Key Regulatory Topics: Weekly Update 11 - 17 June 2021
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Brexit
PRA update on firm authorisation under the Temporary Permissions Regime
On 14 June, the PRA issued a statement providing an update on its approach to firm authorisation under the Temporary Permissions Regime (TPR), relevant to EEA banks and insurers within scope. The PRA has an extended time period to process authorisation applications from EEA banks and insurers in the TPR (currently up to the end of 2023). The PRA notes that there has been a considerable volume of applicants of varying scale and complexity across a range of different business models, and some firms in the TPR may choose not to apply for authorisation until the end of 2022 (or otherwise as the PRA may direct). This means some firms may receive an authorisation application outcome ahead of others. The timing of authorisation should not be taken as an indication of the PRA’s view of risks at individual institutions.
Conduct
ECB consults on revised guide to fit and proper assessments
On 15 June, the ECB began consulting on the draft of a revised and more comprehensive version of its Guide to fit and proper assessments and a new Fit and proper questionnaire. The enhancements contained in the documents aim to raise the bar, increase transparency and improve the quality and efficiency of fit and proper assessments and processes. They also introduce supervisory expectations on climate-related and environmental risks and explain the ECB’s approach to diversity. Additionally, the Fit and proper questionnaire has been updated to incorporate new policies and practices developed since 2016. By streamlining the necessary requests for information, it increases efficiency and harmonisation across the Single Supervisory Mechanism and enhances data quality. The deadline for comments is 2 August. The deadline for submitting questions and registration for a public hearing on 15 July, is 5 July.
Consumer/Retail
Please see the Payment Services and Payment Systems section for the Lending Standards Board’s summary report on its follow-up review of firms' approach to reimbursement of customers under provision R2(1)(c) of the contingent reimbursement model code for authorised push payment scams.
Government response to HoL Liaison Committee’s report on tackling financial exclusion
On 16 June, the Government published its response to the HoL Liaison Committee's third follow-up report on tackling financial exclusion, which was published in April. Highlights include: (i) on access to cash - as a result of the Financial Services Act 2021 (FS Act), UK law will allow shops and other businesses to offer cashback without a purchase to customers more easily from June. The Government has confirmed that it will consult this summer on further legislative proposals to protect access to cash; (ii) on digital inclusion - the Government and Ofcom have agreed a set of commitments with the UK’s major broadband and mobile operators to support vulnerable consumers during Covid-19; (iii) on basic bank accounts - the Government is committed to improving access to bank accounts and it continues to encourage firms to consider the areas for improvement identified by the FCA in its 2020 review; (iv) on affordable credit - the Government will publicly consult on policy proposals, and will then bring forward secondary legislation to regulate deferred payment products as soon as parliamentary time allows. The Government will also appoint an organisation to deliver the pilot No-Interest Loans Scheme; and (v) the FCA objectives and a duty of care to customers – the Government believes that the FCA's existing strategic and operational objectives provide significant opportunity for the FCA to proactively support government leadership of the financial inclusion agenda and, therefore, considers that an additional objective to promote financial inclusion is unnecessary. The Government notes that the FCA is required under the FS Act to consult on a duty of care and make new rules by 1 August 2022. The FCA began consulting on 14 May.
Fintech
Please see the Other Developments section for a report produced by the Taskforce on Innovation, Growth and Regulatory Reform setting out recommendations on the UK’s future approach to regulation including measures to support UK FinTech and digitalisation of financial services infrastructure.
BoE speech on CBDC work progress
On 17 June, the BoE published a speech by Tom Mutton, Director of FinTech, on the BoE’s latest thinking on retail central bank digital currencies (CBDCs). Mr Mutton summarises the BoE’s June 2020 CBDC discussion paper and the ‘use cases’ for CBDC that the BoE suggested. Using feedback to the paper, Mr Mutton states that the BoE has established five principles to guide its future CBDC work: (i) financial inclusion should be a prominent consideration in CBDC design; (ii) a competitive CBDC ecosystem with diverse participants will support innovation; (iii) due recognition should be given to other payments innovations and their ability to support the outcomes the BoE seeks; (iv) CBDC should seek to protect users’ privacy; and (v) while CBDC should ‘do no harm’ to the BoE’s ability to deliver monetary and financial stability, opportunities to better meet policy objectives should also be considered in CBDC exploration.
Alan Turing Institute report on AI in financial services
On 14 June, the Alan Turing Institute published a report on AI in financial services, which was commissioned by the FCA. The report examines its potential ethical and regulatory implications, and sets out the role of AI transparency in addressing these implications. The report: (i) explains central technological concepts and highlights the relationship between them; (ii) provides the foundation for understanding how AI-related risks arise and the role of AI ethics principles in guiding responsible innovation; (iii) considers the positive and negative impacts that different uses of AI in financial services could have in the areas of consumer protection, financial crime, competition, the stability of firms and markets, and cybersecurity; and (iv) describes different forms of transparency, underlining the foundational role of AI transparency in ensuring and demonstrating that AI systems are trustworthy and used responsibly. The report notes that AI is already having transformative impacts on the delivery of financial services and its role is set to increase further in the years to come. Like in other sectors, firms in financial services, regulators, consumers, and society at large are confronted with an evolving landscape of promising technological innovations and newly emerging challenges and risks. The report aims to equip stakeholders with the understanding needed to navigate this landscape in pursuit of responsible and socially beneficial innovation.
Fund regulation
EC adopts amendments to Delegated Regulation on requirements for assets received by MMFs as part of reverse repurchase agreements
On 15 June, the EC adopted a Delegated Regulation amending Commission Delegated Regulation (EU) 2018/990 in respect of requirements for assets received by money market funds (MMFs) as part of reverse repurchase agreements. In accordance with Article 2 of Commission Delegated Regulation (EU) 2018/990 eligible investments in reverse repurchase agreements by managers of MMFs are subject to supplementary qualitative and quantitative requirements, including a specific adjustment to the value of an asset. However, those requirements do not apply to transactions entered into with credit institutions, investment firms and insurance undertakings that are established in the EU or that are covered by an equivalence decision. The amending Regulation specifies the relevant provisions in the CRR, MiFID II and Solvency II on which equivalence decisions should be adopted for the exemption to be applied in relation to these entities. The EC states that it adopted the Amending Regulation following a request by ESMA to clarify the legal bases for the references to equivalence in Article 2(6). If neither the EP nor the Council object, the amending Regulation will be published in the OJ and enter into force 20 days later.
ITS on cross-border marketing of AIFs and UCITS published in OJ
On 15 June, Commission Implementing Regulation (EU) 2021/955 laying down implementing technical standards (ITS) for the application of the Regulation on the cross-border distribution of investment funds was published in the OJ. The ITS: (i) determine standard forms, templates and procedures for the publications and notifications that national competent authorities (NCAs) are required to make in relation to national provisions concerning marketing requirements applicable within their jurisdiction (Article 5(3)); (ii) determine standard forms, templates and procedures for the publications and notification that NCAs are required to make in relation to national provisions concerning fees and charges levied by them in relation to activities of AIFMs, EuVECA managers, EuSEF managers and UCITS management companies; and (iii) specify the information to be communicated, as well as the standard forms, templates and procedures for communication of the information by the NCAs which is necessary for the creation and maintenance of the central database on cross-border marketing of AIFs and UCITS and the technical arrangements necessary for the functioning of the notification portal into which each NCA shall upload all documents necessary for the creation and maintenance of such central database. The Implementing Regulation will enter into force on 5 July (20 days after publication in the OJ). It will apply from the date of entry into force, with some exceptions. Articles 1 and 3(1) apply from 2 August, and Article 5 applies from 2 February 2022.
Markets and market infrastructure
Please see the Other Developments section for a report produced by the Taskforce on Innovation, Growth and Regulatory Reform setting out recommendations on the UK’s future approach to regulation.
Delegated Regulation extending transitional period for exempting pension scheme arrangements from EMIR clearing obligation published in OJ
On 16 June, Commission Delegated Regulation (EU) 2021/962 extending the transitional period for exempting Pension Scheme Arrangements (PSAs) from the clearing obligation under EMIR Article 89(1), first subparagraph, was published in the OJ. This follows a recommendation from ESMA in its report published on 17 December 2020, that further development of the solutions to mitigate challenges faced by PSAs is needed before the clearing obligation applies. The transitional period is extended until 18 June 2022. The Delegated Regulation entered into force on 17 June (the day following its publication in the OJ).
FCA and BoE encourage market participants to switch to SOFR in USD interest rate swap markets
On 16 June, the FCA and the BoE called for liquidity providers in the USD linear interest rate swaps market to adopt new trading conventions for interdealer trading based on SOFR instead of LIBOR from 26 July. Guidance from US regulators is that banks in the US should cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and no later than the end of 2021. In support of this guidance, the CFTC’s Market Risk Advisory Committee’s Interest Rate Benchmark Reform Subcommittee voted to recommend 26 July for switching interdealer trading conventions for USD linear interest rate swaps from USD LIBOR to SOFR. An FCA survey of market participants identified strong support for a change in the interdealer trading convention, which would see SOFR rather than LIBOR become the default price from 26 July. From 26 July therefore, the FCA and the BoE encourage all trading in USD LIBOR swaps, and USD LIBOR-based swap spreads in the interdealer broker market to be replaced with trading in SOFR swaps and SOFR-based swap spreads. USD LIBOR is expected to be accessible only as a basis swap to SOFR in the interdealer broker market from this date. However, screens for outright LIBOR swaps and LIBOR-based swap spreads are expected to remain available for informational purposes, but not trading activity, until 22 October.
ISDA consults on fallbacks for GBP and USD LIBOR ICE Swap Rates
On 11 June, ISDA began consulting on how to implement fallbacks for GBP LIBOR ICE Swap Rate (ISR) and USD LIBOR ISR. Both rates are published by ICE Benchmark Administration (IBA). Following the FCA’s March 5 announcement on LIBOR’s future cessation and/or loss of representativeness, IBA is consulting on its intention to cease publication of the GBP LIBOR ISR for all tenors (from one to 30 years) immediately after publication on December 31. While IBA has not yet consulted on any intention to cease publication of the USD LIBOR ISR immediately after publication on June 30, 2023 (or on any other date), the FCA’s announcement is expected to have implications for this swap rate as well. In order to address the potential cessation of these ISRs, ISDA seeks input on the implementation of: (i) fallbacks for the GBP LIBOR ISR suggested in a paper published by the Non-Linear Task Force of the Working Group on Sterling Risk-Free Reference Rates in the UK; and (ii) fallbacks for the USD LIBOR ISR proposed in a paper published by a Subcommittee of the Alternative Reference Rates Committee in the US. The deadline for comments is 2 July. ISDA aims to publish the results in July.
ESMA statement on implementation of FRANDT commercial terms to provide clearing services
On 11 June, ESMA issued a statement on the implementation of the fair, reasonable, non-discriminatory and transparent (FRANDT) commercial terms, which, under EMIR, clearing members and clients are required to implement from 18 June. ESMA explains that the Delegated Regulation specifying the conditions under which commercial terms are to be considered FRANDT is still being scrutinised by the EP and the Council and it is therefore unlikely to be published in the OJ and enter into force before the 18 June. Therefore while ESMA encourages market participants to anticipate and get ready to comply with the upcoming regulatory obligations set out in Article 4(3a) of EMIR, it also expects competent authorities not to prioritise their supervisory actions towards clearing members and clients expected to provide clearing services in accordance with FRANDT commercial terms before the date the Delegated Regulation will apply, and to generally carry out their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.
Payment systems and payment services
Please see the Consumer/Retail section for the Government’s response to the HoL Liaison Committee's third follow-up report on tackling financial exclusion.
EP report on proposal for Regulation on cross-border payments
On 17 June, the EP’s Legal Affairs Committee published a report on the EC’s legislative proposal for a Regulation on cross-border payments in the EU. The Committee found that in point 5 of Article 2 the indication ‘points (4) to (23)' should be adapted so as to read ‘points (2) to (23). Otherwise the party concluded that the proposal is a straightforward codification of existing texts, specifically the existing regulation on cross-border payments, Regulation (EC) No 924/2009. The report states that the EP should adopt the EC’s legislative proposal for the proposed Regulation as its own position at first reading. The EP also published an Addendum to the report setting out the draft text of the EP’s position. The EP’s procedure file for the proposed Regulation indicates that it will be considered in plenary on 23 June.
LSB summary report on review of firms’ approach to reimbursement of customers for APP scams under the contingent reimbursement model code
On 16 June, the Lending Standards Board (LSB) published a summary report on its follow-up review of firms' approach to reimbursement of customers under provision R2(1)(c) of the contingent reimbursement model (CRM) code for authorised push payment (APP) scams. This provision provides for an exemption to the requirement to reimburse customers in certain circumstances. Overall the LSB found that there appears to be a significant disconnect between the actions firms purport to have taken and the results of its validation exercise. The LSB has identified issues related to each of the key findings reported in its initial review and is therefore still unable to close the majority of the action plans. In addition to these key themes not being fully remediated, the LSB has identified other areas of concern, including: (i) firms are still operating outside of Code requirements, with respect to delivering an outcome response within 15 days (or 35 days in exceptional circumstances). There was little evidence of interim updates being provided to the customer to inform them of the delay and when to anticipate a response; (ii) incorrect information provided to customers regarding the timescales for a reimbursement outcome, as well as poor explanations or no explanation of the reimbursement process and liability assessment, was evidenced across many firms. There was also a clear indication that some employees require further training to ensure they have an understanding of both internal processes and the requirements of the Code; and (iii) overall, the sample testing identified that there is a significant proportion of responsibility placed on the customer as to whether they had met a ‘requisite standard of care’. The Code is clear in its intention that customers should be reimbursed unless the firm can establish any of the five matters set out in the Code, one of these being there was not a reasonable basis for belief, rather than the customer not meeting a pre-determined list of requirements that they are unaware of, and, in many cases, would be unable to meet. In addition, where firms were looking for a reasonable basis for belief, the expectation on what would be reasonable for a customer was often unattainable or the expectation set too high. The LSB has sent individual follow-up review outcome letters to each of the firms that make it clear whether it feels actions have been closed or remain open. Where actions remain open, it has allocated appropriate time bound deadlines and will review the actions in due course to ensure that firms have met all the deadlines.
EBA report on data provided by PSPs on their readiness to apply SCA for e-commerce
On 11 June, the EBA published a report on the data provided by payment service providers (PSPs) on their readiness to apply strong customer authentication (SCA) for e-commerce card-based payment transactions. The EBA observes that significant progress has been made with regard to SCA-compliance: (i) 99% of EU merchants are able to support SCA; (ii) 94% of all payment cards in the EU are SCA-enabled; (iii) 82% of all payment service users are enrolled into an SCA solution; (iv) 92% of e-commerce card-based authentication requests reported by acquirers are compliant with the SCA requirements; and (v) 87% of initiated e-commerce card-based payment transactions reported by issuers are compliant with the SCA requirements. The EBA notes that this progress also coincided with a significant reduction of the volume and value of fraudulent e-commerce card-based payment transactions in the EU over the same period. However points of concern remain, namely that PSPs in some jurisdictions are lagging behind others in applying SCA and the volume of SCA non‐compliant transactions remain relatively high in some jurisdictions.
Prudential regulation
EC provides clarity on pillar 1 backstop and non-performing loan securitisation under CRR
On 17 June, Mairead McGuinness, European Commissioner for financial stability, financial services and the capital markets union, answered a question on behalf of the EC in relation to the pillar 1 backstop and non-performing loan securitisation under Article 47(a) of the CRR. Ms McGuinness states that where an institution has transferred significant credit risk of securitised non-performing exposures to third parties in accordance with the CRR, and has also de-recognised the securitised exposures from its balance sheet in accordance with the applicable accounting standards, the transferred part is not subject to the minimum coverage requirements under that Regulation. The EC services do not consider that legislative changes would be necessary to clarify this treatment.
EC consults on improving transparency and efficiency in secondary markets for non-performing loans
On 16 June, the EC began consulting on improving transparency and efficiency in secondary markets for non-performing loans (NPLs). The EC explains that one of the key actions in fostering secondary markets for NPLs is to improve the quantity, quality and comparability of NPL data. Secondary markets can be broader and more efficient if market participants have more and better data. As part of its strategy to leverage data sources, the EC is therefore consulting on changes of Pillar 3 disclosure requirements under the CRR. The EC requests feedback on the merits of additional disclosures concerning recovery cash flows and the costs associated to the recovery process, as well as on the costs for firms that any additional disclosures might entail. It also seeks views on the possibility of extending disclosure requirements to entities other than credit institutions, such as to credit purchasers and credit servicers operating in the secondary market. The EC is also consulting on establishing an EU level central data hub to act as a data repository underpinning the NPL market. Such a hub could store anonymised data on NPL transactions and provide post-trade transaction details. Such disclosures could raise the transparency, and thereby the functioning, of secondary markets of NPLs. As a result, the proposed changes should limit market failures in terms of information asymmetries, lead to increasing liquidity, lower bid/ask spreads and hence more efficient NPL markets. The deadline for comments is 8 September.
ECB amending regulation on reporting of supervisory financial information published in OJ
On 14 June, ECB Regulation (EU) 2021/943 was published in the OJ. The Regulation amends ECB Regulation (EU) 2015/534 on the reporting of supervisory financial information (Financial Reporting Regulation) to: (i) reflect the repeal and replacement of Commission Implementing Regulation (EU) 680/2014 by Commission Implementing Regulation (EU) 2021/451, with effect from 28 June; and (ii) update cross-references to refer to Commission Implementing Regulation (EU) 2021/451.
Draft BoE Act 1998 (Macro-prudential Measures) (Amendment) Order 2021
On 14 June, the draft BoE Act 1998 (Macro-prudential Measures) (Amendment) Order 2021 was published, together with a draft explanatory memorandum. The intention of the draft order is to ensure the FPC’s macro-prudential orders appropriately track the changes introduced by the Financial Services Act 2021 (FS Act), and to ensure that the FPC’s tools are operable in practice within the new regime. These orders confer on the FPC powers to direct the PRA and the FCA to take action with respect to specified macro-prudential measures. The amendments include in relation to: (i) holding companies – the FS Act provides powers for the PRA to make rules which apply to holding companies for the purposes of the UK CRR and CRD, including sub-consolidated and consolidated prudential requirements and rules regarding matters such as governance and group-risk. The draft order therefore amends the macro-prudential measures orders covering the FPC’s powers over sectoral capital requirements and the leverage ratio so that the FPC can direct the PRA to implement those measures with respect to certain holding companies; and (ii) the total exposure measure (TEM) – the Government intends to use its powers under the FS Act to move the detail of the leverage framework from the UK CRR into PRA rules. The draft order amends the definition of the TEM for the purposes of the leverage ratio to define it by reference to the PRA's rules, rather than the UK CRR. The draft Order also provides for the FPC to specify how the TEM should be defined for the purpose of implementing a direction in relation to the leverage ratio, which will give it the flexibility to exclude central bank reserves.
FSB overview of responses to consultation on outsourcing and third-party relationships
On 14 June, the FSB published an overview of responses to its discussion paper on regulatory and supervisory issues relating to outsourcing and third-party relationships. Respondents generally welcomed the paper and agreed with the challenges and issues identified such as: (i) constraints on the rights to access, audit and obtain information from third parties; and (ii) concentration risks in the provision of certain critical services that are very difficult to substitute. Additional challenges identified as deserving of attention include: (a) treatment of intra-group outsourcing; (b) fragmentation of regulatory, supervisory and industry practices across sectors and borders; (c) restrictive data localisation requirements; (d) cyber and data security; and (e) resource constrains at financial institutions and supervisory authorities. To address these challenges, respondents suggested measures that can be categorised into five areas: (1) the development of global standards on outsourcing and third-party risk management; (2) the adoption of consistent definitions and terminology; (3) pooled audits, certificates and reports; (4) dependency mapping and enhanced supervisory oversight; and (5) enhanced cross-border cooperation and dialogue with stakeholders.
Sam Woods reappointed as BoE Deputy Governor and PRA Chief Executive
On 14 June, HMT announced that Sam Woods has been reappointed as Deputy Governor of the BoE with responsibility for Prudential Regulation, and Chief Executive of the PRA. He has been reappointed for a second term of five years to 30 June 2026.
Sustainable finance
Please see the Conduct section for the ECB’s consultation on a draft of a revised Guide to fit and proper assessments and a new Fit and proper questionnaire. The enhancements introduce supervisory expectations on climate-related and environmental risks and explain the ECB’s approach to diversity.
GFMA global guiding principles for developing climate finance taxonomies
On 16 June, the Global Financial Markets Association (GFMA) published a paper containing a set of global guiding principles for developing climate finance taxonomies. The GFMA explains that globally harmonised, objective, science-based taxonomies will be key enablers in scaling climate-aligned finance. Due to regional and sectoral nuances, pathways to transition will be different across jurisdictions and industries and therefore while a single global taxonomy is unlikely to be viable, a consistent set of global principles can be applied across all jurisdictions and industries to ensure activities are aligned with Paris goals. The GFMA recommend five key global guiding principles to be considered: (i) climate finance taxonomies should be broadened beyond use of proceeds to capture entity-level activities and all eligible sources of capital; (ii) climate finance taxonomies should be objective in nature, supported by clearly defined metrics and thresholds aligned to the Paris Agreement, and science-based targets; (iii) climate finance taxonomies should have a consistent set of principles and definitions, but provide flexibility for regional and temporal variation to align with differences in transition pathways; (iv) climate finance metrics should be defined and applied to sectors using science-based targets, balancing ease of use with transparency and robustness to both assess climate impact and support third-party verification; and (v) climate finance taxonomies should be based on a governance process that is robust, inclusive, and transparent, and has the flexibility for continued evolution. The GFMA call on global policymakers, standard setters, and market participants to agree on a minimum set of global guiding principles and definitions to underpin taxonomies across regions.
EC EU Taxonomy Compass
On 16 June, the EC published a Taxonomy Compass for the EU. The Compass provides a visual representation of the contents of the EU Taxonomy, starting with the Delegated Act on the climate objectives, as adopted on 4 June (The EC does note that the Delegated Act is still being scrutinised by the EP and the Council). It will be updated to include future delegated acts specifying technical screening criteria for additional economic activities substantially contributing to the climate objectives and the other environmental objectives of the Taxonomy Regulation. The EU Taxonomy Compass aims to make the contents of the EU Taxonomy easier to access for a variety of users. It enables users to check which activities are included in the EU Taxonomy, to which objectives they substantially contribute and what criteria they have to meet. The EU Taxonomy Compass also aims to make it easier to integrate the criteria into business databases and other IT systems.
Other developments
BoE and PRA annual reports
On 17 June, the BoE and PRA published their annual reports for 2021. The BoE also published its: (i) Asset Purchase Facility Annual Report 2020/21; (ii) 2021 climate-related financial disclosure; and (iii) Covid Corporate Financing Facility Limited Annual Report and Accounts 2020/21.
Presidency progress report on the strengthening of the Banking Union
On 17 June, the Council of the EU published a Presidency progress report on the strengthening of the Banking Union (dated 2 June). The report summarises the discussions held at meetings of the Ad hoc Working Party on the strengthening of the Banking Union between February and May. The main focus was on the technical elements of the design of a credible and effective European Deposit Insurance Scheme (EDIS), building upon the previous discussions and recent political guidance. Using a set of guiding principles as a backdrop, the Presidency initially assessed the design of the hybrid model based on a liquidity-only EDIS that covers the mandatory functions of the deposit guarantee schemes (DGSs) set out in the Deposit Guarantee Schemes Directive (DGSD). In this regard, views were divergent, with several members advocating for a fully fledged EDIS with loss sharing, while some members argued that EDIS would not require different phases or loss coverage, claiming that these would be contingent on a political agreement also involving preconditions. The need for a simple and efficient model, which promotes the alignment of liability and control, was broadly supported. Subsequently, several other building blocks were addressed: (i) the treatment of different entities (non-CRD/CRR entities, third-country branches, and Institutional Protection Schemes (IPS) and their members). The majority of members supported the inclusion of IPSs recognised as DGSs and all members of IPSs in the scope of EDIS; (ii) the interaction between EDIS and the Options and National Discretions (ONDs) provided for in the DGSD. The majority of members considered that ONDs should, whenever possible, be harmonised and covered, at least to a certain degree, by EDIS; (iii) several members argued in favour of harmonising the substantive regimes on the use of preventive and/or alternative measures in EDIS. The latter was complemented by a debate on the possible articulation between EDIS and the revision of the Crisis Management and Deposit Insurance framework; and (iv) the risk-based contributions under EDIS, including the question of adding potential sovereign exposures indicators to their calculation methodology. While there was some support for using indicators based on concentration exposures, the idea of relying on indicators based on credit risks raised concerns.
Taskforce on Innovation, Growth and Regulatory Reform on UK’s approach to regulation
On 16 June, the Government published the report produced by the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR) setting out recommendations on the UK’s future approach to regulation. In relation to financial services and investment reform, its proposals include: (i) restoring a common law principles based approach to financial services regulation. The taskforce recommend amending inherited MiFID II position limits to introduce greater flexibility while preserving protections on critical contracts and introduce a more discretionary and judgement-based approach to calculating CCP margins; (ii) support UK FinTech and digitalisation of financial services infrastructure by: (a) mandating the expansion from Open Banking to Open Finance as soon as possible; (b) increasing competition in the banking sector by adopting a graduated regulatory approach for challenger banks; (c) reducing AML burdens for new Open Banking/FinTech services; (d) accelerate UK plans to develop a central bank digital currency (CBDC) and launch a pilot within 12-18 months; (iii) amend disclosure and transparency requirements for financial services products to make them less burdensome by: (1) removing the requirement to provide costs and charges reports to professional investors and eligible counterparties from MiFID II; and (2) removing the “investment recommendation” disclosure requirements from MAR for wholesale clients.
BoE and BIS launch Innovation Hub London Centre
On 11 June, the BoE and the BIS launched the BIS Innovation Hub London Centre, the fourth new Innovation Hub Centre to be opened in the past two years. The launch is part of a plan to expand the Hub’s global reach, which also includes the opening of Centres with the Bank of Canada (Toronto), the ECB/Eurosystem (Frankfurt and Paris) and four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm. The BIS Innovation Hub’s work programme is currently focused on six areas: use of technological innovation in supervision and regulation (SupTech and RegTech); next generation financial market infrastructures; central bank digital currencies; open finance; cyber security; and green finance. Work related to these themes is distributed across the various Hub Centres.
FCA June 2021 policy development update
On 11 June, the FCA updated its policy development update webpage, which sets out recent and upcoming publications. Upcoming publications include: (i) in June, a consultation on proposals to extend climate-related disclosure rules to standard listed issuers and ESG-related discussion topics in capital markets; and (ii) by the end of 2021, a consultation on exit fees in investment platforms and comparable firms.