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Key Regulatory Topics: Weekly Update 19 - 25 March 2021

Our weekly update on key regulatory topics affecting the financial services sector.

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Please see the other sections for product- and market- specific updates relating to Brexit.

HoL EU Services Sub-Committee report on trade in services

On 24 March, the HoL European Union Committee published a new report on UK-EU trade in services. The report concludes that despite the agreement of the Trade and Cooperation Agreement (TCA), the UK and EU still have work to do in overcoming the significant challenges that remain for trade in services. The report focuses on the implications on sectors including: (i) financial services, the TCA does not include substantive provisions on financial services, and delays to key decisions about the future relationship, particularly on equivalence, mean that the sector is still in a period of uncertainty. The UK’s exit from the passporting regime has led to the movement of some activity to the EU and firms facing the challenges involved in navigating different market access requirements in each Member State. The Committee is concerned that over time this may lead to a big shift of people and assets out of the UK. The Committee recognises that the UK and the EU will seek to change their regulatory regimes where it is in either party’s interests, but calls on the Government not to disregard the value of a close UK-EU relationship in financial services; (ii) professional and business services - the proliferation of national reservations in the TCA means that UK professional and business services providers face a patchwork of complicated rules that vary by sector and Member State. The lack of mutual recognition of professional qualifications in the TCA could have a serious impact on many sectors; (iii) data and digital trade - the TCA offers unprecedented cooperation on digital trade compared with other EU free trade agreements, and it is expected that the EU’s draft data adequacy decision will be confirmed in the coming weeks.

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BoE response to HoC Treasury Committee call for evidence into UK financial services post-Brexit

On 23 March, the HoC Treasury Committee published the BoE’s response to the committee's call for evidence into the future of financial services in the UK after Brexit. Highlights include: (i) the BoE explains that strong standards are at the centre of its response - the UK’s reputation for strong standards and financial stability increases its attractiveness as a place to do business. Leaving the EU, however gives the UK an opportunity to tailor its approach to financial services policy and regulation and focus on facilitating innovation, so that the UK can seize opportunities from new areas of growth and productive investment in financial services as they emerge – digitisation of the economy, the need to transition to net zero and technological financial innovations. Regulation should also promote competition, for example by ensuring that standards are proportionate to firms’ business models; (ii) the BoE notes that safe openness to firms from other jurisdictions who are seeking to access the UK market, based on international collaboration and standards, will be another key element in the UK’s future success; (iii) the BoE supports the view that autonomous equivalence decisions should be accompanied by structured and transparent processes – in particular for the withdrawal of equivalence, to provide confidence that any withdrawal of equivalence will be orderly; (iv) the BoE agrees with HMT’s proposals that there are significant benefits from a model where the high-level objectives, responsibilities and powers of regulators are set out by Parliament and Government, while the technical requirements to achieve those objectives are designed and maintained by operationally independent regulators accountable to Parliament. This would reflect international best practice, and would be a return to the style of regulation the UK had previously followed in areas not reserved to the EU.

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LSB summary report on effectiveness of credit card market voluntary remedies

On 25 March, the Lending Standards Board (LSB) published a summary report on its review of how the package of remedies set out in the FCA's final report on the credit cards market (CCMS) has impacted consumers' use of their credit card. Overall, the LSB found that where the remedies had been implemented, this was completed as directed. The key areas for improvement are: (i) governance and oversight – firms must be clear about how the introduction of the remedies will result in positive customer behaviours; (ii) promotional rate expiry – there are still elements of the customer base who appear to not be responding to the communications and are exposed to increased costs due to carrying a high line of credit into a standard product; (iii) borrowing prompt – the impact on the number of customers receiving an over limit charge following the issue of threshold prompts varied significantly between firms assessed. This indicates that further action is required to strengthen communications and customer understanding of the costs that could be incurred if appropriate payments are not made; (iv) payment date - further activity and education should be considered for customers that do not change their payment date despite receiving a late payment charge; and (v) unsolicited credit limit increases – the trend is for customers to ‘Opt-out’ of credit limit increases meaning that unless they proactively reject a credit limit increase that is offered this will be automatically applied. Jargon needs to be eliminated to ensure that customers are absolutely clear about the impact of the options they are selecting. Subject to discussion between the LSB and credit card providers, the LSB believe that the development of guidelines as part of its ongoing review of the Standards of Lending Practice will help in managing expectations relating to the remedies.

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FCA updated mortgages and Covid-19 support guidance, and report on Covid-19 linked forbearance

On 25 March, the FCA updated its tailored support guidance (TSG) for mortgage firms, setting out its expectation in respect of repossessions from 1 April. This guidance applies to firms dealing with customers facing payment difficulties due to circumstances related to Covid-19 who are not receiving payment deferrals under the Payment Deferral Guidance, including where they are not or are no longer eligible for payment deferral. The changes include that, subject to any relevant government restrictions on repossessions, firms may enforce repossession provided they act in accordance with the guidance, chapter 13 of the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB 13), and relevant regulatory and legislative requirements. The guidance comes into effect from 29 March. The FCA has also published the key findings from its review into mortgage and consumer credit firms' implementation of TSG since November 2020 and the operational readiness of firms to support customers in financial difficulty. The FCA found that: (i) firms have progressed well in implementing the TSG and in general customers have been able to get support as they exit payment deferrals; (ii) there were no systemic issues with lenders’ ability to meet the demand from customers seeking further help; (iii) the significant increase in inexperienced staff helping customers may lead to an increased risk of harm; and (iv) a number of firms have accelerated plans to automate aspects of the customer forbearance journey. The use of automated approaches can be helpful to customers although further enhancements to some of the digital processes seen would be beneficial, for example clear signposting of non-digital support or the recording of new vulnerabilities. The FCA will be implementing a workplan over the next year to assess whether firms are effectively implementing their policies and procedures.

Press release

Updated guidance

Report key findings

PRA policy statement on depositor protection – identity verification

On 24 March, the PRA published a policy statement on depositor protection, in respect of identity verification. The PRA provides feedback to responses to its consultation and also contains the PRA’s final policy: (i) amendments to the Depositor Protection (DP) Part of the PRA Rulebook; and (ii) updates to Supervisory Statement (SS) 18/15 ‘Depositor and dormant account protection’. The policy changes are to: (a) amend existing DP rules to allow identity verification to be carried out retrospectively, if a responsible person had not already done so before the compensation date, for the purposes of determining the eligibility of depositors and ultimate beneficiaries for FSCS protection; and (b) introduce a new expectation in SS18/15 that insolvency practitioners should carry out identity verification in the event that a responsible person had not done so by the compensation date. Following feedback, the PRA has amended the language in paragraph 2.10 of SS18/15 to provide further clarity.

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CMA Annual Plan 2021/22

On 23 March, the CMA published its Annual plan for 2021/22. The CMA will focus on: (i) protecting consumers and driving recovery during and after the Covid-19 pandemic, focusing in particular on: protecting the vulnerable from breaches of competition and consumer protection laws and poorly functioning markets, as well as supporting the UK economy by fostering competition to promote innovation, productivity and growth; (ii) taking its place as a global competition and consumer protection authority as it assumes new responsibilities after the Brexit transition period and establishes the Office for the Internal Market; (iii) fostering effective competition in digital markets and establishing the new Digital Markets Unit; and (iv) supporting the transition to a low carbon economy. The CMA has also published a summary of the responses to its consultation on the Annual Plan.

Press release

Annual plan

Summary of responses


Please see the other sections for product-specific updates relating to Covid-19.


Delegated Regulation on payment of contributions to SRB administrative expenses published in OJ

On 25 March, Commission Delegated Regulation (EU) 2021/517 amending Delegated Regulation (EU) 2017/2361 as regards the arrangements for the payment of contributions to the administrative expenditures of the SRB was published in the OJ. Regulation (EU) 2019/2155 of the ECB, changed the system whereby the ECB collects the data for determining the supervisory fees, from the advance payment of annual supervisory fees to the ECB, to a system where fees are levied only after the end of the relevant fee period, once the actual annual expenditures have been determined, which requires the ECB to issue a fee notice to each fee debtor annually, within six months after the start of the following fee period. Because the ECB now raises the supervisory fees only after the start of the SRB’s financial year, the deadlines for the transmission of data form the ECB to the SRB no longer enable it to calculate and raise in advance the annual contributions due for a given financial year. The Delegated Regulation: (i) amends the current system of invoicing of the SRB and; (ii) sets out transitional arrangements that will allow SRB to raise contributions for the year 2021 based on the same data that were used for the collection of 2020 contributions - as a result of the change to the levying system, there will be a gap in the transmission of data from the ECB to the SRB from December 2019 to June 2021.

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EC adopts Delegated Regulation supplementing EMIR and SFTR on fees charged to TRs in 2021

On 24 March, the EC adopted a Delegated Regulation amending Delegated Regulations (EU) 1003/2013 and (EU) 2019/360 as regards the annual supervisory fees charged by ESMA to trade repositories (TRs) for 2021. Two of the four TRs based in the UK have transferred part of their business to the EU creating new entities established in the EU in order to continue providing services and activities to counterparties established in the EU post Brexit. These new TRs effectively started their activity in the EU in January 2021. To ensure that they pay a supervisory fee which is proportionate to their actual turnover in the EU for this year, the EC proposes to include a new article in each of the two delegated regulations. This new article changes the reference period for the calculation of the applicable turnover of TRs from 2020 to January to June 2021. If neither the Council of the EU or the EP object, the Delegated Regulation will be published in the OJ and will enter into force the day after its publication.

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ESMA consults on simplified supervisory fees for trade repositories (TRs) under EMIR and SFTR

On 24 March, ESMA began consulting on technical advice to the EC on the simplification and harmonisation of fees to TRs under EMIR and the SFTR. ESMA proposes, in the context of the registration fees: (i) two alternatives on the simplification of fees, one keeping two layers of TRs and another one with a single fixed fee; (ii) a simplification of the way to determine the turnover of TRs for the purposes of calculation of the annual supervisory fees by including only revenues and excluding activity figures. In addition, ESMA has specifically defined the calculation of lower fees in the case of extension of registration under SFTR, or in the case of concurrent application under both regimes; and (iii) a simplification of the calculation of fees for recognition of third country TRs and the different payment conditions, by setting a single deadline for payment by 31 March. ESMA aims to publish its final report in Q2. The deadline for comments is 24 April.

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ECB decision on annual SSM supervisory fees for 2020

On 23 March, ECB Decision (EU) 2021/490, on the total amount of annual supervisory fees under the single supervisory mechanism (SSM) for 2020, was published in the OJ. The ECB has set the total amount of annual supervisory fees for 2020 at €514,314,706. Each category of supervised entities and supervised groups shall pay: (a) significant supervised entities and significant supervised groups – €476,526,421; and (b) less significant supervised entities and less significant supervised groups – €37,788,285. The decision will enter into force on 28 March (the fifth day following its publication in the OJ).

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Fund regulation

Please see the FinTech section for the the EP’s Economic and Monetary Affairs Committee draft report setting out amendments to the proposed Directive amending certain directives including UCITS and AIFMD.

Results of 2020 common supervisory action with NCAs on UCITS managers' liquidity risk management

On 24 March, ESMA published the results of the 2020 common supervisory action (CSA) on the supervision of UCITS managers' liquidity risk management (LRM). ESMA notes that overall, most UCITS managers have demonstrated that they have implemented and applied sufficiently sound LRM processes. However, in a few cases, some adverse supervisory findings were identified, particularly linked to documentation, procedures and methodology. In some cases, the liquidity assessment before investing should be strengthened, as well as the data reliability verification and the internal control framework. To further improve the quality of LRM processes, ESMA requests that market participants critically review their LRM frameworks to ensure that none of these adverse supervisory findings exist in their frameworks. More generally, they should also ensure ongoing compliance with all relevant UCITS regulatory requirements, and associated EU and national guidance. NCAs supervised the LRM practices of UCITS managers in their respective Member States with a high degree of convergence. Despite this, ESMA has identified the need for further convergence work with respect to NCAs follow-up actions, including enforcement actions where appropriate. NCAs will undertake follow-up actions on individual cases to ensure that regulatory breaches as well as weaknesses identified are remedied, especially regarding the adverse supervisory findings identified. ESMA will carry out further work to promote convergence in the way NCAs follow-up on the supervisory findings made during the CSA.

Press release

CSA results

Financial crime

The Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021

On 25 March, the Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021 were published together with an explanatory memorandum. The statutory instrument (SI) amends the MLRs, replacing references to the EC’s list of high-risk third countries with a list of such countries identified instead in a new Schedule 3ZA to the MLRs. This new list of countries reflects the list identified by the FATF in the ‘high risk jurisdictions subject to a call for action’ and ‘jurisdictions under increased monitoring’ public statements released after the Plenary meeting of 23-26 February 2021. The SI came into force on 26 March, a day after it was laid, due to the increased risks of money laundering associated with delaying the addition of 4 new countries to the list. HMT has also updated its advisory notice on AML/CFT controls in overseas jurisdictions. The revised notice reflects the aforementioned FATF list.


Explanatory memorandum

HMT advisory notice

FATF consults on draft guidance on a risk-based approach to VAs and VASPs

On 22 March, the FATF began consulting on updated draft guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs). The guidance is updated in six main areas, to: (i) clarify the definitions of VA and VASP to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as a traditional financial asset); (ii) provide guidance on how the FATF Standards apply to so-called stablecoins; (iii) provide additional guidance on the risks and potential risk mitigants for peer-to-peer transactions; (iv) provide updated guidance on the licensing and registration of VASPs; (v) provide additional guidance for the public and private sectors on the implementation of the ‘travel rule’; and (vi) include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors. The Guidance has also been updated to reflect the passage of time and the publication of other relevant FATF reports. In addition to revising the guidance, the FATF is also considering the implementation of the revised FATF standards on VAs and VASPs, and whether further updates are necessary, through a second 12-month review. Relevant issues identified in the consultation, which are outside the scope of this review, may be considered through that review. The deadline for comments is 20 April. The FATF will make further amendments at its June 2021 meetings.

Consultation webpage

Draft guidance


Please see the Financial Crime section for the FATF consultation to update guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs).

Please see the Payments Systems and Payment Services section for the Council of the EU’s adopted conclusions on the EC’s Retail Payments Strategy for the EU.

FMLC response to HMT consultation on cryptoassets and stablecoins

On 22 March, the FMLC published its response to the HMT consultation on the UK regulatory approach to stablecoins and a call for evidence on cryptoassets used for investment and the broader use of DLT in financial markets. Issues of legal uncertainty highlighted include: (i) the term “token” is used interchangeably with “cryptoasset”, which may be found to be too imprecise, especially since the concept of a “token” is already very unclear. For instance, identifying what a “token” is can be particularly difficult where the relevant technology protocol provides for value transfers by the “spending” (i.e., rendering inert but not deleting) of data locked to one address and the creation of new “active” data affixed to the address of the transferee; (ii) while the consultation aspires to provide a “technologically agnostic” regulatory regime, the technology underpinning the token may have a bearing on a variety of factors, including the legal nature of the asset and the risks posed. It may therefore be necessary to identify some of the features that the underlying technology so as to define the regulatory perimeter clearly; (iii) there may also be a case to be made for acknowledging, and catering for, the specificities of certain token-based business models in considering any new regime (iv) any new regulatory regime will need to assess any regulatory under or overlap, for instance with “transferable securities” under MiFID II, and “e-money” under the EMRs; (iv) there is no specific definition of “stable tokens.” The consultation only provides guiding principles. This raises concerns about how the definition of stable tokens will interact with any specified investments under the RAO; (v) the FCA’s current taxonomy, used by the consultation, can only ever aspire to very approximate mapping onto complex regulatory regimes; (vi) excluding algorithmically generated stablecoins and other cryptoassets which in practice may be used for payments, may raise legal uncertainties and the potential for regulatory arbitrage; (vii) there is a lack of clarity relating to the application of the proposed regime to stablecoins used as an accessory to the crypto and decentralised finance market; and (viii) difficulties arise from the application of concepts present in financial services regulation which reflect the traditional market infrastructure of intermediated securities, most, if not all, of which cannot readily be applied to a DLT context.

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ECON draft report on proposed amending Directive as part of Digital Finance Strategy

On 22 March, the EP’s Economic and Monetary Affairs Committee (ECON) published a draft report setting out amendments to the proposed Directive amending Directives 2006/43/EC (Statutory Audits of Annual and Consolidated Accounts), UCITS, Solvency II, AIFMD, CRD IV, MiFID II, PSD II and IORP II Directive. The proposed Directive introduces targeted changes to: (i) existing EU financial services directives in order to align them with the requirements on network and information systems and ICT risk management and reporting laid down in the proposed Regulation on digital operational resilience (DORA) and clarify certain provisions to ensure ICT risks are fully addressed. As well as those listed above, this includes AMLD and BRRD; and (ii) MIFID, to provide legal certainty as regards the definition of crypto assets and to establish a temporary exemption allowing natural persons to participate to the pilot regime for a DLT Multilateral Trading Facility, under certain conditions. The Rapporteur supports the overall approach followed by the EC but believes further changes and clarifications to existing financial services directives are necessary to increase clarity and consistency.

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Markets and markets infrastructure

Please see the FinTech section for the the EP’s Economic and Monetary Affairs Committee draft report setting out amendments to the proposed Directive amending a number of directives including MiFID II.

FCA and PRA comments on RFRWG Senior Advisory Group meeting

On 25 March, the BoE published the minutes of the February 2021 meeting of the working group on sterling risk-free reference rates (RFRWG). Among other things, the RFRWG discussed comments by the PRA at a recent meeting of the senior advisory group, where the agenda focused on the RFRWG’s recommended milestones and the PRA’s supervisory approach and expectations in relation to those. The PRA representatives: (i) indicated that supervisory oversight would intensify over the coming weeks and months, with an active meeting programme and monitoring in place to see firms make progress in line with industry milestones; (ii) noted that the lending market is a more challenging area than other segments. Data from Q4 2020 suggested less than 20% of new commercial lending was taking place on a ‘day 1’ SONIA basis. This does not give the PRA comfort that all firms had made the necessary preparations to meet the Q1 2021 GBP lending milestone; (iii) had been made aware of some firms in syndicates holding back progress by advising clients to remain on LIBOR. The PRA insist that they would not allow these firms to act as a brake on transition; and (iv) noted that on legacy contracts, the PRA’s expectation was that wherever possible all legacy LIBOR contracts would be amended to include at least a contractually robust fallback, or preferably an agreed conversion to an alternative rate no later than the end of 2021. The FCA noted to the RFRWG its alignment with the PRA’s approach and that moving away from LIBOR was the most effective way to mitigate conduct concerns. The FCA cautioned it would challenge firms where it believed they should be doing more to shift business away from LIBOR.

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FMSB draft standard on use of Term SONIA reference rates

On 24 March, the FMSB published a draft standard on the use of Term SONIA reference rates. The FMSB explain that the UK financial authorities have made clear their view that overnight risk-free rates provide the most robust benchmark interest rate available, and therefore, in the UK, the expectation is that overnight SONIA, compounded in arrears, will become the norm in most derivatives, bonds and bilateral and syndicated loan markets. However, they have acknowledged that overnight SONIA may not be the optimal rate in all cases where term LIBOR is currently used and therefore, in addition to other alternative reference rates, the development of forward-looking term rates is likely to play a role in facilitating transition to SONIA as well as on an ongoing basis for specific products and use cases. The draft standard has been developed with the aim of identifying where there may be robust rationales for using Term SONIA for transactions in the loan, bond and derivatives markets and to set out certain expected behaviours of markets participants when using or issuing Term SONIA products in light of the reduced systemic risks associated with using overnight risk free rates. The standard applies to participants in the Sterling fixed income and wholesale lending markets, including Sterling legs of multi-currency products. The FCA, the BoE and the RFRWG issued a joint statement welcoming the draft standard and encouraging market participants to respond to the FMSB's invitation to comment. The deadline for comments on is 28 May.

FCA, BoE, RFRWG joint statement

FMSB draft standard

FCA statement on the review of the FCA approach to the UK’s derivatives trading obligation (DTO)

On 24 March, the FCA published a statement on the review of the FCA approach to the UK’s DTO. On 31 December 2020, the FCA stated that it would keep its use of the TTP under review and consider by 31 March 2021 whether market or regulatory developments warrant a review of its approach. The FCA has not observed any such market or regulatory developments in the first quarter of 2021 that justify a change in its approach – therefore, it will continue to use the TTP to modify the application of the DTO as previously set out.

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ESMA updates statement on the impact of Brexit on BMR

On 24 March, ESMA updated its statement on the impact of Brexit on the BMR, in regard to the consequences of Brexit for the ESMA register for benchmark administrators and third country benchmarks. ESMA explains that now that the Brexit transition period has ended, UK based administrators that were originally included in the ESMA register as EU administrators, are now qualified as third country administrators (for which the BMR foresees different regimes to be included in the ESMA register, being equivalence, recognition or endorsement). However, due to the fact that recently the BMR transitional period has been extended, the change in the ESMA register does not yet have an effect on the ability of EU27 supervised entities to use the benchmarks provided by any third country administrators, including UK ones. During the BMR transitional period, third country benchmarks can still be used by supervised entities in the EU if the benchmark is already used in the EU as a reference for financial instruments, financial contracts, or for measuring the performance of an investment fund. Therefore, EU supervised entities can, until 31 December 2023, use third country UK based benchmarks even if they are not included in the ESMA register. In the absence of an equivalence decision by the EC, UK based administrators have until the end of the extended BMR transitional period (31 December 2023) to apply for recognition or endorsement in the EU, in order for the benchmarks provided by these UK based administrators to be included in the ESMA register again. The extended BMR transitional period also applies to UK-recognised or endorsed third-country benchmarks.

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ESMA chair of CCP Supervisory Committee speech on risks associated with CCPs and supervisory responses

On 24 March, ESMA published a speech by Klaus Löber, chair of ESMA's CCP Supervisory Committee, which includes a discussion on some of the major risks emerging in the domain of CCPs in connection with recent market and environmental developments, including: (i) post-Brexit change - while the temporary recognition of the UK CCPs has allowed for a smooth transition from the previous EU CCP regime to the new third-country regime, at the same time Brexit resulted in two major CCPs of systemic importance for the EU to operate from outside its jurisdiction. By mid-2022, the Committee will assess whether the services provided by the two Tier 2 CCPs, or some of them, are of a systemic nature that is too substantial to be safely provided from abroad; (ii) procyclicality - in early 2020 the pandemic exacerbated market volatility, however EU CCPs’ risk models generally performed well; (iii) operational risk and cyber risk - during lockdowns and other forms of restrictions to local mobility, CCPs had to adapt to new working conditions and adjusted business continuity procedures. The Committee is going to review supervisory activities in respect of CCPs’ operational and cyber resilience in order to identify and promote best practices in this field; (iv) environmental risk - this is becoming an increasingly pressing concern. These events may affect a CCP in various ways, for example: (a) through a direct impact on market prices of assets it clears; (b) through a direct or indirect impact on its business continuity following operational disruptions; or (c) there is “transition risk”, consisting of the risk of a sharp change in asset prices following a technological and/or regulatory change; (v) interdependencies - the interconnection between banks and CCPs can be a critical channel of propagation of systemic risk.

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EC consults on the designation of a statutory replacement rate for CHF LIBOR

On 23 March, the EC began consulting on the designation of a statutory replacement rate for Swiss Franc LIBOR (CHF LIBOR). The EC states that the consultation is aimed to assess the suitability of designating a statutory replacement for certain settings of CHF LIBOR to products such as savings accounts, mortgages and loans, including consumer credit agreements and small business loans, concluded prior to the entry into application of the BMR, on 1 January 2018. The EC has received submissions from market participants active in the banking sector in several member states, according to which CHF LIBOR plays an important role in their financial markets states. These stated that the current stock of mortgage credit agreements to consumers and loans to small businesses denominated in CHF LIBOR amounts to several billion EUR, with most of the existing stock maturing after the end of 2021. The submitters further state that almost none of their existing contracts expiring after 31 December referencing CHF LIBOR contain contractual fall-back arrangements, as most of the mortgage credit agreements were concluded before 1 January 2018. Stakeholders propose that the EC statutory designation follows the recommendation of the Swiss National Working Group on Swiss Franc Reference Rates (Swiss NWG) for replacing CHF LIBOR in mortgages. Stakeholders also propose that, in order to reflect differences in the 3-month (3M) CHF LIBOR and the 3M Swiss Average Rate Overnight (SARON) compounded rate, a spread adjustment would have to be added. The deadline for comments is 18 May.



Response Form

International Islamic Financial Market white paper on IBOR transition for industry awareness and development

On 22 March, the International Islamic Financial Market (IIFM) published a white paper on IBOR transition for industry awareness and development. The IIFM states that the paper aims to create awareness and highlights the challenges posed particularly to Islamic financial product structures, transactions, documentation, accounting, credit and legal related matters. The paper will serve as a basis in the development work to be undertaken by IIFM on the major transformation to Risk Free Rates, which will have an effect on new and legacy contracts, Islamic financing arrangements (syndicated and bilateral), hedging and capital market securities such as Sukuk. The IIFM sets out recommendations for it to further assess including: (i) to develop benchmark fallback clauses / definitions covering selected Islamic contracts or all types of contracts; (ii) assess the need for developing protocol for hedging segment and considering complexities involving operations & IT; (iii) to assess need for guidance note, as a protocol for Sukuk and other securities may not be feasible; (iv) to develop RFR and AAOIFI Standard 59 related Shari’ah solutions; and (v) .RFR transition related amendments in new and legacy contracts. The IIFM notes that as a way forward, it has formed three separate work streams for financing, hedging and Sukuk consisting of leading institutions.

Press Release

White Paper

FMLC and EFMLG letter on LIBOR transition

On 22 March, the FMLC and the European Financial Markets Lawyers Group (EFMLG) published a joint letter to Katharine Braddick, HMT Director of General Financial Services, on LIBOR transition. Although the organisations are of the view that regulatory efforts should be focused in finalising the ongoing legislative proposals, in the letter, they set out areas of potential conflict and overlap that may arise owing to the differences in the legislative approaches adopted by authorities in the UK, EU and US: (i) LIBOR could be theoretically extant under English law as a screen rate, but "in cessation" as a methodology or as a measure of London interbank unsecured lending rates and therefore replaceable by the statutory replacement rate under the proposed EU regime; (ii) a major concern is the potential disparity of fallback rates (or synthetic methodologies) which may be identified in different jurisdictions; (iii) new powers that will be granted under the UK legislative initiative allow the FCA to direct a change in LIBOR methodology. Whilst this solution is positive per se, there is however a contingent risk that it could also provide a platform for litigation or result in the frustration of contracts in agreements that are subject to US or EU law unless there is some form of equivalence mechanism or other similar process to endorse legislative solutions implemented by UK authorities; and (iv) similar situations might be treated differently under the various legislative systems. Members of both the FMLC and EFMLG express support for the establishment of the “tough legacy” cross-border collaboration working group, as proposed in the letter sent by the Global Financial Markets Association, to help facilitate policy alignment wherever possible of regulatory and legislative solutions.

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ESAs Q&As on exchange of collateral under EMIR

On 19 March, the ESAs published a set of joint Q&As on bilateral margin requirements under Article 11(15) of EMIR. The Q&As cover: (i) intragroup transactions - in particular on: (a) the scope of the partial exemption from the requirement related to the exchange of collateral for OTC derivatives contracts not cleared by a central counterparty; and (b) which competent authority should decide on an intragroup exemption where a counterparty is a financial counterparty and the other counterparty is a non-financial counterparty and they are established in different Member States; and (ii) the scope of the covered bonds exemption, in relation to the Article 30 exemption in the RTS 2016/2251.

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ESMA statement on supervisory approach to position limits under MiFID II – Covid-19

On 19 March, ESMA published a statement on its supervisory approach to position limits for commodity derivatives under MiFID II. ESMA notes that as a result of the exemptions introduced by Directive 2021/338, to help the EU’s economic recovery from the Covid-19 pandemic, from early 2022, the scope of commodity derivatives subject to position limits will be substantially reduced. ESMA sees merit however, in already having in place a more favourable environment for the development of these non-significant commodity derivatives. ESMA therefore expects national competent authorities to not prioritise their supervisory actions towards (i) entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots; and (ii) positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as referred to in point (c) of the fourth subparagraph of Article 2(4) of MiFID II.

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ECB paper on best practices applied by FMIs in business continuity plans during Covid-19

On 19 March, the ECB set out best practices applied by financial market infrastructures (FMIs) in their business continuity plans during the Covid-19 pandemic. The ECB explains that the Eurosystem has been collecting information on the preparedness of payment systems/schemes and their critical service providers for dealing with the pandemic as well as their responses and resilience in terms of withstanding this shock (e.g. delays in payments caused by increases in traffic capacity, reduced availability of critical staff, etc.). The ECB notes that different approaches have been used, ranging from more standardised step-by-step pandemic-specific business continuity plans to more flexible arrangements entailing ad hoc decision-making. Based on these observations, the Eurosystem has compiled a set of key market practices, aiming to: (i) provide support for the overseers in monitoring overseen entities; and (ii) identify what market practices related to pandemic crisis planning are or could be applied by payment systems/schemes in their business continuity plans in a flexible way, taking into account the specificities of each entity. As these market practices may also be valid for other FMIs, the remainder of the document refers to FMIs. The intention is for the document to serve as a reference guide for overseers and operators and does not represent prescriptive oversight expectations.

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FCA supervisory flexibility on RTS 27 reports and 10% depreciation notifications – Covid-19

On 19 March, the FCA announced that it was extending the temporary measures in relation to the requirement for firms to issue 10% depreciation notifications to investors, which were put in place for the past 12 months in response to market volatility as a result of the Covid-19 crisis and Brexit transitional period. The FCA expects to consult on changes to the requirement in the Spring and therefore extends the temporary measures until the end of 2021, while it undertakes this policy work. The FCA also announced that it will not take action against firms who do not produce RTS 27 reports for the rest of 2021. The next set of RTS 27 reports on execution quality will be based on pre-Brexit data. As a result, the information in them is likely to be of limited use for market participants and may even be misleading. The FCA explains that there is also a particular challenge arising from the EU’s two-year suspension of RTS 27 reports for firms in the Temporary Permissions Regime who, benefitting from substituted compliance, would normally discharge their obligation in the UK by producing reports for the firm as a whole. The FCA is preparing a consultation on this obligation, with a view to abolishing it, which it expects to conclude by end of 2021.

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Payment systems and payment services

Please see the FinTech section for product-specific updates relating to Payment Systems and Payment Services.

EC consults on instant payments

On 24 March, the EC began consulting on instant payments, and published its strategy for the initiative on instant payments in the EU. The consultation aims to collect information from payment service providers (PSPs) and providers of supporting technical services. Questions cover areas including: PSPs incentives to adhere to an instant credit transfer scheme, PSPs liquidity management, compliance with the sanctions screening obligations with respect to instant credit transfers, addressing the risk of incorrect identification of the beneficiary, and development of interoperable front user solutions. The consultation will inform the EC on remaining obstacles as well as possible enabling actions that it could take to ensure a wide availability and use of instant payments in the EU. It will also enable the EC to decide on whether EU coordinated action and/or policy measures are warranted in order to ensure that a critical mass of EU PSPs offer instant credit transfers. The consultation also seeks to identify factors that would be relevant for fostering customer demand towards instant credit transfers. The deadline for comments is 2 June. This targeted consultation complements the online public consultation of all stakeholders that will be launched on 31 March.

Consultation document

Consultation strategy

PSR annual plan and budget for 2021/22

On 24 March, the PSR published its annual plan and budget for 2020/21, together with an accompanying factsheet. The PSR’s key initiatives include the following: (i) competition from interbank retail payments - undertaking research, analysis and engagement to explore the extent to which digital payments innovations are materialising and the impact they could have on consumers and businesses. This will help the PSR to better understand the scale of any barriers to interbank systems being used for retail payments, and how to address them; (ii) consumer protection - evaluating responses to the PSR’s call for views and assessing the actions it should take to support the development of effective protection measures including regulatory steps. The PSR will set out its proposed next steps in a statement by Q4 2021; (iii) authorised push payment (APP) scams and Confirmation of Payee - continue to work closely with government, industry and consumer groups to identify ways to prevent APP scams and improve protection for victims; (iv) the New Payments Architecture (NPA) - continue to oversee the procurement of central infrastructure services in the NPA and explore ways to lower risks to the NPA's delivery. The PSR will assess if it needs to use its powers to ensure the NPA delivers its benefits of better prices for everyone; (v) access to cash - continue to oversee LINK and encourage innovation and competition in cash access. The PSR is working with stakeholders to ensure there is a long-term framework in place that provides access to cash; (vi) card-acquiring market review - to consult on a remedies paper containing its proposals to help merchants get a better deal for card-acquiring services, leading to better outcomes for merchants, and, ultimately, consumers. The PSR will also publish a final report setting out its findings and any action it intends to take.

Annual plan


Council of EU adopts conclusions on EU Retail Payments Strategy

On 22 March, the Council of the EU announced that it has adopted conclusions on the EC’s Retail Payments Strategy for the EU. Among other things, the Council: (i) welcomes the very comprehensive Communication from the EC on a Retail Payments Strategy, and a comprehensive review of PSD2; (ii) considers that the emergence of new payment solutions entails a number of policy challenges for the EU, in terms of regulation and supervision, particularly in terms of security, consumer protection, competition, data protection, and AML/CFT; (iii) is concerned with the restrictions that operators of technical infrastructures may pose to payment service providers which could result in significant vulnerabilities for the European payments ecosystem, hindering competition, innovation and the emergence of pan-European payment solutions; (iv) considers that the lack of interoperability between existing national solutions, schemes and infrastructures, which is also linked to the to the lack of EU-wide common standards in some areas, contributes to fragmentation in the EU retail payments market; (v) considers that legislative action may be needed to promote adherence to the SEPA Instant Credit Transfer (SCT Inst.) scheme; and (vi) highlights the complexity of central bank digital currencies and the importance of conducting a careful and thorough analysis of the potential adverse effects.

Press release

Council conclusions

Prudential regulation

Please see the FinTech section for the EP’s Economic and Monetary Affairs Committee draft report setting out amendments to the proposed Directive amending a number of directives including CRD IV.

HMT draft CRR (Amendment) (EU Exit) Regulations 2021

On 25 March, HMT published a draft of the CRR (Amendment) (EU Exit) Regulations 2021, together with a draft explanatory memorandum. These Regulations will ensure that the CRR continues to operate effectively now that the UK has the left the EU and before the UK’s Investment Firms Prudential Regime (IFPR) is introduced. The CRR makes provision, through Articles 493 and 498, to exempt investment firms whose main and exclusive business is the provision of investment services or activities in relation to commodity derivatives (i.e. commodities dealers) from specific prudential requirements. These provisions were amended by the EU by way of a corrigendum to the EU’s IFR on 2 December 2020, to allow these exemptions to apply until 26 June 2021. This aligns with the planned introduction of the EU’s new regime for investment firms on 26 June 2021. The changes form part of retained EU law, but do not now operate effectively in the UK, as the UK’s IFPR will not be introduced until 1 January 2022. These draft Regulations therefore extend this exemption period for commodities dealers until the IFPR is introduced. The Regulations are intended to come into force on the 22nd day after the day on which they are laid before Parliament.

Draft Regulations

Draft explanatory memorandum

Implementing Regulation on ITS on supervisory reporting of institutions under CRR published in OJ

On 19 March, Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing technical standards (ITS) for the application of the CRR with regard to supervisory reporting of institutions and repealing Implementing Regulation (EU) No 680/2014, was published in the OJ. The purpose of the Implementing Regulation is to include all ITS related to institutions’ reporting requirements in a single piece of legislation. It reflects amendments to reporting requirements introduced by CRR II, including in relation to the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements. It also reflects amendments to the CRR made by Regulation (EU) 2019/630, which established a prudential backstop for non-performing loans. The Implementing Regulation came into force on 20 March and will apply from 28 June (the reporting on leverage ratio buffer requirement for institutions identified as G-SIIs shall apply from 1 January 2023. Reporting requirements for groups that consist only of investment firms, under Articles 9/10 shall cease to apply on 26 June 2026.)

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Recovery and resolution

SRB on approach to UK law instruments without bail-in clauses after Brexit

On 22 March, the Single Resolution Board (SRB) stated that it would consider liabilities governed by UK law without a contractual bail-in recognition clause as eligible for minimum requirement for own funds and liabilities (MREL), if they (i) otherwise satisfy MREL criteria; and (ii) were issued on or before 15 November 2018 when the SRB published its resolvability expectations for banks in the context of Brexit. The exemption will apply until 28 June 2025 to ensure alignment with the prudential grandfathering of the requirement to introduce contractual recognition clauses in own funds instruments provided for in Article 494b CRR.

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Sustainable finance

NGFS report on options for central banks to adapt monetary policy operations

On 24 March, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) published a report entitled “Adapting central bank operations to a hotter world: Reviewing some options”. There is a broad consensus among members of the NGFS that, at the very least, central banks should carefully assess, and where appropriate adopt, additional risk management measures to protect their balance sheets against the financial risks brought about by climate change. The report considers nine adjustments across three of the main operational functions that central banks carry out for the purposes of implementing monetary policy: credit operations, collateral policies, and asset purchases, in order to integrate climate-related risks into their operational frameworks. The NGFS conclude that: (i) all in all, adjusting central bank operational frameworks to more adequately reflect climate-related considerations is feasible, yet the climate-related adjustments of central bank operations have to overcome a range of practical and analytical challenges, including data gaps and uncertainties with regard to risk quantification; (ii) increasing the quantity and quality of climate relevant information is a critical step in enabling central banks and market participants to better understand their exposures to climate-related risks. However, some climate-related adjustments to operational frameworks can be developed in parallel to initiatives fostering comprehensive data disclosure; (iii) to take action, central banks must decide on some strategic issues. Central banks can formulate a clear strategic view on their tolerance of climate-related risks and decide how forward- looking they wish their frameworks to be; and (iv) central banks should develop policies to monitor and manage issues surrounding data quality and availability.

Press release


BEIS consults on mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs

On 24 March, the Department for Business, Energy & Industrial Strategy (BEIS) began consulting on proposals to require mandatory, Task Force on Climate-related Financial Disclosure (TCFD) aligned, climate-related financial disclosures from publicly quoted companies, large private companies and limited liability partnerships. The proposals apply to: (i) all UK companies that are currently required to produce a non-financial information statement, i.e. UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies; (ii) UK registered companies with securities admitted to AIM with more than 500 employees; and (iii) UK registered companies and LLPs which are not included in the categories above, which have more than 500 employees and a turnover of more than £500m. Companies and LLPs will be required to disclose climate-related financial information in line with the four overarching pillars of the TCFD recommendations on a mandatory basis: governance, strategy, risk management, metrics & targets. BEIS intends for the Regulations to be made by the end of 2021, coming into force on 6 April 2022, and to be applicable for accounting periods starting on or after that date. Non-binding Q&A will be produced to support companies in their application of the requirements. The deadline for comments is 5 May.

Consultation paper

Impact assessment

Consultation webpage

FCA and PRA updated remits require taking into account climate considerations

On 24 March, the UK Government announced that it now requires all its principal financial regulators to consider climate change. Building on their existing body of climate change-related work, the FCA and Prudential Regulation Committee (PRA), should now take into account the Government’s legally binding commitment to transition to a net zero economy by 2050, following a letter from the Chancellor updating their respective remits. This follows the publication of the updated remits for the BoE’s Monetary Policy Committee and Financial Policy Committee at Budget 2021, which also reflect the importance of environmental sustainability and the transition towards net zero.

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EU Platform on Sustainable Finance transition finance report

On 19 March, the EU Platform on Sustainable Finance published a report on transition finance following a request for advice by the EC. The Platform explains that with the immediate priority of finalising the first Taxonomy Delegated Act, it focuses primarily on transition in the context of climate change. The Platform makes recommendations that fall into three broad categories: (i) maximise inclusiveness but maintain the integrity of the current Taxonomy framework; (ii) opportunities to develop the future Taxonomy framework; and (iii) utilise other (non-Taxonomy) policies and tools to further support transition finance. The EC welcomes the advice, and will consider it when finalising the draft delegated act on climate mitigation and climate adaptation, in the context of the Taxonomy Regulation, and when preparing its Renewed Sustainable Finance Strategy and other sustainable-finance related initiatives.

Transition finance report

EC press release

Other developments

FCA launches whistleblowing campaign

On 24 March, the FCA launched a whistleblowing campaign to encourage individuals to report wrongdoing. The FCA explains that the campaign, 'In confidence, with confidence', encourages individuals working in financial services to report potential wrongdoing to the FCA, and reminds them of the confidentiality processes in place. As part of the campaign, the FCA has published materials for firms to share with employees, as well as using its events to highlight the campaign. It has also produced a digital toolkit for industry bodies, consumer groups and whistleblowing groups to encourage individuals to have confidence to step forward. The FCA has published a new whistleblowing webpage, setting out information on: (i) when someone should speak to the FCA; (ii) how the FCA protects whistleblowers' identities; and (iii) what the FCA will do with a whistleblower's information – every report the FCA receives is reviewed and the FCA will protect individual whistleblowers' identities, and whistleblowers that report to the FCA will have a dedicated case manager. The FCA reminds firms that its whistleblowing rules require firms to have effective arrangements in place for employees to raise concerns, and to guarantee these concerns are handled appropriately and confidentially.

Press Release