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Key Regulatory Topics: Weekly Update 13-19 March 2020

Our weekly update on key regulatory topics affecting the financial services sector. If you would like to receive this update by email and be added to our marketing mailing list please contact


EC letter to HMT on approach to equivalence assessments

On 16 March, the EC published a letter (dated 13 March) from Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, to Rishi Sunak, Chancellor of the Exchequer in response to Mr Sunak's letter on 27 February. The EC, as agreed in the October 2019 Political Declaration will start assessing equivalence as soon as possible endeavouring to conclude assessments before the end of June, but this does not mean that equivalence decisions will be taken by that date. Mr Dombrovskis explains that the EU is mapping equivalence areas internally and his teams will contact their UK equivalents to collect evidence about the UK frameworks applying after the transition period in line with EU existing practice. He notes that assessments will be forward-looking, taking into account overall developments, including any divergences of UK rules from EU rules.
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Exiting the EU: Deferral of Commencement Instrument 2020 – Financial Ombudsman guidance

On 13 March, the FCA published a new Exiting the EU Instrument stating that any information, guidance or advice made by the Financial Ombudsman Service (FOS) that was drafted as coming into force with reference to exit day (e.g. before exit day, on exit day etc.) will now come into force with reference to IP completion day (31 December), as defined in the European Union (Withdrawal Agreement) Act 2020.
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Capital markets

We have produced a new client publication covering the FCA consultation paper CP20/3 regarding new Listing Rules for premium listed companies. The FCA proposes to enhance climate-related disclosures in corporate reporting by requiring disclosures consistent with the recommendations of the Task Force on Climate-Related Disclosures (TCFD) and new guidance applicable to premium and standard listed issuers of equity.
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FCA's 27th Primary Market Bulletin – Capital Markets and Covid-19 special edition

On 17 March, the FCA published its 27th Primary Market Bulletin, focused on providing key commentary for issuers and market participants in light of the Covid-19 pandemic. The Bulletin covers matters including: (i) issuers are expected to continue to comply with their disclosure obligations under MAR, but the FCA appreciates that there may be slight delays in the short term as new processes are put in place; (ii) the FCA will continue to consider requests from issuers to suspend trading in certain securities due to market volatility, but will challenge the need for suspension when they consider the situation can more appropriately be addressed by an announcement to the market; (iii) persons discharging managerial responsibilities and those that are closely associated are expected to continue to meet their MAR notification requirements within the prescribed time frame; (iv) the FCA expects that Covid-19 may create logistical issues when producing accounts for upcoming reporting periods, but it expects firms to put contingency plans in place to mitigate these impacts, with the deadlines under the Disclosure Guidance and Transparency Rules remaining unchanged – if an issuer does not believe it is able to meet its obligations it should take appropriate advice and contact the FCA, as well as engage with their auditors who should contact the FRC; (v) The FCA recognises that requirements for AGMs, GMs and other shareholder engagement under the Companies Act may need to involve the use of virtual methods; and (vi) the FCA will continue to review documentation for corporate transactions in line with established FCA principles and where an issuer is looking to carry out an urgent transaction the FCA advises that they, in the first instance, engage with their relevant sponsor firm or adviser.
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Please see the Covid-19 section for the FCA information page on its Covid-19 response, specifically the actions it expects firms to take in order to protect consumers.

Please see the Financial Crime section for the PRA's response to the House of Commons Treasury Committee's report entitled economic crime: consumer view.

Issue 150 of Financial Ombudsman Service (FOS) news

On 13 March the FOS published its news update which included: (i) information for customers relating to the Covid-19 pandemic, they believe it is possible that there will be a rise in complaints relating to travel and medical insurance and credit refunds from cancelled events; (ii) an in depth report on complaints FOS receive relating to underinsurance, misrepresentation and non-disclosure, outlining key trends and failures; (iii) the Q2 2019 complaints statistics, it received 169,119 enquiries and 57,320 complaints passing 11,417 on to an ombudsman for a final decision; and (iv) its Q3 complaints statistics where the FOS received 195,851 enquiries, 83,754 complaints and passed 9,160 on to an ombudsman.
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Please see our dedicated Covid-19 webpage containing links to a number of articles and insights to keep up-to-date with developments and assist with effective contingency planning.
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Please see the Markets and Market Infrastructure, Capital Markets, Fund Regulation and Other Developments sections for sector-specific updates to issues that have arisen as a result of the challenges posed by the Covid-19 pandemic.

FCA information page on Covid-19 response

On 17 March, the FCA published a new webpage containing information for firms on its Covid-19 response. The FCA is collaborating with the BoE and PSR and is in regular contact with firms to assess their current position. The FCA expect firms to provide strong support and service to customers during this period and to manage their own financial resilience and liquidity. The FCA is delaying any activity which is not critical to protecting consumers and market-integrity in the short-term, extending consultations and scaling back its routine programme of business interactions. The FCA notes that its rules provide flexibility for firms to support their customers welcoming those taking initiatives going beyond usual business practices such as by firms waving fees for access to ISAs and allowing customers to end their term deposits early. The FCA is in discussions with the industry on how customers may be assisted in meeting mortgage payments and is encouraged by the actions of some lenders to grant greater flexibility. The FCA asks firms to show greater flexibility to customers in persistent credit card debt and that all customers should be allowed until 1st October to respond to firms' communications. The FCA expects firms to have contingency plans in place and that they should take all reasonable steps to continue to meet their regulatory obligations. If firms are unable to meet requirements due to a change in circumstances, such as being unable to record calls due to its employees now WFH, it should make the FCA aware and consider how to mitigate outstanding risks, such as enhanced retrospective monitoring once BAU resumes. If a firm is experiencing difficulties in submitting regulatory data, they are expected to continue to maintain appropriate records and submit the data as soon as possible.
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Financial crime

Please see the Capital Markets section for the FCA's 27th Primary Market Bulletin on meeting reporting requirements, specifically under MAR during the pandemic.

JMLSG consultation on new chapter of AML/CTF guidance relating to cryptoasset exchanges and custodian wallet providers

On 17 March, JMLSG began consulting on the proposed text of a new chapter of its AML/CTF guidance providing sectoral guidance for cryptoasset exchanges and custodian wallet provides in order to take account of the MLRs 2019 that came into force on 10 January. The guidance covers: (i) definitions of a cryptoasset, and cryptoasset exchange and wallet providers; (ii) the scope of the regulation; (iii) the main AML/CTF risks in this sector and the factors that give rise to them; (iv) advice on how firms should manage and mitigate these risks; (v) CDD and record keeping recommendations; (vi) advice on how to deal with suspicious transactions; and (vii) sanctions screening. The deadline for comments is 18 May.
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House of Commons Treasury Committee on Government and Regulator responses to its reports on economic crime and IT failures

On 13 March, the House of Commons Treasury Committee published the responses of the government, the Payment Systems Regulator (PSR), the FCA and the BoE to its reports on IT failures and economic crime. On economic crime, the committee's recommendations included: (i) a compulsory contingent reimbursement model for the reimbursement of victims of authorised push payments scams; (ii) establishing a public-private steering group; (iii) a 24-hour delay on all first-time payment; and (iv) sanctioning firms missing the Confirmation of Payee deadline. The Committee chair was disappointed that the government made no commitment to investigate the contingent reimbursement proposal. On IT failures, the committee's report conclusions included that: (a) current levels of failures are unacceptable and regulators must act including by using enforcement powers to ensure that failures do not go unpunished; (b) financial sector levies should increase to enable regulators to better equip themselves; (c) there was a strong case for concentrated cloud service providers to be regulated; and (d) firms must resolve customer complaints and award compensation quickly. In the regulators responses, they: (1) rejected the call for an increase in levies; (2) argued that there was a strong case for extending SMCR to Financial Market Infrastructures; and (3) note that further work is required on incident reporting. The Committee chair noted that the regulators were committing to take forward its recommendations to ensure adequate operational resilience.

HoC Committee comments
IT failures report responses
Economic Crime report responses


Please see the Financial Crime section for JMLSG's consultation on its AML/CTF sectoral guidance for cryptoasset exchanges and custodian wallet providers.

FMLC response to EC consultation on an EU framework for markets in cryptoasset

On 17 March, the Financial Markets Law Committee (FMLC) published its response, in the form of two reports, to the EC's consultation on the suitability of the existing EU regulatory framework for cryptoassets. The first report comprises comments on the classification of cryptoassets, where the FMLC concludes that regulations based on the characterisation of cryptoassets simply by reference to their function(s) may fail to take into account the multitude of other factors which influence the roles of various actors and the different types of rights and obligations that might arise. The second report on the regulation of cryptoassets which are within the EU regulatory perimeter. The FMLC concludes that a new type of regulation is likely to be needed, rather than trying to shoehorn a new phenomenon into old concepts. It has attempted to provide comments on uncertainties that may arise, specifically in respect of centralised and permissions vs decentralised and permissionless platforms, as well as several definitions in MiFID II, the CSDR and the E-Money Directive.

Press Release
FMLC Report – Cryptoasset taxonomy
FMLC Report 2 – Cryptoasset regulation

Fund regulation

FCA speech on open-ended funds investing in less liquid assets

On 19 March, the FCA published a speech by Edwin Schooling Latter, FCA Director of Markets and Wholesale Policy, given to Investment Association members in which he invites industry and stakeholder comment on the best mix of tools to ensure open-ended funds appropriately manage liquidity risks while enabling investments that can benefit fund holders, and the optimal policy response to liquidity mismatch. Mr Schooling Latter summarises the risks that can arise from liquidity mismatch to both investors and systemically to the market when funds are put under pressure to meet redemption requests such as when investors pursue the first mover advantage. He explains that swing pricing and notice periods can help mitigate these risks in these situations. The FCA is currently working on a joint review of these issues with the BoE for which the FCA seeks input.
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FCA statement on property fund suspensions

On 18 March, the FCA issued a statement on property fund suspensions as a result of the Cocid-19 pandemic. The FCA understands that certain Standing Independent Valuers have determined that there is currently material uncertainty over the value of commercial real estate (CRE) and that in such situations, a fair and reasonable valuation of CRE funds cannot be established. As a result, some managers of open-ended CRE funds have temporarily suspended dealing in units of these funds and others are likely to follow for the same reason. Suspensions can be used by managers of open-ended funds, in line with their obligations under applicable regulations. In these circumstances, suspension is likely to be in the best interests of fund investors.
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Markets and markets infrastructure

EC inception impact assessment on review of the Benchmark Regulation

On 18 March, the EC published an impact inception assessment on its review of the BMR which is likely to lead to a regulation amending Regulation (EU) 2016/1001 (BMR). The initiative attempts to tackle to urgent issues: (i) the transition from panel-based critical interest rate benchmarks to risk-free rates published by central banks, especially IBORs ceasing to be published prior to alternative (fallback) rates being available as well as legacy contracts continuing to refer to them rather than new replacement rates; and (ii) ensuring a level playing field in the provision and use of benchmarks. The expected impacts of the initiative include: (a) mitigating the financial stability risk posed by the cessation of IBOR panel bank rates; (b) ensuring the competitiveness of the EU financial sector that need to use foreign interest rate or FX indices to hedge portfolio exposures; (c) reduce the burden on administrators of benchmarks that are less susceptible to manipulation; (d) improve the user-friendliness of the regime; and (e) avoid the cliff edge effects of third country benchmarks ceasing to be available for EU users' hedging and investment needs. The proposal does not involve a formal evaluation of the BMR, as the final transitional periods do not expire until 1 January 2022. The deadline for comments is 15 April.
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ESMA on postponement of SFTR reporting and TR registration obligations due to Covid-19

On 18 March, ESMA issued a public statement to ensure coordinated supervisory actions on the application of SFTR, in particular, on the requirements regarding the reporting start date, as well as the registration of trade repositories (TRs) in response to the Covid-19 pandemic. ESMA recognises the impact on SFTR implementation programmes due to the constraints imposed by EU and third-country authorities, as well as the actions firms have had to take to ensure core business continuity and protect their employees' health. ESMA therefore expects competent authorities not to prioritise their supervisory actions in respect of SFTR/MiFIR reporting obligations, as of 13 April and until 13 July and to generally apply their risk-based approach in supervising in their enforcement of applicable legislation in this area in a proportionate manner. For TRs, ESMA does not consider it necessary to register any ahead of 13 April, but expects them to be registered sufficiently ahead of the next phase of the reporting regime, on 13 July, for credit institutions, investment firms, CCPs and CSDs and relevant third-country entities to start reporting as of this date. ESMA continues monitoring closely the implementation by the relevant market participants as well as the impact of the relevant measures taken with regards to Covid-19 to ensure alignment of SFTR reporting requirements and supervisory practices in the EU.
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ICMA and ISLA request delay of SFTR reporting go-live date to October 11

On 18 March the International Capital Markets Association (ICMA) and the International Securities Lending Association (ISLA) published a letter (dated 16 March) sent to ESMA requesting that they, as a matter of urgency, begin the procedure to delay the SFTR reporting go-live date to an appropriate date well outside the expected critical phase of the pandemic. ICMA and ISLA suggest 11 October, the reporting date for the third phase of SFTR reporting. This is due to the Covid-19 pandemic and its impact on personnel involved in SFTR implementation programmes, as well as pressures on firms caused by the associated surges in market volatility and volumes causing firms to doubt their capacity in ensuring compliance by the 11 April deadline. In the absence of a formal delay, they request that, as a minimum, ESMA considers equivalent measures that would mean that firms would not be expected to ensure strict compliance with SFTR reporting obligations for an appropriate period of time following the legal reporting start date. ICMA and ISLA also provide evidence from their members of challenges that Covid-19 related measures pose to SFTR implementation projects as a helpful background for ESMA's assessment.
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Working group on euro risk free rate information packs on transition to €STR and EURIBOR fallbacks

The ECB's working group on euro risk-free rates has published two information packs, (dated March 2020) one on the EONIA to €STR transition and the other EURIBOR fallbacks. The EONIA to €STR pack covers: (i) why the transition is taking place; (ii) the timeline of the transition; and (iii) key issues arising from the transition and the possible impact on products, models, legal accounting and risk management implications. The EURIBOR fallbacks pack covers: (i) the EURIBOR background context; (ii) what a fallback provision is and its main elements; (iii) why they are required; (iv) the regulatory requirements regarding the fallback provision; (v) the working group's recommendtions; (vi) risk management and accounting considerations; and (vi) other work performed by market associations. The EURIBOR fallbacks pack states that the working group plans to issue 2 consultations in Q2 2020, one on the credit spread adjustment to be added to EURIBOR fallback rates and the other on trigger events and operational considerations.
EONIA to €STR transition information pack
EURIBOR fallbacks pack

FCA statement on short selling bans and reporting in response to ESMA's threshold modification

On 17 March, The FCA issued a statement on short selling bans. The FCA explains that if an EU regulator decides to impose a ban, it notifies other EU regulators and the FCA who then consider whether to do the same to avoid short selling activity linked to particular shares simply moving to other jurisdictions where they are also traded. The FCA's standard policy is to assist other regulators. That’s said, the FCA goes on to note that it has rarely imposed its own ban on the short selling of UK shares and has never imposed a ban under the new powers given to it under the Short Selling Regulation (SSR). Therefore, whilst it cannot rule out that it may be appropriate in particular circumstances, the FCA sets a high bar on imposing any bans. The FCA also notes that ESMA had amended the threshold for the notification of short selling positions to competent authorities and confirms that it will apply this change in the UK. The FCA is now adapting its technology in order to receive this new data so until further notice, firms should report to the previous thresholds.
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ESMA require net short position holders to report positions of 0.1% and above

On 16 March, ESMA issued a temporary decision requiring the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital. ESMA consider lowering the reporting threshold an essential precautionary action to allow authorities to monitor developments in markets considering the current exceptional circumstances linked to the Covid-19 pandemic. The measure applied immediately from Monday 16 for a period of 3 months and to any natural or legal person irrespective of their country of residence, where the regulated market is within the EU.
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ISDA recommendations on compliance with EMIR Refit OTC derivative reporting requirements

On 13 March, ISDA published a summary of discussions held within its Data and Reporting EMEA Working Group on the EMIR Refit requirement for financial counterparties (FCs) to report OTC derivative contracts on behalf of both themselves and their non-financial counterparty (NFC-) clients. ISDA also address the requirement for the NFC- to provide data to the FC that it 'cannot be reasonably expected to possess.' ISDA's aim is to identify the operational challenges in complying with this requirement, which are not fully addressed in the Regulation itself, and therefore understand whether a standard approach can be developed. The document addresses: (i) the specific data the NFC- may want to provide its FC; (ii) the NFC- LEI requirement; (iii) the scope of transactions covered by the requirements; (iv) the assumption of the reporting liability when an NFC- or NFC+ changes classification; (v) alternative investment funds and UCITS classification; (vi) opting out of the requirements; and (vii) third country FCs.
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Euro risk-free rate working group consultation on Swaptions impacted by the CCP discounting transition to €STR

On 13 March, the working group on euro risk-free rates began consulting on whether it should issue recommendations regarding: (i) the voluntary exchange (or lack thereof) of a cash compensation between bilateral counterparties to swaption contracts; and (ii) conventions for new contracts traded before the transition date. This is aimed at addressing potential issues caused by swaption products with an exercise date after the €STR transition date whose value might change, but which are not covered by the CCP compensation mechanism because the contracts are bilateral, not cleared on the transition date. The deadline for comments is 3 April and the summary of responses is due to be published on 21 April.
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Payment services and payment systems

Please see the Financial Crime section for the PRA's response to the House of Commons Treasury Committee's report entitled economic crime: consumer view.

Prudential regulation

Please see the Other Development section for the ECB's 2019 Annual Report on its supervisory activities.

PRA Policy statement 6/20: review of capital regime for credit unions

On 13 March the PRA provided feedback to responses to its consultation paper (28/19) on reviewing the capital regime for credit unions, as well as its final policy on: (i) amendments to the Credit Union Part of the PRA Rulebook; and (ii) the updated Supervisory Statement (2/16) on the prudential regulation of credit unions. The PRA consulted on proposals for, inter alia, (a) a graduated rate approach for credit unions with more than £10 million of total assets and to remove the 2% capital buffer; (b) to remove the association between credit union activities/membership size and capital requirements; (c) new expectations for credit unions with a capital to assets ratio below 5% to engage more fully with the PRA; and (d) additional systems and controls requirements for credit unions with more than 15,000 members. The vast majority of respondents were fully supportive of the PRA's proposals, although some clarification on certain points was requested. It has decided not to make changes to the policy set as consulted on, although it has revised the proposed text of SS (2/16) to include amalgamation and transfer as options where a credit union no longer has a viable future. The changes in the Policy Statement and updated Supervisory Statement came into effect on the 16 March.

Policy Statement
PRA Rulebook: Credit Unions Instrument
SS (2/16)

Other developments

ECB Annual Report on supervisory activities 2019

On 18 March, the ECB published its Annual Report on how it has carried out its supervisory tasks throughout the past year. The foreword is provided by Christine Lagarde, ECB President where she summarises achievements of European banking supervision since the financial crisis as well as the challenges it still faces in 2020. The introduction takes the form of an interview with Andrea Enria Chair of the Supervisory Board, where he is asked questions on issues such as: (i) making European banking supervision more transparent; (ii) improving bank profitability; and (iii) completion of the European Banking Union. Key 2019 figures outlined by the ECB include: (1) Banks' CET1 capital ratio remained unchanged since 2018; (2) Banks' return on equity fell 1% to 5.8%; and (3) the ECB Supervisory Board took 2,356 decisions in 2019, 1,114 of these being fit and proper assessments. Areas covered in the report include: (a) Banking supervision in 2019, including statistics, and supervisory priorities and projects; (b) authorisations, enforcement and sanctioning procedures; (c) the ECB's contribution to crisis management; and (d) Cross-border cooperation and the ECB's contribution to the development of the European and international regulatory framework.
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FCA extends closing dates for open consultation papers and calls for input due to Covid-19

On 17 March, the FCA announced that it is extending the closure dates for a number of it currently open consultations and calls for input until 1st October due to the Covid-19 pandemic. The delayed consultations are: (i) CP20/4: Quarterly Consultation No 27; (ii) CP19/32: Building operational resilience: Impact tolerances for important business services; (iii) CP20/1: Introducing a Single Easy Access Rate for cash savings; (iv) CP20/3: Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations and (v) CP20/5: Consultation paper on ETF Listing: Premium to Standard Listing. The delayed calls for input are on: (a) Open Finance; and (b) Accessing and using wholesale data. The FCA have also announced delays to other publications and works that were in progress including: (1) joint PRA, FCA work to develop industry led guidance on how to integrate climate related risks into business decisions; (2) CCA review; (3) options to change its regulatory framework following duty of care feedback; and (4) GI pricing final report and consultation on remedies.
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