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Key Regulatory Topics: Weekly Update 11-17 November 2022

17 November 2022

There have been a number of updates from the FSB this week, to coincide with the G20 leaders’ Bali summit. Elsewhere, IOSCO finalised a report setting out observations on the implementation of key recommendations relating to liquidity risk management for collective investment schemes. In Europe, the EBA published a consultation on its draft guidelines on resolvability testing and the ESAs announced a delay in relation to the review of the principal adverse impact indicators and financial product disclosures in the SFDR Delegated Regulation. Meanwhile in the UK, a report on fighting fraud was published which advocates, amongst other things, a delay to the speed with which high-risk payments can be made in certain circumstances and a new corporate criminal offence of ‘failure to prevent fraud’ across all sectors.

Conduct and governance

FSCB 2022 employee survey results

On 16 November, the Financial Services Culture Board (FSCB) published the results of its 2022 employee survey. Key findings include: (i) since the survey launched seven years ago, sustained improvement has been evident across all firms in scores relating to leadership; to taking responsibility; and to speaking up and being open to challenge; (ii) from 2020 more positive scores have been seen on personal resilience and wellbeing, as well as a marked change in the way that employees describe their firms. ‘Supportive’ and ‘inclusive’ are now the words most commonly used, with the proportion of employees describing their firms in this way doubling over the past three years; (iii) less progress has been seen on questions relating to customers, and in the areas of responsiveness and shared purpose.  Scores here have essentially flat-lined since 2016; (iv) new questions relating to aspects of the new Consumer Duty had a much greater variability of scores among firms than seen in the core questions. Answers varied considerably between the same business areas across different firms, which the FSCB considers valuable information for participating firms as they prepare to implement the new Consumer Duty and also from an overall productivity and competitiveness perspective. The FSCB is continuing to work with researchers at the BoE to measure cultural cohesion or fragmentation in firms to establish how this is associated with prudential and business outcomes.

Key findings and results

Overview

Consumer/retail 

FCA speech on industry concerns with new Consumer Duty

On 16 November, the FCA published a speech by Nikhil Rathi, FCA Chief Executive, on concerns highlighted by industry participants relating to the new consumer duty. Highlights include: (i) the FCA will measure the impact of the duty through targets such as reducing the number of complaints going to the FOS and an increase in trust levels in financial services in its regular survey levy. Mr Rathi emphasises that the duty does not have a retrospective effect and conduct will be judged on the rules and standards in place at the time; (ii) the FCA believes that the duty alongside SM&CR will give it the framework to respond quickly to innovations so that new products can be trialled, with informed consent and consumer interests front and centre; (iii) the FCA will be monitoring closely to make sure that the duty does not prompt risk aversion in firms or the withdrawal of products for difficult to reach groups; and (iv) the FCA has no plans to move implementation deadlines again, with firms seeming to be on track with implementation. Mr Rathi states that the FCA will remain pragmatic in its oversight of implementation and ask for continued openness from firms on their implementation path.

Speech

Financial crime and sanctions 

Please see the Markets and Markets Infrastructure section for the EP’s announcement that it will debate the proposed Regulation on information accompanying transfers of funds and certain cryptoassets during its plenary session to be held from 13 to 16 February 2023.

Please see the Other Developments section for the G20 leaders' declaration, adopted following their Bali Summit.

Please see our Investigations Insight blog for a post on the FCA’s expectations for Money Laundering Reporting Officers. In this article, we consider three key areas where firms and individuals might wish to focus their attention to help ensure effective operation of the MLRO function and manage financial crime risks.

Updated HMT advisory notice on ML/TF controls in high-risk third countries

On 14 November, HMT updated its advisory notice on ML/TF controls in high-risk third countries. This is in order to take account of the FATF’s revised lists of jurisdictions with strategic deficiencies in their AML/CTF regimes, published on 21 October. The advisory notice identifies: Albania, Barbados, Burkina Faso, Cambodia, the Cayman Islands, the DPRK, the Democratic Republic of the Congo, Gibraltar, Haiti, Iran, Jamaica, Jordan, Mali, Morocco, Mozambique, Myanmar, Panama, the Philippines, Senegal, South Sudan, Syria, Tanzania, Turkey, Uganda, the United Arab Emirates and Yemen as countries for which appropriate actions should be taken to minimise the associated risks. These actions may include enhanced due diligence in high-risk situations. Jurisdictions that are also subject to financial sanctions measures which require firms to take additional measures are: the Democratic Republic of the Congo, the DPRK, Iran, Mali, Myanmar, South Sudan, Syria and Yemen. Nicaragua and Pakistan are no longer subject to FATF's increased monitoring process.

Notice

HoL Fraud Committee report on fighting fraud

On 12 November, the HoL Fraud Act 2006 and Digital Fraud Committee published a report: ‘Fighting Fraud: Breaking the Chain’. The report makes six key recommendations in tackling fraud: (i) to delay the speed with which high-risk payments can be made in certain circumstances to allow more time for banks to review risk signals and contact their customer about the proposed payment. The Payment Systems Regulator should consult on measures to achieve this; (ii) to move fraud to its rightful place as a top priority for law enforcement, fraud should be included within the Strategic Policing Requirement. Currently 1% of law enforcement is focussed on tackling economic crime, despite fraud making up 41% of all crime; (iii) to address the large variety of acronyms and ‘alphabet soup’ of departments, taskforces and Ministers with responsibility for fraud, a cabinet sub-committee with a clear mandate to tackle fraud should be established, chaired by and accountable to the Security Minister; (iv) several sectors involved in the fraud chain have failed to prevent rampant fraud for too long and do not all face the same incentives to tackle the problem. The Government must introduce a new corporate criminal offence of ‘failure to prevent fraud’ across all sectors to address this; (v) to urgently bring forward the Online Safety Bill as it contains several important measures to prevent fraudulent content and scam advertising from appearing on online platforms and to hold tech companies accountable when they fail; (vi) to create clear advice for consumers to follow to help them to prevent fraud and report it if they become a victim, the Government should oversee the introduction of a single, centrally funded consumer awareness campaign in partnership with industry.

Press release

Report

Fees and levies

FOS feedback statement on future funding model

On 16 November, the FOS provided feedback to its discussion paper on its future funding model. The statement summarises the responses the FOS received and how these have impacted its proposals. The FOS will consult in its 2023/24 plans and budget consultation on: (i) changing the compulsory jurisdiction levy and voluntary jurisdiction levy to recover fixed costs, i.e. costs that do not materially change with volume; (ii) introducing a 12-month time limit for disputing case fees; and (iii) trialling changes to the group fee account arrangements. The FOS will continue to assess and improve its processes to enable differential case fees with a view to consulting in its 2024/25 Plans and Budget consultation on: (a) differential case fees by case stage and/or by product type – this will be based on modelling undertaken over the next 12 months; and (b) charging an initial case fee at conversion. The FOS will provide more information about the proposals in its December plan and budget consultation.

Feedback Statement

Fintech 

Please see the Markets and Markets Infrastructure section for the EP’s announcement that it will debate the MiCA proposal and the proposed Regulation on information accompanying transfers of funds and certain cryptoassets (revised recast WTR) during its plenary session to be held from 13 to 16 February 2023.

Please see the Other Developments section for the G20 leaders' declaration, adopted following their Bali Summit and a letter sent from the FSB to G20 Leaders ahead of their summit.

Law Commission call for evidence on decentralised autonomous organisations

On 16 November, the Law Commission launched a call for evidence asking users and other experts for information on decentralised autonomous organisations (DAOs). The Commission describes a DAO as a novel type of organisational structure involving multiple participants online, that might rely on blockchain systems, smart contracts, or other software-based systems (which are often open-source). The Commission asks stakeholders for information on: (i) how DAOs are structured and operated, including on the status of a DAO’s investors/ token-holders; (ii) how the law might best accommodate different types of DAO structures now and in the future; (iii) how DAOs themselves might integrate into existing legal frameworks, including on how money laundering, corporate reporting, tax and other regulatory concepts apply; and (iv) where the law of England and Wales might be inhibiting the establishment and operation of DAOs, which alternative jurisdictions DAOs choose to structure their arrangements in, and why. The deadline for comments is 25 January 2023.

Press release

DAO project webpage

Call for evidence

Fund regulation 

Please see the Prudential Regulation section for the EBA’s final draft RTS on specific liquidity measurement for investment firms under the IFD.

Please see the Other Developments section for the FSB’s annual report on its work to promote global financial stability and its report on financial policies in the wake of Covid-19 aimed at supporting equitable recovery and addressing the effects from scarring in the financial sector and a letter sent from the FSB to G20 Leaders ahead of their summit in Bali.

IOSCO final report on thematic review on liquidity risk management recommendations

On 16 November, IOSCO finalised a report setting out the results and observations of its thematic review assessing the implementation of key recommendations in IOSCO’s 2018 Recommendations for Liquidity Risk Management for Collective Investment Schemes (CIS). IOSCO’s findings include: (i) that larger jurisdictions show a high degree of implementation of regulatory requirements consistent with the objectives of the recommendations; (ii) for the CIS design process, the review identified some challenges with respect to dealing frequency, dealing arrangements and disclosure practices; (iii) for day-to-day liquidity management, the review found that some jurisdictions may need to improve the process of identification of a liquidity shortage before it occurs and provide more guidance on aligning the investment strategy, liquidity profile and redemption policy; (iv) with regards to contingency planning, IOSCO found that jurisdictions should further address the availability of liquidity management tools and supplement the current rules and regulations to include requirements that are more specific regarding the use of such tools; (v) while all large global responsible entities described practices that were consistent with the recommendations, improvement might be needed by smaller and less-resourced entities with regard to their liquidity disclosure provisions in their CIS design process. Some weaknesses were also identified in operationalizing contingency plans and activation of liquidity risk management tools. The findings have informed the FSB’s assessment of the effectiveness of the FSB’s 2017 policy recommendations to address structural vulnerabilities from liquidity mismatch in open ended funds.

Press release

Review

EP to consider Regulation amending ELTIF Regulation at 1 to 2 February 2023 plenary session

On 16 November, the EP indicated that it will consider the proposed Regulation amending the Regulation on European long-term investment funds (ELTIFs) during its plenary session to be held from 1 to 2 February 2023.

Procedure file

ESAs update Q&As on PRIIPs KID

On 14 November, the ESAs updated their Q&As on the key information document (KID) requirements for packaged retail and insurance-based investment products (PRIIPs), as laid down in Commission Delegated Regulation (EU) 2017/653. New and updated sections include: (i) a "What is this product?" section; (ii) performance scenarios in relation to Articles 3 and 8 and Annexes IV and V; (iii) past performance in relation to Annex VIII; (iv) derivatives; (v) investment funds; and (vi) auto-callable products. The ESAs have indicated in the update: (a) the amendments relating to Commission Delegated Regulation (EU) 2021/2268 that are only applicable from 1 January 2023; and (b) the requirements that will be amended by the Delegated Regulation and therefore remain relevant only until the end of 2022. 

Q&As

Markets and markets infrastructure 

Please see the Recovery and Resolution section for ESMA’s final guidelines on resolvability and cooperation arrangement for CCPs under the CCP Recovery and Resolution Regulation.

Please see the Other Developments section for: the publication in the OJ of three Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which incorporate secondary legislation under the CRA Regulation.

ESMA rules for passporting for investment firms under MiFID II

On 17 November, ESMA began consulting on a review of the technical standards under Article 34 of MiFID II covering the provision of investment services across the EU. ESMA explains that there has been a continued increase in cross-border activities to retail clients provided under the MiFID II free provision of services regime, which therefore requires NCAs to increase their focus on the supervision of cross-border activities and on cooperation. Shortcomings have also been identified through the practical implication of Article 34. The main amendments proposed add four items to the information that investment firms are required to provide at the passporting stage: (i) the marketing means the firm will use in host Member States; (ii) the language(s) for which the investment firm has the necessary arrangements to deal with complaints from clients from each of the host Member States in which it provides services; (iii) in which Member States the firm will actively use its passport as well as the categories of clients targeted; and (iv) the investment firm’s internal organisation in relation to the cross-border activities of the firm. The deadline for comments is 17 February 2023. ESMA expects to publish a final report and submit draft technical standards to the EC by the end of 2023.

Press release

Consultation

EP date to consider MiCA and revised recast WTR

On 14 November, the EP indicated that it will debate the proposed Regulation on markets in cryptoassets (MiCA) and proposed Regulation on information accompanying transfers of funds and certain cryptoassets (revised recast WTR) during its plenary session to be held from 13 to 16 February 2023.

MiCA procedure file

Revised recast WTR procedure file

IBA cessation of ICE Swap Rate based on USD LIBOR

On 14 November, ICE Benchmark Administration Ltd (IBA) published a feedback statement on its intention to cease the publication of ICE Swap Rate settings based on USD LIBOR. Based on the feedback received, IBA will cease the publication of all USD LIBOR ICE Swap Rate benchmark runs (i.e. USD LIBOR Rates 1100, USD LIBOR Spreads 1100 and USD LIBOR 1500) for all tenors immediately after publication on June 30, 2023. IBA urge users of the USD LIBOR ICE Swap Rate benchmark to take account of its upcoming cessation and ensure their contractual and other arrangements linked to the benchmark contain appropriate fallback or other arrangements to address the cessation.

Press release

Feedback statement

Payment systems and payment services 

Please see the Other Developments section for the G20 leaders' declaration, adopted following their Bali Summit and a letter sent from the FSB to G20 Leaders ahead of the summit.

FSB framework for monitoring progress towards G20 cross-border payments targets

On 17 November, the FSB finalised its report to the G20 on developing an implementation approach for the cross-border payments targets. The framework includes key performance indicators (KPIs) defined across the 11 targets for the three market segments – wholesale, retail, and remittances. The framework takes a light approach by leveraging existing data collection and channels where possible; defines KPIs and data sources that rely on aggregated data and thereby monitor system-wide rather than individual firms’ improvements; and uses data sources that aim to be sufficiently representative of the different contexts of end-users in their respective market segments. The FSB notes however that: (i) comprehensive data sources that enable calculation of global KPIs that are representative of the overall market and that also provide regional or corridor-level granularity do not already exist. Therefore it continues to evaluate the remaining gaps in data or metrics and will ensure that any new data collection methods that may be required will continue to be focused and appropriately limited in size and scope; (ii) while this framework will support the monitoring of progress going forward, baseline estimates of the KPIs are not yet available for inclusion in this report. The FSB is continuing to engage with potential data providers and the necessary processes for developing baseline estimates of the KPIs will take several more months; and (iii) consistent with the targets, the KPIs are defined at the global level. However, the FSB expects more granular breakdowns of the global KPIs to be published whenever possible to promote a fuller understanding of where progress is being made and where challenges remain.

Press release

Final report

PSR and LSB MoU on APP scams

On 14 November, the LSB published a MoU signed on 28 October between it and the PSR on their respective roles relating to authorised push payment (APP) scams. In the MoU, the LSB and the PSR set out their duties and functions as governing bodies for the contingent reimbursement model code (CRM code) and under Part 5 of the Financial Services (Banking Reform) Act 2013 respectively. In working together, the PSR and LSB aim to: (i) improve detection and prevention of APP scams; (ii) improve protections and outcomes for victims of APP fraud, through reimbursement, repatriation, and prevention measures; (iii) determine whether further enhancements could be made to the CRM Code; and (iv) provide payment system users with greater transparency about PSPs’ performance in applying the CRM Code.

Press release

MoU

Prudential regulation 

Please see the Fund Regulation section for IOSCO’s final report setting out the results and observations of its thematic review assessing the implementation of key recommendations in IOSCO’s 2018 Recommendations for Liquidity Risk Management for Collective Investment Schemes.

Please see the Other Developments section for the FSB’s annual report on its work to promote global financial stability, its report on financial policies in the wake of Covid-19 aimed at supporting equitable recovery and addressing the effects from scarring in the financial sector and a letter sent from the FSB to G20 Leaders ahead of their summit in Bali.

Please see our website for a bulletin on the EU proposals to regulate third country providers of financial services under CRDVI. One year after the EC unveiled its Banking Package 2021, the Council has now agreed its position on the amendments to CRD IV. The EC had proposed a far-reaching prohibition on cross border services and a harmonised framework for third country bank branches. In this note, we discuss the key changes the Council’s compromise text makes to the EC’s proposal focusing on the cross border regime and where this leaves non-EU providers of financial services in the EU.

FSB and NGFS initial findings and lessons on jurisdictions’ climate scenario analysis

On 15 November, the FSB and NGFS published a joint report outlining initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks. The report provides a synthesis of the findings from climate scenario analysis exercises undertaken by financial authorities at the individual firm level, at the level of the different financial sectors, and at the overall financial system level. The report finds that the NGFS Scenarios play a critical role in providing reference climate macro-financial scenarios and supporting financial authorities’ climate scenario analysis exercises. The overarching message from these initial exercises for financial stability is that, while the impacts of climate risks are not small, they seem to be concentrated in some sectors and overall, at least at this juncture and as currently assessed, contained from the perspective of domestic financial systems. However, tail risks and spill overs associated with climate change related developments may not be as manageable. In addition, measures of exposure and vulnerability are likely understated. Many exercises do not capture second-round effects, potential non-linearities in climate-related risks, and other potentially large sources of risk, such as those stemming from an abrupt correction in asset prices when transition shocks result in fire sales of assets in exposed sectors. The report also finds that scenario analysis exercises at this stage are usefully feeding into policy discussions and are raising awareness. While critically contributing to risk assessment, the exercises are still considered exploratory and in most cases do not translate into micro- or macro-prudential policy action at this stage. Further progress on bridging data gaps, particularly on improving data availability and consistency/comparability at the global level, will be key.

Press release

Report

EBA RTS on measurement of liquidity risks for investment firms

On 14 November, the EBA published its final draft RTS on specific liquidity measurement for investment firms under the IFD. The IFD allows competent authorities to increase an investment firm’s liquidity requirements if, following the assessment of liquidity risk in accordance with the supervisory review and evaluation process, they conclude that the investment firm is exposed to material liquidity risks, which are not sufficiently covered by the minimum liquidity requirements set out in the IFR. The RTS address in detail the main elements that may affect the liquidity risk of an investment firm, namely: (i) elements specific to each service provided by the investment firm under MiFID; and (ii) other elements that could have a material impact, such as external factors, group structure, operational or reputational risks. For small and non-interconnected investment firms, competent authorities are expected to assess only a limited set of those elements. The draft RTS will be submitted to the EC for endorsement following which they will be subject to scrutiny by the EP and the Council before being published in the OJ. The RTS will apply from 20 days after publication in the OJ.

Press release

Final report

Recovery and resolution

Please see the Other Developments section for the publication in the OJ of three Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which incorporate secondary legislation under the BRRD.

SRB 2023 work programme

On 17 November, the SRB published its 2023 work programme. The SRB priorities stay unchanged, in line with the SRB’s 2021-2023 Multi-Annual Programme. As it is the final year of the Multi-Annual Programme, all banks and credit institutions under the SRB remit are expected to be resolvable and compliant with the Expectations for Banks (EfB), as well as achieve the final individual banks’ MREL targets. Less Significant Institutions, under the remit of the National Resolution Authorities (NRAs), are also expected to become resolvable along a similar timeline. 2023 will also mark the final year for the constitution of the Single Resolution Fund, which by the end of the year is expected to reach at least 1% of covered deposits in all participating Member States, and be fully mutualised. The SRB’s work during 2023, which will proceed in close collaboration with the NRAs, will focus on completing the achievement of these two goals. In the last year of the phase-in of the EfB, the SRB will aim at completing and enhancing, where necessary, existing guidance and tools to ensure resolvability of banks by the end of 2023. During 2023, the SRB will also prepare for and, if necessary, manage crisis cases. This will be achieved by testing and guaranteeing that protocols and systems are ready to be activated in the case of crisis; reinforcing collaboration mechanisms and communication channels with all involved stakeholders; and supporting the efficient and secure use of systems to swiftly respond to crises.

Press release

Work programme

ESMA guidelines on resolvability and cooperation arrangement for CCPs

On 17 November, ESMA finalised two sets of guidelines on the CCPs resolution regime under the CCP Recovery and Resolution Regulation: (i) guidelines on the assessment of resolvability under Article 15(5). These set out common aspects to be assessed by resolution authorities when evaluating the extent to which a CCP may be resolved without relying on certain types of external financial support, including public financial support or central bank assistance; and (ii) guidelines on the types and content of the provisions of cooperation arrangements under Article 79. These specify provisions to be included in cooperation arrangements that shall be entered into between competent or resolution authorities and third-country authorities. These arrangements relate to EU CCPs that provide services to clearing members and clients located in third countries as well as to third-country CCPs that provide services to clearing members and their EU-based clients. Both guidelines will apply following their publication by ESMA on its website in the official languages of the EU. The comply or explain procedure will follow, in accordance with Article 16(3) of ESMA Regulation.

Press release

Resolvability guidelines

Cooperation arrangements guidelines

EBA guidelines on resolvability testing

On 15 November, the EBA began consulting on draft guidelines addressed to institutions and resolution authorities on resolvability testing. The guidelines aim to set-out a framework to ensure that resolvability capabilities developed to comply with the resolvability and transferability guidelines are fit for purpose and effectively maintained. The draft guidelines: (i) introduce an annual resolvability self-assessment report where institutions set out how they will meet the resolvability capabilities and how they have gained assurance of their adequacy; (ii) on the basis of this self-assessment, propose that authorities develop a multi-annual testing programme for each resolution bank so that institutions would demonstrate the adequacy of their resolvability capabilities as set out in the EBA resolvability guidelines; and (iii) for the most complex banks, propose to have them develop a master playbook to ensure a holistic approach to resolution planning. The deadline for comments is 15 February 2023. Institutions are expected to submit their first self-assessment report by 31 December 2024 and, where applicable, their first master play book by 31 December 2025. Resolution authorities should communicate the first multi-annual resolvability testing programme by 31 December 2025.

Press release

Consultation

Sustainable finance

Please see the Prudential Regulation section for a joint report from the FSB and NGFS outlining initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

Please see the Other Developments section for: (i) a letter from Jeremy Hunt, Chancellor of the Exchequer, to Andrew Bailey, BoE Governor, setting out the remit and recommendations for the FPC for 2022/23; (ii) the G20 leaders' declaration, adopted following their Bali Summit; and (iii) a letter sent from the FSB to G20 Leaders ahead of their summit in Bali.

Please see our website for a bulletin on the FCA’s proposed anti-greenwashing rule and Sustainability Disclosure Requirements. At COP26 last year, the Chief Executive of the FCA warned the financial services industry that it was time to “walk the walk”, and emphasised that greenwashing would not be tolerated in the industry. In this context, the FCA published a consultation paper on Sustainability Disclosure Requirements and investment labels on 25 October, in line with the UK Government’s Roadmap to Sustainable Investing. This bulletin examines the main proposals.

SFDR Delegated Regulation Q&As

On 17 November, the Joint Committee of the ESAs published a new set of Q&As on Commission Delegated Regulation (EU) 2022/1288, which supplements the SFDR with regard to RTS on content and presentation of information. The document includes sections on: (i) current value of all investments in principle adverse impact (PAI) and taxonomy-aligned disclosures; (ii) PAI disclosures; (iii) financial product disclosures; (iv) multi-option products; (v) taxonomy-aligned investment disclosures; and (vi) financial advisers and execution-only financial market participants.

Q&A

ESAs call for evidence on greenwashing

On 15 November, the ESAs launched a call for evidence on greenwashing to gather: (i) input on how to understand the key features, drivers and risks associated with greenwashing; (ii) examples of potential greenwashing practices across the EU financial sector relevant to various segments of the sustainable investment value chain and of the product lifecycle; and (iii) any available data to help the ESAs gain a concrete sense of the scale of greenwashing and identify areas of high greenwashing risks. The call for evidence seeks information about practices in connection to sustainability claims regarding entities and products or services. It also asks for evidence on potential greenwashing practices within and outside the scope of current EU sustainable finance legislation. The deadline for comments is 10 January 2023. Contributions will feed into the ESAs’ findings for their progress reports due to the EC in May 2023, and final reports due in May 2024.

Press release

Call for evidence

ESAs review of SFDR Delegated Regulation delayed by up to six months

On 14 November, ESMA published a letter sent by the ESAs to the EC to communicate that there will be up to a six month delay in delivering the mandated review of the principal adverse impact indicators (PAI) and financial product disclosures in Commission Delegated Regulation (EU) 2022/1288 (SFDR Delegated Regulation), which is due by 28 April 2023. The ESAs have identified significant challenges due to the substantial number of technical components to deliver the desired changes, including: (i) in revising and extending the PAI indicators. The ESAs state that they now consider it important to develop a more objective basis to the "do not significantly harm" framework and to expand significantly on the social indicators; and (ii) the need to address issues that were not fully or adequately addressed in the original RTS, such as the treatment of "equivalent information". The ESAs have also been short on resources, having prioritised the review of the RTS on fossil gas and nuclear energy amendments.

Letter

Other developments 

Text of DORA and amending Directive

On 17 November, the text of the Regulation on digital operational resilience for the financial sector (DORA) and the related amending Directive, amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU, 2014/65/EU, (EU) 2015/2366 and (EU) 2016/2341 as regards digital operational resilience for the financial sector was published. The EP adopted the text at first reading on 10 November. The Council is expected to adopt the legislation imminently. Once adopted, the legislation will be published in the OJ and enter into force 20 days following its publication. DORA however, will apply 24 months from the date of entry into force.

DORA text

Amending Directive text

FPC Remit and Recommendations: Autumn Statement 2022

On 17 November, HMT published a letter from Jeremy Hunt, Chancellor of the Exchequer, to Andrew Bailey, BoE Governor, setting out the remit and recommendations for the FPC for 2022/23. Additions to the recommendations made for 2021/22 include: (i) the government considers it important that lessons are learnt from the recent dysfunction in the gilt market and the vulnerabilities associated with leveraged funds that this exposed. The FPC should seek to support this work to ensure appropriate levels of resilience in the UK financial system; (ii) the FPC should continue to work closely with the PRC and the FCA to ensure coordination between microprudential and macroprudential policy. To ensure it considers all parts of the financial system, the FPC should seek to work in an open and collaborative fashion with other bodies such as The Pensions Regulator and the PSR, to identify and seek to address systemic risks and vulnerabilities; and (iii) the government’s economic policy on climate change and energy security aims to align private sector financial flows with environmentally sustainable and resilient growth, in a manner that is consistent with the important role that the financial system will play in supporting the UK's energy security, including through investment in transitional hydrocarbons like gas, as part of the UK's pathway to net zero.  The letter also sets out recommendations regarding support for the government’s economic policy towards the financial services industry and an expectation that the FPC “make use” of the opportunities “unlocked” by the Financial Services and Markets Bill.

Letter

Three EEA Joint Committee Decisions amending Annex IX to EEA Agreement published in OJ

On 17 November, three Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement were published in the OJ: (i) Decision No 186/2019 of 10 July 2019, which incorporates into the EEA Agreement Implementing Regulation (EU) 2019/699. The decision's entry into force date is 11 July 2019, provided that all the notifications under Article 103(1) of the EEA Agreement have been made; (ii) Decision No 187/2019 of 10 July 2019, which incorporates five Delegated Regulations and one Implementing Regulation supplementing the BRRD: Delegated Regulation (EU) 2016/778, Delegated Regulation (EU) 2016/1401, Delegated Regulation (EU) 2017/867, Delegated Regulation (EU) 2018/344; Delegated Regulation (EU) 2018/345; and Implementing Regulation (EU) 2018/308. The decision's entry into force date is 11 July 2019 (provided that all the notifications under Article 103(1) of the EEA Agreement have been made) or on the day of the entry into force of EEA Joint Committee Decision No 21/2018, whichever is the later; and (iii) Decision No 189/2019 of 10 July, which incorporates three Delegated Regulations supplementing the CRA Regulation: Delegated Regulation (EU) 2015/1, Delegated Regulation (EU) 2015/2 and Delegated Regulation (EU) 2015/3. The decision's entry into force date is 11 July 2019, provided that all the notifications under Article 103(1) of the EEA Agreement have been made.

Decision (i)

Decision (ii)

Decision (iii)

G20 Bali Summit Leaders’ Declaration

On 16 November, the G20 published the leaders' declaration adopted following their Bali Summit. Points of interest relevant to financial services include: (i) sustainable finance - the G20 underline the urgency to rapidly transform and diversify energy systems, advance energy security and resilience and markets stability, by accelerating and ensuring clean, sustainable, just, affordable, and inclusive energy transitions and flow of sustainable investments. The G20 call for further efforts to advance the Sustainable Finance Roadmap’s recommended actions that will scale up sustainability financing. The group encourage members to contribute on a voluntary basis to the Sustainable Finance Working Group’s online dashboard and repository of relevant work. It states that globally consistent data is needed in order to effectively address climate-related financial risks and therefore support taking forward the implementation of the FSB updated Roadmap for addressing climate-related financial risks; (ii) cross-border payments – the G20 encourage central banks, other public authorities and the payments industry to continue to work collaboratively on the initiatives set out in the G20 Roadmap for enhancing cross-border payments; (iii) cryptoassets – the G20 state that it is critical to build public awareness of risks, to strengthen regulatory outcomes and to support a level playing field, while harnessing the benefits of innovation; (iv) data – the G20 ask the IMF, the FSB and the Inter-Agency Group on Economic and Financial Statistics to begin work on filling data gaps outlined in their new Data Gaps Initiative and report back on progress in the second half of 2023; and (v) financial crime – the G20 recognises the need for the international community to step up their efforts to effectively combat money laundering, terrorism financing, and proliferation financing and reaffirms its commitment to delivering the strategic priorities of the FATF and its FATF Style Regional Bodies to lead global action to respond to these threats. The G20 encourage all members to strengthen collaboration to adopt and effectively implement the FATF standards.

Declaration

FSB 2022 annual report on promoting global financial stability

On 16 November, the FSB published its annual report on its work to promote global financial stability. The report: (i) warns that the outlook for global financial stability is particularly challenging amidst high inflationary pressures, elevated debt levels, lower growth, and much tighter global financial conditions. So far, global financial markets have proved to be resilient. However, many authorities have limited policy space to intervene should a shock materialise; (ii) cautions that market turbulence could be amplified by still elevated valuations of some assets, forced sales from sudden unwinding of leveraged positions of non-bank financial institutions, and liquidity mismatches in some types of funds. Debt servicing pressures may surface across the sovereign, non-financial corporate and household sectors; (iii) highlights the analytical and policy work the FSB is carrying out to tackle current and emerging vulnerabilities; (iv) finds that progress in implementing G20 reforms continues but remains uneven. Jurisdictions’ adoption of Basel III continues, though there is uneven progress in implementing the final reforms to the capital framework. Implementation of OTC derivatives reforms is well advanced but further progress continues to be incremental. Work is still ongoing to close gaps in the operationalisation of banks’ resolution plans and to implement effective resolution regimes for insurers and central counterparties; and (v) emphasises that, in the face of the current challenges for financial stability, timely and consistent implementation of G20 reforms remain as relevant as when they were initially agreed. 

Press release

Report

FSB report on financial policy challenges in the wake of Covid-19

On 14 November, the FSB published a report on financial policies in the wake of Covid-19 aimed at supporting equitable recovery and addressing the effects from scarring in the financial sector. The report considers policy challenges, including exit from Covid-19 policy support measures through the lens of financial stability and the capacity of the financial system to finance strong and equitable growth. The report notes that economic and financial market developments over the past few months have reinforced three challenges to policymakers noted in the FSB’s interim report to the G20: (i) the need for sustained policy support amidst rising inflation and removal of monetary accommodation; (ii) the risk of negative cross-border spill-overs from a deteriorating global recovery and diverging monetary and fiscal policy stances; and (iii) that vulnerabilities prevented from materialising by the support measures may now come to the fore. The report stresses that considerations about adjusting, amending and potentially exiting support measures should take these challenges into account, to support global economic recovery in the near term, and prevent financial stability impacts and scarring effects to sustainable growth over the long term. The FSB sets out related future policy initiatives including in relation to: (a) margin calls, in collaboration with IOSCO, BCBS and the CPMI; (b) liquidity mismatches in open-ended funds, in collaboration with IOSCO; (c) NBFIs, in particular on underlying vulnerabilities that give rise to liquidity imbalances; and (d) the use of prudential buffers from a system-wide, macro-prudential perspective.

Press release

Report

FSB letter to G20 Leaders ahead of Bali Summit

On 11 November, the FSB published a letter sent to G20 Leaders ahead of their summit in Bali. Alongside the policy proposals on non-bank financial intermediation, (we covered this report in last week’s update) the FSB discusses its ongoing work to enable the financial system to adapt to secular changes in relation to: (i) improving cross-border payments; (ii) a cryptoasset regulatory framework; (iii) climate-related financial risks; and (iv) global co-operation on financial stability.

Letter