Key Regulatory Topics: Weekly update 24-30 April 2020
07 May 2020
Our weekly update on key regulatory topics affecting the financial services sector.
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Please see our Markets and Markets Infrastructure section for an update on HM Treasury's plan to pass legislation to assist Trade Repositories with registering with the FCA or applying in advance to operate in the UK immediately following the end of the Brexit Transition Period, in relation to functions established by the UK Securities Financing Transactions Regulation.
FCA, BoE and PRA respond to HMT's intention to retain the TTP at the end of the transition period
On 30 April, the FCA updated its webpage on the TTP directions and its Brexit policy statement. This is in relation to HMT's statement of 25 March which confirms their intention to retain the regulators’ TTP and shift its application so that it is available for use by the UK financial services regulators for a period of two years from the end of the transition period. In response, the FCA confirms that it intends to apply the TTP on a broad basis and to the same areas previously communicated. The FCA intends to grant transitional relief from the end of the transition period until 31 March 2022. The FCA states this means that, generally, UK regulated firms will not need to complete preparations to implement changes in UK law arising from the end of the transition period by December. The BoE and PRA also published a joint statement, confirming that they intend to use the TTP after the transition period as previously communicated in relation to exit day. The BoE and PRA similarly state that this means, in all but a few areas, PRA-regulated firms and Bank-regulated FMIs do not need to have completed preparations to implement changes in UK law arising from the end of the transition period by December.
Please see our Conduct section for an update regarding the FCA's letter to CEOs on ensuring fair treatment of corporate customers preparing to raise equity finance.
Please see our Consumer/Retail section for the LSB's review of firms' approach to the reimbursement of customers for authorised push payment (APP) scams.
FCA's letter to CEOs on ensuring fair treatment of corporate customers preparing to raise equity finance
On 28 April, the FCA published a letter to CEOs on ensuring fair treatment of corporate customers preparing to raise equity finance. The FCA states that it has heard credible reports of a small number of banks failing to treat their corporate clients fairly when negotiating new or existing debt facilities, as clients navigate the current exceptional circumstances. In particular, it has heard reports that banks may have used their lending relationship to exert pressure on corporate clients to secure roles on equity mandates that the issuer would not otherwise appoint them to. The FCA's concern is that attempts to get clients to take additional services, or demanding fees for services not provided, distorts competition and undermines market confidence. The FCA states that such conduct could be a breach of FCA Rules and Principles. The FCA also reminds firms that they need to fulfil their obligations under the Market Abuse Regulation concerning the identification, handling and disclosure of inside information received in connection with the renegotiation of a corporate client’s existing facilities.
LSB report on the reimbursement of customers for authorised push payment (APP) scams
On 30 April, the LSB published a report on the reimbursement of customers under the Contingent Reimbursement Model (CRM) Code for APP scams. The LSB has found that, inter alia, firms have taken positive steps to implement the requirements of the Code for reimbursing customers, and identified various examples of good practice. Notwithstanding this, the LSB has found that there are key areas for improvement which include: (i) reimbursement; (ii) effective warnings; (iii) customer vulnerability; and (iv) record keeping. The LSB states in their press release that they will be undertaking a full review of the Code itself this year.
FCA provides business plan guidance for lending firms
On 29 April, the FCA published a new webpage providing guidance on preparing a business plan as part of an application for authorisation as a lending firm. This covers guidance for all types of lending firms, as well as specific guidance for: (i) unsecured credit lenders; (ii) home collected credit firms; (iii) high-cost short-term credit firms; (iv) hire purchase; (v) debt counselling, debt adjusting and credit information firms; and (vi) firms with Appointed Representatives. A sample business plan has also been published. FCA Guidance on Business Plans FCA Sample Business Plan
UK Finance blog post on product transfers
On 28 April, UK Finance published a blog post on product transfers, stating that these allow borrowers to switch products quickly and efficiently. To further support customers, lenders have renewed and expanded a commitment to help existing mortgage customers easily switch to a new deal when they reach the end of their term. To be eligible for a product transfer, UK Finance states that customers need to be up to date with payments, approaching the end of their fixed-rate term and not looking to borrow any more. Borrowers also need to have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000. Furthermore, the commitment only applies to customers of those lenders that are able to offer alternative products to their existing borrowers.
FCA confirms support for motor finance and high-cost credit customers
On 24 April, the FCA confirmed the final versions of its temporary measures for firms on: (i) motor finance; (ii) high-cost short-term credit (including payday loans); and (iii) other credit products. The FCA states, inter alia, that the targeted temporary measures being implemented are a 3 month payment freeze for motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawn-broking agreements. For high-cost short-term credit (including payday loans), payments will be frozen for one month with no additional interest to be charged. It is stressed that these measures ensure that all consumers affected by the Covid-19 pandemic can apply for a temporary freeze on their payments, and the measures do not prevent firms from providing more favourable forms of assistance to any customer. The measures came into force on 27 April. Read more
Please see the other sections for product specific updates relating to Covid-19.
Please see our dedicated Covid-19 webpage containing links to a number of articles and insights to keep up-to-date with developments and assist with effective contingency planning.
FCA’s new webpage on delayed activities and regulatory change in light of Covid-19
On 30 April, the FCA published a new webpage on delayed activities and regulatory change. The FCA is reviewing its work plans to delay or postpone activity that is not critical to protecting consumers and market integrity in the short-term. The webpage provides a list of consultation papers and calls for input that have been delayed until 1 October. The webpage also lists out delays to publications and other activity.
FCA's approach to the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the new Bounce Back Loan Scheme (BBLS)
On 27 April, the FCA published a statement setting out its approach to its regulation of firms in relation to the government’s CBILS and BBLS, following the government's changes to the criteria lenders must apply when considering firms for a loan under these schemes. As an interim measure, pending the roll-out of the BBLS, if firms comply with the relevant requirements of CBILS that have been announced, the FCA does not expect them to comply with CONC 5.2A.4-34 where the lending is regulated. Though, the FCA states that firms must continue to carry out creditworthiness assessments in line with the whole of CONC 5.2A on all other regulated lending. The FCA also addresses its approach in respect of managing financial crime in the current environment.
Treasury Committee's terms of reference for the inquiry into the economic effect of the Covid-19 pandemic
On 24 April, the Treasury Committee published the terms of reference regarding the next stage of its inquiry into the economic effect of the Covid-19 pandemic. Amongst other things, this details questions in respect of: (i) support given to businesses and financial services; and (ii) the economy, public finances and monetary policy. In its press release, the Committee explains that this stage will examine the operational effectiveness, cost and sustainability of the Government’s and BoE’s support packages. The Committee will also examine the impact on the economy and different sectors, the implications for public finances, and how the Government can work towards a sustained recovery.
We have published our first podcast in a series of conversations with leading figures in the world of anti-corruption, discussing how greater collaboration among enforcement agencies is changing anti-corruption investigations. In this podcast, Billy Jacobson, a litigation partner in Allen & Overy's white-collar crime team in Washington DC, talks to Pascale Dubois, former Vice-President of Integrity at the World Bank Group.
Please see our Conduct section for an update on the FCA addressing CEOs on ensuring fair treatment of corporate customers preparing to raise equity finance.
Please see our Covid-19 section for an update on the FCA's approach to the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the new Bounce Back loan scheme (BBLS).
FATF extends its assessment and follow-up deadlines in response to Covid-19
On 28 April, FATF announced the extension of its assessment and follow-up deadlines in response to Covid-19. FATF has temporarily postponed all remaining mutual evaluations and follow-up deadlines. Additionally, FATF has decided to pause the review process for the list of high-risk jurisdictions that are subject to a call for action and jurisdictions subject to increased monitoring, by granting jurisdictions a four month extension to their deadlines. Thus, FATF is not reviewing them in June. Mongolia and Iceland, however, requested not to extend their deadlines and thus FATF will issue updated statements in respect of them in June. FATF has provided a new schedule which provides information on-going and future mutual evaluations, which will be updated regularly. FATF Press Release FATF New Mutual Evaluations Schedule
Please see our Payment Systems and Payment Services section for an update on the FCA extending the implementation of strong customer authentication (SCA) for e-commerce in light of Covid-19.
Saudi G20 Presidency and the Bank for International Settlements (BIS) Innovation Hub invite global innovators to find solutions to the most pressing financial regulatory & supervisory challenges
On 29 April, BIS announced that the Saudi G20 Presidency and the BIS Innovation Hub are inviting global innovators to find solutions to the most pressing financial regulatory and supervisory challenges. They have published high-priority RegTech/SupTech operational problems and invite private firms to develop innovative technological solutions. The hackathon-style competition aims to help mobilise effective solutions to pressing financial regulatory and supervisory challenges, including by supporting regulatory and supervisory responses against the Covid-19 pandemic. The initiative recognises that, notwithstanding the unprecedented challenges presented by the pandemic, financial regulators and supervisors will continue to ensure that the global financial system operates in a stable, efficient and inclusive manner. The competition is also supported by the Monetary Authority of Singapore, the FSB, API Exchange, and the RegTech for Regulators Accelerator.
Markets and markets infrastucture
Please see our Conduct section for an update on the FCA's letter to CEOs on ensuring the fair treatment of corporate customers that are preparing to raise equity finance.
HMT to pass legislation to assist Trade Repositories (TRs) with registering with the FCA or applying in advance to operate in the UK immediately following the end of the Transition Period, in relation to functions established by the UK Securities Financing Transactions Regulation (SFTR)
On 30 April, HMT published guidance on TRs' registration arrangements under the SFTR. HMT states that TRs and relevant market participants should note that HMT will bring forward legislation prior to the end of the transition period helping enable TRs to register with the FCA or apply in advance to operate in the UK immediately following the end of the Transition Period, in relation to functions established by the SFTR. Further information on registration will follow from the FCA in due course. HMT states that the legislation passed will be similar to the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 which helped to enable TRs to be registered to operate in the UK post-Transition Period in relation to functions established by EMIR.
Further statement from the RFRWG on the impact of Covid-19 on the timeline for firms’ LIBOR transition plans
On 29 April, the FCA published a further statement (to the one made on 25 March) from the RFRWG on the impact of Covid-19 on the timeline for firms’ LIBOR transition plans. The FCA states that it remains the central assumption that firms cannot rely on LIBOR being published after the end of 2021. There will likely be continued use of LIBOR-referencing loan products into Q4, in particular to maintain the smooth flow of credit to the real economy. Therefore, the RFRWG recommends that: (i) by the end of Q3 lenders should be in a position to offer non-LIBOR linked products to their customers; (ii) after the end of Q3, lenders should include clear contractual arrangements in all new and re-financed LIBOR-referencing loan products to facilitate conversion ahead of end-2021, through pre-agreed conversion terms or an agreed process for renegotiation, to SONIA or other alternatives; and (iii) all new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of Q1 2021. The FCA, the BoE and the Chair of the RFRWG will support the delivery of the RFRWG work plan in key areas, including: (a) publishing the RFRWG's analysis on, and considerations for, dealing with 'tough legacy' contracts; (b) building on the strong consensus on how to calculate a fair credit spread adjustment in legacy cash products; and (c) intensifying communication with customers when plans and working arrangements disrupted by the Covid-19 pandemic begin to stabilise.
ESMA encourages adoption of Delegated Acts for benchmark administrators to apply the new environmental, social and governance (ESG) disclosure requirements under the Benchmarks Regulation (BMR)
On 29 April, ESMA published a No Action Letter to promote coordinated action by National Competent Authorities (NCAs) regarding the new ESG disclosure requirements for benchmark administrators under the BMR. ESMA and NCAs are aware of the difficulties encountered by administrators in fulfilling the new requirements in the BMR on ESG-related disclosures for benchmarks (which are due to apply on 30 April) prior to the application of the related Delegated Acts. In its letter, ESMA states that NCAs should not prioritise supervisory or enforcement action against administrators regarding these new requirements until the Delegated Acts apply. ESMA also published an opinion to the EC, providing its view that any delay in the adoption of the Delegated Acts should be avoided.
ESMA No Action Letter
AFME, GFMA and ISDA address ESMA on EMIR Refit mandatory delegated reporting requirement date in light of Covid-19
On 27 April, AFME, GFMA and ISDA published a joint letter to ESMA on EMIR, requesting that ESMA states an expectation that NCAs should decide not to prioritise supervisory actions in relation to the EMIR Refit mandatory delegated reporting requirement and that they should generally apply their risk-based supervisory powers in day-to-day enforcement of this requirement in a proportionate manner for a period of just over 5 months (until 21 November 2020). The letter, inter alia, outlines the major challenges and constraints market participants are currently facing as a result of the pandemic.
Payment systems and payment services
Please see our Consumer/Retail section for the LSB's review of firms' approach to the reimbursement of customers for authorised push payment (APP) scams.
FCA extends the implementation of strong customer authentication (SCA) for e-commerce in light of Covid-19
On 30 April, the FCA published a statement on SCA, stating that it is giving the industry an additional six months to implement SCA for e-commerce in light of Covid-19. The new timeline of 14 September 2021 replaces the 14 March 2021 date. The FCA states that firms are required to take all necessary steps to comply with the revised detailed phased implementation plan and critical path to avoid the risk of enforcement action. The FCA expects UK Finance, as coordinator for the industry, to discuss the detailed phased implementation plan and critical path with all stakeholders and agree it with the FCA as soon as possible.
EC banking package to facilitate lending to households and businesses in the EU
On 28 April, the EC announced a banking package aimed at facilitating bank lending to support the economy and help mitigate the economic impact of the pandemic. This includes the EC’s Interpretative Communication on the application of the accounting and prudential frameworks to facilitate EU bank lending as part of efforts to support businesses and households amid Covid-19. The Communication discusses, inter alia, the: (i) key role that the EU banking sector is expected to play in limiting the economic impact of the Covid-19 crisis; (ii) flexibility within the EU's regulatory framework amid the crisis; (iii) need for a coordinated response; and (iv) flexibility embedded in IFRS 9 and the prudential rules on the classification of non-performing loans (NPLs). The Communication also highlights the need for targeted changes to specific aspects of the prudential framework to maximise banks’ capacity to continue lending to businesses and households. Furthermore, the EC also published a proposal to amend the CRR and the CRR II as regards adjustments in response to the pandemic. The following changes that are proposed relate to: (a) transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds; (b) rules on the minimum loss coverage for non-performing exposures (NPEs); (c) offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio; (d) the application date of the new leverage ratio buffer requirement; and (e) application dates of some of the capital benefits envisaged in the CRR. A FAQ has also been published, alongside remarks by Executive Vice-President Dombrovskis during his speech at the press conference regarding the package.
EC Press Release
EC Banking Package Webpage
EC Interpretative Communication
EC Proposal to Amend the CRR and CRR II
Executive Vice-President Dombrovskis Speech
PRA's approach to CBILS and the UK Coronavirus Large Business Interruption Loan Scheme (CLBILS)
On 27 April, the PRA published a statement on the regulatory treatment of the CBILS and the CLBILS, setting out the PRA's observations on whether the guarantees provided by the schemes are eligible for recognition as unfunded credit risk mitigation (CRM) under the CRR. The PRA considers that the terms of the guarantees provided by the Secretary of State under the schemes do not contain features that would render these guarantees ineligible for recognition as unfunded credit risk protection. The statement provides additional observations on the scope of protection of the CBILS.
ECB Financial Stability Committee (FSC) framework to assess cross-border spillover effects of macroprudential policies
On 27 April, the ECB FSC published a framework to assess cross-border spillover effects of macroprudential policies. The report presents the FSC’s analytical framework for assessing cross-border spillover effects of planned or enacted macroprudential measures. The FSC will revisit the framework once more practical experience has been gathered.
Please see our Markets and Markets Infrastructure section for an update on ESMA's No Action Letter to promote coordinated action by National Competent Authorities regarding the new ESG disclosure requirements for benchmark administrators under the Benchmarks Regulation.
BIS report on climate-related financial risks
On 30 April, BIS published a stocktake report on its members' existing regulatory and supervisory initiatives on climate-related financial risks, prepared by the Task Force on Climate-related Financial Risks. The report summarises the main results of the stocktake which BIS states suggest, inter alia, that: (i) the majority of Basel Committee members consider it appropriate to address climate-related financial risks within their existing regulatory and supervisory frameworks; and (ii) approximately two-fifths of members have issued, or are in process of issuing, more principles-based guidance regarding climate-related financial risks. In its press release, BIS state that Covid-19 has further highlighted the importance of mitigating the risks of events with severe global impacts. The Committee will coordinate its work with similar initiatives underway in other international forums and standard setting bodies.
BIS Press Release
EC Communication in respect of the Council of the EU's position on the adoption of the Taxonomy Regulation
On 24 April, the EC published a Communication to the EP in respect of the Council's position on the adoption of the Taxonomy Regulation. The Communication details, inter alia, that the position of the Council reflects the political agreement reached between the EP and the Council on 16 December 2019. The EC supports this agreement, which it states introduced several changes that deviate from the initial proposal, including on the following points: (i) extension of the scope of the Taxonomy Regulation; (ii) specification of the types of economic activities that can be considered for eligibility; (iii) changes in provisions that relate to specific economic activities of interest; (iv) extension of the minimum social safeguards; (v) expansion of the membership and tasks of the Platform on Sustainable Finance (‘the Platform’); (vi) establishment of a Member State Expert Group; and (vii) timeline for the delegated act. The EC concludes that it supports the results of the inter-institutional negotiations and accepts the Council's position at first reading.
European Banking Federation (EBF) summarises the stocktake on the High-level Principles on feedback given by banks on declined SME credit applications
On 30 April, the EBF published a letter from the European Association of Co-operative Banks (EACB) and four other EU banking associations to the EC summarising the stocktake on the status of the implementation of the High-level Principles on feedback given by banks on declined SME credit applications. The EBF states that banking and SME associations have established a structured dialogue on the expectations of both sides from the SME Feedback process. The EBF intends to broaden the ongoing industry-led discussions by continuing its exchange of information in the form of regular coordination meetings (such as once or twice a year) among banks and SMEs representatives to discuss the wider spectrum of issues related to SME access to finance that pertain to the EU level.
Basel Committee on Banking Supervision (BCBS) report on banks' progress in adopting the Principles for effective risk data aggregation and risk reporting
On 29 April, the BCBS published a report on banks' progress in adopting the Principles for effective risk data aggregation and risk reporting. The BCBS states, inter alia, that banks’ continuous efforts to implement the Principles have resulted in tangible progress in several key areas, including overarching governance, risk data aggregation capabilities and reporting practices. The BCBS advises that banks should continue to closely monitor their BCBS implementation programmes, adapting them as necessary to take into account changes in the financial sector. Additionally, the BCBS urges banks that have struggled to implement the Principles to address weaknesses promptly. The BCBS states that supervisors should continue to monitor the progress made by banks in implementing the Principles and should take appropriate measures to address delays and ineffective implementation.