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Key Regulatory Topics: Weekly Update 13 - 19 Jan 2023

20 January 2023

This week, HMT published its post-implementation review of the Payment Card Interchange Fee Regulations 2015 and its review of the PSRs. Meanwhile the FSB published a progress report on the implementation of G20 Non-Bank Financial Intermediation Reforms. Over on the continent, ESMA launched a common supervisory action on the application of MiFID II disclosure rules, with regard to marketing communications across the EU.

Markets and markets infrastructure

ESMA consults on post-trade transparency

On 19 January, ESMA published a consultation paper on a manual on post-trade transparency. The consultation is seeking feedback on certain technical issues, to provide further guidance in its future manual on post-trade transparency. The paper focuses on the new Level 3 guidance that will be included in the manual, which is meant to provide further clarifications on; (i) issues related to post-trade transparency to improve the consistency and usability of the information published; and (ii) the reporting to ESMA’s FITRS for the performance of the transparency calculations. The manual will provide a general overview of the post-trade transparency regime for equity, equity-like and non-equity instruments including: legal references to Level 1 (MiFIR / MiFID II), Level 2 (RTS 1 and RTS 2), Level 3 (Opinions/Guidelines) and guidance previously included in published Q&As. The deadline for comments is 31 March 2023.

Press Release

Consultation Paper

Amendments to RTS on non-equity instruments and transparency requirements under MiFIR adopted

On 17 January, the EC adopted two draft Delegated Regulations amending RTS made under MiFIR. The first Delegated Regulation amends and corrects the RTS laid down in Delegated Regulation (EU) 2017/587 as regards certain transparency requirements applicable to transactions in equity instruments (RTS 1). The second amends the RTS laid down in Delegated Regulation (EU) 2017/583 as regards certain transparency requirements applicable to transactions in non-equity instruments (RTS 2). The Delegated Regulations will now be scrutinised by the council of the EU and the EP, if neither object the Regulations will enter into force 20 days after publication in the OJ.

Delegated Regulation amending RTS 1

Delegated Regulation amending RTS 2  

ESMA and NCAs launch common supervisory action on the application of MiFID II disclosure rules

On 16 January, ESMA announced the launch of a common supervisory action (CSA) with NCAs on the application of MiFID II disclosure rules, with regard to marketing communications across the EU. With the key role that marketing communications and advertisements can play in determining consumer behaviour, ESMA along with NCAs are launching the CSA to assess the application by investment firms and credit institutions of the MiFID II requirements on marketing communications. As part of the CSA, NCAs will review whether marketing communications are fair, clear and non-misleading, and how firms select the target audience for the marketing communications. The CSA will closely consider marketing and advertising by firms through distribution channels such as apps, websites, social media and collaborations with affiliates, including influencers. The CSA will also be an opportunity to collect information about possible greenwashing practices observed in marketing communications and advertisements. The CSA will be conducted over the course of 2023.

Press Release

Payment services and payment systems 

HMT Payment Services Regulations Review and Call for Evidence

On 13 January, HMT published a PSR Review and Call for Evidence. The review fulfils HMT’s statutory obligation to review of the PSRs and publish a report detailing its conclusions. In the review, HMT found that the PSRs have fostered a strong, innovative and competitive UK payment sector that ensures adequate consumer protection. However, the review found that in isolation they have not gone far enough; the framework fails to keep pace with market developments, such as the emergence of cryptoassets. Alongside the review, HMT also published a Call for Evidence, focusing on how UK payments regulation should evolve to meet the government’s aims and address the specific challenges highlighted in the review. The Call for Evidence closes on 7 April 2023.

Regulations Review and Call for Evidence

HMT post-implementation review of the Payment Card Interchange Fee Regulations 2015

On 13 January, HMT published its post-implementation review (PIR) of the Payment Card Interchange Fee Regulations (PCIFRs) 2015. The PIR found that based on the current regulatory framework, the PCIFR’s objective of appointing competent authorities with appropriate expertise, while making use of existing regulatory structures and processes to ensure efficiency and avoid unnecessary additional costs, has been achieved. The PIR concludes that the powers given to the competent authorities are necessary to ensure that the substantive legislative framework is enforceable. The PIR also notes that, the government’s wider approach to interchange fee policy will be determined under the government’s programme to enact the repeal of retained EU law in financial services and build a smarter financial services regulatory framework specifically tailored to the UK. The PIR also states that in the future when the interchange fee policy is reviewed more substantively, it may be the case that adjustments are needed to the powers of the authorities under the PCIFRs but that such an assessment would be premature at this stage.

Post-implementation Review

Prudential regulation 

FSB Implementation of G20 Non-Bank Financial Intermediation Reforms Progress Report

On 18 January, the FSB published a progress report on the implementation of G20 Non-Bank Financial Intermediation (NBFI) Reforms. The report details the progress made implementing the reforms agreed by the G20 following the 2008 global financial crisis, to strengthen the oversight and regulation of NBFI. The report found that, progress has been made implementing Basel III reforms to mitigate spillovers between banks and non-bank financial entities, although implementation is still incomplete. Adoption of the 2012 IOSCO recommendations to reduce the run risk of MMFs is most advanced in the largest MMF markets. Meanwhile, adoption of the IOSCO recommendations on incentive alignment approaches for securitisation and of the BCBS standard on revised securitisation framework is ongoing. Implementation of FSB recommendations for dampening procyclicality and other financial stability risks associated with SFTs is incomplete and continues to face significant delays in most jurisdictions. Implementation of most FSB recommendations to assess and mitigate systemic risks posed by other non-bank financial entities and activities is ongoing. The FSB is carrying out further analytical and policy work to enhance the resilience of the NBFI sector, building on the lessons from the March 2020 market turmoil.

Progress Report

Sustainable finance 

Science Based Targets initiatives new guidance on science-based targets and TCFD reporting

On 18 January, the Science Based Targets initiatives (SBTi) launched new guidance to support investors in identifying the overlaps and complementary nature of the SBTi Financial Institutions framework and Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The guidance includes a framework for assessing, disclosing and managing the climate risks to which they are exposed, and maximizing opportunities for portfolio companies to cut emissions and reduce their climate impact. The new guidance provides banks, private equity firms, asset managers, owners and mortgage real estate investment trusts with actionable ways to harmonize science-based target setting with the preparation of robust climate-related risk and opportunity disclosures in line with institutions’ transition plans. It was developed in collaboration with Carbon Intelligence, taking into account the experiences of financial institutions in South Korea, the UK, China and Sweden to understand the key challenges and opportunities with adopting the SBTi Financial Institutions framework alongside TCFD disclosures.

Reporting Guidance

Other developments 

Complaints Commissioner updates protocols with FCA and BoE

On 18 January, the Financial Regulators Complaints Commissioner published updated protocols setting out the relationship between the Commissioner and the FCA and BoE.  Both protocols are dated December 2022. The recital of the FCA protocol explains that the Complaints Scheme applies to the FCA in relation to the exercise of, or failure to exercise its relevant functions. As set out in section 85(2) of the FS Act, the relevant functions of the FCA are the functions conferred by FSMA, its standard review functions and such other functions as the Treasury may by order provide. Similarly, the BoE protocol recital explains that the Complaints Scheme applies to the BoE in relation to its relevant functions. Under sections 85(2) and 85(3) of the FS Act, the PRA’s functions are conferred by FSMA and the BoE’s functions, under Part 18 of FSMA or under Part 5 of the Banking Act 2009. The protocols address issues regarding communication, investigation, confidentiality and the Commissioner’s report.

FCA Relationship Protocol

BoE Relationship Protocol