and build consensus on the way forward.

Letter to G20

Report on Covid-19 support measures