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Key Regulatory Topics: Weekly Update 11-17 Feb 2022

18 February 2022

A number of updates this week focus on the appropriate regulation of behaviours and risks surfacing in the cryptoasset markets whilst in other news, ESMA published its 2022-24 sustainable finance roadmap. 


Capital Markets 

Please see the ‘Sustainable Finance’ section for the ESMA sustainable finance roadmap 2022-2024.

FMSB standard on the sharing of fixed income primary markets investor allocation information

On 15 February, the FICC Markets Standards Board (FMSB) published its final Standard for the sharing of investor allocation information in the fixed income primary markets. The FMSB explains that syndicate banks historically have had varied approaches to the internal sharing of investor allocation information relating to new issuances in fixed income primary markets on the day of pricing. Some syndicate banks do not share investor allocation information while others do share such information and have in place varied disclosure and consent mechanisms and associated monitoring and control procedures. As a result, some issuers and investors have a limited understanding as to how and why syndicate banks may use or share their allocation data with secondary trading desks. This Standard sets out certain minimum expected behaviours of syndicate banks in relation to the sharing of such investor allocation information within their institutions. It seeks to promote consistent baseline industry practices for this sharing of information and provide both issuers and investors with certain protections and controls as to how their allocation information is used. This Standard sets out four Core Principles. These include: (i) issuer control over sharing of allocation data. Prior to a new issuance, the issuer should be informed that allocation data may be passed to the secondary trading desk within a syndicate bank and the issuer should be able to elect to prohibit the sharing of such information; (ii) investor opt out of sharing their allocation data. Allocation data should be treated as information that is confidential to the investor. As such, investors should be informed if syndicate banks intend to share such allocation data with their secondary trading desks; (iii) monitoring and controls to prevent sharing of allocation data in a manner inconsistent with the Standard; and (iv) training and investor education to ensure awareness on the substance of this Standard. This Standard applies to issuers, investors and syndicate banks in relation to wholesale fixed income primary issuances brought to market in Europe. The Standard does not apply to sovereign, supranational or agency syndications and sovereign, supranational or agency offerings of fixed income bonds in the wholesale primary markets.

Standard

Consumer/Retail

FCA statement on funeral plan provider applications

On 15 February, the FCA published a statement on funeral plan provider applications. From 29 July, the FCA will regulate funeral plan providers. The FCA is currently assessing applications from funeral plan providers for authorisation, ahead of the deadline. This process is to ensure: (i) firms sell products which offer fair value, meet consumer needs and are sold fairly; (ii) firms are well run, adhere to high conduct standards and have sufficient resources and risk transfer arrangements so they can deliver funeral services; and (iii) consumers have time and all the information they need to make better informed decisions when choosing between different products and whether a funeral plan is right for them at all. The FCA confirms that it will not authorise firms that cannot demonstrate they meet these standards. The statement also flags a number of risks arising from the practices of some firms that have been identified by the FCA and by HM Treasury. In addition to assessing firms for authorisation, the FCA is imposing new rules to make sure consumers are properly protected, including banning cold calling and all commission payments to intermediaries to make sure products offer fair value. The FCA reminds consumers that until funeral plan providers are regulated by the FCA, they will not be able to make a complaint to the FOS, nor will they have protection from the Financial Services Compensation Scheme (FSCS) should their provider go out of business.

Statement

Fees/Levies

EC initiatives on fees, fines & penalties for benchmark administrators and data reporting services

On 17 February, the EC published an updated initiative on the supervisory fees, fines & penalties for benchmark administrators under the BMR, as well as an updated initiative under MiFIR on the fines or penalties for data reporting services providers under ESMA supervision. The first initiative establishes: (i) the fees that benchmark administrators need to pay ESMA for supervision; and (ii) the procedure ESMA needs to follow to impose fines or penalties on benchmark administrators under its supervision. The second sets out the administrative procedure that ESMA needs to follow for imposing fines or penalties on the data reporting services providers it supervises.

BMR initiative

MiFIR initiative

Financial Crime and Sanctions 

Please see the ‘Fintech’ section for the ECON draft report on proposed Regulation on information accompanying transfers of funds and certain crypto-assets.

JMLSG revised guidance on syndicated lending

On 17 February, the Joint Money Laundering Steering Group (JMLSG) published a revision to the syndicated lending guidance in Part II of its anti-money laundering and counter-terrorist financing (AML/CTF) guidance. This revision consists of the insertion of Paragraph 17.29A. The amended guidance has been submitted to HM Treasury for Ministerial approval.

Revisions

Opinion of the ECB on a proposal for AML regulations

On 17 February, the Council of the EU published an opinion of the ECB on a proposal for a regulation establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLAR), as well as a second opinion of the ECB on a proposal for a directive and a regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. Overall, the ECB welcomes the package of four legislative proposals, including AMLAR, published by the Commission on 20 July 2021, with the aim of strengthening the Union’s rules concerning AML/CTF.

AMLAR opinion

Financial system opinion

The Money Laundering and Terrorist Financing (Amendment) Regulations 2022

On 15 February, the Money Laundering and Terrorist Financing (Amendment) Regulations 2022 were published on legislation.gov.uk. These Regulations update the existing UK anti-money laundering legislation to make minor amendments concerning the UK’s register of express trusts. The main changes are made in order to extend the deadlines imposed on trustees for registering and updating information on the register, and also to amend the categories of trusts which are required to register.

Regulations

Fintech

Please see the ‘Sustainable Finance’ section for the ESMA sustainable finance roadmap 2022-2024, as well as the ‘Other Developments’ section for the FSB February 2022 letter to G20 leaders.

BoE final report on AIPPF

On 17 February, the BoE published its final report on the artificial intelligence public-private forum (AIPPF), which was launched on 12 October 2020. The purpose was to further the discussion between the public sector, the private sector, and academia, and to encourage the safe adoption of AI in financial services. The BoE concludes that AI is a rapidly evolving and powerful tool which financial services firms are using in an increasing number of ways. Risks can arise at three levels within AI systems: (i) data; (ii) model risk; and (iii) governance. Issues at the data stage can get baked in as model inputs; but even with the best data, issues can arise in the modelling stage; while complex AI systems create their own governance challenges. The AIPPF meetings and the final report have been structured around these three key topics. The report explores the various barriers to adoption, challenges and risks in each of these three areas, as well as potential ways to address such barriers and challenges, and mitigate potential risks. Ultimately, this report aims to advance the collective understanding and promote further discussions amongst academics, practitioners and regulators to support the safe adoption of AI in financial services. The BoE and FCA will publish a Discussion Paper on AI in 2022 to build on the work of the AIPPF and broaden its engagement to a wider set of stakeholders.

Final report

FSB report assessing risks to financial stability from cryptoassets

On 16 February, the FSB published a report assessing the risks to financial stability from cryptoassets. The FSB notes that crypto-asset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system. The rapid evolution and international nature of these markets also raise the potential for regulatory gaps, fragmentation or arbitrage. The report: (i) examines developments and associated vulnerabilities relating to three segments of crypto-asset markets: (a) unbacked crypto-assets (such as Bitcoin); (b) stablecoins; and (c) decentralised finance (DeFi) and crypto-asset trading platforms. It notes the close, complex and constantly evolving interrelationship between these three segments, which need to be considered holistically when assessing related financial stability risks; (ii) highlights a number of vulnerabilities associated with crypto-asset markets. These include: (a) increasing linkages between crypto-asset markets and the regulated financial system; (b) liquidity mismatch, credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves, with the potential to spill over to short-term funding markets; (c) the increased use of leverage in investment strategies; (d) concentration risk of trading platforms; and (e) the opacity and lack of regulatory oversight of the sector. The report also notes wider public policy concerns related to crypto-assets, such as low levels of investor and consumer understanding of crypto-assets, money laundering, cyber-crime and ransomware; and (iii) notes that financial stability risks could escalate rapidly and calls for timely and pre-emptive evaluation of possible policy responses. The FSB will continue to monitor developments and risks in crypto-asset markets. It will explore potential regulatory and supervisory implications of unbacked crypto-assets, including the actions FSB jurisdictions have taken, or plan to take, to address associated financial stability threats. The FSB will also continue to monitor and share information on regulatory and supervisory approaches to ensure effective implementation of its high-level recommendations for the regulation, supervision and oversight of so-called “global stablecoin” arrangements.

Report

ECON draft report on proposed Regulation on information accompanying transfers of funds and certain crypto-assets 

On 15 February, the European Parliament's Economic and Monetary Affairs Committee (ECON) published its draft report, dated 7 February, on the proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds and certain crypto-assets. The draft report contains a draft European Parliament legislative resolution, and suggests amendments to strengthen the Regulation by including crypto-assets. Indeed, crypto-assets have remained outside the scope of the Transfer of Funds Regulation, which only applies to conventional funds, and this loophole enables the use of crypto-assets to facilitate, fund and hide criminal activities and launder proceeds. To fill this void, the draft report puts forward the following key proposals: (i) no exemptions based on the value of the transfer; (ii) it should be clarified that the Regulation applies also to transfers from or to cryptoasset wallets based on a software or hardware not hosted by a third party, known as ‘unhosted wallets’, provided that a crypto-asset service provider or another obliged entity is involved. Information should be obtained by the crypto-asset service provider directly from its customer and should be held and made available to competent authorities; (iii) crypto-asset service providers should also be expected to obtain information on the source and destination of crypto-assets involved in a transfer; (iv) crypto-asset service providers are expected to transmit required information also to cryptoasset service providers established outside the Union. However, before transmitting such information, crypto-asset service providers should identify their counterparty and assess whether they can reasonably be expected to comply with the travel rule and protect the confidentiality of personal information; (v) the EBA should maintain a public register of noncompliant crypto-asset service providers, consisting of entities which cannot be linked to any recognised jurisdictions, do not apply any identification measures on their customer and offer anonymising services, given their role in undermining the effectiveness of AML/CFT systems and controls; and (vi) the current recast proposal should be decoupled from the rest of the new AML package and should be linked to the existing AMLD framework until the entry into force of the new regime, while preserving the alignment with the upcoming MiCA Regulation.

Draft report

ASA guidance on cryptoassets

On 14 February, the Advertising Standards Authority (ASA) published guidance on cryptoassets advertisements. The FCA currently does not exercise powers over advertising of most cryptoassets products in the UK. The Committee of Advertising Practice (CAP) anticipates that the plans for the FCA to strengthen the rules on some forms of cryptoassets will not take effect before 2023. In the meantime, all unregulated cryptoassets will continue to be subject to the Advertising Code. Even after the FCA takes on responsibility for regulating most forms of cryptoassets, the ASA will nevertheless continue to retain oversight of issues of responsibility across all forms of cryptoasset advertising. Additionally, NFT adverts are excluded from the Government’s announced changes, and will therefore remain under the remit of the Advertising Code for issues of both misleadingness and responsibility once these regulatory changes have taken effect. The guidance further explains how the CAP Code applies to cryptoasset adverts, and cites various rulings. Specifically, advertisers must: (i) make clear that cryptoassets are not regulated by the FCA and not protected by financial compensation schemes. This statement must be presented in a sufficiently clear and prominent way, ensuring that it is legible and can be easily seen by consumers. When considering whether this information is sufficiently clear, the size and legibility of the text, its positioning in the ad, and the nature of the medium will all be relevant; (ii) not take advantage of consumer' inexperience or credulity. A lot of the cryptoasset terminology will be new to the majority of consumers and could well be confusing and therefore potentially misleading, although more technical jargon may be used if an ad is placed in a specialist financial publication. Further, that Capital Gains Tax has to be paid on profits from investing in cryptoassets must be clear; (iii) include all material information. For instance, an ad for ‘Fan Tokens’ which did not mention that Fan Tokens were a cryptoasset or that to buy them you had to first purchase another cryptocurrency was considered misleading; (iv) make clear that value can go down as well as up; (v) state the basis used to calculate any projections or forecasts. The basis used to calculate any rate of interest, forecast or projection must be apparent immediately; and (vi) make clear that past performance is not a guide for future performance. 

Guidance

Fund Regulation

Please see the ‘Sustainable Finance’ section for the ESMA sustainable finance roadmap 2022-2024, as well as the ‘Prudential Regulation’ section for the EBA opinion on amendments to draft RTS on fixed overheads under IFR.

Please also see the ‘Other Developments’ section for the FSB February 2022 letter to G20 leaders.

ESMA final report on review of MMF Regulation

On 16 February, ESMA published a final report, dated 14 February, containing its Opinion on the review of the Money Market Fund (MMF) Regulation. This Opinion, found in Annex I to the report, sets out proposed reforms to the regulatory framework for EU MMFs under the MMF Regulation. The proposals seek to improve the resilience of MMFs by addressing in particular liquidity issues and the threshold effects for constant net asset value (CNAV) MMFs. The proposed reforms result from the lessons learnt from the significant liquidity difficulties faced by MMFs during the initial outbreak of the COVID-19 pandemic in March 2020. The ESMA Opinion includes policy measures: (i) addressing the threshold effects for CNAV MMFs, by: (a) removing the possibility to use amortized costs for low volatility NAV (LVNAVs) MMFs; and (b) decoupling regulatory thresholds from suspensions, gates and redemption fees for LVNAV/ CNAV MMFs; and (ii) addressing liquidity related issues by: (a) ensuring mandatory availability of at least one liquidity management tool for all MMFs; (b) amendments of the Daily liquid asset/ Weekly liquid assets ratios as well as the pool of eligible assets, including public debt assets, which can be used to satisfy these liquidity ratios; and (c) inclusion/ reinforcement of the possibility to temporarily use liquidity buffers in times of stress. In addition, ESMA is proposing complementary reforms aimed at enhancing MMFs’ preparedness for a crisis. These include enhancements of reporting requirements and the stress testing framework, as well as clarification of the requirements on external support and new disclosure requirements linked to the rating of MMFs. ESMA has sent its Opinion to the Commission and will work closely with it throughout the review of the MMF Regulation. The Guidelines on MMF Stress tests will be further reviewed this year to take in particular into account the interdependencies between the different risk factors under certain market situations (see update below). ESMA will be consulting on this review in 2022 and the outcome will be published by the end of the year.

Final report

ESMA final report on guidelines on stress test scenarios under the MMF Regulation

On 15 February, the ESMA published its final report, dated 14 February, on the guidelines on stress test scenarios under Article 28 of the Money Market Funds (MMF) Regulation. These guidelines are updated at least every year taking into account the latest market developments. The Annex contains the full text of the updated guidelines and the calibration of the scenarios for 2021 (“2021 Guidelines”) – updates are in red in the text of the guidelines. The shocks have been calibrated to be severe, plausible and consistent with the ECB and the ESRB projections, taking into account the impact of the COVID-19 pandemic. The scenario calibration reflects important systemic risks, including widespread defaults in the private sector due to any deep global recession, any reemergence of sovereign financing risk and debt sustainability concerns, and instability and pockets of illiquidity in financial markets. Next, MMFs and their managers are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines. On the basis of these measurements, they are expected to fill in the reporting template referred to in Article 37 of the MMF Regulation and send the results to NCAs with their quarterly reports required by Article 37. The new 2021 parameters set out in the updated guidelines included in this final report will have to be used for the purpose of the first period to be reported following the start of the application of the updated guidelines, which is 2 months after the publication of their translations. Until then, managers should use the parameters set in the 2020 Guidelines and report the results accordingly. In addition to the annual review of the Guidelines, ESMA intends to consult stakeholders on the revision of section 4.8 of the guidelines by Q2 2022.

Final report

Markets and Markets Infrastructure

Please see the ‘Sustainable Finance’ section for the ESMA sustainable finance roadmap 2022-2024, as well as the ‘Fees/Levies’ section for the EC initiatives on fees, fines & penalties for benchmark administrators and data reporting services.

ECB statement of commitment to the FX Global Code

On 15 February, all members of the ESCB, including the ECB issued renewed statements of commitment to the FX Global Code. The Code was updated mid-2021 to keep it relevant and aligned with the ongoing evolution of the foreign exchange market and continues to set the standard for good market practice. With these Statements of Commitment, the members of the ESCB emphasise that the principles of the Code are important in ensuring the continued integrity and effective functioning of the foreign exchange market. To fully achieve the objective of the Code, the EU central banks also encourage foreign exchange market participants in their jurisdictions to review the updated Code and renew their Statements of Commitment.

Statement

Payment Services and Payment Systems 

Please see the ‘Other Developments’ section for the FSB February 2022 letter to G20 leaders.

BoE, FCA, PRA and PSR 2021 review of MoU for UK payment systems 

On 14 February, the BoE published a statement on a review it produced alongside the PRA, FCA and PSR, of the Memorandum of Understanding (MoU) in relation to payment systems in the UK. This MoU sets out the high-level framework the authorities use to cooperate with one another, in relation to payment systems in the UK. The Financial Services (Banking Reform Act) 2013 requires the authorities to review this MoU annually. During 2021, the authorities carried out their sixth such review. Overall, the senior representatives from the BoE, FCA, PRA and PSR concluded that the MoU is working well. The authorities have also implemented a number of initiatives identified previously, such as the exchange of expertise, information and data. The authorities have identified further opportunities to deepen cooperation and coordination, for example continuing effective cross-authority coordination on reforms to payments legislation and further enhancing the sharing of information and data; these will be implemented over the coming year. In conducting this review, the authorities emphasised their on-going commitment to working closely together on issues of common regulatory interest and avoiding duplication in their engagement with industry.

Statement

Prudential Regulation

IRSG narrative on proposed third country regime for banking services in CRD VI

On 15 February, the International Regulatory Strategy Group (IRSG) published its narrative on the proposed third country regime for banking services under CRD VI. The IRSG makes the following observations: (i) the new proposals mark a significant departure from the existing requirements; (ii) although the proposed changes to the prudential requirements for third country branches was assessed in the run-up to the adoption of the proposals by the EC, it appears there was no detailed impact assessment on the market access restrictions proposed in article 21c; (iii) the broad scope of the requirements will result in fragmentation of markets, creating problems for EU corporates, due to a loss of access to financing and account options, and EU firms carrying out core banking services. For example, it would be more problematic for EU entities and individuals to have bank accounts in non-EU jurisdictions, more challenging for EU corporates to raise finance or develop their businesses abroad, and harder for EU banks and investment firms to access international interdealer markets; (iv) new barriers for EU firms, retail clients and citizens to access international capital markets would hinder the development of the Capital Markets Union, which the IRSG has argued before should consist of both internal EU market integration alongside openness to international markets; (v) the EU proposals appear tougher than the regulations governing cross-border market access into other important jurisdictions. Subject to certain criteria, a local establishment is not required for EU entities to deal cross-border into either the UK, US or Switzerland for example; (vi) since the adoption of the CRD VI, there have been statements from the Commission suggesting an openness to consider narrowing the scope of the market access restrictions in CRD VI. This is welcomed, and the IRSG, along with others bodies, is working to identify precisely what amendments may be required both to article 21 c, but also as regards the linked provisions in article 48; (vii) the EU will be an outlier in comparison to other jurisdictions such as Switzerland, the US, the UK and other major jurisdictions which allow firms to cross-border business without the establishment of a locally authorised branch; and (viii) overall, the IRSG supports market access rules that increase harmonisation across the EU, but which do not unduly constrain the access to international markets and services currently enjoyed by EU entities and citizens.

Narrative

For more information on the third country regime proposals please see our bulletin

Regulations on passporting notifications under CRD IV published in OJ

On 14 February, the Delegated Regulation 2022/192 amending the RTS as regards the information to be notified when exercising the right of establishment and the freedom to provide services was published in the OJ. Additionally, Implementing Regulation 2022/193 amending the ITS on standard forms, templates and procedures as regards the information to be notified when exercising the right of establishment and the freedom to provide services under the CRD IV Directive, was also published on the same day. The first Regulation amends Delegated Regulation No 1151/2014 regarding the information provided by the credit institution with a branch passport notification, ensures the safety of deposits, seeks to enhance factual certainty and reliability of the financial information provided by the credit institution to the competent authorities, and details the service passport notification. The second Regulation amends the standard forms and templates, which are laid down in the Annexes. Furthermore, certain legal references in Implementing Regulation No 926/2014 are updated in order to ensure legal certainty. Both Regulations will enter into force on 6 March.

Regulation 2022/192

Regulation 2022/193 

EBA opinion on amendments to draft RTS on fixed overheads under IFR

On 11 February, the EBA published an opinion on the Commission’s proposed amendments to its draft RTS on fixed overheads requirements under the IFR. The changes concern an additional point for deduction from total expenses in the case of investment firms that are market makers. With regard to the amendments envisaged by the Commission which are of a substantive nature, the EBA considers that they alter the draft RTS in a significant manner from the policy perspective and therefore warrant a formal opinion as set out in Article 10 of the EBA Regulation. The EBA is however also of the view that the amendments, despite the substantive nature of the changes, continue to maintain a good balance between the flexibility and risk sensitivity required for the calculation of the fixed overheads requirement and the need for a harmonised regulatory framework. Consequently, the EBA has no concerns in terms of the proposed amendments. Lastly, the EBA also agrees with the remaining changes summarised in the subsection ‘Nonsubstantive changes’, due to their nature as non-substantive and given their usefulness in clarifying the text.

Opinion

EP new procedure file on LCR for credit institutions

On 11 February, the EP published a new procedure file for the proposed Commission Delegated Regulation published by the EC on 10 February and amending Delegated Regulation (EU) 2015/61 to supplement the CRR with regard to the liquidity coverage requirement (LCR) for credit institutions. The proposed amendments seek to: (i) better align the text with the LCR standard agreed at international level by the Basel Committee on Banking Supervision; (ii) insert a reference to official export credit agencies (ECAs) so as to ensure equal treatment of securities issued by ECAs guaranteed by the central government of a Member State, irrespective of the organisational structure of the respective ECA; and (iii) add several additional changes to the LCR Delegated Regulation to align it with Article 129 of the CRR. The new procedure file records that the initial 3 month(s) period for examining the delegated act commenced on 10 February and that it is in the preparatory phase in Parliament.

Procedure file

Regulation

Sustainable Finance

Please see the ‘Other Developments’ section for the FSB February 2022 letter to G20 leaders.

TCFD “workshops in a box”

On 16 February, the task force on climate-related financial disclosures (TCFD) published a series of presentations that it describes as “workshops in a box”. The publications consist of five presentations for use in introductory workshops on the TCFD recommendations, to help support their adoption and implementation. The first presentation introduces the TCFD and provides an overview of the four TCFD recommendations. The remaining four presentations provide more details on each of the TCFD recommendations. These focus on: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

TCFD fundamentals workshop

Governance

Strategy

Risk management

Metrics and targets

EBF and UNEP FI report on practical approaches to applying the EU Taxonomy to bank lending

On 14 February, the United Nations Environment Programme Finance Initiative (UNEP FI) and the European Banking Federation (EBF) published a report on the practical approaches to applying the EU Taxonomy to bank lending. The findings of this report will support banks in understanding the EU Taxonomy, its requirements and its application for disclosure requirements which covers both mandatory and voluntary aspects. It focuses on: (i) disclosure requirements under the EU Taxonomy Disclosure Delegated Act, including expectations for 2022 and 2023 and how the green asset ratio is designed to operate; (ii) how the EU Taxonomy could be further used to gather EU Taxonomy compatible information for banks clients who do not yet have an obligation to disclose, such as SMEs and non-EU companies; (iii) addresses compliance with minimum safeguards of the Taxonomy regulation; and (iv) how the Taxonomy could be used by banks that wish to engage with clients whose economic activities are eligible for analysis under the EU Taxonomy, but are not yet aligned with the listed Technical Screening Criteria. The aim of this report is to present a comprehensive and practical approach to the EU Taxonomy, to support banks in their regulatory implementation journey and their client engagement efforts. The report examines possibilities of financing all activities capable of accelerating companies’ transition to reach EU’s climate goals, in addition to taxonomy-aligned activities.

Report 

ESMA sustainable finance roadmap 2022-2024

On 11 February, ESMA published its 2022-24 sustainable finance roadmap. ESMA identifies three priorities for its sustainable finance work: (i) tackling greenwashing and promoting transparency; (ii) building NCAs’ and ESMA’s capacities in the sustainable finance field; and (iii) monitoring, assessing and analysing ESG markets and risks. Within each of the three priorities, ESMA also identifies sectors where ESG-related risks and problems are currently perceived as having the highest potential impact on investor protection, orderly markets and financial stability. As well as dealing with cross-sectoral issues, the Sustainable Finance Roadmap will primarily concern the following sectors: (i) investment management. This includes contributing to the Commission’s work on minimum sustainability criteria for SFDR Article 8 products, reviewing SFDR RTS, contributing to consistent implementation of new requirements through supervisory convergence actions, and undertaking work on climate change scenario analysis; (ii) investment services. This includes, among other things, contributing to the consistent implementation of new/existing requirements related to the manufacturing and design of ESG products, information provided on ESG products as well as their marketing and distribution; (iii) issuers’ disclosure and governance, which comprises, among others, contributing to EU and international sustainability reporting standards; (iv) benchmarks. Work includes contributing to the Commission’s work on aligning Climate Transition Benchmarks and Paris-Aligned Benchmarks with EU Taxonomy; (v) credit ratings and ESG ratings. ESMA will support the Commission in improving reliability and comparability of ESG ratings, and assess how credit rating agencies incorporate ESG factors in their methodologies; (vi) trading and post-trading. ESMA will undertake work to consider the impact of climate change in CCP stress testing, build analytical tools for monitoring EU carbon markets, and contribute to the consistent implementation of new requirements; and (vii) financial innovation. This will include identifying use cases of innovative technologies that could help the transition to a greener economy (‘green FinTech’), and collecting evidence on recent trends and interactions in relation to green FinTech and sandboxes. ESMA will shortly launch a call for stakeholder candidates to join a new Consultative Working Group supporting ESMA’s Coordination Network on Sustainability. ESMA will keep the Roadmap, including the identified priorities and the sectors of focus, under review during the entire implementation period. 

Roadmap

Other Developments  

FSB February 2022 letter to G20 leaders

On 17 February, the FSB published a letter, dated 14 February, sent to G20 finance ministers and central bank governors ahead of their February 2022 summit. The letter lays out how the FSB’s future policy work will promote global financial resilience during the coming year. An annex provides a complete list of FSB deliverables to the G20 in 2022. The initiatives include: (i) supporting financial market adjustment to a post-COVID world. The FSB will report to the G20 on policy considerations to support a more even, sustainable and inclusive global recovery, and on effective financial sector practices for national authorities to consider for addressing the effects of COVID-19 scarring. This will comprise an interim report in July and a final report in October; (ii) reinforcing financial system resilience in the light of the COVID-19 experience. In October, the FSB will deliver a comprehensive progress report on the various initiatives under the non-bank financial intermediation (NBFI) work programme to the G20 Summit, including on the main findings of relevant FSB and SSB initiatives and on policy proposals to address systemic risk in NBFI. This includes assessing the effectiveness of the FSB’s 2017 asset management recommendations on liquidity mismatch in open-ended funds and considering what additional steps may be needed to address any identified shortcomings; (iii) harnessing the benefits of digitalisation while containing its risks. In October, the FSB, in coordination with the CPMI and other SSBs, will deliver a progress report on the G20 Cross-Border Payments Roadmap, and will also report on the implementation approach for monitoring progress towards the Roadmap’s targets. The FSB will keep the G20 updated on the FSB’s work on crypto-assets. Specifically, in October, the FSB will deliver a consultative report on its review of the high-level recommendations in the FSB’s 2020 stablecoin report, and how any gaps identified could be addressed by existing frameworks; and (iv) addressing financial risks from climate change. The FSB will report on its work to progress the roadmap for addressing climate-related financial risks, which will follow a July report on the first year of the roadmap.

Letter

FCA finalised guidance on its approach to the review of Part VII insurance business transfers

On 15 February, the FCA published final guidance on its approach to the review of insurance business transfers under Part VII of the FSMA. The FCA is updating its approach because of stakeholders’ request and the recent changes in the regulatory landscape following the UK’s exit from the EU. The guidance: (i) sets out some factors firms should consider before contacting the FCA and what they will need to produce in advance of any pre-application meeting; (ii) details the documents the FCA expects firms to provide for it to give its non-objection to the PRA’s decision to approve an independent expert (IE); (iii) sets out the FCA’s overall approach, its expectations and the key aspects it will consider when reviewing the proposed transfer; (iv) includes detailed information and examples for the key documentation (the scheme documents, the IE report and communications); and (v) sets out examples and factors for applicants to consider if firms proposing a Part VII transfer (Applicants) intend to make any applications for dispensations from the requirements in the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001 (the Transfer Regulations).

Guidance

EBA makes adjustments to the Single Rulebook Q&A process

On 11 February, the EBA, in agreement with the Commission, made adjustments to the Single Rulebook Q&A process to ensure that questions are answered efficiently and within a reasonable time. In addition to these adjustments, other measures are taken to overcome a backlog of older questions received through the Q&A tool prior to 1 January 2020 when the Q&A process was updated as part of the last ESAs Review. Q&As received prior to 1 January 2020 which the EBA has not addressed so far will be rejected, unless they are very close to being finalised. The EBA will prioritise Q&As that can contribute most to the harmonisation of regulation and supervision in the EU. To do this, the admissibility criteria have been adjusted to ensure that the work prioritises issues that: (i) are relevant to a broad set of stakeholders; (ii) are material from a prudential, payments, consumer protection, resolution or other perspectives within the EBA’s remit; and (iii) need guidance or clarification. These criteria should also be taken into account when resubmitting questions that were rejected as indicated above. The EBA is also taking measures to target closing Q&As within 9 months, including focusing the process on answering those Q&As which raise material issues relevant for a broad set of stakeholders where additional EBA guidance or clarification would add real value. If, exceptionally, this period is unlikely to be met, the submitter will be informed and additional steps taken to ensure prompt finalisation. Q&A submitters and other stakeholders are invited to review the updated Q&A webpages and the additional background and guidance for asking questions.

Single rulebook