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Key Regulatory Topics: Weekly Update 11-17 September 2020

18 September 2020

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

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Brexit

Please see our Consumer/Retail, Financial Crime and Markets and Markets Infrastructure sections for product specific updates relating to Brexit. 

UK and Japan agree free trade agreement

On 11 September, the UK Government announced that it has secured a free trade agreement with Japan, which is the UK’s first major trade deal as an independent trading nation. The Government states that the agreement will increase trade with Japan by an estimated £15.2 billion. Furthermore, the Government notes that the deal is an important step towards joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The Government states that, as part of the agreement, UK businesses will benefit from tariff-free trade on 99% of exports to Japan. Furthermore, UK manufacturers, food and drink producers and the tech sector will benefit from the measures in the UK-Japan deal. Such measures include, amongst other things, improved market access for UK financial services, consisting of greater transparency and streamlined application processes for UK firms seeking licences to operate in Japan. The measures also include cutting-edge digital and data provisions as well as improved mobility for business people.

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Capital Markets

EC regulations published in OJ, amending Delegated Regulations supplementing the Prospectus Regulation

On 14 September, two EC regulations were published in the OJ. Firstly, Commission Delegated Regulation 2020/1273 amending and correcting Delegated Regulation 2019/980 was published. The regulation entered into force on 17 September, except for Article 1(1) to (8) and Article 2 which apply retrospectively, with effect from 21 July 2019. Secondly, Commission Delegated Regulation 2020/1272 amending and correcting Delegated Regulation 2019/979 was published. The regulation came into force on 17 September and its provisions apply retrospectively, with effect from 21 July 2019, apart from the insertion of new Article 22a which applies from 17 September.

Delegated Regulation 2020/1273

Delegated Regulation 2020/1272

EP’s Economic and Monetary Affairs Committee (ECON) calls for urgent completion of the Capital Markets Union (CMU)

On 11 September, the EP’s ECON announced that MEPs have called for removing barriers and simplified rules to allow SMEs, mid-caps and start-ups access to financial markets in a non-binding report that was adopted on 10 September. In their report, MEPs call for the development of the CMU to be accelerated, arguing that this would be a viable way for fund deprived companies to tap into financial markets and reduce their reliance on bank lending. MEPs proposed several targeted changes aligning and simplifying the existing provisions concerning, for example: (i) capital requirements; (ii) reporting frameworks; or (iii) listing requirements for SMEs regarding Initial Public Offerings. MEPs also call for an acceleration of the development of the EU venture capital and private equity markets to increase transparency and reduce fragmentation. MEPs suggest that the EC should come forward with several legislative proposals, including a proposal on 'European Secured Notes' (ESNs), as a new dual-recourse funding instrument for banks, or a European Single Access Point for information in respect of EU companies. MEPs point out that the CMU requires a developed investor base with suitable investment options for retail investors paired with the improved disclosure and comparability of key information. MEPs call for a more horizontal and harmonised approach to consumer and investor protection in the EU financial services legislation, adapted to the green and digital transformation. The procedure file for the report specifies that it will be considered by the EP in its plenary session between 5 October and 8 October.

EP Press Release

EP Procedure File

Consumer/Retail

Please see our Other Developments section for an update on the FCA announcing the chair for the review of unsecured credit market regulation.

FCA proposes the next stage of support for consumer credit and overdraft customers – Covid-19

On 16 September, the FCA announced additional proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties as a result of Covid-19. The proposals supplement the FCA’s temporary guidance published in July that will expire on 31 October. The proposals will cover users of credit cards and other revolving credit (store card and catalogue credit), personal loans, overdrafts, motor finance, buy-now pay-later (BNPL), rent-to-own (RTO), pawnbroking and high-cost short-term credit (HCSTC) products. The draft guidance applies both to consumers who have benefitted from payment deferrals and support with the cost of their overdrafts under the current guidance who continue to face financial difficulties, as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends. If these measures are confirmed, the FCA will expect that firms: (i) recognise the uncertainties and challenges that many customers will face in the coming months, and provide tailored support; (ii) work with customers approaching the end of a payment deferral to provide support before they miss payments; (iii) be flexible and employ a full range of shorter and longer-term options to support their customers; (iv) put in place sustainable repayment arrangements which are affordable and take account of their customers wider financial situation; (v) give customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of time; (vi) prevent customers’ balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen; and (vii) recognise and respond to the needs of vulnerable customers. The FCA is proposing that firms contact overdraft customers who have received temporary support to determine if they still require assistance – where a customer needs further support, the FCA sets out when firms should use measures such as reducing or waiving interest, agreeing a programme of staged reductions in the overdraft limit, or supporting customers to reduce their overdraft usage by transferring the debt. The deadline for comments on the draft guidance is 21 September.

FCA Press Release

FCA Guidance Consultation – Consumer Credit

FCA Guidance Consultation – Overdrafts

UK Finance guide for business customers on the discontinuation of LIBOR

On 16 September, UK Finance published a guide for business customers on the discontinuation of LIBOR. The guide is intended for business customers with LIBOR-linked loans to help them understand: (i) the anticipated discontinuation of the benchmark rate LIBOR; (ii) why LIBOR is being discontinued; and (iii) what customers should expect to hear from their banks or lenders in the coming months. UK Finance states that although the guide is focused on business borrowing, businesses may have other commercial contracts that reference LIBOR that could require attention. This is an updated version to UK Finance’s November 2019 guide and reflects recent developments including updated timelines.

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Draft Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2020

On 15 September, the Government’s department for Business, Energy and Industrial Strategy (BEIS) published the draft version of The Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2020, together with a draft explanatory memorandum. This explains, amongst other things, that the principal purpose of the instrument is to amend the Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2019 as a result of subsequent changes in EU law and domestic law to which those Regulations relate. The instrument also amends other Exit Regulations in the consumer protection area, in connection with the Northern Ireland (NI) Protocol and to replace references to “exit day” with “IP completion day”. The instrument additionally amends Part 8 of the Enterprise Act 2002 in response to the Fourteenth Report of session 2019-21 of the House of Lords and House of Commons Joint Committee on Statutory Instruments (JCSI) relating to the Consumer Protection (Enforcement) (Amendment etc.) Regulations 2020.

Draft Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2020

Draft explanatory Memorandum

FCA call for input (CFI) on the consumer investments market

On 15 September, the FCA published a CFI on the consumer investments market. The CFI looks at areas where the consumer investment market is not working well for customers and seeks views on what changes the FCA can make to improve protections and outcomes in this market. The CFI is focused on the following core questions: (i) what the FCA can further do to help the market offer a range of products and services that meet straightforward investment needs; (ii) how the FCA can better ensure that those who have the financial resources to accept higher investment risk can do so if they choose, but in a way that ensures they understand the risk they are taking; (iii) how the FCA can make it easier for people to understand the risks of investment and the level of regulatory protection afforded to them when they invest; (iv) what the FCA can further do to ensure that when people lose money because of an act or omission of a regulated firm, they are appropriately compensated and that it is paid for fairly by those who cause the loss; (v) how can people be better protected from scams; and (vi) what the FCA can further do to facilitate effective competition and encourage firms to develop innovative products and services which help consumers to invest. The deadline for comments is 15 December.

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FCA finalises guidance on branch and ATM closures or conversions

On 14 September, the FCA published its final guidance on branch and ATM closures or conversions. The guidance sets out the FCA’s expectation that firms should carefully consider the impact of a planned closure of a branch or ATM, or conversion of a free-to-use ATM to pay-to-use, on their customers’ everyday banking and cash access needs, and other relevant branch services. The guidance builds on: (i) principle 6 (‘a firm must pay due regard to the interests of its customers and treat them fairly’); (ii) principle 7 (‘a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading’); and (iii) principle 11 (‘a firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice’). The FCA expects: (a) firms to keep the FCA informed, via their usual supervisory contact, of plans for closures or conversions throughout the process; (b) as part of developing proposals for decisions, firms to analyse the needs of customers currently using the sites, the impact of the proposals, and alternatives that are or could reasonably be put in place if they implement the proposals, as well as to provide the FCA with a clear summary of the results of this analysis; (c) if the firm decides to progress its proposals, to clearly communicate information about proposed closures or conversions to its customers no less than 12 weeks before a proposed closure or conversion would be implemented, as well as to communicate existing alternative ways to access services or ways it will make alternative access available. The FCA states that at the point the firm communicates information referred to in (c), it should publish summaries of the analysis referred to in (b). The guidance applies from 21 September. The FCA will review the guidance within 12 months, taking into account any legislative or industry developments in that time.

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FCA finalises additional guidance for mortgage firms – Covid-19

On 14 September, the FCA published its finalised additional guidance for mortgage firms in respect of the Covid-19 pandemic. The guidance supplements the FCA’s guidance ‘Mortgages and coronavirus: Updated guidance for firms’ (‘the June Guidance’). The June Guidance will continue to provide support for those newly impacted by Covid-19 until 31 October, with customers able to receive an initial or further 3-month payment deferral up to and including that date that would last until 31 January 2021. The guidance sets out the FCA’s expectations of how firms should deal with customers who: (i) have benefitted from 2 payment deferrals granted under the June guidance; (ii) have benefitted from an initial payment deferral that expires after 31 October; or (iii) experience payment difficulties as a result of circumstances relating to Covid-19 after 31 October, whether or not they have benefitted from a payment deferral or other support under the June guidance. The FCA has also published a feedback statement detailing its policy responses to comments received from its consultation on the guidance in August, stating that it has made amendments to: (i) clarify its proposals that allow firms to offer broadly appropriate forms of short term support for certain types of customers coming to the end of a payment deferral period without having to demonstrate that this is appropriate for their individual circumstances, providing they review this within 60 days to ensure any ongoing support is appropriate; (ii) allow firms to adopt this approach for eligible second charge customers, and to offer capitalisation to those customers on the same basis as first charge customers; (iii) make clear its expectations of firms when responding to customer vulnerabilities in the guidance; and (iv) clarify its expectations of firms considering pursuing repossession.

FCA – Finalised Guidance

FCA – Feedback Statement

Covid-19

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

Fees and Levies

BoE policy statement on the fees regime for financial market infrastructure (FMI) supervision 2020/21

On 16 September, the BoE published a PS on the fees regime for the supervision of FMI that will apply for the 2020/21 fee year. The PS provides feedback to responses to the Consultation Paper (CP) ‘Fees regime for financial market infrastructure supervision 2020/21’. The BoE notes that it received four responses to the consultation and having carefully considered the responses, the BoE does not propose to make any changes to the proposals that were set out in the CP. The PS also sets out: (i) the final fee rates in relation to the Bank’s 2020/21 funding requirement for its financial market infrastructure (FMI) supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee‑levying powers; (ii) how the Bank will apportion the surplus from the 2019/20 FMI fee year; and (iii) amendments to the Special Project Fee (SPF) invoicing process and the SPF hourly rate to be charged, where applicable – this section should be read in conjunction with the ‘Fees regime for the supervision of FMI’ PS from June 2018. The PS is relevant to all FMIs that currently pay FMI supervisory fees to the Bank or are expecting to do so within the 2020/21 fee year. The BoE also states that invoices are expected to be issued in September for the 2020/21 fee year and invoices will include any rebate from the 2019/20 fee year.

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Financial Crime

Please see our Investigations Insight Blog on the FCA highlighting the importance of firms observing the confidentiality restrictions set out in information requirements in the latest edition of its Market Watch newsletter.

Draft Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020

On 17 September, the Government published a draft version of the Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020, together with a draft explanatory memorandum. The Regulations amend the ISIL (Da’esh) and Al-Qaida (United Nations Sanctions) (EU Exit) Regulations 2019, the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019 and the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 to include in those Regulations a number of amendments to primary and secondary legislation, consequential on the coming into force of the 2019 sanctions Regulations.

Draft Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020

Draft Explanatory Memorandum

EC assesses member states’ identification of Fourth Money Laundering Directive (MLD4) obligations regarding trusts and similar legal arrangements

On 16 September, complying with its obligation under Article 31(10) of the Anti-Money Laundering Directive (AMLD), the EC published a report assessing whether member states have identified and made subject to the obligations of MLD4 all trusts and similar legal arrangements governed under their laws. This report provides a first attempt at EU level to analyse legal arrangements that could be considered similar to the common law trust under member states’ law and custom, based on the input by member states and analyses produced by the academic world. The EC concludes, amongst other things, that: (i) the analysis reveals that a wide range of arrangements show similarities with the common law trust in line with the conditions of Article 31 of the AMLD –  legal arrangements such as Treuhand or Fiducie, on the one hand, can be considered similar to trusts by virtue of their  function, whereas other arrangements such as guardianship, curatorship and administratorship of deceased estates can be considered similar by virtue of their structure; (ii) member states’ notifications under Article 31(10) of the AMLD did not include all these arrangements, reflecting the lack of a common approach to what features define similarity with the common law trust – the EC states that these notifications can only provide a first attempt at identifying what similar arrangements to trusts are governed under member states’ law; (iii) such an absence of a common approach to the identification of arrangements similar to trusts does not ensure legal certainty and a level playing field, and might leave loopholes that allow little known arrangements to be used in money laundering schemes, as has been the case with legal entities – to address this problem, the EC will consider the possibility of setting up an informal working group with academics, practitioners, Financial Intelligence Units and competent authorities in order to identify common objectives and consistent criteria for the identification of the relevant legal arrangements governed under their law, and this may result in the issuance of a technical document; (iv) the aim of establishing a consistent monitoring and registration framework might not have been achieved yet; and (v) in the area of funds, transparency of beneficial ownership information might vary from one Member State to another based on their legal form – this might merit being addressed with common specific rules for funds.

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The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020

On 15 September, the Government published the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020, together with an explanatory memorandum. The Regulations update the existing UK anti-money laundering (AML) legislation to implement changes in the EU AML framework and make minor corrections and other minor amendments. The main changes are made in order to transpose provisions introduced by EU Directive 2018/843 (the Amending Directive) concerning the UK’s register of express trusts – in particular, expanding the scope of the register, and requiring that information on the register is made available in certain circumstances to those with a legitimate interest. The other changes concern: (i) correspondent banking; (ii) reporting of discrepancies in beneficial ownership information; (iii) customer due diligence on publicly listed companies; (iv) the use of confidential information; and (v) registration deadlines for some firms and directions to cryptoasset businesses. Furthermore, fixes are made to EU exit related deficiencies under the European Union (Withdrawal) Act 2018. Except as specified, Parts 1 to 3 of the Regulations come into force on 6 October, this being 21 days after the day on which they were laid. Regulation 7(2)(a) comes into force on 6 April 2021 and regulations 5 and 7(4)) come into force on 10 March 2022. Part 4 of the Regulations come into force on IP completion day.

Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020

Explanatory Memorandum

Financial Action Task Force (FATF) report on virtual assets (VAs) – red flag indicators of money laundering (ML) and terrorist financing (TF)

On 14 September, the FATF published a report on VAs, detailing red flag indicators of ML and TF. The FATF states that the report is to assist reporting entities, including financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and Virtual Asset Service Providers (VASPs), as well as to facilitate reporting entities’ application of a risk-based approach to their Customer Due Diligence (CDD) requirements. The red flag indicators are based on more than one hundred case studies contributed by jurisdictions from 2017-2020, the findings of the Confidential FATF Report on Financial Investigations Involving Virtual Assets (June 2019) and the published FATF Report Virtual Currencies Key Definitions and Potential AML/CFT Risks (June 2014), as well as information on the misuse of VAs available in the public domain. The FATF has detailed red flag indicators in relation to: (i) transactions (specifically, in respect of size and frequency); (ii) transaction patterns (covering new, and all, users); (iii) anonymity; (iv) senders or recipients (amongst other things, in respect of irregularities observed during account creation and during CDD process); (v) source of funds or wealth; and (vi) geographical risks. The FATF concludes, amongst other things, that a risk-based approach implemented with a regular and dynamic two-way dialogue between the public and private sectors would enhance the effectiveness of the report. Thus, competent authorities are encouraged to disseminate the report to reporting entities, and to conduct engagement and awareness-raising sessions with them to promote their understanding of the report.

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Fintech

Please see our Financial Crime section for an update on the Financial Action Task Force’s (FATF’s) report on virtual assets (VAs), detailing red flag indicators of money laundering (ML) and terrorist financing (TF).

Please see our Other Developments section for an update on the FCA’s regulation round-up for September.

EP’s ECON calls for boosting of the EU FinTech sector

On 11 September, the EP’s ECON announced that MEPs have advocated for a robust EU framework for: (i) cryptoassets; (ii) cyber resilience; (iii) data sharing; and (iv) customer safety, in a non-binding report that was adopted on 10 September. MEPs of the committee welcome the EC’s commitment to finalising an action plan on FinTech by Q3, and stress that any measures taken at the EU level should leave all market participants space to: (a) innovate; (b) be proportional and technologically neutral as well as risk based; and (c) allow for high levels of consumer and investor protection. MEPs call for a common European model with a crucial role for the European Supervisory Authorities (ESAs) and international cooperation for standards setting. In their recommendation, amongst other things, MEPs focused on cryptoassets, calling for a comprehensive pan-European open-ended taxonomy for new products, as well as for a common monitoring and supervision framework. Additionally, MEPs highlight the need for a common approach to cyber resilience of the financial sector – specifically, MEPs call for legislative changes in the area of ICT and cyber security requirements for the EU financial sector with a focus on modernisation, compliance with international standards and operational resilience testing. Moreover, MEPs stress that the free flow of data within the EU is necessary to scale up innovative finance; though, cross-border data flows must be monitored and governed under the EU legislation on privacy and data protection. The procedure file for the report specifies that it will be considered by the EP in its plenary session between 5 October and 8 October.

EP Press Release

EP Procedure File

Fund Regulation

EC inception impact assessment on the European long-term investment funds (ELTIF) Regulation review

On 16 September, the EC published a webpage on its inception impact assessment concerning its review of the ELTIF Regulation. The EC states that this review will analyse how well the ELTIF Regulation is working, and in particular how it is contributing to: (i) the integration of capital markets in Europe (Capital Markets Union); and (ii) the EU’s goal of smart, sustainable and inclusive growth. The EC will summarise feedback received in a synopsis report explaining how the input will be taken on board and, if applicable, why certain suggestions cannot be taken up. Furthermore, the EC notes that it will launch a public consultation on the ELTIF review in October (four weeks following the publication of the inception impact assessment). The deadline for comments for this impact assessment is 14 October.

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Markets and Markets Infrastructure

Please see our Brexit section for an update on the UK and Japan agreeing a free trade agreement.

Please see our Consumer/Retail section for an update on UK Finance’s guide for business customers on the discontinuation of LIBOR.

Please see our Fees and Levies section for an update on the BoE’s policy statement on the fees regime for FMI supervision 2020/21.

Please see our Other Developments section for an update on the FCA’s regulation round-up for September.

FCA webpage on getting firms ready for LIBOR transition

On 17 September, the FCA published a webpage to help get firms ready for the transition away from LIBOR. Amongst other things, the FCA states that: (i) firms should conduct an end-to-end inventory of LIBOR exposure; (ii) where firms identify that LIBOR transition will affect the finances and product choices available to its clients or require a contract amendment or renegotiation, the FCA expects firms to treat clients fairly and to communicate with them in a clear and timely manner – as part of the communication, firms should take care in describing to the customer the risks associated with LIBOR ending and be aware that there is a risk that some customers may not fully understand the implications; and (iii) firms should also familiarise themselves with the LIBOR transition path and accompanying statement outlined by the Working Group on Sterling Risk Free Reference Rates (RFRWG), and consider how to usefully adopt the RFRWG targets (updated in April). The FCA also sets out specific expectations for: (a) asset management; (b) Benchmark administration; (c) corporate finance (and similar) advice; (c) custody services provision; (d) principal trading; and (e) wholesale brokerage.

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ESMA renews its decision requiring net short position holders to report positions of 0.1% and above

On 17 September, ESMA renewed its decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority (NCA) if the position reaches or exceeds 0.1% of the issued share capital. The measure applies from 18 September – it extends the measure taken on 11 June and will expire on 18 December. ESMA believes that this decision will maintain the ability of NCAs to deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage, allowing them and ESMA to address such threats in case of signs of exacerbated market stress. The temporary transparency obligations apply to any natural or legal person, irrespective of their country of residence. They do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making or stabilisation activities. In addition, the European Free Trade Association (EFTA) Surveillance Authority, in cooperation with ESMA, adopted a corresponding decision, also effective as of 18 September, applicable to EEA EFTA States' markets.

ESMA Press Release

ESMA Decision

EFTA Decision

International Swaps and Derivatives Association (ISDA) paper on the impact of Brexit on the derivatives trading obligation (DTO) and the characterisation of OTC derivatives in the EU and the UK

On 14 September, ISDA published a paper on the impact of Brexit on the DTO and the characterisation of OTC derivatives in the EU and the UK. In terms of the DTO, ISDA states, amongst other things, that: (i) the EU and the UK should make equivalence decisions in relation to their respective derivatives trading venues to ensure EU and UK counterparties can continue to trade with each other; (ii) in the absence of appropriate equivalence decisions, the EU and the UK could take other steps to mitigate the impact of the conflict between their respective DTOs but these steps are unlikely to fully resolve the conflict and may involve practical challenges for both firms and regulators; and (iii) irrespective of whether equivalence decisions are made or other action is taken to mitigate the impact of the conflict between the EU and UK DTOs, the UK should address additional conflicts that are created by the way in which the UK DTO will apply to trading by EU counterparties. In regard to the characterisation of UK and EU exchange-traded derivatives, ISDA notes that the EU and the UK should make appropriate equivalence decisions with respect to each other's regulated markets so that UK and EU exchange traded derivatives (ETDs) are not recharacterised as OTC derivatives for the purposes of EMIR as it applies in the EU and the UK.

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Council of EU and EP non-objection to Delegated Regulations supplementing EMIR on tiering, comparable compliance and fees for third-country central counterparties (TC-CCPs)

On 11 September, the Council of the EU published a communication which announces its non-objection to three Delegated Regulations supplementing EMIR with regard to: (i) fees charged by the European Securities and Markets Authority to CCPs established in third countries; (ii) the criteria that ESMA should take into account to determine whether a central counterparty established in a third-country is systemically important or likely to become systemically important for the financial stability of the EU or of one or more of its Member States; and (iii) to the minimum elements to be assessed by ESMA when assessing third-country CCPs' requests for comparable compliance and the modalities and conditions of that assessment. On 16 September, the EP published three separate decisions to confirm its non-objection to the Delegated Regulations. The Delegated Regulations will be published in the OJ and will enter into force on the day following the publication.

Council of EU Communication

EP Decision 1

EP Decision 2

EP Decision 3

Payment Services and Payments Systems

Pay.UK updates progress on adopting ISO 20022 for UK payment systems

On 15 September, Pay.UK published a progress update on its next generation standard for UK retail payments. This is ahead of its plan to publish by the end of 2020 full conclusions following its consultation on the ‘Next Generation Standard for UK Retail Payments’ which closed on 28 April. Pay.UK states that across the summer, it has continued to coordinate closely with the BoE. It has also been able to share its initial thinking with various stakeholder groups and with UK Finance as part of their Future of Payments initiative on standards. It has recently established the “Community of Developers” (a forum for Pay.UK to engage with industry stakeholders on the implementation of ISO 20022) and begun to outreach to HMRC and to the British Accountancy Software Developers Association to explore how it can interact with these communities of interest to collaborate on standards for the payment ecosystem from an end user perspective. Pay.UK has also engaged with the End User Advisory Council (EUAC) of its Board to ensure that end user benefit remains in focus for standards. The progress update focuses on the section relating to recommended direction from Pay.UK’s consultation, thus signposting delivery plans to help frame next steps and overall timings.   

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Payment Systems Regulator (PSR) interim report on the supply of card acquiring services

On 15 September, the PSR published an interim report on the supply of card acquiring services which shows that merchants could make savings by shopping around and either switching or negotiating with their current provider, though many small and medium merchants do not. The report assesses whether the supply of card-acquiring services is working well for merchants and consumers. In line with its objectives, the PSR has also considered any impact on innovation and the interests of service-users. The report includes several potential remedies to make it easier to search and switch for a new provider or better deal, including: (i) requiring all contracts for card-acquiring services to have an end date, providing a prompt for merchants to shop around; (ii) requiring changes to POS terminal contracts to limit their length, ending contracts that auto-renew for successive fixed terms and making it easier to exit POS terminal contracts without incurring exit fees; and (iii) making it easier for merchants to research and compare prices and options available to them. The PSR is consulting on the contents of this report and the deadline for comments is 8 December. 

PSR Press Release

PSR Interim Report

Prudential Regulation

EBA survey on Pillar 3 disclosures on ESG risks under Article 449a CRR

On 17 September, the EBA published an online survey on Pillar 3 disclosures on ESG risks, which has been prepared to support the EBA’s work on the mandate included in Article 434a of the CRR, according to which the EBA has to develop an implementing technical standard (ITS) on the disclosure of prudential information on ESG risks by large institutions (as specified in Article 449a). The objective of the survey is to collect information on: (i) institutions’ current practices regarding ESG disclosures; (ii) the classifications and metrics currently in use; and (iii) their view on how Pillar 3 disclosures should be implemented and interact with other disclosure frameworks. The survey is addressed to large institutions that will be required to disclose prudential information on ESG risks according Article 449a CRR. The feedback provided will be used to inform and support the development of the ITS. The survey consists of three main parts: (a) general questions on the current status of ESG disclosure; (b) questions on the interaction between Pillar 3 disclosure and policy initiatives; and (c) forward-looking questions regarding the implementation of upcoming disclosure requirements as per Article 449a. The EBA has also published a webpage as well as a document to supplement the survey. The deadline for responses is 16 October.

EBA Online Survey

EBA Webpage

EBA Document

ECB allows temporary relief in banks’ leverage ratio – Covid-19

On 17 September, the ECB announced that Euro area banks under its direct supervision may exclude certain central bank exposures from the leverage ratio, to ease the implementation of monetary policy. This decision taken by the ECB Banking Supervision came after the Governing Council of the ECB confirmed that there are exceptional circumstances due to the Covid-19 pandemic. The ECB states that banks can benefit from this exclusion when they communicate their leverage ratios. Furthermore, based on end-March 2020 data, this exclusion would raise the aggregate leverage ratio of 5.36% by about 0.3 percentage points. The 3% leverage ratio requirement will become binding on 28 June 2021 but banks are already required to disclose their current leverage ratio. The ECB confirms that banks may benefit from this measure until 27 June 2021 – the ECB Banking Supervision would have to take a new decision should it wish to further extend the exclusion, when the 3% leverage ratio requirement will become binding.

ECB Press Release

ECB Banking Supervision Decision

Sustainable Finance

Please see our Prudential Regulation section for an update on the EBA’s survey on Pillar 3 disclosures on ESG risks under Article 449a of the CRR.

Please see our Bulletin on “ESG Taxonomy: What asset and fund managers need to know”. A key plank in the EC’s work programme to help it move to a carbon neutral, sustainable EU involves the Taxonomy Regulation. This is a framework which allows for the progressive development over time of a taxonomy, meaning a classification system that will essentially define what activities are “green” and what are not. The bulletin sets out a brief update on what asset and fund managers need to know about this.

Other developments

FCA regulation round-up for September

On 17 September, the FCA published its regulation round-up for September. Amongst other things, the FCA states that: (i) in partnership with the City of London Corporation, it will shortly be launching a Digital Sandbox pilot to provide support to innovative firms and organisations looking to tackle challenges relating to, or exacerbated by, Covid-19 – a feature of the digital sandbox will be an Application programming interface (API) marketplace, where digital service providers can list their APIs for use by participants of the pilot; (ii) under the Benchmarks Regulation, Article 28(2) requires supervised entities to have robust written plans for cessation or material changes of a benchmark, including fall backs, where feasible and appropriate, and to reflect them in their contractual relationships with clients – the FCA considers that these plans should provide for a range of potential situations, including where a critical benchmark is declared no longer capable of being representative or where its continued use in existing contracts is no longer possible; and (iii) in terms of the transition away from LIBOR, the FCA expects all Boards and Senior Managers to put the appropriate arrangements in place to identify their firms’ exposures to LIBOR – they must then ensure that the transition, before the end of 2021, does not harm the viability of their businesses, their clients or the orderliness of markets.

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FCA announces the chair for the review of unsecured credit market regulation

On 16 September, the FCA announced that Christopher Woolard will be the chair for the review of unsecured credit market regulation. The FCA states that the review will concentrate on how regulation can better support a healthy unsecured lending market. It will take into account the impact of Covid-19 on employment security and credit scores, changes in business models and new developments in unsecured lending including the growth of unregulated products in retail and the workplace. Mr Woolard will be assisted by an advisory group and will make recommendations to the FCA Board in early 2021. The FCA notes that the review will be an important building block for the FCA’s Consumer Credit business priority, which it announced as part of its 2020/21 Business Plan in April of this year and which seeks to ensure that consumer credit markets work well.

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ECB new initiative to facilitate cyber information and intelligence sharing

On 15 September, the ECB announced in a press release that the members of the Euro Cyber Resilience Board for pan-European Financial Infrastructures (ECRB) have created the Cyber Information and Intelligence Sharing Initiative (CIISI-EU). This is a multilateral initiative bringing together public and private entities to share strategic, operational and tactical cyber information through technical platforms and meetings. The ECB states that the core objectives of CIISI-EU are to: (i) protect the financial system by preventing, detecting and responding to cyberattacks; and (ii) raise awareness of cybersecurity threats. The goal of the initiative is to inspire other interest groups to consider building their own cyber information and intelligence sharing initiatives. The ECB has also published an article, providing more information on the CIISI-EU, such as by providing detail on the target operating model of CIISI-EU which comprises a number of core building blocks. Furthermore, the article highlights a set of documents (a practical example, terms of reference and community rulebook) that provide insights into the main building blocks, the protocols used and the roles and responsibilities of the respective CIISI-EU members. The documents also provide an overview of the different stages of the initiative: (a) design; (b) implementation; and (c) operationalisation.

ECB Press Release

ECB Article

CIISI-EU practical example

CIISI-EU terms of reference

CIISI-EU community rulebook

FCA updates policy development update (PDU) webpage

On 11 September, the FCA updated its PDU webpage, which provides information on its publications. In this update, the FCA summarises its proposed future publications. Upcoming publications that the FCA has announced include a: (i) CP on Fees Policy, due for publication in Q4; (ii) PS to CP20/16 on debt advice levy rates – additional funding, due for publication in Q4; (iii) CP on exit fees in investment platforms and comparable firms, due for publication in 2021; (iv) PS to CP20/5 on open-ended investment companies – proposals to facilitate standard listing, due for publication in Q4; and (v) PS or feedback statement to CP20/1 on single easy access rate (SEAR), due for publication in Q4. The FCA has also announced quarterly CPs that it will be publishing.

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