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Key Regulatory Topics: Weekly Update 13-19 May 2022

This week, the FCA issued a policy statement on its new cancellation and variation power, which allows the FCA to more swiftly cancel or vary firms’ permissions. The FCA also published issue 69 of Market Watch which discusses firms’ arrangements for market abuse surveillance, drawing on the FCA's observations from engaging with small and medium-sized firms. In Europe, ESMA issued a public statement on implications of events in Ukraine on half-yearly financial reports and the European Supervisory Authorities published queries to the European Commission regarding the interpretation of the SFDR and the Taxonomy Regulation.


Please see the ‘Prudential Regulation’ section for the ECB’s blog post discussing the integration of Brexit banks into European banking supervision.


FCA consultation paper on expanding DAS

On 13 May, the FCA published a consultation paper on expanding the dormant assets scheme (DAS). The DAS allows banks and building societies to pay dormant monies to an authorised reclaim fund, which then puts this money towards funding good causes. The FCA has been working with HMT and Reclaim Fund Limited (RFL) to expand the scheme, and is now proposing amendments to its rules and guidance to enable insurance, pension and securities firms to contribute dormant assets to an expanded scheme. The FCA will continue to work with HMT, RFL and the industry to facilitate expansion of the DAS for investment assets and client money. It has agreed a staggered approach to expanding the DAS. This is to reflect differences between the different asset classes and their resolution processes. The deadline for responses is 17 June. The FCA hopes to finalise its proposals in July.

Consultation paper

HMT consultation on SDRP

On 13 May, HMT published a consultation on draft regulations to introduce a new statutory debt solution known as the statutory debt repayment plan (SDRP). The SDRP will be a new statutory debt solution focussed on repayment of debt, rather than debt relief, addressing a gap in the debt solution landscape. The SDRP will include a broad range of debts, including debts owed to the government and to creditors outside of financial services and will protect debtors from enforcement action, creditor contact, and interest, fees and charges on their debts while they repay them. The first part of the debt respite scheme, breathing space, was implemented in May 2021. A breathing space creates temporary legal protections from creditor action for someone in problem debt, allowing them time and space to seek debt advice and consider an appropriate debt solution. The second part of the scheme, the SDRP, is intended to serve debtors not suited to existing statutory debt solutions. By addressing these issues, the government hopes the SDRP will provide debtors with a more robust and effective route out of problem debt, and improved returns for creditors, while minimising the administrative burden of the plan on all parties involved. The government consulted on aspects of the SDRP in 2018/19, and published a response to that consultation in June 2019, setting out a basic blueprint for the scheme. This consultation on the SDRP sets out the policy development that has taken place since 2019. It seeks stakeholder views on three broad areas: (i) the draft regulations necessary to implement the SDRP; (ii) questions on outstanding policy issues and operational considerations; and (iii) a consultation stage draft impact assessment. The consultation closes on 5 August. The government aims to lay the regulations by the end of 2022.


Draft regulations


ESMA public statement on implications of events in Ukraine on half-yearly financial reports

On 13 May, ESMA published a public statement on the implications of the events in Ukraine on half-yearly financial reports. The statement provides overarching messages to issuers and auditors including: (i) a reminder of the main IFRS requirements that may be applicable in the context of Russia’s invasion of Ukraine, including in relation to impairment of non-financial assets, impairment of financial instruments and other financial risks, and loss of control; (ii) ESMA’s expectations regarding disclosures in financial statements in a number of areas, including judgements made, significant uncertainties, and going concern risks. ESMA highlights the need for issuers to provide information that is useful to users and adequately reflects the current and, to the extent possible, expected impact of Russia’s invasion of Ukraine on the financial position, performance and cash-flows of issuers. ESMA also highlights the importance of providing information on the identification of the principal risks and uncertainties to which issuers are exposed; (iii) ESMA’s expectations regarding disclosures in interim management reports. ESMA calls for consistency between the information disclosed in the interim management report and interim financial statements. ESMA recommends that issuers provide, where relevant and to the extent possible, detailed and entity specific information in their interim management reports regarding the direct and indirect impact that Russia’s invasion of Ukraine and sanctions imposed had on issuers’ strategic orientation and targets, operations, financial performance, financial position and cash-flows, measures taken to mitigate the impacts, and cybersecurity risks; and (iv) a reminder of issuers' obligations to disclose as soon as possible any relevant material information about the impact of Russia’s invasion of Ukraine on their fundamentals, prospects or financial situation in accordance with their transparency obligations under EU MAR. ESMA expects issuers (in particular their management and supervisory bodies) and their auditors to consider the messages of the statement when preparing and, where applicable, reviewing interim financial reports.

Public statement

Financial Crime and Sanctions

Financial crime has been a key area of focus for the FCA for a number of years, attracting some of the highest financial penalties, and this looks set to continue. With improvements to FCA data gathering and increased levels of intervention expected, there are a number of steps that firms can take to help guard against future supervisory or enforcement action. Please see here for our blog post on ‘What the FCA’s Business Plan and Strategy really means: financial crime’.

New FCA webpage on reporting sanctions evasions

On 17 May, the FCA published a new webpage on reporting sanctions evasion or weaknesses in sanction controls. The FCA wants to hear about sanctions evasion issues where they relate to firms on The Financial Services Register, other FCA registers, or companies with UK listed securities. The new webpage describes: (i) how to report sanctions evasions to the FCA; (ii) what the FCA wants to hear about; (iii) how to report another firm or individual; and (iv) important information regarding what happens after a firm shares information with the FCA. The FCA highlights that it operates confidentially, and so will not be able to share any action it takes on a firm’s report.


FCA Market Watch 69

On 17 May, the FCA published issue 69 of Market Watch which discusses firms’ arrangements for market abuse surveillance, drawing on the FCA's observations from engaging with small and medium-sized firms. While the topics covered apply to all firms subject to surveillance requirements under Article 16(2) of UK MAR, they may also be particularly relevant for firms with less complex business models. The topics include: (i) market abuse risk assessments. Where firms do not consider different types of market abuse, the different areas of business in which they operate, how that business is undertaken, and the different asset classes and instruments traded, they may not be able to adequately identify market abuse risks and align their monitoring programme to ensure effective surveillance. This may also be the case where firms do not review and update their systems as necessary to ensure they remain effective in the context of risks arising from changes in their business; (ii) order and trade surveillance. Whilst surveillance arrangements are improving across industry, there continues to be variance. While the FCA saw examples of comprehensive, tailored systems, accurately aligned to risk assessments, it also witnessed instances of little or no monitoring taking place; (iii) policies and procedures. While firms may be wary of being over-prescriptive, and may want to encourage initiative in their staff, the FCA notes that they may want to consider if there are benefits in creating policies and procedures that provide a level of guidance in how work should be undertaken; (iv) outsourcing. In some cases, there is a limited understanding or oversight of the surveillance taking place. Firms are reminded that where there is delegation to a separate organisation, the person delegating should have sufficient expertise and resources to oversee the services provided; and (v) front office. Firms should consider whether their market abuse training is effective and tailored to the risks associated with the desk, asset classes traded, client types and other relevant factors. Front office staff may also benefit from clear escalation policies and senior management support in helping them in making appropriate decisions. This Market Watch also covers instances where firms identify their own employees undertaking potential misconduct.

Market Watch 69

Fund Regulation

ESMA consultation on notifications for cross-border marketing and management of funds

On 17 May, ESMA published a consultation paper on draft technical standards on the notifications for cross-border marketing and cross-border management of alternative investment funds (AIFs) and UCITS. This consultation paper sets out the draft RTS under the UCITS Directive and the AIFMD to specify the information to be notified by management companies and AIFMs to the relevant national competent authorities (NCAs) when notifying their intention to carry out their activities in other member states together with draft ITS specifying the form and content of the notification letters. The closing date for comments is 9 September. ESMA expects to publish a final report by the beginning of 2023.

Consultation paper

ESMA statement for fund managers on obligations owed to investors amid Ukraine invasion

On 16 May, ESMA published a statement for fund managers on their obligations owed to investors amid Russia’s invasion of Ukraine. The statement aims to promote investor protection and convergence, and provides overarching messages to fund managers including high-level guidance on: (i) the appropriate action in case of exposures to Russian, Belarusian and Ukrainian assets, given valuation and liquidity uncertainties; (ii) the process fund managers should follow when evaluating these assets; and (iii) whether fund managers may consider using side pockets or similar arrangements to segregate these assets. ESMA expects fund managers of investment funds with exposures to assets facing liquidity issues to assess whether a fair value of these assets can still be determined and adapt the valuation without undue delay. This statement concerns in particular the obligations of: (a) authorised external AIFMs and internally managed AIFs subject to the AIFM Directive; (b) EuVECA managers subject to the European Venture Capital Funds (EuVECA) Regulation; (c) EuSEF managers subject to the European Social Entrepreneurship Funds (EuSEF) Regulation; and (d) UCITS management companies and self-managed UCITS investment companies subject to the UCITS Directive. ESMA will continue to closely monitor the situation and take or recommend any measures necessary to mitigate the impact of the Russian invasion of Ukraine on investment funds. ESMA will, where necessary, reassess any potential need to supplement the guidance provided in this statement or provide additional guidance on other issues arising from this crisis.


Markets and Markets Infrastructure

BoE speech on central clearing

On 19 May, the BoE published a speech by Christina Segal-Knowles, BoE Executive Director for Financial Markets Infrastructure, on central clearing. In the speech, Ms Segal-Knowles highlights that the BoE’s work on strengthening central clearing is a crucial part of its efforts to enhance the resilience of the UK and global financial system. Ms Segal-Knowles reflects on recent episodes of extreme market stress, and notes three areas for further work: (i) tackling the side effects without sacrificing the cure. By design, post-crisis reforms mean that in events of market turmoil, losses are crystalised promptly and risk is repriced. However, as seen in 2020 and 2022, this can mean very sharp strains on liquidity in parts of the system. Just as central counterparties (CCPs) were part of the solution when it came to counterparty credit risk, they can play a role in helping to solve the recurring liquidity risk in each recent episode of stress. Tackling the side effects will also require addressing participants’ preparedness to meet stress margin calls. While CCPs can play a part in the solution, this is not something CCPs can solve on their own. The BoE will need to take a hard look at the ability of non-banks to insure against severe but plausible liquidity stress; (ii) the past is not always a good guide to the future. Ms Segal-Knowles provides examples of how the markets for physical commodities can behave in unexpected ways. She explains that CCPs’ models and regulation are designed based on history and CCPs design stress scenarios to prepare for extreme but plausible events. The BoE needs more work done on what to do about the implausible; and (iii) structural factors. Underlying market structures matter. CCPs, who are in the risk management business, can help with this by understanding and managing the markets in which they operate. This includes client positions and the role of physical delivery. Looking ahead, communication between exchanges and CCPs, and better sight of OTC markets by exchanges and CCPs will be important. Ms Segal-Knowles then mentions the path ahead. As lessons are learnt from recent volatility episodes, the BoE should look to how CCPs can continue to be part of the solution by learning and adapting. The BoE needs to ensure that CCPs can continue to operate cross-border with appropriate supervision and regulation that gives both home and host regulators confidence.


ESMA final report on possible extension of transitional period under EU Crowdfunding Regulation

On 19 May, ESMA published a final report providing technical advice to the EC on the possible extension of the transitional period under Article 48(3) of the EU Crowdfunding Regulation (ECSPR). Article 48 (1) of the ECSPR allows crowdfunding service providers to continue, in accordance with the applicable national law, to provide crowdfunding services that are included within the scope of the ECSPR until 10 November or until they are granted an authorisation pursuant to Article 12 of the ECSPR, whichever is sooner. Article 48(3) of the ECSPR provides that the EC, after consulting ESMA, will assess whether an extension of the transitional period set out in Article 48(1) is desirable. While an extension of the transitional period would delay the application of harmonised investor protection rules, it appears that the risks at stake for the European crowdfunding market as a whole are significant if no extension is implemented. For this reason, ESMA supports granting the extension of the transitional period. In addition, ESMA notes that it seems likely that a number of crowdfunding providers will not be authorised pursuant to the ECSPR before 10 November, and that these providers will consequently need to put their business activities on hold while continuing to bear their fixed operating costs. The interruption of existing crowdfunding services may also affect investors, including non-sophisticated investors, who invested in crowdfunding projects offered on platforms of crowdfunding service providers benefiting from the transitional period. At the same time, ESMA is of the view that such extension shall be designed (i) to avoid that it triggers any further unjustified delay in the transition to the ECSPR, while (ii) ensuring that no existing crowdfunding provider with a pending authorisation request ends-up getting its activities suspended. ESMA suggests that the EC explores the possibility to extend the transitional period only to the benefit of crowdfunding service providers currently operating under national law and that have applied for authorisation pursuant to the ECSPR before the end of the current transitional period. It suggests that the extension applies to crowdfunding providers that have applied for authorisation pursuant to the ECSPR by 1 October.

Final report

ESMA final report on highly liquid financial instruments for CCP investment policies under EMIR

On 19 May, ESMA published a final report, dated 12 May, on highly liquid financial instruments for the investment policies of central counterparties (CCPs) under EMIR. ESMA was mandated to submit a report to the EC on whether the list of financial instruments that are considered highly liquid with minimal market and credit risk for CCP investments, in accordance with Article 47 of EMIR, could be extended and whether that list could include one or more money market funds (MMFs) authorised in accordance with the Money Market Funds Regulation (MMF Regulation). ESMA concludes that further work is to be done to determine whether to extend the list of eligible financial instruments to certain public entities and potentially to covered bonds. ESMA also concludes that it would be premature to allow CCP investments in MMFs, as no category of MMFs currently meets all the conditions that define highly liquid financial instruments. The forthcoming review of the MMF Regulation is expected to assess possible changes to the regulatory framework that might make EU MMF adequate for CCP investments. ESMA will pursue further work within the CCP Supervisory Committee to ensure a common supervisory approach regarding CCP investment practices. The report has been submitted to the EC. ESMA reserves the right to propose potential changes to the relevant RTS or additional implementing guidance such as Q&As or opinions, if and when necessary.

Final report

Delegated Regulations amending RTS on clearing and trading obligations published

On 17 May, two Commission Delegated Regulations amending RTS regarding the transition to new benchmarks referenced in certain OTC derivative contracts, were published in the OJ. These Delegated Regulations focus on the clearing obligation and on the derivative trading obligation under EMIR and MiFIR respectively. These are: (i) Delegated Regulation 2022/749 amending the RTS in Delegated Regulation (EU) 2017/2417 as regards the transition to new benchmarks referenced in certain OTC derivative contracts. These RTS specify the classes of OTC derivatives denominated in Euro, Pound Sterling and US Dollar subject to the derivatives trading obligation referred to under MiFIR; and (ii) Delegated Regulation 2022/750 amending the RTS in Delegated Regulation (EU) 2015/2205 as regards the transition to new benchmarks referenced in certain OTC derivative contracts. These RTS specify the classes of OTC interest rate derivatives denominated in Euro, Pound Sterling, Japanese Yen and US Dollar that are subject to the clearing obligation under EMIR. These Delegated Regulations entered into force on 18 May.

Delegated Regulation 2022/749

Delegated Regulation 2022/750

EBA consults on NPL transaction data templates

On 16 May, the EBA published a consultation paper on draft ITS specifying the templates to be used by credit institutions for the provision of information referred to in Article 15(1) of the Non-Performing Loans (NPL) Directive. The objective of the draft ITS is to provide a common standard for NPL transactions across the EU, enabling cross-country comparison and thus reducing information asymmetries between sellers and buyers of NPL. The data templates will be used by credit institutions to provide detailed information on their credit exposures in the banking book to credit purchasers for the analysis, financial due diligence and valuation of a creditor’s rights under a non-performing credit agreement, or the non-performing credit agreement itself. The draft ITS are built around the templates to be used for the provision of loan-by-loan information regarding counterparties related to NPL, contractual characteristics of the loan itself, any collateral and guarantee provided with the associated enforcement procedures and the historical collection and repayment schedule of the loan. The draft ITS set different information requirements depending on the size of NPL, the nature of the borrower and whether the loan is secured or not. The deadline for comments is 31 August. Following the consultation period, the draft ITS will be finalised and submitted to the EC by the end of 2022.

Consultation paper

EBA final report on draft RTS on disclosures and requirements for crowdfunding service providers

On 13 May, the EBA published a final report, dated 29 April, on draft RTS on credit scoring and pricing disclosure, credit risk assessment and risk management requirements for crowdfunding service providers under the EU Crowdfunding Regulation. The EBA has developed these draft RTS with the view to addressing the potential information gap between crowdfunding service providers and investors, through the disclosure of an adequate amount of information. The draft RTS, set out in section 3 of the final report, cover: (i) the elements, including the format, that are to be included in the description of the method to calculate credit scoring and to suggest loan pricing; (ii) the information and factors that crowdfunding service providers need to consider when carrying out a credit risk assessment and conducting a valuation of a loan; (iii) the factors that a crowdfunding service provider must consider when ensuring that the price of a loan it facilitates is fair and appropriate; and (iv) the minimum contents and governance of the policies and procedures required for information disclosure and of the risk management framework for credit risk assessment and loan valuation. The draft RTS will be submitted to the EC for endorsement, following which they will be subject to scrutiny by the EP and the Council before being published in the OJ.

Final report

Payment Services and Payment Systems

HMT response to consultation on access to cash

On 19 May, HMT published a summary of responses to its previous July 2021 consultation paper on access to cash. The document summarises the responses received to the consultation and sets out HMT’s planned approach to legislating for access to cash in the Financial Services and Markets Bill. HMT intends to designate firms for the purpose of ensuring continued access to cash across the UK. HMT will designate the largest banks and building societies, using the criteria set out in the consultation paper. In considering firms’ share of the current account market, HMT intends to be able to consider market share both in terms of the number of accounts, and the value of the deposits in those accounts. In line with the consultation and the responses received, HMT will have powers to specify geographic baselines for reasonable access to cash withdrawal and deposit facilities across the UK. The FCA will be established as the lead regulator for retail cash access and will be given appropriate powers for ensuring that designated firms continue to provide deposit and withdrawal facilities across the UK. The FCA’s powers will allow it to address cash access issues at both a national and local level. The FCA will also have responsibility and powers to monitor and enforce compliance by designated entities on any cash access requirements. It is intended that the FCA’s powers will be broadly consistent with its existing regulatory toolkit for other regulated activities. Additionally, the FCA will be given appropriate powers to obtain information from designated firms and other organisations involved in the provision of cash facilities.

Summary of responses

FCA updates webpage on Linked Services List

On 18 May, the FCA updated its webpage on its Linked Services List, which lists the most representative services linked to payment accounts that are subject to a fee in the UK, and which the FCA is required to maintain and publish under the Payment Accounts Regulations 2015 (PARs). The FCA provides more information on stakeholder feedback to its review and subsequent decision in April not to update the list. Key points from the feedback include: (i) any service linked to a payment account and subject to a fee is potentially within scope of the Linked Services List. Although there are some services that have been highlighted in the responses received that potentially fall in scope, the FCA does not consider any of these are appropriate to add or remove at this time and the current terms and definitions remain suitable. On services like cancelling cheques, the FCA notes that cheques remain an established payment method that can incur significant fees in comparison to other account services; (ii) providers of payment accounts do not need to take any action. Under the PARs, payment service providers that offer payment accounts to consumers must use the terminology in the Linked Services List in certain information and documentation, where applicable; and (iii) the PARs originally required the FCA to use the standardised terminology set out in RTS adopted by the EC in the published list, where applicable. This requirement no longer applies following the UK’s withdrawal from the EU. The next review of the Linked Services List will be within four years, by April 2026.


Prudential Regulation

ECB provides update on desks mapping review

On 19 May, the ECB published a blog post by Andrea Enria, ECB Supervisory Board Chair, as part of the ECB's desks-mapping review, discussing integrating Brexit banks into the European banking supervision. Mr Enria provides a reminder that from the EU’s perspective, the UK is now a third country. He explains that after Brexit, several international banks decided to relocate business from London to subsidiaries in the euro area - standalone EU legal entities subject to supervision under the Single Supervisory Mechanism (SSM entities). The ECB therefore launched a desks-mapping review, covering booking and risk management practices across trading desks active in market-making activities, treasury and derivative valuation adjustments. This is part of the supervisory work aimed at ensuring that third-country subsidiaries have adequate governance and risk management capabilities and do not operate as empty shells. Mr Enria discusses the results of the first phase of the review, launched in spring 2020. This found that the incoming banks do not yet retain full control of their balance sheets, as prescribed in the ECB’s 2018 expectations. Based on a quantitative assessment of the materiality of the prudential risks originated by the SSM entities’ trading desks, the ECB concluded that 21% of the 264 desks assessed during the first phase warranted targeted supervisory action. For the desks identified as material, the ECB will issue individual binding decisions to the incoming banks. These decisions may require the bank to: (i) appoint a head of desk within the euro area legal entity with clearly defined reporting lines and a compensation structure linked to the performance of that entity; (ii) ensure the desk has the adequate infrastructure and number and seniority of traders to manage risk locally; (iii) establish a solid governance and internal control framework of remote booking practices with parent affiliates; and (iv) ensure limited reliance on intragroup hedging.

Blog post

EC adopts Delegated Regulation on RTS on emerging markets and advanced economies

On 17 May, the EC adopted a Delegated Regulation with regard to RTS on emerging markets and advanced economies under the CRR. The RTS identify the countries that are considered advanced economies for the purpose of identifying the appropriate risk weight to capture equity risk under the market risk framework. Under the RTS, advanced economies include: (i) EU member states; (ii) overseas countries and territories that have special relations with Denmark, France or the Netherlands; (iii) third countries, which are parties to the Agreement on the European Economic Area; and (iv) Australia, Canada, Hong Kong, Japan, Mexico, New Zealand, Singapore, Switzerland, the UK and the US. All countries not listed should be regarded as emerging markets. The Council and the EP will now scrutinise the Delegated Regulation. If neither object, it will enter into force 20 days after its publication in the OJ.

Delegated Regulation

EBA peer review report on supervision of NPE management

On 17 May, the EBA published the conclusion of its peer review on the supervision of non-performing exposures (NPE) management. The peer review focused on the supervision of management of NPE by prudential and consumer protection authorities, including the implementation of the EBA guidelines on the management of non-performing and forborne exposures, and aimed at understanding the readiness of national competent authorities (NCAs) (and, to the extent possible, credit institutions) for dealing with potential post-Covid-19 NPE increases. The analysis suggests that NCAs applied a risk-based approach to the supervision of NPE management. The rigour and comprehensiveness of the supervisory review and supervisory resources allocated to these tasks by NCAs is in line with the magnitude of the NPE level in the jurisdiction or institutions. The findings also suggest that the EBA guidelines have been largely implemented by the NCAs and applied in their supervisory practices. No significant concerns regarding NPE supervision practices were identified by the review. However, the report makes a number of general recommendations for further improvements. It also includes recommendations to the EBA to incorporate a number of identified best practices into the guidelines on management of non-performing and forborne exposures, when the guidelines are next reviewed.


Recovery and Resolution

ESMA launches four consultations on CCPRRR

On 19 May, ESMA published four consultation papers on its proposed guidelines relating to the central counterparty (CCP) recovery and resolution regime introduced by the Regulation on the recovery and resolution of CCPs (CCPRRR). ESMA is consulting on: (i) draft guidelines on the assessment of resolvability under Article 15(5) of CCPRRR (dated 12 May) (Guidelines 1). ESMA, in close cooperation with the ESRB, is required to issue guidelines by 12 August to promote the convergence of the resolution practices regarding the assessment of the 26 matters set out under Section C of the Annex of CCPRRR that the resolution authorities are to consider when assessing the resolvability of a CCP; (ii) draft guidelines on the types and content of the provisions of Cooperation Arrangements under Article 79 of CCPRRR (Guidelines 2). Article 79(4) CCPRRR mandates ESMA to develop guidelines specifying the types and content of the provisions included in cooperation arrangements between authorities of member states and third-country authorities to ensure effective planning, decision-making and co-ordination in respect of internationally active CCPs; (iii) draft guidelines on the summary of resolution plans under Article 12(7)(a) of CCPRRR (Guidelines 3). These guidelines provide resolution authorities with guidance as to the type of information that should be included in the summary (and a template of the summary) that would be shared with the CCP in accordance with Article 12(8) of the CCPRRR; and (iv) draft guidelines on written arrangements and procedures for the functioning of resolution colleges (Guidelines 4). These guidelines relate to the content of written arrangements between members of resolution colleges under the CCPRRR and the draft Commission Delegated Regulation relating to RTS specifying the content of the written arrangements and procedures for the functioning of the resolution colleges. For each consultation, ESMA will consider the feedback received in Q3 and expects to publish the guidelines and the final report by Q4. The deadline for responses to all consultations is 1 August.

Guidelines 1

Guidelines 2

Guidelines 3

Guidelines 4

ESMA final reports on RTS and guidelines under CCPRRR

On 16 May, ESMA published six final reports on RTS and guidelines on the central counterparties (CCPs) resolution regime under the CCP Recovery and Resolution Regulation (CCPRRR). The final reports, all dated 12 May, include: (i) guidelines on the application of the circumstances under which a CCP is deemed to be failing or likely to fail (Article 22(6) of CCPRRR) (Guidelines 1); (ii) draft RTS on resolution colleges (Article 4(7) of the CCPRRR) (RTS 1); (iii) draft RTS on the content of CCP resolution plans (Article 12(9) of CCPRRR) (RTS 2); (iv) guidelines for the methodology to value each contract prior to termination (Article 29(7) of the CCPRRR) (Guidelines 2); (v) draft RTS specifying the requirements for independent valuers, the methodology for assessing the value of the assets and liabilities of a CCP, the separation of the valuations, the buffer for additional losses to be included in provisional valuations and the methodology for carrying out the valuation for the purpose of the ‘no creditor worse off’ principle (Articles 25(6), 26(4) and 61(5) of CCPRRR) (RTS 3); and (vi) draft RTS on safeguards for clients and indirect clients (Article 63(2) of CCPRRR) (RTS 4). The EC now has three months to decide whether to endorse the proposed RTS under a delegated regulation. ESMA will translate the guidelines into all official languages of the EU, and competent authorities must inform ESMA of whether they comply or intend to comply, or do not comply and do not intend to comply together with their reasons for non-compliance within two months from the date of publication of the guidelines in all official EU languages on ESMA's website.

Guidelines 1



Guidelines 2



Sustainable Finance

ESAs publish queries to EC on SFDR and Taxonomy Regulation interpretation

On 13 May, the Joint Committee of the European Supervisory Authorities (ESAs) published a document setting out various queries for the EC regarding the interpretation of the SFDR and the Taxonomy Regulation. The ten questions focus on: (i) principal adverse impact (PAI) disclosures, and whether a financial market participant is able to not consider PAI at entity level but nevertheless consider PAI under Article 7 of the SFDR for some of the financial products it manages; (ii) financial advisers, disclosures of PAI, recommendations and advices regarding financial products; (iii) the transparency of the integration of sustainability risks and rules for products no longer made available; (iv) good governance practices, including regarding financial product investing solely in government bonds; and (v) the scope of Articles 5 and 6 of the Taxonomy Regulation.



FCA policy statement on new cancellation and variation power

On 19 May, the FCA published a policy statement on changes to its Handbook and Enforcement Guide to reflect its new cancellation and variation power under the Financial Services Act 2021, which allows the FCA to more swiftly cancel or vary firms’ permissions, without their consent, when it appears to the FCA that they are carrying on no FCA-regulated activities within the scope of those permissions. The FCA will provide a firm with two warnings if the FCA believes the firm is not using its regulatory permission, and will then be able to cancel the permission, or change it, 28 days after the first warning if the firm has not taken appropriate action. The FCA previously consulted on the changes relating to the power, which is set out in Schedule 6A to FSMA, in September 2021. It confirms having now made the changes it consulted on, with some minor modifications. The FCA also confirms that it will exercise the discretion proportionately, having regard to all relevant facts and circumstances and the risks its statutory objectives are intended to minimise. The changes only apply to firms authorised or deemed, under the temporary permissions or supervised run-off regimes, to be authorised by the FCA under Part 4A of FSMA. They do not apply to firms authorised otherwise than under Part 4A of FSMA, for example payment service providers or electronic money issuers. The text of the final changes is set out in Part 4A Permission (Own-Initiative Variation and Cancellation) Instrument 2022. This instrument came into force on 19 May. FCA-authorised firms that are not carrying on, or no longer carry on, any FCA-regulated activity should consider asking the FCA to cancel that permission. Similarly, FCA-authorised firms that no longer carry on particular regulated activities within the scope of their permissions should consider asking the FCA to remove those activities. The new powers support the FCA’s ‘use it or lose it’ initiative and will strengthen consumer protection by reducing the risk of consumers misunderstanding or being misled about their exposure to financial risk and how much consumer protection they have.

Press Release

Policy statement