Key Regulatory Topics: Weekly Update 23 - 29 July 2021
29 July 2021
This week, among other highlights, the FCA published a consultation on changes to its Listing Rules to require listed companies to publish annually a ‘comply or explain statement’ on whether they have achieved certain proposed targets for gender and ethnic minority representation on their boards, and data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity. The FCA also published its final rules and investor protection measures for special purpose acquisition companies, which come into force on 10 August.
Please see our Markets and Markets Infrastructure section for an update on the FCA final rules and amended Listing Rules for certain special purpose acquisition companies.
Please see our Other Developments section for an update on the FCA consultation on its proposals to boost disclosure of diversity on listed company boards and executive committees.
ESMA updates Q&As on the Prospectus Regulation
On 27 July, ESMA updated its Q&As on the Prospectus Regulation. The Q&As have been updated with answers provided by the EC in accordance with Article 16b(5) of the ESMA Regulation, in respect of: (i) public offer – offer of securities to the public; (ii) choice of the home member state; (iii) interim financial information; (iv) financial information – profit estimate; (v) restrictions on the transferability of shares; (vi) secondary issuance prospectus for issuers listed on SME Growth markets; (vii) offers of warrants; and (viii) redeemable debt securities.
FCA Dear CEO Letter on small and medium-sized enterprises (SME) lending – expectations of firms in reporting Bounce Back Loan Scheme (BBLS) fraudulent activity
On 28 July, the FCA published a Dear CEO Letter on SME lending, setting out its expectations of firms in reporting BBLS fraudulent activity. Amongst other things, the letter covers detail on: (i) allegations of fraud that involve an FCA firm; (ii) existing obligations in relation to BBLS fraud; (iii) reporting to the British Business Bank (BBB); (iv) obligations under the Proceeds of Crime Act; (v) action fraud; and (vi) obligations to report to other regulators and professional bodies; and (vii) SME collections and recoveries – a reminder of key messages. The FCA will continue to liaise closely with the BBB, Department for Business, Energy & Industrial Strategy and all relevant regulatory and enforcement authorities to ensure a consistent approach to such cases.
Please see our Markets and Markets Infrastructure section for ESMA’s update to its Q&As on the implementation of the Credit Rating Agencies Regulation, which discusses interactions between that Regulation and Market Abuse Regulation (MAR).
EC consultations on guidance on existing rules in respect of public-private partnerships (PPPs) preventing and fighting money laundering (ML) and terrorist financing (TF)
On 27 July, the EC published a consultation document on its proposed guidance on the rules applicable to the use of PPPs in the framework of preventing and fighting ML and TF. The consultation aims to obtain information with regard to, for example, the: (i) types of public-private partnerships currently operating in the EU member states in the area of preventing and fighting money laundering and terrorist financing; (ii) public authorities (such as financial intelligence units, law enforcement, and supervisory authorities) and private sector entities which participate; (iii) types of information exchanged within those partnerships and the measures put in place to guarantee the preservation of fundamental rights; (iv) mechanisms put in place to measure the effectiveness and success of those partnerships (such as key performance indicators or any other performance metrics); (v) impacts and added value of the various public-private partnerships in the fight against money laundering and the financing of terrorism; (vi) impacts on fundamental rights, including the presumption of innocence, as well as on the due process of criminal proceedings; (vii) good practices in the development and operation of public-private partnerships; and (viii) potential obstacles to the exchange of information and challenges faced by the authorities and entities participating in PPPs in the area of preventing and fighting money laundering and terrorist financing and what they pertain to. The EC will issue best practices in Q4. The deadline for comments is 2 November. In addition, on 23 July, the EC published a consultation in respect of its roadmap for the proposed guidance – the EC will summarise the feedback that it receives in a synopsis report. The deadline for comments on the roadmap is 20 August.
Please see our Prudential Regulation section for an update on the EBA consultation on technical standards to identify shadow banking entities.
Please see our Sustainable Finance section for updates on the: (i) International Organisation of Securities Commissions consultation report for recommendations on sustainability-related practices, policies, procedures and disclosure in asset management; and (ii) EC Decision addressing answers about the application of the SFDR.
Please see our Prudential Regulation section for an update on the EBA’s consultation on draft regulatory technical standards setting out criteria for the identification of shadow banking entities under CRR for the purposes of reporting large exposures.
ESMA updates Q&As on the Benchmarks Regulation (BMR)
On 29 July, ESMA published an updated version of its Q&As on the BMR. The update provides the EC’s answer to whether supervised entities in the Union can use benchmarks provided by third country public authorities after the end of the transitional period that applies to third country benchmarks.
ESMA updates Q&As on the implementation of the Credit Rating Agencies Regulation (CRAR)
On 29 July, ESMA published an updated version of its Q&As on the implementation of CRAR. The update provides a new Part VII, which discusses interactions between the Market Abuse Regulation (MAR) and CRAR, specifically in respect of: (i) whether credit ratings, rating outlooks and information relating thereto, pursuant to article 10(2a) of CRAR, is presumed to be inside information until disclosure to the public, or whether a case-by-case assessment of the conditions in Article 7 of MAR should be anyhow carried out; (ii) whether where a credit rating agency discloses credit ratings, rating outlooks and related information on its public website, if such disclosure suffices to consider them no longer inside information under MAR; (iii) where a CRA distributes its credit ratings by subscription, if disclosure of credit ratings only to its subscribers would constitute “disclosure to the public” within the meaning of Article 10(2a) and if subscribers would be permitted to trade on the basis of these credit ratings.
ECB Recommendation on credit institutions paying out dividends or performing share buybacks aimedat remunerating shareholders published in OJ
On 29 July, an ECB Recommendation on credit institutions paying out dividends or performing share buybacks aimed at remunerating shareholders, was published in the OJ. On 27 March, the ECB adopted Recommendation ECB/2020/19 which recommended that at least until 1 October 2020 no dividends are paid out and no irrevocable commitment to pay out dividends is undertaken by credit institutions and that credit institutions refrain from share buy-backs aimed at remunerating shareholders. On 27 July, the ECB prolonged this recommendation until 1 January 2021 by adopting Recommendation ECB/2020/35. The ECB explains that even with the improvement in macroeconomic conditions and the reduction of economic uncertainty due to the Covid-19 pandemic, the level of uncertainty remained elevated at the end of 2020 with a continued impact on banks’ ability to forecast their medium-term capital needs – in view of this persisting uncertainty, the ECB adopted Recommendation ECB/2020/62 repealing Recommendation ECB/2020/35 but recommending extreme prudence when credit institutions decide on or pay out dividends or perform share buybacks aimed at remunerating shareholders. The ECB considers that the reasons underpinning Recommendation ECB/2020/62 are no longer present as the reduced economic uncertainty allows the thorough supervisory assessment of the prudence of banks’ plans to distribute dividends and conduct share buybacks on an individual basis with a careful forward-looking assessment of capital plans in the context of the normal supervisory cycle. Thus, the new Recommendation that has been published in the OJ will repeal Recommendation ECB/2020/62 from 30 September.
BoE speech on accessible FX market disclosures – transparency for a virtual environment
On 28 July, the BoE published a speech by Rohan Churm reflecting on the Global Foreign Exchange Committee’s three-year review of the FX Global Code. In particular, the speech discusses recent changes to support transparency in the FX market, and looks back over the key issues in the disclosure landscape, the engagements the group had with the wider FX market, as well as the solutions the group developed. The key solutions discussed are: (i) to include more explicit references in the Code to the provision of information around trade rejections; (ii) the templates for Disclosures Cover Sheets; and (iii) the market-led public registers, which will allow posting of the Cover Sheets. The GFXC’s Global Index of Public Registers, which draws in information from the market-led registers, will be adapted to also be a central repository of the Cover Sheets. The final Cover Sheet templates for liquidity providers and FX E-Trading platforms will be published in August.
ESMA MiFID II/MiFIR annual review report on RTS 2
On 28 July, ESMA published its MiFID II/MiFIR annual review report on Commission Delegated Regulation (EU) 2017/583 (regulatory technical standards (RTS 2). ESMA has suggested to the EC to: (i) move to stage three for the average daily number of trades threshold used for the quarterly liquidity assessment of bonds; (ii) move to stage three for the pre-trade size specific to the instrument threshold for bonds; and (iii) not to move to stage two for the pre-trade size specific to the instrument threshold for the other non-equity instruments – ESMA considered that the level of completeness and the quality of the data were still insufficient to perform the annual transparency calculations in 2020 for a number of instrument classes and therefore it was considered premature to move to the next stage. The proposals to move to stage three are expected to improve the currently limited pre- and post-trade transparency available to market participants in the bond market. In order for the move to stage three to take effect, the EC has to endorse the amended RTS – following such endorsement, they are then subject to a non-objection procedure by the EP and the Council of the EU.
FICC Markets Standards Board (FMSB) final Standard on use of Term SONIA reference rates
On 28 July, the FMSB published the finalised Standard on use of Term SONIA reference rates. The FMSB notes that the Standard was initially published as a Transparency Draft on 24 March – certain minor changes have been made to the final Standard in response to comments received during the Transparency Period, such as clarifying the relationship between the Standard and applicable benchmark regulations. However, the FMSB Working Group determined that no changes were required to be made to the proposed ‘use cases’ for Term SONIA.
FCA final rules and amended Listing Rules for certain special purpose acquisition companies (SPACs)
On 27 July, the FCA published a policy statement containing its final rules to strengthen investor protections in SPACs. On 30 April, the FCA consulted on proposals to remove the presumption of suspension for SPACs that meet certain criteria which are intended to strengthen the protections for investors, while maintaining the smooth operation of the market. The proposed changes were designed to provide an alternative approach for SPACs that must otherwise provide detailed information about a proposed target to the market to avoid being suspended. In response to feedback received, the FCA notes that the main changes it has made to its original proposals are to: (i) lower the minimum amount an SPAC would need to raise at initial listing from £200 million to £100 million; (ii) introduce an option to extend the proposed two-year time-limited operating period (or three-year period if shareholders have approved a 12-month extension) by six months, without the need to get shareholder approval – the additional six months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced; and (iii) modify its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance which disapplies the presumption of suspension. The final rules aim to provide more flexibility to larger SPACs, provided that they embed certain features that promote investor protection and the smooth operation of markets. Private companies listing in the UK via an SPAC will also still be subject to the full rigour of the FCA’s listing rules and transparency and disclosure obligations. The new rules and guidance come into force on 10 August.
Recommendations from the Working Group on Euro Risk-Free Rates (RFRWG) on the switch to risk-free rates in the interdealer market
On 26 July, ESMA published recommendations from the RFRWG on the switch to risk-free rates in the interdealer market. At its meeting on 1 July, the RFRWG discussed two initiatives about the switch to risk-free rates for trading and quoting conventions in the interdealer market. The first initiative related to a recommendation for interdealer brokers to switch from EONIA to €STR at a common date (€STR First Initiative). The second related to the RFRWG’s support for the initiative coordinated between international RFR Working Groups on a common start date to switch the quoting convention for cross-currency swaps involving non-Euro currencies (Cross-Currency Swaps Initiative). The RFRWG has approved the following statements for each initiative: (i) in regard to the €STR First Initiative, the RFRWG recommends as market best practice, that interdealer brokers change RFR swap trading conventions from EONIA to €STR from 18 October, in line with the CCP transition from EONIA to €STR on that weekend; and (ii) in respect of the Cross-Currency Swaps Initiative, the RFRWG fully supports the recommendation of a common start date of 21 September for a switch of quoting conventions in the interdealer market for USD, GBP, CHF and JPY legs of cross-currency swaps and encourages Euro Area market participants to adopt this market practice subject to supportive market conditions at the time. For cross-currency swaps with a EUR denominated leg, the RFRWG will continue to monitor the development of market liquidity and the demand from end users.
International Swaps and Derivatives Association (ISDA) announces results of consultation on implementation of fallbacks for sterling LIBOR ICE Swap Rate and the US dollar LIBOR ICE Swap Rate
On 23 July, ISDA announced the results of its consultation on the implementation of fallbacks for the
sterling LIBOR ICE Swap Rate and the US dollar LIBOR ICE Swap Rate. ISDA notes that the results indicate that a significant majority of respondents agree with the fallback provisions set out in the draft amendments attached to the consultation – these amendments implement the fallbacks suggested by the Non-Linear Task Force of the RFRWG as well as a Subcommittee of the Alternative Reference Rates Committee in the US. A report analysing the consultation results will be available in the coming weeks. ISDA will also begin finalising the amendments to implement fallbacks for the sterling LIBOR ICE Swap Rate as soon as possible and will finalise the amendments to implement fallbacks for the US dollar LIBOR ICE Swap Rate when an SOFR swap rate is published in a form that can be referenced in financial instruments.
EC consults on the functioning of the EU securitisation framework
On 23 July, the EC published a targeted consultation on the functioning of the EU securitisation framework. In order to deliver on the EC’s commitment in the Capital Markets Union action plan to review the regulatory framework for securitisation, and in order to prepare the mandated report, the consultation seeks stakeholders’ feedback on a broad range of issues. The consultation covers the areas mandated by Article 46 of the Securitisation Regulation, namely: (i) the effects of the Securitisation Regulation; (ii) private securitisations; (iii) the need for an equivalence regime in the area of simple, transparent, and standardised securitisations; (iv) disclosure of information on environmental performance and sustainability; and (v) the need for establishing a system of limited licensed banks performing the functions of securitisation special purpose entities. The consultation will be followed by a roundtable event for which a separate invitation will be issued in due course. The deadline for comments is 17 September.
PSR policy statement and consultation on the New Payments Architecture (NPA)
On 29 July, the PSR published a document setting out its decisions on reducing the risks to successful delivery
of the New Payments Architecture (NPA) and consulting on the draft legal instruments that the PSR proposes to use to implement these decisions. The PSR has decided: (i) to require Pay.UK to narrow the scope of the central infrastructure services (CIS) contract by mandating that it: (a) must, as a minimum, buy services needed to support single push payments; and (b) may buy additional services and system functionality (beyond that required to support single push payments) if the PSR does not object to their inclusion in the CIS contract; (ii) that the obligation on Pay.UK to carry out a competitive procurement will remain; and (iii) to require Pay.UK to provide reports at specified intervals on its planning activity and subsequent steps taken to progress work on the future long-term strategy for Bacs. The deadline for comments is 10 September on the changes the PSR proposes to make to Specific Directions (SDs) 2 and 3 to implement its decisions. The PSR plans to give the directions to vary SDs 2 and 3 in Q4, as well as publish a separate policy statement by the end of this year that sets out its regulatory framework for the NPA. Annexes 1 and 2 set out the conceptual design of the NPA and additional views raised by respondents, and annexes 3 and 4 set out for consultation draft SDs to be given to Pay.UK that vary each of SDs 2 and 3.
ECB publishes report on external review of TARGET Services in the context of incidents in 2020
On 28 July, the ECB published a report presenting the results of an independent review, conducted by an external third party, of incidents that affected TARGET2 and TARGET2 Securities in 2020. The ECB has also published the Eurosystem’s response of the review, accepting the general conclusions and recommendations made in the review as well as committing to implement them. The response has summarised the 18 recommendations that were made in the review with four high-level recommendations: (i) implement risk assessments within relevant processes, especially in change management, and deciding on the criticality of processes and IT elements, in particular business impact analysis; (ii) improve relevant processes, inter alia communication with external stakeholders and continuous improvement/incorporation of lessons learned; (iii) improve documentation by inter alia introducing umbrella documents for complex processes, implementing a Configuration Management Database spanning all TARGET systems’ IT elements and requiring more stringent documentation of roles and responsibilities; and (iv) enhance organisational and governance structures, including implementing a common second line of defence, responsible for implementing and running a comprehensive risk management and overarching internal control system, spanning all platforms and services with adequate staffing.
Please see our Recovery and Resolution section for an update on the SRB guidance on its approach to the prior permissions regime for eligible liabilities under CRR.
PRA extends consultation deadline for the implementation of Basel standards – non-performing loan (NPL) securitisations
On 29 July, the PRA updated its webpage on its consultation paper setting out its proposed rules in respect of the implementation of prudential standards agreed by the Basel Committee on Banking Supervision (BCBS) for non-performing loan (NPL) securitisations. The update confirms that the deadline for the consultation has been extended to 9 August.
EBA final guidelines on the monitoring of the threshold for establishing an intermediate EU parent undertaking (IPU) – CRD
On 28 July, the EBA published its final guidelines on the monitoring of the threshold for establishing an IPU as laid down in CRD. The Guidelines specify how third country groups should calculate and monitor the total value of their assets in the EU in order to ensure timely application of the IPU requirement. The guidelines: (i) clarify the relevant data for the calculation of the total value of the assets in the EU, taking into account the fluctuation in the value of assets; and (ii) specify that for the purpose of the application of the IPU requirement, the total value of assets in the EU of the third-country group should be calculated as an average over the last four quarters – this value should be monitored on a quarterly basis and communicated to relevant competent authorities. The EBA notes that to meet the IPU requirement in a timely manner, institutions belonging to third-country groups must apply a forward-looking approach – the Guidelines specify that they should assess at least annually whether the threshold is expected to be reached within the three-year horizon, based on the strategic planning of the third-country group and the forecast of assets. In addition, the Guidelines specify certain procedural aspects related to the monitoring of the threshold by competent authorities and the establishment of the IPU where necessary. In particular, clarification is provided on the notifications, to be provided to the EBA on an annual basis.
FCA provides information on authorisation and permissions for the Investment Firms Prudential Regime (IFPR) and issues new MIFIDPRU forms
On 27 July, the FCA updated two webpages to provide information on authorisation and permissions for the IFPR. Firstly, the FCA updated its webpage on wholesale investment firms, stating that any firm submitting a new authorisation or variation of permission (VOP) application should consider the requirements that would arise if approved, under the new IFPR (which comes into force on 1 January 2022). The FCA notes that during the application process, it will expect applicants to demonstrate how they will meet their ongoing requirements under the current and new prudential regimes, as part of the FCA’s threshold conditions assessment. Secondly, the FCA has updated its webpage on capital requirements permissions, stating that the coming into force of the new IFPR means that: (i) the majority of existing waivers and modifications to prudential rules in the FCA handbook will no longer apply; (ii) the majority of existing CRR permissions will no longer apply to FCA investment firms; (iii) the new rules contain transitional provisions that give some existing waivers and permissions status under the new regime − firms should consider the transitional provisions in the IFPR rules for more details; and (iv) firms will need to consider applying for permissions, or rule waivers and modifications, of rules in the new sourcebook (MIFIDPRU). In addition, the FCA has published various forms related to the applications under MIFIDPRU, which can be accessed on the FCA’s updated IFPR webpage. The update also notes that the FCA will be sending out a questionnaire to all existing FCA investment firms in the autumn asking for various key information, such as their expected SNI status, investment firm group membership/composition and expected ICARA reporting date.
PRA policy statement on approach to supervising international banks
On 26 July, the PRA published a policy statement on its approach to supervising international banks, providing feedback to responses to consultation paper (CP) 2/21 ‘International banks: The PRA’s approach to branch and subsidiary supervision’. It also contains the PRA’s final Supervisory Statement (SS) 5/21 which will replace SS1/18. After considering the responses to CP2/21, the PRA has made changes to the SS to provide greater clarity on the PRA’s expectations in specific areas. The PRA has made various changes including, but not limited to the following: (i) clarifying that it will take a proportionate approach to implementation, requiring firms to meet the expectations over a reasonable time frame – and introducing an expectation for firms to provide the PRA with a clear explanation of any gaps they need to address in order to comply with the expectations, and their proposed timeframe for doing so; (ii) further explaining the scope of the SS and its application to UK branches and UK subsidiaries; (iii) explaining that where it identifies concerns that a branch would fail to meet the PRA’s expectations for effective supervision, the PRA may exercise its powers under FSMA to apply specific regulatory requirements at branch level; (iv) explaining its expectation that international banks understand the extent of the services they provide to external end users in the UK, the risks they pose to firms’ safety and soundness or the financial stability of the UK in certain circumstances, as well as clarifying its expectations on operational resilience arrangements for UK branches; and (v) explaining the process that it will adopt in obtaining group information, and clarifying that it will take a tailored approach to each group in light of the relevant factors and circumstances. The expectations in SS5/21 took effect, and superseded SS1/18, on 26 July.
EBA consults on technical standards to identify shadow banking entities under CRR
On 26 July, the EBA published a consultation paper on draft regulatory technical standards (RTS) setting out criteria for the identification of shadow banking entities under CRR for the purposes of reporting large exposures. The EBA notes that entities that offer banking services and perform banking activities, as defined in the draft RTS but are not regulated and are not being supervised in accordance with any of the acts that form the regulated framework, are identified as shadow banking entities. Furthermore, considering the characteristics of funds regulated under the Undertakings for the Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive, special provisions are included in the draft RTS. In view of the severe liquidity issues that affected money market funds (MMFs) during the Covid-19 pandemic and the ongoing discussions at EU and international level to strengthen their regulation, MMFs are identified as shadow banking entities. In addition, the draft RTS consider the situation of entities established in third countries and provide for a treatment that distinguishes between banks and other entities. The deadline for comments is 26 October.
FCA policy statement on the implementation of the IFPR
On 26 July, the FCA published its second policy statement on the implementation of the IFPR, summarising the feedback that it received to its consultation paper 21/7. This policy statement aims to streamline the prudential requirements for solo-regulated investment firms in the UK (FCA investment firms). The FCA notes that in general, it has implemented its proposals as consulted on. Though, it has made amendments to provide more clarity in response to some of the feedback received. The FCA has also included a table summarising its publication timetable for the IFPR. Accompanying this second policy statement are the consolidated near-final rules for both policy statements that have been published – these rules will be made final once the relevant Financial Services Act 2021 statutory instruments are in place.
PRA direction for modification by consent by all CRR firms seeking to exclude employees from identification as material risk takers (MRTs)
On 23 July, the PRA published a direction for modification by consent for CRR firms to exclude employees from identification as MRTs pursuant to Article 7 of the MRT Regulation. The PRA has also published guidelines for the direction, stating that the application for this rule modification by consent should be supported by sufficient evidence that the employees’ circumstances meet the conditions set out in Article 7 of the MRT Regulation – to this end, firms may use the appropriate Remuneration Policy Statement template. Furthermore, if the employee’s total remuneration is above €1 million, the firm should provide adequate information that describe the exceptionality of the circumstances. The modification is not available in respect of employees who do not meet the conditions specified in Article 7 of the MRT Regulation – the PRA will consider any applications for waivers or modifications in respect of such employees on a case-by-case basis.
SRB guidance on approach to prior permissions regime for eligible liabilities under CRR
On 28 July, the SRB published guidance on its approach to prior permissions for eligible liabilities, in line with upcoming regulatory changes. The SRB explains that banks need authorisation under Articles 77 and 78a of CRR to redeem eligible liabilities – Article 78a(3) of CRR provides for the development of regulatory technical standards (RTS) to specify certain elements of that authorisation. The EC will finalise the draft RTS by adopting them in the form of a Delegated Regulation and notifying them to the Parliament and Council, which will most likely not be achieved by January 2022. To contribute to a smooth transition to the framework in the upcoming Delegated Regulation, and to limit the need for banks to re-submit a second authorisation application for General Prior Permissions (GPP) within the same calendar year (i.e. once the Delegated Regulation enters into force), the SRB will amend its provisional policy in line with Section 2 - Subsection 2 – “Permission for reducing eligible liabilities instruments” of the draft RTS for all permissions effective as of 1 January 2022. This means that applications for permission for redemptions of eligible liabilities should be compliant with the requirements in the RTS. Exceptionally, banks can file their applications until the end of September 2021, to allow them to familiarise themselves with the details. The draft RTS includes some material changes on the conditions for authorisation compared to the SRB provisional policy, in particular regarding the authorised envelope for redemptions (the “pre-determined amount”) and the need to deduct it upfront from banks’ MREL resources. The SRB also notes that banks’ applications for authorisations from 1 January 2022 should be based on the list of information requirements as referred to in Articles 32(d) and (e) of the draft RTS. An additional communication on the new regime will be published in early September. The guidance covers: (i) what information institutions need to provide the SRB to support their application; (ii) additional information needed for a permission application for a replacement of eligible liability instruments; (iii) additional information required where permission is being sought to replace eligible liability instruments with own funds instruments; and (iv) specific information required for the SRB to assess if a GPP should be granted.
EU Agency for the Cooperation of Energy Regulators (ACER) updates Q&As on REMIT
On 29 July, ACER published the 25th edition of its Q&As on REMIT. The update provides two new Q&As regarding: (i) under which conditions Citizens Energy Communities (CECs) defined in Article 2 (11) of Directive 2019/944 are considered as REMIT market participants; and (ii) according to REMIT, whether natural gas storage contracts (other than “Virtual gas storage” ones) determining a volume, a price and a contractually agreed period by the end of which a returning obligation of the contracted volume is activated, shall be reported to ACER. In addition, ACER has updated two Q&As relating to: (a) a question dealing with the scenario of a market participant mistakenly selecting to intend to become a reporting entity during its registration process with the national regulatory authority; and (b) a question regarding whether specific contracts are reportable at the request of the Agency pursuant to Article 4(1)(c) of Commission Implementing Regulation (EU) No 1348/2014.
International Organisation of Securities Commissions (IOSCO) consultation report for recommendations on sustainability-related practices, policies, procedures and disclosure in asset management
On 26 July, IOSCO published a consultation report for recommendations on sustainability-related practices, policies, procedures and disclosure in asset management. The report: (i) discusses regulatory approaches relating to asset manager-level practices and related disclosures; (ii) addresses regulatory approaches relating to product-level disclosures; (iii) examines the role of financial and investor education in sustainable finance and provides an overview of the initiatives conducted by regulators; (iv) addresses existing challenges, including data gaps at the corporate level, issues arising from the proliferation of data and ESG ratings providers, lack of consistency in terminology as well as labelling and classification, different understandings of materiality, gaps in skills and expertise, and evolving regulatory approaches; and (v) sets out five recommendations, designed to provide a list of potential areas for regulatory consideration, in line with domestic regulatory frameworks. The five recommendations are that securities regulators and/or policymakers, as applicable, should: (a) consider setting regulatory and supervisory expectations for asset managers in respect of the development and implementation of practices, policies and procedures relating to sustainability-related risks and opportunities, as well as the related disclosure; (b) consider clarifying and/or expanding on existing regulatory requirements or guidance or, if necessary, creating new regulatory requirements or guidance, to improve product-level disclosure in order to help investors better understand: (A) sustainability-related products; and (B) material sustainability-related risks for all products; (c) have supervisory tools to ensure that asset managers and sustainability-related products are in compliance with regulatory requirements and enforcement tools to address any breaches of such requirements; (d) consider encouraging industry participants to develop common sustainable finance-related terms and definitions to ensure consistency throughout the global asset management industry; and (e) consider promoting financial and investor education initiatives relating to sustainability, or, where applicable, enhance existing sustainability-related financial and investor education initiatives.
EC Decision addressing answers about the application of the SFDR
On 26 July, ESMA published an EC decision and annex (adopted on 6 July) addressing answers about the application of the SFDR. The answers respond to questions that the European Supervisory Authorities (ESAs) forwarded to the EC in January. The answers cover, among other things: (i) whether the SFDR applies to registered (sometimes referred to as sub-threshold) alternative investment fund managers (AIFMs); (ii) whether the SFDR applies to non-EU AIFMs, for example when they market a sustainable EU Alternative Investment Fund under a National Private Placement Regime; (iii) application of the calculation of the 500-employee threshold to the parent undertaking of a large group – specifically, whether it be applied to both EU and non-EU entities of the group without distinction as to the place of establishment of the group and/or subsidiary, and whether the due diligence statement should include impacts of the parent undertaking only or must it include the impacts of the group at a consolidated level; and (iv) the meaning of “promotion” in the context of products promoting environmental or social characteristics or having sustainable investment as their objectives.
EC delays application date of regulatory technical standards (RTS) under SFDR
On 23 July, the EC published a letter to the European Economic and Financial Affairs Council and the Council of the EU, confirming a six-month delay of the date of application of the RTS under the SFDR to 1 July 2022 (originally 1 January 2022). The EC also confirms that it plans to bundle all 13 of the RTS in a single delegated act. On 27 July, EIOPA updated its webpage for the joint ESA supervisory statement on the application of the SFDR, stating that supervisory statement should be read in light of the content of the letter published by the EC. The ESAs will revise the supervisory statement in due course to reflect the change in the RTS’ date of application.
FCA proposes changes to streamline decision-making
On 29 July, the FCA published a consultation paper proposing changes to its decision-making process which will enable it to make faster and more effective decisions. Specifically, the FCA is consulting on moving some decision-making from its Regulatory Decisions Committee (RDC) to its Authorisations, Supervision and Enforcement Divisions. The RDC is a committee of the FCA Board – at present it takes certain decisions on behalf of the FCA. The consultation is proposing that certain decisions will now be made by FCA staff including: (i) imposing a requirement on a firm or varying its permissions by limiting or removing certain types of business; (ii) making a final decision in relation to a firm’s application for authorisation or an individual’s approval that has been challenged; (iii) making a final decision to cancel a firm’s permissions because a firm does not meet the FCA’s regulatory requirements; and (iv) the decision to start civil and/or criminal proceedings. The RDC will continue to make decisions in relation to contentious enforcement cases, where the FCA is proposing a disciplinary sanction or seeking to impose a prohibition order. In addition, the FCA notes that it is making changes to ensure that it will continue to be more innovative, assertive and adaptive. Following this consultation, the FCA will consider the feedback and aims to publish a Policy Statement in or around November. The deadline for comments is 17 September.
FOS News Issue 163
On 29 July, the FOS published the 163rd edition of Ombudsman News. This edition shares new content on the resources for small businesses with complaints caused or impacted by the Covid-19 pandemic.
FCA consults on proposals to boost disclosure of diversity on listed company boards and executive committees
On 28 July, the FCA published a consultation paper on proposals to improve transparency for investors on the diversity of listed company boards and their executive management teams. The FCA is consulting on changes to its Listing Rules to require listed companies to publish annually: (i) a ‘comply or explain statement’ on whether they have achieved certain proposed targets for gender and ethnic minority representation on their boards; and (ii) as part of the same annual disclosure obligation, data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity. The FCA is also proposing changes to its disclosure and transparency rules to require companies to ensure any existing disclosure on diversity policies addresses key board committees and also considers broader aspects of diversity. Subject to consultation feedback and FCA Board approval, the FCA will seek to make relevant rules by late 2021. The deadline for comments is 22 October.
FCA letter provides update on platforms portfolio strategy
On 26 July, the FCA published a letter providing an update on its focus over the coming months on priority areas of harm for firms providing a platform service, which include: (i) technology and operational resilience; (ii) SUP 15 notification requirements – the FCA does not believe all material incidents at platforms that meet the SUP 15 requirements are being reported, and expects this to change; (iii) transfer times – the FCA will be reviewing the Setting the Standard for Smoother Transfers (STAR) management information published ahead of the planned review in 2022; (iv) Brexit; and (v) Diversity and Inclusion – the FCA encourages firms to contribute to Discussion Paper 21/2.
FOS Board commissions independent external review of its service
On 23 July, the FOS announced that its Board has commissioned an independent review of its service. The review focuses on ensuring that the FOS can continue to meet the needs of its customers, both consumers and business. The review will be split into two parts: (i) first phase – looking at the current operational effectiveness of the service, as well as evaluating the FOS’ performance and efficiency against its objectives; and (ii) second phase – building on phase one and considering the key changes in the external landscape, as well as how the service must adapt to meet the FOS’ current and future challenges. The review is being conducted during this summer, and the results will be published this autumn.
FCA Handbook Notice 90
On 23 July, the FCA published Handbook Notice 90, setting out changes to the FCA Handbook made by the FCA Board on 24 June and 22 July, as well as by the FOS Board on 22 June. The FCA has set out changes made by the Handbook, by the following instruments: (i) FCA Standards Instrument: The Technical Standards (Bilateral Margining) Instrument 2021 - changes take effect on 30 June; (ii) Periodic Fees (2021/2022) and Other Fees Instrument 2021 - changes take effect on 1 July; (iii) Fees (Miscellaneous Amendments) (No. 16) Instrument 2021 - changes take effect on 1 July; (iv) Funeral Plans Instrument 2021- changes take effect on 29 July 2022; (v) Fees (Pre-Paid Funeral Plans) Instrument 2021- changes take effect on 1 September; (vi) Fees and Decision-Making (Cancellation of Permission) Instrument 2021 - changes take effect on 23 July; (vii) Insurance Distribution (Professional Indemnity Insurance (Limits of Indemnity) Instrument 2021 - changes take effect on 1 August; and (viii) Consumer Credit (High-Cost Short-Term Credit Refinancing and Peer-to-Peer Lending Information sheets) Instrument 2021 - changes take effect on 25 October.