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Key Regulatory Topics: Weekly Update 12-18 November 2021

Whilst we continue to digest the final Glasgow Climate Pact, we have seen a resumption of regulatory publications focused on other areas. Ensuring a smooth LIBOR transition continues to remain a priority of the regulators, and this week saw ESMA publish its final report on the clearing and derivative trading obligations to accompany the benchmark transition and a letter from the Euro Risk Free Rates Working Group on the potential designation of statutory replacement rates for GBP and JPY LIBOR to address tough legacy contracts. In the UK, the FCA confirmed that it will allow the temporary use of ‘synthetic’ sterling and yen LIBOR rates in all legacy LIBOR contracts, other than cleared derivatives, that have not been changed at or ahead of the end of 31 December. 

Capital markets  

Please see the Sustainable Finance section for an update on the FCA Primary Market Bulletin 36.

Consumer/Retail

FCA consults on new rules for debt packagers 

On 17 November, the FCA published a consultation paper on new rules to ban debt packagers firms from receiving referral fees from debt solution providers. With these proposals, the FCA aims to reduce the risk that consumers get non-compliant debt advice that is biased towards debt solutions which may not meet their needs but that generate referral fees for the debt advice firm. The FCA’s proposals would protect consumers by banning debt packagers from accepting referral fees. The consultation closes on 22 December. Depending on the consultation, the FCA expects that new rules could come into force in April 2022. 

Consultation

FCA dear CEO letter on applying for authorisation as a funeral plan provider or intermediary

On 12 November, the FCA published a Dear CEO letter on applying for authorisation as a pre-paid funeral plan provider or intermediary. Pre-paid funeral markets will be brought into the FCA’s statutory regulation from 29 July 2022. By this date, all funeral plan providers and intermediaries must have appropriate authorisation (or be exempt) to continue funeral plan activities. The letter also provides information to support businesses' preparations for regulation. Providers who do not intend to apply for authorisation should confirm this by emailing the FCA. Firms who are refused authorisation, or who withdraw their application after submitting it, are expected to stop the sale and administration of their plans, and provide a clear wind-down plan for their existing contracts before 29 July 2022. The FCA is maintaining on its website a central record of all plan providers, which it will use to confirm whether firms have applied for authorisation and the status of their applications. It will publish further communications about specific businesses that do not obtain authorisation.

Letter

Financial crime

FCA Market Watch 68

On 16 November, the FCA released the 68th edition of its Market Watch, its newsletter on market conduct and transaction reporting issues. In this issue, the FCA focuses on web-based trading platforms, which are widely used for rates and fixed income products, and shares its concerns about gaps in users’ surveillance of web-based platform activity. The FCA explains that surveillance appears to be less developed for some asset classes, making it possible that firms were not identifying instances of potential market abuse. To monitor gaps in fixed income and rates markets, the FCA focuses on: (i) market abuse surveillance. The FCA is concerned that users of web-based platforms may not be able to monitor all their orders to detect potential market abuse; (ii) data challenges. There are challenges in getting useable data in a format suitable for surveillance; (iii) compliance awareness. Some compliance teams are unaware of the platforms used by their front office staff or lack knowledge of the quantity of business undertaken on them; (iv) market abuse risk assessments. These assessments often do not include business entered on web-based platforms, particularly orders which are deleted or otherwise do not result in a trade; (v) record keeping. Firms unable to provide accurate records of when an order was placed on a platform, may be unable to respond satisfactorily to regulatory enquiries; (vi) onboarding governance. When onboarding new platforms, firms should consider how they will meet their market abuse surveillance and record keeping obligations; (vii) firm rationales for failings. The FCA continues to observe firms using questionable rationales to justify their potential failure to meet their obligations under UK MAR; and (vii) operators of web-based platforms are reminded of their obligations to undertake effective monitoring to prevent, identify and report potential market abuse. The FCA will continue to visit firms and venues to assess their suspicious transaction and order reporting arrangements, systems and procedures, and work to ensure firms and venues consistently meet their regulatory obligations.

Market Watch 68

Fund regulation

Please see the Prudential Regulation section for the FCA amendments to the near-final version of IFPR rules, the EBA and ESMA’s consultation on draft guidelines on SREP under IFD, and the EBA consultation on draft RTS on Pillar 2 add-ons for investment firms.

Markets and markets infrastructure

ESMA draft RTS on the clearing and derivative trading obligations for the benchmark transition 

On 18 November, the ESMA published its final report on the clearing (CO) and derivative trading (DTO) obligations to accompany the benchmark transition. The report sets out proposed draft Regulatory Technical Standards (RTS) amending the scope of the CO and DTO for OTC interest rate derivatives denominated in EUR, GBP, JPY and USD, as part of the transition away from EONIA and LIBOR and onto alternative benchmarks, primarily Risk-Free Rates such as €STR. It also presents a timeline for when these changes should come into effect. In particular, for the CO, ESMA proposes to remove the EONIA, GBP LIBOR and JPY LIBOR classes, to introduce the €STR and SOFR classes and to extend the SONIA class. For the DTO, it proposes to remove the GBP LIBOR and USD LIBOR classes. The draft RTS have been submitted to the Commission for endorsement in the form of Commission Delegated Regulations. 

Final Report

Critical Benchmarks (References and Administrators’ Liability) Bill Explanatory Notes updated

On 17 November, the Critical Benchmarks (References and Administrators’ Liability) Bill explanatory notes were updated, to include a new section on fast-track legislation. These notes relate to the Critical Benchmarks (References and Administrators’ Liability) Bill as brought from the HoL on 3 November. The Bill supports the orderly wind-down of critical benchmarks, protecting both users of these benchmarks and the integrity of the UK’s financial markets. It provides legal certainty as to how contractual references to a critical benchmark should be treated where the FCA exercises powers under the Benchmarks Regulation (BMR) to provide for the continuity of an unrepresentative critical benchmark. The Bill will also grant an immunity to the administrator of a critical benchmark that is designated under Article 23A of the BMR where the administrator acts in accordance with specific requirements imposed upon it by the FCA. The updated section explains that the Government intends to ask Parliament to expedite the parliamentary progress of this Bill. The end of 2021 is the point at which the FCA will exercise its powers under the BMR to provide for the continuity of certain LIBOR settings using a synthetic methodology. This Bill addresses the residual risk of uncertainty or legal disputes resulting from the exercise of the FCA’s powers. If this risk is not mitigated, it could have material impacts on UK markets and users of LIBOR, and as such the Government has considered that it is necessary to bring forward this legislation in time for it to obtain Royal Assent before the end of 2021.

Explanatory Notes

Letter from the RFRWG to the EC on potential designation of statutory replacement rates for GBP & JPY LIBOR

On 16 November, ESMA published a letter, dated 15 November, from the Euro Risk Free Rates Working Group (RFRWG) to the EC on the potential designation of statutory replacement rates for GBP and JPY LIBOR. The RFRWG agreed at a meeting held on 1 July to convene a task force to consider solutions for GBP and JPY LIBOR contracts referencing the 1, 3, and 6 months tenors for which active transition or updating contractual language to include robust fallbacks will not be possible by the end of 2021 (“tough legacy”). The task force suggests aligning the approach taken for tough legacy contracts under EU law with that adopted by the UK, which anticipates use of a synthetic LIBOR for GBP and JPY LIBOR referencing contracts with specific legislation providing legal certainty to contracts linked to synthetic LIBOR. An alignment of approach with the UK would provide a consistent approach for all tough legacy contracts, but would also create certain challenges within the legal framework of the EU BMR. The RFRWG and task force posit that within the remit of the EU BMR, full legal certainty can only be achieved with the designation of a statutory replacement rate. To enable alignment with the UK approach, several options to designate a replacement rate have been identified and discussed. All of the options create challenges in terms of either full alignment with the UK approach or operational aspects. The RFRWG is open to further discussion on the most appropriate approach under these circumstances. The RFRWG recognises that the primary objective of market participants should be the active transition from GBP and JPY LIBOR to SONIA and TONA (or TORF) respectively. Any decision made by the Commission to designate statutory replacement rates should not impede the progress of market participants to actively transition to the risk-free rates. 

Letter

FRC and FCA joint letter to CEOs on structured reporting

On 16 November, the Financial Reporting Council (FRC) and FCA published a joint letter, dated 15 November, to the CEOs of issuers with transferable securities admitted to trading on a UK regulated market regarding structured annual financial reports (AFRs). The letter seeks to remind issuers of their obligations, sets the FRC and FCA’s combined expectations on quality and identifies actions they may take in the event of their expectations not being met. To relieve the burden during the Covid-19 pandemic, in November 2020 the FCA delayed the effective date of the requirements, but made changes to its systems to allow issuers to file with the National Storage Mechanism (NSM) in the new format voluntarily before the rules apply. Mandatory filing comes into force for financial years starting on or after 1 January 2021, for filing from 1 January 2022. To meet the timetable for complying with the rules, issuers will need to devote further and continuing management and operational resource to ensure that they will be able to submit AFRs in the required format. Issuers also need to review the Disclosure Guidance and Transparency Rules to check whether these requirements apply, and if so, to what extent. The FRC and FCA strongly encourage issuers to take advantage of the opportunity to file accounts in the new electronic format voluntarily to help ensure they are familiar with the requirements and the submission process before the mandatory requirements are in place. The FCA and FRC will together consider the quality and usability of the AFRs in this first year of mandatory adoption. They will collectively publish a follow-up to the FRC Lab’s review of best practices later in 2022, and may take further action if quality does not meet their expectations. 

Letter

FCA rules for legacy use of synthetic LIBOR rates and US dollar LIBOR 

On 16 November, the FCA published its Feedback Statement: Article 23D BMR Decision for 6 sterling and yen LIBOR versions in which it confirmed that it will allow the temporary use of ‘synthetic’ sterling and yen LIBOR rates in all legacy LIBOR contracts, other than cleared derivatives, that have not been changed at or ahead of the end of 31 December. The FCA will require the administrator of LIBOR, ICE Benchmark Administration (IBA), to publish these 6 LIBOR settings under a changed, ‘synthetic’ methodology for a limited period beyond end-2021 for use in legacy contracts. The FCA summarises feedback received on its consultation on the use of the Article 23D(2). Following the responses, the only change made by the FCA is to adjust its proposed methodology for each of the 3 Japanese yen LIBOR settings to account for day count differences between yen LIBOR and TORF. The FCA has published a draft version of its Notice, and will give a final form of the notice, as required by Article 23D(2), to ICE Benchmark Administration Ltd on 1 January 2022. In addition, the FCA also published: (i) A draft notice under Article 21A of the UK BMR, which confirms the prohibition on the use of US dollar LIBOR in most new contracts written after 31 December 2021; (ii) A draft notice under Article 23C of the UK BMR, which sets out permitted legacy use of LIBOR by supervised entities; and (iii) A notice under Annex 4 of the UK BMR of proposed modifications to the UK BMR and its relevant delegated regulations. 

Feedback Statement 

Draft notice under Article 21A

Draft notice under Article 23C

Notice under Annex 4

IOSCO revised principles for the regulation and supervision of commodity derivatives markets

On 15 November, IOSCO published a consultation report on revising its principles for the regulation and supervision of commodity derivatives markets. The principles were originally published in 2011, and seek to ensure that commodity derivatives markets continue to facilitate price discovery and hedging, while remaining free from manipulation and abusive practices. Since their publication, new trends arising from regulatory reforms, the growing reliance on electronic trading and data, emerging new technologies and products, and unexpected disruptions beyond market dynamics, among other developments, have influenced these markets and price formation within them. As a result, IOSCO conducted a review of the recent developments and their impact on the commodity derivatives markets, and has updated the 2011 principles to provide a more resilient and updated framework. Annex 2 contains a table summarising the differences between the original and revised principles. IOSCO is seeking feedback on whether the revised Principles reflect appropriately the changes, trends and activities in the commodity derivatives markets over the last decade, whether any areas are missing, and whether the principles continue to serve as a sound framework for the regulation of the commodity derivatives markets. The consultation closes on 17 January 2022.

Consultation Report

ECB draft guide on the notification of securitisation transactions

On 15 November, the ECB published a consultation on its draft guide on the notification of securitisation transactions. This non-binding guide sets out the notification practices that significant institutions acting as originators or sponsors of a securitisation transaction are advised to follow in order to provide the ECB with information needed for the supervision of compliance with Articles 6 to 8 of the Securitisation Regulation, as specified in Article 7 of that Regulation. The annex to the guide specifies the information that should be provided in relation to: (i) key transaction details; (ii) securitised exposures; (iii) securitisation positions; and (iv) compliance with Articles 6 to 8 of the EU Securitisation Regulation. The ECB expects banks to follow the guide for all securitisation transactions issued after 1 April 2022. The guide will be updated when needed to reflect relevant developments in the regulation and supervision of securitisations. The outcome of the consultation, which ends on 5 January 2022, will be taken into account during the finalisation of the guide.

Consultation

Payment services and Payment systems

EC call for advice to the EBA regarding the review of PSD2

On 18 November, the EBA published a letter from John Berrigan, Deputy Director General in DG FISMA, seeking advice from the EBA on the following specific areas of PSD2: (i) scope and definitions; (ii) licensing of payment institutions and supervision of payment service providers; (iii) transparency of conditions and information requirements; (iv) rights and obligations; (v) strong customer authentication; (vi) access to and use of payment accounts data in relation to payment initiation services and account information services; (vii) access to payment systems and access to accounts maintained with a credit institution; (viii) certain cross-sectoral topics; and (ix) enforcement. Additionally, the EC welcomes any comments from the EBA on the impact and application of PSD2 and any suggestions for possible improvements and amendments. The EBA is requested to deliver its report by 30 June 2022 at the latest.

Letter

Call for advice

CPMI consults on payment system operating hours for cross-border payments

On 18 November, the CPMI published a consultative report on extending and aligning payment system operating hours for cross-border payments. This report is issued as part of the G20 cross-border payments programme, and focuses on the operating hours of RTGS systems, which are considered key to enhancing cross-border payments. An extension of RTGS operating hours across jurisdictions could help address current obstacles, thereby increasing the speed of cross-border payments and reducing liquidity costs and settlement risks. Based on a survey of central banks from 82 jurisdictions, 62 RTGS systems around the world were analysed and three potential "end states" for extending the operating hours of key payment systems were posited: (i) End state 1 is an increase in operating hours on current operating days. If undertaken by multiple jurisdictions, this would help to close daily gaps in RTGS operating hours, primarily on standard working days given that most jurisdictions' RTGS systems are closed on weekends and public holidays; (ii) End state 2 involves an extension of operations to additional days on which many RTGS systems don't currently operate. If undertaken by multiple jurisdictions, this would help to close the gaps created by holidays and weekends; and (iii) End state 3 is the extension of operating hours to 24/7. Very few RTGS systems currently provide near 24/7 service. Doing so would likely require substantial operational changes but, if broadly adopted, this would largely remove frictions for cross-border payments arising from gaps in opening times. The report also introduces the concept of a "global settlement window" – the period when the largest number of RTGS systems simultaneously operate. It also discusses operational, risk and policy considerations related to those end states. The CPMI seeks input from payment system operators, participants and other interested parties on the benefits and challenges presented by these three scenarios. The consultation is open until 14 January 2022.

Consultative Report

PSR consults on APP scams 

On 18 November, the PSR published a consultation paper on authorised push payment (APP) scams, setting out proposals to prevent APP scams and protect people who do fall victim to them. It proposes three measures: (i) publication of fraud data by banks. The PSR will require the major PSPs in the 12 largest banking groups in Great Britain and 2 largest banks in Northern Ireland outside those banking groups to publish data on their performance in relation to APP scams, and reimbursement levels for victims; (ii) improvements in scam prevention. The PSR will task an industry working group to improve intelligence sharing between PSPs, to improve detection and prevention of APP scams; and (iii) reimbursement of victims. The PSR welcomes the government's plan to legislate to make reimbursement mandatory for victims of scams who have done nothing wrong. The paper further sets out in more detail the two options the PSR is considering once legislative changes have been made. The consultation is open until 5pm on 14 January 2022. The PSR will confirm its final policy by H1 2022.

Consultation

EC speech on developments in EU payments market

On 16 November, the EC published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, where she discusses changes and recent developments in the EU payments market. Points discussed include: (i) instant payments. Safe, instant, frictionless payments should be the norm in Europe. The benefits go beyond speed and round-the-clock availability. When combined with new add-on services – such as “request to pay” – they can support innovative business models, like payment initiation services, increase competition and diversify the payment options offered to consumers. The EC identified four major roadblocks in the way of progress: (a) reaching critical mass; (b) consumer protection; (c) pricing and (d) sanctions screening. The EC will deliver an initiative in the first half of next year to speed up the roll-out of instant payments; (ii) IBAN discrimination. The EC is determined to put an end to this practice, and has already made tangible progress through a mix of persuasion and robust enforcement action; (iii) review of PSD2. An external study, starting early 2022, will examine the outcomes of PSD2 and pave the way for possible amendments. The EC will prepare a report by the end of 2022, which may be accompanied, or followed, by a legislative proposal; (iv) the Settlement Finality Directive & Digital Markets Act. The EC is looking at extending the scope of the Settlement Finality Directive to include e-money and payment institutions. It is also using the Digital Markets Act to tackle restrictions on the use of near field communications technology in mobile wallets; and (v) international payments beyond the EU. In the EU, they are assessing whether the transparency rules applied to international transactions need to be improved. As the PSD2 review progresses, the EC will closely monitor the work of the EPC to harmonise business rules and messaging standards for “one-leg transactions”, where the beneficiary or sender is outside SEPA.

Speech

Prudential regulation  

EBA and ESMA consult on draft guidelines on SREP under IFD

On 18 November, the EBA and ESMA published a consultation paper on their guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under the Investment Firms Directive (IFD). The common SREP framework introduced in these guidelines sets out the process and criteria for the assessment of the main SREP elements such as: (i) business model; (ii) governance arrangements and firm-wide controls; (iii) risks to capital and capital adequacy; and (iv) liquidity risk and liquidity adequacy. A scoring system is introduced to facilitate the consistency and comparability of assessment across firms. In addition, the proposed joint guidelines clarify the monitoring of key indicators, on the application of SREP in the cross-border context, and on the use of supervisory measures. The guidelines specify common procedures and methodologies for SREP, which are proportionate to the different sizes and business models of investment firms, and the nature, scale and complexity of their activities. Investment firms are classified into four distinct categories, which translate into different frequency, depth and intensity of the assessments, and the engagement of the competent authority. For the determination of additional own funds requirements for risks not covered or not sufficiently covered by Pillar 1 requirements, the draft guidelines refer to the draft RTS on the additional own funds requirements also published on the same day in a distinct consultation by the EBA (see update below). The deadline for the submission of comments is 18 February 2022, and a public hearing will take place on 18 January 2022.

Consultation Paper

EBA consults on draft RTS on Pillar 2 add-ons for investment firms

On 18 November, the EBA published a consultation paper on draft regulatory technical standards (RTS) on Pillar 2 add-ons for investment firms. These draft RTS clarify how competent authorities should measure risks or elements of risks that investment firms face or pose to others, that are not covered or not sufficiently covered by the own funds requirements set out in Part Three or Four of the Investment Firms Regulation. These RTS set out more detailed guidance on the measurement of risks to capital, including specific indicative metrics to be used for the assessment of materiality and determination of capital considered adequate to cover specific risks. Given that the application of additional own funds requirements results from a comprehensive supervisory review and evaluation process (SREP), these draft RTS should be read together with the SREP guidelines under the Investment Firms Directive (see update above). The deadline for the submission of comments is 18 February 2022, and a public hearing will take place on 18 January 2022. The EBA intends to finalise and communicate the draft RTS to the Commission by 30 June 2022.

Consultation Paper

Commission Implementing Regulation amending ITS on mapping credit assessments of ECAIs under CRR published 

On 17 November, the Commission Implementing Regulation laying down implementing technical standards (ITS) on the mapping tables specifying the correspondence between the credit risk assessments of external credit assessment institutions’ (ECAIs) under the CRR was published in the OJ. This Implementing Regulation was made by the EC on 16 November, under Article 136(1) of the CRR, and will come into force on 7 December 2021 (twenty days after publication in the OJ). 

Commission Implementing Regulation

EBA report on the impact of the NSFR on the functioning of the precious metals market 

On 17 November, the EBA published a report on the possible impact of the net stable funding ratio (NSFR) on the functioning of the precious metals’ markets under the mandate in Article 510(11) of the CRR. The report aims to assess whether it would be justified to reduce the required stable funding factor for assets used for providing clearing and settlement services or for financing transactions of precious metals. It discusses the impact of the introduction of the NSFR on the precious metals market and analyses the impact of possible modifications of the prudential treatment of physically traded commodities under the NSFR. Based on the EBA QIS and COREP data, the amount of physically traded commodities reported by banks was found to be negligible when compared with market volumes. The report also concludes that the requirement for stable funding generated by these assets is limited in comparison with the total amount of required stable funding and a reduction of the weighting factor assigned to these assets would have limited impact on the banks and, in particular, it would not make the NSFR less stringent. 

Report

PRA CRR rules corresponding to revoked onshored provisions 

On 16 November, the PRA released a webpage containing a table of revoked UK CRR provisions and their corresponding PRA rules. This results from the Financial Services Act 2021, which gives HM Treasury the power to revoke provisions relating to certain matters of the onshored CRR and instruments made under the CRR and the PRA the authority to make rules (CRR rules) that relate to matters covered by these revoked provisions, in relation to standards developed by the BCBS. The document sets out whether and, if so, how the PRA’s CRR rules correspond to a provision revoked by HM Treasury. 

Webpage

PRA policy statement on domestic liquidity sub-groups

On 15 November, the PRA published a policy statement on domestic liquidity sub-group (DoLSub). The policy statement provides feedback to responses to the September consultation paper on the application of prudential liquidity requirements to DoLSubs, and contains the PRA’s final policy. The PRA has not made any changes to the rules on which it consulted, although some changes have been made to the related Statement of Policy "Liquidity and funding permissions". The PRA is proceeding with: (i) the inclusion in a DoLSub of firms that are subsidiaries of a common immediate UK qualifying parent undertaking that is not a bank or PRA-designated investment firm; and (ii) a revision of the conditions under which a firm would qualify for a DoLSub permission, and the factors that the PRA will take into account when considering DoLSub applications. The final policy is contained in the PRA Rulebook (CRR No 2) Instrument 2021, which makes changes to the Liquidity (CRR) and Internal Liquidity Adequacy Assessment Parts of the PRA Rulebook from 1 January 2022, and the related Statement of Policy. This policy is intended to take effect at the same time as the revocation of article 8 of CRR by regulation 4(4) of the Capital Requirements Regulation (Amendment) Regulations 2021. As HM Treasury did not implement a savings provision for LCR DoLSub permissions that are currently in force or would enter into force before Saturday 1 January 2022, DoLSub permissions in existence before Saturday 1 January 2022 that disapply the LCR requirements at an individual level would not apply after that date. The PRA expects firms to apply formally for LCR and NSFR DoLSub permissions at the earliest opportunity under the final revised DoLSub framework. All applications will be assessed under this final revised framework, and permissions will take effect from 1 January 2022.

Policy statement

Proposed amendments to the FPC’s framework for the O-SII buffer 

On 15 November, the BoE published a consultation paper on amendments to the FPC’s framework for the other systemically important institutions (O-SII) buffer. Under the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014, the FPC must have a framework for the O-SII buffer and review this framework at least every second year. In response to the Q3 review, the FPC decided to consult on a proposal to amend its framework as follows: (i) to change the metric used to determine O-SII buffer rates from total assets to the UK leverage exposure measure; and (ii) to recalibrate the thresholds used to determine O-SII buffer rates to prevent an overall tightening or loosening of the framework relative to its pre-Covid level. The proposal aims to ensure that the framework still addresses the key systemic risk intended by the FPC, which is the risk that a distressed ring-fenced bank or large building society disrupts the supply of credit to the real economy. It achieves this by: (i) excluding from the framework central bank reserves, which grew significantly during the pandemic but do not reflect a bank’s potential to disrupt the credit supply. This exclusion mitigates the risk that future changes in central bank balance sheets inadvertently affect banks’ lending decisions by interacting with the O-SII buffer. It also allows banks to draw on central bank liquidity as necessary without becoming constrained by the associated effect on buffer requirements; and (ii) bringing into the framework committed but undrawn credit facilities. Experience during the pandemic suggests that these can form an important part of the credit supply in stress. This consultation is relevant to PRA-regulated ring-fenced banks and large building societies subject to the O-SII buffer. The consultation closes on 15 February 2022. If the proposal is adopted, the changes would come into effect in time for the PRA to assess rates under a revised framework in December 2023, based on end-2022 financial results. Rates set in 2023 would then apply from January 2025.

Consultation

FCA amendments to the near-final version of IFPR rules 

On 12 November, the FCA published a new webpage summarizing amendments that have been made to its near-final Investment Firms Prudential Regime (IFPR) Instrument 2021 (FCA 2021/38). In addition, the FCA explains that there have been no changes to the substantive content of the Investment Firms Prudential Regime (Consequential Amendments to Other Prudential Sourcebooks) Instrument 2021 (FCA 2021/39) since the near-final version was published. However, a small number of the final rules may be further amended in the policy statement that responds to its third consultation paper (CP21/26). 

Webpage

Recovery and resolution

Please see the Other Developments section for the EBA’s 2022 ESEP and EREP. 

ESMA launches public consultations on CCP resolution regime

On 18 November, ESMA published six public consultations to gather stakeholder feedback on how to implement its CCP resolution mandates. The six consultation papers contain proposals for draft regulatory technical standards (RTS) on: (i) safeguards for clients and indirect clients; (ii) resolution colleges; (iii) valuation of CCPs’ assets and liabilities in resolution; and (iv) content of resolution plans. They also contain proposals for draft guidelines on the: (a) methodology to value each contract prior to termination; and (b) application of the circumstances under which a CCP is deemed to be failing or likely to fail. The closing date for responses to all consultation papers is 24 January 2022. ESMA will organise an open hearing on 14 January 2022. ESMA will consider the responses to these consultations with a view to publishing the final reports by Q2 2022.

Draft RTS on the Safeguards for clients and indirect clients

Draft RTS on the Resolution colleges

Draft RTS on the Valuation of CCPs’ assets and liabilities in resolution

Draft RTS on the Content of resolution plans

Draft Guidelines for the Methodology to value each contract prior to termination

Draft Guidelines on the application of the circumstances under which a CCP is deemed to be failing or likely to fail

Sustainable finance

A&O – How COP26 will be relevant to future financings: Reflections on COP

On 18 November, we released a publication discussing how COP26 will be relevant to future financings. One of the key questions is whether the negotiations will make a tangible difference to the financing of climate mitigation and adaptation actions.

Publication

BCBS principles for the effective management and supervision of climate-related financial risks

On 16 November, the BCBS published a public consultation on principles for the effective management and supervision of climate-related financial risks. The consultation paper forms part of the Committee's holistic approach to address climate-related financial risks to the global banking system and aims to promote a principles-based approach to improving both banks' risk management and supervisors' practices in this area. The consultative document includes 18 high-level principles. Principles 1 through 12 provide banks with guidance on effective management of climate-related financial risks, while principles 13 through 18 provide guidance for prudential supervisors. These were drafted in a way to accommodate a diverse range of banking systems, and are intended to be applied on a proportionate basis depending on the size, complexity and risk profile of the bank or banking sector for which the authority is responsible. The Committee invites comments on the principles by 16 February 2022. All submissions will be published on the BIS website unless specifically requested otherwise.

Consultative Document

FCA Primary Market Bulletin 36 and Primary Market Technical Note 802.1 

On 15 November, the FCA published the 36th edition of the Primary Market Bulletin. This edition focuses on the Task Force on Climate-related Financial Disclosures (TCFD) aligned climate-related disclosure requirements for listed companies and sets out the FCA’s disclosure expectations and supervisory strategy. The FCA also published for consultation a new technical note (Primary Market Technical Note, TCFD aligned disclosure requirements for listed companies) to provide further guidance on its disclosure expectations.

Primary Market Bulletin 

Primary Market Technical Note

Other developments 

FSB Plenary meets in Basel

On 18 November, the FSB Plenary met to discuss vulnerabilities in the global financial system, and agreed to the FSB’s work programme for 2022. Key current vulnerabilities relate to the rise in indebtedness across sovereigns, non-financial corporates and households in response to COVID-19. These developments underline the need to reinforce global financial system resilience. Amongst the initiatives to respond to these developments, the FSB will publish a discussion paper to provide a basis for a dialogue between the public and private sector on emerging policy approaches and industry practices that could prove effective to support a smooth transition out of debt overhang issues stemming from the pandemic. Members also discussed a number of other emerging challenges including the financial system’s exposure to the physical and transition risks posed by climate change, and growing vulnerabilities for the financial system from the use of crypto-assets. The FSB will provide an updated assessment of the financial stability implications of crypto-assets to the G20 in February 2022. Members discussed the FSB’s work programme for 2022, including deliverables to the Indonesian G20 Presidency. The main priorities for the FSB’s work include: (i) international cooperation and coordination in financial authorities’ response to COVID-19; (ii) enhancing the resilience of the NBFI sector and follow-up to the FSB’s Holistic Review of the March 2020 market turmoil; (iii) containing the risks from the use of crypto technology, including unbacked crypto-assets, stablecoins and decentralised finance, while harnessing the benefits; (iv) assessing and addressing financial risks from climate change; and (v) finalising and monitoring implementation of the post-2008 crisis reforms. The finalised 2022 work programme will be published in January. Klaas Knot takes over from Randal Quarles as FSB Chair on 2 December. 

Press release

EBA 2022 ESEP and EREP

On 12 November, the EBA published its 2022 European Supervisory Examination Programme (ESEP) for prudential supervisors, alongside its 2022 European Resolution Examination Programme (EREP) for resolution authorities. The ESEP is aimed at informing prudential supervisors’ planning processes for selecting supervisory priorities for 2022, and shaping their supervisory practices concerning supervision of these key topics. Five key topics have been identified for supervisory attention for 2022: (i) impact of the COVID-19 pandemic on asset quality and adequate provisioning; (ii) information and communication technology (ICT) security risk, ICT outsourcing risk and risk data aggregation; (iii) digital transformation and FinTech players; (iv) ESG risk; and (v) AML andCFT. Additionally, the EREP aims at informing resolution authorities’ planning processes for selecting resolution planning priorities for 2022 and shaping their practices concerning selected topics on which EU traction is needed. The EREP identifies three topics which resolution authorities are expected to consider when developing their 2022 priorities: (i) how MREL shortfalls are being addressed; (ii) the development of management information systems for valuation in resolution; and (iii) preparations for managing liquidity needs in resolution. The EBA concludes that it will follow up on how the key topics put forward by the ESEP and the EREP are both embedded in competent authorities’ priorities for 2022, as well as reflected in their respective activities throughout the year.

ESEP 

EREP