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Key Regulatory Topics: Weekly Update 16 - 21 Dec 2022

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As the year draws to a close, regulators have been busy publishing their last reports of the year. HMT published its AML/CFT supervision report for 2020-2022, the Joint Regulatory Oversight Committee issued an update on the future of Open Banking, and the Bank of England published its 2022 annual report on its supervision of FMIs. In addition, the FCA updated its information for firms webpage on the consumer duty. Meanwhile in Europe, ESMA published numerous updated Q&As, including on the DLT Pilot Regime Regulation, the PRIIPs KID, and the application of the AIFMD. The Council of the EU also published the texts on the proposed amendments to MiFIR and MiFID II.

Please note that the next update will be published on Friday 6 January 2023, covering developments from 22 December – 5 January. We wish you all a restful and healthy holiday period.

Consumer/Retail

ESAs update Q&As on PRIIPs KID

On 21 December, the Joint Committee of the ESAs published an updated version of its Q&As on the PRIIPs key information document (KID). The document includes Q&As that relate to the amendments introduced by Commission Delegated Regulation (EU) 2021/2268 that are applicable on 1 January 2023. As some of the Q&As concerned requirements that were amended by Commission Delegated Regulation (EU) 2021/2268, the Q&As needed to be revised or deleted. These revisions or deletions have been published in the 21 December version of the Q&As. The revised Q&As include the following new sections: (i) performance scenarios; (ii) derivatives; (iii) PRIIPs with a recommended holding period of less than one year; (iv) multi-option products; and (v) methodology of calculation of costs.

Q&As

FCA updates consumer duty webpage

On 16 December, the FCA updated its information for firms webpage on the consumer duty. The updates contain additional content on some of the key topics the FCA has been receiving queries on, including: (i) the FCA’s expectations for outcomes monitoring; (ii) confirmation that the consumer duty will not apply retrospectively; (iii) requirements for firms seeking authorisation. The FCA explains that as authorisation assessments are forward-looking, from February 2023, firms applying for the first time will have to prove they can comply with the consumer duty; (iv) information on the application of the consumer duty to non-UK firms and non-UK customers; (v) information sharing in the distribution chain, and how the duty applies throughout the distribution chain; and (vi) clarifying the scope of the consumer duty. The FCA has set out that it will be publishing a package of portfolio and sector-specific letters to firms early in 2023. These will set out the FCA’s expectations for implementation, and will reflect findings from its review of firm implementation plans.

Webpage

Fees/Levies

FOS consultation on plans and budget for 2023/24

On 16 December, the FOS published a consultation paper on its proposed plans and budget for 2023/24. The FOS is seeking responses on the projected volumes of complaints and the types of issues expected. In 2023/24, the FOS expects to receive 183,000 complaints, and anticipates resolving 196,000 complaints. Currently, the FOS has yet to see a significant increase in complaints related to cost of living pressures but it is mindful that customers are more likely to complain during times of financial uncertainty. The FOS is also seeking views on funding proposals. Due to the current economic climate and the pressures that financial businesses are under, the FOS is proposing to freeze the compulsory jurisdiction levy and case fees at the same rates as 2022/2023, with no inflationary increase. The deadline for comments is 31 January 2023. The FOS will publish its final plans and budget for 2022/23 by 31 March 2023.

Consultation Paper

Financial Crime and Sanctions

EC adopts Delegated Regulation amending list of high-risk third countries under MLD4

On 19 December, the EC adopted a Delegated Regulation amending the list of high-risk third countries with AML and CTF deficiencies produced under Article 9(2) of the MLD4. The Delegated Regulation will amend the Annex to Delegated Regulation (EU) 2016/1675 by adding to the table I of the Annex the following third countries that have been identified as having strategic AML/CTF deficiencies: the Democratic Republic of the Congo, Gibraltar, Mozambique, Tanzania, and the United Arab Emirates. The following third countries will be removed from the table in the Annex as they no longer present strategic AML and CTF deficiencies: Nicaragua, Pakistan, and Zimbabwe. The Delegated Regulation will now be submitted to the Council of the EU and EP for approval. The Delegated Regulation will then enter into force twenty days after its publication in the OJ.

Delegated Regulation

HMT AML/CFT supervision report 2020-22

On 19 December, HMT published its AML/CFT supervision report 2020-22. The report provides information about the performance of AML/CTF supervisors between 6 April 2020 – 5 April 2022, fulfilling HMT’s obligation under section 51 of the MLRs to publish a report on supervisory activity. The report includes supervisory and enforcement data on both the statutory, and Professional Body Supervisors, highlighting notable changes in supervisory activity and enforcement activity that have occurred over the past two years. This report combines supervisory and enforcement data for both the 2020-2021 period and the 2021-2022 period, to address delays in reporting that developed during the pandemic. The report highlights that: (i) in the relevant reporting periods, the FCA issued seven fines under the MLRs and FSMA for a total sum of over £500m; (ii) during the 2021-22 reporting period, the FCA brought its first criminal prosecution of a regulated firm under the MLRs; and (iii) the FCA currently has 38 AML investigations open, and 75 investigations open into suspicions of insider dealing. It has also submitted over 650 SARs to the National Crime Agency over the past two years.

Report

Fintech

Please see the ‘Markets and Markets Infrastructure’ section for the BoE’s 2022 annual report on its supervision of FMIs.

BCBS final standard on prudential treatment of cryptoasset exposures

On 16 December, the BCBS published a document setting out its final standard on the prudential treatment of cryptoasset exposures, which will be implemented by 1 January 2025. The document sets out a short summary of the structure of the finalised standard, a description of the key elements that were changed relative to the proposal in the second consultation on the standard in June, a description of key elements of the proposal that the BCBS intends to closely monitor in the near term, and the text of the standard itself, in the form of a new chapter of the consolidated Basel Framework. Changes relative to the proposal in the second consultation include: (i) infrastructure risk add-on. The BCBS has agreed to replace this with a more flexible approach that allows authorities to initiate and increase an add-on based on any observed weaknesses in the infrastructure that underlies specific cryptoassets; (ii) basis risk test, redemption risk test and the supervision/regulation requirement. The BCBS has decided not to implement the basis risk test at this time; (iii) exposure limit. The proposed requirement for banks to keep their aggregate exposures to Group 2 cryptoassets below a threshold of 1% of their Tier 1 capital has been retained in the final standard, subject to certain modifications; (iv) responsibility for assessing the classification conditions. Under the proposal in the second consultation, banks were required to assess their cryptoassets against the classification conditions and seek prior supervisory approval to finalise the classification. The required process has been modified in the final standard to remove the supervisory pre-approval element. Instead, banks are required to notify supervisors of classification decisions, and supervisors will have the power to override these decisions if they disagree with a bank’s assessment; and (v) custodial assets. The standard has been revised to clarify which elements are applicable to custodial services provided by banks.

Final Standard 

ESMA Q&As on DLT Pilot Regime Regulation 

On 16 December, ESMA published its first set of Q&As on the implementation of the DLT Pilot Regime Regulation. The purpose of the Q&As is to promote common supervisory approaches and practices in the application of the DLT pilot regime in relation to regulatory data reporting, trading and settlement topics. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of the CSDR, MiFID II, and MiFIR in the DLT pilot regime. The following topics are covered by these Q&As: (i) transaction reporting; (ii) financial instrument reference data; and (iii) order record keeping. ESMA will review these Q&As on a regular basis to update them where required and to identify if, in a certain area, there is a need to convert some of the material into ESMA guidelines and recommendations.

Q&As

Fund Regulation

ESMA final report on notifications for cross-border marketing and cross-border management of AIFs and UCITS

On 21 December, ESMA published a final report on draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITS. The draft RTS contained in the report specify the information to be provided by management companies and AIFMs wishing to carry out their activities in host Member States. The draft ITS contain the templates to be used by management companies, UCITS and AIFMs to notify their intention to carry out their activities in host Member States and specify the procedure for the communication of information between competent authorities. The purpose of the draft technical standards is to facilitate the process for notifying cross-border marketing and management activities in relation to UCITS and AIFs, as well the cross-border provisions of services by fund managers, by standardising the content and the format of the information to be provided by management companies, UCITS, and AIFMs. The draft technical standards have been submitted to the EC for adoption within three months. Following their adoption, the Delegated and Implementing Regulations will then be subject to the non-objection of the EP and of the Council of the EU.

Final Report 

ESMA updates Q&As on application of AIFMD 

On 16 December, ESMA updated its Q&As on the application of the AIFMD. ESMA has updated a question under the scope section of the Q&As regarding managers of SPACs. ESMA last updated the Q&As in July. 

Q&As

Markets and Markets Infrastructure

Council of the EU publishes texts on proposed amendments to MiFIR and MiFID II

On 21 December, the Council of the EU published the texts (dated 16 December) of its general approach on the proposed Regulation and Directive amending MiFIR and MiFID II. The texts include: (i) a proposal for a Regulation amending MiFIR, as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting; and (ii) a proposal for a Directive amending MiFID II on markets in financial instruments. The proposals aim to empower investors, in particular smaller and retail investors, by enabling them to access the necessary market data to invest in shares or bonds more easily, and by making EU market infrastructures more robust. The proposed amendments are also intended to increase market liquidity, making it easier for companies to get funding from capital markets. Alongside these texts, the Council of the EU also published an ‘I’ item note inviting its Permanent Representatives Committee to agree on the text of the mandate for negotiations with the EP, and to invite the Presidency to start negotiations with the EP on the basis of this general approach, with a view to reaching an agreement at first reading. The Council of the EU announced it had agreed a mandate to start negotiations with the EP on the proposed Regulation and Directive amending MiFIR and MiFID II on 20 December.

Proposal amending MiFIR

Proposal amending MiFID

‘I’ item note

Press Release

Member States agree position to revise EU rules on CSDs

On 20 December, the Council of the EU announced that EU Member States had settled their negotiating position on a proposed update of the CSDR. The planned review aims to make EU securities settlement more efficient by simplifying requirements and clarifying authorisation processes, among other things. Now that a negotiating position has been reached, the Council of the EU can start negotiations with the EP to agree on a common text. The EP is still in the process of adopting its position.

Press Release

General Approach

ESMA publishes guidelines for reporting under EMIR

On 20 December, ESMA published a final report containing guidelines for reporting trades in derivatives and obligations for trade repositories (TRs) under EMIR REFIT. The guidelines aim to further enhance the harmonisation and standardisation of reporting under EMIR contributing to the high quality of data necessary for the effective monitoring of the systemic risk. It is also hoped that standardisation of reporting will help to contain the costs along the complete reporting chain. The guidelines provide clarifications on the following aspects: (i) transition to reporting under the new rules; (ii) the number of reportable derivatives; (iii) intragroup derivatives exemption from reporting; (iv) delegation of reporting and allocation of responsibility for reporting; (v) reporting logic and the population of reporting fields; (vi) reporting of different types of derivatives; (vii) ensuring data quality by the counterparties and the TRs; (viii) construction of the Trade State Report and reconciliation of derivatives by the TRs; and (ix) data access. The guidelines are accompanied by the validation rules and the reporting instructions. The validation rules document sets out detailed technical rules on how the TRs should verify the completeness and accuracy of the reported data as well as the conditions and thresholds to be applied to determine whether the values reported by both counterparties match or not. They also contain a template for notifications of reporting errors and omissions to the national competent authorities. The reporting instructions contain EMIR XML messages which were updated or newly developed based on the revised technical standards and validation rules. A fully standardised format for reporting will eliminate the risk of discrepancies due to inconsistent data. End-to-end reporting in ISO 20022 XML is expected to further enhance data quality and consistency and mitigate the data integrity risks. ESMA will continue to engage with market participants with a view to clarifying any remaining doubts and to facilitate a smooth transition to reporting under EMIR REFIT. The guidelines will apply from 29 April 2024.

Final Report

Validation Rules

Reporting Instructions – Incoming Messages

Reporting Instructions – Outgoing Messages

Implementing Regulation on reporting of intragroup transactions and risk concentration under FICOD published in OJ

On 19 December, Commission Implementing Regulation (EU) 2022/2454, laying down ITS for the application of the Financial Conglomerates Directive with regard to supervisory reporting risk concentrations and intra-group transactions, was published in the OJ. The Implementing Regulation will enter into force on 8 January 2023, the twentieth day following its publication in the OJ. It will apply from 31 December 2023.

Implementing Regulation

ESMA opinion on amendments to equity and non-equity transparency requirements under MiFIR

On 19 December, ESMA published an opinion on amendments to Commission Delegated Regulation (EU) 2017/587 regarding equity transparency (RTS 1), and Commission Delegated Regulation (EU) 2017/583 regarding non-equity transparency (RTS 2) made under MiFIR. The opinion is in response to the EC’s proposed amendments to the RTS, which suggest introducing a new flag in RTS 2, amending the definitions of certain fields in the post-trade transparency reporting, mainly in RTS 2, as well as transitional provisions including postponing the application date of certain provisions to 1 January 2024 in both RTS 1 and 2. ESMA’s view is that the proposed amendments are appropriate. Therefore, both RTS 1 and RTS 2 have been amended by ESMA as proposed by the EC. The EC may adopt the RTS with the amendments it considers relevant or reject it. The EP and the Council of the EU may object to an RTS adopted by the EC within a period of three months.

Opinion

BoE supervision of FMIs annual report 2022

On 19 December, the BoE published its 2022 annual report on its supervision of FMIs, for the period from 15 December 2021 to 16 December 2022. The report sets out why the BoE supervises FMIs, the BoE’s approach to supervision, what the BoE’s policy focus has been over the past year, and its future priorities. In the year ahead, the BoE’s work will focus on: (i) delivering robust, risk-based supervision of FMIs and enhancing the supervisory approach. The BoE will continue monitoring ongoing risks to financial stability and ensure that FMIs are resilient and robust to shocks. It will also continue to strengthen its operational resilience framework with new tools, including developing policy related to critical third parties, and will develop the SMCR for CCPs and CSDs; (ii) enhancing CCP resilience, recovery and resolution. The BoE will continue to develop its CCP supervisory stress testing framework, and will implement an enhanced regime for CCP resolution; (iii) facilitating safe innovation in payments and settlements. The BoE will implement international standards within a domestic stablecoin regime. A key component of this framework will be a Special Administrative Regime for Stablecoins. The BoE will also open further domestic innovation opportunities by developing the DLT FMI Sandbox, and will continue to develop domestic policy regarding widening the payments perimeter; and (iv) continuing to co-operate with international partners to ensure safe, efficient and open markets. The BoE will continue its work towards recognising incoming FMIs, as well as continuing to play a leading role in international work to ensure global cleared markets are resilient to shocks.

Report

ESMA updates Q&As on MiFID II and MiFIR market structures topics

On 16 December, ESMA updated its Q&As on MiFID II and MiFIR market structures topics. ESMA has added a Q&A under the multilateral and bilateral systems section, regarding whether an investment firm acting as a single liquidity provider on a regulated market and/or an MTF can operate an SI. ESMA last updated the Q&As in September.

Q&As

ESMA updates Q&As on Crowdfunding Regulation

On 16 December, ESMA updated its Q&As on the European crowdfunding service providers for business Regulation. ESMA has updated Q&As in the general provisions, investor protection and marketing communications, and authorisation and supervision of crowdfunding service providers sections. ESMA last updated the Q&As in September.

Q&As

FSB progress report on LIBOR and other benchmarks transition issues

On 16 December, the FSB published a progress report on LIBOR and other benchmarks transition issues. The report provides an overview of LIBOR transition efforts, covering success to date, remaining transition steps, including anchoring the financial system in overnight RFRs, and provides updates from member jurisdictions on other benchmark transition efforts. The report also sets out the findings from the FSB’s follow-up questionnaire on supervisory issues related to LIBOR transition, as well as conclusions and next steps. The FSB notes that roughly a decade into the transition away from LIBOR, significant progress has been made in improving the resilience of the benchmark reference rate landscape, particularly over the past year as most LIBOR settings have ceased. In line with the FSB’s goals in supporting a more sustainable basis for interest rate markets, activity has fundamentally shifted from use of LIBOR towards use of more robust reference rates. Strong progress in particular has been observed in transition away from USD LIBOR to SOFR in 2022.The FSB encourages authorities and market participants to keep momentum for the last stage of transition, and going forward to rely on benchmark rates that have a strong reference foundation, which means anchoring the financial system in overnight RFRs. Extensively used benchmarks should be especially robust and reflect credible, liquid underlying markets. This will avoid the need to repeat the transition effort experienced by the global financial community in transitioning away from LIBOR. At the international level, a coordinated approach to addressing the remaining issues, such as legacy contracts, continues to be of the essence.

Progress Report

Payment Services and Payment Systems

Please see the ‘Markets and Markets Infrastructure’ section for the BoE’s 2022 annual report on its supervision of FMIs.

Joint Regulatory Oversight Committee publishes update on future of Open Banking

On 16 December, the FCA, PSR, CMA, and HMT published a joint statement providing an update on the work of the Joint Regulatory Oversight Committee on the future of Open Banking. The statement also includes proposals for a new entity to succeed the Open Banking Implementation Entity (OBIE). The Committee is determined to ensure that the benefits of Open Banking are fully realised and that momentum is sustained. The three priority areas to achieve this are: (i) unlocking the potential of Open Banking payments; (ii) adopting a scaleable model; and (iii) establishing a sustainable footing for the ongoing development of the Open Banking ecosystem. The Committee agree that the future entity should have effective regulatory oversight, with a new long-term regulatory framework to govern the ecosystem, a broad-based and equitable funding model, and be independent, well governed and underpinned by a set of values and cultures that include an emphasis on integrity and promoting ethical behaviours. The Committee will set out its recommendations in relation to the design of the future entity, both during the interim state and once a long-term regulatory framework is in place, and the vision for Open Banking, in Q1 2023.

Joint Statement

Prudential Regulation

EBA updates list of diversified indices under CRR

On 21 December, the EBA published a draft Implementing Regulation updating the list of diversified indices, originally published in 2013 as part of the ITS set out in Implementing Regulation (EU) 945/2014 which were required under the CRR. The original ITS relate to the identification of relevant appropriately diversified indices for the purposes of calculating the capital requirements for position risk in equities according to the standardised rules. The Annex to Implementing Regulation (EU) 945/2014 will be replaced by the text in the Annex to the draft Regulation. The EBA has not consulted on the amendments because they do not involve significant changes. The draft Implementing Regulation has been submitted to the EC for endorsement, and will enter into force on the twentieth day after its publication in the OJ.

Implementing Regulation

EBA final report on draft RTS on identification of a group of connected clients under CRR

On 20 December, the EBA published a final report on draft RTS on the identification of a group of connected clients under Article 4(1)(39) of the CRR. In November 2017, the EBA adopted guidelines on connected clients which these draft RTS partially repeal and replace. Sections of the guidelines related to the circumstances of control, economic dependencies and their interaction, will be repealed and transferred without substantial changes to the RTS. All explanatory examples, as well as further guidance on the alternative approach for exposures to central governments and supervisory expectations with regard to control and management procedures for identifying connected clients, will stay in the guidelines. The draft RTS in conjunction with the guidelines provide the complete framework for the identification of a group of connected clients. The final draft RTS will be submitted to the EC for adoption. Following the submission, the RTS will be subject to scrutiny by the EP and the Council of the EU before publication in the OJ.

Final Report

PRA and FCA consult on removing existing limits on bonus cap

On 19 December, the PRA and FCA jointly published a consultation paper on the ratio between fixed and variable components of total remuneration (the ‘bonus cap’). The consultation paper sets out the PRA’s and FCA’s proposed changes to remove the existing limits on the bonus cap through: (i) changes to the Remuneration Part and the Disclosure (CRR) Part of the PRA Rulebook; (ii) changes to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) of the FCA Handbook; and (iii) updates to the PRA's supervisory statement: remuneration (SS2/17). The proposals to remove the current limits on the bonus cap aim to strengthen the effectiveness of the remuneration regime by increasing the proportion of compensation at risk that can be subject to the incentive setting tools within the remuneration framework, including deferral, payments in instruments, and risk adjustment. The proposed changes resulting from this consultation paper would come into force the next calendar day after the publication of the final policy, anticipated for Q2 2023, and would apply to firms’ performance year starting after that (so for most firms that is likely to be performance years starting 2024).The deadline for comments is 31 March 2023.

Consultation Paper

BCBS work programme for 2023-24

On 16 December, the BCBS published its work programme and strategic priorities for 2023-24. The two-year programme outlines the strategic priorities for its policy, supervision and implementation activities. Key themes of the Committee’s 2023-24 work programme include (i) emerging risks and horizon scanning; (ii) digitalisation of finance; (iii) climate-related financial risks; (iv) monitoring and review of existing standards and guidance; and (v) implementation and evaluation. The full, timely and consistent implementation of Basel III remains a high priority.

Work Programme

EBA final report and draft ITS on standardised information requirements to support sales of NPLs

On 16 December, the EBA published a final report, including draft ITS specifying the templates to be used by credit institutions for the provision of information referred to in Article 15(1) of Directive (EU) 2021/2167 in order 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 (NPL Transaction Data Templates). The objective of the draft ITS is to provide a common data standard for the sales or transfers of NPL across the EU, enabling cross-country comparison and, therefore, reducing information asymmetries between sellers and buyers of NPL, which was previously identified as one of the impediments for the development and efficient functioning of NPL secondary markets in the EU. The draft ITS will be submitted to the EC for adoption, before being published in the OJ. The ITS will apply 20 days after their publication in the OJ.

Final Report

EBA closure report of Covid-19 measures

On 16 December, the EBA published its closure report of Covid-19 measures. The report provides an overview of the wide range of policy measures taken on the back of the pandemic, their state of play, and the path out of policy support. Overall, the EU banking system has proved resilient to the Covid-19 pandemic, preserving adequate capital ratios, displaying on average improved asset quality and continuing to hold substantial liquidity. However, the wide-ranging spectrum of support measures helped weather the crisis and does not give room to complacency on the resilience of the framework, which is to be further strengthened with a loyal and swift implementation in the EU of the Basel III reforms. The report also updates the list of public guarantee schemes and general payment moratoria schemes issued in response to the pandemic. Finally, the EBA has confirmed that its guidelines on Covid-19 reporting and disclosure have been repealed in response to the decreasing relevance of the related public support measures, along with the overall EBA proportionate approach to reporting.

Closure Report

Recovery and Resolution

Updated SRB and ECB memorandum of understanding

On 19 December, the Single Resolution Board (SRB) published an updated memorandum of understanding (MoU) between the SRB and ECB in respect of cooperation and information exchange. The SRB considers the MoU to be an important milestone in the cooperation between the SRB and ECB. This includes many aspects of cooperation and exchange of information as it draws on lessons learned from recent crisis cases, addresses cooperation arrangements deriving from the Banking Package, and formalises current practices. The MoU was last updated in June 2018.

Memorandum

Sustainable Finance

EC draft notices under EU Taxonomy legislation

On 20 December, the EC published two draft commission notices under the EU Taxonomy Regulation and the EU Taxonomy Climate Delegated Act. The first notice relates to the interpretation and implementation of certain legal provisions of the EU Taxonomy Climate Delegated Act, establishing technical screening criteria for economic activities that contribute substantially to climate change mitigation or climate change adaptation and do no significant harm to other environmental objective. The second notice relates to the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation, on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets. The notices contain FAQs and complement previous guidance issued.

Draft Commission Notice 1

Draft Commission Notice 2

Implementing Regulation on prudential disclosures of ESG risks under CRR published in OJ 

On 19 December, Commission Implementing Regulation (EU) 2022/2453, amending the ITS laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of ESG risks, was published in the OJ. Implementing Regulation (EU) 2021/637 specifies uniform disclosure formats and associated instructions for the disclosures required under Titles II and III of the CRR. Article 449a of the CRR requires large institutions that have issued securities that are admitted to trading on a regulated market of any Member State to disclose information on ESG risks, including physical risks and transition risks. It also requires that the information on ESG risks is disclosed as of 28 June 2022, on an annual basis for the first year and biannually thereafter. For those reasons, the first annual disclosure reference date has been set as of 31 December. The Implementing Regulation will enter into force on 8 January 2023, the twentieth day following its publication in the OJ. 

Implementing Regulation 

ECB report on good practices for climate stress testing 

On 19 December, the ECB published a report on good practices for climate stress testing. The objective of the report is to provide banks with examples and suggestions on how to improve their climate stress testing capabilities based on identified good practices from the 2022 ECB climate stress test, and to support banks in their transitional journey. This report aims to facilitate banks’ efforts to align their practices with the supervisory expectations set out in the ECB guide on climate related and environmental risks. In particular, this report offers banks support in addressing Expectation 11 of the guide, which focuses on the necessity to adequately incorporate climate and environmental risks in banks’ stress testing frameworks. The report also aims to contribute to the dialogue with banks on how to approach climate-related risks and increase the consistency of practices across the industry, and is addressed to those dealing with the assessment of climate-related risks in the banking sector. It is worth noting that the ECB does acknowledge that the collection of good practices does not prescribe a “one-size-fits-all” approach to climate stress testing. Each bank must find its own way, depending on its specific circumstances and business model needs.

Report 

Other Developments 

Ombudsman News 177

On 19 December, the FOS published issue 177 of the ombudsman news. The issue includes the FOS’ plans and budget consultation for 2023/24. The consultation is open until 31 January 2021. Issue 177 also includes the FOS’ newly published online guidance for consumers and financial businesses about financial difficulties in mortgages which explains the FOS’ approach to complaints about financial difficulties in relation to mortgage debt.

Issue 177

FCA Handbook Notice 105

On 16 December, the FCA published Handbook Notice 105, which describes the changes to the FCA Handbook made by the FCA Board on 24 November, and 9 and 15 December. The Handbook Notice reflects changes made to the Handbook by the following instruments: (i) FCA Standards Instrument: The Technical Standards (Bilateral Margining) Instrument 2022. This instrument amends the relevant technical standard to preserve the smooth functioning of derivative markets while limiting the potential for market disruption; (ii) Collective Investment Schemes (Individually Recognised Overseas Schemes and Miscellaneous Amendments) Instrument 2022. This instrument adds provisions to the Handbook to reflect changes to the individually recognised overseas schemes regime made by HMT in the Financial Services Act 2021, together with other minor changes to COLL to reflect the UK’s withdrawal from the EU; and (iii) minor changes to various modules of the Handbook by the Handbook Administration (No 62) Instrument 2022.

Handbook Notice 105