Key Regulatory Topics: Weekly Update 13-19 October 2023
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This week has been relatively quiet in the UK. The FCA outlined its expectations for payment account providers’ systems and controls against money mule activity and the Bank of England published a speech discussing the lessons learnt from recent banking failures. In contrast, in the EU, the European Commission has been busy publishing its 2024 work programme and adopting a package of measures to review the alternative dispute resolution framework. The EBA began consulting on RTS and guidelines under MiCAR, while ESMA published a letter and a statement to encourage preparations for a smooth transition to MiCAR.
Please see the Other Developments section for the EC’s 2024 work programme.
FOS blog post on how financial businesses should work with it to resolve complaints
On 17 October, the FOS published a blog post explaining what firms and claims management companies (CMCs) should do when a complaint is referred to the FOS, and highlighting the support the FOS provides. The FOS: (i) reminds firms of their duty to respond to customer complaints within prescribed time limits; (ii) strongly encourages financial businesses to be open to engagement with professional representatives where they have been retained on the case. The FOS urges CMCs to work with businesses and provide them with the information they need to investigate the complaint; (iii) advises firms to use its website to prepare and to use its online tool that provides a way to check the information that firms should send to it as part of a complaint or case file. When a business regularly fails to respond to information requests, the FOS may notify the regulator; and (iv) reminds firms that they still have time to proactively settle a claim with their customer once the FOS has started moving a complaint to investigation.
EC adopts package of measures to review alternative dispute resolution framework
On 17 October, the EC adopted a proposal to review the alternative dispute resolution (ADR) framework, which includes: (i) a proposed directive amending the current ADRDirective; (ii) a proposed regulation to repeal the Online Dispute Resolution (ODR) Regulation; and (iii) a recommendation addressed to online marketplaces and EU trade associations having a dispute resolution mechanism and to Member States. The objectives of the review are to: (a) make the ADR framework fit to the digital markets by covering all categories of disputes concerning EU consumer rights; (b) improve the access to ADR in cross-border disputes through the use of digital tools, assistance to consumers and traders; (c) simplify ADR procedures to all actors; including reducing reporting obligations of ADR entities and information obligations of traders whilst encouraging traders to increase their engagement in ADR claims through the duty to reply; (d) discontinue the ODR platform and replace it by user-friendly digital tools to assist consumers in finding a redress tool to resolve their dispute; and (e) incentivise online marketplaces and EU trade associations having a dispute resolution mechanism to get aligned with the quality criteria in the ADR Directive. The EC has also published: (1) a joint ADR/ODR application report 2023; (2) an evaluation on the implementation of theADR Directive; and (3) an impact assessment.
Financial Crime and Sanctions
FCA review into proceeds of fraud – detecting and preventing money mules
On 19 October, the FCA published the findings from its review of payment account providers’ systems and controls against money mule activity. Key findings include: (i) some firms are working to address the challenges of money mules by implementing a range of measures and technologies to detect and deter fraudsters from using their organisation and harming their customers for illicit gains. They have implemented proportionate approaches that use innovative solutions including facial recognition systems, device profiling and geolocation; (ii) not all firms are responding with the same focus, and some firms need to do more to tackle the problem. When firms have onboarded customers, they need to ensure that their monitoring systems are set up to detect common mule behaviours and do more to monitor inbound transactions as well as outbound; and (iii) most firms use the National Fraud Database as part of their onboarding checks and sharing information with relevant authorities using lawful gateways and where it is necessary to disrupt and detect fraud. However, where some firms identify a mule account, they do not always report this promptly on relevant reporting systems, therefore delaying notifications to other firms. In addition, some firms in receipt of fraudulent funds are not responding swiftly enough to alerts from notifying institutions. The FCA expects firms to take a proactive and proportionate approach to address the problem of money mule activity. This entails strengthening controls during onboarding, improving transaction monitoring to detect suspicious activity involving money mules, and optimising reporting mechanisms for swift action. Firms should proactively raise consumer awareness about the risks of acting as a money mule in order to protect them. The FCA will use its full regulatory tools, including enforcement action, if it identifies a firm failing to maintain proportionate and adequate systems and controls.
JMLSG revised guidance on discrepancy reporting
On 13 October, the JMLSG published a final revised version of paragraphs 5.3.129A-C of chapter 5 of Part I of its AML and CTF guidance for the financial services sector. The revisions take account of provisions on discrepancy reporting which were introduced by the Money Laundering and Terrorist Financing (Amendment) (No 2) Regulations 2022.
The revisions have been submitted to HMT for Ministerial approval.
EBA consults on guidelines and RTS under MiCAR
On 19 October, the EBA began consulting on a set of guidelines and two RTS under MiCAR: (i) draft RTS on the minimum content of the governance arrangements on the remuneration policy – sets out the main governance processes regarding the adoption and maintenance of the remuneration policy and the main policy’s elements that should be adopted; (ii) draft guidelines on the minimum content of the governance arrangements for issuers of asset-referenced tokens (ARTs) – it covers: (a) the tasks and responsibilities of the management body as well as the organisation of issuers of ARTs; (b) how issuers of ARTs should identify sources of operational risk and minimise those risks through the development of appropriate systems, controls, and procedures; (c) the arrangements to be put in place when relying on third-party entities for operating the reserve of assets, for the investment of the reserve assets, the custody of the reserve assets and, where applicable, the distribution of the ARTs to the public; and (d) the establishment of business continuity plans; and (iii) draft RTS on the approval process for white papers of ARTs issued by credit institutions – it covers: (1) the submission of an application for approval of a cryptoasset white paper; (2) the acknowledgment of the receipt and processing for approval of a white paper; (3) the assessment of completeness of the white paper and request of missing information to a white paper; (4) the information exchange between the competent authority and the ECB or other central bank, where applicable; (5) the assessment in the absence of the ECB’s or another central bank’s opinion and request of changes to a white paper; and (6) the approval of the white paper. The deadline for comments for all three papers is 22 January 2024.
JROC welcomes Open Banking Limited’s submission of two data collection frameworks
On 18 October, the Joint Regulatory Oversight Committee (JROC) announced that Open Banking Limited (OBL) has published two data collection frameworks on the themes of: (i) ‘Levelling up availability and performance’ – the data will give insight on how often outages happen and provide OBL the opportunity to investigate whether further clarification or changes to the application programme interface standards are needed. The objective is to support consumers and businesses access to high-performing and reliable services that enhance user experience and continue to build trust in the ecosystem; and (ii) ‘Mitigating the risks of financial crime’ – this new framework enhances financial crime reporting, increasing understanding of the level of fraud occurring within the open banking channel. Building on existing reporting requirements, the framework will collect data on the total open banking payments by volume and value, and the total open banking fraud volume and value each on a monthly basis. Insights from the framework will also inform the design of improved intervention tools, helping effectively mitigate risks to ensure consumers are safe. The OBL will undertake the first data collection by relying on the voluntary submissions from third-party providers and account servicing payment service providers. The submissions received under these frameworks will be shared with the PSR and the FCA as co-chairs of the JROC.
BCBS consults on banks’ disclosure of cryptoasset exposures
On 17 October, the BCBS began consulting on a set of standardised disclosure templates to support banks in meeting the prudential requirements to disclosure their exposures to cryptoassets that will apply from 1 January 2025. The consultation proposes a disclosure table for banks to provide a qualitative disclosure for their activities related to cryptoassets and the approach used in assessing the classification conditions. It also includes three templates for banks' cryptoasset exposures covering capital requirements, accounting classification of exposures and liquidity requirements for exposures. The proposed requirements will apply to internationally active banks at the top consolidated level. The proposed implementation date is 1 January 2025, in line with the new prudential requirements. The deadline for comments is 31 January 2024.
ESMA speech on being ready for the digital age
On 17 October, ESMA published a speech by Verena Ross, ESMA Chair, on ESMA's strategic initiatives in the technology and data domain. Points of interest include: (i) data-driven supervision – ESMA wishes to further strengthen its cooperation with and amongst NCAs, with common tools and methodologies. It is starting two AI related projects with NCAs in relation to monitoring market abuse and using Natural Language Processing tools to scan investment funds’ public disclosures to spot potential bad practices such as greenwashing. ESMA also intends to share its Data Platform with NCAs; (ii) MiCAR and DLT Pilot Regime – these developments provide the opportunity to explore more efficient ways to monitor markets. ESMA has launched two studies to support NCAs: one to understand the specificities of different DLT and blockchain solutions, and another, in the context of MiCAR, to explore further integrating monitoring of crypto markets at EU level. Due to MiCAR specificities and the different technologies underpinning crypto markets, the method for accessing and analysing data for market monitoring differs from the current approach under MiFIR and MAR. Therefore, NCAs will not be able to rely on existing processes and a new approach should be developed for the monitoring of cryptoassets under MiCAR; and (iii) shortening the EU settlement cycle – Ms Ross highlights two considerations that must be balanced as the work in this area develops: that EU markets remain stable and that they remain efficient and competitive globally.
ESMA clarifies timeline and encourages preparations for a smooth transition to MiCAR
On 17 October, ESMA published a letter and a statement to encourage preparations for a smooth transition to MiCAR. In the letter, addressed to the Economic and Financial Affairs Council (ECOFIN), ESMA calls on Member States to, among other things: (i) designate without delay the NCAs responsible for carrying out the functions and duties provided for under MiCAR; (ii) establish as early as possible their supervisory procedures related to the authorisation regimes set out in MiCAR, including simplified authorisation procedures for entities already authorised to provide cryptoasset services under national law; and (iii) consider limiting the optional grand-fathering period to 12-months for entities already providing cryptoasset services, should they choose to offer it in their jurisdictions. In a statement, addressed to entities providing cryptoasset services and the NCAs that will be responsible for their supervision, ESMA sets out some expectations for each from now until the end of the MiCAR transitional period. Points of interest include: (a) ESMA highlights the importance for holders of cryptoassets and current or prospective clients of cryptoasset services in the EU being aware that in addition to the risks inherent to cryptoassets, MiCAR rules on the provision of cryptoasset services will not enter into application until December 2024; (b) NCAs are encouraged to dedicate resources and align their supervisory practices with those of their counterparts across the EU to begin effective supervision from day one; (c) market participants are encouraged to begin planning towards a smooth transition and to clarify to clients the regulatory status of their ‘grand-fathered’ cryptoasset offerings; and (d) ESMA emphasises that the reverse solicitation exemption in MiCAR is to be understood as very narrowly framed and cannot be used to circumvent MiCAR.
Markets and Markets Infrastructure
Please see the Recovery and Resolution section for: (i) minutes from a CCP Resolution Liaison Panel meeting discussing HMT’s implementation of the expanded CCP resolution regime; and (ii) a draft SI that makes necessary corporate law modifications and consequential amendments to ensure the resolution regime for CCPs will function effectively.
Final compromise texts on proposals to improve MiFID II market data access and transparency
On 18 October, the Council of the EU set out final compromise texts for the legislative proposals on the: (i) Regulation on amendments to MiFIR; and (ii) Directive on amendments to MiFID II. The amendments relate to enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising the trading obligations and prohibiting receiving payments for forwarding client orders. The Council of the EU has also confirmed that its Permanent Representatives Committee has endorsed the final compromised texts. Provided the EP adopts the acts in the form agreed, the Council of the EU will then proceed to adopt the acts.
Delegated Regulation on securitisation risk retention requirements published in OJ
On 18 October, Delegated Regulation (EU) 2023/2175 supplementing the EU Securitisation Regulation with regard to RTS specifying in greater detail the risk retention requirements for originators, sponsors, original lenders and servicers was published in the OJ. The RTS, in accordance with Article 6(7) of the EU Securitisation Regulation, specify the risk retention requirements and, in particular: (i) requirements on the methods of retaining risk; (ii) the measurement of the level of retention; (iii) the prohibition on hedging or selling the retained interest; (iv) the conditions for retention on a consolidated basis; (v) the conditions for exempting transactions based on a clear, transparent and accessible index; (vi) the methods of retaining risk in case of traditional securitisations of non-performing exposures; and (vii) the impact of fees paid to the retainer on the effective material net economic interest. The Delegated Regulation enters into force on 9 November, twenty days following its publication in the OJ, whereupon Commission Delegated Regulation (EU) 625/2014 is repealed.
EC adopts proposed regulation amending BMR on scope, the use of third-country benchmarks and reporting requirements
On 17 October, the EC adopted a Regulation amending the BMR as regards the scope of the rules for benchmarks, the use in the EU of benchmarks provided by an administrator located in a third-country, and certain reporting requirements. The key elements of the package include: (i) streamlining reporting and overall regulatory burden by removing the obligation for EU benchmark users to individually verify the regulatory status of indices they wish to use as benchmarks by consulting websites and public registers. Under the proposal, it should suffice to consult the Article 36 register; (ii) recalibrating the scope of the BMR and its rules for the use of non-EU benchmarks. While the substantive rules remain the same, they will apply to smaller number of market participants. This proposal will reduce the burden associated with the registration and related supervision of administrators of non-significant benchmarks; and (iii) for EU supervised entities, such as banks, asset managers and insurance companies using benchmarks, the proposal removes the use restrictions contained in the third-country chapter of the current BMR that were identified as a barrier to the use of many non-EU benchmarks.
Implementing Decision on equivalence of Australian markets under EMIR published in OJ
On 17 October, an Implementing Decision amending Implementing Decision (EU) 2016/2272 on the equivalence of financial markets in Australia in accordance with EMIR to take account of recent developments in the financial markets in Australia was published in the OJ. The Implementing Decision updates the names of the three financial markets authorised in Australia that had previously been granted equivalence and adds a fourth financial market. The EC adopted the Implementing Decision on 13 October. The Implementing Decision will enter into force on 6 November, 20 days following its publication in the OJ.
ESMA opinion on CCP back testing requirements under EMIR
On 16 October, ESMA published an opinion on CCP back testing requirements under Article 49 of EMIR and Article 49 of Commission Delegated Regulation (EU) 153/2013.
This opinion aims to: (i) clarify CCPs back testing practices under EMIR, and in particular where back testing is performed for the purpose of core model back testing for the purpose of model validation in accordance with Article 47 of the Delegated Regulation or for margin adequacy back testing in accordance with Article 49 of the Delegated Regulation; and (ii) harmonise back testing practices across authorised EU CCPs but does not intend to limit CCPs’ freedom of modelling, nor to prescribe a specific margin model.
FCA addendum to consultation on new securitisation rules
On 16 October, the FCA published an addendum to the draft handbook text that was included in its ongoing consultation on new securitisation rules (CP23/17). The addendum relates to the due diligence requirements and institutional investor delegation provisions contained in the text of the draft securitisation sourcebook (SECN) in Appendix 1 of CP23/17, as certain policy intentions set out in CP23/17 were not reflected in the text. Changes have been made to the definition of occupational pension scheme, paragraph 4.1 of SECN (application of chapter 4) and paragraph 4.4 of SECN (institutional investor delegation). As a result of the change, the FCA has extended the consultation deadline for chapter 4 of CP23/17 by 3 weeks, until 20 November. Otherwise, the consultation period for CP23/17 will close on 30 October.
ESMA extends temporary CCP collateral emergency measures by six months
On 13 October, ESMA published a final report on draft RTS which extend for a limited period of six months the emergency measures which temporarily expand the pool of eligible collateral for all types of counterparties. Uncollateralised bank guarantees for non-financial counterparties (NFCs) acting as clearing members and public guarantees for all types of counterparties will continue to be temporarily eligible by CCPs in order to avoid potential disruption during the upcoming cold season. The temporary measures were initially adopted during the height of the energy crisis to alleviate the liquidity pressure on NFCs active on gas and electricity regulated markets that clear in EU-based CCPs. ESMA is proposing that they should now expire on 29 May 2024. The final draft RTS will be sent to the EC for endorsement and will then be subject to non-objection by the EP and the Council of the EU.
ESMA updates Q&As on MiFID II and MiFIR market structure topics
On 13 October, ESMA updated its Q&As on MiFID II and MiFIR market structure topics. ESMA has added two new Q&As in relation to access to CCPs and trading venues (TVs): (i) on the extent to which a TV can apply different fee schedules to CCPs under Article 36 of MiFIR; and (ii) under what circumstances a TV can charge new fees to a CCP that has already been granted access.
Payment Services and Payment Systems
Please see the Financial Crime and Sanctions section for the FCA’s review of payment account providers’ systems and controls against money mule activity.
Please see the Fintech section for the JROC’s announcement of Open Banking Limited’s submission of two data collection frameworks.
CPMI interim report on linking fast payment systems across borders
On 18 October, the CPMI published an interim report on linking fast payment systems (FPS) across borders which sets out considerations for governance and oversight. The interim report describes ten initial considerations resulting from a series of workshops with global stakeholders that was undertaken by the CPMI to better understand the sensitivities, complexities, and experiences in this area. The considerations can be grouped into three categories: (i) considerations 1–2 relate to the initial structural conditions that appear to create favourable conditions for effective governance. This includes strategic alignment of the involved jurisdictions and agreement on the objectives and vision of the arrangement; (ii) considerations 3–6 discuss insights related to specific governance design considerations and priorities that stakeholders have viewed as important for the coherence, scalability, business viability and inclusiveness of an FPS interlinking arrangement; and (iii) considerations 7–10 address what the special characteristics of FPS interlinking arrangements imply for the design and conduct of oversight in a multi-jurisdictional context. The deadline for comments on the report is 13 December. The CPMI intends to deliver a final report by end-2024.
CPMI report on harmonised ISO 20022 data requirements for enhancing cross-border payments
On 17 October, the CPMI published its report on harmonised data requirements for the use of ISO 20022 messages in cross-border payments. The twelve data requirements are presented as overarching data requirements across a core set of ISO 20022 messages, complementing existing market usage guidelines, with the aim of ensuring that the benefits of ISO 20022 can be realised to the maximum possible extent for cross-border payments. As such, they represent ISO 20022 data use practices that, when applied consistently, will improve the efficiency (i.e. straight through processing) of cross-border payments. The CPMI requirements are set for end-2027 with a two-year transition period between 2025 and 2027 (during which the requirements can be treated as recommendations).
Please see the Fintech section for BCBS’s consultation on banks’ disclosure of cryptoasset exposures.
EBA sets EU-wide examination programme priorities for prudential supervisors for 2024
On 19 October, the EBA published the European Supervisory Examination Programme (ESEP) for 2024, which identifies key topics for heightened supervisory attention across the EU. The EBA selected three key topics for supervisory attention for 2024 on the basis of its EU-wide risk analysis, its relevant policy work and the practical experience of competent authorities: liquidity and funding risk, interest rate risk and hedging, and recovery operationalisation. The choice of such topics was supported by structural changes, such as: (i) the end of the abundant liquidity in the system; (ii) the increased interest rate environment; (iii) the implementation of the IRRBB package in the EU; (iv) lessons learned from the spring bank failures; and (v) energy and food markets volatility. The EBA also identifies two priorities of Union-wide relevance for the 2023-2025 period: (i) monitoring and addressing financial stability and sustainability in a context of increased interest rates; and (ii) developing an oversight and supervisory capacity for DORA and MiCAR.
BoE speech on recent bank failures
On 16 October, the BoE published a speech by Sam Woods, BoE Deputy Governor for Prudential Regulation and PRA CEO, about the recent banking failures, the lessons learnt, and how the regulatory framework is working. Mr Woods considers that there is a lot of work to be done to improve and refine the regulatory regime for banks. Lessons to be learnt from recent events fall into four categories: (i) measuring risk correctly – the regulatory framework must put resilience in the places where it is needed most – and do so in a robust, credible, and fair way. The recent failures raise the question as to whether the current liquidity regulation framework adequately covers the risk of flighty non-wholesale depositors; (ii) money isn’t everything – financial resources are important, but they are not everything a firm needs to survive. The effective supervision over governance and controls, risk culture and operational resilience is also important; (iii) making a success of failure – additional tools are required to fill out the resolution framework. The PRA is exploring options with HMT to maintain continuity of access to deposits in resolution for smaller firms. Simple improvement such as ensuring electronic payouts are also being explored. Solvent exit is another technique as there are clear advantages to a more orderly, solvent wind-down for small firms. Although the process needs to be carefully planned to avoid triggering panic that ultimately causes an insolvent exit; and (iv) the right regulation for the right firm – consideration should be given as to what the recent failures might mean for the regulation and supervision of smaller firms and international branches. The PRA is considering its approach to branching and whether it can rely on the current criteria to identify branches that should be required to subsidiarise.
Recovery and Resolution
CCP Resolution Liaison Panel minutes on implementation of expanded CCP resolution regime
On 16 October, HMT published the minutes of a CCP Resolution Liaison Panel meeting that took place on 28 June. The Panel was established to allow for industry views to be shared on plans to implement the expanded resolution regime for CCPs under FSMA 2023. HMT intends to operationalise the regime through four SIs, to be in force by the end of 2023: (i) on the BoE’s power to impose a cash call on a CCP’s clearing members during a resolution – the SI would place caps on the cash call power and outlines the process where a clearing member fails to perform on its obligations under a statutory cash call. HMT confirmed that it does not envisage that the cash call will affect capital requirements; (ii) outlining the process by which the BoE will be able to defer or waive obligations imposed on a clearing member under a resolution; (iii) to mirror the Banking Act 2009 precedent and safeguard certain protected arrangements from partial property transfers and write-downs performed under a resolution; and (iv) on various consequential amendments. A draft of this SI has also been published, which we cover in a separate item below. HMT intends to then follow up with a second set of regulations covering compensation and valuation under the regime in 2024.
Draft SI: Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023
On 16 October, the draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 were published, together with a draft explanatory memorandum. The SI relates to the implementation of the special resolution regime for CCPs under FSMA 2023. The SI, broadly: (i) ensures parity with the modifications to certain aspects of company law which apply to the bank resolution regime as set out in Part 17 of, and Schedule 4 to, the Bank Recovery and Resolution (No.2) Order 2014; and (ii) makes consequential amendments more broadly to ensure that the consequences for CCPs of the use of resolution powers under Schedule 11 are consistent with the consequences that would arise under the resolution regime in the Banking Act 2009, and that necessary amendments are made to ensure that the BoE can use its new powers in a similar way to its powers under the existing regime (for example, in respect of the disclosure (by or to the BoE) of confidential information for resolution purposes). The SI is due to come into force on 31 December.
Regulatory and Reform Post Brexit
Draft Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023
On 16 October, the draft Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023 were laid before Parliament. The instrument: (i) removes references to retained EU law (REUL) throughout primary legislation and replaces the term with “assimilated law”, so that the text of primary legislation is amended.
This reflects section 5 of the REUL Act, which provides that REUL (and related terms, such as “retained EU case law”) that remains in force will be known as “assimilated law” (and related terms, such as “assimilated EU case law”) at all times after the end of 2023; and (ii) removes references to rights recognised and available in domestic law by virtue of section 4 of the European Union (Withdrawal) Act 2018 and terms such as “retained general principles of EU law” as a result of the changes made by the REUL Act to remove the EU law interpretive features applied to REUL, after the end of 2023.
Platform on Sustainable Finance and EC launch stakeholder request mechanism under EU taxonomy
On 17 October, the EC and the Platform on Sustainable Finance launched the stakeholder request mechanism relating to the EU Taxonomy Regulation. The mechanism allows stakeholders to submit suggestions based on scientific and/or technical evidence on new economic activities that could be added to the EU taxonomy or on potential revisions of technical screening criteria of existing activities. The stakeholder request mechanism will be continuously running, allowing respondents to submit their input at any given time.
On 15 December, all requests will be processed by the Platform’s Technical Working Group. After 15 December, the tool will continue to run, and a second cut-off-date will be communicated as soon as possible. The EC and the Platform on Sustainable Finance will regularly monitor the tool.
EC adopts proposal as regards time limits for the adoption of sustainability reporting standards
On 17 October, the EC adopted a proposal for a Decision amending the Accounting Directive as regards the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings. The Accounting Directive as amended by the Corporate Sustainability Reporting Directive requires in-scope companies to disclose information on a broad range of sustainability matters relevant to their businesses, which must be reported in accordance with European sustainability reporting standards (ESRS). The Accounting Directive currently sets the adoption date of the sector specific ESRS by 30 June 2024. This proposal seeks to delay this date by two years, to allow companies to focus on the implementation of the first set of ESRS that are sector-agnostic. It also, as a result, seeks to delay the date for the ESRS to be used by certain non-EU companies by two years. The proposed decision will enter into force on the twentieth day following its publication in the OJ.
FCA half-yearly complaints data
On 19 October, the FCA published its half-yearly complaints data. Key findings include: (i) in H1 2023, financial services firms received 1.88m opened complaints, an increase of 5% from H2 2022 (1.80m); (ii) the product groups that experienced an increase in their opened complaint numbers from H2 2022 to H1 2023 were: decumulation and pensions (20%), investments (18%), insurance and pure protection (6%), and banking and credit cards (3%); (iii) the home finance product group saw a 10% reduction in opened complaints from 101,333 (H2 2022) to 91,469 (H1 2023); and (iv) since H2 2016, current accounts have remained the most complained about product. The number of current accounts opened complaints increased by 2%.
BoE speech on cyber risks and operational resilience
On 18 October, the BoE published a speech by Elisabeth Stheeman, external member of the FPC, on cyber risks and operational resilience. Elisabeth Stheeman discusses: (i) how the threat of cyber-attacks has become an increasingly important consideration for maintaining financial stability in the UK. Cyber-attacks are the most prominent operational risk the FPC has been monitoring. It is also the most cited risk in the latest BoE Systemic Risk Survey; (ii) how the FPC is working with other authorities and the private sector to improve and test the financial system’s resilience to cyber risks, and how it will be continuing to improve macroprudential oversight of operational resilience as a medium-term priority; and (iii) the lessons learnt from the 2022 FPC cyber test that focused on disruptions to retail payments, which include the need to consider contingencies, prepare suitable mitigating actions, co-ordinate with other firms and financial market infrastructures, and communicate throughout the incident.
PRA statement of policy on panel appointments
On 18 October, the PRA published a statement of policy setting out is approach to appointing members to its statutory panels. The statutory panels for the PRA are the: Cost Benefit Analysis Panel, the Practitioner Panel, and the Insurance Practitioner Panel.
FCA response to Treasury Committee inquiry into sexism in the City
On 17 October, the HoC Treasury Committee published the FCA’s response to its inquiry into sexism in the City. The FCA highlights the benefits of having more diverse and inclusive firms for both the firms themselves and their customers. It considers HMT’s Women in Finance Charter to have had a significant positive effect. Signatories that the FCA has spoken to have taken their commitments seriously and have worked towards achieving their targets. However, many firms have focused on senior level targets and paid insufficient attention to the pipeline of women, which could limit progress in the future. The FCA’s 2022 multi firm review found that firms had various initiatives underway but that many firms’ strategies were generic and lacked a clear articulation of purpose. Very few firms seemed to have understood diversity and inclusion as a fundamental culture issue. Since March 2023, the FCA has reached parity between female and male representation in its senior leadership team, well ahead of its commitment in the charter. The FCA provides an overview of the significant work left to do in the sector. The gender pay gap in the financial services sector is the highest of any sector - 31.2% compared to 14.9% for the economy as a whole. The FCA considers that there is a large gap in diversity data across the financial services industry.
BoE response to independent evaluation of its use of data to support its policy objectives
On 17 October, the BoE responded to the Independent Evaluation Office’s (IEO’s) evaluation of its use of data to support its policy objectives. The BoE welcomes the recommendations in the IEO report on how it can build on what has already been achieved with respect to the three themes discussed in its review: (i) agree a clear vision for data and analytics, supported by a comprehensive strategy and effective governance; (ii) break down institutional, cultural and technological barriers to keep the BoE’s data and analytical practices in step with a changing world; and (iii) ensure staff have the support and skills they need to work effectively with data. The BoE’s Executive has agreed a refreshed high-level data and analytics strategy that describes how the BoE intends to achieve its vision and the necessary change involved. The refreshed strategy is consistent with, and informed by, the ten recommendations set out by the IEO in its report. Looking ahead, the BoE will now undertake the detailed planning needed to implement the strategy and set out a timeline for a roadmap for change, including for the technology and data architecture, and the budget to deliver the investment necessary to implement it. This will be incorporated progressively into the BoE’s current and future annual budget and planning processes, and an update will be provided in Q1 2024.
FCA speech on growth and competitiveness
On 17 October, the FCA published a speech by Nikhil Rathi, FCA Chief Executive, in which he focused on the FCA's new secondary objective to support international competitiveness and growth over the medium to long term. Points of interest include: (i) Mr Rathi sees five ingredients essential for the objective – an effective regulator, an international standard-bearer, far-reaching reforms to support a bolder risk appetite, a raised ambition on data and digital infrastructure, and the best talent; (ii) the FCA has invested in case teams over the last 3 years. Now, 97% of cases are assessed within statutory deadlines and SMCR applications take a median 40 days, 50 days ahead of deadlines. The FCA has also increased scrutiny, with 1 in 4 firms not making it through the authorisation process, up from 1 in 14 two years ago; (iii) in relation to the proposed changes to the listing regime, the FCA has seen good support for merging premium and standard listing segments into a new, single segment, with no cliff edge and generous transition arrangements. A consultation on detailed rules is coming shortly with final rules expected to be made in the first half of 2024; and (iv) earlier in 2023, the FCA brought together experts on synthetic data at a roundtable event to ensure it is possible to make the most of huge individual datasets while respecting privacy. The FCA's Synthetic Data Expert Group will publish a good practice report early in 2024.
EC 2024 work programme
On 17 October 2023, the EC published its 2024 work programme. The EC sets out a number of proposals (many of which we cover elsewhere in this update) to rationalise reporting requirements that it has either adopted with the work programme or will adopt subsequently, including: (i) a Regulation to facilitate data sharing and re-use by financial sector authorities; (ii) a Regulation amending the BMR as regards its scope, the use of third-country benchmarks and certain reporting requirements; (iii) a Decision amending the Accounting Directive as regards the time limits for the adoption of sustainability reporting standards for certain sectors and certain third-country undertakings; a Delegated Directive adjusting the size criteria for companies under the Accounting Directive; and (iv) a Directive amending the Alternative Dispute Resolution Directive to reduce current reporting requirements. The EC sets out the most significant REFIT evaluations and fitness checks that it will undertake in 2024, including a fitness check of EU consumer law on digital fairness which will: (a) evaluate the Unfair Commercial Practices Directive, the Consumer Rights Directive, and the Unfair Contracts Terms Directive; and (b) examine the adequacy of the existing EU rules in dealing with consumer protection issues such as, but not limited to, online consumer vulnerabilities, dark patterns, personalisation practices, influencer marketing, and subscription contracts. The EC also sets out a number of pending proposals on which it wants the Council of the EU and the EP to reach an agreement.
EC adopts Directive to adjust size criteria for companies under the Accounting Directive
On 17 October, the EC adopted a Delegated Directive amending the Accounting Directive as regards the adjustments of the size criteria for micro, small, medium-sized and large companies. The Delegated Directive aims to rationalise the reporting obligations by adjusting the monetary thresholds for the categorisation of companies by 25% to take account of inflation. Member States are expected to apply the new thresholds at the latest from financial year 2024, with the possibility to opt for early application for financial year 2023. The proposed Directive will enter into force three days after its publication in the OJ.
EC adopts proposal to amend ESAs and ESRB Regulations to facilitate data sharing and re-use by financial sector authorities
On 17 October, the EC adopted a proposed Regulation amending the ESRB Regulation, EBA Regulation, EIOPA Regulation, ESMA Regulation and InvestEU Regulation as regards certain reporting requirements and investment support. The proposal aims to: (i) facilitate the sharing of reported data between national and EU authorities where both authorities already have the right to collect the data. This is done in order to avoid duplicative requests to reporting entities and also to facilitate the sharing of clean or processed versions of such data; (ii) explicitly require authorities to regularly review reporting requirements, remove any redundant or obsolete ones, and keep the reporting burden to a minimum, as well as to consider reusing existing data before introducing new requirements; and (iii) allow, under strict confidentiality and data protection conditions, the sharing of data held by authorities with financial institutions, researchers, and other entities, for research and innovation purposes. The proposed Regulation will enter into force on the twentieth day following its publication in the OJ.