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Key Regulatory Topics: Weekly Update 20-26 May 2022

Amongst this week’s updates, in the UK, the latest version of the Financial Services Regulatory Initiatives Grid was published, detailing the expected timing of initiatives over the next 24 months from the BoE, FCA, PRA, PSR, CMA, ICO, TPR, FRC and HMT.  The BoE also published the results of the Climate Biennial Exploratory Scenario. In the EU, ESMA published a final report on the MiFID II framework on best execution reports and the EC launched a targeted consultation seeking views on potential improvements in the functioning of the BMR, specifically as regards the rules applicable to non-EEA benchmarks.

Due to the bank holidays in the UK on 2 and 3 June we shall not be publishing an update next week. The next update will be published on 10 June covering the period of 27 May to 9 June.

Capital Markets

FCA discussion paper on Primary Markets Effectiveness Review

On 26 May, the FCA published a discussion paper setting out its response to feedback on the structure of the listing regime in consultation paper 21/21, and requesting further feedback on its subsequent proposals. The FCA proposes: (a) a regime based on having a single segment for equity shares in commercial companies, replacing the current two segments. This regime would feature: (i) a single set of eligibility criteria; and (ii) a robust, minimum set of continuing obligations (‘mandatory’) with issuers having a choice to adopt further additional obligations (‘supplementary’); (b) to broaden access to listing for a wider range of companies, while maintaining high standards of disclosure and for companies to be capable of meeting continuing obligations under the Listing Rules, with sponsors providing a key assurance role over a company’s documentation and capability at the gateway; (c) to retain the regime that currently applies to standard listed companies for securities other than equity shares in commercial companies, as well as for secondary listings of equity shares in commercial companies that are incorporated overseas. The FCA would include transitional provisions for companies currently listed in the standard segment so they would not be obligated to move to the single segment. The FCA also asks for views in relation to the sponsor regime: (1) to explore if inefficiencies exist in the current sponsor regime and how they might be remedied. Sponsor record keeping requirements and sponsor remuneration were highlighted by some respondents to consultation paper 21/21 as areas the FCA could review to reduce burdens on issuers or to better align a sponsor’s incentives with the long-term interests of an issuer; and (2) based on the proposed single segment regime, whether the role and purpose of the sponsor regime should generally remain the same as now, but be expanded to all issuers of equity shares in commercial companies in the single segment. The FCA notes that while more issuers would be subject to the regime, changes could be introduced to reduce the frequency of touchpoints with sponsors/ the FCA. The deadline for comments is 28 July. The FCA will provide feedback and consider whether to issue a consultation in due course or whether a further discussion paper is appropriate.


Discussion paper

Press release


FSCS Outlook May 2022

On 26 May, the FSCS published its Outlook for May 2022. Amongst other developments, the FSCS discusses: (i) its latest levy forecast for 2022/23 is £625m, this is a further reduction from the levy estimated in November 2021 and a decrease from the 2021/22 £717m levy. However, the FSCS notes that it expects compensation costs for 2022/23 to be higher. The FSCS will not require a retail pool levy in 2022/23 since it no longer expects the Life Distribution and Investment Intermediation (LDII) class to breach its annual levy limit and require additional funding. The 2022/23 financial year will also be the first year of the Funeral Plans funding class. Newly authorised firms do not pay any levies in their first year of regulation and therefore firms in this class will not be required to pay an annual levy in 2022/23; and (ii) its 2022/23 priorities, which include setting up its new insight and data hub. The FSCS has also published a paper containing data and insight in order to support discussion on the future of financial services compensation in the UK. It was submitted to the FCA as part of its Compensation Framework Review discussion paper.


Press release

Research paper

FOS results of outcomes code initiative

On 24 May, the FOS published the results of a temporary outcomes code initiative launched in November 2021 aimed at encouraging businesses to proactively settle complaints more quickly. It has resulted in 6,877 offers being made to customers and secured up to £22 million in redress for customers and a reduction in the backlog of complaints to be considered by the FOS. Alongside 2,000 fraud cases, the initiative has helped resolve around 4,800 customer complaints about a range of issues including e-money services, personal loans, motor finance and credit card purchases. The initiative finished in March.

Press release

Fees / Levies

Please see the Consumer/Retail section for the FSCS’ latest forecast for its 2022/23 levy.


ECB report on financial stability risks in cryptoasset markets

On 24 May, the ECB explored the financial stability risks stemming from cryptoasset markets, as part of the ECB’s Financial Stability Review. The ECB provides an update on cryptoasset market developments and a general overview of risks stemming from unbacked cryptoassets and decentralised finance, given the way in which they have evolved and their specific characteristics and risks. The ECB concludes that if the present trajectory of growth in the size and complexity of the cryptoasset ecosystem continues, and if financial institutions become increasingly involved with cryptoassets, then cryptoassets will pose a risk to financial stability. The ECB urges that MiCA should be approved by the co-legislators as a matter of urgency. It also emphasises the need to establish standardised reporting or disclosure requirements in order to close regulatory and data gaps in the cryptoasset ecosystem and enable financial stability risks from developments to be more accurately monitored.


Fund Regulation

Council position on European long-term investment funds Regulation

On 24 May, the Council of the EU announced that it has agreed on a negotiating mandate for the proposed Regulation containing amendments to the Regulation on European long-term investment funds (ELTIFs), designed to tackle the issue that only a limited number of ELTIFs have been launched due to significant constraints in the distribution process and stringent rules on portfolio composition. In its position, the Council underlined three priorities: (i) channel more financing to SMEs and long-term projects, including by removing existing constraints on the portfolio composition of ELTIFs, especially for those distributed solely to professional investors; (ii) enhance the role of retail investors by making ELTIFs more attractive to them, and by lifting the barriers to entry which did not take into account the profile and objectives of each investor; and (iii) maintain high investor protection standards and provide retail investors with all the relevant information so that they can take informed decisions. The Council will now await the EP’s adoption of its negotiating mandate for negotiations to begin.

Press release

Compromise text

FCA/BoE discussion paper on resilience of MMFs and FCA guidance on UK MMF Regulation

On 23 May, the FCA and BoE launched a joint discussion paper on the resilience of money market funds (MMFs). The paper discusses: (i) the current role of MMFs in the UK economy, who uses them and for what purpose, including on a cross-border basis. It also explores the MMF legal and regulatory framework; (ii) the nature and extent of the systemic risk that MMFs pose and the vulnerabilities within their structure that may amplify risks to the UK, using past events as case studies; and (iii) the set of policy options the FSB proposed to enhance MMF resilience. Where possible, the paper also puts forward the UK authorities’ initial thinking on the possible effectiveness and proportionality of those options. The deadline for comments is 23 July. The FCA has also published non-handbook guidance on the UK MMF Regulation. This guidance relates primarily to two issues: (a) the requirements in article 34(1)(a) for public debt Constant Net Asset Value MMFs and Low Volatility Net Asset Value MMFs to establish, implement and consistently apply prudent and rigorous liquidity management procedures for ensuring compliance with the applicable weekly liquidity thresholds; and (b) the portfolio requirements in articles 24 and 25 which, together, apply to all UK MMFs. It reminds market participants that if an MMF's liquidity ceases to meet the portfolio requirements, then the MMF manager needs to prioritise the correction of that situation, taking due account of the fund investors' interests.

Discussion paper

FCA guidance

ESMA updates Q&As on AIFMD and UCITS Directive

On 20 May, ESMA updated its Q&As on: (i) the application of the AIFMD – it has updated Q&As, and added a new Q&A, relating to ESMA's guidelines on performance fees in UCITS and certain types of AIFs; and (ii) the application of the UCITS Directive – it has updated the Q&A on the performance reference period for the benchmark model and there is a new Q&A on the performance reference period for the hurdle rate model.


UCITS Directive Q&A

Markets and Markets Infrastructure

ESMA review of MiFID II framework on best execution reports by investment firms

On 25 May, ESMA published a final report (dated 16 May) on a review of the MiFID II framework on best execution reports. ESMA explains that due to the EC’s proposals to remove best execution reporting requirements for venues under RTS 27, as part of the MIFID II framework review, it has looked solely at reporting requirements for investment firms under RTS 28. Among other things, ESMA proposes possible improvements: (i) deleting the obligation to report, as part of the list of top five venues used by a firm, the percentage of the executed orders that were passive and aggressive orders, as this information provided only little added value in revealing firms’ execution quality; (ii) to require firms to explicitly confirm in their summaries of execution quality, if they do not report on the required parameters; (iii) requiring firms to publish the quantitative information of RTS 28 reports in the CSV format in order to facilitate end-users’ access and comparison of this data; and (iv) clarifying the reporting obligations both for firms executing client orders and for firms providing the services of reception and transmission. ESMA notes that some proposals would require potential changes to the Level 1 legislation (Article 27(6) of MiFID II). ESMA will send the final report to the EC in order to provide initial support to the EC in its assessment of the adequacy of the best execution reporting obligation for investment firms, and any subsequent technical work to shape a well-functioning reporting regime.


Delegated Regulations on fees and rules of procedure applicable to ESMA’s supervision of certain benchmark administrators published in OJ

On 24 May, two Delegated Regulations supplementing the BMR were published in the OJ: (i) Commission Delegated Regulation (EU) 2022/804 specifying rules of procedure for measures applicable to the supervision by ESMA of certain benchmark administrators. Specifically, the rules of procedure for the exercise of the power to impose fines or periodic penalty payments, including the rights of the defence, the collection of fines or periodic penalty payments and the limitation periods for the imposition and enforcement of penalties; and (ii) Commission Delegated Regulation (EU) 2022/805 specifying fees applicable to the supervision by ESMA of certain benchmark administrators. Specifically, authorisation and recognition fees and annual fees associated with the performance of ESMA’s supervisory tasks. The Delegated Regulations will enter into force and apply on 27 May (the third day following that of their publication in the OJ).

Delegated Regulation 2022/804

Delegated Regulation 2022/805

Delegated Regulation on procedures for imposing penalties on DRSPs published in OJ

On 24 May, Commission Delegated Regulation (EU) 2022/803 on the procedure ESMA must follow to impose fines or penalties on data reporting service providers (DRSPs) under its supervision, supplementing MiFIR, was published in the OJ. It includes provisions on the rights of the defence, the collection of fines or periodic penalty payments and the limitation periods for the imposition and enforcement of fines and periodic penalty payments. The Delegated Regulation will enter into force and apply on 27 May (the third day following that of its publication in the OJ).

Delegated Regulation

EC targeted consultation on regime applicable to use of third-country benchmarks

On 20 May, the EC launched a targeted consultation seeking views on potential improvements in the functioning of the BMR, specifically as regards the rules applicable to non-EEA benchmarks and the impact on market participants of the full entry into application of the third country regime as of 1 January 2024. In particular, the EC is seeking input from benchmark administrators located in the EU or elsewhere, from supervised entities using benchmarks and from citizens and businesses who are the end-users of financial benchmarks. The outcome of this public consultation will help the EC prepare a proposal to review the rules, which it intends to publish in Q4. The deadline for comments is 12 August. The EC also notes that other aspects of the BMR are subject to ongoing reflection, notably in the area of sustainability. This includes a study currently being carried out on the feasibility, minimum standards and transparency requirements of an EU ESG Benchmark, on which the EC will provide a follow-up after its delivery at end-2022.


ESMA updates Q&As on MiFID II transparency, crowdfunding and CSDR

On 20 May, ESMA updated its Q&As on: (i) CSDR – it has added a Q&A relating to the review and evaluation of central securities depositories; (ii) the European crowdfunding service providers for business Regulation – it has updated Q&As relating to general and investor provisions; and (iii) MiFID II and MiFIR transparency topics – it has updated Q&As relating to non-equity transparency.


Crowdfunding Regulation Q&A

MiFID II transparency Q&A

Payment Services and Payment Systems

EPC updates to SEPA payment scheme rulebooks

On 25 May, the EPC published version 1.0 of the 2023 EPC SEPA payment scheme rulebooks. All of the rulebooks enter into force on 19 November 2023: (i) 2023 SEPA Direct Debit Core rulebook – applicable up to and including 22 November 2025; (ii) 2023 SEPA Direct Debit Business-to-Business rulebook – applicable up to and including 22 November 2025; (iii) 2023 SEPA Instant Credit Transfer rulebook – applicable up to 23 November 2025. It has also published Maximum Amount for Instructions under the 2023 SEPA Instant Credit Transfer rulebook; (iv) 2023 SEPA Credit Transfer rulebook – applicable up to and including 22 November 2025; (v) SEPA Payment Scheme Management Rules (version 4.5). This version comes into effect on 25 April 2023 and will remain effective until further notice. The EPC also published guidance: (a) on the migration to the 2019 version of the ISO 20022-based XML messaging standard. This informs SEPA payment scheme participants and payment service users on how to prepare themselves for and to handle the change-over to the 2019 version of ISO 20022 by 19 November 2023; and (b) to improve transparency for retail payment end-users.

Press release

PSR consults on extension of Confirmation of Payee to more financial firms

On 24 May, the PSR began consulting on a new specific direction requiring approximately 400 payment service providers (PSPs) to implement a system to offer Confirmation of Payee (CoP) to their customers. The direction would apply to two groups separately: (i) 46 PSPs, which have been prioritised based on the complexity and size of the institution and/or firms where the adoption of CoP could have the biggest impact in preventing APP scams. This list of PSPs is set out in Annex 1 to the consultation. This group would need to have implemented CoP by 30 June 2023. This would see an increase of CoP coverage from 92% of transactions made via Faster Payments to 99%; and (ii) all other firms which use either unique sort codes, or that are building societies using a Secondary Reference Data reference type. This group would need to have implemented CoP by 30 June 2024. Chapter 4 of the consultation discusses the future of CoP and other CoP matters the PSR will consider consulting.  The deadline for comments is 8 July. If the PSR decides to proceed with giving the proposed direction, it plans to do so around eight to ten weeks after the deadline.

Press release


Prudential Regulation

Please see the FinTech section for an ECB report on the financial stability risks stemming from cryptoasset markets.

Please see the Sustainable Finance section for the results of the Climate Biennial Exploratory Scenario, a speech by Sam Woods, PRA CEO on climate change and the role of capital and an ECB report on climate-related risks to financial stability.

ECB calls for more effective capital buffer framework in Financial Stability Review

On 25 May, the ECB published its May 2022 Financial Stability Review. In the review, the ECB assess financial stability vulnerabilities and their implications for financial markets, debt sustainability, bank resilience, the non-bank financial sector and macroprudential policies. Amongst other conclusions, the ECB consider that the resilience of the financial system would benefit from a more effective capital buffer framework. As recently proposed by the ECB in its response to the EC’s review of the EU macro-prudential framework, higher buffers that can be released in periods of stress would improve the ability of banks to absorb losses and maintain lending. The ECB propose that regulation to address risks in the non-bank financial sector, stemming for example from liquidity mismatches, leverage or margining practices, also needs to be strengthened.

Press release


EC amendments to ITS on benchmarking of internal approaches for annual benchmarking

On 24 May, the EC adopted an Implementing Regulation amending Implementing Regulation (EU) 2016/2070. Commission Implementing Regulation (EU) 2016/2070 specifies the reporting requirements for institutions to enable the EBA and competent authorities to monitor the range of risk weighted exposure amounts or own funds requirements for the exposures or transactions in the benchmark portfolio resulting from the internal approaches of those institutions and to assess those approaches in the annual benchmarking exercises. The amendments update the reporting requirements in line with the EBA’s proposals for the 2022 exercise. Two new Annexes (one with templates and one with instructions for the templates) have also been added to reflect the impact of the new rules for the measurement of credit losses introduced by IFRS9. The amending regulation will enter into force 20 days after its publication in the OJ.


EBA final draft RTS to identify shadow banking entities

On 23 May, the EBA published final draft RTS specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures under the CRR. The RTS clarify that entities carrying out banking activities or services and which have been authorised and supervised in accordance with the EU prudential framework, shall not be considered as shadow banking entities. For those entities established in a third country, the final draft RTS differentiate between: (i) institutions – these are not identified as shadow banking entities provided they are authorised and supervised by a supervisory authority that applies banking regulation and supervision based on at least the Basel core principles for effective banking supervision; and (ii) other entities – these are not identified as shadow banking entities provided they are subject to a regulatory regime recognised as equivalent to the one applied in the EU for such entities in accordance with the equivalence provisions of the relevant EU legal act. Undertakings included in the consolidated supervision of an institution are out of the scope of these RTS. In addition, the RTS clarify that CCPs are not identified as shadow banking entities when performing only clearing as defined in EMIR. The draft RTS will be submitted to the EC for endorsement following which they will be subject to scrutiny by the EP and the Council before being published in the OJ.

Press release

Final draft RTS

FPC final policy setting out amendments to O-SII buffer framework

On 23 May, the FPC published a paper setting out its amendments to its framework for the other systemically important institutions (O-SII) buffer. The FPC’s amendments are: (i) to change the metric used to determine O-SII buffer rates from total assets to the UK leverage exposure measure; and (ii) to recalibrate the thresholds used to determine O-SII buffer rates to prevent an overall tightening or loosening of the framework relative to its pre-Covid level. In light of the responses received, the FPC is finalising its policy as proposed, except that the average of firms’ quarter-end leverage exposure measure over the year will be used to determine O-SII buffer rates, rather than the year-end value. The FPC consider that an average measure is less subject to volatility at year-end and would be a better proxy for a firm’s potential to disrupt the credit supply in distress. In order to give firms time to adjust to the updated framework, the FPC has decided that the changes set out in this paper will only take effect after the PRA’s December 2022 review of O-SII buffer rates. The changes will come into effect in time for the PRA to review rates under a revised framework in December 2023. In addition, the FPC has decided that the use of an average of firms’ quarter-end leverage exposure measure will only take effect after the PRA’s December 2023 review – the December 2023 review will be based on end-2022 leverage exposure measure. Rates set in 2023 will apply from January 2025. The FPC also reminds firms that the PRA intends, barring any unforeseen circumstances, to continue to freeze O-SII buffer rates at pre-Covid levels for a further year.


Amendments to Delegated Regulation on liquidity coverage requirement published in OJ

On 20 May, Commission Delegated Regulation (EU) 2022/786 amending Commission Delegated Regulation ((EU) 2015/61) on the liquidity coverage requirement (LCR) (LCR DR) was published in the OJ. The amendments seek to address issues arising from the interaction between the LCR DR and the Covered Bond Directive. It will enter into force on 9 June (20 days after publication in the OJ) and apply from 8 July.

Delegated Regulation 2022/786

Recovery and Resolution

SRB Addendum to the Public Interest Assessment – Deposit Guarantee Schemes Considerations

On 20 May, the SRB published an addendum to the public interest assessment (PIA) policy in resolution planning to bring further clarity to the PIA in relation to Deposit Guarantee Schemes (DGSs) pertaining to Resolution Objectives 2 and 4. In the context of resolution planning, Resolution Objective 4, the protection of covered depositors, should not be considered at risk on the basis of DGSs’ inadequacies. However, should raising extraordinary contributions from the remaining DGS members or third parties place other Resolution Objectives (namely, Resolution Objective 2) at risk, there might be instances in which covered depositors might be at risk as a consequence of the failure of an institution. This would constitute an instance in which Resolution Objective 4 – to protect depositors covered by the DGSD would be at risk. Equally, even though the DGSD contemplates a competent authority deferring, in whole or in part, a credit institution's payment of extraordinary ex-post contributions to the DGS, if the contributions would jeopardise the liquidity or solvency of the credit institution, it is possible that raising ex-post contributions could have a material impact on the solvency or the liquidity of the banking sector and thus, in certain cases, could have a significant adverse impact on financial stability. In these instances, Resolution Objective 2 – to avoid significant adverse effects on financial stability would be at risk. The addendum contains a schematic for the assessment of these DGS-related considerations in the PIA.


Sustainable Finance

ECB report on climate-related risks to financial stability

On 23 May, the ECB published a report on climate-related risks to financial stability, as part of the ECB’s Financial Stability Review (we have covered the review in the Prudential Regulation section above). The report analyses disclosure, pricing and greenwashing risks in financial markets, as well as continued monitoring of financial institutions’ exposure to transition and physical risks. It concludes that: (i) the development of consistent sustainability disclosures via the Corporate Sustainability Reporting Directive and the IFRS Foundation, as well as the convergence of these requirements in common minimum international standards, are important factors allowing firms, investors and financial institutions to effectively measure and manage transition risk; (ii) regulatory standards on sustainable financial instruments are key to reducing the risk of greenwashing and thus helping to scale up sustainable financing; (iii) based on the systemic aspect and possible amplification mechanisms originating from climate-related physical and transition risks, there should be further reflection on how to close any material gaps in the prudential framework; and (iv) future work will focus on the extent to which existing macroprudential tools, including the systemic risk buffer, could be readily deployed to capture climate risks. New tools, such as concentration risk measures, may also be needed to address climate-related risks from a systemic perspective.


EC adopts answers to ESAs’ questions on Taxonomy Regulation and SFDR

On 25 May, ESMA published Commission Decision C(2022) 3051, in which the EC adopts a set of answers to questions sent to it by the ESAs on interpreting provisions in the Taxonomy Regulation and SFDR. The ESAs’ questions and EC’s answers are set out in the annex and relate to topics including: (i) disclosing individual financial products principal adverse impacts (PAI); (ii) financial advisers’ disclosure obligations; (iii) information financial advisers need to collect on products or instruments it recommends in relation to PAI disclosures; (iv) the types of employees covered by the Article 17 SFDR exemption; (v) whether Articles 6 and 7 SFDR apply to portfolio management financial products existing before the date of application, including those that are no longer made available to investors; (vi) good governance practices under Articles 8 and 9, including in relation to financial products investing solely in government bonds; and (vii) the application of Articles 5 and 6 of the Taxonomy Regulation. ESMA has also published a letter from the EC requesting that these documents be published.




PRA speech on climate change and prudential policy

On 24 May, the PRA published a speech given by Sam Woods, PRA CEO, on climate change and the role of capital. Mr Woods considers that: (i) it is vital that firms can withstand risks to their safety and soundness, including those that arise as a consequence of climate change – both ‘physical’ risks like flooding and extreme weather events, and ‘transition’ risks that arise as the economy moves away from carbon-intensive activities; (ii) while capital can address the financial consequences of climate change, it is not the best tool to address directly the causes of climate change – for example by reducing capital requirements to subsidise ‘green’ assets, or increasing them to penalise carbon-intensive ones. The capital framework should remain focused on its core goal of ensuring the financial system can withstand the risks arising from the climate change; and (iii) outlying questions relating to whether the capital regime is effectively capturing climate risks include: (a) are current capital levels sufficiently high to guard against unexpected shocks during the transition; (b) even if capital levels are appropriate in aggregate, that does not mean that the capital is held in the right places. Some of these risks are highly concentrated in particular sectors. Therefore, does the framework of capital requirements capture climate risk at a sufficiently granular level; and (c) are we satisfied that firms are building the capabilities they need – and if not, do we need to introduce more incentives?


Results of BoE 2021 Climate Biennial Exploratory Scenario

On 24 May, the BoE published the results of the Climate Biennial Exploratory Scenario (CBES) to explore the financial risks posed by climate change for the largest UK banks and insurers. Key conclusions include: (i) UK banks and insurers are making good progress in some aspects of their climate risk management, and this exercise has spurred on their efforts further. However, UK banks and insurers still need to do much more to understand and manage their exposure to climate risks; (ii) climate risks captured in the CBES scenarios are likely to create a drag on the profitability of UK banks and insurers – there is substantial uncertainty around the true magnitude of these risks; (iii) public climate policy will be a key determinant of the speed and shape of the transition in the global economy. Banks and insurers have a collective interest in managing climate-related financial risks in a way that supports that transition over time. They will need to improve their management of climate risks in order to be able to do so; and (iv) a recurrent theme across participants’ submissions was a lack of data on many key factors that participants need to understand to manage climate risks.  Another was the range in the quality of different approaches taken across organisations to the assessment and modelling of these risks. The findings from this exercise will inform the FPC’s thinking around system-wide policy issues related to climate risk. The BoE will give firm-specific feedback to participants and will use findings from the CBES to help target their efforts. The findings will also inform the PRA’s supervisory policy and approach. Key lessons and themes will be shared with the UK Government and the BoE’s international peers.


Other Developments

PRA speech on expectations on operational resilience 

On 25 May, the PRA published a speech by Duncan Mackinnon, Executive Director for Supervisory Risk Specialists, on among other things, the PRA’s expectations for firms on building operational resilience. By March 2025, firms will need to provide assurance that they are resilient to disruption of their important business services, within agreed impact tolerances. Among other things, the PRA expects that: (i) firms’ mapping includes all critical resources and considers internal and external dependencies. Mapping should rapidly become more sophisticated, in line with firms’ potential impact. It should enable firms to identify vulnerabilities, and inform the development of scenario testing; (ii) scenario testing must be robust and appropriate in line with its potential to impact a firm’s own important business services and the wider system. Firms should include data integrity scenarios and incorporate third party disruption. Firms should consider factors beyond their control. The PRA expects firms to ensure full coverage of important business services; (iii) where firms cannot remain within tolerance, it is likely that they will need to invest. Firms may have to build substitutability into the way services are delivered, review and adapt outsourcing arrangements and redesign or replace legacy systems. The PRA are less concerned with how firms go about building this resilience, but rather that the policy’s ultimate outcome is achieved; and (vi) resilience should be embedded in the way firms do business and become a major consideration within investment programmes. 


Financial Services Regulatory Initiatives Grid May 2022

On 25 May, the Financial Services Regulatory Initiatives Forum published the latest Financial Services Regulatory Initiatives Grid, which provides details on the expected timing of initiatives over the next 24 months from the BoE, FCA, PRA, PSR, CMA, ICO, TPR, FRC and HMT. A key initiative highlighted by the Forum, the Financial Services and Markets Bill, is set for publication “when Parliamentary time allows”. Other initiatives include: (i) FCA policy statement and final rules and guidance on the new Consumer Duty, expected in Q3 with an implementation deadline anticipated to be Q2 2023; (ii) FCA policy on the Appointed Representatives regime anticipated in Q3; (iii) a fourth consultation on the IFPR (which entered into force on 1 January) on, amongst other thing, ESG disclosures anticipated in Q4; (iv) a PRA consultation on amending the LCR and NSFR anticipated in H2; (v) a consultation on the UK implementation of Basel 3.1 anticipated in Q4; (vi) a consultation on bringing systemically important firms in payments chains into BoE regulation by end June; and (vii) an FCA policy statement on financial promotions for high risk investment, including cryptoassets expected Q3.


Grid Dashboard

HMT speech on legislative changes for credit unions in Financial Services and Markets Bill

On 24 May, HMT published a speech given by John Glen, Economic Secretary to HMT, discussing, amongst other things, upcoming reforms to the legislative framework for credit unions in the Financial Services and Markets Bill. These will include: (i) enabling credit unions to offer hire purchase, conditional sale agreements, and insurance distribution services to their members (subject to compliance with regulation and seeking the necessary permissions from the regulators); and (ii) minor amendments to support best corporate governance, including a legal requirement for credit unions to submit annual accounts to the FCA, and express permission for credit unions to temporarily lend to and borrow from other credit unions, even when there is no membership link.


EC report on operation of ESAs

On 23 May, the EC published a report on the operation of the ESAs. The report focuses on the main areas under review: (i) supervisory convergence; (ii) governance; (iii) direct supervision; and (iv) funding. It also includes a section on the single rulebook. The EC concludes that since the last ESA review in 2019, the ESAs have continued to perform their tasks efficiently and effectively, including during the recent challenging circumstances caused by the Covid-19 pandemic. The EC takes this as a clear indication that the overall architecture of the European System of Financial Supervision – with its key role for the three ESAs – is largely adequate and works well. Feedback to the consultation on the changes introduced by the last ESA review in 2019 was positive overall. Issues were highlighted in relation to the governance of the ESAs – the EC remains mindful of the fact that the governance arrangements of the ESAs – with decisions being taken by 27 national supervisors – are not always conducive to ensuring that the convergence tools and other instruments at the disposal of the ESAs are used in the most effective way. Since the changes to the ESA Regulations became applicable only in 2020, the EC considers that more time is needed to assess the full impact of the latest review before considering any new amendments to the ESA Regulations. However, if necessary, the EC may suggest targeted changes in sector legislation to improve supervisory convergence and supervision and the EC will also work together with the ESAs to assess whether and in which areas non-legislative measures are warranted.


FCA speech on regulating finance in the UK

On 20 May, the FCA published a speech given by Charles Randell, FCA and PSR Chair, on regulating finance in the UK. Highlights include: (i) Mr Randell emphasises that in order to deliver better outcomes, the consumer’s voice needs to be front and centre within its own regulation and in every boardroom; (ii) policy partnerships between Government and regulators are crucial to deliver good outcomes for consumers. These partnerships promote understanding of financial decisions, address digital exclusion and help fight financial crime more effectively; (iii) the project to bring speculative crypto into regulation raises numerous questions and requires a workable operational plan. This means realism about a number of factors including: how long is needed to prepare, how far many crypto firms will have to improve before they can be authorised, how consumers will actually behave online and about the challenges of supervising a decentralised global activity which is an increasingly attractive conduit for organised financial criminals and money launderers; and (iv) Mr Randell discusses the Government’s proposals in the Financial Services and Markets Bill: (a) it is essential for the Future Regulatory Framework to follow the Government’s aims of respecting the FCA’s independence and primary objectives; (b) he very much welcomes that the Government’s proposal for a growth and competitiveness objective would be clearly secondary to the FCA’s three primary objectives so as not to conflict with its main focus to ensure safe and sound firms, well-functioning markets and to protect consumers and promote competition; and (c) he shares his concerns regarding the Government’s proposed powers to intervene in the FCA’s processes. These proposals could be difficult to get right, given the loss of independence and agility they could involve. It is important that these interventions will only happen in exceptional circumstances. Government and Parliament also need to guard against creating a strong channel for lobbying by vested interests who want to bypass the FCA’s public interest objectives.