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Key Regulatory Topics: Weekly Update 24 September to 30 September 2021

30 September 2021

This week, the UK regulators remain focused on benchmark reform and ensuring an orderly wind-down of LIBOR.  In the EU, it has been a busy week for ESMA which issued its 2022 work programme and a number of markets related reports, guidelines and consultations.


ECB speech on banking regulation and supervision after Brexit

On 28 September, the ECB published a speech by Edouard Fernandez-Bollo, Member of the Supervisory Board of the ECB on banking regulation and supervision after Brexit. Amongst other topics, Mr Fernandez-Bollo calls for the current EU framework to be adjusted to account for the issue of third-country branches. The ECB’s stance on the cross-border servicing of clients is that empty shell institutions are not acceptable in the euro area. In cases where national regimes allow the provision of cross-border services from a third country, the ECB expects banks not to use such set-ups as a means to carry out large volumes of activities in the EU in a business-as-usual environment. However, as illustrated in the EBA’s report on the treatment of incoming third-country branches under the national law of Member States, third-country branches carry out a significant volume of activities in the EU and could be relevant for financial stability. While CRDV introduced a requirement for third-country groups to set up an intermediate parent undertaking (IPU) in the EU if their activities in the EU exceed certain thresholds, third-country branches remain branches of the third-country group and will not be part of the IPU. The absence of harmonisation of these branches at European level means that their supervision and reporting requirements, which are governed by national law, vary considerably across Member States. Mr Fernandez-Bollo recommends using the review of the CRR and CRD to increase harmonisation in this area.


Capital markets

Please see the Sustainable Finance section for a set of recommendations from AFME on ESG disclosure and diligence practices for the European high yield market. 


FMSB spotlight review on hybrid working in FICC markets

On 30 September, the FMSB published a spotlight review on hybrid working in Fixed Income Clearing Corporation (FICC) markets. The FMSB explains that flexible working practices which have emerged following the onset of the Covid-19 pandemic have given rise to a number of benefits for FICC market participants. This spotlight review seeks to support the adoption of hybrid working models in FICC markets in a controlled way by identifying key conduct risks associated with such models and considering steps that firms can take to mitigate them. Regulators have been clear that regulatory obligations have not changed as a result of the shift to hybrid working and the review therefore outlines steps that firms can take to promote equivalent conduct outcomes in a hybrid environment. The review categorises conduct-related risks associated with hybrid working models into five thematic categories: (i) cultural change; (ii) supervision and control impairments; (iii) execution risks; (iv) sharing of confidential information; and (v) threats to market effectiveness. Within each of these categories, the review examines a number of individual risks, including risk of sub-cultures developing, reduced engagement with training, slower resolution of operating incidents, inappropriate communication channels, loss of connectivity and controlling the flow of confidential information. Potential mitigants are considered in relation to each risk.  

Press release



Please see the Fund Regulation section for an FCA portfolio letter on its wealth management and stockbroking supervision strategy where it discusses, amongst other topics, its expectations in relation to transparency of costs/charges. 

FOS warns of dramatic increase in fraud and scam complaints 

On 24 September, the FOS issued a warning about the threat from fraudsters and scammers following a 66% rise in the number of customers asking for assistance in the first quarter of the 2021/22 financial year. The FOS notes that 60% of complaints were upheld, suggesting that financial institutions need to do more to resolve complaints fairly before consumers are forced to resort to the FOS. The FOS also notes the increase in complaints received about cryptocurrencies. The FOS has published more data about recent statistics in issue 164 of its ombudsman news. 

FOS warning

Ombudsman news issue 164

Fees / Levies

HMT consults on changes to cash ratio deposit scheme

On 24 September, HMT began consulting on a review of the BoE’s cash ratio deposit scheme (CRDS). Under the CRDS, deposit-taking financial institutions with eligible liabilities of more than £600 million place a proportion of their deposit base with the BoE on a non-interest bearing basis. The BoE invests these deposits in interest bearing assets, and the income earned on these investments is used to fund the costs of the BoE’s monetary policy and financial stability operations. HMT notes that due to lower than expected gilt yields, the BoE’s income has fallen below required levels, with the BoE relying on capital and reserves to fund the shortfall. It has also led to elevated and volatile CRD balances, as the variable scheme parameters, which were indexed to gilt yields, have not materialised. HMT propose: (i) to replace the CRDS with a new levy - an alternative, direct means of raising the funds to meet the costs of the BoE’s policy functions; (ii) that the new levy would replace the placing of deposits with a levy of the same cohort that currently pay into the CRDS using the same arrangement for apportioning costs to those that pay; and (iii) that the government will continue to monitor the effectiveness of the funding model used to meet the BoE’s policy costs and will conduct a further formal review within five years and publish a report in respect of that review. The deadline for comments is 5 November. 


Financial crime

Please see the Fund Regulation section for an FCA portfolio letter on its wealth management and stockbroking supervision strategy where it discusses, amongst other topics, the risk of fraud, investments scams and market abuse. 

UK Finance anti-bribery and corruption compliance guidance – definition of public officials

On 30 September, UK Finance published a report setting out practical and risk-based guidance on the meaning of "public officials" for the purposes of anti-bribery and corruption (ABC) compliance. The guidance is considered necessary as the variety of international and legal definitions can result in costs and delay to corporate ABC efforts and can reduce the appetite for doing business with new markets. The report has been written with a UK legislative lens but is not limited to public officials in the UK, and also considers complementary global ABC legislation to inform the guidance. This includes consideration of AML/CFT definitions of ‘politically exposed persons’, but the report does not provide guidance for these separate requirements. The report sets out a recommended approach to this definition and illustrative guidance of specific examples for inclusion and exclusion, to help firms with setting their individual ABC risk appetites for identifying and dealing with public officials. UK Finance hope that the guidance will also contribute to wider anti-corruption efforts and provide a stimulus to future updates of existing definitions and due diligence tools.


BoE, PRA and FCA 2021 CBEST thematic findings

On 30 September, the BoE, PRA and FCA published a joint Dear Senior Management Function letter on thematic findings from the 2021 annual cycle of CBEST assessments conducted on participating banks, insurers and FMIs. CBEST is a framework for intelligence-led penetration testing which focuses on an organisation’s security controls and capabilities when faced with a simulated cyber-attack. The regulators analysed the outcomes of CBEST assessments and identified trends and findings descriptive of the sector’s current cyber-posture. The regulators explain that the purpose of making these results available is: (i) to ensure that recipients are able to address any weaknesses identified; (ii) to raise awareness in recipients’ senior executive teams; and (iii) to inform the work of recipients’ risk and internal audit functions. The regulators explain that they may use these themes to structure future supervisory interaction and understand the level of engagement firms have achieved with the senior executive team, risk, and audit functions on the issues identified as in need of remediation. For firms that have participated in the latest CBEST cycle, the remediation plans that have been agreed with supervisors will remain the primary focus for addressing their cyber resilience issues. The thematic feedback may provide additional information that can be incorporated in these plans.


JMLSG revises trade finance guidance and consults on guidance on monitoring customer activity

On 24 September, the JMLSG announced the publication of a revised version of Part II Sector 15 of its AML and CTF guidance for the financial services sector, which covers trade finance. Amongst other changes, the revised text contains a more descriptive, non-exhaustive list of red flag risk factors, which may be identifiable during the normal course of business. The new text has been submitted to HMT for approval. The JMLSG also announced that it has begun consulting on proposed revisions to Part I Chapter 5.7 of its guidance, which covers monitoring customer activity. The revisions add text to the guidance including in relation to: (i) risk based monitoring arrangements; (ii) the need to regulatory review transaction monitoring; and (iii) the establishment of an appropriate governance mechanism for oversight, review and approval of monitoring processes and parameters, which will include documenting the monitoring arrangements and rationale. The deadline for comments is 30 October. 

Revised trade finance guidance


EDPS opinion on EC’s proposed AML legislative package

On 24 September, the European Data Protection Supervisor (EDPS) issued a press release announcing that he had published his opinion on the EC’s proposed AML legislative package. Amongst other things, the EDPS: (i) welcomes the envisaged harmonisation of the AML/CFT framework through the enactment of a Regulation, as this will result in a more consistent application of the main rules by EU Member States. Moreover, he sees the harmonisation of the supervisory activities at EU level under the same European authority as a positive step, but calls for a clear definition of the roles, from a data protection perspective, of all stakeholders involved in the supervision model; (ii) notes that the proposed package takes a risk-based approach to the screening of banks’ clients in order to assess whether they may represent a money-laundering risk. He considers that further clarifications are needed to minimise intrusion into individuals’ privacy and to ensure full compliance with data protection rules; (iii) emphasises, in relation to the proposal for the coordination mechanism of Financial Intelligence Units, that access to information related to criminal offences in particular, and access to administrative information and financial information about individuals should be limited to what is necessary in light of specific purposes. In this regard, he invites the legislator to reassess the necessity and proportionality of the proposed access rights; and (iv) advises that the categories of personal data that may be processed are set out in the proposed package. He considers that the processing of personal data relating to individuals’ sexual orientation or ethnic origin should not be allowed and that the proposal should indicate the specific and strict conditions under which the processing of data about individuals’ criminal offences and/or convictions are allowed.

Press release


Fund regulation

Please see the Other Developments section for a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on, amongst other things, the investment managements sector’s roles in battling climate change and also the fact that this sector is lagging on diversity and inclusion.  

FCA portfolio letter on wealth management and stockbroking supervision strategy

On 30 September, the FCA published a portfolio letter on its wealth management and stockbroking supervision strategy. Key harms identified by the FCA include: (i) fraud, investments scams and market abuse – the FCA expects firms to ensure client portfolios are managed in line with individual client risk profiles. Where portfolios include high-risk and/or unregulated investments this must be fully justified both by the client’s risk profile and a firm’s due diligence on the investment. Firms must also ensure that customers understand the FSCS consumer protection status and associated risks of those investments. The FCA expects firms to have robust systems and controls to mitigate the risks of harm arising from financial crime, market abuse, fraud and scams; (ii) financial resilience and disorderly firm failure – the FCA acknowledges the market volatility cause by Covid-19 and Brexit and therefore expects firms to have a good understanding of their regulatory capital and reporting requirements. The FCA expect firms to have a wind-down plan that is credible, includes appropriate and timely triggers for implementation, together with a realistic timeframe and cost estimate for achieving the wind down.  The FCA expects to be notified of emerging liquidity or capital risks. Firms must be ready to comply with the new IFPR; and (iii) costs and charges – consumers must be fully aware of the overall cost they pay for their investment. Firms should have clear systems and processes for collecting and aggregating all the data relevant to both ex-ante and ex-post costs and charges disclosures. They should have considered and continue to monitor how these disclosures are provided to consumers, both in terms of timing and content. Compliance or internal audit functions reviews of how these disclosures are being made should have been carried out. 


Productive Finance Working Group (PFWG) Roadmap for Increasing Productive Finance Investment

On 27 September, the BoE published a roadmap by the PFWG for increasing productive finance investment. The report summarises solutions the PFWG has developed to remove existing barriers to investing in less liquid assets. It focuses mainly on barriers faced by UK workplace defined contribution (DC) pension schemes and aims to create an environment in which DC scheme members and other investors can benefit from appropriate long-term opportunities. The PWFG’s recommendations include: (i) shifting the focus to long-term value for DC pension scheme members. Where appropriate and in their members’ interests, trustees should actively consider how increasing investment in less liquid assets could generate greater value for their members, and monitor long-term returns using robust metrics; (ii) building scale in the DC markets. Increasing scale is likely to facilitate greater investment in such assets, for example, by raising schemes’ bargaining power in relation to their fees and their ability to draw on the relevant expertise in making such investments. The DWP should continue with a DC schemes consolidation agenda, where it is clear that schemes are not providing value for members; (iii) a new approach to liquidity management. Industry participants and trade bodies should develop guidance on good practice on a toolkit for liquidity management at a fund level, in consultation with the FCA and BoE in the context of their broader work on liquidity classification for open-ended funds; and (iv) widening access to less liquid assets. The FCA should consult on removing the 35% cap on investment in illiquid assets for all permitted links, where the underlying investor is not self-selecting their investments.


Markets and markets infrastructure


On 30 September, ESMA updated its Q&As on: (i) transparency topics under MiFID II and MiFIR – a new Q&A on non-equity transparency on completion of the "IR Term of contract". ESMA has also  modified a Q&A on equity transparency and the temporary parameters that should be applied until the transparency parameters are published by ESMA or the relevant non-delegating national competent authority; (ii) complying with reporting requirements under SFTR – a new Q&A has been added on LEI changes due to mergers and acquisitions; and (iii) the implementation of EMIR – a new Q&A has been added in the section on trade repositories on the timing of valuation updates under Article 9 of EMIR and ESMA has amended the answer to question 40 on LEI changes due to mergers and acquisitions.

MiFID II/MiFIR transparency Q&A

SFTR data reporting Q&A

EMIR implementation Q&A

ESMA calls for legislative changes to improve access to and use of credit ratings

On 30 September, ESMA published an opinion recommending legislative changes to the way in which credit ratings are accessed and used. ESMA explains that in practice, only the credit ratings issued by the largest CRAs operating in the EU can be used for regulatory purposes. Credit ratings made available free of charge through CRAs’ websites and the European Rating Platform are not used in practice for regulatory reporting purposes as they cannot be accessed in machine-readable format or downloaded in sufficient numbers. Therefore in order to meet their EU regulatory reporting obligations users of credit ratings almost exclusively use credit ratings provided by companies affiliated with the three largest CRAs operating in the EU and information service providers. These companies are not currently subject to regulation and their licencing practices and the high fees charged raise both investor protection and competitiveness concerns. Users also report an inability to negotiate the terms of access to data feeds and a lack of transparency in price increases. ESMA presents legislative changes to the CRA Regulation which are needed to improve access to and use of credit ratings in the EU and highlights alternative measures which may achieve the same outcome. ESMA prepared the opinion of its own initiative and has submitted it to the EU institutions for consideration by the legislators.

Press release


FCA confirms and consults on further arrangements for the orderly wind-down of LIBOR

On 29 September, the FCA published notices confirming that in order to avoid disruption to legacy contracts that reference the 1, 3 and 6 month sterling and Japanese yen LIBOR settings, it will require the LIBOR benchmark administrator to publish these settings under a 'synthetic' methodology, based on term risk-free rates, for the duration of 2022. These 6 LIBOR settings will be available only for use in some legacy contracts, and are not for use in new business. The synthetic rates will no longer, however, be 'representative' as defined in the BMR. The FCA has confirmed the methodology it will require LIBOR’s administrator to use for calculating these 'synthetic' rates, following its consultation proposals, as: (i) forward-looking term versions of the relevant risk-free rate; and (ii) the respective ISDA fixed spread adjustment. The first non-representative publication under the 'synthetic' methodology will be on 4 January 2022. The FCA is therefore consulting on its proposed decision on whether and how to: (a) permit legacy use of 1m, 3m and 6m sterling and 1m, 3m and 6m yen LIBOR from 1 January 2022. The FCA proposes to permit legacy use of these 6 LIBOR settings in all contracts except cleared derivatives; and (b) prohibit new use of overnight, 1m, 3m, 6m and 12m US dollar LIBOR. The FCA will decide and specify before year-end which legacy contracts are permitted to use these synthetic LIBOR rates. The deadline for comments is 20 October. The FCA expects users of LIBOR to continue to focus on active transition rather than relying on synthetic LIBOR, noting that synthetic LIBOR will not be published indefinitely. Clearing houses plan to transition all cleared sterling, Japanese yen, Swiss franc and euro LIBOR contracts to risk-free rates by end-2021. For the 3 Japanese yen settings, the FCA does not intend to renew the requirement, and publication will therefore cease at end-2022. The FCA will also consider progressively restricting continued permission to use synthetic LIBOR in legacy contracts if this would help maintain progress towards an orderly cessation, and thereby support its objectives to protect consumers or market integrity. The FCA has also published Statements of Policy for its legacy use and new use restriction powers, and a Feedback Statement, following its policy consultation published in May.

Press release

Decision notice – use of synthetic methodology  

Draft notice of methodology requirements 

Notice of designation – ICE Benchmark Administration 

SoP on legacy use

SoP on new use restriction powers

Feedback statement 21/10


BoE policy statement on modifications to derivatives clearing obligation to reflect interest rate benchmark reform

On 29 September, the BoE published its final policy on the proposal to modify the scope of contracts subject to the derivatives clearing obligation. The BoE’s final policy maintains the modifications proposed in the May consultation, to remove contracts referencing: (i) EONIA and replace them with contracts referencing €STR; (ii) GBP Libor and replace them with contracts referencing SONIA; and (iii) JPY Libor. At the time of publication of the consultation there was uncertainty regarding which contract(s) referencing a replacement benchmark for JPY Libor would meet the criteria for being subject to the clearing obligation and thus the BoE’s proposed changes did not include any replacement contract(s), but the BoE is now consulting on a proposed replacement (see update below). As the publication of the most widely used USD settings is to cease in June 2023, the BoE’s proposed changes did not relate to the transition from USD Libor. The BoE expects to consult on changes to the clearing obligation relating to the contract types referencing USD Libor in 2022. The BoE’s final policy has been implemented via amendments to Commission Delegated Regulation (EU) 2015/2205 supplementing Regulation (EU) No 648/2012 on OTC derivatives, CCPs and trade repositories with regard to regulatory technical standards on the clearing obligation (BTS 2015/2205).

Policy statement

Technical Standards

BoE consults on Derivatives clearing obligation – introduction of contracts referencing TONA

On 29 September, the BoE began consulting on a proposal to add Overnight Index Swaps (OIS) that reference the Tokyo Overnight Average Rate (TONA) to the scope of contracts which are subject to the derivatives clearing obligation. Following recent announcements from the Japanese authorities, the BoE considers that it is now appropriate to add TONA OIS contracts to the clearing obligation as a replacement for contracts referencing JPY Libor. The removal of contracts referencing JPY Libor from the clearing obligation will come into force on 6 December and the BoE therefore proposes to introduce a clearing obligation for TONA OIS on or shortly after this date. The TONA OIS contract type in the clearing obligation will cover broadly the same maturity range as the JPY Libor contracts it is replacing. However the minimum maturity of the TONA OIS contract type will be 7 days (as opposed to 28 days for the JPY Libor contracts currently in place), which reflects differences in the types of transactions these contract types have historically been used in. The deadline for comments is 27 October. 


Draft Technical Standards

BoE Dear CEO letter on supervisory expectations on material outsourcing to the public cloud 

On 29 September 2021, the BoE published Dear CEO letters setting out its supervisory expectations in relation to material outsourcing to the public cloud for CSDs, recognised payment system operators (RPSOs), specified service providers (SSPs) and CCPs. The BoE explains that the increasing reliance on a small number of cloud service providers (CSPs), and other critical third parties for vital services could increase financial stability risk in the absence of greater direct regulatory oversight of the resilience of the services they provide. The BoE reminds firms to notify it before entering into, or significantly changing, any material outsourcing, or sub-outsourcing arrangements, including arrangements with CSPs. The BoE expect firms to notify it, and seek its non-objection, of any substantive changes that could affect compliance with the conditions for authorisation. The BoE also clarifies its current expectations in relation to: (i) material outsourcing arrangements; and (ii) when there is a change in the risk profile of the firms and the clearing/payments/securities settlement system should the firms allow participants to host connectivity gateway and security solutions on the public cloud. The BoE intends to consult on its proposed expectations and policies for FMIs on outsourcing in due course, with specific reference to the use of the cloud.

CSD letter

CCP letter 

RSPO and SSP letter

ESMA review report on algorithmic trading under MiFID II/MiFIR

On 29 September, ESMA published a MiFID II review report on algorithmic trading. ESMA concludes that no fundamental issues have emerged with respect to the MiFID II algorithmic trading regime which has overall delivered on its objectives. ESMA nevertheless makes some recommendations which aim at both simplifying the regime and making it more efficient. Topics assessed by ESMA include: (i) general provisions relating to algorithmic trading and high-frequency trading and, more specifically, the issues around the concepts of “algorithmic trading”, “Direct Electronic Access”, as well as the authorisation regime for EU and non-EU algorithmic trading firms deploying their strategies on EU trading venues; (ii) organisational requirements for investment firms that engage in algorithmic trading, including high-frequency traders – including proposals regarding the notification of algorithmic traders to competent authorities and the testing requirements and self-assessment exercises to be performed by investment firms; (iii) the organisational requirements for trading venues that enable algorithmic trading on their systems – including recommendations and proposals regarding the self-assessment exercises to be performed by trading venues, circuit breakers, the fee structures of trading venues, order to trade ratios as well as market outages; and (iv) a review of MiFID II provisions which are indirectly related to algorithmic trading activities (e.g. tick size and market making) and also recent market developments such as the deployment of speedbumps and the sequence of trade confirmation to individual participants by trading venues versus the public disclosure of such transactions. The report: (a) includes some proposals to the EC on targeted Level 1 amendments; and (b) identifies issues requiring the amendment of existing Level 2 technical standards, on which ESMA intends to consult shortly. 

Press release


ESMA speech on its priorities for derivatives

On 28 September, ESMA published a speech by Natasha Cazenave, ESMA Executive Director, on its priorities for derivatives. Ms Cazenave focuses on two elements. Firstly, ESMA’s recommendations for the review of the MiFID II/MiFIR framework. Ms Cazenave refers to the need for "less complexity, more effectiveness" and comments that removing complexity from the legal framework while ensuring that the rules remain effective should be a guiding principle for the upcoming MiFIR review. ESMA’s recommendations include: (i) a broader review of the legislative framework, less focused on the establishment of a consolidated tape; (ii) a substantially simplified and streamlined waiver and deferral regime which maintains the protection of large orders and trades particularly in less liquid asset classes; and (iii) to recalibrate the transparency regime for commodity derivatives to better reflect market reality. Secondly, ESMA’s work on accompanying the transition to risk free rates in the context of the EMIR clearing obligation and the MiFIR derivatives trading obligation. ESMA received broad support for its analytical approach in its consultation this summer. ESMA received two sets of opposing feedback with respect to USD classes and the timing of the application of the amended obligations. Some respondents were in favour of introducing USD Secured Overnight Financing Rate Data classes now, while others were asking to reconsider these classes later, and in any case to provide long phase-ins to adapt to these changes. ESMA expects to submit its final proposals this autumn, after having assessed the development of trading and clearing activity since the consultation was published. In relation to the UK, Ms Cazenave refers to the clear communications from the EC on the need for EU counterparties to reduce reliance on UK CCPs. Ms Cazenave also notes that regulatory divergence between the EU and the UK, has started to emerge, including around MiFID II and cautions that its potential impact will need to be carefully considered. 


ISDA and FIA CCP recovery and resolution comparative review of FSB, EU and UK frameworks

On 27 September, ISDA and the FIA published a comparative review of the FSB, EU and UK recovery and resolution frameworks for CCPs, which was produced by A&O. The review consists of a table comparing whether the respective provisions in each framework are the same, similar or different, based on: (i) FSB Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2014; (ii) FSB Guidance on CCP Resolution and Resolution Planning, July 2017; (iii) FSB Final Report on Guidance on Financial Resources to Support CCP Resolution and on the Treatment of CCP Equity in Resolution, November 2020; (iv) Regulation (EU) 2021/23 on a framework for the recovery and resolution of CCPs; and (v) HMT Consultation Paper on the Expanded CCP Resolution Regime, February 2020. 


EC adopts Delegated Regulation amending net short positions notification threshold under SSR 

On 27 September, the EC adopted a Delegated Regulation amending the Short Selling Regulation (SSR) as regards the adjustment of the relevant threshold for the notification of significant net short positions in shares. The Delegated Regulation adjusts the relevant threshold for the notification to competent authorities of significant net short positions in shares set out in Article 5 (2) of the SSR from 0.2 % to 0.1 % (and each 0.1 % above that). The Delegated Regulation will enter into force 20 days after publication in the OJ. 

Delegated Regulation

ESMA guidelines on settlement fails reporting under Article 7 of CSDR

On 24 September, ESMA finalised its guidelines on the scope and exchange of information between ESMA and competent authorities regarding settlement fails, based on the reports submitted by CSDs. The purpose of these guidelines is to establish consistent, efficient and effective supervisory practices within the European system of financial supervision and to ensure common, uniform and consistent application of Article 7(1) of CSDR as well as Articles 14 and 39 of the regulatory technical standards (RTS) on settlement discipline, including the exchange of information between ESMA and the competent authorities regarding settlement fails, and the content of such reporting. Under Article 7(1) of the CSDR, for each securities settlement system it operates, a CSD must establish a system that monitors settlement fails of transactions in financial instruments. It must provide regular reports to the competent authority and relevant authorities, on the number and details of settlement fails and any other relevant information, including the measures envisaged by CSDs and their participants to improve settlement efficiency. The competent authorities must share any relevant information on settlement fails with ESMA. The guidelines apply from the date of entry into force of the RTS on settlement discipline. 


ESMA guidelines on methodology, oversight function and record keeping under the BMR

On 24 September, ESMA finalised its guidelines on the application of the requirements relating to the use of a methodology for calculating a benchmark and the related record keeping requirements as well as the requirements on the oversight function under the BMR. The guidelines set out a transparent framework for administrators of critical and significant benchmarks when consulting on material changes to the methodology or using an alternative methodology in exceptional circumstances, together with an adequate oversight function. Furthermore, the guidelines aim at ensuring the common and consistent application of the record-keeping requirements related to the use of an alternative methodology for all benchmark administrators. The guidelines also amend the guidelines on non-significant benchmarks with regard to the key elements of the methodology and the oversight function. The guidelines will apply from 31 May 2022.


ESMA consults on review of Short Selling Regulation

On 24 September, ESMA began consulting on its review of the Short Selling Regulation (SSR). The consultation focuses on three main areas of the SSR: (i) an empirical analysis of the impacts of the short selling bans adopted during the Covid-19 crisis and proposed improvements to the current legislative provisions which govern emergency measures (i.e. long term bans, short term bans and ESMA powers to issue emergency measures). The proposed amendments aim at clarifying the interpretation of certain provisions and overall ensuring the procedure for the issuance of short and long-term bans is sufficiently flexible for competent authorities to tackle emergency situations; (ii) a review of the current framework for the calculation of net short positions (NSPs), the locate rule and the list of exempted shares. Amendments include a clarification of how subscription rights should be treated in the calculation of NSPs, proposals to strengthen the existing rules against uncovered short sales and proposed amendments to the list of exempted shares; and (iii) a review of the framework for transparency and publication of NSPs, discussing the merits of keeping the current publication threshold in light of recent market turmoil events and possible improvements to the system for publication and disclosure to the public of NSPs. The deadline for comments is 19 November and ESMA expects to publish a final report by the end of Q1 2022.

Press release


ESMA consults on MiFID II best execution reporting regime

On 24 September, ESMA began consulting on proposals for improvements to the MiFID II framework on best execution reports – the issues are primarily related to regulatory technical standard (RTS) 27 (applicable to execution venues) and to a lesser extent RTS 28 (applicable to investment firms). ESMA’s proposals include technical changes to: (i) the reporting obligations for execution venues aimed at: (a) simplifying the reporting requirements by reducing the granularity and volume of data to be reported; and (b) moving to a set of seven indicators aimed at disclosing meaningful information to help firms to assess venues’ execution quality; and (ii) the reporting requirements for firms: focusing mainly on clarifying the requirements for firms that transmit client orders or decisions to deal to third parties for execution. In addition, ESMA proposes amendments to the relevant provisions of the MiFID II legislative framework to enable these technical changes to come into effect in the future. The deadline for comments is 23 December. ESMA will consider responses in Q4 and plans to send proposals to the EC, if needed, in H1 2022.

Press release 


ESMA recommends to EC to delay CSDR mandatory buy-in regime

On 24 September, ESMA wrote to the EC urging it to consider a delay of the mandatory buy-in regime under the CSDR. The challenges identified by ESMA are twofold: (i) the absence of clarity regarding some open questions necessary for the implementation of the buy-in requirements; and (ii) the uncertainty as to whether the EC’s final legislative proposal following its review of CSDR, which is not expected until the end of the year, will include amendments to the mandatory buy-in rules and the extent of any potential amendments. ESMA notes that these challenges directly impact market participants’ ability to implement the regime and might involve potential additional costs linked to any additional later change of their systems and processes. As a result, ESMA calls for a change to the implementation deadline and suggests postponing the mandatory buy-in framework as soon as possible – ideally by the end of October 2021 at the latest. . 


Payment systems and payment services

PSR policy statement and updated guidance on UK Interchange Fee Regulation

On 29 September, the PSR published a policy statement and updated its guidance on the UK Interchange Fee Regulation (IFR). The revised guidance reflects the principal differences between the EU IFR and the UK IFR: (i) the scope - the UK IFR caps UK transactions (where the point of sale, acquirer and card issuer are all based in the UK). It does not cap UK/EU cross-border transactions; (ii) the UK IFR does not use the term ‘competent authority’: The PSR and the FCA are not designated as competent authorities under the UK IFR. However, the PSR and the FCA retain their roles and responsibilities in relation to the UK IFR; and (iii) the regulatory technical standards (RTS) Regulation has been replaced by the onshored RTS Regulation. The original RTS regulation was adopted under Article 7 of the EU IFR, which introduced specific requirements relating to the independence of payment card schemes and processing entities. The guidance also reflects other developments since it was first published including the removal of the chapter on the market share calculation for the exemption from domestic interchange fee caps for three-party schemes operating with licensees, and also to remove references to weighted average interchange fees, as these provisions have now expired. The new version of the guidance applies immediately. 

Policy statement

Updated Guidance

Delegated Regulation on framework for cooperation and information exchange between competent authorities under PSD2 published in OJ

On 28 September, Commission Delegated Regulation (EU) 2021/1722 supplementing PSD2 with regard to regulatory technical standards specifying the framework for co-operation and the exchange of information between competent authorities of the home and the host member states in the context of supervision of PIs and EMIs exercising cross-border provision of payment services was published in the OJ. The Delegated Regulation also establishes the framework for monitoring compliance with national law. It will enter into force and apply on 18 October (20 days after its publication in the OJ).

Delegated Regulation

Prudential regulation

FSB launches revised financial stability surveillance framework

On 30 September, the FSB published a report setting out a financial stability surveillance framework to assess and capture new and emerging global financial system vulnerabilities. The framework supports the comprehensive, methodical and disciplined review of vulnerabilities by the FSB, and thereby helps to identify and address new and emerging risks to financial stability. The framework aims to identify vulnerabilities in a proactive and forward-looking manner. It is based on systematic analysis that spans all parts of the global financial system. To serve the international remit of the FSB, the new framework provides a global, cross-border, and cross-sectoral perspective on current vulnerabilities that draws on the collective perspective of the FSB’s membership. It includes a common terminology and taxonomy, which defines key concepts such as vulnerabilities, shocks and resilience, which will aid shared understanding and consensus building amongst FSB members. It also distinguishes between global vulnerabilities that are currently material, those that may become material in the next 2 to 3 years, and those that may become material over a longer horizon. Once identified, material global vulnerabilities will be subject to more intensive monitoring and analysis, and, as appropriate, policy dialogue among FSB committees.

Press release


PRA Dear CFO letter and thematic feedback form 2020/21 round of written auditor reporting

On 30 September, the PRA published a Dear CFO letter providing thematic feedback from its review of written auditor reports received in 2021 and subsequent discussions with firms, auditors and other global regulators on: (i) IFRS9 expected credit loss accounting (ECL), the PRA recognises the challenges firms faced in implementing ECL, given the very high levels of uncertainty around Covid-19. While the PRA were encouraged to see progress in key areas, findings regarding the further progress needed to embed high quality practices are broadly similar to 2019. To help firms identify improvements they can make, the PRA have set out its views on the most significant gaps between practices observed by the auditors and the high quality practices shared by the PRA in 2019. The PRA has also identified eight new areas brought to light by Covid-19, where it considers further mitigating actions are needed to ensure that firms recognise changes in credit risk in a timely way. The PRA welcomes the progress that firms have made in developing recommendations to bring about greater consistency, starting with multiple economic scenarios in early 2022; and (ii) benchmark reform, the PRA reminds firms of the importance of managing and controlling the financial reporting aspects of the transition. The PRA sets out its views on the most significant gaps between practices that auditors observed as compared to the high quality practices shared in 2020. The PRA intend to use next year’s round of written auditor reporting to explore risks related to climate change. In the context of financial reporting, the PRA is concerned that firms may not fully capture the impact of climate-related risks on balance sheet valuations.


PRA consults on Domestic Liquidity Sub-Groups

On 28 September, the PRA began consulting on new rules on the application of prudential liquidity requirements to domestic liquidity sub-groups (DoLSubs) and revisions to its approach to granting DoLSubs permission. Where certain conditions are met on the availability, distribution, management, and monitoring of liquidity, the CRR allows the PRA to waive the application of liquidity requirements at the level of an individual firm and to permit a firm to form a DoLSub. HMT will revoke this provision from 1 January 2022. As part of the PRA’s implementation of Basel standards, the PRA therefore proposes to: (i) permit the inclusion in a DoLSub of firms that are subsidiaries of a common immediate UK qualifying parent undertaking that is not a bank or PRA-designated investment firm (‘sibling DoLSub’); and (ii) revise the conditions to qualify for a DoLSub permission and the factors that the PRA will take into account when considering DoLSub applications. The deadline for comments is 12 October. The PRA proposes that the implementation date for the changes would be 1 January 2022, with finalisation of the rules taking place in November 2021. The PRA expects firms to apply formally for Liquidity Capital Ratio and Net Stable Funding Ratio DoLSub permissions at the earliest opportunity after the publication of final rules. However, it intends to accept information about firms' prospective applications before publishing final rules to ensure that applications can be processed in sufficient time prior to 1 January 2022.  All applications will be assessed under the final revised framework, and permissions will take effect from 1 January 2022.


EC adopts four Delegated Regulations relating to investment firms’ prudential requirements under IFR

On 24 September, the EC adopted two regulatory technical standards (RTS) relating to prudential requirements for investment firms supplementing the Investment Firm Regulation (IFR), which specify: (i) the notion of segregated accounts to ensure client money's protection in the event of an investment firm's failure (C(2021) 6807 final). These RTS reflect a mandate under Article 15(5)(b) of the IFR; and (ii) the amount of total margin for the calculation of the K-factor "clear margin given" (C(2021) 6776 final). These RTS reflect a mandate under Article 23(3) of the IFR. These follow the EC’s earlier adoption on 22 September, of related RTS which specify: (a) adjustments to the K-factor "daily trading flow" coefficients (C(2021) 6731 final). These RTS reflect a mandate under Article 15(5)(c) of the IFR; and (b) the methods for measuring the K-factors referred to in Article 15 of the IFR (C(2021) 6739 final). These RTS reflect a mandate under Article 15(5)(a) of the IFR.  On 6 August, the EC also adopted RTS supplementing the Investment Firm Directive, relating to the criteria for subjecting certain investment firms to CRR requirements (C(2021) 5780 final). Under Article 5(6) competent authorities may apply the requirements of the CRR to investment firms trading on own account or underwriting on a firm committed basis and being equal or exceeding 5 billion euro of consolidated assets. The RTS: (1) set the quantitative thresholds above which, an investment firm’s activities should be considered to be of a significant scale which could lead to a systemic risk; and (2) clarify where a clearing member is relevant from a systemic risk perspective – when it is providing clearing services to other financial institutions, which are not clearing member themselves. The Council and the EP will now scrutinise the Delegated Regulations and if neither object, they will enter into force 20 days after their publication in the OJ. 

C(2021) 6731 

C(2021) 6739 

C(2021) 6776

C(2021) 6807

C(2021) 5780 

EBA 2021 EU-wide transparency exercise

On 24 September, the EBA launched its 2021 EU-wide transparency exercise. The EBA will release nearly 2 million data points 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. This year the EBA will provide additional pieces of information on the exposures under EBA compliant moratoria and public guarantee schemes, which will allow public to have more comprehensive assessment of the impact of the Covid-19 crisis on the banking sector. The EBA expects to publish the results of the exercise at the beginning of December, together with the annual Risk Assessment Report.

Press release

ESRB General Board decides Covid-19 restriction on distributions should lapse end of September 

On 24 September, the ESRB published a press release summarising the discussions at the 43rd regular meeting of its General Board, which was held on 23 September. Amongst other things, the General Board highlights that the improved economic outlook has reduced the probability of severe scenarios and the risk of the Covid 19 crisis causing severe instability in the financial system and therefore the ESRB Recommendation on the restriction of distributions during the Covid-19 pandemic should lapse at the end of September. The ESRB notes the results of the EBA and ECB’s August EU-wide stress tests which suggest that the banking sector is, overall, resilient to adverse economic developments. However, the General Board cautions that this decision reconfirmed the need for financial institutions to remain prudent when deciding on distributions.

Press release

Sustainable finance

Please see the Prudential Regulation section for a Dear CFO letter sent by the PRA to provide thematic feedback from its review of written auditor reports received in 2021. The PRA intend to use next year’s round of written auditor reporting to explore risks related to climate change.

Please see the Other Developments section for a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on measuring and assessing culture, the role of purpose, the importance of diversity and inclusion, and climate change. 

AFME recommendations on ESG disclosure and diligence practices for the European high yield market

On 29 September, AFME published recommendations on ESG disclosure and diligence practices for the European high yield market. AFME provides a framework for assessing relevance and materiality, including: (i) the impact of ESG factors upon an issuer’s strategy and business model; (ii) exposure of an issuer to ESG risks, to be considered at an issuer level and a wider stakeholder level including sponsors/shareholders; and (iii) whether the high yield bond is being "labelled", e.g., as green / social / blue / sustainability/ transition. AFME states that key to the discussion is the ability to provide clear, transparent disclosure that would be material to an investment decision. A pre-requisite for a company to disclose ESG data is that it needs to be defined, measurable, collectible, evidence-based and reliable. This, in turn, requires the information to be subject to appropriate governance and internal procedures and controls, and in some instances third-party verification. As the market evolves and develops, there will be an ongoing balancing of the interests of investors in seeking detailed information and issuers’ practical ability to disclose such information. AFME notes therefore that market participants should be sensitive to the fact that a pragmatic, balanced and proportional approach is required.


Other developments

ESAs Joint Committee 2022 work programme 

On 30 September, the Council of the EU published the 2022 work programme of the Joint Committee of the ESAs. The Committees priorities include to: (i) closely monitor and assess emerging cross-sector risks and vulnerabilities for financial stability arising from the Covid-19 pandemic and its economic impact and to discuss potential additional regulatory and supervisory joint responses. The ESAs will published its bi-annual cross-sectoral risk reports, which will be submitted to the Financial Stability Table of the Economic and Financial Committee in spring and autumn 2022; (ii)  focus in particular on the area of consumer and investor protection, retail financial services, retail investment products and prudential analysis of cross-sectoral developments, risks and vulnerabilities for financial stability, cybersecurity, financial conglomerates and prudential consolidation, as well as accounting and auditing; (iii) develop a number of draft technical standards under the SFDR and disclosure standards for non-financial information under the Non-Financial Reporting Directive subject to its potential revision; (iv) continue work on AI and use of behavioural finance findings for supervisory purposes; (v) focus on implementation of the expected mandates in relation to the EC’s digital finance package, the first of which has already been requested by January 2022; (vi) monitor the impact of Brexit and serve as a forum to discuss and coordinate any cross sectoral issues; (vii) promote cooperation among national innovation facilitators, in line with the EC FinTech action plan, through the European Forum for Innovation Facilitators; (viii) address cross-sectoral mandates and Q&As stemming from, for example, the PRIIPs SFDR and Securitisation Regulation; and (ix) continue to fulfil mandates on mapping and monitoring of external credit assessment institutions under CRR and Solvency II. 

Work programme 

ESMA 2022 work programme 

On 28 September, ESMA published its 2022 annual work programme. ESMA’s key workstreams include: (i) cross-cutting themes – to focus on contributing to the EU’s priorities including: (a) development of the CMU; (b) developing rules on ESG disclosures and risk identification methodology for ESG factors; and (c) contributing to the implementation of DORA, MiCA and the MiDLT pilot regime; (ii) supervisory convergence  - to deliver peer reviews on the supervision of investment firms cross-border activities, NCAs’ handling of Brexit related relocations, CSD supervision, prospectus scrutiny and approval procedures, the implementation of STS criteria and the supervision of CCPs’ business continuity under remote working arrangements; (iii) risk assessment – to strengthen its risk identification work and co-operation with NCAs and EU and international public authorities, support stress-testing for risk identification and supervisory responses to financial stability risks; (iv) single rulebook – to contribute to the reviews of the Prospectus and Transparency Directives, MiFID II/MiFIR, PRIIPS, the Short Selling Regulation, and CSDR; and (v) direct supervision – in 2022, new entities will come under ESMA’s direct supervision – critical benchmarks, Data Reporting Service Providers and Tier 2 CCPs. 

Press release

Work programme

FCA speech on assessing culture, hybrid working, the importance of D&I and climate change

On 24 September, the FCA published a speech by Sheldon Mills, Executive Director, Consumers and Competition, on measuring and assessing culture, the role of purpose and the importance of diversity and inclusion (D&I). Highlights include: (i) culture remains central to how the FCA supervises firms. The importance of an authentic, embedded purpose, visible leadership and an inclusive environment where staff feel safe to speak up is paramount. In almost every instance of poor conduct, deep-set cultural issues have been present; (ii) purpose and how people are incentivised are key drivers in a healthy culture. The FCA expects variable remuneration to be linked both to financial and non-financial measures, with bonuses reflecting the firm’s purpose; (iii) hybrid working brings opportunities and challenges. Firms need to find approaches that give due regard to safeguarding their purpose and values, the wellbeing of staff and effective oversight. The FCA will monitor how firms continue to adapt to the new normal; (iv) D&I is an aspect of culture where the investment management sector has considerable ground to make up. The FCA welcomes the initiatives led by the Investment Association such as the black leaders’ mentoring programme and the IA diversity data guide, but notes that lasting change will only come from firms looking at their own culture and taking action; and (v) firms in the investment management sector have a huge sphere of influence on ESG, both to improve their own ESG performance and to drive positive change through their investments. This will increasingly form part of the FCA’s supervisory engagement strategy and firms should expect to be challenged more on these issues.