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Key Regulatory Topics: Weekly Update 18 August – 24 August 2023

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This week in the UK, there have been some significant publications on the cash access and distribution side of the UK’s smarter regulatory framework, including HMT’s cash access policy statement, the FCA approach statement on cash access, and the Bank of England approach statement on market oversight for wholesale cash distribution. We also saw additional progress on the UK’s smarter regulatory framework with the publication of a second set of FSMA 2023 commencement regulations, which will bring into force various provisions of FSMA 2023, including in relation to the new financial promotions regulatory gateway. On the EU front, there are only a few updates to report – including a couple of items to note on prudential regulation, with the publication of the RTS on specific liquidity measurement of investment firms under IFD, and the ECB consultation on the draft guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions.

Financial Crime and Sanctions

EC adopts amendments to list of high-risk countries under MLD4

On 18 August, the EC adopted a Delegated Regulation amending the list of high-risk third countries with strategic AML and CTF deficiencies produced under MLD4. The list of countries is amended periodically to take account of information from international organisations and standard setters in the field of AML/CTF, such as the FATF. The Delegated Regulation will add Cameroon and Vietnam to the table of third countries that have been identified as having strategic AML and CTF deficiencies in point I of the Annex to Delegated Regulation (EU) 2016/1675. The Delegated Regulation will be submitted to the Council of the EU and the EP for scrutiny. If neither objects, it will enter into force 20 days after it is published in the OJ.

Delegated Regulation

Markets and Markets Infrastructure

CPMI and IOSCO report on CCP practices to address non-default losses

On 23 August, the CPMI and IOSCO published a report on CCP practices to address non-default losses (NDLs) to highlight the need for CCPs to have adequate resources and appropriate tools to address NDLs. This report does not create additional standards for CCPs or other financial market infrastructures (FMIs), nor does it provide guidance on existing standards. It is intended to facilitate the sharing and understanding of these practices and to improve CCPs’ plans for managing NDLs. It builds on the CPMI and IOSCO’s August 2022 discussion paper to provide a more thorough description of current practices that CCPs employ to address NDLs. The CPMI and IOSCO intend to undertake additional work on NDLs across all FMI types, including an assessment of the implementation of the Principles for Financial Market Infrastructures and guidance on general business risks. Further engagement with industry stakeholders will also be undertaken to inform a public consultation in the near term on further guidance or recommendations with respect to NDLs.

Press release

Cover note

Report

Payment Services and Payment Systems

Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 corrected

On 24 August, a correction to the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 was published. Regulation 4(4)(a) and the explanatory note to the regulations have been corrected where they refer to the Payment Services Regulator rather than the Payment Systems Regulator.

Correction

Regulations

HMT cash access policy statement and FCA approach statement

On 18 August, HMT published its cash access policy statement which sets out the government’s policy concerning access to cash deposit and withdrawal services for personal and business current accounts across the UK and is intended to inform the FCA’s approach, including in relation to what constitutes “reasonable provision” of cash access services in the UK. The government’s aim is to maintain reasonable access to deposit and withdrawal services for these accounts. The government does not consider that a substantial redistribution or large-scale introduction of additional access points is required. The FCA has also published a statement on its approach to protecting access to cash. The FCA intends to consult on any rules or general guidance and expects any new rules will have taken effect by summer 2024. The FCA also draws firms’ attention to the higher standard of protection for banking customers introduced by the Consumer Duty, in particular where they are impacted by branch and ATM closures.

HMT cash access policy statement

FCA approach statement

BoE supervisory approach to market oversight for wholesale cash distribution

On 18 August, the BoE published a statement of policy on its supervisory approach to market oversight for wholesale cash distribution, together with its response to the feedback received to its related consultation. The BoE’s approach is based on the principles for wholesale cash distribution oversight, which further describe the regime’s purpose at a high level. The principles lay the foundation for the BoE’s analysis of the main risks presented to the effectiveness, resilience and sustainability of the market. The BoE then assesses firms’ compliance with the regime to ensure that these risks are mitigated. In doing so, the BoE will be risk-based and proportionate. To assist with the BoE’s monitoring and analysis, firms recognised by HMT under the new Part 5A of the Banking Act 2009, as introduced through FSMA 2023, are required to share information with the BoE at regular intervals, as well as on an event-driven basis. The codes of practice for the market oversight regime further detail information requirements and build upon voluntary reporting commitments given by firms. The BoE intends to consult in the autumn on its proposals for codes of practice (and accompanying guidance) on: (i) information gathering; (ii) third-party arrangements; and (iii) cash centre closure and market exit. The BoE also intends to consult on its proposals relating to its approach under the statement of policy to imposing financial penalties and their amount. HMT and the BoE will engage with industry further on the fee scale later in 2023.

Statement of policy

Response to feedback

Prudential Regulation

RTS on specific liquidity measurement of investment firms under IFD published in OJ

On 23 August, Commission Delegated Regulation (EU) 2023/1651 supplementing the IFD with regard to RTS for the specific liquidity measurement of investment firms under Article 42(6) was published in the OJ. Article 42 of the IFD gives competent authorities the power to impose additional Pillar 2 liquidity requirements on an individual investment firm, where that firm is exposed to liquidity risk or elements of liquidity risk that are material. These RTS specify in a manner that is appropriate to the size, the structure and the internal organisation of investment firms and the nature, scope and complexity of their activities how the liquidity risk and elements of liquidity risk should be measured. The Delegated Regulation will enter into force on 12 September, 20 days after its publication in the OJ.

Delegated Regulation

ECB consults on draft guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions

On 21 August, the ECB began consulting on a draft guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions. The draft guide aims to provide consistency, coherence, effectiveness and transparency regarding the approach the ECB will take where it has been appointed coordinator of a financial conglomerate. In particular, the guide aims to help financial conglomerates in setting up the necessary internal processes for reporting significant risk concentrations and intragroup transactions using the templates provided for in Commission Implementing Regulation (EU) 2022/2454. The deadline for comments is 6 October.

Consultation

Draft guide

Regulatory Reform Post Brexit

Financial Services and Markets Act 2023 (Commencement No 2 and Transitional Provisions) Regulations 2023

On 24 August, the Financial Services and Markets Act 2023 (Commencement No 2 and Transitional Provisions) Regulations 2023 were published. The regulations bring into force amendments to FSMA 2000 made by FSMA 2023 in relation to the new financial promotion approvals regulatory gateway. The provisions have staggered entry into force dates, coming into force: (i) on 6 September, to enable the FCA to make new rules; (ii) on 6 November, for the FCA to begin receiving applications for permission to approve financial promotions made during the application period (which is between 6 November 2023 and 6 February 2024); and (iii) on 7 February 2024, for all remaining purposes. Certain transitional provisions also apply in respect of the new regulatory gateway requirements. The regulations also contain transitional provisions for reforms made by FSMA 2023 relating to: (a) the application of new PRA accountability requirements to the implementation of banking prudential reforms; and (b) applications relating to changes in control under section 178 of FSMA 2000.

Regulations

Financial Services Act 2021 (Commencement No 5) Regulations 2023

On 23 August, the Financial Services Act 2021 (Commencement No 5) Regulations 2023 were published. The regulations specify that certain provisions in section 22 of the FS Act 2021 (and, as a consequence the related provisions in FSMA, including parts of new Schedule 2A) will come into force on 1 September. The effect of this is to bring into force provisions in the FS Act 2021 that give HMT powers to make regulations relating to the Gibraltar Authorisation Regime (GAR). The GAR is a financial services market access framework between the UK and Gibraltar that will replace the temporary post-Brexit passporting regime.

Regulations

Other Developments

CMA call for views on how it works with sector regulators

On 24 August, the CMA launched a review of the concurrency arrangements over the past 10 years, which set out how it works with the eight sector regulators (Ofgem, Ofcom, Ofwat, the Civil Aviation Authority, the FCA, the Northern Ireland Authority for Utility Regulation, the PSR, the Office of Rail and Road) to enforce competition law and promote competition in the regulated sector. In particular, it is asking for feedback on how the concurrency arrangements have helped the effectiveness of sector regulators in promoting competition in their respective sectors, their impact on the effectiveness of the UK's competition regime and any improvements which could be made to the concurrency arrangements. The deadline for comments is 20 October. The CMA expects to report the findings of the review in Spring 2024.

Press release

Call for views