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Key Regulatory Topics: Weekly Update 25-31 March 2022

As March came to an end and spring is now well and truly under way, numerous regulators have unveiled their annual work plans, including the FOS, FSB and PSR, while others, such as the SRB and ESMA, have published speeches covering their priorities for 2022. There has also been a recent focus on financial crime, with the European Parliament announcing new cryptoasset rules to stop illicit flows in the EU, and the FCA updating its webpage on the cryptoasset anti-money laundering and counter terrorist financing regime in relation to its temporary registration regime.


FOS Ombudsman news 170

On 31 March, the Financial Ombudsman Service (FOS) published its Ombudsman News 170. This latest edition shares a summary of the FOS’ recently published plans and budget for the year ahead (we cover this item below), outlines changes to the FOS’ award limits from next month and shares links to the FOS’ online guidance for consumers about storm damage complaints.


FOS strategic plans and budget 2022/3

On 30 March, the FOS published its plans and budget for 2022/3. The document sets out the FOS’ plans to invest in change, reduce the time it takes to resolve cases, become financially sustainable, and deliver a better service for its customers. In 2022/3, the FOS expects to receive around 177,000 complaints and resolve approximately 220,500 complaints. The FOS plans to: (i) continue to ensure it is equipped to respond to complexity and vulnerability in complaints; (ii) invest in a change programme, which includes working with regulatory stakeholders to deliver its Action Plan, and additional resource to reduce waiting times and handle increasing demand; (iii) invest in digital technology to make it easier for consumers and businesses to contact it and make its processes more efficient; (iv) commence the build of a customer portal; (v) publish a consultation on its future funding model; and (vi) renew its emphasis on communications, policy and engagement, both through the refreshed Wider Implications framework and through its prevention strategy. In addition, the FOS’s 2022/3 budget includes: (a) a cost base of £291.7 million; (b) an individual case fee of £750; (c) a compulsory jurisdiction levy increased by £10 million to £106 million; (d) a voluntary jurisdiction levy of £700,000; (e) 3 free cases (reduced from 25) for businesses outside the group-account fee arrangement; and (f) 15 free cases (reduced from 50) for businesses in the group-account fee arrangement. The FOS will publish its updated strategy on its website in the first quarter of 2022/3.

Plans and budget


FCA consultation paper on electronic format for annual financial reports

On 25 March, the FCA published a consultation paper on proposed changes to the definition of UK Single Electronic Format (UKSEF) 2022 in the UK Transparency Directive (TD) European Single Electronic Format (ESEF) Regulation to allow companies to use a more up to date electronic format for their annual financial reports. Proposed changes to the UK TD ESEF Regulation mean that issuers who follow Disclosure, Guidance and Transparency Rules (DTR) 4.1 must now prepare their annual financial report in the electronic reporting format required by DTR 4.1.14R. The FCA proposes to change the definition of UKSEF 2022 in the range of permitted taxonomies in Article 2(4B) of the UK TD ESEF Regulation so that it refers to UKSEF 2022 v2.0.0 instead of v1.0.0. This change would take effect from 3 May. As the FCA cannot accept both versions into the national storage mechanism at the same time, the last business day it would accept filings using UKSEF 2022 v1.0.0 would be 29 April. In addition, the FCA proposes to include the new ESEF 2021 taxonomy as a permitted taxonomy for financial years beginning on or after 1 January 2021 but before 1 January. The FCA had previously deferred adding a reference to this taxonomy until it had been adopted in the EU. The deadline for comments is 8 April. The FCA proposes that the changes would take effect from 3 May. 


ECB Decision on 2021 total amount of annual supervisory fees

On 31 March, the Decision of the ECB on the total amount of annual supervisory fees under the single supervisory system for 2021 was published in the OJ. The ECB has set the total amount of annual supervisory fees for 2021 at EUR 577 462 903. Each category of supervised entities and supervised groups will pay the following total amount of annual supervisory fees: (i) significant supervised entities and significant supervised groups: EUR 546 085 119; and (ii) less significant supervised entities and less significant supervised groups: EUR 31 377 783. This Decision will enter into force on 5 April.


PRA policy statement on 2022/23 FSCS management expenses levy limit

On 25 March, the PRA published a policy statement on the 2022/23 Financial Services Compensation Scheme (FSCS) management expenses levy limit (MELL). The responses the PRA received to its joint consultation paper with the FCA on the MELL did not raise any issues requiring amendments to the original proposals and, as a result, the PRA has decided to publish the policy as proposed. The MELL for 2022/3 will be £110.5 million. This includes: (i) FSCS management expenses of £95.5 million to cover the FSCS’ ongoing operating costs including staff, facilities, claims handling, legal, and other professional services; and (ii) an unlevied contingency reserve of £15 million which allows the FSCS to levy additional funds at short notice in the event of a significant unexpected event, without the need for further consultation by the PRA and the FCA. The FSCS MELL will apply for the financial year ending 31 March 2023.

Policy statement

Financial Crime and Sanctions

New cryptoasset rules to stop illicit flows in the EU

On 31 March, the EP announced new cryptoasset rules to stop illicit flows in the EU. MEPs from the Committee on Economic and Monetary Affairs and the Committee on Civil Liberties adopted, with 93 votes to 14 and 14 abstentions, their position on draft legislation strengthening EU rules against money laundering and terrorist financing. The legislation is part of the new EU anti-money laundering package, and aims to ensure that cryptoassets can be traced in the same way as traditional money transfers as there is an absence of rules for tracing transfers of cryptoassets like bitcoins and electronic money tokens. Key points include: (i) traceability of transfers of cryptoassets. Under the new requirements agreed by MEPs, all transfers of cryptoassets will have to include information on the source of the asset and its beneficiary, information that is to be made available to the competent authorities. The rules would also cover transactions from so-called unhosted wallets (a cryptoasset wallet address that is in the custody of a private user). Technological solutions should ensure that these asset transfers can be individually identified. The rules would not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf; (ii) no minimum thresholds. MEPs decided to remove minimum thresholds and exemptions for low-value transfers; and (iii) a public register of high-risk entities. MEPs want the EBA to create a public register of businesses and services involved in cryptoassets that may have a high risk of money laundering, terrorist financing and other criminal activities, including a non-exhaustive list of non-compliant providers. Before making the cryptoassets available to beneficiaries, providers would have to verify that the source of the asset is not subject to restrictive measures and that there are no risks of money laundering or terrorism financing. The adopted text represents the draft mandate for MEPs to negotiate the final shape of the legislation with EU governments. The EP as a whole should vote on it during the plenary session in April.

Press release

FCA updated webpage on cryptoassets AML / CTF regime

On 30 March, the FCA updated its webpage on the cryptoasset anti-money laundering (AML) and counter terrorist financing (CTF) regime. Since 10 January 2020, existing businesses carrying on cryptoasset activity in the UK have needed to be compliant with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended, including the requirement to be registered with the FCA by 9 January 2021 in order to continue to carry on business. The FCA provides an update on the Temporary Registration Regime (TRR) established in December 2020 to allow existing cryptoasset firms, which applied for registration before 16 December 2020, and whose applications were still being assessed, to continue trading. The FCA has now concluded its assessments, and the TRR will close on 1 April for all but for a small number of firms where it is strictly necessary to continue to have temporary registration – this is necessary where a firm may be pursuing an appeal or may have particular winding-down circumstances. However, placing firms on the FCA list of firms with temporary registration does not mean that the FCA has assessed them as fit and proper. Only firms registered with the FCA or on its list of firms with temporary registration can continue trading. Other firms must have ceased trading from 10 January 2021. Firms that have not ceased trading are at risk of being subject to the FCA’s criminal and civil enforcement powers.


Wolfsberg Group guidance on digital customer lifecycle risk management

On 29 March, the Wolfsberg Group published guidance on digital customer lifecycle risk management. The Group explains that customers now expect to engage their financial institution (FI) and manage their finances via their digital device, and prospective customers also increasingly expect to become customers via their digital device. Therefore, digital approaches to customer lifecycle risk management, if defined and calibrated responsibly, provide the FI with an opportunity to build a dynamic understanding of customer risk, refresh relevant customer information on a targeted basis, and pursue new customers without face-to-face interaction while focusing resources to address genuine financial crime threats. The guidance explores how non-face to-face digital engagement could be considered a standard, or even lower risk channel for an FI by further developing three core AML/CTF controls: (i) expanding concepts of identification and verification, and increasing the emphasis on the importance of authentication; (ii) building and maintaining a dynamic, more holistic customer risk profile; and (iii) shifting to a targeted, disciplined approach to on-going due diligence by refreshing customer data on a trigger (rather than periodic) basis, dedicating resources effectively to priority risks in real-time. The guidance describes how digital approaches to building and maintaining a holistic customer risk profile challenge the “added” value of face-to-face engagement for an FI in knowing its customers and assessing the risk they present of facilitating, or engaging in, financial crime.


Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022 published

On 28 March, the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022 were published, alongside an explanatory memorandum. These Regulations amend the MLRs by substituting the list of high-risk third countries in Schedule 3ZA of the MLRs with a new list. On the new list: (i) Zimbabwe is no longer classed as a high-risk third country for the purposes of enhanced customer due diligence requirements in Regulation 33(3) of the MLRs; and (ii) the United Arab Emirates is now classed as a high-risk third country for the purposes of enhanced customer due diligence requirements. The Regulations came into force on 29 March. HMT has also updated its Advisory Notice on Money Laundering and Terrorist Financing controls in high-risk third countries which replaces all previous notices issued by HMT on the subject.


Explanatory memorandum

Advisory notice


Please see the ‘Financial Crime and Sanctions’ section for the FCA’s updated webpage on the cryptoasset anti-money laundering and counter terrorist financing regime and temporary registration regime update, and the EP’s proposed new cryptoasset rules to stop illicit flows in the EU.

Regulation on a pilot regime for market infrastructures based on DLT

On 30 March, the text of the proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT), and amending the MiFIR, CSDR and MiFID II, was published by the Council of the EU. The EP adopted the Regulation at first reading on 24 March 2022. The Regulation lays down requirements in relation to DLT market infrastructures and their operators in respect of: (i) granting and withdrawing specific permissions to operate DLT market infrastructures in accordance with the Regulation; (ii) granting, modifying and withdrawing exemptions related to specific permissions; (iii) mandating, modifying and withdrawing the conditions attached to exemptions and in respect of mandating, modifying and withdrawing compensatory or corrective measures; (iv) operating DLT market infrastructures; (v) supervising DLT market infrastructures; and (vi) cooperation between operators of DLT market infrastructures, competent authorities and the ESAs. The Council will now need to adopt the proposed Regulation, which will enter into force 20 days after it is published in the OJ and will apply nine months after the date it has entered into force (with the exception of certain articles).


FCA call for input on synthetic data to support financial services innovation

On 30 March, the FCA published a call for input on the use of synthetic data to support financial services innovation. The FCA explains that as financial services are increasingly digital, consumer interactions and engagement with products and services build digital footprints, generating ever increasing amounts of data that can reveal much about identities and behaviours. This data can also drive valuable innovation. Advances in data and analytics can enable automation, improved decision-making and risk management, and personalisation of services. Ultimately, this has the potential to deliver societal benefits such as greater market efficiency and integrity, financial inclusion, and the prevention of financial crime. It is widely recognised that artificial intelligence holds significant potential in the financial services industry. Financial data, while valuable, is highly sensitive, and is subject to data privacy laws that place conditions on sharing this data for innovation and research purposes to protect the privacy of consumers. Financial data can be readily shared in accordance with data privacy laws, however third-party providers such as RegTechs and Fintechs will often have to spend a period of time navigating complex due diligence and onboarding processes with an institution to access this data. Whilst data privacy laws are critical to the protection of consumers’ privacy rights, the challenges associated with access to financial data, especially for new market entrants, can inhibit the development of new products and services in the market. Therefore, the FCA is interested in solutions that will enable greater data sharing for the purposes of competition, without undermining data protection laws that are in place to protect consumers. In this regard, ‘synthetic’ data can help. Synthetic data is a privacy preserving technique that could open up more opportunities for data sharing by generating statistically realistic, but ‘artificial’ data, that is readily accessible. The FCA would like to conduct an introductory exploration of market attitudes towards synthetic data, and its potential for opening data sharing between firms, regulators and other public bodies. The FCA wants to understand industry views on the potential for synthetic data to support innovation and the requirements to be effective, as well as potential limitations and risks. Finally, the FCA is interested in what the industry sees as the role of the regulator in the provision of synthetic data, particularly regarding the FCA’s competition remit, and the appetite of firms to collaborate with regulators and/or other organisations to generate synthetic data. This call for input closes on 22 June. Following the receipt of responses, the FCA plans to publish a feedback statement.

Call for input

FCA new webpage on Innovation Hub market insights

On 28 March, the FCA published a new webpage on Innovation Hub market insights. Since the FCA Innovation Hub was launched in 2014, the FCA has gathered a considerable quantity of data and insights into the growing Fintech market in the UK. This webpage is the first step in sharing these insights with the broader market, and is intended to grow over time as the FCA collects more data. The webpage provides data on the type of firms and technology supported by the Regulatory Sandbox and Innovation Pathways, including firm sizes, sectors and locations. Key points include: (i) sector. The FCA has received over 2,000 applications for support. Over 800 firms have been supported, and over 150 have been accepted for testing in the Regulatory Sandbox. From 2014 to 2021, most firms supported operated in the retail investments, retail banking and payments, and retail lending sectors. The retail investments sector represented between 20% to 43% of firms each year. However, during the Covid-19 pandemic, there was a rise in the proportion of firms in the retail banking and payments sector; (ii) technology. Most business models that were accepted into the Sandbox since 2016 were focussed on distributed ledger technology, blockchain and cryptoassets. Around 15% of firms accepted had non-technology driven innovative business models and 14% of firms used Open Banking. The FCA has also supported a number of firms using RegTech and artificial intelligence/ machine learning to test within the Regulatory Sandbox; (iii) firm size. The FCA can support firms of all sizes, at any stage of development, provided they meet its eligibility criteria. Most of the firms the FCA supports are unregulated at the point of applying. 84% of firms that apply are start-ups that are not currently carrying out any business activities. Many of the firms supported will go on to become authorised, but the FCA is happy to support firms that do not intend to carry out regulated activities. Instead, these firms may be supporting regulated financial services activities; and (iv) location. While the FCA’s remit is UK financial services, it is happy to receive applications from firms based overseas who want to expand into the UK. Since 2019, most of the firms supported have been based in the UK, with 54% based in London and 37% across the rest of the UK. Innovation Pathways has supported firms around the world across Europe, North America and South America. The same trend is true for the Regulatory Sandbox. 


Fund Regulation

ESMA and NCAs funds’ liquidity stress testing findings

On 30 March, ESMA published the findings of a supervisory engagement with investment funds it carried out with National Competent Authorities (NCAs). The exercise focused on liquidity risk in corporate debt and real estate funds, with the results showing that the funds included in the scope of the analysis do not pose any substantial risk for financial stability. Many NCAs reported that management companies were able to manage episodes of valuation uncertainty in March 2020 and that they have not identified any strong valuation issue for the funds in the scope of the exercise. While the overall degree of compliance is satisfactory, the results also highlight some room for improvement and continued monitoring, especially on the liquidity stress testing and valuation of less liquid assets. ESMA will facilitate discussions on these topics among NCAs on the application of the liquidity stress testing guidelines in UCITS and AIFs, and is currently conducting a 2022 common supervisory action on the valuation of less liquid assets in UCITS and open-ended AIFs.

Press release

ESMA speech on key 2022 priorities for the asset management industry

On 30 March, ESMA published a speech, dated 24 March, by Natasha Cazenave, Executive Director of ESMA, on the key priorities for the asset management industry in 2022, with a focus on the two themes of sustainable finance and systemic risk. Key points include: (i) demand for ESG products remains strong, with investors increasing their allocation to sustainable investment products and vehicles; (ii) market participants are actively preparing for the application of the detailed rules contained in the “implementing measures” of the SFDR, which will apply from 1 January 2023. ESMA continues to discuss these disclosure requirements with the EU national authorities to support a consistent interpretation of the regulatory requirements and ensure investors can truly benefit from the enhanced transparency; (iii) the ESAs (EBA, EIOPA and ESMA) are preparing the review of the indicators for principal adverse impacts, a key part of the SFDR disclosures. The objective is to ensure the indicators stay relevant in light of key environmental and scientific developments; (iv) although the SFDR was primarily a transparency regulation, both fund managers and investors are increasingly treating the disclosures categories as product classification. More investment funds are marketing themselves as either Article 8 or Article 9 of the SFDR - meaning products promoting environmental or social characteristics and products with sustainable investment as their objective. Therefore, Article 8 products, also called ‘light-green’ products in the SFDR, have been called out for less ambitious environmental or social characteristics. In light of this, ESMA must consider appropriate criteria to ensure that investors who are looking for sustainability features in their financial products are offered products matching their preferences. ESMA expects to provide technical advice to the EC on future initiatives in this area; (v) ESMA will publish guidance and Q&As on a number of stakeholder questions it received with regard to implementation and timing of the regulation (for instance on scope, definitions, interactions between different pieces of legislation); (vi) on the taxonomy regulation, the ESAs want to ensure that investors are not subject to potentially misleading disclosures by product providers regarding the level of ambition of the taxonomy alignment of products or financial market participants. ESMA hopes that the new rules could also be seen as an opportunity for fund managers to get on the front foot in their efforts to contribute to the transition to net zero and deliver on the Paris agreement; and (vii) ESMA expects that the review of the EU MMF Regulation will be launched by the EC by mid-2022.


Markets and Markets Infrastructure

Please see the ‘Recovery and Resolution’ section for HMT’s response to its consultation on an expanded resolution regime for CCPs.

ESMA final report on guidelines on certain aspects of MiFID II remuneration requirements

On 31 March, ESMA published a final report on guidelines on certain aspects of the MiFID II remuneration requirements. The report summarises the responses to its previous consultation on the draft guidelines and explains how the responses have been taken into account. The purpose of the guidelines is to enhance clarity and foster convergence in the implementation of certain aspects of the MiFID II remuneration requirements. The guidelines will replace ESMA’s existing guidelines on the same topic, issued in 2013. The guidelines build on the text of the 2013 guidelines. In addition, the guidelines take into account new requirements under MiFID II and the results of supervisory activities conducted by national competent authorities (NCAs) on the topic. The guidelines will apply from six months of the date of publication of the guidelines on ESMA’s website in all EU official languages. Within two months of the date of publication of the guidelines in all EU official languages, NCAs must notify ESMA whether they: (i) comply; (ii) do not comply, but intend to comply; or (iii) do not comply and do not intend to comply with the guidelines.

Final report

European Market Infrastructure Regulation (United States of America Regulated Market Equivalence) Regulations 2022 published

On 30 March, the European Market Infrastructure Regulation (United States of America Regulated Market Equivalence) Regulations 2022 were published, alongside an explanatory memorandum. The Regulations revoke an existing equivalence decision, under Article 2a of the UK EMIR, for the USA’s Commodity Futures Trading Commission (CFTC), and re-enact the decision with an updated Annex. The Annex of the equivalence decision provides a list of designated contract markets (DCMs) in the USA that are authorised by the CFTC. Since the original EU equivalence decision, which the UK retained, several additional DCMs established in the USA have obtained authorisation from the CFTC to operate as regulated markets, vacated their authorisation, or amended their names. The onshored UK version of the original decision must therefore be revoked and re-enacted with an updated Annex to reflect these changes in order to maintain the original intention of the policy. The Regulations come into force on 20 April.


Explanatory memorandum

New and revised MoUs between ESMA and third-country authorities under EMIR

On 30 March, ESMA published a number of memoranda of understanding (MoUs) with relevant third-country authorities following recent updates on the recognition of central counterparties established in third countries (TC-CCPs) under Articles 25 and 89(3c) of EMIR. ESMA has published the following MoUs: (i) MoU between RBA, ASIC and ESMA related to CCPs in Australia (MoU 1); (ii) MoU between ESMA and Banco Central do Brasil and Comissão de Valores Mobiliários related to CCPs established in Brazil (MoU 2); (iii) MoU between ESMA, the Ontario Securities Commission and the Autorité des marchés financiers of Québec related to CCPs established in Ontario and Québec, Canada (MoU 3); (iv) MoU between ESMA and ASC related to CCPs established in the province of Alberta (MoU 4); (v) MoU between ESMA and the Dubai Financial Services Authority related to ESMA’s monitoring of the ongoing compliance with recognition conditions by CCPs established in the Dubai International Financial Centre (MoU 5); (vi) MoU between ESMA and the Hong Kong Securities and Futures Commission related to CCPs established in Hong Kong (MoU 6); (vii) Memorandum of Cooperation between ESMA and the Financial Services Agency of Japan related to CCPs established in Japan (MoU 7); (viii) Memorandum of Cooperation between ESMA and the Ministry of Agriculture, Forestry and Fisheries of Japan and the Ministry of Economy, Trade and Industry of Japan related to CCPs established in Japan (MoU 8); (ix) MoU between ESMA and the National Banking and Securities Commission related to CCPs established in Mexico (MoU 9); (x) MoU between ESMA, the Reserve Bank of New Zealand and the Financial Markets Authority related to CCPs established in New Zealand (MoU 10); (xi) MoU between ESMA and the Financial Services Commission and the Financial Supervisory Service of the Republic of Korea related to CCPs established in the Republic of Korea (MoU 11); (xii) MoU between ESMA and the Monetary Authority of Singapore related to CCPs established in Singapore (MoU 12); (xiii) MoU between ESMA and the Swiss Financial Market Supervisory Authority and the Swiss National Bank related to ESMA's monitoring of the ongoing compliance with recognition conditions by CCPs established in Switzerland (MoU 13); (xiv) Supplemental arrangement to the 2016 MoU between ESMA and the United States Commodity Futures Trading Commission related to ESMA’s assessment of compliance and monitoring of the ongoing compliance with recognition conditions by derivatives clearing organizations established in the US (MoU 14); and (xv) MoU between ESMA and the United States Securities and Exchange Commission related to ESMA’s assessment of compliance and monitoring of the ongoing compliance with recognition conditions by certain clearing agencies established in the US (MoU 15).

MoU 1

MoU 2

MoU 3

MoU 4

MoU 5

MoU 6

MoU 7

MoU 8

MoU 9

MoU 10

MoU 11

MoU 12

MoU 13

MoU 14

MoU 15

ESMA final report on draft RTS on management body of DRSPs

On 29 March, ESMA published its final report, dated 23 March, on draft RTS on the management body of Data Reporting Services Providers (DRSPs) under Article 27f(5) of MiFIR. The draft RTS address the different roles and functions carried out by members of DRSP management bodies, with a view to preventing conflicts of interest between them and the users of DRSP services. The RTS will apply to all DRSPs, irrespective of whether they are supervised by ESMA or a national competent authority. ESMA proposes to assess the suitability of the members of DRSP management bodies under the following criteria: (i) good repute, honesty and integrity; (ii) sufficient time commitment; (iii) knowledge, skills and experience; (iv) independence of mind; (v) induction and training; (vi) diversity; and (vii) record-keeping. The final report and the draft RTS have now been submitted to the EC for adoption. The EC is expected to adopt a Delegated Regulation within three months. Following the endorsement of the draft RTS by the EC, the draft RTS will then be subject to the non-objection of the EP and of the Council of the EU. ESMA will then consider whether and how its Guidelines on the management body of market operators and DRSPs are to be amended.

Final report

ESMA final reports on review of transparency requirements under MiFIR

On 28 March, ESMA published two final reports following its review of transparency requirements for equity and non-equity instruments set out in RTS made under MiFIR. The reports contain targeted amendments to RTS 1 (equity transparency) and RTS 2 (non-equity-transparency) which aim to clarify, improve and simplify the transparency regime for equity and non-equity instruments. ESMA explains that these amendments address issues that have received broad support from stakeholders, or are considered important in the context of establishing a consolidated tape provider. A second, broader review will be carried out following the ongoing MiFIR review. The second review will focus on the necessary changes to RTS 1 and 2 as a result of the MiFIR review and will include the analysis of proposals included in the consultation paper published in July 2021 but not covered in the final reports. The final reports have been submitted to the EC, which has three months to decide whether to endorse the proposed amendments to the RTS.

Equity transparency final report

Non-equity transparency final report

ESMA final report on guidelines for data transfer between TRs under EMIR and SFTR

On 25 March, ESMA published a final report on guidelines for the transfer of data between trade repositories (TRs) under EMIR and the Regulation on reporting and transparency of securities financing transactions (SFTR). The report contains two different sets of guidelines: (i) amendments to ESMA’s existing guidelines on transfer of data between TRs under EMIR. The proposed amendments mainly propose the inclusion of a number of new guidelines which compile the additional clarifications based on the experience gathered and the on-going guidance provided by ESMA to TRs and market participants. For example, porting only outstanding reports that have been updated to the latest reporting requirement under the voluntary porting; in the case of withdrawal of registration, the porting of reconciliation and rejection data generated by the TR, the storage of non-outstanding data of lower quality in separate databases, and the possibility to receive a fee for non-outstanding data from active clients; and (ii) new guidelines on transfer of data between TRs under the SFTR. These new guidelines relate to SFTR reporting requirements in the context of porting to set up a framework to enable market participants to safely transfer data from one TR to another under the SFTR. The report also summarises the feedback received to ESMA’s May 2021 consultation. The guidelines will be translated into all official languages of the EU and will become applicable on 3 October.

Final report

ESMA update on UK and third-country CCP recognition decisions

On 25 March, ESMA published a statement announcing its decision to extend the application of the recognition decisions under Article 25 of EMIR for the three CCPs established in the UK, as well as publishing a statement announcing a series of updates in relation to the recognition of CCPs established in third countries (TC-CCPs) under EMIR. Regarding the UK, ESMA amended the recognition decisions and tiering determination decisions in respect of ICE Clear Europe Ltd, LCH Ltd and LME Clear Ltd, to align them with the Commission Implementing Decision (EU) 2022/1742 adopted by the EC on 8 February. Accordingly, the application of the recognition decisions and tiering determination decisions in respect of these three CCPs has been temporarily extended until 30 June 2025. Concerning TC-CCPs, ESMA completed the tiering and review of the recognition decisions of 25 TC-CCPs recognised by ESMA prior to September 2020, under Article 89(3c) of EMIR and in accordance with Article 25 of EMIR. For a number of TC-CCPs, ESMA is still waiting for some additional clarifications, including from the EC regarding relevant equivalence decisions, in order to finalise the review of recognition process. ESMA recognised for the first time NSCC, which is authorised and supervised by the US Securities and Exchange Commission, as a Tier 1 CCP. ESMA has also concluded, modified or made new memoranda of understanding with the relevant third country authorities to reflect key amendments to EMIR (we have covered this item above).

UK statement

Third-country statement

Payment Services and Payment Systems 

PSR annual plan and budget for 2022/3

On 29 March, the PSR published its annual plan and budget for 2022/3. This plan sets out the PSR’s key aims, activities and expected costs for the year 2022/3. Overall, the PSR considers that the UK payment systems work well. However, it notes that the payments landscape is evolving and with this, there are issues that need to be addressed such as the prevalence of Authorised Push Payment (APP) fraud, risks to effective competition, and the need to support the payments sector to deliver new and improved services. Further challenges can also be expected as global events impact the cost of living, which may affect what people need from payments to support their daily lives. The PSR’s annual plan is structured around four key strategic priorities: (i) access and choice. The PSR will continue to oversee LINK’s work to maintain the UK’s free-to-use ATM network, so people can access their cash when they need to. It is also providing expert input on the regulatory framework for potential new payment systems, such as cryptoasset-based options. These new systems have the potential to increase choice and add to competition; (ii) protection. For payments to be made safely and with confidence, the PSR is using its powers to ensure that more people and businesses have the added security of the name-checking service Confirmation of Payee. It is also taking steps now to prepare for proposed legislative changes that will allow the PSR to act against APP fraud; (iii) competition. The PSR is investigating high card fees and is looking at ways to help merchants get more competitive deals by comparing and switching providers. The PSR is also overseeing Pay.UK’s work to deliver the New Payments Architecture, ensuring it sufficiently allows payment service providers to compete for customers, supporting competition and innovation; and (iv) unlocking account-to-account payments. A particular focus for the PSR is looking at how account-to-account payments could provide credible alternatives to card payments in retail. The PSR is planning a hybrid discussion event to hear stakeholders’ thoughts on the plan and discuss the PSR’s projects in more detail. In the summer, the PSR will publish its annual report summarising how it has performed against its 2021/2022 annual plan.

Annual plan and budget

CMA recommendations on future oversight of Open Banking

On 25 March, the CMA published its recommendations for the future oversight and governance of Open Banking. These recommendations are published in response to the CMA’s March 2021 consultation on the future oversight of the Open Banking remedies. The consultation sought views on what arrangements should be put in place to ensure effective oversight and governance following the implementation of the remaining measures in the Roadmap required under the CMA’s Order for Open Banking, and how the CMA should manage the transition process towards this new governance model. The CMA’s recommendations will be taken into consideration in the design of a future entity to succeed the Open Banking Implementation Entity (OBIE). The future entity would build on the significant progress made to date by the OBIE to encourage innovation and support competition in retail banking. The CMA’s recommendations are that the future entity should: (i) have effective regulatory oversight, with a new Joint Regulatory Oversight Committee to agree and implement the next steps; (ii) have independent and accountable leadership that appropriately takes into account the interests of all key stakeholders and adheres to best practice corporate governance principles. The Board should be majority independent, broadly based and representative of the range of stakeholder interests; (iii) have a clear purpose articulated by the Board; (iv) be adequately resourced to carry out its functions through a more broadly-based and sustainable funding model; (v) effectively serve the interests of consumers and small and medium sized businesses, including consideration for how these groups will be represented in the governance of the entity; (vi) be sustainable and adaptable to the future needs of the sector; and (vii) have a system to effectively support the monitoring and enforcement of the Retail Banking Market Investigation Order 2017. The CMA, HMT, FCA and PSR have also published a joint statement outlining their plans for oversight of the future entity, building on the CMA’s recommendations, including the establishment of a Joint Regulatory Oversight Committee. The joint statement confirms that the Joint Regulatory Oversight Committee aims to draw up proposals for the design of the future entity by the end of the year.


Joint statement

Prudential Regulation

ECB response to EC’s call for advice on review of EU macroprudential framework

On 31 March, the ECB published its response to the EC’s call for advice on the review of the EU macroprudential framework. The review of the EU macroprudential framework was preceded by the ECB’s monetary policy strategy review, which emphasised that financial stability is a precondition for price stability and vice versa. This recognised that in view of the price stability risks generated by financial crises, there is a clear conceptual case for the ECB taking financial stability considerations into account in its monetary policy deliberations. The ECB response covers the four broad areas included in the call for advice: (i) the revision of the capital buffer framework. First, the ECB supports creating additional macroprudential policy space – in the form of a higher amount of releasable capital buffers – to enhance the ability of the financial system to withstand large, systemic shocks by better enabling banks to absorb losses while maintaining the provision of key financial services to the real economy. Second, the ECB suggests increasing the flexibility and effectiveness of the countercyclical capital buffer (CCyB) framework by supporting timelier activation in the build-up phase and release in stress periods. Third, the ECB suggests enhancing information exchange between resolution, competent and designated authorities. Fourth, the ECB does not support extending leverage buffers to O-SIIs at this stage; (ii) missing and obsolete instruments. First, the ECB supports introducing a data collection requirement for a minimum set of common lending standard indicators for residential real estate loans for monitoring purposes. Second, the ECB proposes consolidating all macroprudential risk weight measures for real estate into a single article. Third, the ECB does not at this stage support the introduction of the power to impose binding system-wide restrictions on distributions at Union and/ or national level in the CRR/ CRD; (iii) internal market considerations, coordination mechanisms and procedures. First, the ECB suggests mandating the EBA, in consultation with the ESRB, to issue guidelines on a revised methodology for O-SII identification and buffer calibration. Second, the ECB suggests mandating the ESRB to report on identifying systemic risks for the purposes of setting the systemic risk buffer (SyRB) and, if appropriate, to issue a recommendation to designated authorities on the application of the SyRB on the basis of this report. Third, the ECB suggests streamlining the procedures governing national flexibility measures set out in Article 458 of the CRR. Fourth, the ECB suggests revising the rules on calculating the thresholds for the sectoral SyRB and the interaction between the SyRB and the capital buffers for global and other systemically important institutions; and (iv) global risks. The ECB sees the rationale for removing the CRD provisions on third-country CCyB rates.


ESRB concept note on review of the EU macroprudential framework

On 31 March, the European Systemic Risk Board (ESRB) published a concept note on the EC’s review of the EU banking macroprudential framework. In the concept note, the ESRB considers the performance of the macroprudential framework for the banking sector, particularly in the context of the Covid-19 pandemic. The ESRB states that the priorities for the macroprudential toolkit for banks over the next decade are: (i) ensuring that banks fund themselves with enough capital to match cyclical and structural systemic risks; (ii) enhancing the usability and effective use of capital buffers; (iii) closing gaps in the toolkit, notably by including borrower-based measures; and (iv) ensuring consistent use of policy instruments across the EU. Overall, the ESRB is aiming for a macroprudential policy in banking that: (a) acts in a forward-looking manner. It would foster resilience before systemic risks materialise, including through active countercyclical use of buffers and by completing the toolkit with borrower-based measures; (b) shows flexibility in responding to structural changes. It would be able to address current and future systemic risks from structural changes to the financial system as well as cyber and climate change-related financial risks; and (c) forms part of a holistic framework. It would promote congruent regulation across all activities in the financial system and facilitate cooperation between authorities at all levels.

Concept note

ECB 2021 annual report

On 31 March, the ECB published its annual report for 2021. The report includes a section on risks and the ECB’s supervisory priorities for 2022. The ECB explains that in 2021, in cooperation with the national competent authorities (NCAs), it assessed the main risks and vulnerabilities faced by significant institutions (SIs) and identified three priorities. These priorities aim to ensure that supervised institutions: (i) emerge from the pandemic healthy; (ii) seize the opportunity to address structural weaknesses via effective digitalisation strategies and enhanced governance; and (iii) tackle emerging risks, including climate-related and environmental risks, IT and cyber risks. For each priority, the ECB has developed a set of strategic objectives and underlying work programmes, for the period 2022/4, to address the most material vulnerabilities identified during its risk assessment.

Annual report

Joint BoE and PRA discussion paper on supporting liquid asset usability 

On 31 March, the BoE and PRA published a joint discussion paper on supporting liquid asset usability in the context of the prudential liquidity framework. The UK’s prudential framework is calibrated to ensure that banks have sufficient liquidity to continue their activities through severe stresses. However, it is important that banks feel able to draw on their liquidity, as appropriate, to reduce the risk of contractionary or destabilising actions. Failure to do so could cause unnecessary adverse impacts on the wider economy and financial system, and perhaps damage banks themselves. However, the BoE and the PRA have been concerned for a number of years that banks may be reluctant to draw on their high quality liquid assets (HQLA) in periods of unusual liquidity pressures, possibly to such an extent that it is limiting the benefits of the flexibility built into the framework. Evidence from the last few years has reinforced these concerns. Concerns around regulatory reactions may be relevant to banks’ willingness to draw on their HQLA when facing liquidity pressures. Concerns around market reactions may also be relevant. There may be stigma about banks disclosing falls in the liquidity coverage ratio (LCR) below 100%, with the market treating the regulatory standard as a minimum at all times. The stigma may be exacerbated for those major UK banks that disclose ‘spot’ LCRs in their regular financial statements. As a result, the joint discussion paper considers the usability of banks’ stocks of HQLA, and seeks views from banks, wider market participants, and other interested parties to continue to improve understanding of: (i) to what extent banks feel constrained in their ability to draw on their stock of HQLA to meet unusual liquidity demands; (ii) what factors affect this; and (iii) to what extent it is desirable that banks feel more able to draw on their HQLA, and how this could be achieved. The deadline for responses is 30 June.

Discussion paper

ECB instruments on the exercise of O and D published

On 30 March, a Regulation, Guideline, and Recommendation revising the ECB’s policies for the exercise of options and discretions (O and D) for banks in the single supervisory mechanism were published in the OJ. The following were published: (i) Regulation (EU) 2022/504 of the ECB of 25 March 2022 amending Regulation (EU) 2016/445 on the exercise of O and D available in Union law (ECB/2016/4) (ECB/2022/14). The Regulation enters into force on 4 April; (ii) Guideline (EU) 2022/508 of the ECB of 25 March 2022 amending Guideline (EU) 2017/697 of the ECB on the exercise of O and D available in Union law by national competent authorities (NCAs) in relation to less significant institutions (ECB/2017/9) (ECB/2022/12). This Guideline took effect on 31 March and NCAs shall comply with it from 1 October; and (iii) Recommendation of the ECB of 25 March 2022 amending Recommendation ECB/2017/10 on common specifications for the exercise of some O and D available in Union law by NCAs in relation to LSIs (ECB/2022/13). NCAs are recommended to apply this Recommendation as of the date of its adoption. (We cover the ECB’s approach to applying O and D policies below).




ECB Dear CEO Letter on leveraged transactions

On 30 March, the ECB published a Dear CEO Letter, dated 28 March, sent to the CEOs of significant credit institutions on leveraged transactions (LTs). The letter sets out the ECB’s supervisory expectations regarding the design and functioning of risk appetite frameworks and high levels of risk taking. The letter further specifies the ECB’s expectations regarding the LTs of significant institutions (SIs), particularly as regards the establishment of risk appetite frameworks for leveraged transactions (LT RAFs) in accordance with the good risk management practices set out in its guidance on LTs. Key points include: (i) the ECB explains that the Covid-19 pandemic confirmed its concerns regarding the high risks entailed by leveraged transactions. In particular, SIs have, on aggregate, significantly increased their exposure to LTs over the past few years and accelerated their leveraged lending activities in 2021; (ii) the increase in risk taking accelerated further in 2021, with, on aggregate, highly leveraged transactions (HLTs) accounting for around half of all new leveraged transaction volumes originated in 2019 and 2020, with that figure rising to more than 60% in the first and second quarters of 2021; (iii) origination of HLTs remains at very high levels, while the strength of the HLT risk management is often not commensurate with the considerable risks incurred; (iv) high levels of HLTs on SIs’ hold books represent a concentration risk and a significant risk to institutions that needs to be managed appropriately. Despite the significant risks entailed by these transactions, the ECB has found that risk management for HLTs remains highly deficient; (v) the ECB also identified severe deficiencies regarding the management of risks arising from underwriting and syndication activities; and (vi) the ECB has identified leveraged finance as a key vulnerability of SIs that requires increased scrutiny and remedial actions going forward. In particular, HLTs represent a key risk driver, both for underwriting activities and for the portfolios in banks’ hold books. As such, the ECB: (a) expects SIs to reduce HLT origination as a share of total origination to low levels consistent with the prudent risk management described in its guidance; (b) expects all SIs that engage in LTs to take note of this letter and take steps to comply with the expectations set out. The ECB will follow up with those SIs, bearing in mind the principle of proportionality; and (c) recognises that these expectations are of particular importance for a subset of SIs which have significant LTs activities. The ECB intends to actively follow up on all aspects of this letter using a wide range of supervisory tools. Failure to remedy these deficiencies will be addressed using all available supervisory tools - including, where relevant, increases in Pillar 2 requirements in the context of the annual SREP process. 


ECB clarifies approach to applying O and D policies

On 28 March, the ECB announced having finalised its policies outlining how it exercises options and discretions (O and D) when supervising banks, following a consultation which ended in August 2021. European banking rules allow member states and banking supervisors to choose between alternative treatments (options), or not to apply certain provisions (discretions). Such options and discretions led to national supervisors taking different approaches before ECB Banking Supervision developed its policy framework in 2016. The updated policies relate to many aspects of day-to-day supervision, including how to calculate the net stable funding ratio, how the ECB assesses applications from banks seeking to reduce their capital or to exempt third-country intragroup exposures from the large exposure limits, and what documentation banks need for such applications. The ECB published its policies concerning supervisory O and D in four instruments (we cover publication in the OJ of the four instruments above): (i) an ECB Guide containing policy guidance for Joint Supervisory Teams when exercising O and D on a case-by-case basis in relation to significant institutions; (ii) an ECB Regulation covering the exercise of several O and D of a generally applicable nature in relation to significant institutions; (iii) an ECB Recommendation addressed to national competent authorities (NCAs) concerning the exercise of O and D on a case-by-case basis in relation to less significant institutions (LSIs); and (iv) an ECB Guideline, also addressed to NCAs, concerning the exercise of O and D of a generally applicable nature in relation to LSIs. The ECB has also published a feedback statement providing an overview of the comments received, and the changes made to the policies following the consultation.

Press release

ECB opinion on proposed CRR III Regulation

On 25 March, the ECB published an opinion, dated 24 March, on the EC’s legislative proposal for a Regulation amending the CRR as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor, to implement the final Basel III standards. The ECB emphasises the importance of finalising the EU implementation of the Basel III reforms in a timely, full, and faithful manner, and therefore calls on the legislative bodies to conclude the legislative process promptly, and without unduly long implementation periods. The ECB highlights the risks of proposed deviations from the Basel III standards in areas including: (i) output floor. The ECB is concerned about the transitional treatment of residential real estate exposures and transitional provisions pertaining to unrated corporates. It also cautions against any change to the treatment of counterparty credit risk related to derivative exposures in the context of the output floor, be it temporary or permanent; (ii) standardised approach to credit risk framework. The ECB sets out concerns that the proposal contains several new deviations from the Basel III standards. In addition, some existing deviations have been maintained which should be reassessed by the co-legislators. It is also concerned by the deviations from the higher capital charges for equity exposures, as specified by the Basel III proposals; (iii) operational risk. The ECB regrets that the EC did not chose to recognise historical losses for the calculation of capital requirements for operational risks; and (iv) credit valuation adjustment (CVA) risk. The ECB is concerned that the EC’s proposal does not reconsider existing exemptions on CVA risks, which were previously assessed as a material non-compliance with the Basel standards. Where the ECB recommends that the proposed amendments to the CRR are amended, a specific drafting proposal is set out in a separate technical working document accompanied by an explanatory text.


Recovery and Resolution

SRB speech on resolution and financial stability in the EU

On 30 March, the SRB published a speech given by Elke König, SRB Chair, on resolution and financial stability in the EU. Key points of the speech include: (i) Ms König acknowledges that it can be difficult to work out which banks and which countries are making the best progress with regards to the resolvability assessment. This is why the SRB has defined a heat-map on assessing resolvability, designed as a tool to monitor, benchmark and communicate on banks’ progress towards full resolvability. The heat-map illustrates the results of the combined assessment of the level of impact of each resolvability profile on the overall resolvability and the progress made by banks according to the SRB’s Expectations for Banks document published in April 2020; (ii) the SRB is currently evaluating the first horizontal assessment. Ms König explains that achieving an overall consistent and realistic assessment and heat-map is not easy, but it is very valuable. The SRB is planning to publish an aggregated heat-map in the summer, once the results are of sufficient quality, and then start a yearly reporting cycle; (iii) preliminary results of the assessment performed in 2021 show that banks have made most progress on the capabilities that were phased-in in previous years, in line with the timeline indicated in the Expectations for Banks; (iv) the SRB sees that global systemically important institutions are more advanced on resolvability profiles such as governance, loss absorption capacity, financial market infrastructure contingency planning and communication planning, consistently with the international standards on these resolvability conditions. Other banks are less advanced on governance and loss-absorbing capacity, while they appear broadly aligned in the other profiles; (v) significant progress must be made on the capabilities which are expected to be phased-in during the current or next resolution planning cycle (for example, liquidity in resolution, adequacy of management information system for resolution, separability of assets and liabilities under a transfer tool and restructuring after bail-in tool). The SRB remains committed to bringing all banks to the same resolvability-footing by the end of next year and aims to publish an aggregated heat-map; and (vi) in terms of priorities for resolution planning, topics for this year include the continued build-up of adequate MREL capacity, banks’ capabilities in managing liquidity and funding in resolution, the topic of separability and business reorganisation plans and a prioritisation of the work on management information systems.


PRA updates webpage on supervisory statement on resolution planning

On 29 March, the PRA updated its webpage on its supervisory statement on resolution planning (SS19/13). The PRA is extending the suspension of Phase 1 reporting under SS19/13 until further notice. The suspension was extended in May 2020 to all firms in scope of the Resolution Pack Part of the PRA Rulebook, and was due to expire at the end of 2022. The pause is being further extended while the PRA assesses areas of potential duplication between reporting expectations under SS19/13, COREP13 requirements, and PRA109. Unless otherwise notified on an individual basis, the pause continues to apply to all firms in scope of the Resolution Pack Part of the PRA Rulebook. Firms are reminded that: (i) they must continue to comply with the PRA’s Fundamental Rule 8 on preparing for resolution, including by being able to provide the regulators with information in a timely manner; (ii) notwithstanding the pause, the PRA can request Phase 1 resolution packs from firms on a case-by-case basis; (iii) phase 2 reporting under SS19/13 remains unchanged, and the PRA may still request this information from firms; and (iv) firms in scope of stabilisation powers must continue to submit COREP13 reporting.


HMT response to consultation on expanded resolution regime for CCPs

On 28 March, HMT published its response to its February 2021 consultation on an expanded resolution regime for central counterparties (CCPs). HMT originally consulted on new powers for the resolution of CCPs to help protect financial stability, including by enabling the BoE to take full control of a failing CCP when necessary and to use a number of tools without reliance on a CCP’s rulebook. In its response, HMT confirms that overall respondents welcomed the proposed expansion of the UK resolution regime for CCPs and were broadly in agreement with the proposed framework, noting that it was in line with international guidance. As a result, HMT intends to proceed with the reforms. HMT also details feedback received on specific proposals. Comments were made seeking clarity about how proposed powers would work in practice, and some respondents raised concerns about the proposed loss-allocation powers and the impacts these could have on CCPs and their clearing members. Comments were also made on the time needed to implement the new regime, and further information was sought on when the government would bring forward legislation to implement the regime. HMT plans to legislate when parliamentary time allows. It is the government’s intention that, once legislation is passed, the powers will be made available for the BoE to use as soon as practicable, while ensuring industry is given sufficient time and notice to make any necessary changes to accommodate these new powers, such as changes to CCP rulebooks. Regarding implementation timings, the feedback generally suggested that the majority of the regime, including changes to CCP rulebooks, could be implemented within 12 to 18 months, although some suggested that a longer lead in time (of up to 24 months) would be considered appropriate to meet ‘second skin in the game’ requirements. HMT is considering these responses, and will also consult with the BoE. HMT will provide more detailed information on implementation timings in due course.


Sustainable Finance

Please see the ‘Fund Regulation’ section for ESMA’s speech on key 2022 priorities for the asset management industry which focusses on two main themes, including sustainable finance.

EU platform on sustainable finance final report on taxonomy extension options

On 29 March, the EU Platform on Sustainable Finance published a final report on taxonomy extension options supporting a sustainable transition under the EU Taxonomy Regulation. The Platform considered the premises, issues, and options, for and against, extending the environmental taxonomy ‘beyond green’ to classify a wider range of economic activities. The Platform considers the balance of arguments to be in favour of an extended environmental taxonomy, which would introduce greater transparency and clarity for investors and ensure market practices are aligned across the EU. However, there are trade-offs which must be considered as well, particularly the higher level of complexity of the extended taxonomy framework for the different economic actors, the costs of additional reporting obligations and the potential reputational risks linked to the increased clarity on non-aligned disclosure, all while the original taxonomy is just starting to be used and before the impact of its use can be formally assessed. The Platform has decided to extend the taxonomy framework to classify activities according to the traffic light colour system. Overall, the Platform recommends: (i) extending the environmental (‘green and sustainable’) taxonomy with priority on extension to activities supporting urgent environmental transition; (ii) defining key parts of an extended taxonomy; (iii) identifying further economic activities with no technological possibility of improving their environmental performance; (iv) clarifying that significant harm is the same concept whether it requires an urgent transition or an urgent exit; (v) extending the taxonomy with a transition focus and with coherent supporting policies; (vi) naming the Intermediate (or ‘Amber’) Performance space, acknowledging ‘’Intermediate’’ or “Amber” transitions; (vii) aiming for a rapid phasing in of an extended taxonomy; (viii) technically assessing DNSH criteria for clarifying environmental performance levels requiring urgent transition and intermediate performance levels; (ix) defining intermediate transition, corresponding investments and plans; (x) technically identifying and developing criteria for activities that have no technological possibility to transition away from a significantly harmful performance level; and (xi) stablishing how a low environmental impact (LEnvI) taxonomy extension could potentially be created with NACE3 code analysis and voluntary guidance.

Final report

ESMA final report on emission allowances and associated derivatives

On 28 March, ESMA published its final report on the trading of European emission allowances (EUAs) and derivatives in the EU carbon market, based on data gathered from a number of different sources. The report provides a high-level overview of the functioning of primary and secondary EUA markets, including the process from the creation of EUAs until they are surrendered every year by entities subject to compliance obligations under the EU emissions trading scheme. ESMA, in looking at trading in carbon markets and counterparties in this market, has identified the following: (i) long positions in carbon derivatives are mainly held by non-financial entities for hedging purposes; (ii) short positions are mainly held by banks and investment firms providing liquidity and carbon financing; (iii) positions by investment funds remain limited, with positions principally held by third country funds; and (iv) the share of high-frequency and algorithmic trading is significant in the carbon market, even if the relevant firms are only holding very small or no actual positions. In addition, ESMA, based on its findings and observations, has formulated a number of policy recommendations on the transparency and monitoring of the EU carbon market from the securities regulators’ perspective, for instance: (i) extend position management controls to EUA derivatives; (ii) amend EUA position reporting; (iii) track chain of transactions in MiFIR regulatory reports; and (iv) provide ESMA with access to primary market transactions. ESMA has also identified two possible courses of actions, with arguments in favour and against, that the EC could consider regarding: (i) the introduction of position limits on carbon derivatives – cited in public discussions as a potential addition to the legislative framework; and (ii) centralised market monitoring of the carbon market at EU level, in line with the ACER style monitoring for gas and power. The report will be considered by the EC, the Council of the EU and the EP to determine whether additional measures to regulate the carbon market are necessary. ESMA is ready to assist with the implementation measures and with additional data analysis or advice that could be useful in future deliberations on the EU carbon market.

Final report

Updated ESAs supervisory statement on the application of the SFDR

On 25 March, the ESAs updated their supervisory statement on the application of the SFDR. Updates include: (i) a new timeline. The supervisory statement aims to promote an effective and consistent application and national supervision of the SFDR, therefore creating a level playing field and protecting investors. The ESAs recommend that national competent authorities and market participants use the current interim period to 1 January 2023 to prepare for the application of the future Commission Delegated Regulation containing RTS, while also applying the relevant measures of the SFDR and the Taxonomy Regulation according to the relevant application dates outlined in the supervisory statement; (ii) expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation. The ESAs clarify that, under Article 5 and 6 of the Taxonomy Regulation, the supervisory expectation for disclosures during the interim period is that financial market participants should provide an explicit quantification, through the numerical disclosure of the percentage, of the extent to which investments underlying the financial product are taxonomy-aligned; and (iii) the use of estimates. While estimates should not be used, where information is not readily available from investee companies’ public disclosures, financial market participants may rely on equivalent information on taxonomy-alignment obtained directly from investee companies or from third party providers. Any numerical disclosure can also be accompanied by a qualitative clarification explaining how the financial product addresses the determination of the proportion of taxonomy-aligned investments of the financial product, for example by identifying the sources of information for that determination. This updated statement replaces the initial supervisory statement published in February 2021.

Joint supervisory statement

Other Developments 

ACER publishes updated guidance to facilitate REMIT reporting

On 31 March, the EU Agency for the Cooperation of Energy Regulators (ACER) published the updated Transaction Reporting User Manual (TRUM) and its Annex II. The amendments provide guidance on the reporting of transactions related to the transportation of natural gas, which need to be reported to ACER according to the REMIT Implementing Regulation. The updated guidance aims to: (i) update and clarify the data field descriptions related to gas transportation contracts; (ii) clarify and ensure consistency on the reporting of gas transportation contracts; and (iii) include new examples of transaction reporting based on ACER’s analysis and the interaction with National Reporting Authorities (NRAs) and stakeholders. ACER also provides the updated 13th edition of the FAQs on REMIT transaction reporting. Intended to foster clarity and simplify cooperation with reporting parties, the new edition of the FAQs includes new frequently asked questions to better reflect the evolution of the trading activity on EU markets. Facilitating the correct reporting of data is key to ensure the integrity and transparency of the markets. In addition, ACER has also published the 27th edition of the Q&As on REMIT policy. The Q&As provide clarification on three topics, developed in coordination with the relevant NRAs. These topics include the disclosure of inside information, guarantees of origin, and renewable energy aggregators.


Annex II



FSB 2022 work programme

On 31 March, the FSB published its 2022 work programme. The work programme details the FSB’s planned work and provides an indicative timeline of main publications for 2022. Priority areas of work and new initiatives include: (i) supporting international cooperation and coordination on current financial stability issues. Against the backdrop of the Russia-Ukraine conflict and its economic impacts, the FSB is reinforcing its forward-looking monitoring to identify, assess and address new and emerging risks to global financial stability. This enhanced monitoring is informed by the FSB’s new surveillance framework. Work will also continue on policy responses to Covid-19, including sharing information on policy responses and the timely unwinding of the temporary measures adopted in response to Covid-19, and assessing the effectiveness of those measures, and monitoring, with the standard-setting bodies (SSBs), the use of flexibility within international standards and consistency of policy responses with existing international financial standards; (ii) enhancing the resilience of the non-bank financial intermediation (NBFI) sector, while preserving its benefits. In addition to the remaining work on specific issues identified in the holistic review of the March 2020 market turmoil, the FSB will also focus on developing a systemic approach to NBFI; (iii) enhancing cross-border payments. The FSB will continue to coordinate with the Committee on Payments and Market Infrastructures and other SSBs and international organisations in implementing the FSB roadmap to enhance cross-border payments; (iv) harnessing the benefits of digital innovation while containing its risks. The FSB will continue work on the financial stability and regulatory and supervisory implications of technological innovation, with a particular focus on various forms of cryptoassets, including decentralised finance (DeFi). Work will also continue on enhancing operational and cyber resilience; and (v) addressing financial risks from climate change. The FSB’s work on addressing climate-related financial risks is guided by its roadmap for addressing climate-related financial risks. The FSB will continue to coordinate international work through the roadmap. The FSB’s own initiatives under its roadmap include building and strengthening the analytical basis for monitoring climate related risks to financial stability, and identifying regulatory and supervisory approaches to address climate-related financial risks.

Work programme

EU-Japan framework for cooperation on financial regulation under partnership agreement

On 25 March, the EC published a framework laying down practical arrangements to implement EU-Japan cooperation on financial regulation under Annex 8-A of the EU-Japan Economic Partnership Agreement. Annex 8-A on regulatory cooperation on financial services establishes the scope, principles, objectives and institutional setup of EU-Japan regulatory cooperation covering the entire area of financial services. Paragraphs 13 and 14 of the Annex establishes the Joint EU-Japan financial regulatory forum as the body in charge of steering the above-mentioned regulatory cooperation. The framework sets out the arrangements for: (i) the governance of the forum; (ii) the mechanisms for information exchange and consultation regarding planned regulatory initiatives in the area of financial services; (iii) guidelines on reliance on each other's regulatory and supervisory framework; and (iv) procedures for examining a measure, referred to in paragraph 11 of the Annex, that may impact the ability of financial service suppliers to provide financial services within the territory of the EU or Japan.


FCA Handbook Notice 97

On 25 March, the FCA published Handbook Notice 97, alongside the Handbook Administration (No 59) Instrument 2022, the Financial Services Compensation Scheme (Management Expenses Levy Limit 2022/2023) Instrument 2022 and the FEES (Miscellaneous amendments) (No 17) Instrument 2022. The Handbook Notice describes the changes to the FCA Handbook and other material made by the FCA Board on 24 March. Changes were made to the Handbook by the following instruments: (i) Handbook Administration (No 59) Instrument 2022. This instrument amends the Glossary of definitions to clarify that the date reference for the Trade Repositories (EU Exit) Regulations should be in 2019, not 2018. This instrument came into force on 25 March; (ii) Financial Services Compensation Scheme (Management Expenses Levy Limit 2022/2023) Instrument 2022. This instrument makes changes to the Handbook to ensure that the Financial Services Compensation Scheme has sufficient funds in order to operate and manage the compensation scheme in 2022/23. This instrument comes into force on 1 April; and (iii) FEES (Miscellaneous Amendments) (No 17) Instrument 2022. This instrument makes changes to the Handbook to introduce a new structure of minimum fees for the ‘A’ and consumer credit fee-blocks. The changes will also require larger consumer credit forms to contribute towards the costs of their prudential regulation and introduce new charges for investment firms and recognised overseas investment exchanges. In addition, the changes will clarify some rules in the Fees manual. This instrument comes into force on 1 April.

Handbook Notice 97

Handbook Administration (No 59) Instrument 2022

Financial Services Compensation Scheme Instrument 2022

FEES (No 17) Instrument 2022