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Key Regulatory Topics: Weekly Update 23 – 29 September 2022

29 September 2022

Many of the UK headlines this week have been focused on the government’s 2022 Autumn Statement (Growth Plan). Beyond that, the FCA has this week made efforts to remind firms of their obligations under the new consumer duty and its expectations of firms.  It also announced its decision on cessation of one and six-month synthetic sterling LIBOR at end-March 2023. Meanwhile, the PSR launched a consultation on mandatory reimbursement and cost allocation for authorised push payment (APP) scams. In Europe, ESMA has had a productive week updating a number of its Q&As and finalising reports on the DLT Pilot, the review of the clearing thresholds under EMIR and revised guidelines on certain aspects of the suitability requirements under MiFID II.


Please see the Fund Regulation section for an update on the FOS guidance about unregulated collective investment schemes.

FCA speech on what firms and customers can expect from the consumer duty and other regulatory reforms

On 29 September, the FCA published a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on what firms and customers can expect from the consumer duty and other regulatory reforms.  Points highlighted by the FCA in the published version include that the consumer duty is a significant shift, both for firms and for the FCA.  The duty will be a significant shift in what the FCA expects of firms. It also comes at a challenging time for consumers and the wider economy.  While the duty is not yet in force, firms should be stepping up now to support customers in these straitened times and ensure customers get good outcomes - the FCA wants to “take the spirit and intent of the Consumer Duty towards the Cost of Living challenge”.  The speech reminds firms of what the FCA expects the industry’s efforts to deliver in relation to (i) consumer understanding and the consumer journey; (ii) products and services that meet the customer’s needs; (iii) consumer support and competitive markets; and (iv) price and value. Boards and senior management have a critical role in overseeing firms’ implementation of the duty and the FCA has strengthened the requirements around governance and accountability to ensure senior managers and executives are held accountable. The FCA does not expect firms to have necessarily fully scoped all work required to embed the duty by the October deadline, but firms’ plans should be sufficiently developed to provide their governing bodies and the FCA with assurance that the duty will be fully implemented for new and existing products by next July.

FCA speech

New FCA webpage on consumer duty

On 27 September, the FCA published a new webpage on the consumer duty which hosts links to key publications. The FCA summarises i) the new consumer principle that requires firms to act to deliver good outcomes for retail customers; ii) the cross-cutting rules requiring firms to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives; and iii) the four outcomes rules requiring firms to ensure consumers receive communications they can understand, products and services that meet their needs and offer fair value, and the support they need.  The page also sets out a timeline for 5 key milestones which span the requirement for firms to agree their implementation plans by 31 October to the commencement of the rules for closed products/services on 31 July 2024. The FCA will host a series of sector-based webinars in October and November which will focus on areas including its expectations for firms and key milestones for individual sectors.

Consumer duty webpage

ESMA reminder of the impact of inflation in the context of providing investment services to retail clients

On 27 September, ESMA published a statement reminding investment firms of the impact of inflation in the context of providing investment services to retail clients. ESMA notes that the rise in inflation poses a risk for retail investors, as some of them will not fully appreciate the link between inflation and financial markets and may not fully understand how considerations on inflation should be factored in their saving and investment decisions. ESMA reminds firms of requirements under MiFID II when manufacturing and distributing investment products and when providing investment services to retail clients. In particular, it highlights the requirement: (i) to provide fair, clear and not misleading information to clients. In particular, ESMA expects firms to ensure that the information they address to retail clients, or disseminate in such a way that it is likely to be received by them, reflects, in comprehensible form, inflation risks and the possible effect this may have on the value and return of the investment; and (ii) to assess the suitability of products for clients, including to ensure that the client has an adequate understanding of the relationship between risk and return (including, where relevant, the impact inflation might have on nominal returns, the necessarily low remuneration of risk free assets and the incidence of time horizon on this relationship, and of the impact of overall costs and charges on his investments).  ESMA also expects manufacturers and distributors to consider the effect of expected inflation in their product governance processes.


Press release

PRA depositor protection reforms

On 23 September, the PRA published a consultation paper on reforms relating to depositor protection. Amongst the proposals, the PRA intends to: (i) revoke certain rules and amend others in its Depositor Protection Part concerning continuity of access; (ii) delete the Dormant Account Scheme Part in its entirety and amend other rules to remove references to the dormant account scheme; (iii) revise the temporary high balance (THB) regime in the Depositor Protection Part to confirm that a trust can hold monies that fall within the scope of the THB regime; (iv) protect eligible customers of e-money institutions, authorised payment institutions, small payment institutions, and credit unions (in respect of e-money), if a credit institution holding such firms’ safeguarded funds were to fail; and (v) set out that depositors of overseas firms that have their Part 4A permission removed and exit the UK market do not continue to benefit from FSCS protection. The deadline for responses to the PRA's proposals concerning the continuity of access rules and the dormant asset scheme is 21 October. The deadline for responses concerning the other proposals is 16 December.

Consultation paper

Financial crime and sanctions

Please see the other developments section for an update on the EBA’s work programme for 2023

ESMA updated Q&A on MAR

On 23 September, ESMA published an updated version of its Q&A on the Market Abuse Regulation. ESMA has added two Q&A relating to the disclosure of inside information.  The first relates to financial guidance and disclosure of inside information (Q5.11).  The second discusses market analysts’ expectations and the identification of inside information (Q5.12).



Please see the other developments section for an update on the EBA’s work programme for 2023

ESMA report on DLT Pilot Regime

On 27 September, ESMA published a report on the call for evidence on the Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) (DLT Pilot). The report also makes recommendations relating to certain compensatory measures on supervisory data. The DLT Pilot requires ESMA to assess whether the RTS developed under MiFIR relative to certain pre- and post-trade transparency and data reporting requirements need to be amended to also be effectively applied to securities issued, traded and recorded on DLT. ESMA launched a call for evidence on the DLT pilot regime in January 2022. Based on the feedback received, ESMA does not consider it necessary to amend the RTS on transparency and data reporting requirements for the purpose of the DLT Pilot. However, ESMA recognises that for certain technical elements, guidance on ESMA’s expectations would contribute to a consistent application of the DLT Pilot. Therefore, ESMA intends to issue such guidance either before the application of the DLT Pilot, or based on first experiences of the pilot, as appropriate. In addition, based on the feedback received, ESMA considers it important to already at this stage make some recommendations on compensatory measures that national competent authorities should request to ensure the integrity, completeness, consistency, usability and comparability of the supervisory data collected from DLT market infrastructures. ESMA does not intend to provide guidance on other compensatory measures at this stage. Following the publication of this report, ESMA will work on supervisory guidance clarifying the application of certain elements of the RTS on transparency and data reporting requirements. ESMA also intends to issue guidance on questions received by various stakeholders on the DLT Pilot to contribute to the convergent application of the DLT Pilot.


Fund regulation

FOS guidance about unregulated collective investment schemes

On 28 September, the FOS published issue 174 of ombudsman news.  Included in this issue is the FOS’ new online guidance for consumers and businesses about unregulated collective investment schemes (UCIS). The FOS reminds firms that although UCIS themselves are unregulated, advising on or arranging an investment of this kind may itself be a regulated activity. In the context of advising on pension transfers, the FCA has stated that financial advisers cannot assess the suitability of a transfer without taking into account the overall investment strategy. The means that, in practice, advisers need to consider the suitability of such investments if they are advising on a pension transfer that is intended to facilitate investment in UCIS.

FOS Guidance on UCIS

Markets and markets infrastructure

BCBS/IOSCO/CPMI review of margining practices

On 29 September, IOSCO, the BCBS and the CPMI jointly published a report on their review of margining practices during March and April 2020. The report records how the Covid-19 market turmoil of March 2020 was the most significant test of the resilience of financial markets since the Great Financial Crisis of 2007–09 but that financial markets generally proved resilient, with no widespread concerns about counterparty credit risk. During the period of high market volatility in March 2020, large increases in aggregate margin requirements were seen in both the centrally and non-centrally cleared markets. This report is part of the FSB’s work programme on non-bank financial intermediation and examines whether and, if so, to what extent, margin calls were unexpectedly large in centrally and non-centrally cleared derivatives and securities markets. It considers both initial margin (IM) and variation margin (VM), as well as centrally and non-centrally cleared markets (including clearing member-client dynamics), margin practices transparency, predictability and volatility. It also considers the liquidity management preparedness of market participants to meet margin calls and the availability of each jurisdiction´s regulatory data. The report concludes that further policy work is necessary in the following six areas: (i) increasing transparency in centrally cleared markets; (ii) enhancing the liquidity preparedness of market participants as well as liquidity disclosures; (iii) identifying data gaps in regulatory reporting; (iii) streamlining VM processes in centrally and non-centrally cleared markets; (iv) evaluating the responsiveness of centrally cleared IM models to market stresses, with a focus on impacts and implications for CCP resources and the wider financial system; and (v) evaluating the responsiveness of non-centrally cleared initial margin models to market stresses. The BCBS, CPMI and IOSCO will work together and with the FSB, as part of its work programme on NBFI, to take forward this work.

Press release

EC Implementing Decisions on EMIR equivalence for CCPs in Colombia and Taiwan

On 29 September, the EC adopted Implementing Decisions on the equivalence of the regulatory framework for CCPs in Colombia and Taiwan to the requirements under EMIR.  The decision relating to Taiwan is specifically as regards futures clearing houses under the supervision of the Financial Supervisory Commission. The Implementing Decisions will come into force 20 days after publication in the OJ.

Equivalence Decision relating to Colombia

Equivalence Decision relating to Taiwan

Cessation of 1- and 6-month synthetic sterling LIBOR at end-March 2023

On 29 September, the FCA announced its decision on cessation of 1- and 6-month synthetic sterling LIBOR at end-March 2023. In line with its consultation in June, they FCA has decided to require continued publication of the 1- and 6-month synthetic sterling LIBOR settings for a further 3 months after the end of 2022, until 31 March 2023. However, they have no intention to use their powers to compel IBA to continue to publish the 1- and 6-month synthetic sterling LIBOR settings beyond this, and therefore these settings will permanently cease immediately after final publication on 31 March 2023. Market participants need to ensure they are prepared for the permanent cessation of 1- and 6-month synthetic sterling LIBOR on 31 March 2023. Issuers and holders of outstanding bonds referencing sterling LIBOR need to agree to convert these bonds to fair alternative rates, if they don’t have robust fallbacks in place. Lenders and borrowers will also need to agree appropriate arrangements for any outstanding loans referencing sterling LIBOR. The June consultation also asked for views on when the 3-month synthetic sterling LIBOR setting could cease in an orderly fashion. The FCA is currently considering responses on this question. There was support for continuing the 3-month synthetic sterling LIBOR setting for a limited period beyond end-March 2023. The FCA is considering the appropriate date for cessation of 3-month synthetic LIBOR in light of the feedback received, and will provide further information when it publishes its summary of feedback on that question.  The FCA is also assessing feedback on exposures to USD LIBOR that might persist beyond end-June 2023 and will respond on this later in the ‘autumn’.

FCA announcement

BoE speech on innovation in post-trade services

On 28 September, the BoE published a speech by Sir Jon Cunliffe, Deputy Governor BoE, Financial Stability, on innovation in post-trade services – opportunities, risks and the role for the public sector. Amongst other remarks, Sir John noted: (i) regulators need to begin extending existing standards and regulatory regimes to crypto before not after it is becomes systemically important; (ii) as the crypto world continues to innovate, it is likely that we will see not only more technology transfer from the crypto world to the ‘real’ world: for the trading, clearing storing and settlement of ‘real’ assets, but also crypto native entities with the ambition to cross the boundary between the crypto world and conventional finance to offer services with tokenised forms of real assets; (iii) innovation in the post trade space over the past thirty years has improved efficiency but there is recognition from the industry that more can be done; (vi) we should look at the possibilities for disruption of the current post trade landscape that might come from the innovative approaches and technologies developed for the trading, clearing and settlement of cryptoassets. At the heart of this is the exchange of tokenised representations of the money and the securities. Bringing both components of the trade onto a single ledger facilitates near-instant settlement of trades and, building on modern cryptography, atomic settlement.  The most significant way these developments could disrupt current post trade models is the potential for consolidation across both trade and post-trade functions. T+now settlement could also be a possibility, like has become routine in some crypto markets; (v) regulators need to ensure that new approaches deliver the same level of resilience that is expected of the existing system. Concerns include: (a) that operational resilience of DLT-based systems needs to be proven over time; (b) the development of instantaneous settlement also poses challenges for the management of liquidity as it requires all cash and securities to be in place at the time a trade is struck; (c) the irrevocability that comes with instant transactions can pose problems for risk management; (d) whether interoperability between DLT platforms is feasible and how effective interoperability between markets and services running on DLT and those running on conventional systems would be; and (e) where consolidation is achieved, how risks can be managed to the right level without a legal entity accountable for the services provided and responsible for the proper functioning of the system.

BoE speech

ESMA feedback report on review of EMIR clearing thresholds

On 28 September, ESMA published a feedback report on the review of the clearing thresholds under EMIR. EMIR Refit introduced a mandate for ESMA to periodically review the clearing thresholds (CTs) and update them when necessary, in order to ensure that they remain appropriate. ESMA conducted a review of the CTs in November 2021 and ran a public consultation. Taking into account the feedback received in relation to commodity derivatives, ESMA published a final report on 3 June with draft RTS proposing to increase the CT for commodity derivatives. This September report considers the other elements of the feedback received. ESMA is of the view that the amendments to EMIR proposed in the high-level response to the European Commission’s consultation on the targeted review of EMIR, published in April, would address to a large extent many of the points raised by respondents. The more urgent aspects relating to the CT for commodity derivatives have been handled in the June final report. For the other asset classes, ESMA will not advise implementing further changes to the levels of the CTs. ESMA will continue monitoring the coverage of the CTs, in line with the EMIR mandate to periodically review the CTs, to ensure that they remain well-calibrated. Furthermore, ESMA is aware of the constant changes in particular in the current market circumstances and will monitor the developments on an on-going basis.

ESMA report on the review of the clearing thresholds

Recommendation on the availability of derivative products referencing €STR

On 26 September, the Working Group on Euro Risk-Free Rates issued a recommendation on the availability of derivative products referencing €STR, particularly those that will be utilised for the purpose of calculating and publishing a forward-looking term €STR rate in order to support the adoption of EURIBOR fallback. For all market making institutions, the group recommends that all reasonable steps are taken to make derivatives referencing the €STR benchmark available to customers. These may include (but are not limited to) the adoption of derivative products onto relevant platforms and market infrastructure; and the provision of pricing referencing both €STR and EURIBOR when discussing product options with customers. For all market participants transacting in derivatives referencing Euro denominated benchmarks, the group recommends assessing whether €STR would be a suitable benchmark for their needs and where relevant, taking the necessary steps to be able to transact accordingly, including the adoption or development of the necessary infrastructure.


ECB opinion on proposed amendments to the CSDR

On 26 September, an opinion of the ECB of 28 July on the proposed Regulation amending the CSDR was published in the OJ. The ECB welcomes the proposed regulation and strongly supports further facilitating capital markets integration by reducing barriers to the cross-border provision of settlement services. The ECB goes on to make specific observations, including in relation to: (i) a more targeted scope for the CSDR’s settlement discipline regime. The ECB consider that the settlement discipline regime should take as its starting point the aim of sanctioning only those settlement fails that result in adverse financial effects for the counterparty of the failing party. The ECB welcomes the proposed exclusions from the settlement discipline regime of both settlement fails caused by factors not attributable to the participants to the transaction, and settlement fails occurring in the context of transactions that do not involve ‘two trading parties’ (although the ECB invites the Union legislator to consider clarifying the scope of this exclusion). The ECB considers regulation-driven mandatory buy-ins a significant interference in the execution of securities transactions and the functioning of securities markets and that it would be preferable to discard the possibility of mandatory buy-ins altogether.  If maintained, the conditions for activating a mandatory buy-in mechanism in respect of certain financial instruments or categories of transactions should be weighed against the impact of mandatory buy-ins on the functioning of securities markets and the effect on the financial stability and settlement efficiency in the Union.  The ECB suggests that consideration should be given to an approach whereby, instead of legislation prescribing the exact method of executing buy-ins, market participants are required to contractually agree on such details between themselves.  Finally, the ECB invites the Union legislator to consider excluding securities financing transactions from the scope of any mandatory buy-ins; (ii) cooperation between competent authorities and relevant authorities. The ECB proposes to widen the scope of the passporting colleges' mandate to cover other types of cross-border activities, including settlement in relevant foreign currencies and the operation of interoperable links; (iii) banking-type ancillary services. The ECB suggest that the proposed regulation could be amended to include the possibility of developing regulatory technical standards to address the implications of the provision of banking-type ancillary services by CSDs to other CSDs; (iv) netting.  The ECB consider that the requirement to adequately monitor and manage any risks stemming from netting arrangements in relation to the cash leg of a CSD’s applied settlement model should apply to all CSDs operating securities settlement systems that use netting arrangements, irrespective of whether those CSDs provide banking-type ancillary services or not; and (v) default. The ECB suggests aligning the definition of default in the CSDR with the definition set out in the PFMIs.  The ECB also suggests that the Union legislator may wish to reflect on a clarification to the effect that a CSD has the possibility to determine additional events that constitute a default by a CSD participant, where the default management rules and procedures referred to in the CSDR are not sufficient to address material events that may occur in a system. Specific drafting proposals are set out in a separate technical working document accompanied by an explanatory text to this effect.

ECB Opinion

Technical working document

ESMA guidance on market outages

On 26 September, ESMA published a consultation paper on market outages. The consultation seeks feedback on ESMA’s proposed guidance on how trading venues should communicate with market participants in case of an outage. It sets out ESMA’s expectations on how NCAs should ensure that trading venues have appropriate communication protocols in place ensuring the communication to members and participants and the public during an outage. In addition, it includes ESMA’s guidance on how NCAs should ensure that trading venues have arrangements in place to avoid that an outage affects the closing auction, and, where an outage prevents the trading venue from running the closing auction, to ensure that the market is provided with an official closing price. It also seeks feedback from stakeholders on measures that a trading venue should have in place to ensure that it has the ability to run its closing auction and on whether the lack of a reference price raises any concern in an outage context. Finally, the consultation covers outages on non-equity markets. The consultation closes on 16 December and ESMA will endeavour to publish the final report in Q1 2023.

ESMA consultation on market outages

ESMA revised guidelines on certain aspects of MiFID II suitability requirements

On 23 September, ESMA published its final report and revised guidelines on certain aspects of the suitability requirements under MiFID II.  The guidelines were reviewed following: (i) amendments to Commission Delegated Regulation 2017/565 to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms; (ii) the good and poor practices identified in ESMA’s 2020 Common Supervisory Action on suitability; and (iii) the amendments introduced through the Capital Markets Recovery Package to Article 25(2) of MiFID II. The changes relate to sustainability preferences and organisational requirements. Feedback to ESMA’s January consultation on the guidelines, together with ESMA's response, is set out in Annex III to the report. The guidelines will apply six months after they are translated into the official languages of the EU and published on ESMA's website.

ESMA final report

ESMA updates MiFID II and MiFIR Q&As on commodity derivatives and market structures

On 23 September, ESMA published updated Q&As on (i) commodity derivatives; and (ii) market structures topics each under MiFID II and MiFIR. A press release accompanying the updated Q&A on commodity derivatives issues explains that the revised Q&A mainly reflect the amendments introduced by the Recovery Package for commodity derivatives, including those introduced by the entry into force of the latest technical standards and the Commission Delegated Regulation on the ancillary activity criteria replacing RTS 20 which became applicable in November 2021. The updated Q&As include track changes for the amended Q&As, which relate to position limits, ancillary activity, position reporting and third country issues. Questions that are no longer relevant still appear in the document as a reference, but the answers have been deleted.  In relation to the Q&A on market structures, ESMA has updated the section on direct electronic access and algorithmic trading, adding a new Q&A35 on trading hours.

ESMA Q&As on MiFID II and MiFIR commodity derivatives topics

Press release

ESMA Q&As on MiFID II and MiFIR market structures topics

ESMA updates Q&As on crowdfunding

On 23 September, ESMA published an updated version of its Q&As relating to the Regulation on European crowdfunding service providers for business. ESMA has updated Q&As in the general provisions and investor provisions sections.

ESMA Q&As on crowdfunding

Payment systems and payment services

PSR consults on mandatory reimbursement and allocating costs for APP fraud

On 29 September, the PSR began consulting on mandatory reimbursement and cost allocation for authorised push payment (APP) scams. Its proposals relate to measures to (i) require reimbursement for APP scams; (ii) improve the level of protection for APP scam victims; and (iii) incentivise payment service providers (PSPs) to prevent APP scams, whether as a sending PSP or a receiving PSP. In the context of mandatory reimbursement, the PSR proposes requiring all PSPs sending payments over Faster Payments to fully reimburse APP scam victims, with only limited exceptions. The exceptions will include scams where the consumer is involved in the fraud themselves, or where they have acted with gross negligence. The exception for gross negligence is a high bar, which the PSR expects will apply in only a small minority of cases, and would not apply where a consumer was vulnerable. The sending PSP will have to reimburse the victim as soon as possible, and no more than 48 hours from the fraud being reported. If the PSP has evidence or reasonable grounds for suspicion of either first party fraud or gross negligence, it will have more time to investigate and can delay the payment. The PSR proposes to allow PSPs to have a minimum threshold for a reimbursement claim (of no more than £100), to withhold an excess (of no more than £35), and to set a time limit for claims (of no less than 13 months). The PSR expects different PSPs to apply these options in different ways, reflecting factors such as competition and operational efficiency. The PSR also proposes to include all categories of APP scam in the rules on mandatory reimbursement. With regards to allocating the costs of reimbursement, the PSR states that currently, sending PSPs pick up the vast majority of the costs of reimbursement under the Contingent Reimbursement Model (CRM) Code (over 95%). This means receiving banks do not have strong incentives to prevent fraud and stop fraudsters controlling their accounts. Therefore, the PSR proposes to allocate the costs of reimbursement equally between sending and receiving PSPs. PSPs can use a dispute management process to adjust the allocation, to better reflect the steps each PSP took to prevent the scam. Pay.UK would be charged with making, maintaining and enforcing payment system rules to protect consumers and prevent fraud. The PSR expects Pay.UK to consider how quickly it can implement its vision for Faster Payments scheme rules and its role, and what interim arrangements it may need. The deadline for responses is 25 November. The PSR will set out its policy position and accompanying action in the first half of 2023.

Consultation Paper

Press Release

BoE speech on payments data

On 29 September, the BoE published a speech by Dave Ramsden, BoE Deputy Governor, Markets and Banking entitled “Message received and understood”. Amongst other things, the speech considers how payment systems were originally developed in different jurisdictions to meet the needs of the users at the time, with little focus on interoperability or future-proofing. In the UK, as in many countries, the data standards developed piecemeal as the payment and underlying technology systems developed. The historical challenge of transmitting a file of a certain size with the computing power available a quarter of a century ago has left many of us, including the UK, with a legacy of only being able to gather and hold a very limited amount of information in a payment message. In the UK the way that payments are made and settled is being transformed with the renewal of the BoE’s RTGS Service. An integral part of this upgrade is the global push to enhance the soft infrastructure of payments by introducing ISO 20022 messages in the renewed RTGS and in CHAPS. The ISO 20022 message standard could transform the approach to fraud and financial crime, including APP fraud. With respect to frictions in cross border payments, the G20 FSB roadmap on cross-border payments is, among other things, focused on how a more effective use of and greater standardisation of data could help to streamline AML/CFT and sanctions compliance. The Bank, PRA and FCA will publish a Discussion Paper later this year on how the current UK regulatory framework applies to artificial intelligence and machine learning. The paper will also explore how policy can best support further safe and responsible adoption and whether additional clarification of existing regulation may be helpful.

BoE Speech

Prudential regulation

Please see the other developments section for an update on the EBA’s work programme for 2023

EBA Guidelines on specification and disclosure of systemic importance indicators

On 29 September, the EBA published amending guidelines on the specification and disclosure of systemic importance indicators. The guidelines relate to the ex ante disclosures by European Banking Union headquartered G‐SIBs. An additional identification methodology of G-SIBs in the EU was considered necessary and appropriate and was detailed in Delegated Regulation 2021/539.  According to this additional methodology, the additional overall G-SIB score is requested to account for the specificities of the European Banking Union and the SRM within cross-border activity indicators. The BCBS has agreed to give recognition in the G-SIB framework to the progress made in developing the Banking Union through the existing methodology, which allows for adjustments to be made according to supervisory judgement. The EBA explain that items relating to the recognition of the Banking Union, while part of the "memorandum items" under the Basel framework, cannot be considered as "ancillary or memorandum" within the Banking Union context. The amending guidelines explain that they constitute a core part of the classification of G-SIIs in the EU and must be disclosed. Disclosure of this data reinforces the credibility and commitment of the EU to fulfil the Basel agreement and provides transparent information on any future supervisory judgement decision taken. As a result, the EBA needs to provide a harmonised understanding of the term "ancillary or memorandum items", referred to in both Commission Implementing Regulation (EU) 2021/637 and the guidelines.  A new paragraph 10a is added to section 4 of the guidelines, stating that data items relevant for the calculation of adjusted cross-jurisdictional indicators concerning institutions headquartered in member states adhering to the SRM should be considered as part of the cross-jurisdictional activity indicators and not as ancillary or memorandum items for the G-SII identification and sub-category allocation methodology. Given the limited extent of the changes and the limited impact on the affected institutions, it was deemed disproportionate to carry out a public consultation.

EBA Guidelines

ESRB warning on vulnerabilities in the financial system of the EU

On 29 September, the European Systemic Risk Board (ESRB) published a report of its meeting on 22 September and issued a warning on vulnerabilities in the financial system of the EU. The General Board of the ESRB have concluded that risks to financial stability in the EU and the probability of tail-risk scenarios materialising have increased. The identified risks pertain to: (i) the deterioration of the macroeconomic outlook, (ii) risks to financial stability stemming from a (possible) sharp asset price correction, and (iii) the implications of such developments for asset quality. The General Board noted that the resilience of the EU financial sector is already being supported by the actions of both microprudential and macroprudential authorities. The General Board calls for these authorities to preserve or enhance this resilience so that the financial sector can continue to support the real economy if and when financial stability risks materialise. According to the General Board, it is necessary for private sector institutions, market participants and relevant authorities to continue preparing for scenarios in which tail risks materialise. The General Board also calls for close coordination between relevant authorities and prudent risk management practices across all financial sectors and market participants, as these remain key to effectively addressing vulnerabilities, and for the avoidance of market fragmentation and negative externalities for other EU Member States. The ESRB also released the 41st issue of its risk dashboard.

ESRB meeting

ESRB warning

Amendments to ITS specifying main indices and recognised exchanges under CRR

On 27 September, Implementing Regulation 2022/1650, amending ITS in Commission Implementing Regulation 2016/1646 as regards the main indices and recognised exchanges in accordance with the CRR, was published in the OJ. The amendments reflect the change to the definition of ‘recognised exchange’ laid down in Regulation 2019/2033 such that ‘recognised exchanges’ are no longer restricted to ‘regulated markets’ only but also extend to “a third-country market that is considered to be equivalent”. They also address changes that have occurred in the market structure since the entry into force of Implementing Regulation 2016/1646, particularly as regards the appearance of new exchanges, mergers, name changes or cessation of activities and as a result of the UK’s status as a third country. The Implementing Regulation replaces Annex I (Main indices specified under Article 197 CRR) and Annex II (Recognised exchanges specified under Article 197 CRR) and will enter into force on 17 October.

Implementing Regulation

BoE announces key elements of 2022 banking stress test

On 26 September, the BoE published the key elements of its 2022 annual cyclical scenario (ACS) stress test for banks and building societies. The BoE is returning to the ACS framework following two years of Covid-19 pandemic crisis-related stress testing and its decision to postpone the test in March following Russia's invasion of Ukraine. Eight banks will take part in the ACS, including four ring-fenced bank subgroups for the first time. As per previous ACS scenarios, it is a coherent ‘tail risk’ scenario designed to be severe and broad enough to assess the resilience of UK banks to a range of adverse shocks. It will, for the first time, test UK banks’ resilience to higher global interest rates, in the face of a series of global cost shocks and high and persistent global inflation. The stress scenario is more severe than the global financial crisis for both the UK and the world. In the stress scenario, weaker household real income growth, lower confidence and tighter financial conditions result in severe domestic and global recessions. In the UK, GDP contracts by 5.0%, unemployment more than doubles to 8.5% and residential property prices fall by 31%. World GDP falls by 2.5%. The 2022 ACS will cover a five-year horizon, with a start point of end-June 2022. Banks will continue to be assessed on an IFRS 9 transitional basis and the associated hurdle rate adjustments will continue to apply. The results of the test will be published in summer 2023 and, together with other relevant information, will be used to help inform banks' capital buffers (that is, both the UK countercyclical capital buffer (CCyB) rate and PRA buffers).

Key elements of 2022 ACS

PRA policy statement on definition of capital

On 26 September, the PRA published a policy statement on the definition of capital addressing updates to its rules and supervisory expectation. The statement summarises the feedback received to the consultation in February and contains the PRA’s final policy amendments to the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and an updated SS7/13 ‘Definition of capital (CRR firms)’. After considering the feedback, the PRA has made changes to the draft rules and SS, including: (i) amending the draft rules to require that, once permission is received, the general prior permission (GPP) amount should be deducted from own funds when there is sufficient certainty regarding the transaction; and (ii) introducing an expectation in the SS that firms should notify the PRA every quarter regarding transactions taken under the GPP. The UK version of Commission Delegated Regulation 241/2014 which contains RTS on own funds requirements for banks, building societies and PRA-designated investment firms (the PRA part of the delegated regulation) will be revoked when the changes come into effect on 1 January 2023.

PRA PS8/22

EBA launches 2022 transparency exercise

On 23 September, the EBA launched its annual EU-wide transparency exercise, as part of its efforts to monitor risks and vulnerabilities and to reinforce market discipline. The EBA state that as in the past, the exercise is exclusively based on supervisory reporting data, which the EBA say will keep the burden for the banks to a minimum. The EBA expects to release more than 1 million data points, on average more than 10,000 data points per bank, with about 120 participating banks. As in the previous years, the data will cover capital positions, profitability, financial assets, risk exposure amounts, sovereign exposures and asset quality. Results are expected to be published at the beginning of December.

EBA announcement

Recovery and resolution 

EBA guidelines on transferability for BRRD resolvability assessments

On 28 September, the EBA published its final Guidelines (dated 27 September) on transferability to support the resolvability assessment for transfer strategies. In particular, they provide guidance relating to: (i) the definition of the transfer perimeter.  Transferability covers all the elements that will facilitate the transfer of an entity, a business line or a portfolio of assets, rights or liabilities to an acquirer (public or private company), a bridge institution or an asset management company; and (ii) the steps to operationalise the implementation of the transfer. The transferability Guidelines complement the resolvability Guidelines, which were published on 13 January.  They do not apply to institutions subject to simplified obligations or earmarked for liquidation, unless resolution authorities decide so (in full or in part). In addition, discretion is left to authorities with regards to the extent of application of the Guidelines in cases where the transfer tool is only part of the variant strategy. Those institutions subject to the Guidelines and resolution authorities are expected to comply by 1 January 2024. The Guidelines will be updated and complemented as progress is achieved on relevant policy topics, both at international and EU level. In particular, the EBA is currently consulting on publication of the bail-in mechanics by resolution authorities and working on the topics of resolvability testing and transparency.

EBA Guidelines on transferability

SRB webpage on 2023 resolution reporting

On 26 September, the SRB published a new webpage on 2023 resolution reporting.  The page summarises the reporting process, requirements and timeline relating to the 2023 resolution reporting data collection exercise and collates accompanying guidance and other documents.

2023 Resolution Reporting

Regulatory reform post Brexit 

Please see the other developments section for an update on the government’s growth plan

FCA speech on how regulation can prepare the ground for economic growth

On 27 September, the FCA published a speech by Sarah Pritchard, FCA Executive Director, Markets, on how regulation can prepare the ground for economic growth. The FCA summarises the key points as: (i) protecting consumers from harm and maintaining market integrity are key elements of boosting economic growth and international competitiveness; (ii) the FCA continues to work on ways to reduce regulatory burden where possible whilst maintaining high standards so the UK is the best place in the world to do business; (iii) the pending authorisations backlog has been slashed in the last year and the FCA is trialling automated forms to further speed the process; and (iv) the FCA is looking at reforming investment advice rules so that specialist knowledge is available to mass market consumers for lower risk products. The FCA state that they want to support long term competitiveness and growth of the UK economy, and know they can do so by being an effective regulator. They consider that they can support growth by showing speed and agility, by providing regulatory certainty and by responding quickly to changes in markets.

FCA speech

PRA speech on future approach to policy

On 27 September, the PRA published a speech by Victoria Saporta, PRA Executive Director, Prudential Policy, on the PRA’s future approach to policy.  The speech compared good regulation to an effective immune system – strong and responsive. The PRA consider the new secondary objective to facilitate (subject to alignment with international standards) the international competitiveness of the UK economy a very important change. When a menu of options is available for pursuing safety and soundness, the PRA will choose the one that facilitates competitiveness and growth. It considers the highly skilled people, deep and specialised financial markets, robust legal system, trusted institutions and incredibly innovative financial sector as the foundations upon which the UK’s comparative advantage in financial services is built. Under the reforms proposed by the Financial Services and Markets Bill, the PRA intend to create a single, easily useable Rulebook written in plain English, although this will be a multi-year project.  The PRA will also be consulting on the removal of the bonus cap in the ‘autumn’.

PRA Speech

Sustainable finance 

Please see the other developments section for an update on the EBA’s work programme for 2023

Call for evidence on net zero target

On 29 September, the Department for Business, Energy and Industrial Strategy (BEIS) published a call for evidence on the net zero review.  The net zero review is intended to enable the government to better understand the impact of the different ways to deliver its net zero pathway on the UK public and economy and maximise economic opportunities of the transition. The call for evidence invites views on a series of questions, including: (i) how net zero will enable the UK to meet its economic growth target of 2.5% a year; (ii) what opportunities there are for new/amended measures to stimulate or facilitate the transition to net zero in a way that is pro-growth and/or pro-business; and (iii) where and in what areas of policy focus could net zero be achieved in a more economically efficient manner. The call for evidence closes on 27 October and a report due by the end of the year.

Call for evidence

GFANZ report on expectations for real-economy transition plans

On 22 September, the Glasgow Financial Alliance for Net Zero (GFANZ) published a report on expectations for real-economy transition plans. The report outlines the components of transition plans that financial institutions will be looking for from companies to inform their allocation of capital and services, and how to engage. It aims to help real-economy companies understand and navigate the growing expectations from financial institutions that are aligning their investment and finance strategies with net zero. The GFANZ suggest that companies in the real economy can use this report when building their transition plans to identify the disclosures that financial institutions expect from real-economy companies to enable access to capital and other financial products/services. It also suggests that financial institutions can use the report to guide their engagement with clients and portfolio companies, to improve the alignment of requests going to companies for transition-specific information. The GFANZ consider that financial institutions could use the list of disclosures to tailor their products, services, and decision-making processes such that they support financial activities in the real economy. Further, organizations and individuals involved in existing initiatives and frameworks can gain insights into the elements of transition plans that are consistent between initiatives, as well as insights into where they differ and regulators may use the report to inform the development of new regulatory frameworks.

GFANZ Report

Other developments 

EBA Work Programme 2023

On 29 September, the EBA published its annual work programme for 2023, describing its key strategic areas of work for the coming year, as well as related activities and tasks. In 2023, the EBA will continue delivering on the priorities defined for the period 2022-2024 in its programming document. Its focus will be on: (i) finalising the Basel implementation in the EU; (ii) running an enhanced EU-wide stress test; (iii) providing data to all stakeholders; (iv) addressing the new challenges arising from the digitalisation of finance; and (v) further contributing to the build-up of the capacity to fight ML/FT and to protect consumers in the EU. It will also continue to pay particular attention to the European ESG agenda, in its regulatory and risk assessment mandates, as well as in its own organisation. Given the political agreements reached in 2022 on DORA and MiCA, the EBA will also actively start its preparations to be able to discharge the new oversight responsibilities it will receive, together with EIOPA and ESMA.

EBA Work Programme

ECB guide to qualifying holding procedures

On 28 September, the ECB launched a consultation on its draft guide to qualifying holding procedures. The Guide aims to clarify how the ECB assesses applications to acquire qualifying holdings in banks. The ECB intends for the Guide to function as a user-friendly handbook. It explains who is obliged to undergo qualifying holding assessments, the documentation required to apply and how the ECB assesses these transactions. It also provides information on complex acquisition structures, the application of the principle of proportionality and specific procedural elements. This Guide to qualifying holding procedures will complement the ECB’s Guide on the supervisory approach to consolidation in the banking sector, as the two guides have a complementary focus. The consultation closes on 9 November.

ECB Guide to qualifying holding procedures


Press release

2022 Autumn Statement (Growth Plan)

On 23 September, the Chancellor, Kwasi Kwarteng, delivered the 2022 Autumn Statement (Growth Plan). Alongside the various tax cuts (including in relation to the Bank Corporation Tax Surcharge), the Chancellor announced new measures to “unlock private investment”, changing regulations to increase investment by pension funds into UK assets, incentivising investment into Britain’s science and tech companies. The government considers that it must cut taxes, streamline the public sector, and liberate the private sector, by making Britain the place for (amongst other things) investment, “creating the right conditions and removing barriers to the flow of private capital – whether taxes or regulation”. The plan reports that the financial services sector will be at the heart of the government’s programme for driving growth across the whole economy. Later this autumn the government will bring forward “an ambitious deregulatory package” to “unleash the potential of the UK financial services sector”. This will include the government plan for repealing EU law for financial services and replacing it with rules tailor made for the UK, and scrapping EU rules from Solvency II. The Growth Plan confirms announcements that the PRA will scrap the bankers’ bonus cap, which the government considers undermines growth and hinders financial stability. Additionally a £40 billion Energy Markets Financing Scheme, delivered with the BofE, is intended to address extraordinary liquidity requirements faced by energy firms from high and volatile energy prices. It will be limited to those making a material contribution to the liquidity of UK energy markets and who are thereby systematically important to the UK economy. The scheme will provide liquidity to firms through a 100% guarantee, delivered via commercial banks and will open to applications from 17 October.

Growth Plan