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Key Regulatory Topics: Weekly Update 18 – 24 March 2022

For those with an interest in cryptoasset markets and their regulation, this week was a bumper week with no less than nine publications dedicated to this area of developing regulation. 

Included in these; the FSB published a report on FinTech and market structure in the pandemic and implications for financial stability. In Europe, there has been progress within the EP on both the proposed Regulation on a pilot regime for market infrastructures based on DLT and the Markets in Cryptoassets Regulation and discussion by the ECB of the role of CCPs in relation to crypto-assets. On this side of the Channel, the FPC published a report on cryptoassets and decentralised finance, and both the PRA and the FCA issued communications to firms concerning existing or planned exposure to cryptoassets. The industry also saw stark warnings from the UK’s ASA on misleading and irresponsible crypto ads.

Client asset protection

Please see the ‘FinTech’ section for a notice from the FCA reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services.

FCA supervision strategy for custody and fund services

On 23 March, the FCA sent a portfolio letter to Chief Executives in the custody and fund services sector on its supervision strategy. The FCA identifies four principal areas of potential harm to clients, end-consumers or market integrity in this sector: (i) disruption to consumers and market participants, or the loss, compromise, or lack of availability of data, due to insufficient operational resilience or weak cyber controls; (ii) sub-standard oversight and control of client money and assets leading to financial losses for investors and/or an inability to recover assets efficiently; (iii) inadequate depositary oversight of fund managers, and failure to take reasonable care to ensure an authorised Collective Investment Scheme (CIS) is managed in accordance with applicable rules and solely in the interests of the CIS and its unitholders; and (iv) inadequate oversight of business linked to high risk, illiquid or speculative investment products sold to retail investors, and failures to consider related consumer outcomes. In light of these, the FCA’s supervisory priorities are: (a) operational resilience and cyber; (b) compliance with the Client Assets Sourcebook; (c) oversight of depositaries; (d) speculative and illiquid investments, such as mini-bonds; and (e) market and regulatory changes, particularly the recent coming into force of the Investment Firms Prudential Regime. The FCA expects firms to take the necessary action required to ensure that risks are appropriately mitigated and firms can expect the FCA to ask about the actions they and their boards have taken in response to this letter to ensure that customers and markets are adequately protected.


Conduct and governance

Please see the ‘Client Asset Protection’ section for a portfolio letter sent from the FCA to Chief Executives in the custody and fund services sector on its supervision strategy.

Please see the ‘Markets and Markets Infrastructure’ for the BoE’s renewal of its Statement of Commitment to the FX Global Code.

FCA update on operational and cyber resilience in light of Russian invasion of Ukraine

On 24 March, the FCA updated its webpage on operational and cyber resilience considerations following Russia’s invasion of Ukraine. The FCA notes although the National Cyber Security Centre (NCSC) is not aware of any current specific cyber threats to the UK following events in Ukraine, the NCSC has supported US President Biden’s call for increased cyber security vigilance among firms in response to Russia’s invasion of Ukraine. The FCA recommends that firms follow the NCSC's actionable guidance as a priority, to reduce their risk of cyber compromise. The FCA also provides links to NCSC guidance tailored to different sizes of firms: large firms, small and medium sized firms, and microbusinesses and sole traders. The FCA encourages firms to review the NSCS’s Cyber Essentials scheme.



Please see the ‘FinTech’ section for the FCA’s notice reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services and an enforcement notice issued by the ASA concerning cryptoassets advertisements.

Please see the ‘Other Developments’ section for the CMA’s 2022/3 Annual Plan.

FCA speech on priorities for credit regulation

On 23 March, the FCA published a speech by Brian Corr, Interim Director of Retail Lending, on current priorities for credit regulation. Mr Corr highlights that: (i) consumers are facing increasing financial pressure – credit matters greatly for consumers and can help them to cope, but also has significant potential for harm, so firms need to be cautious and diligent, focused on their customers’ needs, and ready to respond as those needs change. The FCA expects to see higher demand for credit, but the rising cost of providing and obtaining credit is likely to make it less affordable for some; (ii) the FCA is focusing closely on delivering the right outcomes for consumers who use credit products, and wants firms to do the same, for example with the launch of the new consumer duty. Firms need to understand their customers and how they’re affected by the products and services provided; (iii) ensuring that borrowers get the right help and support from their providers when they get into financial difficulty remains a key priority. The FCA wants firms to recognise the characteristics of vulnerability and respond to customers’ particular needs, as well as providing forbearance and support in general. The FCA will issue a full report setting out its research findings on borrowers in financial difficulty in H2 2022. In the meantime, the temporary support guidance remains in place; and (iv) the FCA are assessing how to help people with limited borrowing options, without reducing protection from unaffordable lending and other types of harm.


IOSCO consults on retail investor trends and related conduct implications

On 21 March, IOSCO published a consultation report on issues related to the development of a regulatory toolkit for jurisdictions to consider when addressing emerging retail market conduct issues in the rapidly changing retail investment landscape. The report provides an overview of the retail trading landscape based on the responses to a survey carried out by IOSCO's Retail Market Conduct Task Force in Q3 2021. Among other issues, the report considers: (i) the notable recent change in retail behaviour and increase in trading volumes; (ii) the reasons for and regulatory and market implications of increasing gamification, self-directed trading and the influence of social media on retail investor behaviour. Since the onset of the Covid-19 pandemic, IOSCO has observed rising cases of misconduct and reported investor losses, some of them cross-border in nature; (iii) some authorities' strategies in detail, including approaches to disclosure and investor education, and it presents various tools IOSCO members are using in response to the challenges brought by the rapidly changing retail landscape. According to survey responses, such approaches not only include the use of traditional investor protection measures, but also innovative tools that are mainly technology-based, including AI and ML technology, webscraping, and social media scanning tools. To supplement the analysis in the consultation report, IOSCO plans to conduct further direct engagement with consumer groups and other stakeholders at a roundtable in Q1 2022. The deadline for comments is 23 May.

Press release

Consultation report

FOS increases award limit

On 18 March, the FOS announced that the FCA had confirmed an increase to its award limit. From 1 April, the award limit will change to: (i) £375,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms on or after 1 April 2019; and (ii) £170,000 for complaints referred to on or after 1 April 2022 about acts or omissions by firms before 1 April 2019.

Press release


FCA Primary Market Bulletin issue 39

On 23 March, the FCA published issue 39 of its Primary Market Bulletin. The FCA announces that it is to remove the temporary measures introduced in 2020 in response to the Covid-19 pandemic, which allowed for delayed annual and interim financial reporting, as well as rescind the temporary measures regarding working capital statements and general meetings. The relief providing an additional two months for the publication of annual financial reports and an additional month for half-yearly interim reports will no longer be available for reporting periods ending on or after 28 June. From 28 June: (i) the FCA will also no longer approve prospectuses or circulars that use the temporarily revised approach to working capital statements whereby issuers can, under certain circumstances, disclose their key assumptions on business disruption without requiring the inclusion of a qualified working capital statement. Separately, the FCA will publish in due course the results of its recent consultation in issue 34 of its Primary Market Bulletin for the prospectus regime; and (ii) the FCA will no longer grant dispensations from the requirement to hold general meetings in relation to class 1 transactions and related party transactions.

Primary Market Bulletin

Financial crime and sanctions

Russia's military invasion of Ukraine and the formal recognition of two regions in Eastern Ukraine – Donetsk and Luhansk – as independent states have led to a series of sanctions being imposed by the US, the UK and the EU. Our sanctions, international trade and investment compliance experts are monitoring and advising on the situation and our publications can be accessed here. HMT and OFSI maintain a collection of pages listing all financial sanctions imposed in the UK by country. The lists of financial sanctions imposed in the UK in respect of Russia can be accessed here. The FCA has also published a webpage ‘Russian invasion of Ukraine: financial sanctions and information’ which collates its publications and can be accessed here.

Please see the ‘FinTech’ section for the FCA’s notice reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services.

EBA letter on supervisory issues in EC’s AML/CFT legislative package

On 24 March, the EBA sent a letter in which it sets out agreed views on technical points on cooperation and on the selection criteria for direct supervision by the new Anti-Money Laundering Authority in the EC’s  proposed AML/CFT package, that were discussed by the AML/CFT Standing Committee (AMLSC) .  In particular, the EBA highlights: (i) the changes experts think may be needed to ensure that the proposed EU AML Authority (AMLA) can exercise its powers effectively, and to ensure that it will supervise directly those cross-border groups that expose the EU single market to the highest levels of ML/TF risks; and (ii) the importance experts place on strengthening the cooperation provisions in the current drafts to ensure that the AMLA will be able to cooperate effectively also with those financial services supervisors that do not have a direct AML/CFT remit, and with the three ESAs so that rules that apply to financial institutions and their supervisors in the EU are consistent and workable. The EBA emphasises that ML/TF cannot be fought effectively in isolation, and it will be important that the EU continues to build on the synergies that exist between the AML/CFT, prudential and conduct frameworks to safeguard a holistic approach to protect the EU from financial crime. The AML/CTF experts’ views and a number of proposals for the co-legislators and the EC to consider, to clarify and make adjustments to the package are set out at the end of the letter.


Ofgem revises REMIT Penalties Statement and REMIT Procedural Guidelines

On 23 March, Ofgem announced that it will implement in full, save two relatively minor changes, the proposals it consulted on in 2021 in relation to its REMIT Procedural Guidelines and REMIT Penalties Statement. These documents set out how Ofgem uses its powers to enforce REMIT and how it determines penalties for REMIT breaches, respectively. The revised versions of both documents reflect changes in Ofgem’s wider approach to enforcement, necessary amendments to reflect the fact that the UK has left the EU, and revisions to make REMIT processes clearer and more efficient. The changes to both documents come into immediate effect.


REMIT Penalties Statement
REMIT Procedural Guidelines

EBA report on competent authorities’ approaches to AML/CFT supervision of banks

On 22 March, the EBA published the findings from the second round of ongoing reviews of competent authorities’ approaches to the AML/CFT supervision of banks. The EBA found that most competent authorities in its sample were committed to strengthening their approach to AML/CFT supervision. Several competent authorities took steps to put in place a holistic approach to tackling ML/TF risks in their banking sector and changes introduced after the recent transposition of relevant EU legislation, such as greater enforcement powers, have started to make a difference. Furthermore, AML/CFT teams in almost all competent authorities that the EBA reviewed have grown significantly and are set to expand further, and cooperation with prudential supervisors and other EU AML/CFT supervisors has become a clear priority for all, in line with the EBA’s regulatory framework. Among the common challenges that supervisors face, the EBA highlights difficulties in: (i) identifying ML/TF risks in the banking sector and in individual banks; (ii) translating ML/TF risk assessments into risk-based supervisory strategies; (iii) using available resources effectively, including by ensuring sufficiently intrusive onsite and offsite supervision; and (iv) taking proportionate and sufficiently dissuasive enforcement measures to correct AML/CFT compliance weaknesses. The EBA also found that cooperation with Financial Intelligence Units was not always systematic and often ineffective. These challenges have hampered the implementation of an effective risk-based approach to AML/CFT supervision. Round three of the implementation reviews is now underway. The EBA is following up with competent authorities that were part of the first and second round of reviews to understand the steps they have taken since the review to strengthen their approaches to AML/CFT supervision.

Press release



Please see the ‘Other Developments’ section for the CMA’s 2022/3 Annual Plan.

EP adopts Regulation on pilot regime for market infrastructures based on DLT at first reading

On 24 March, the EP voted in plenary to adopt its first reading position on the EC’s legislative proposal for a Regulation on a pilot regime for market infrastructures based on DLT. Amendments to the EC’s proposal among other things, limit the financial instruments admitted to trading on, or settled by, a DLT market infrastructure, mainly in terms of market capitalisation (shares), issuance size (bonds) or issuance volume (exchange-traded funds, ETFs). The EP, in a background information document published on 21 March state that whilst its amendments set lower thresholds for financial instruments admitted to trading on, or settlement by, a DLT market infrastructure, the limits set in the provisional political agreement reached between the Council and Parliament on 24 November 2021 are more munificent. The Council will now need to adopt the proposed Regulation, which will enter into force 20 days after it is published in the OJ and will apply nine months after the date it has entered into force.

Adopted text

EP background information document

FPC financial stability in focus report on cryptoassets and decentralised finance

On 24 March, the FPC published a report assessing the role that cryptoassets and associated markets and activities including decentralised finance (DeFi) currently play in the UK and how this could develop. The FPC continues to judge that direct risks to the stability of the UK financial system from cryptoassets and DeFi are limited, reflecting their limited size and interconnectedness with the wider financial system. However if the recent years’ pace of growth continues, financial stability risks will potentially emerge from: (i) interlinkages with the traditional financial sector; (ii) new forms of financial and operational risk for institutions; (iii) a growth in activity outside of the existing perimeter; and (iv) challenges in regulating new forms of entities and business models. The FPC is monitoring a number of channels through which risks to financial stability could arise: (a) to systemic financial institutions; (b) to core financial markets; (c) to the ability to make payments; and (d) the impact on real economy balance sheets. The FPC emphasises the need for enhanced regulatory and law enforcement frameworks. Where crypto technology is performing an equivalent economic function to one performed in the traditional financial sector, the FPC judges this should take place within existing regulatory arrangements, and that the regulatory perimeter be adapted as necessary to ensure an equivalent regulatory outcome. The FPC considers that this would likely require the expansion of the role of existing macro and micro prudential, conduct, and market integrity regulators, and close co-ordination among those regulators. The FPC will continue to assess and advise on the regulatory perimeter, consistent with its statutory responsibilities. Any decisions on adapting the regulatory perimeter and framework would be for the Government to take.


PRA survey and letter to CEOs on existing or planned exposure to cryptoassets

On 24 March, the PRA sent a letter to CEOs of its regulated firms to set out how the prudential framework applies to crypto activity. The PRA explains that while firms have taken limited exposure to cryptoassets to date, it is aware of increased interest in entering various crypto markets. The PRA expects firms to consider how or whether the characteristics of these markets are sufficiently captured in their risk management framework. While the regulatory framework provides a structure to consider such risks, the methodologies and calibrations will likely need to be adjusted, in some cases substantially, to ensure that firms are appropriately and prudently considering and capitalising the risks. Given the limited existing exposures by firms, and pending international regulatory updates, the PRA aims in its letter to highlight aspects of the existing framework that it would expect firms to consider when measuring and mitigating risks resulting from crypto activities. While no one part of the current framework fully captures crypto risks, a combination of strong risk controls, operational risk assessments, robust new product approval processes, Pillar 1, Pillar 2, and ongoing monitoring arrangements has the potential to provide firms with an appropriate interim treatment. The PRA expects firms to use all aspects of the prudential framework, and consider the risks from first principles, to ensure that risks are appropriately considered, and mitigated and/or capitalised as needed. The PRA remind firms that it is entirely possible that the international bodies will conclude with stricter international requirements than permissible under the current framework. The long-term business case for participating in crypto activities may be affected by these international discussions, and ultimately future domestic policy. Therefore, in business planning and development of risk management approaches firms should not assume that the existing prudential requirements will persist long-term. The PRA has also launched a survey of firms covering existing crypto exposures and their plans for 2022. The deadline for comments is 3 June.


Webpage (with link to survey)

FCA notice to firms with exposures to cryptoassets

On 24 March, the FCA published a notice reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services. Key areas of risk highlighted by the FCA include: (i) customer clarity - the FCA expects firms to ensure that consumers understand the extent of business that is regulated and to clearly distinguish those elements which are unregulated business; (ii) financial crime - the FCA reminds cryptoasset firms that under the MLRs, they will need to be registered with it in order to carry on business. It expects all authorised and registered firms to have appropriate systems and controls to counter the risk of being misused for financial crime. Firms should assess the risks posed by a customer whose wealth or funds derive from the sale of cryptoassets, or other cryptoasset related activities, using the same criteria that would be applied to other sources of wealth or funds; (iii) prudential considerations - while there are currently no specific prudential treatments that explicitly mention cryptoassets, the FCA reminds firms that they may still have regulatory obligations under the IFPR to assess and mitigate the potential for harm to clients. Relevant firms should also consider its guidance for assessing adequate financial resources; and (iv) custody considerations – Principle 10 requires firms to arrange adequate protection for clients’ assets. Where cryptoassets qualify as specified investments, firms carrying out regulated activities involving custody of these assets are likely to also be subject to the CASS regime.


BoE report on responses to discussion paper on new forms of digital money

On 24 March, the BoE reported on the responses it received to its discussion paper on new forms of digital money. The BoE reports that: (i) respondents agreed that digital money would provide benefits but noted that any publicly provided digital money should not replace cash; (ii) the majority of respondents said that it was very important for the general public to have direct access to central bank money. They agreed that any private sector firm issuing or intermediating payments in new forms of digital money would need to be fully compliant with the regulatory frameworks on data protection. Respondents also noted that interoperability between all forms of money, including new forms of digital money, was essential for an effective and competitive payments ecosystem; and (iii) with regards to an illustrative scenario which demonstrated how the banking system may need to adjust in the face of the introduction of a new form of digital money and the associated reduction in bank deposits, some of the key risks highlighted by respondents include financial instability, tightening of liquidity conditions and credit contraction due to an outflow of bank deposits into new forms of digital money (especially CBDC). Some respondents (especially banks) were uncertain about the funding that may be available through non-bank sources. The BoE makes clear that it has not yet made a decision on any of the topics in the paper and it will continue its exploratory work in this area. The BoE highlights that respondents were especially clear that: (a) access to cash should be preserved; (b) the BoE should continue to engage with stakeholders including the wider public; and (c) any regulation for systemic stablecoins should be clear, proportionate, and risk-based. In 2022, the BoE and HMT will launch a consultation on the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC. The BoE also refers to the Financial Stability in Focus report published the same day (we have covered this item above).


ECON report on Markets in Cryptoassets Regulation

On 23 March, the EP published the report adopted by ECON on the proposal for a Markets in Cryptoassets Regulation. The report sets out the draft EP legislative resolution, which ECON voted to adopt on 14 March, including text of the regulation with proposed amendments. The document and the procedure file indicate that the report was tabled for plenary on 17 March and the procedure file reports that on 23 March, ECON’s decision to enter into interinstitutional negotiations was announced in plenary.


Procedure file

ASA enforcement notice on misleading and irresponsible crypto ads

On 22 March, the ASA issued an enforcement notice to over 50 companies that advertise cryptoassets instructing them to review their ads and to ensure they understand and are complying with the rules so that consumers are treated fairly. The notice provides guidance to the crypto industry on complying with the rules and warns that the ASA will monitor for compliance and implement sanctions if there are not improvements. The guidance requires that advertisers: (i) should clearly state that cryptocurrencies are unregulated in the UK and that the value of investments are variable and can go down; (ii) must not state or imply that investment decisions are trivial, simple, easy or suitable for anyone; and (iii) must not imply a sense of urgency to buy or create a fear of missing out, or that investments are ‘low risk’. The notice applies to ads for cryptocurrencies, crypto exchanges and ads or promotions which otherwise involve the transfer, sale or supply of cryptocurrencies, targeted at UK consumers or that are targeted globally on behalf of UK-based advertisers. The ASA will conduct follow-up monitoring and if problem ads persist after 2 May, will take targeted enforcement action to ensure a level playing field. This will include reporting non-compliant advertisers to the FCA.

Press release

Enforcement notice

FSB report on FinTech and market structure in the pandemic and implications for financial stability

On 21 March, the FSB published a report examining the impact of the Covid-19 pandemic on FinTech and market structure and its implications for financial stability. In the report the FSB, among other things: (i) discusses benefits from accelerated digitalisation of financial services during the pandemic, and whether those observed changes may be structural or revert back to pre-pandemic levels once conditions normalise; (ii) considers the financial stability implications of this accelerated trend towards digitalisation, such as potential market dominance of certain players, and the related concerns around incumbent financial institutions that may be digital laggards; and (iii) outlines parallel international work on third-party dependencies of the financial sector, for instance in cloud computing. The FSB’s findings include that: (a) the pandemic has accelerated the trend toward digitalisation of retail financial services. BigTechs in particular have further expanded their footprint in financial services; (b) in several jurisdictions, authorities have taken regulatory actions during the pandemic that may impact market structure. In particular, many authorities are enacting specific entity-based rules on BigTechs that tackle issues of financial stability, competition and data governance. The report stresses the importance of cooperation between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors, and where relevant, with competition and data protection authorities; and (c) in relation to BigTechs and larger FinTech expansion: (1) there are issues around their potential systemic importance, the complexity and opacity of partnership activities, and the incentives for risk-taking by incumbent financial institutions impacted by these developments to preserve profitability; (2) consumer protection risks could arise from greater dependency on technology and potential data protection issues; (3) the limited number of providers of cloud services could magnify the impact of any operational vulnerability; and (4) their expansion into financial services can bring benefits such as improved cost efficiencies and wider financial inclusion for previously underserved groups.

Press release


HMT and BoE responses to report on CBDCs

On 18 March, HMT and the BoE published their responses to the recommendations in the House of Lords Economic Affairs Committee's January report on the potential for a UK retail CBDC. Points of interest include that the BoE and HMT: (i) have not yet made a decision on whether a CBDC should be introduced in the UK. They are currently in a “research and exploration” phase, evaluating the case for CBDC and will consult later in 2022. The consultation will set out their assessment of the case for a UK CBDC, evaluate the opportunities, risks and implications, and conclude on the merits of any further work to develop an operational and technology model for a UK CBDC. As part of the consultation, they will explore many issues, including those raised by the Committee, in more detail; (ii) will explore whether and how CBDC can provide resilient and responsive public infrastructure with which the private sector can innovate in order to most efficiently and effectively meet user needs in a dynamic payments landscape; (iii) make clear that CBDC is not an alternative to cash, but rather an alternative form of central bank money alongside cash; (iv) will explore how the case for a CBDC relates to wider developments in the payments landscape, including cryptoassets and stablecoins; and (v) will assess the impact of introducing a CBDC on the BoE’s ability to conduct monetary policy. At the current time, the BoE do not consider expanding the monetary policy toolkit to be a motivation for the introduction of a CBDC. The BoE notes that the monetary policy opportunities are largely conceptual, and would face a number of practical constraints.

HMT response

BoE response

Fund regulation

Please see the ‘Client Asset Protection’ section for a portfolio letter sent from the FCA to Chief Executives in the custody and fund services sector on its supervision strategy. 

ESRB response to proposals for amendments to AIFMD and UCITS Directive

On 24 March, the ESRB published its response, sent to the Council and the EP, on the EC’s proposed amendments to AIFMD and the UCITS Directive. The ESRB note that the proposals reflect most of the considerations that were presented by the ESRB in its response to the EC’s consultation on the AIFMD review and its 2017 recommendation. The ESRB in particular welcomes the proposal to increase the availability of liquidity management tools for fund managers, helping them to deal with redemption pressures when market liquidity becomes stressed, and the proposal to establish a harmonised reporting framework for UCITS and UCITS management companies. The ESRB highlight three areas, which have not yet been addressed and where EU co-legislators could take the opportunity to further enhance the proposal made: (i) addressing liquidity mismatches in open-ended AIFs remains a priority – the ESRB proposes that ESMA be given the power to draw up a list of inherently less liquid assets. The ESRB also proposes that managers of open-ended AIFs investing in such assets be required to demonstrate that they can follow their investment strategy in all foreseeable market conditions; (ii) access to data for monitoring systemic risk is needed in order to enhance the work of macro prudential authorities – the ESRB proposes establishing data-sharing arrangements, as well as high-frequency reporting in crisis situations, for the benefit of all authorities with macro prudential mandates; and (iii) more guidance is needed on the use of macro prudential leverage limits – while ESMA has published guidance on addressing leverage risks in the AIF sector and in addition to the proposals presented by the EC, the ESRB calls for further clarification regarding the operationalisation of leverage limits.

Letter to the Council

Letter to the EP

Markets and markets infrastructure

EC RTS specifying content of position management controls by trading venues

On 24 March, the EC published a Delegated Regulation supplementing MiFID II with regard to RTS specifying the content of position management controls by trading venues. The EC explains that changes to the MiFID II commodity derivative framework were introduced by amending Directive (EU) 2021/338 as part of the EC’s Covid-19 recovery strategy, the Capital Markets Recovery Package. In this context, position management controls are reinforced to mitigate dissimilarities in the way positions are managed by trading venues across the EU. The RTS: (i) introduce the general monitoring obligations for the exchanges; (ii) specify what an accountability level is, that accountability levels should be set for commodity derivatives made available for trading that are physical settled or can be physically settled and specifies what exchanges have to do when a position exceeds the accountability level; and (iii) require the exchange to assess the adequacy and effectiveness of the accountability levels. It also specifies the reporting requirements of the trading venues to their NCA. The Council and the EP will next consider the Delegated Regulation. If neither the Council nor the EP object, the Delegated Regulation will be published in the OJ and enter into force twenty days after its publication.

Delegated Regulation

EC ITS amending format of position reports by investment firms and market operators

On 24 March, the EC published an Implementing Regulation amending Implementing Regulation (EU) 2017/1093 laying down ITS with regard to the format of position reports by investment firms and market operators. The amendments are in accordance with the changes introduced by Directive (EU) 2021/338, as part of the Covid-19 MiFID II recovery package. Position reporting will no longer apply to securities referred to in MiFID II Article 4(1), point 44, point (c), which relate to a commodity or an underlying as referred to in Section C.10 of Annex I. The amending ITS will enter into force twenty days after publication in the OJ.

Implementing Regulation

Delegated Regulation on criteria for national supervision of DRSPs

On 24 March, Commission Delegated Regulation (EU) 2022/466 supplementing MiFIR by specifying criteria for derogation of the principle that approved publication arrangements (APAs) and approved reporting mechanisms (ARMs) are supervised by ESMA, was published in the OJ. The ESFS Omnibus Regulation transferred authorisation and supervision powers with regard to the activities of data reporting services providers (DRSPs) in the EU to ESMA. This Delegated Regulation sets out the criteria by which APAs and ARMs are derogated from ESMA supervision and instead remain in scope of national supervision, where their activities are of limited relevance for the internal market. The Delegated Regulation will enter into force on 27 March (the third day after its publication in the OJ).

Delegated Regulation

ESRB response to consultation on review of central clearing framework in the EU

On 22 March, the ESRB published its response to the EC’s February targeted consultation on a review of the EU central clearing framework. The ESRB welcomes the initiative to consult on measures to improve the competitiveness of EU CCPs and clearing activities and to ensure that their risks are appropriately managed and supervised. It notes that its response builds on its earlier response to ESMA’s consultation on determining the degree of systemic importance of LCH Ltd and ICE Clear Europe or some of their clearing services in December. The ESRB proposed in its earlier response to ESMA that any extension of the recognition of the two UK Tier 2 CCPs should be temporary and should go hand in hand with measures designed to reduce risks to financial stability. The ESRB: (i) welcomes the fact that the plans of the EC reflect the proposals the ESRB set out in its response to ESMA. In particular, the ESRB notes that in the course of 2022, the EC plans to put forward proposals to build domestic capacity and strengthen supervision; (ii) would be in favour, provided that the forthcoming proposals by the EC ultimately succeed in addressing the risks to financial stability identified (and provided that the UK regulatory regime for CCPs continues to be deemed equivalent), – from a financial stability perspective –of allowing the two UK Tier 2 CCPs to continue offering clearing services in the EU beyond the end of the temporary equivalence period on 30 June 2025. The ESRB would also see a need to increase the level of cooperation with UK authorities in important areas of CCP supervision such as liquidity management, as well as with respect to recovery and resolution; (iii) considers that the proposals by the EC should be embedded in a framework applicable to any other CCP that might be classified as Tier 2 in the future; and (iv) states that macroprudential measures, which would be aimed at aligning the incentives of all market participants, using the substantial systemic clearing services with the reduction of systemic risk, should be seen as complementary to voluntary, market-based solutions. The ESRB outlines a number of considerations to help the EC develop its proposals to build capacity and strengthen supervision. It sets out its answers to specific questions from the EC in the appendix.


ECB speech on building a robust and diversified clearing ecosystem

On 22 March, the ECB published a speech by Fabio Panetta, ECB Executive Board member, on building a robust and diversified clearing system. Mr Panetta discusses: (i) fostering the resilience of CCPs – the emphasis on close cooperation, transparency and timely information sharing since the start of Russian aggression against Ukraine, has been particularly crucial to ensure that banks are prepared for increased margin calls, trading suspensions or the implementation of sanctions. The ECB will continue to closely monitor the volatility in cleared markets, especially in sectors with significant exposures to Russia, such as energy and commodity markets, but also linked to the wider macroeconomic and financial effects of the current geopolitical situation. Mr Panetta also warns of the heightened threat of cyberattacks. He states that the cyber information and intelligence sharing initiative launched by the Euro Cyber Resilience Board for pan-European Financial Infrastructures provides a suitable platform to foster preparedness and resilience to potential cyberattacks; (ii) how the EU can contribute to a robust and diversified global clearing ecosystem –the global clearing ecosystem could benefit from more clearing options and alternatives to ensure banks and the real economy have continuous access to safe and efficient clearing solutions. Considering the size of the European economy, the importance of European market participants and the relevance of the euro as an international currency, there is ample room for the EU to expand the availability of clearing options. A dynamic and robust European clearing ecosystem can increase the overall attractiveness of central clearing and further reduce systemic risk, to the benefit of global financial markets; and (iii) developments in the field of clearing and the associated challenges – the evolution of clearing markets brings with it new product offerings, risk profiles and approaches to risk management. To make sure that this happens in a safe way and that it contributes to the reduction of systemic risk, it is important to understand what could endanger or disrupt the operation of clearing systems. Mr Panetta highlights in particular the need to understand new risks stemming from climate change and to carefully and critically assess the role of CCPs in relation to crypto-assets. Subjecting crypto-assets and clearing activities in that space to sound regulation, oversight and supervision is the minimum that must be done. The risk of misuse of crypto-assets to circumvent the sanctions against Russia is an important reminder that these markets must be required to comply with the strictest standards.


BoE renews commitment to adhere to FX Global Code

On 18 March, the BoE renewed its Statement of Commitment to the FX Global Code. The Code sets out principles of good practice in the foreign exchange market. By signing the statement, the BoE attests that its internal processes are consistent with the principles of the Code. The BoE strongly encourages all market participants, including its regular counterparties, to adhere and commit to the updated Code. 

Press release

Statement of Commitment

ECB guide on the notification of securitisation transactions

On 18 March, the ECB published a guide setting out the notification practices that significant institutions (SIs) acting as originators or sponsors of a securitisation transaction are advised to follow in order to provide the ECB with information needed for the supervision of compliance with Articles 6 to 8 of the Securitisation Regulation (SECR) relating to risk retention, transparency and a ban on resecuritisation. The Guide specifies information that SIs are expected to submit to the ECB, both at origination and during the life of securitisation transactions, if a significant event as defined in Article 7 (1) (g) of the SECR occurs relating to the transactions, affecting compliance with Articles 6 to 8. Notifications are expected to be submitted using the notification template published alongside the guide. The ECB recommends that SIs follow the Guide with respect to all securitisation transactions originated after 1 April, although has provided a phase-in implementation period until 1 October. The Guide will be updated from time to time to reflect developments in the regulation and supervision of securitisations.


Consultation webpage with notification template

Payment services and payment systems

Please see the ‘FinTech’ section for HMT and the BoE’s responses to the recommendations in the House of Lords Economic Affairs Committee's January report on the potential for a UK retail CBDC, as well as the BoE’s report on the responses it received to its discussion paper on new forms of digital money.

Open Banking Implementation Entity roadmap progress update and CMA response

On 23 March, the CMA published a response to the Open Banking Implementation Entity’s (OBIE) update on it and the CMA9’s (nine largest banks in the UK) progress in implementing items in the open banking implementation roadmap. In particular, the CMA9 have three remaining items, which require implementation: (i) variable recurring payments for sweeping; (ii) consent and access dashboards as part of version 3.1.10 of

the Open Banking standard; and (iii) delivery of the enhanced management information submission mechanism. These are due for completion by July, September and July respectively. The CMA also notes that there are also a number of remaining items due for completion by OBIE later this year. The CMA will review progress in the summer, informed by further updates from the OBIE. The CMA anticipates being in a position to determine that the roadmap has been completed later this year. The CMA notes that the Roadmap’s completion will have implications for the timing of the transition to future arrangements of open banking and therefore considers that planning for transition (led by the OBIE and the Implementation Trustee) should be progressed now, during the implementation phase.

CMA letter

OBIE progress update

Prudential regulation

Please see the ‘FinTech section for a letter sent from the PRA to CEOs of its regulated firms to set out how the prudential framework applies to crypto activity and a notice from the FCA reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services.

FPC Financial Policy Summary and Record

On 24 March, the FPC published the Financial Policy Summary and Record of its meetings on 9 and 18 March. Topics discussed include: (i) UK financial stability and Russian invasion of Ukraine – the invasion is increasing economic uncertainty and will increase pressure on borrowers. Although market volatility has increased, so far core financial markets have continued to function. The UK banking sector is resilient to a wide range of severe scenarios; it remains highly capitalised and liquidity ratios are strong. UK banks also have low direct exposures to Russia. The FPC is monitoring developments and stands ready to take any measures necessary to help ensure UK financial stability; (ii) cryptoassets – the FPC refers to its Financial Stability in Focus report on cryptoassets and decentralised finance (we have covered this report in the ‘FinTech’ section); (iii) the UK Countercyclical Capital Buffer (CCyB) – the FPC is maintaining the CCyB rate at 1%. The rate will come into effect from 13 December in line with the 12-month implementation period; (iv) the 2022 annual cyclical stress testing framework (ACS) - in light of uncertainty related to the Russian invasion of Ukraine, and in order to help lenders focus on managing the ongoing financial markets disruption associated with the invasion, the FPC and the PRC will delay the launch of the 2022 ACS. The FPC and the PRC intend to announce a revised timeline; and (v) systemic stablecoins – on balance, the FPC judges that a systemic stablecoin issued by a non-bank without a resolution regime and deposit guarantee scheme could meet its expectations, provided the BoE applies a regulatory framework that is designed to mitigate risks to financial stability. The FPC judges that a systemic stablecoin that is backed by a deposit with a commercial bank would introduce undesirable financial stability risks. Subject to the outcome of HMT’s related consultation, the BoE intends to consult on its proposed regulatory model for systemic stablecoins in 2023.

Summary and Record

EC amendments to ITS specifying main indices and recognised exchanges under the CRR

On 24 March, the EC published the text of an Implementing Regulation amending the ITS laid down in Implementing Regulation (EU) 2016/1646 as regards the main indices and recognised exchanges in accordance with the CRR. The amended ITS: (i) provide for a new methodology to ensure that the main indices captured comprise instruments that are sufficiently liquid, and therefore can serve as adequate eligible collateral. Experience has demonstrated that the current criteria, defined with respect to the market in which an index is based, are difficult to apply against a main index established in a third country, as they require collecting data for all the shares admitted to trading in that market; (ii) include third country exchanges in Australia, Hong Kong and the US, as the EC has adopted equivalence decisions under MiFID II; and (iii) exclude UK exchanges from the list of recognised exchanges, as the EC has not adopted an equivalence decision regarding the UK. The ITS will enter into force on the 20th day following publication in the OJ.

Implementing Regulation webpage

PRA update on implementation of Basel standards

On 21 March, the PRA confirmed that it intends to consult on Basel 3.1 implementation in Q4. Taking into account the publicly-announced implementation timetables in other major jurisdictions, and the need to provide firms with sufficient time to implement the final policies, the PRA intends to consult on a proposal that these changes will become effective on 1 January 2025.  This implementation date would be in line with that proposed by the EC in its 2021 Banking Package.

Press release

EBA RTS on default probabilities and losses given default under internal default risk model

On 21 March, the EBA finalised its draft RTS on probabilities of default (PDs) and losses given default (LGDs) for default risk model for institutions using the new Internal Model Approach (IMA) under the Fundamental Review of the Trading Book. The final draft RTS specify: (i) the requirements for estimating PDs and LGDs using an institution's internal methodology or external sources. Institutions using the IMA to compute own funds requirements for market risk are required to compute additional own funds requirement using an internal default risk model for their positions in traded debt and equity instruments included in IMA trading desks; (ii) the requirements to be met for estimating PDs and LGDs under the default risk model. An internal methodology used to calculate PDs and LGDs under the default risk model should meet all requirements applicable to the corresponding internal ratings‐based (IRB) approach. In addition, they include the possibility for institutions to produce conservative ‘fallback’ PD and LGD values to be used only where needed; and (iii) the requirements that external sources are to fulfil for their use under the default risk model, ensuring that the methodology employed to derive the PDs and LGDs from these sources is conceptually sound.

Press release

Final report

EBA revised guidelines on common procedures and methodologies for SREP and supervisory stress testing

On 18 March, the EBA published final revised guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing.  The revisions aim at implementing the amendments brought by CRD V and CRR II. The revised guidelines do not alter the overall SREP framework but affect its main elements, including: (i) business model analysis, (ii) assessment of internal governance and institution-wide control arrangements, (iii) assessment of risks to capital and adequacy of capital to cover these risks, and (iv) assessment of risks to liquidity and funding and adequacy of liquidity resources to cover these risks. The main amendments aim at: (a) better articulating the principle of proportionality, through the categorisation of institutions and the application of the minimum engagement model; (b) fully incorporating the assessment of the ML/TF risks, in line with the EBA Opinion on how to take into account ML/TF risks in the SREP; (c) reviewing the provisions on Pillar 2 capital add-ons and the Pillar 2 guidance, to ensure they reflect a purely micro-prudential perspective and appropriately implement the separate stack of own funds requirements based on the leverage ratio; (d) aligning the assessment of the interest rate risk in the non-trading book, as well as the assessment of liquidity risk and liquidity adequacy with the current regulatory framework; and (e) enhancing the dialogue among institutions and supervisors in relation to the setting of the Pillar 2 requirements. The guidelines will apply from 1 January 2023.

Press release

Final report

RTS on assessment methodology for IRB

On 18 March, Commission Delegated Regulation (EU) 2022/439 supplementing the CRR with regard to RTS for the specification of the assessment methodology competent authorities are to follow when assessing the compliance of credit institutions and investment firms with the requirements to use the IRB Approach, was published in the OJ. The RTS set out standards for competent authorities in assessing an institution’s compliance with minimum IRB requirements as defined in Part Three, Title II, Chapter 3 of the CRR, when: (i) the institution initially applies to use the IRB Approach; (ii) applies to use the IRB Approach for certain types of exposures in accordance with the sequential implementation plan; (iii) applies for implementation of material changes to the IRB Approach; or (iv) applies to return to the use of less sophisticated approaches. Competent authorities will use the RTS to assess whether an institution meets the minimum IRB requirements on an ongoing basis as part of the regular review of the IRB Approach and reviews of changes that require notifications from the institution. The RTS will enter into force on, and apply from, 7 April (20 days after its publication in the OJ).

Delegated Regulation

Recovery and resolution

SRB speech discusses 2022-23 workplan

On 21 March, the SRB published a speech, given by Sebastiano Laviola, SRB Board Member on, amongst other topics, its 2022/23 workplan. In the next month, the SRB will publish targeted amendments to the MREL Policy, including, among others: (i) the implementation of the modifications to the CRR related to resolution (indirect holdings of subsidiaries in a chain, or daisy chains, and clarification about the treatment of multiple point of entry strategies); (ii) the refinement of the methodology to address “No Creditor Worse Off” risks; and (iii) the widening of the scope of material non resolution entities subject to internal MREL. The SRB notes that it has provided banks with common and individual working priorities for this year, with a particular focus on separability and reorganisation plans. The SRB will also continue to focus on banks’ capabilities in managing liquidity and funding in resolution and wishes to see further improvement in capabilities of the Management Information Systems (MIS) of banks. It notes that a timely resolution requires timely availability of resolution data, and this is not possible in case of less-than-optimal MIS capabilities. It therefore expects banks to prioritize the management of IT systems for resolution.


Sustainable finance

Please see the ‘Other Developments’ section for the CMA’s 2022/3 Annual Plan.

NGFS acknowledges significant macroeconomic and financial implications of nature-related risks

On 24 March, the NGFS acknowledged, in a statement, that nature-related risks, including those associated with biodiversity loss, could have significant macroeconomic implications, and that failure to account for, mitigate, and adapt to these implications is a source of risks relevant for financial stability. The NGFS is therefore of the view that nature-related financial risks should be considered by central banks and supervisors for the fulfilment of their mandates. The NGFS states that the key tasks ahead for central banks, financial supervisors and financial institutions include to: (i) build a scientifically-grounded analytical framework to assess the interactions between nature, the macro-economy and the financial system, in a way that is both comprehensive and actionable; (ii) bridge the likely data gaps that will emerge from such a framework; and (iii) use this new framework and datasets to align policies with environmental sustainability and inform the assessment of nature-related financial risks. The NGFS also welcome the five policy recommendations made by the NGFS-International Network for Sustainable Financial Policy Insights, Research, and Exchange Study Group in its final report on “Central banking and supervision in the biosphere: An agenda for action on biodiversity loss, financial risk and system stability”, which was also published. These are: (a) recognise biodiversity loss as a potential source of economic and financial risk and commit to developing a response strategy to maintain financial and price stability; (b) build the skills and capacity among central bank and supervisory staff as well as market participants to analyse and address biodiversity-related financial risks; (c) assess the degree to which financial systems are exposed to biodiversity loss, by, for example, conducting assessments of impact and dependency, developing biodiversity-related scenario analysis and stress-tests; (d) explore options for supervisory expectations for financial institutions’ governance, risk management, strategy, disclosure and financial conduct in relation to biodiversity-related financial risks and opportunities; and (e) help build the necessary financial architecture for mobilising investment for a biodiversity-positive economy, including by considering how central banks’ monetary policy operations and non-monetary policy portfolio management should be conducted in the context of biodiversity loss. Building on the work of the Study Group, the NGFS will create a task force to mainstream the consideration of nature-related financial risks across its activities. The task force will act as an incubator that explores, develops, and harmonises relevant nature-related considerations and efforts.

Press release



IFRS Foundation and Global Reporting Initiative collaboration on sustainability disclosures

On 24 March, the IFRS Foundation and Global Reporting Initiative (GRI) announced a collaboration agreement under which their respective standard-setting boards, the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board, will seek to coordinate their work programmes and standard-setting activities. The IFRS Foundation, which announced at COP26 the establishment of the ISSB to develop a comprehensive global baseline of investor-focused sustainability disclosures for the capital markets, and GRI, the leading global standard-setter for multi-stakeholder focused sustainability reporting, further announced that they will join each other's consultative bodies related to sustainability reporting activities. The ISSB intends to publish next week proposed climate and general sustainability-related disclosure requirements that, once finalised, will form the global baseline for climate-related disclosures.

Press release

Other developments

UK launches negotiations with Canada on new Free Trade Agreement

On 24 March, the Department for International Trade announced that it has launched negotiations for a new Free Trade Agreement with Canada. The agreement will build on the UK-Canada Trade Continuity Agreement (TCA), which was signed in 2020. The first round of negotiations is expected to start next week. Ahead of the launch of negotiations, the Secretary of State will co-chair the UK-Canada TCA Joint Committee meeting to reflect on the progress made in areas such as trade and sustainable development one year since the agreement came into force. The Department for International Trade has also published a document setting out: (i) the UK’s strategic approach; (ii) the UK’s negotiating objectives; (iii) a response to its call for input on a trade agreement between the UK and Canada, including how the call for input informed the UK’s negotiating objectives; and (iv) an initial assessment of the potential long-term impacts of a trade agreement between the UK and Canada.

Press release

UK strategic approach

CMA 2022 Annual Plan

On 24 March, the CMA published its 2022/3 Annual Plan. The CMA notes that it has made strong progress delivering the goals set out in its 2020/21 Annual Plan despite the restrictions in place due to the Covid-19 pandemic. The CMA notes that it is in the process of restarting some activities such as inspections and site visits. In 2022, the CMA will focus on: (i) protecting consumers from unfair behaviour by businesses, during and beyond the Covid-19 pandemic; (ii) fostering competition to promote innovation, productivity and long-term growth right across the UK; (iii) promoting effective competition in digital markets; (iv) supporting the transition to low carbon growth, including through the development of healthy competitive markets in sustainable products and services; and (v) delivering its new responsibilities and strengthening its position as a global competition and consumer protection authority.

Press release

Annual Plan