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Key Regulatory Topics: Weekly Update 13-19 Aug 2021

19 August 2021

In a relatively quiet week, the Global Foreign Exchange Committee published a guidance paper on the use of “last look” within FX markets to supplement the principles of good practice set out in the FX Global Code and the FMLC reported that it is meeting with HMT, FCA and BoE to discuss the legal issues surrounding the adoption of DLT in financial market infrastructures.


FCA Portfolio strategy letter: investment-based crowdfunding

On 17 August, the FCA published a portfolio strategy letter sent to investment based crowdfunding (IBCF) firms. The FCA’s objective is to ensure that these firms promote investment opportunities appropriately so that consumers can understand the risks these speculative and high-risk investments pose. The FCA sets out the key risks, its expectations of firms and summarises the work it intends to do in relation to: (i) inappropriate investments; (ii) scams; (iii) oversight of appointed representatives; and (iv) disorderly firm failure. The FCA notes that it will use the SM&CR, which applied to IBCF platforms from 9 December 2019, to engage directly with accountable individuals on areas of concern. 



FMLC Minutes of July 2021 meeting – FMI DLT developments

On 19 August, the FMLC published the minutes to its meeting on 29 July. In addition to reporting on other work in progress, the Secretariat reported that it has been contacted by HMT to arrange a meeting with them and representatives from the FCA and BoE, to discuss the legal issues surrounding the adoption of DLT in financial market infrastructures (FMI). In particular, the questions on which the FMLC’s input is being sought include whether the UK’s legal and regulatory framework is sufficiently technology neutral for DLT transactions and what legal barriers exist to setting up a DLT FMI in the UK. The Secretariat undertook to report back after the meeting.


CLLS response to Law Commission call for evidence and consultation on digital assets

On 18 August, the City of London Law Society (CLLS) published its response to the Law Commission's call for evidence on digital assets and its consultation on electronic trade documents. The CLLS considers that caution should be exercised in relation to any proposal for legislative reform to extend the application of the "possession" concept – at least to areas beyond those industry sectors where, arguably, it may serve an appropriate and helpful purpose in supporting the safe, efficient and effective holding and transfer of value or rights constituted or evidenced exclusively in digital form. The CLLS believes that while it is certainly correct that new technologies and types of asset can create novel legal issues, many of the legal issues associated with digital assets have been encountered and resolved by practitioners, policy-makers and law-makers in analogous contexts and markets. It will, in many areas, prove fruitful and enhance legal certainty to draw parallels with the corresponding solutions that have been adopted in those other contexts and markets. This is likely to be especially the case where these are solutions mirrored in other legal systems and, therefore, the approach may be more readily accepted internationally. The CLLS is, therefore, concerned to ensure that the Law Commission's thinking in this area should be informed by the CLLS’ experience in assisting the development (on a case-by-case basis) of legal and statutory solutions to the problems of "digitalisation" examined in the Digital Assets Papers. The CLLS believes that those experiences show that it is unlikely to prove helpful, and may indeed undermine the certainty of English law, to seek to make all types of digital asset amenable to possession.


ECON report on market infrastructure DLT pilot proposal

On 17 August, the EP’s ECON published its report on the proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT). The report sets out the EP’s amendments to the EC’s legislative proposal. The EP procedure file for the proposed Regulation states that the report has been tabled for first reading at plenary.


Markets and markets infrastructure

A&O Publication: MiFID Review timeline – the year ahead 

Stay ahead of developments in the EU and UK MiFID Review and consult our high-level timeline of key dates and expected publications here. 

GFXC guidance paper on last look and disclosure templates 

On 18 August, the Global Foreign Exchange Committee (GFXC) published a guidance paper on the use of "last look" within FX markets. The FX Global Code sets out principles of good practice for last look and also provides illustrative examples. The new guidance paper provides further clarity to market participants about the appropriate usage of last look and is intended to be read alongside the Code. The three main recommendations are to: (i) ensure a fair and effective last look process; (ii) enhance ex-ante disclosures; and (iii) ensure information is available to regularly evaluate the handling of trade requests. The GFXC is also strongly encouraging liquidity providers and platforms to provide information on their trading practices and operations, including for last look, by completing a disclosure cover sheet. The GFXC has published disclosure cover sheets for liquidity providers and multi-dealer platforms, together with instructions. Cover sheets are meant to act as good foundations upon which market participants can have additional bilateral discussions where greater clarity or detail on a firm's disclosures is required. The GFXC cautions that cover sheets should not be used in place of more detailed disclosures and do not introduce disclosure requirements over and above what is in the Code. The GFXC is working with operators of public registers to allow market participants to publish a completed cover sheet alongside their statement of commitment. It is anticipated that market participants will be able to publish cover sheets onto public registers by end-2021.

Press release

Guidance paper

Disclosure cover sheets

Ofgem consults on changes to REMIT penalties statement and procedural guidelines

On 17 August, Ofgem began consulting on revised versions of its REMIT procedural guidelines and penalties statement. The REMIT procedural guidelines set out how Ofgem uses its powers under the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 to enforce Regulation (EU) no. 1227/2011 on wholesale energy market integrity and transparency (REMIT). The REMIT penalties statement sets out its policy on the imposition of REMIT penalties and the determination of their amount. The revised versions of both documents reflect proposed changes in Ofgem’s wider approach to enforcement, necessary amendments to reflect the UK’s departure from the EU, and revisions to make REMIT processes clearer and more efficient. The deadline for comments is 28 September. 


ECB and US SEC sign MoU on security-based swap entities 

On 16 August, the ECB and the US SEC signed an MoU to prepare for the registration of ECB-supervised entities as security-based swap dealers or major security-based swap participants in the US. US regulation requires non-US security-based swap dealers and major security-based swap participants with significant business in the US to register with the SEC by 1 November and 1 December, respectively. The SEC may permit such entities to satisfy certain US requirements by complying with comparable EU and national requirements. To make this possible, the SEC and the relevant supervisory and market authorities need to sign cooperation agreements. The ECB and the SEC will communicate and exchange information on the security-based swap activities that ECB-supervised entities conduct in the US. This cooperation will provide a basis for relevant euro area entities to minimise duplication of compliance efforts and to continue focusing on compliance with EU requirements, while ensuring compliance with US requirements.

Press release


Delegated Regulations supplementing EU BMR published in OJ

On 13 August, five Commission Delegated Regulations supplementing the BMR were published in the OJ: (i) Commission Delegated Regulation (EU) 2021/1348 supplementing the BMR with regard to regulatory technical standards (RTS) specifying the criteria under which competent authorities may require changes to the compliance statement of non-significant benchmarks; (ii) Commission Delegated Regulation (EU) 2021/1349 supplementing the BMR with regard to RTS specifying the criteria for the competent authorities' compliance assessment regarding the mandatory administration of a critical benchmark; (iii) Commission Delegated Regulation (EU) 2021/1350 supplementing the BMR with regard to RTS specifying the requirements to ensure that an administrator's governance arrangements are sufficiently robust; (iv) Commission Delegated Regulation (EU) 2021/1351 supplementing the BMR with regard to RTS specifying the characteristics of the systems and controls for the identification and reporting of any conduct that may involve manipulation or attempted manipulation of a benchmark; and (v) Commission Delegated Regulation (EU) 2021/1352 supplementing the BMR with regard to RTS specifying the conditions to ensure that the methodology for determining a benchmark complies with the quality requirements. The Delegated Regulations come into force on 2 September (20 days after publication in the OJ) and apply from 1 January 2022.






Prudential regulation

EBA report on high earners for 2019

On 18 August, the EBA published its report on high earners for 2019 in accordance with Article 75(3) of Directive 2013/36/EU. The report includes data reported by UK institutions for high earners, as during the transitional period, UK institutions continued reporting data on high earners at EU consolidation level, covering all subsidiaries and branches established in EU Member States. The analysis shows that in 2019, 4963 individuals working for EU banks received a remuneration of more than EUR 1 million, which is broadly the same as in 2018. The average ratio between the variable and fixed remuneration for high earners decreased from 139% in 2018 to 129% in 2019. In 2019, the largest share of high earners of 3 519 (71% of the total number of high earners), was located in the UK. Most of the Member States across the EU registered a slight increase in the number of high earners, particularly Germany, France, and Italy. The increase of high earners resulted mostly from the impact of the relocation of staff from the UK to EU27 as part of Brexit preparations. In addition, for some institutions, the overall good financial results, particularly in corporate banking, and the ongoing restructuring and consolidations, which led to higher than usual severance payments, played an important role in the overall increase of high earners.

Press release 


EC adopts RTS on identification of risk takers and variable remuneration under the IFD

On 13 August, the EC adopted two Delegated Regulations supplementing the IFD with regard to regulatory technical standards (RTS): (i) to specify the instruments, namely classes of additional Tier 1, Tier 2 and Other Instruments, that are appropriate to be used for variable remuneration, as well as to specify possible alternative arrangements for the pay out of variable remuneration where investment firms do not issue any of the instruments referred to within Article 32(1)(j) of the IFD; and (ii) to set out criteria to identify all categories of staff whose professional activities have a material impact on the investment firms’ risk profile (“risk takers”). The identification process is based on a combination of qualitative and quantitative criteria.  The Council of the EU and the EP will now scrutinise the Delegated Regulations. If neither object, the Delegated Regulations will enter into force on and apply from the fifth day following their publication in the OJ. 

Risk takers Delegated Regulation

Variable remuneration Delegated Regulation 

Recovery and resolution  

EBA 2020 annual report on resolution colleges

On 17 August, the EBA published its annual report on resolution colleges for 2020. The report sets out the EBA’s observations on the functioning of colleges during the year and the progress achieved in key areas of resolution planning. Key findings highlighted by the EBA include: (i) the enforced change to a virtual format of discussion on account of the Covid-19 pandemic was broadly successful and reflected well on contingency planning measures. However, the EBA notes there are some areas for improvement to ensure that information exchange and coordination between members remains robust; (ii) discussions in colleges continued to focus on operational aspects of resolution plans; (iii) there was no evidence of an acceleration or reprioritisation of actions or consideration of alternative resolution strategies in response to the pandemic. The EBA believe that the uncertainty of the impact of the pandemic may explain this; and (iv) progress in some areas of resolution planning was less than anticipated, as banks’ resources were devoted to responding to the day-to-day effects of the pandemic. For the 2021 cycle of resolution college meetings, the EBA intends to continue to monitor the same issues as set out in the 2019 report. The passage of time means that as the effects of the pandemic have become clearer, the impact in each of the four areas is more open to considered analysis: (a) the credibility and feasibility of the preferred resolution strategy in the current environment and the analysis of alternative resolution strategies; (b) the extent to which supervisory authorities, finance ministries and administrators of deposit guarantee schemes are actively involved in consideration of their respective roles; (c) analysis of the suitability of written arrangements underpinning colleges; and (d) the extent to which colleges undertake reviews of ‘Business Reorganisation Plans’ to assess if changes are required in response to the economic effects of Covid-19.

Press release


Delegated Regulation on RTS on effective application of stay powers under BRRD published in OJ

On 16 August, Commission Delegated Regulation (EU) 2021/1340, which contains regulatory technical standards (RTS) determining the content of the contractual terms on the recognition of resolution stay powers under the BRRD was published in the OJ.  Where financial contracts are governed by the law of a third country, BRRD II requires the inclusion of a contractual recognition term by which the parties acknowledge that the contract may be subject to the exercise of powers to suspend or restrict rights and obligations by the exercise of those powers by a member state resolution authority. The RTS set out a list of mandatory components that must be present in the contractual term including: (i) provisions specifying the acknowledgement and acceptance that the contract may be subject to the exercise of the powers by the resolution authority; (ii) a description of the powers in question and the parties’ recognition that they are bound by those powers to suspend certain obligations and restrict some rights and that they are bound by the requirements of Article 68 of the BRRD; and (iii) that the parties must acknowledge that no other contractual term impairs the effectiveness and enforceability of this clause. The Delegated Regulation will enter into force and apply from 5 September (20 days after their publication in the OJ). 

Delegated Regulation

ISDA BRRD Article 55 Bail-In Amendment Agreements

On 16 August, ISDA published two amendment agreements to enable financial institutions in those EEA jurisdictions which have implemented Article 55 BRRD to amend their existing non-EEA law governed master agreements to include contractual recognition of bail-in language. There is a version for use when the institution is acting as a principal and a version for use where an agent is acting on behalf of one or more underlying clients.


Other developments

FCA Regulation Round-up August 2021

On 19 August, the FCA published its Regulation Round-up for August. In addition to summarising its recent publications, the FCA announced that it has updated its ‘Firm details’ webpage, to make it clearer how firms should check whether the FCA holds their correct details. The FCA notes that it is vitally important to make sure that firms update, or attest to the accuracy of their details in the right way and in the right timeframe to be compliant.

Round- up 

Business Banking Resolution Service Launches Independent and Transparent Liaison Panels

On 18 August, the Business Banking Resolution Service (BBRS) announced the launch of two Liaison Panels, set up to act as independent and transparent advisory councils to the organisation, one representing participating banks and the other the SME community. The Panels will create a two-way feedback loop between the BBRS and its banking and SME stakeholders. The BBRS will share insights with both panels, including, where possible, thematic data relating to cases, enabling the Panels to provide comments and feedback. Additionally, the BBRS will share insights relating to SME banking complaints. Each Panel will be able to make recommendations to the BBRS concerning the operation of its scheme, but will not have decision-making powers.

Press release

SME Liaison Panel

Bank Liaison Panel