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Key Regulatory Topics: Weekly Update 22 - 28 Jan 2021

23 January 2021

Allen & Overy publish weekly updates on key regulatory topics affecting the financial services sector.  If you would like to receive this update by email and be added to our marketing mailing list please contact RegulatoryChange@allenovery.com 
 

Brexit

Please see our Brexit financial services webpage, which contains, amongst other things, tables detailing Brexit statutory instruments, equivalence decisions, EEA transitional regimes and UK regulators’ publications. 

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

Capital markets

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

ESMA updates Q&As on Prospectus Regulation

On 28 January, ESMA published updated Q&As on the Prospectus Regulation, including six new Q&As. The Q&As provide clarification on the following aspects: (i) order of information in a prospectus; (ii) financial information which only covers short periods; (iii) use of the same prospectus to make several offers; (iv) disclosure requirements concerning statements prepared by an expert; (v) application of an exemption from the obligation to publish a prospectus in Article 1(5) of the Prospectus Regulation; and (vi) which disclosure annexes should be applied when drawing up a prospectus.

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Conduct

PRA final policy on strengthening accountability – SM&CR forms update

On 22 January, the PRA published a policy statement (PS), providing feedback to responses to Consultation Paper (CP) 7/20 ‘Strengthening Accountability: SM&CR Forms Update’. The PS contains the PRA’s final policy, which includes: (i) an amended Notifications Part of the PRA Rulebook (Appendix 1); (ii) an updated Notification Form (Appendix 2); and (iii) an updated SM&CR Form L (Appendix 3). The PRA states that it did not receive any responses to the consultation and will therefore publish the policy as proposed.

PS 1/21

Appendix 1

Appendix 2

Appendix 3

Consumer / Retail

Please see our Fees and Levies section for an update on the Financial Services and Compensation Scheme (FSCS) plan and budget for 2021/22.

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

FCA updates tailored support guidance for mortgage firms and consumer credit firms – Covid-19

On 27 January, the FCA published its finalised guidance on repossessions for mortgage firms and consumer credit firms. Following draft guidance published on 13 January, the FCA has confirmed that: (i) for mortgages, the FCA is extending the guidance so that firms should not enforce repossessions, except in exceptional circumstances, before 1 April; and (ii) for consumer credit, the FCA has updated the guidance so that firms will be able to repossess goods and vehicles from 31 January – the final guidance emphasises that this should only be as a last resort, and subject to complying with relevant government public health guidelines and regulations. The FCA states that the finalised guidance follows the overall approach of the draft guidance. Though, in response to feedback received on the consumer credit guidance, there are some changes to clarify the FCA’s position and to address various issues raised by stakeholders, including around the FCA’s expectation that firms only commence repossession action as a last resort.

FCA statement

Finalised Guidance – Mortgages

Finalised Guidance – Consumer Credit

Feedback Statement

IOSCO report on complaint handling and redress systems for retail investors

On 27 January, IOSCO published its final report on complaint handling and redress systems for retail investors. The report explains that the IOSCO undertook a project aimed at providing an overview of investor complaint handling and redress mechanisms based on IOSCO members’ practices and approaches – this report presents the outcomes of the analyses undertaken by this project and is aimed at assisting jurisdictions in developing and improving their complaint handling procedures and mechanisms. The report includes a set of nine sound practices covering the following themes: (i) establishing a system for handling retail investor complaints; (ii) taking steps to raise investor awareness of various available complaint handling systems; (iii) making available as many channels as possible for retail investors to submit complaints; (iv) taking steps to support complaint handling systems; (v) encouraging financial service providers to offer a wide range of resolutions to retail investor complaints; (vi) using complaint data to identify areas for new or enhanced investor education initiatives; (vii) using complaint data for regulatory and supervisory purposes; (viii) seeking input from retail investors about their experience with complaint handling systems; and (ix) making alternative dispute resolution facilities operated by or affiliated with a regulator more accessible to retail investors. 

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EC consultation on the review of the crisis management and deposit insurance (CMDI) framework

On 26 January, the EC published a targeted consultation on the review of the CMDI framework. The consultation seeks to gather stakeholders’ experience with the current CMDI framework as well as their views on the revision of the framework, which is part of the debate on the completion of the Banking Union and in particular its third and missing pillar, the European Deposit Insurance Scheme. The consultation has two main sections: (i) a section covering the general objectives and the review focus; and (ii) a section seeking more technical feedback on stakeholders’ experience with the current framework and the need for changes in the future framework. In parallel to this targeted technical consultation, a general public consultation will be launched in mid-February. The EC has also published a consultation strategy. The deadline for comments is 20 April.

Consultation Document 

Consultation Strategy

FCA finalised guidance on Bounce Back Loan Scheme (BBLS) for firms using Pay as You Grow options

On 26 January, the FCA published its finalised guidance on the BBLS for firms using Pay as You Grow (PAYG) options. Following its consultation on the proposed guidance in December 2020, the FCA (in its feedback statement) has confirmed the guidance as final, subject to some clarification on: (i) firms’ obligations under CONC 7.3.4 to provide additional support beyond PAYG options where appropriate to customers in financial difficulty and/or vulnerable customers; (ii) firms identifying customers in financial difficulty; and (iii) enabling customers to opt out of automated journeys involving the provision of PAYG options. The FCA has also made minor changes to the wording of the guidance on support for vulnerable customers and referring customers for debt advice support. The guidance came into force on 27 January. 

FCA Finalised Guidance

FCA Feedback Statement

Covid-19

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

FCA asks banks to reconsider branch closures during Covid-19 lockdown

On 28 January, the FCA published a statement to ask banks to reconsider branch closures during the Covid-19 lockdown. The FCA is concerned that banks and building societies going ahead with branch closures already announced, or announcing new branch closures during the current lockdown, could have significant consequences for customers. Thus, the FCA wants firms to review their plans against the FCA’s existing guidance and ensure that they continue to comply with its Principles for Businesses. The FCA states that in line with its guidance, firms should consider the impact of branch closures on customers; where they are unable to meet the expectations of the guidance during lockdown measures, they should consider pausing or delaying new branch closures where possible, particularly where this could have significant impact on vulnerable customers. Where firms consider it is appropriate to continue with plans during this period, the FCA expects them to have considered its guidance and be able to demonstrate how they have taken its concerns and expectations into account. If firms are considering new closures or advancing those previously announced during this period, the FCA expects them to: (i) communicate with customers in a way that is clear, fair and not misleading to inform them of the closure proposals – particular consideration should be given to the best way to make sure vulnerable and hard-to-reach customers are aware of the proposals and are able to contact the firm; (ii) give customers clear information about how the firm can help them access alternatives during this period of national restrictions, for example support in using online banking; and (iii) where appropriate, engage with customers to understand their needs and properly consider how they will be affected by the proposals.

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FCA and Financial Reporting Council (FRC) reminds companies that extended financial information timelines continue to apply

On 27 January, the FCA and the FRC published a joint statement to remind companies that extended financial information timelines continue to apply. The statement explains that public policy interventions made in 2020 provided more time for the work necessary to ensure that published financial information continues to be of the quality that preparers and users of financial information expect – along with these measures, the FCA, FRC and PRA made a joint statement that encouraged investors, lenders and other users of financial statements to take into account the unique set of circumstances arising from the Covid-19 pandemic. Amongst other things, the FCA and FRC remind companies of the measures that remain valid and which provide flexibility, including allowing listed companies an additional two months to publish their audited annual financial reports. 

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Fees and Levies 

Financial Services and Compensation Scheme (FSCS) plan and budget for 2021/22

On 22 January, the FSCS published its plan and budget for 2021/22, setting out the forecast management expenses and levy for 2021/22 and confirming the 2020/21 supplementary levy that is required. The FSCS states that it is currently forecasting a 2021/22 levy of £1.04bn – the final figure will be confirmed in its next edition of Outlook which it expects to publish by May. The FSCS has revised the forecasted 2020/21 supplementary levy, announced in its November 2020 Outlook, to £78m. A consultation paper published by the FCA and PRA states that the proposed Management Expenses Levy Limit (MELL) for 2021/22 is £105.5m consisting of: (i) FSCS management expenses budget of £90.5m; and (ii) an unlevied reserve of £15m. The MELL would apply from 1 April, the start of the FSCS’s financial year, to 31 March 2022. The deadline for comments is 19 February.

FSCS Plan and Budget

FCA and PRA Consultation Paper

Financial Crime 

Please see our Investigations Insight blog for a post on UK corporate criminal liability reform. The UK Law Commission is considering whether corporate criminal liability law should be reformed and two weeks ago MPs proposed a new economic crime corporate offence to be included in the Financial Services Bill. In our blog, we consider what the likely way ahead is and the implications now for companies.

Please see our Other Developments section for an update on EC’s speech at the ECON Committee Structured Dialogue.

Home Office consults on extension of accredited financial investigator powers to new bodies 

On 28 January, the Home Office began consulting on whether to extend accredit financial investigator (AFI) powers to five public sector organisations: the Service Police, the Maritime and Coastguard Agency, the Information Commissioner’s Office, the Department for the Economy, Northern Ireland, and the London Fire Brigade. AFIs are non-traditional law enforcement agency staff who have access to powers which allow them to recover the proceeds of crime. The Home Office explains that granting these organisations access to the powers will improve the law enforcement outcomes that they can deliver and will assist the delivery of the Home Office’s Asset Recovery Action Plan. The AFI powers allow the bodies to conduct confiscation investigations, detained cash investigations, detained property investigations, frozen funds investigations, and money laundering investigations. Currently, each of these agencies either rely on other agencies designated with financial investigation power, such as the National Crime Agency or police force, or have no access to recover proceeds of crime within their jurisdiction. The deadline for comments is 19 March 2021. 

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Fintech

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

BIS publishes results of its third survey on central bank digital currency (CBDC)

On 27 January, BIS published a paper on the results of its third survey on CBDC. The paper updates earlier surveys that asked central banks how their plans in this area are developing. BIS states that the latest responses show that as a whole, central banks are progressing from conceptual research to practical experimentation. In addition, the paper highlights that while most have no plans to issue CBDCs in the foreseeable future, central banks collectively representing a fifth of the world's population are likely to launch retail CBDCs in the next three years – BIS notes that the Covid-19 pandemic has added new motivations to this journey. 

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OECD report on the regulatory approaches to the tokenisation of assets

On 26 January, the OECD published a report on the regulatory approaches to the tokenisation of assets. The report provides conceptual clarity on asset tokenisation and the approaches that policymakers are adopting in respect of this nascent market. The report also identifies some key regulatory issues in tokenised assets and markets that policymakers should be aware of and/or which may warrant attention by policymakers. An annex features a substantial list of policymaking approaches taken by different countries concerning asset tokenisation markets and their participants.

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Fund Regulation

HMT call for input on review of the UK funds regime 

On 26 January, HMT published a call for input on its review of the UK funds regime. HMT states that the overarching objective of the review is to identify options which will make the UK a more attractive location to set up, manage and administer funds, and which will support a wider range of more efficient investments better suited to investors’ needs. HMT notes that the call for input is wide-ranging, covering direct and indirect tax and relevant areas of funds regulation. HMT seeks stakeholder input on possible changes to the UK funds regime, to inform the government’s overall approach on: (i) the UK’s approach to funds taxation; (ii) the UK’s approach to funds regulation; and (iii) opportunities for wider reform. The deadline for comments is 20 April. 

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Markets and Markets Infrastructure

Please see our Payment Services and Payment Systems section for an update on the ECB’s opinion on the EC’s proposal for a regulation on cross-border payments in the EU. 

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

ESMA updates its Q&As on reporting under: (i) the SFTR; and (ii) EMIR

On 28 January, ESMA published its updated Q&As on reporting under the SFTR. The Q&As were updated to clarify, among other things: (i) reporting of events that were not duly reported on time; (ii) updates of a Trade State Report belonging to an SFT; and (iii) operational aspects concerning the reporting by financial counterparties on behalf of small non-financial counterparties pursuant to the Article 4(3) of SFTR. Additionally, ESMA published its updated Q&As on practical questions regarding reporting issues under EMIR. Among other things, ESMA has added a new Q&A for TRs that clarifies the steps to be taken for the termination of derivatives when the reporting counterparty ceases to exist.

Q&As – SFTR

Q&As – EMIR 

Commission Implementing Decision on the equivalence to the requirements of EMIR of the US regulatory framework for CCPs authorised and supervised by the SEC published in OJ

On 28 January, Commission Implementing Decision (EU) 2021/85 on the equivalence to the requirements of EMIR of the US regulatory framework for CCPs authorised and supervised by the SEC was published in the OJ. The Decision states that the EC concludes that the legal and supervisory arrangements of the SEC provide for an effective equivalent system for the recognition of third-country CCPs. The Decision will enter into force on 17 February, this being the 20th day following that of its publication in the OJ.

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Delegated Regulation concerning the regulatory technical standards (RTS) on settlement discipline published in OJ

On 27 January, a Delegated Regulation amending Delegated Regulation (EU) 2018/1229 (which supplements the CSDR concerning the RTS on settlement discipline) as regards its entry into force, was published in the OJ. The Delegated Regulation provides a further one-year deferral of the current entry into force of Delegated Regulation (EU) 2018/1229, namely to 1 February 2022. The Regulation will enter into force on 30 January.

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FCA speech on being ready for life without LIBOR

On 26 January, the FCA published a speech by Edwin Schooling Latter, Director Markets and Wholesale Policy at the FCA, on being ready for life without LIBOR. Amongst other things, the speech notes that: (i) 85% of uncleared UK derivatives market is ready for the end of LIBOR as 12,500 firms sign the ISDA protocol; (ii) the IBA consultation on proposed end-dates for the 35 LIBOR currency tenor settings has now closed, opening the way to determining and announcing the future path for all five LIBOR currencies simultaneously; and (iii) users of LIBOR should press ahead with transition plans in their new business and their legacy LIBOR books.

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EC adopts Delegated Regulation supplementing EMIR on procedure for penalties imposed on: (i) trade repositories; and (ii) third-country central counterparties (TC CCPs)

On 26 January, the EC adopted a Delegated Regulation amending Delegated Regulation EU 667/2014 (supplementing EMIR) with regard to the content of the file to be submitted by the investigation officer to ESMA, the right to be heard in relation to interim decisions and the lodging of fines and periodic penalty payments. The adopted Delegated Regulation amends Delegated Regulation EU 667/2014 to adapt the existing rules of procedure for penalties imposed on trade repositories by ESMA to take account of changes introduced by the EMIR Refit Regulation. The EC also adopted a Delegated Regulation supplementing EMIR with regard to rules of procedure for penalties imposed on TC CCPs or related third parties by ESMA. The Council of the EU and the EP will consider the draft Delegated Regulations – if neither object, the Delegated Regulations will be published in the OJ and will enter into force the day after their publication.

Delegated Regulation – Trade Repositories

Delegated Regulation – Third-Country CCPs

New fallbacks for derivatives linked to key IBORs have come into effect

On 25 January, the International Swaps and Derivatives Association (ISDA) published a press release, confirming that new fallbacks for derivatives linked to key IBORs have come into effect, ensuring a viable safety net is in place in the event an IBOR becomes permanently unavailable while firms continue to have exposure to that rate. The fallbacks will be incorporated into all new derivatives contracts that reference ISDA’s standard interest rate derivatives definitions from 25 January.

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EP to consider proposed Directive amending MiFID II – Covid-19

On 25 January, the EP updated its procedure file on the proposed Directive amending MiFID II to help the EU's economic recovery from the Covid-19 pandemic. The update indicates that the EP will consider the proposed Directive during its plenary session to be held from 8 to 11 February.

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Text of the proposed Regulation amending the Benchmarks Regulation (BMR) – exemption of certain third-country foreign exchange (FX) benchmarks and designation of replacement benchmarks for certain benchmarks in cessation

On 22 January, the Council of the EU published the text of the proposed Regulation amending BMR as regards the exemption of certain third-country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. The Council is expected to adopt the Regulation based on this text shortly. Once it has also been adopted by the Council, the Regulation will be published in the OJ, and the Regulation will enter into force and apply the day following publication in the OJ.

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Payment Services and Payment systems

Please see our Other Developments section for an update on EC’s speech at the ECON Committee Structured Dialogue.

Lending Standards Board (LSB) report on review of the Contingent Reimbursement Model Code for Authorised Push Payment (APP) scams

On 28 January, the LSB published a report on its first full review of the Contingent Reimbursement Model Code (the Code) for APP scams. The LSB details the actions that it plans to take to address the issues which emerged from the review. In summary, the LSB recommends, among other things, that: (i) the scope of the Code should reflect the evolving nature and complexity of APP scams in order to ensure that it is able to provide effective protection for consumers; (ii) the Code should recognise the wider range of participants within the payments industry while ensuring that it retains a consistent approach to the standards of protections provided; and (iii) new governance and oversight provisions should be introduced into the Code - these will require firms to have appropriate processes, controls and governance arrangements in place, ensuring that there is effective senior management oversight of the firm’s adherence to the requirements of the Code. The LSB will publish a timeline for its work by the end of February.

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FCA consults on changes to the strong customer authentication (SCA)-RTS, increase in contactless payments, Regulatory Technical Standards, Perimeter Guidance Manual and its Approach Document

On 28 January, the FCA published a consultation paper which proposes amendments to the SCA‑RTS, as well as updates and additions to its published guidance in the Regulatory Technical Standards, Perimeter Guidance Manual and the Approach Document. The FCA notes that it is proposing changes to the SCA‑RTS to support competition and innovation in the payments and e‑money sector, more specifically: (i) adding a new exemption from SCA for when customers access their account information though an account information service provider (AISPs); (ii) mandating the use of dedicated interfaces (such as application programming interfaces (APIs)) by account servicing payment service providers (ASPSPs) to facilitate third‑party provider (TPP) access to retail and SME customers’ payment accounts; (iii) changing requirements for publishing interface technical specifications, availability of testing facilities, and fallback mechanisms by account providers; (iv) treating ASPSPs with deemed authorisation under temporary permissions regime (whether under the Exit SI or EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018) as exempt from the requirement to set up a fallback interface, where the ASPSP has an exemption from its home state competent authority; and (v) increasing the single and cumulative transaction thresholds for contactless payments from £45 up to £100 (or potentially a maximum of £120) and from £130 to £200 respectively. Regarding amendments to the Approach Document, the FCA states that it is proposing changes, among other things, to: (a) reflect the UK’s withdrawal from the EU and the end of the transition period; and (b) amend its safeguarding and prudential risk management guidance – this includes proposing to make permanent the temporary guidance issued in July in response to the Covid-19 pandemic. For questions relating to contactless payments, the deadline for comments is 24 February. For all other aspects of the consultation, the deadline for comments is 30 April.

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ECB opinion on the EC’s proposal for a regulation on cross-border payments in the EU

On 25 January, the ECB published an opinion on the EC’s proposal for a regulation on cross-border payments in the EU. While the ECB generally welcomes the codification exercise, it discusses one provision of the proposed regulation that was introduced by Regulation (EU) 2019/518. The provision relates to the reference to the euro foreign exchange reference rates issued by the ECB (ECBRRs). The ECB states that the reference to the ECBRRs in the proposed regulation could, contrary to the objectives of the ECBRRs, create incentives for some market participants to trade at the ECBRRs - therefore, the ECB recommends that the reference in Article 4 of the proposed regulation to the ECBRRs is removed and replaced by an appropriate reference to a foreign exchange benchmark rate which falls within the scope of the Benchmark Regulation, and which may be used in the context of the currency conversion charges. The opinion contains a technical working document, setting out a specific drafting proposal, accompanied by an explanatory text.

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Prudential regulation

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

ECB outcome of 2020 Supervisory Review and Evaluation Process (SREP) and Single Supervisory Mechanism (SSM) supervisory priorities for 2021

On 28 January, the ECB published the outcome of its SREP in 2020 and announced its SSM supervisory priorities for 2021. The ECB notes that the main findings identified during the SREP in 2020 concerned credit risk, capital adequacy, business model sustainability and internal governance – these findings were addressed through qualitative recommendations. The ECB states that as the ECB postponed the deadlines of previous SREP qualitative measures, a large number of findings remain unaddressed and unresolved, in particular those on internal governance. Based on the SREP analysis and taking into account the situation triggered by the pandemic, the ECB Banking Supervision decided to concentrate its efforts on four key areas and set the following supervisory priorities for 2021: (i) credit risk - supervisors will focus on the adequacy of banks’ credit risk measurement and management, with a view to fostering timely identification, efficient monitoring and the mitigation of procyclicality; (ii) capital strength - the EU-wide stress test coordinated by the EBA will be at the forefront and will be an important element in gauging banks’ capital resilience, in addition to the continued supervisory review of banks’ capital planning; (iii) business model sustainability - banks’ strategic plans and the underlying measures taken to overcome existing structural deficiencies will continue to be challenged; and (iv) internal governance – the supervisory focus will remain on the adequacy of banks’ crisis risk management frameworks, risk data aggregation, IT and cyber risks, as well as anti-money laundering risks. The ECB has also published an assessment of risks and vulnerabilities for 2021. 

Press Release

2020 SREP Outcome

SSM Supervisory Priorities for 2021

Assessment – Risks and Vulnerabilities for 2021

Basel Committee on Banking Supervision (BCBS) consults on technical amendments – haircut floors for securities financing transactions (SFTs)

On 26 January, the BCBS published a consultation on technical amendments in respect of haircut floors for SFTs. The consultation contains two technical amendments which both relate to chapter CRE56 of the consolidated Basel Framework. The BCBS proposes to: (i) amend CRE56.5 to clarify the application of the exemption for collateral upgrade transactions; and (ii) correct a formula in CRE56.10 used to calculate haircut floors for netting sets of SFTs. The deadline for comments is 31 March.

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EBA letter on inconsistencies between the CRR and BRRD and subsequent impact on the ability to deliver the RTS under the mandate on “daisy chains” of internal MREL instruments

On 26 January, the EBA published a letter (dated 25 January) on inconsistencies between the CRR and the BRRD and subsequent impact on the ability to deliver the RTS under the mandate on “daisy chains” of internal MREL instruments. The EBA explains that under the mandate to develop regulatory technical standard (RTS) under Article 45f(6) of the BRRD, the EBA is required to further specify methods to avoid instruments eligible for meeting the minimum requirement for own funds and eligible liabilities (internal MREL or i-MREL) issued by a subsidiary through an intermediate parent and indirectly subscribed by the resolution entity (ultimate parent), hamper the smooth implementation of the resolution strategy. The EBA committed to deliver the mandate by 31 December 2020. The EBA notes that the consultation feedback showed general support to the draft RTS but highlighted Level 1 text inconsistencies which impact the delivery of the mandate. After an analysis of the comments received, the EBA notes that it appears that the CRR does not allow the application of the prudential treatment needed for the mandate to be fulfilled as originally intended.  Therefore, the EBA concludes that the present CRR neither allows for the deduction nor for the zero risk weight in all the cases relevant for the current mandate under Article 45f(6) of the BRRD. The EBA is ready for any additional contribution on this matter as well as to explore, together with the EC services, any approach that could enable the EBA to fulfil the mandate in compliance with the relevant legislative acts.

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Recovery and resolution

Please see our Prudential Regulation section for an update on the EBA’s letter on inconsistencies between the CRR and BRRD, and subsequent impact on the ability to deliver the RTS under the mandate on “daisy chains” of internal MREL instruments.

Regulation on a framework for the recovery and resolution of central counterparties (CCPs) published in OJ

On 22 January, Regulation (EU) 2021/23, which establishes a legislative framework for the recovery and resolution of CCPs operating in the EU, was published in the OJ. It is stated that the Regulation should ensure that CCPs have sufficient loss-absorbing and recapitalisation capacity to ensure smooth and fast absorption of losses and recapitalisation with a minimum impact on financial stability while aiming to avoid an impact on taxpayers. The Regulation will enter into force on 11 February (the 20th day following that of its publication in the OJ). It will apply from 12 August 2022, save as outlined in Article 97, namely: (i) certain provisions in Articles 9 and 10 concerning recovery plans will apply from 12 February 2022; and (ii) certain provisions in Articles 9 and 20 concerning the use of CCPs’ prefunded dedicated own resources and the compensation of non-defaulting clearing members will apply from 12 February 2023.

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Sustainable Finance

Please see our Other Developments section for an update on the EC’s speech at the ECON Committee Structured Dialogue.

European Banking Federation (EBF) and United Nations Environment Programme Finance Initiative (UNEP FI) report on applying the Taxonomy Regulation to core banking services

On 26 January, the EBF and UNEP FI published a report assessing how the Taxonomy Regulation can be applied to core banking products, with the aim of fostering confidence and facilitating the implementation of the EU Taxonomy in the banking sector. The report shares key insights from the first set of comprehensive case studies on the application of the EU Taxonomy to core banking products, namely retail banking, SME lending and corporate banking, including trade, export and project finance. In particular, the report outlines key benefits of applying the EU taxonomy, as well as main challenges found when testing the EU Taxonomy to transactions and clients. The report proposes recommendations and guidance to banks willing to apply the EU Taxonomy. The recommendations to legislators and regulators include: (i) taking into account the specificities of core banking products which may limit a full application of the EU Taxonomy; (ii) ensuring consistency and compatibility/comparability of criteria between the EU Taxonomy and other applicable legislation and regulations, including at national level; (iii) seeking global alignment of taxonomies, facilitating international data collection and providing comparability mechanisms of criteria for applicability of the EU Taxonomy beyond EU borders; (iv) considering and seeking to address the timing mismatch between corporate data availability and banks’ ability to apply and disclose against the EU Taxonomy; (v) facilitating the collection and handling of data, through the development of tools to facilitate the application of the EU Taxonomy; (vi) clarifying alignment with the EU Taxonomy; and (vii) devising industry guidelines for the implementation and application of the EU Taxonomy to core banking products, in conjunction with relevant industry bodies.

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Other Developments

UK and Switzerland to deepen cooperation on financial services

On 28 January, HMT published a press release announcing that agreement on plans to move forward to the next stage of talks between the UK and Switzerland on an agreement on financial services was reached between the Chancellor Rishi Sunak and Federal Councillor Ueli Maurer. HMT states that the two countries will move forward with negotiations on the ambition of delivering a comprehensive mutual recognition agreement that would reduce costs and barriers for UK firms accessing the Swiss market, and vice versa. HMT notes that negotiations are expected to cover a wide range of sectors such as insurance, banking, asset management and capital markets, including market infrastructure.

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The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021

On 28 January, the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021 was published. An Explanatory Memorandum was also published, which explains that the Order amends the regulatory framework for providers of pre-paid funeral plan contracts. The Order also makes other amendments relating to the intermediation and financial promotion of funeral plan contracts, and expands the permitted business of appointed representatives. Furthermore, the Order makes various transitional modifications to the ombudsman scheme established under the Financial Services and Markets Act 2000, so as to allow complaints made on or after the date on which the Order comes fully into force relating to acts or omissions that occurred before that date to be dealt with by the Financial Ombudsman Service. Parts of the Order come into force on 28 January. The rest of the Order comes into force on 28 July 2022.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021

Explanatory Memorandum

City of London Law Society (CLLS) response to FCA’s guidance consultation on approach of insolvency practitioners to regulated firms

On 26 January, the Regulatory Law Committee of the CLLS published its response (dated 25 January) on the FCA’s guidance consultation on approach of insolvency practitioners to regulated firms (GC20/5). Amongst other things, the CLLS notes that: (i) the Committee believes that dialogue between Insolvency Practitioners (IPs) and the FCA should begin early, continue frequently, be open, and focus on the proper treatment of clients and their assets; (ii) it is important to recognise, and the FCA is encouraged to explicitly acknowledge, that the duties of an IP under the Insolvency Act 1986 involve the handling of the insolvency process in the interests of the creditors; (iii) when referring to the need to obtain prior FCA consent to an out-of-court appointment, the guidance should carefully reflect section 362A of FSMA – it would be preferable for the guidance to mirror the wording used in section 362A; and (iv) there are aspects of the guidance that do not reflect the insolvency law changes made by the Corporate Governance and Insolvency Act 2020.

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EC speech at the ECON Committee Structured Dialogue

On 25 January, the EC published Commissioner McGuinness' opening remarks at the ECON Committee Structured Dialogue. Amongst other things, the speech states that: (i) the EC’s main objective this year is to ensure an open, strong and resilient economic and financial system, based on solid market infrastructure – this will be based on completing the Banking Union and developing the Capital Markets Union (CMU); (ii) work on the CMU will see a legislative proposal on an investment protection and facilitation framework for the EU; (iii) the creation of a single access point for investors for seamless access to financial and sustainability-related company information will be proposed; (iv) the rules on European Long-Term Investment Funds to support non-bank financing for SMEs and long-term investment in infrastructure will be reviewed; (v) the EC will present a proposal to review the MIFID II and MiFIR rules governing the market structure for securities trading in the EU following Brexit; (vi) work on completing the Banking Union will continue – a legislative proposal on crisis management and deposit insurance will be put forward towards the end of the year; (vii) the final set of Basel III reforms will be important to tackle problems that remain in bank regulation; (viii) it is important for negotiations to progress on the two legislative proposals on non-performing loans (NPLs) relating to Secondary Markets; (ix) the EC will spend a lot of time this year implementing the multiannual financial framework and the recovery and resilience facility; (x) the EC will present a Renewed Sustainable Finance Strategy, review the non-financial reporting directive, and present an EU Green Bond Standard, and is also actively working on the next steps for the EU Taxonomy; (xi) on digital finance, ECON’s work on both of the EC’s legislative proposals on cryptoassets and operational resilience proposals (put forward last Autumn) will be key; (xii) on anti-money laundering (AML), the EC will propose a single rulebook and a new EU AML Authority, with direct AML supervisory competence over the most risky financial institutions; (xiii) for consumers, the EC will increase efforts to empower consumers and step up work on financial literacy; (xiv) the EC will work on reaping the benefits of PSD II; and (xv) in regard to the future UK-EU relationship, the EC envisages a framework similar to what it has with the US – a voluntary structure to compare regulatory initiatives, exchange views on international developments, and discuss equivalence-related issues.

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FCA amended and restated memorandum of understanding (MoU) with the SEC

On 22 January, the FCA published the text of the amended and restated MoU it has entered into with SEC. The published text states that the amended and restated MoU was reached between the FCA and SEC to reflect, amongst other things, the UK’s withdrawal from the EU and to express their willingness to continue to cooperate with each other in the interest of fulfilling their respective regulatory mandates, particularly in the areas of: (i) investor protection; (ii) fostering market integrity; and (iii) maintaining confidence and systemic stability. In particular, the MoU covers: (a) the scope of supervisory consultation, cooperation and exchange of information; (b) access to information in the UK and on-site visits; (c) execution of requests for assistance; and (d) permissible uses and confidentiality of information.

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