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Key Regulatory Topics: Weekly Update 14 – 20 January 2022

03 February 2022

IOSCO this week published a consultation on measures to address risks from digitalisation of retail marketing and distribution. Here in the UK, the FCA launched its own a consultation on strengthening financial promotion rules for high risk investments which followed the publication by HMT of its response to feedback on its consultation on cryptoasset promotions.


FCA confirms approach to TPR firms not meeting expectations

On 18 January, the FCA published a webpage detailing its approach to firms in the temporary permissions regime (TPR) which do not meet its expectations. The FCA states that the TPR is only for firms who want to operate in the UK in the long term, are getting ready for full UK authorisation, and meet the required standards. It will seek to ensure that firms, where appropriate, cannot expand their UK business while in the TPR. If firms do not voluntarily leave the TPR, the FCA will take action to remove them, which may result in the FCA contacting the firm’s home state regulator and publishing a notice in the UK. The FCA highlights four scenarios where this would apply: (i) FSMA firms that miss their landing slot; (ii) firms that fail to respond to mandatory information requests; (iii) firms that do not intend to apply for full authorisation; and (iv) firms whose authorisation application is refused. The actions the FCA will take against such firms may involve: (i) taking steps to remove the firm from the TPR; (ii) asking the firm to confirm that they have voluntarily stopped undertaking new business or, if they do not voluntarily agree to this, seeking to use FCA powers to prevent firms from undertaking new business; (iii) directing a FSMA firm to apply in a landing slot sooner than the existing landing slot; and (iv) for payments and e-money firms, requesting the firm to specify a date when they will cease to engage in new business – if they fail to do so, the FCA may specify the date. A firm may avoid these actions if they voluntarily apply to cancel their temporary permission completely and, if eligible, enter the supervised run-off mechanism within the Financial Services Contracts Regime. Firms that have had their permissions cancelled can no longer conduct regulated business in the UK, and may be committing a criminal offence if they do so.

Press release


Please see the ‘Other Developments’ section for an update on the CMA governance arrangements for open banking.

FCA final report on strategic review of retail banking business models

On 20 January, the FCA published its 2022 final report on competition in retail banking markets. This report summarises the results of the FCA’s analysis of the state of competition in the retail banking markets, updating its previous Strategic Review publication in 2018. Key findings include: (i) large banks are in a strong position but face increasing competition, in particular for Personal Current Accounts (PCAs). The gap in profitability between large banks and smaller challengers has reduced in recent years, driven by competition in mortgage prices, innovations in banking services and reduced ability to lower funding costs, with rates on customer deposits already very low; (ii) low levels of consumer engagement have historically contributed to high barriers to entry and expansion; (iii) in contrast, digital challengers have rapidly gained share in the PCA and Business Current Account (BCA) markets. They have attracted customers in part by offering innovative mobile apps which make the experience of banking easier and more convenient and help consumers manage their money. Relative to the major banks, a smaller proportion of the digital challengers’ PCAs are main accounts. This results in lower balances, lower volumes of transactions, and lower overdraft usage. These lead to lower funding benefits and less scope to generate fee income; (iv) competition in the mortgage market has intensified, which has caused yields to come down. Smaller banks and building societies have struggled to compete with larger firms in the low-risk lending segment. Some have exited altogether; others have sought yields in other segments, including higher risk areas of the market; (v) yields on consumer credit have also fallen, particularly on unarranged overdrafts; (vi) large banks did proportionately more micro-business lending under the government schemes than most other banks; and (vii) increased competition and innovation have improved outcomes for many consumers and some small businesses. The FCA will be discussing the points raised in its 2022 Final Report with firms and consumer organisations, but is keen to hear from other stakeholders before 31 March.


FCA webpage on BiFD project

On 18 January, the FCA published a new webpage on the borrowers in financial difficulty (BiFD) project, aimed at supporting those facing payment difficulties due to coronavirus. As part of this project, launched in March 2021, the FCA has been monitoring, gathering insight and acting where it identified concerns at individual firms. With the pandemic ongoing, the FCA reiterates its expectations for the treatment of customers, as set out in the Tailored Support Guidance (TSG) for mortgages, consumer credit and overdrafts. The FCA believes the TSG continues to provide an appropriate framework for lenders to support these customers, and sets out on the webpage the outcomes it wants firms to deliver. The FCA also highlights some important aspects of the TSG, but firms should consider the entirety of the TSG and the corresponding Handbook rules and guidance to demonstrate compliance. The FCA also provides its interim findings from the BiFD project, which focuses on the following topics: (i) offering appropriate forbearance; (ii) fair treatment of vulnerable customers; (iii) fees and charges; (iv) systems and processes; (v) debt advice; and (vi) training and quality assurance practices. The FCA may issue further updates on this page when it has analysed the results of all the surveys and where there are findings from other BiFD work to communicate to firms and other stakeholders. It will also collate and publish its findings in the second half of 2022.


IOSCO consults on measures to address risks from digitalisation of retail marketing and distribution

On 17 January, the International Organization of Securities Commissions (IOSCO) published a consultation paper on measures to address risks arising from digitalisation of retail marketing and distribution. IOSCO recognises that growth in digitalisation and use of social media is changing the way financial services and products are marketed and distributed. Domestic and cross border online offerings of financial services and products provide new opportunities for firms to reach potential clients and for investors to access a wide range of financial services and products more easily. However, developments in digital offerings also give rise to regulatory and investor protection challenges, spanning the whole distribution chain. In the consultation, IOSCO analyses the developments in online marketing and distribution of financial products to retail investors in member jurisdictions, both domestically and on a cross-border basis. It presents proposed toolkits of policy and enforcement measures that would help in addressing the issues and risks associated with online marketing and distribution. Proposed policy toolkit measures relate to: (i) firm level rules for online marketing and distribution, and online onboarding; (ii) responsibility for online marketing; (iii) capacity for surveillance and supervision of online marketing and distribution; (iv) staff qualification and/or licensing requirements for online marketing; (v) ensuring compliance with third country regulations; and (vi) clarity about legal entities using internet domains. Proposed enforcement toolkit measures relate to: (i) proactive technology-based detection and investigatory techniques; (ii) powers to promptly take action where websites are used to conduct illegal securities and derivatives activity and other powers effective in curbing online misconduct; (iii) increasing efficient international cooperation and liaising with criminal authorities and other local and foreign partners; (iv) promoting enhanced understanding by and collaboration with providers of electronic intermediary services with regard to digital illegal activities; and (v) additional efforts to address regulatory and supervisory arbitrage. Comments can be submitted on the proposed measures until 17 March.

EC call for advice on MCD review

On 14 January, the EBA published a letter dated 21 December 2021 from John Berrigan, EC Director General of FISMA, to José Manuel Campa, EBA Chair, regarding the call for advice from the EC to the EBA on the review of the Mortgage Credit Directive (MCD). The EC is seeking advice from the EBA on the following: (i) MCD evaluation. The EC is asking the EBA about problems related to areas excluded from the scope of the MCD, tying and bundling, as well as the availability of foreign currency loans; (ii) impact of digitalisation. More specifically, the EBA is requested to focus on the opportunities and risks presented by peer-to-peer lending platforms, and whether these should be facilitated through the MCD. The EBA also needs to consider the issues related to the MCD information disclosure rules, both at pre-contractual and advertising stages. It should also address any problems and possible risks for consumer protection arising from the use of AI systems for mortgage borrowers’ creditworthiness assessments, as well as any risks posed by the use of robo-advisers for mortgage credit granting processes; (iii) facilitating the cross-border provision for mortgages. The EBA should underline any difficulties for the use of credit databases across-borders or other obstacles for the cross-border provision of mortgage loans, how digitalisation could help facilitate cross-border provision, and whether it sees any risks from the conclusion of mortgage credit agreements fully online; (iv) financial stability. The EBA should outline whether the MCD needs to be amended to address issues it identified with respect to residential mortgages to ensure responsible lending and borrowing, as well as contribute to financial stability; (v) lessons learned from COVID. The EBA should consider whether further actions need to be taken in the context of the MCD review to address potential consumer detriment arising from the treatment of borrowers in arrears or at risk of foreclosure; and (vi) sustainability. The EBA should outline any views on possible ways to encourage the uptake of green mortgages at EU level, and on whether climate-change related risks to properties used to secure loans should be taken into consideration in the banks assessment when offering mortgage loans. The EBA is asked to deliver the advice to the EC by 30 June.


Call for advice


Companies and LLP climate-related financial disclosure regulations published

On 19 and 18 January respectively, the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 were published on, alongside explanatory memorandums. Both instruments make changes to reporting requirements in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) which were published in 2017. In particular, they both require disclosure of descriptions of climate-related risks and opportunities identified as material for an in scope entity’s business; its governance and risk management approaches to these; how these risks and opportunities impact strategy and business model; and the targets and performance indicators it applies to managing them. The first set of regulations apply to: (i) UK companies currently required to produce a non-financial information statement, being companies which have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies (‘Relevant Public Interest Entities’); (ii) UK registered companies with securities admitted to the Alternative Investment Market of the London Stock Exchange with more than 500 employees; and (iii) UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500m. The second instrument applies to UK Limited Liability Partnerships (LLPs) which have more than 500 employees and a turnover of more than £500m. Both sets of regulations enter into force on 6 April.

Companies Regulations

Explanatory memorandum

LLP Regulations

Explanatory memorandum


Please see the ‘Other Developments’ section for the FCA’s consultation on strengthening financial promotion rules for high risk investments.

HMT consultation response on cryptoasset promotions

On 18 January, HMT published a response to its July 2020 consultation on cryptoasset promotions. Of particular note: (i) HMT will act to ensure the appropriate regulation of cryptoasset promotions, broadly in line with the proposals set out in the consultation; (ii) the reform will be implemented by expanding the scope of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) to include certain cryptoassets known as ‘qualifying cryptoassets’. These will be added to the list of controlled investments in the FPO and existing controlled activities in the legislation will be amended to capture activities relating to ‘qualifying cryptoassets’; (iii) HMT believes that its approach to exemptions should be consistent with the way that they are more broadly applied in the FPO, and there is no reason to take a different approach specifically for cryptoassets. It therefore decided not to add further exemptions to the FPO; (iv) the final drafting of ‘qualifying cryptoassets’ is still under development. HMT intends to include a ‘transferability exclusion’ within the definition to ensure appropriate scope, as it will clarify the types of transferable tokens that are in scope. HMT has decided to retain fungibility in the definition, leaving non-fungible tokens out of scope, and to remove the reference to distributed ledger technology to future-proof the definition for innovations in the underlying technology that cryptoassets utilise; (v) once the amendments are in force, the promotion of qualifying cryptoassets will be subject to FCA rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to (see update above); and (vi) HMT will put in place a transitional period (approximately six months) from both the finalisation and publication of the proposed FPO regime and the complementary FCA rules.

Consultation response

Fund regulation

Please see the ‘Prudential Regulation’ section for the Delegated Regulation supplementing IFR with regard to RTS on K-DTF coefficients, and the ‘Corporate/Issuers’ section for the Companies and LLP climate-related financial disclosure regulations.

ESMA CSA on valuation of UCITS and open-ended AIFS

On 20 January, the ESMA published a press release on launching a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the valuation of UCITS and open-ended Alternative Investment Funds (AIFs) across the EU. The CSA aims to assess compliance of supervised entities with the relevant valuation-related provisions in the UCITS and AIFMD frameworks, in particular the valuation of less liquid assets, and will be conducted throughout 2022. The CSA will focus on authorised managers of UCITS and open-ended AIFs investing in less liquid assets, which are unlisted equities, unrated bonds, corporate debt, real estate, high yield bonds, emerging markets, listed equities that are not actively traded, and bank loans. The work will be done using a common assessment framework developed by ESMA, which sets out the scope, methodology, supervisory expectations and timeline for how to carry out a comprehensive supervisory action in a convergent manner. NCAs will share knowledge and experiences through ESMA to foster convergence in how they supervise valuation-related issues. One core objective is the consistent and effective supervision of valuation methodologies, policies and procedures of supervised entities to ensure that less liquid assets are valued fairly both during normal and stressed market conditions, in line with applicable rules.

Press release

Markets and markets infrastructure

HMT review of regulatory framework for CCPs and CSDs

On 17 January, HMT published a consultation on a revised regulatory framework for central counterparties (CCPs) and central securities depositories (CSDs), as part of its Future Regulatory Framework (FRF) Review. The government focuses on the following aspects of the BoE’s role: (i) powers. HMT is considering granting the BoE general rule-making powers over CCPs and CSDs, modelled on the FCA’s and PRA’s general rule-making powers in FSMA. The BoE will also be able to replace retained EU law with its own rules. Further, the BoE may be given additional investigatory and information gathering powers, powers to take enforcement action in cases of breaches, and to waive or modify rules; (ii) objectives and principles. HMT intends to put in place a revised set of statutory objectives and principles that will guide the Bank’s regulation of CCPs and CSDs. HMT proposes giving the BoE a secondary objective of facilitating innovation in the clearing and settlement services provided by the CCPs and CSDs; and (iii) accountability. HMT proposes that the BoE’s internal Financial Market Infrastructure Board, which is responsible for the majority of decision-making concerning the regulation of CCPs and CSDs, be placed on a statutory footing. HMT also wants to strengthen the BoE’s accountability and increase its engagement with external stakeholders. This consultation closes on 28 February.


ESMA methodology for mandatory peer reviews in relation to CCPs’ authorisation and supervision

On 14 January, ESMA published an updated version, dated 5 January, of the methodology for mandatory peer reviews in relation to CCPs’ authorisation and supervision under EMIR. This methodology replaces the version published on 5 January 2017. It reflects the changes to the regulatory framework for peer reviews introduced in December 2019 with EMIR 2.2 and the ESAs Review, and is based on the ESMA Peer Review Methodology. The Methodology is divided in 4 titles: (i) the first title provides an overview of the peer review framework and process; (ii) the second relates to the determination of topics for peer reviews; (iii) the third describes the peer review process; and (iv) the fourth title relates to the framework for the follow-up to peer reviews.


Payment services and payment systems

EPC consults on the euro one-leg out credit transfer arrangement rulebook

On 18 January, the EPC published a public consultation on its proposed [Instant] Euro One-Leg Out Credit Transfer ([Inst] Euro OCT) Arrangement Rulebook, and the proposed Maximum Amount for Instant Euro OCT Instructions under the [Inst] Euro OCT Arrangement Rulebook. A Euro One-Leg Out Credit Transfer (Euro OCT) is defined as an electronic payment instrument for making international euro credit transfer payments between a payment account held at a PSP established in and/or licensed to operate in a country or territory included in the SEPA geographical scope, and an account held at a Financial Institution (FI) established in and/or only licensed to operate in a non-SEPA country or territory. The Arrangement supports both incoming and outgoing Euro OCTs from the perspective of a Payee and a Payer respectively holding a payment account held at a SEPA-based Payee’s PSP and at a SEPA-based Payer’s PSP, and any related exception handling and inquiries. The Euro OCT Arrangement further supports the treatment of the following sub-types: (i) Standard Euro OCT where an instant processing is not requested by the Payer. After the receipt of the Standard Euro OCT, the actor concerned processes the Standard Euro OCT and/or makes the funds available as soon as possible or according to the arrangements agreed with the next actor in the international payment chain; (ii) Instant Euro OLO Credit Transfer (Inst Euro OCT) whereby the Payer requests an instant processing of this credit transfer. The Arrangement sets the maximum execution timelines and deadlines for such instant payments and related exception handling exclusively for the SEPA Leg, as well as the maximum transferable amount per Inst Euro OCT. The Arrangement would be optional for SEPA-based PSPs. SEPA-based PSPs interested in adhering to it, would have to support it at least in the role of a SEPA-based Payee’s PSP. The consultation will run for 90 days, until 17 April. The EPC will then review the feedback and consider concrete next steps for the proposed [Inst] Euro OCT Arrangement.


EC interpretation of the PAD regarding negative interest rates

On 17 January, the Danish Financial Supervisory Authority published a letter, dated 13 January, from the EC on the interpretation of the Payment Accounts Directive (PAD) regarding negative interest rates. The EC was asked for its view on the compatibility with the PAD of charging negative interest rates on payment accounts. TheDanish FSA posited that the PAD does not prevent credit institutions from charging negative interest rates on deposits in a payment account, whereas the Danish Consumer Ombudsman reached the opposite conclusion. The Commission explains that when the PAD was adopted, interest rates were understood as interest paid by a bank to the customer. The possibility of charging negative interest rates was “definitively not envisaged” by the co-legislators. Article 2(16) of the PAD, which defines "credit interest rate", confirms this by referring to interest "paid to the consumer in respect of funds held in a payment account". This excludes negative interest rates but “admittedly it does not, as such, ban them”. The EC reasons that the main question is whether negative interest rates could be considered as a “fee” in the sense of Article 2(15) PAD. It suggests that one could argue that the term “fee” ought to be interpreted in a broad way, given the objective of the PAD to ensure financial inclusion. Following this reasoning, negative interest rates would be regarded as a fee linked with the service of placing funds. It goes on to suggest that, on the other hand, one could argue that the legislators clearly wanted to distinguish between fees for a specific service and interest rates, which are not linked to a specific service. In this respect, the directive contains a definition of both “fees” and “credit interest rate”. Negative interest rates would not be considered as a fee since it would not be a charge paid in relation to a service. In fact, negative interest rates are only to be paid in case of a positive balance. Yet holding a positive balance on a basic account does not feature among the basic services listed in Article 17. In principle, consumers could obtain all the services covered by the Directive without holding a positive balance on their account. Such an interpretation would also support an effective monetary policy. Having examined both sides, the EC leans towards a conclusion whereby negative interest rates are not to be considered as “fees” in the sense of the PAD, and do not thus need to comply with the “reasonableness” criteria in Article 18. However, the EC states that the final assessment of this question and the final interpretation of the PAD lies with the ECJ.


EBA discussion paper on selected payment fraud data under PSD2

On 17 January, the EBA published a discussion paper on its preliminary observations on selected payment fraud data under the revised Payment Services Directive (PSD2), as reported by the industry for the years 2019 and 2020. The paper presents the main findings related to three payment instruments: credit transfers, card-based payments and cash withdrawals; and also outlines other patterns that appear to be inconclusive and that would benefit from comments and views from market stakeholders. The preliminary patterns suggest that the regulatory requirements developed in relation to payment security are having the desired effect. In almost all instances, the share of fraudulent payments in the total payment volume and value is significantly lower for transactions that are authenticated with strong customer authentication (SCA) than those that are not. The analysis also confirms that fraud is substantially higher for cross-border transactions with counterparts located outside the EEA than for those conducted inside this area, which is a known pattern of payment fraud. Comments on the discussion paper are requested by 19 April.

Discussion paper

BoE revised approach for RTGS renewal programme

On 17 January, the BoE published an updated webpage on the real time gross settlement (RTGS) renewal programme, announcing a revised implementation approach. A summary of changes and how they will affect stakeholders, alongside a technical resource document, has also been published. The new timetable follows a review in late 2021, incorporating feedback from CHAPS Direct Participants. It: (i) maintains the move to enhanced ISO 20022 messaging in spring 2023, but instead of a two-stage process with the first stage in June 2022 and the second stage in February 2023, it will now be undertaken in a single stage in April 2023. The BoE will launch a test simulator in February, with training from January. The later date for the support of enhanced ISO messaging reflects requests from the CHAPS community to provide a larger gap after the SWIFT cross-border, ECB TARGET2 and EBA Euro1 enhanced ISO go-live events in November; (ii) will launch a new, end-to-end, enhanced ISO 20022-enabled CHAPS Pilot Platform in the summer. This will allow an extended period in which CHAPS Direct Participants can test enhanced messaging, and provide greater confidence in community readiness prior to CHAPS transitioning to ISO 20022; and (iii) will introduce the new RTGS core settlement engine in spring 2024, rather than autumn 2023. This date is subject to a +/- 3 month variance which will be further refined in collaboration with industry in the coming months. As part of the broader RTGS Renewal Programme, the BoE will launch two consultations in spring. One will seek views from a wider range of current and prospective stakeholders on how RTGS can support the future of payments once the new RTGS core settlement engine has been delivered in spring 2024. It will consider the vision and direction for the service, and industry’s priorities for the BoE’s delivery of new functionality into the RTGS system thereafter. The other will propose the framework for the new RTGS/CHAPS Tariff once the renewed system is in place.

Revised approach

Summary of changes

Technical resources

Prudential regulation

Delegated Regulation supplementing IFR with regard to RTS on K-DTF coefficients

On 20 January, Delegated Regulation 2022/76 supplementing the IFR with regard to regulatory technical standards (RTS) specifying adjustments to the K-factor ‘daily trading flow’ (K-DTF) coefficients was published in the Official Journal. This Regulation provides a formula defining the adjustments to the K-DTF coefficients in the event that, in stressed market conditions, the K-DTF requirements seem overly restrictive and detrimental to financial stability. The Regulation also defines the period of “an event of stressed market condition”. The Regulation enters into force on 9 February.


Recovery and resolution

SRB priorities for 2022

On 18 January, the SRB published a press release on its priorities for 2022. The SRB highlights three key priorities for the year ahead: (i) MREL build up. Banks under the SRB’s remit have been able to raise capital and debt instruments, and thus build up further the necessary MREL buffers at record low interest rates this year. It encourages all banks to continue to build up their MREL in this favourable market; (ii) separability and reorganisation plans. For mid-sized banks, the SRB is prioritising the work on transfer tools, separability and adjustments of MREL for such transfer tools. During 2021, the SRB issued a guidance note on separability and it will continue to work on this area in 2022; and (iii) information systems and management information systems. IT and cyber risks and their management, particularly regarding the timely availability of data, must be a key priority for banks. The SRB will also continue its work on being crisis-ready. Ensuring its SPE strategy is operationalised fully is another area of focus and will hopefully help overcome the home-host friction that otherwise risks fragmenting the market and might have a negative impact on financial stability. The SRB’s heat-map on assessing resolvability was designed as a tool to monitor, benchmark and communicate banks’ progress towards full resolvability and the SRB is currently evaluating the first cross-cutting assessment based on the progress made by banks so far. A more transparent assessment of resolvability has long been a key priority for the SRB. On top of these priorities, the SRB will also continue to work with its European partners on completing the Banking Union, including finding an institutional solution for liquidity in resolution, making progress towards a common deposit guarantee system and work on a European framework for bank insolvency.

Press release

EBA confirms the continued application of COVID-19 related reporting and disclosure requirements On 17 January, the EBA confirmed the continued application of COVID-19 related reporting and disclosure requirements until further notice. Following the uncertainty over COVID-19 developments, the EBA confirmed the need to continue monitoring exposures and the credit quality of loans benefitting from various public support measures. To facilitate such monitoring, the EBA stated that the Guidelines on the reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis will continue to apply until further notice. The EBA will continue to monitor developments and will further reassess the application of the Guidelines on an annual basis and will consider repealing the Guidelines when the situation permits.

Press release

ECB opinion on daisy-chain proposal

On 17 January, the ECB published an opinion, dated 13 January, on the EC’s legislative proposal to amend the Capital Requirements Regulation (CRR) regarding the prudential treatment of global systemically important institution (G-SIIs) groups with a multiple point of entry (MPE) resolution strategy, and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities (MREL) (the “daisy-chain” proposal). In the opinion, the ECB supports the proposed regulation as it ensures better alignment with various provisions and regulations. Going forward, the ECB invites the Union legislative bodies to: (i) monitor and assess the implementation of these amendments to the CRR, and more specifically, to assess the interplay between the BRRD and the CRR; (ii) avoid global systemically important banks and G-SIIs engaging in regulatory arbitrage between single point of entry and MPE resolution strategies based on the MREL or total loss absorbing capacity (TLAC) target level. The ECB also proposed minor technical adjustments to clarify the interpretation of the legal text and to ensure consistency of terminology used in the regulation.


Structural reform

RFPT review interim statement

On 19 January, the ring-fencing and proprietary trading (RFPT) review published an interim statement providing an update on its findings ahead of the final report and recommendations. The statement focuses on: (i) financial stability. The ring-fencing regime has insulated key retail banking services such as deposits and overdrafts from the risks associated with investment banking activities and therefore provided financial stability benefits. However, these benefits have not been observed by smaller and less complex banks in the regime with limited investment banking activities. Additionally, the ring-fencing regime is not the only regime with the purpose of addressing the problem of too-big-to-fail, where the failure of a bank exposes the taxpayer to financial risk. The UK resolution regime is increasingly playing a more prominent role and providing a more comprehensive solution in progressing that objective. Whilst it could not have been foreseen, the evolving regulatory landscape throughout the last decade has resulted in two regimes that are not aligned in the way they approach their purpose of addressing too-big-to-fail, adding complexity to regulation in the UK; (ii) competition, competitiveness and customers. The evidence suggests that the ring-fencing regime has had no significant impact on competition in retail banking or its sub-markets. Commentary regarding ‘trapped’ liquidity caused by the ring-fencing regime is not supported by evidence. The ring-fencing regime has the potential to constrain the competitiveness of UK banks, but to date this impact has not been substantial. The regime creates compliance costs for firms and frictions for customers, for example where customer needs straddle the ring-fence. Some of these costs were foreseen as justifiable consequences of regulation, but others were unintended consequences; (iii) operation of the regime. The current rules have resulted in unintended consequences that create unnecessary rigidity for customers, banks and regulators. In particular, absolute restrictions on ring-fenced bodies from servicing financial institutions, operating in some geographical areas, and providing a range of banking services have resulted in a regime that is overly rigid; and (iv) proprietary trading. Classic proprietary trading is no longer an activity being systemically undertaken by banks in the UK. It is now largely being undertaken in the non-bank financial sector, often hedge funds, principal trading firms and algorithmic trading firms. This conclusion is in line with the PRA’s 2020 report. The Panel is finalising its recommendations based on the findings and will focus on: (i) improving outcomes for customers; (ii) increasing flexibility and efficiency of the regime; (iii) reducing unnecessary complexity of the regime; (iv) maintaining financial stability benefits; and (v) minimising risk to public funds from too-big-to-fail. The Panel remains on track to deliver its report to the Treasury in early 2022.


Sustainable finance

Please see the ‘Corporate/Issuers’ section for the Companies and LLP climate-related financial disclosure regulations.

Other developments

CMA governance arrangements for open banking

On 20 January, the CMA published updated Open Banking Implementation Entity (OBIE) governance arrangements following a review in 2021 that concluded that the OBIE had not been properly managed and that a lack of appropriate corporate governance was a direct contributor. The CMA – following consultation with the OBIE and the nine banks who fund the OBIE (CMA9) – has amended the arrangements setting out the composition, governance, budget and funding arrangements for the OBIE, taking into account the review’s recommendations to set out a stronger and more effective governance framework for the OBIE. The changes provide further clarity on the respective roles and responsibilities of the CMA, Trustee of the OBIE and the CMA9 as regards the governance of the OBIE as set out in the 2017 Retail Banking Market Investigation Order, and to ensure that appropriate processes and mechanisms are in place for the fulfilment of these roles.

Agreed Arrangements

FCA consults on strengthening financial promotion rules for high risk investments

On 19 January, the FCA published a consultation paper on strengthening its financial promotion rules for high risk investments, including cryptoassets. The FCA is acting to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed. The proposals relate to financial promotions for ‘high-risk investments’, which includes investment based‑crowdfunding (IBCF), peer‑to‑peer (P2P) agreements, other non‑readily realisable securities (NRRSs), non‑mainstream pooled investments (NMPIs) and speculative illiquid securities (SISs). They will also include cryptoassets when they are brought within the financial promotions regime. The FCA will consult on potential changes to the distribution rules for long term asset funds later in the year. The FCA proposes to make changes in the following areas: (i) classification of high‑risk investments. The FCA intends to rationalise its rules in COBS 4 under the terms ‘Restricted Mass Market Investments’ and ‘Non‑Mass Market Investments.’ The FCA does not propose to extend the application of its Speculative Illiquid Securities rules in this consultation, but will revisit this issue later in the year; (ii) consumer journey into high‑risk investments. The FCA is concerned that too many consumers are just ‘clicking through’ and accessing high‑risk investments without understanding the risks involved. The FCA proposes a package of measures to strengthen its existing marketing restrictions by making changes to the following areas: strengthening risk warnings, banning inducements to invest, introducing positive frictions, improving client categorisation and stronger appropriateness tests; (iii) strengthening the role of firms approving and communicating financial promotions. The FCA wants to strengthen the role of a section 21 approver as they play an important role in enabling unauthorised issuers of high‑risk investments to reach consumers. This will ensure approving firms have the relevant expertise in the promotions they approve and the overall quality of financial promotions in the market is high; and (iv) applying FCA financial promotion rules to qualifying cryptoassets. HMT has confirmed it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets (see update below). The FCA is consulting on how it will categorise these cryptoassets once they are brought into the financial promotion regime. It intends to generally apply the same rules to cryptoassets as currently apply to Non‑Readily Realisable Securities and Peer‑to‑Peer agreements. However, it does not propose that it should be possible for ‘Direct Offer’ Financial Promotions of qualifying cryptoassets to be made to self‑certified sophisticated investors. Financial promotions relating to cryptoassets will need to comply with its existing financial promotion rules in COBS 4, including the requirements for the promotion to be clear, fair and not misleading. The FCA is inviting feedback on its proposals by 23 March. It will consider all feedback before determining its final rules and, subject to the responses received, intends to confirm its final rules in summer.

Consultation paper

FCA updated guidance on its powers and procedures under the Competition Act 1998

On 19 January, the FCA published updated guidance on its powers and procedures under the Competition Act 1998. The update: (i) removes references to the FCA enforcing Articles 101 and 102 of the Treaty on the Functioning of the European Union; (ii) includes a section clarifying the FCA’s competition powers following EU withdrawal; (iii) makes clear that since April 2019 the FCA’s competition law jurisdiction extends to the provision of claims management services in Great Britain; (iv) makes certain procedural changes that reflect changes adopted by the CMA in its procedural guidance; and (v) describes the FCA’s practice of applying penalty reductions where a party obtains approval for a voluntary redress scheme. In addition to these specific changes, the FCA made minor drafting changes for clarity and/or to reflect its practical experience of investigation under the Competition Act 1998.


IOSCO final report on lessons learned from the use of global supervisory colleges

On 18 January, IOSCO published a final report on lessons learned from the use of global supervisory colleges. IOSCO states that jurisdictions have become increasingly interconnected, also as market participants make more use of technology. However, it recognises that there may be an imbalance in the level and amount of information available to regulators and differing degrees of information sharing among jurisdictions. IOSCO believes enhancements to supervisory cooperation could encourage sharing of information, including during times of market stress. The report sets out a series of good practices, covering matters such as general purpose, membership, governance, multilateral confidentiality arrangements and the cross-border operations of supervisory colleges. It is based on previous IOSCO work on market fragmentation and builds upon the experiences of IOSCO members with supervisory colleges for such entities as credit rating agencies and CCPs. The report calls for the use of ‘core-extended’ structures where circumstances allow. This arrangement would allow all relevant authorities – including those from emerging jurisdictions – to participate in information exchange about a supervised entity appropriately. Finally, the report considers sectors of securities markets where the use of supervisory colleges could be expanded; building on: (i) considerations such as interconnectedness where market participants may be doing business across multiple jurisdictions and/or conduct activities which could have spill-over effects on other jurisdictions; and (ii) new emerging areas where supervisory knowledge may not yet have been fully developed. Based on these criteria, some IOSCO members have suggested there may be merit in making use of supervisory colleges for market intermediaries, financial benchmarks administrators, crypto-asset platforms and asset management.

Final report

EC summary report on supervisory convergence and single rulebook consultation

On 17 January, the EC published a report setting out a summary of responses to its consultation on supervisory convergence and the single rulebook. Among other things, the report states that: (i) respondents assessed rather positively the impact of the European Supervisory Authorities (ESAs) on the financial system as a whole, financial stability, the functioning of the internal market, the quality and consistency of supervision, strengthening international supervisory coordination, consumer and investor protection and sustainable finance; (ii) more than 70% of the respondents consider that the EBA mandate covers all necessary tasks and powers to contribute to the stability and well-functioning of the financial system. However, in the case of the ESMA, respondents are divided equally between those that consider that ESMA has all necessary powers and those who do not; (iii) the majority of public authorities and few industry respondents considered that the current framework for industry engagement works well and that stakeholders are sufficiently consulted. However, many respondents from industry underlined the too short time given to provide feedback which does not provide for an adequate consultation of all stakeholders. Industry respondents highlighted that ESAs should intensify their interaction with the industry and adopt a more open and less bureaucratic approach; (iii) some respondents mentioned potential areas for central supervision at EU level such us ESG rating agencies, ESG data providers or EU central counterparties (CCPs); (iv) many respondents pointed out that the ESAs coordination function works in a satisfactory way. Among all the respondents one common trend for the three authorities is the importance to enhance coordination, ensure consistency among the various sectoral legislation, avoid duplication, reduce compliance costs and complexity, and streamline the existing processes (i.e. data reporting); and (v) concerning the single rulebook, the stocktaking exercise did not reveal strong support for further-reaching EU-level harmonisation across all sectoral legislation. However, respondents overwhelmingly converge in their request to better align the timing of level 2 measures with the timing for the application of level 1. The overall majority considers that technical standards, guidelines and recommendations have sufficiently contributed to harmonise the single rulebook. The main issue raised concern the timeline of the procedure.