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Key Regulatory Topics: Weekly Update 24 November - 30 November 2023

The long-awaited updated Regulatory Initiatives Grid came out this week, setting out the UK authorities’ plans for the UK regulatory landscape over the next two years.

Other progress on the UK Smarter Regulatory Framework front included the publication of three draft statutory instruments on UK markets regulation, together with the Short Selling (Notification Threshold) Regulations 2023. In Europe, there were some notable markets-related developments, with the adoption of the proposed CSDR Refit Regulation and the adoption of reports on the Commission’s legislative proposals in relation to EU clearing services, and the Commission’s consultation on an ISIN replacement for OTC derivative transparency and reporting.

In terms of sustainability-related topics, this week saw a few key publications, including the BCBS consultation on Pillar 3 climate-related financial risk disclosures, the FCA policy statement on sustainability disclosure and consultation paper on the anti-greenwashing rule, plus the EBA’s statement of continued commitment to sustainability, and the ESMA Chair’s speech on financial stability and sustainability in asset management.


Please see the Sustainable Finance section for the FCA’s final rules and guidance on its Sustainability Disclosure Requirements and investment labels.

Directive on distance financial services contracts published in OJ

On 27 November, the Directive on financial services contracts concluded at a distance was published in the OJ. The Directive is intended to protect EU consumers from misleading online financial marketing practices and empower them to make informed decisions when concluding remote contracts. It revises the existing legal framework in light of technological developments in the financial services market, modernising the rules governing the purchase of financial services online. It does this by amending the Consumer Rights Directive and repealing the DMD. It will apply to all financial services that are not otherwise caught by specific sectoral legislation. The Directive will enter into force on 17 December, 20 days following its publication in the OJ. Member States must adopt and publish necessary implementing legislation by 19 December 2025 and the Directive will apply from 19 June 2026.



FCA CRA UK market share report 2022

On 30 November, the FCA published its credit rating agency (CRA) market share report for 2022. The report explains that to encourage the use of smaller CRAs, Article 8d(1) of the CRA Regulation requires issuers or related third parties intending to appoint at least two CRAs to consider appointing at least one CRA with no more than 10% of total market share. Where the issuer does not appoint a smaller CRA, it is required to document this decision. To facilitate this evaluation by issuers, or related third parties, the FCA is required to publish annually the list of UK registered CRAs, their total market share and the rating sectors in which they are active. In summary, three credit rating agencies represent 90% of the total market, a slight decline from the previous year (92%). The number of registered CRAs remain the same with nine registered CRAs, six of which are below the 10% level.


Financial crime and sanctions

EBA issues supervision guidelines for AML/CFT supervisors of CASPs

On 27 November, the EBA amended its Supervision Guidelines for AML/CFT supervisors, extending their scope to supervisors of cryptoasset service providers (CASPs). The amendments: (i) emphasise the importance of cooperation among competent authorities, prudential supervisors and other stakeholders; (ii) highlight the importance of a consistent approach to setting supervisory expectations where multiple competent authorities are responsible for the supervision of the same institutions; (iii) provide guidance on the sources of information available to competent authorities when supervising cryptoasset service providers; (iv) set out how competent authorities should determine the type of guidance needed within the sector and how to communicate this guidance in the most effective manner; and (v) stress the importance of training to ensure that staff from competent authorities are well trained and have the technical skills and expertise necessary for the execution of their functions, including the supervision of cryptoasset service providers. The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from 30 December 2024.

Press release

Final report

Consolidated guidelines

EBA consults on guidelines to prevent abuse of funds and certain cryptoassets transfers for ML/TF

On 24 November, the EBA began consulting on draft guidelines on preventing the abuse of funds and certain cryptoassets transfers for money laundering and terrorist financing (ML/TF) purposes pursuant to the revised recast WTR. The revised recast WTR extended the scope of the ‘travel rule’ to the transfer of certain cryptoassets. It will make the abuse of funds and certain cryptoasset transfers for terrorist financing and other financial crime purposes more difficult and enable relevant authorities to fully trace such transfers to prevent, detect or investigate ML/ TF. These ‘travel rule’ guidelines specify the steps that payment service providers (PSPs), intermediary PSPs, cryptoasset service providers (CASPs) and intermediary CASPs should take to detect missing or incomplete information that accompanies a transfer of funds or cryptoassets. They also detail the procedures all these providers should put in place to manage a transfer of funds or a transfer of cryptoassets that lacks the required information. These guidelines aim at forging a common understanding to ensure the consistent application of EU law as well as a stronger AML/CFT regime. The guidelines shall repeal and replace the 2017 Joint ESA guidelines under Article 25 of the WTR. The deadline for comments is 26 February 2024.

Press release



Please see the Financial Crime section for an EBA consultation on its draft guidelines to prevent abuse of funds and certain cryptoassets transfers for ML/TF.

Please see the Fund Regulation section for an Investment Association interim report on UK fund tokenisation.

FSB report on risks of multi-function cryptoasset intermediaries

On 28 November, the FSB published a report on the financial stability implications of multifunction cryptoasset intermediaries (MCIs). MCIs are individual firms, or groups of affiliated firms that combine a broad range of cryptoasset services, products, and functions typically centred around the operation of a trading platform. Key findings include: (i) MCI vulnerabilities are not so different from those in traditional finance. The report warns that certain combinations of functions could exacerbate these vulnerabilities, for example, the engagement of MCIs in proprietary trading, market making on their own trading venues, and the lending and borrowing of cryptoassets could lead to higher leverage. MCIs offering investment programmes to their users, issuing proprietary cryptoassets, or operating investment and venture capital arms may also be exposed to liquidity mismatch; (ii) these vulnerabilities are further amplified by a lack of effective controls, for example, governance and risk management frameworks; operational transparency with poor or no disclosures; and by conflicts of interest. There are also additional vulnerabilities stemming from the centrality of MCIs in the cryptoasset ecosystem and their concentration and market power; (iii) while the threat to global financial stability and to the real economy from the failure of an MCI appears limited at present, significant information gaps remain. The closure or failure of a few “cryptoasset-friendly” banks earlier this year highlights the risks from increasing interconnectedness with the traditional financial system. Financial stability implications – both at individual jurisdiction and global levels – depend on how the cryptoasset sector develops, how the role of MCIs changes within the sector, the extent to which MCIs expand their linkages with traditional finance, and the effective implementation and enforcement of comprehensive and consistent regulations to the cryptoasset markets globally. The report identifies issues for consideration by the FSB in collaboration with standard-setting bodies (SSBs): (a) to assess whether the amplification risks for combinations of MCI functions as well as lack of proper governance and conflict of interest are adequately covered by FSB and SSB recommendations or warrant additional mitigating policy measures; (b) to consider ways to enhance cross-border cooperation and information sharing to help local authorities effectively regulate MCIs operating globally; and (c) to consider ways to address the information gaps identified in the report.


FCA call for input on competition impacts from data asymmetry between Big Tech and firms in financial services

On 24 November, the FCA launched a call for input on potential competition impacts from the data asymmetry between Big Tech and firms in financial services. Respondents to the FCA’s October 2022 Discussion Paper suggested that Big Tech firms have data advantages from their core digital activities, which can be combined with financial data from sources facilitated by data sharing initiatives. This combined data can also be leveraged through their advanced analytics and AI technologies to impact how competition develops. The FCA is therefore gathering more focused information and evidence to assess the risk of the market developing in a way where Big Tech firms gain entrenched market power because of this data asymmetry. The FCA also wishes to better understand the potential benefits that could arise from this concentration of customer data in Big Tech firms. In addition, the FCA asks for evidence on other significant factors that have evolved since its July 2023 Feedback Statement that could lead Big Tech firms to gain market power and/or become ‘gatekeepers’ in financial services. The deadline for comments is 22 January 2024. The FCA intends to publish a report in Q2 2024.

Call for input

Fund regulation 

FCA statement on communications in relation to PRIIPs and UCITS

On 30 November, the FCA issued a statement in response to concerns raised about costs and charges disclosure in the PRIIPs Key Information Document (KID), the UCITS Key Investor Information Document (KIID) and MiFID II requirements. Firms are concerned that for listed closed-end funds, the required costs and charges disclosure may not result in representative cost information being published. As corporate bodies, such funds have some features of companies as well as of funds. This can affect their cost base, as some costs incurred by listed closed-ended funds can in some cases be equivalent to costs incurred by commercial companies. Commercial companies are not subject to these costs and charges disclosure requirements. The FCA sets out the work underway to repeal and relace these requirements under HMT’s Smarter Regulatory Framework. However, until this work has been finalised, the FCA shall apply a forbearance measure: where listed closed ended funds and funds that invest in them (or manufacturers of such funds) are concerned that the costs required to be disclosed in KIDs do not appropriately reflect the ongoing costs, they can provide additional factual information (as well as the aggregated figure) such as the breakdown of costs to put the aggregate number in context. Listed closed ended funds and other funds that invest in them (or manufacturers and distributors of such funds) can also reflect such explanations in other consumer facing communications.


IA interim report on UK fund tokenisation

On 24 November, the Investment Association (IA) published an interim report on UK fund tokenisation written by the Technology Working Group to HMT’s Asset Management Taskforce. The report focuses on the application of DLT through investment fund tokenisation. Through close engagement with HMT and the FCA, the Group has developed a blueprint for implementing the tokenisation of UK investment funds. It recommends a staged approach to fund tokenisation, starting with a baseline model that could be used within the existing legal and regulatory framework, and progressing to more advanced stages over time. Future stages may require legislative or regulatory rule changes and may also depend on other developments in the wider technological environment, such as digital forms of money. To fully utilise the first stage, the Group makes three recommendations: (i) regulatory certainty for UK fund tokenisation; (ii) to foster DLT innovation across the UK investment management industry; and (iii) to increase efficiency in the MLRs registration process. The Group makes a further six recommendations to take advantages of the future proposed stages, and will look at further stages of fund tokenisation, as well as monitoring progress against the first stage recommendations, as part of the phase two workstream.

Interim paper

Markets and markets infrastructure

Please see the Regulatory Reform Post Brexit section for HMT’s draft Securitisation Regulations 2023, draft Public Offers and Admissions to Trading Regulations 2023, draft Data Reporting Services Regulations 2023 and the Short Selling (Notification Threshold) Regulations 2023.

EC consults on identifying reference data for OTC derivatives

On 29 November, the EC began consulting on replacing the identifier currently used for OTC derivatives (ISIN). The EC explains that the provisional agreement on the reform of MiFIR, which is expected to be published in Q1 2024, found that the identifier currently used for OTC derivatives for transaction reporting submitted to ESMA has proved cumbersome and ineffective for public transparency. The agreement states that instead a globally agreed unique product identifier should be used instead, which may need to be complemented by “additional identifying reference data”. The EC seeks views therefore on: (i) the most suitable unique product identifier to be used for compliance with the transparency requirements applicable to in-scope OTC derivatives; and (ii) whether there are any “additional identifying reference data” to be considered in addition to the unique product identifier. The deadline for comments is 9 January 2024.


ECON adopts draft reports on legislative proposals relating to EU clearing services

On 28 November, ECON announced that it has adopted its draft reports on the EC’s legislative proposals for a proposed Directive and Regulation on the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. The legislative proposals aim to centralise the supervision of EU CCPs and address the financial stability risks caused by the EU clearing members and clients being exposed to systemically important third-country CCPs. They also want to make clearing services and European CCPs more efficient and competitive. Proposed changes highlighted by ECON include: (i) a bigger role for ESMA – making ESMA direct supervisor of EU CCPs; (ii) holding active accounts – that financial counterparties or non-financial counterparties that are subject to the clearing obligation should hold at least one active account at a CCP established in the EU and regularly clear systematically important products. Given the novelty of the requirement, further measures such as the requirement to clear at least a proportion of trades through the active account should be phased in gradually; (iii) reduced regulatory burden – CCPs would be subject to streamlined procedures if they provide additional services or changing risks models; (iv) increasing transparency – clients of EU CCPs, as well as recognised third-country CCPs, should be informed about an option to clear a derivative contract in an EU CCP, which should be transparent on fees, risks associated with the service provided and volumes of cleared transactions. The EP intends to begin trilogue negotiations with the Council before the end of 2023.

Press release

EC adopts Delegated Regulation on temporary emergency measures on collateral requirements

On 28 November, the EC adopted a Delegated Regulation amending the RTS laid down in Delegated Regulation (EU) 153/2013 relating to temporary emergency measures on collateral requirements under EMIR (the Amending Delegated Regulation). The Delegated Regulation was previously amended on 22 October 2022 to temporarily expand the pool of eligible collateral by CCPs to uncollateralised bank guarantees for non-financial counterparties acting as clearing members, and to public guarantees for all types of counterparties. These measures expire on 29 November. The Amending Delegated Regulation extends these measures for a further six months. This would bridge the gap between the date the temporary measures are currently set to expire and the date the co-legislators are expected to finalise the review of EMIR. The Amending Delegated Regulation will enter into force the day following its publication in the OJ.

Amending Delegated Regulation

Council adopts proposed CSDR Refit Regulation

On 27 November, the Council of the EU announced that it has adopted the proposed Regulation amending the CSDR (CSDR Refit). The CSDR Refit aims to reduce the financial and regulatory burden on CSDs and improve their ability to operate across borders, while also strengthening financial stability. Among other changes, the Council highlights that it shall: (i) clarify and simplify the passporting rules, reducing the barriers to cross-border settlement and easing the administrative and financial burden; (ii) make supervision of CSDs more effective by improving cooperation between supervisors; (iii) improve settlement efficiency by amending certain elements of the settlement discipline regime, including the preconditions for applying so-called mandatory buy-ins. Such buy-ins will only be introduced as a measure of last resort, where the rate of settlement fails in the EU is not improving and is presenting a threat to financial stability; (iv) provide conditions under which CSDs can access banking-type services, including through other CSDs. The CSDR Refit will now be published in the OJ and will enter into force 20 days after its publication.

Press release

Adopted text

Update on BoE and FCA MoU for supervision of market infrastructure

On 24 November, the FCA provided an update on the operation of its MoU with the BoE for market infrastructure. The FCA held a consultation with FMIs in 2022 to review their cooperation. The authorities concluded that overall the MoU’s arrangements for cooperation remain effective and that in the main there has been strong coordination and material duplication has been avoided. The authorities re-affirmed their commitment to enhance cooperation domestically and internationally.

Press release


Payment services and payment systems

BoE consults on code of practice for wholesale cash distribution market oversight

On 30 November, the BoE began consulting on proposals for the codes of practice (CoPs) for wholesale cash distribution (WCD) market oversight, which provide transparency on the minimum standards of conduct and practice that recognised firms must meet. The consultation also includes: (i) the detailed guidance for the CoPs; and (ii) the draft WCD Data Catalogue, which forms part of the CoP on information gathering and helps recognised firms comply with the requirements. The proposed CoPs relate to the market oversight regime, which the legislative framework distinguishes from a prudential supervisory regime for firms that are systemically significant in respect of their wholesale cash distribution activities. Under the market oversight regime the powers will be applied by the BoE to manage risks to the effectiveness, resilience and sustainability of WCD in the UK. The BoE considers that the existing prudential framework for systemic payment systems will be suitable for supervision in the event of any wholesale cash entity being deemed to have systemic significance in the future, using the new powers contained in the BA 2009. The proposed CoPs for market oversight are complementary to, and not a replacement of, the existing Note Circulation Scheme, which covers the operational oversight and financial arrangements that underpin the distribution of BoE banknotes in the UK. The deadline for comments is 31 January 2024. The BoE expects to consult on and publish its approach to enforcement in 2024. HMT expects to recognise relevant firms via the statutory recognition process in 2024.


Prudential regulation

EBA consults on RTS for assessing materiality of extensions and changes to new market risk internal models under the Fundamental Review of the Trading Book

On 29 November, the EBA began consulting on draft RTS on the conditions for assessing the materiality of extensions and changes to the use of internal models as well as to the subset of the modellable risk factors applicable under the Fundamental Review of the Trading Book (FRTB) rules. These RTS follow the CRR differentiation between material extensions and changes, to be approved by competent authorities, and non-material extensions and changes, to be notified to competent authorities. The RTS further divide the latter category into two sub-categories: notified extensions and changes requiring additional information and other extensions and changes. For the categorisation of model extensions and changes to the relevant categories/sub-categories, the EBA is proposing a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the internal model approach (IMA) own funds requirements and on each component of the FRTB IMA (Expected Shortfall, Stress Scenario Risk Measure and Default Risk Charge), before and after the planned extension or change. The deadline for comments is 29 February 2024.

Press release


FCA consults on capital deduction for redress for personal investment firms

On 29 November, the FCA began consulting on proposals to strengthen the prudential requirements that apply to personal investment firms (PIFs). The FCA hopes to address consumer harm caused by PIFs leaving the market and the significant redress liabilities that are falling to the FSCS. In summary, the FCA proposes to make changes to IPRU-INV Chapter 13, to require PIFs: (i) to quantify an amount for their potential redress liabilities. This will consist of unresolved redress liabilities (where a firm has already received but not resolved a complaint) and prospective redress liabilities (where a firm has identified recurring or systemic problems or foreseeable harm which may lead to an obligation to provide redress); (ii) to set aside capital resources for potential redress liabilities through a new capital deduction; and (iii) with potential redress liabilities that fall below their capital requirements, to comply with an asset retention requirement. In the final chapter of the consultation, the FCA has also launched a review to consider whether a more comprehensive prudential regime for PIFs would better achieve its aims. It seeks views in relation to: (a) regulatory rules around capital and liquidity adequacy; (b) risk management, governance and credit and loss provisioning requirements so firms consider the level of resources they should have; (c) wind down planning requirements; (d) professional indemnity insurance; and (e) reporting and disclosure requirements. The deadline for comments on the proposals and the review are 20 March 2024. The FCA aims to finalise its policy in H2 2024, with rules coming into force in H1 2025. The FCA has published a Dear CEO letter alongside the consultation. It notes that during the consultation period it will be carrying out increased monitoring of firms applying to cancel or seeking to apply for new authorisations consistent with its current expectations of PIFs under the Consumer Duty.

Consultation and review

Dear CEO letter

FCA final report on review into IFPR implementation

On 27 November, the FCA set out its final report on its multi-firm review into firms' progress in implementing the internal capital adequacy and risk assessment (ICARA) process and reporting requirements under the Investment Firms Prudential Regime (IFPR). The FCA found that firms have made progress in understanding the requirements of the new regime, with a deliberate shift evident towards considering and seeking to mitigate the harm a firm can pose, particularly to consumers and markets. Areas for improvement include: (i) several firms applied insufficient consideration of cashflows and liquidity stresses, which led to an inadequate assessment of liquid asset requirements. These firms were at risk of running out of cash in stressed conditions, which could have resulted in firm failure; (ii) for most firms, internal intervention points were not structured in a way that would ensure that actions would be triggered in a timely fashion to mitigate harm particularly from firm failure; (iii) wind-down assessments applied inadequate consideration of the impact of membership in a group. Individual firms within groups may not have adequately planned for potential failure; and (iv) in some firms, there were significant failings in the application of capital models for operational risk. This gives little assurance that these firms have adequate resources to mitigate harm. To help MIFIDPRU investment firms consider its observations, the FCA provides a summary of good and poor practices in relation to the following. Firms that were part of the multi-firm review received feedback letters, and the FCA will follow up with them through its usual supervisory activities.


FCA IFPR newsletter


On 28 November, the FCA published the latest issue of the IFPR newsletter. Issues discussed by the FCA include: (i) investment firm groups – the FCA has noticed that some firms may not have been including all relevant financial undertakings within the scope of their investment firm group. The FCA reminds all firms and UK parent entities subject to MIFIDPRU of the relevant rules in MIFIDPRU 2.4 which set out how to determine the existence and content of an investment firm group. Some controllers of MIFIDPRU firms have also tried either to avoid the existence of an investment firm group, or to reduce the scope of application of prudential consolidation under MIFIDPRU 2.5 to their group. The FCA reminds firms of section 143J of FSMA, which provides that where two or more FCA investment firms are subsidiary undertakings of the same parent undertaking which is outside the UK, then the FCA may impose a requirement on the FCA investment firms to secure that a parent undertaking with its head office in the UK is established; (ii) issuing CET1 capital instruments – where firms relied upon MIFIDPRU TP 7, they must check that the capital instruments which were ‘deemed to be approved’, also meet the conditions of the UK CRR, as applied by MIFIDPRU 3.3; (iii) deductions from own funds – w