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Key Regulatory Topics: Weekly Update 25 June to 1 July 2021

01 July 2021

This week has seen a raft of eagerly anticipated regulatory publications including HMT’s consultations on its review of the UK’s (i) prospectus regime and (ii) regime for wholesale capital markets; a proposal by the European Commission for a Directive on consumer credits, to repeal and replace the Consumer Credit Directive; and the FPC and PRA joint consultation on changes to the UK leverage ratio framework.  The updates also include numerous publications by the FATF following its fourth plenary under the German Presidency and publications by the FSB and ESRB on systemic vulnerabilities in, and proposals to enhance the resilience of, MMFs.


Please see the Other Developments section for HMT’s policy paper and a speech given by Rishi Sunak, Chancellor of the Exchequer, on the future of financial services in the UK.

Financial Markets and Insolvency (Transitional Provision) (EU Exit) (Amendment) Regulations 2021

On 30 June, the Financial Markets and Insolvency (Transitional Provision) (EU Exit) (Amendment) Regulations 2021 were published together with an explanatory memorandum. The Regulations ensure continuity for UK firms and their customers who rely on EEA systems retaining settlement finality protection as a requirement for continued membership to those systems. To ensure that UK firms are given sufficient notice that EU systems will be losing settlement finality protection under the Temporary Designation Regime (TDR), the Regulations create a run-off regime whereby EEA systems that failed to apply for UK Settlement Finality Regulations (SFR) designation by the 30 June deadline will retain their protections under the TDR until 30 June 2023. This allows UK firms time to put proper contingency plans in place if this impacts the access requirements to the EEA systems. The Regulations came into force on 1 July. 


Explanatory memorandum 

Capital markets

Please see the Sustainable Finance section for IOSCO’s report on sustainability-related issuer disclosures. 

HMT consults on review of UK’s prospectus regime

On 1 July, HMT began consulting on its review of the UK prospectus regime, following Lord Hill’s recommendations in the UK Listings Review. This consultation takes forward three of his recommendations, including that the government carry out a fundamental review of the UK’s prospectus regime. In doing so, it seeks to achieve four key objectives: (i) to facilitate wider participation in the ownership of public companies; (ii) to improve the efficiency of public capital raising by simplifying regulation and removing the duplications that currently exist in the UK prospectus regime; (iii) to improve the quality of information that investors receive; and (iv) to improve the agility of regulation in this area. The consultation discusses, amongst other things: (a) what the fundamental purpose of a prospectus is, suggesting that a prospectus should be a device to provide potential investors with the information that they need to make reliable investment decisions in a security; (b) that the two regulatory issues which the Prospectus Regulation deals with – admissions of securities to stock markets and ‘public offer rules’ – should be dealt with separately; (c) a proposal that the FCA is granted new powers to make rules, in place of the current Prospectus Regulation.  In particular, it asks whether the FCA should have discretion to set rules on the review and approval of prospectuses and when a further issue prospectus is required.  It also asks whether the FCA should be granted discretion to be able to recognise prospectuses prepared in accordance with overseas regulation in connection with a secondary listing in the UK; (d) prospectus content and ancillary provisions, including the ‘necessary information test’; (e) a proposed change to the prospectus liability regime for forward looking information; (f) the scope of the UK’s public offering rules including whether there should be a new exemption for offers directed at existing holders of a company’s securities and whether the UK should retain the 150 person threshold for public offers of securities and the ‘qualified investors’ exemption; (g) companies on overseas markets and the extent to which they can extend offers into the UK; and (h) the interaction of future rules with issuers listed on Multilateral Trading Facilities, and private companies and their existing right to offer securities to the public. The deadline for comments is 24 September. 




Please see the Financial Crime section for the letter sent from the FCA to CEOs of retail banks in relation to necessary action to address common control failing in AML frameworks. 

Please see the Payment Services and Payment Systems section for HMT’s consulting on legislative proposals to protect access to cash. 

EC proposal for new Directive on consumer credits 

On 30 June, the EC published a new proposal for a Directive on consumer credits, to repeal and replace the Consumer Credit Directive (CCD), together with an impact assessment and factsheet on the consumer credit review. The EC explain that the evaluation for the CCD that was published in 2020 found that the aims of the CCD have only been partially met and that consumers still face avoidable detriment. The review identified a number of issues including: (i) fragmentation across the EU and imprecise wording in the CCD; and (ii) new products and market players such as peer-to-peer lending platforms have emerged, which are not clearly regulated and allow exploitation of consumers. Digitalisation has changed the decision-making process and habits of consumers, by creating new ways of disclosing information and assessing the creditworthiness of consumers using automated decision-making systems and non-traditional data. The review found that the most effective option in reducing the consumer detriment and risks in taking out loans in a changing market and to facilitate a cross-border provision of consumer credit and the competitiveness of the internal market, was an extensive amendment of the Directive to include new provisions in line with existing EU acquis. In the factsheet, the EC summarise some of the changes, which include to: (a) include risky loans currently not in scope of the EU regulation, such as loans of less than EUR 200, interest-free credit and overdraft facilities; (b) adapt information requirements to make sure they cater for digital devices; (c) make information related to credit offers more clear and avoid information overload for consumers; (d) address practices that exploit consumer behaviour such as product tying, pre-ticked boxes or unsolicited credit sales; (e) improve rules on the assessment of consumer creditworthiness; (f) cap the cost of the credit for consumers; (g) support consumers who experience financial difficulties through forbearance measures and debt advice services; and (h) introduce requirements for businesses to put consumers’ needs first and act ethically while ensuring that their staff have an appropriate knowledge and competence on credit.

Consumer credit webpage



Impact assessment

Impact assessment executive summary


LSB guidance for SMEs on good governance

On 30 June, the Lending Standards Board (LSB) published guidance on good governance for smaller firms or new entrants to the market such as start-ups or FinTechs. The guidance is the first part of the LSB’s insight series, Standards for All. This series aims to make two key points (i) that the Standards and registration to the LSB is designed for any applicable firm keen to implement best practice and deliver better customer outcomes; and (ii), that this can be achieved regardless of size or the resources available. The guidance sets out important factors to consider when it comes to governance arrangements in relation to: (a) policies and processes; (b) risk management frameworks; (c) identifying failures; (d) management information; (e) change management; and (f) complaints. The next section of Standards for All will look at the role that assurance plays in ensuring better outcomes.



FCA policy statement on 2021/2022 regulated fees and levies

On 1 July, the FCA published a policy statement providing feedback to consultation CP 21/08 and setting out the final 2021/22 periodic regulatory fees and levies for the FCA, the FOS, MaPS (referred to as Single Financial Guidance Body), the Devolved Authorities, and HMT’s expenses for tackling illegal money lending (IML). In relation to the FCA’s periodic fees and further fees policy proposals, the FCA are proceeding with the related proposals as consulted on except in the case of the principal firms appointed representatives (ARs) fee. Stakeholders raised concerns that introducer ARs (IARs) should not be included as their activities are limited and therefore pose a lower risk of harm. In response to this feedback the FCA have decided to reduce the level of the IAR fee to £75 with the £250 fee now only applying to full ARs. The FCA has also reduced the 2021/22 AR work programme recovery from £10m to £7.2m. With regards to the Devolved Authorities levy, the MaPS levies and the FOS levies, the FCA will be apportioning the levies as consulted on. Due to being based on estimated fee-payer populations and tariff data, HMT’s IML expense has changed. Firms can use the FCA's online fees calculator on its webpage to calculate their individual fees based on the final rates.  The FCA will invoice fee-payers from July onwards. 

Policy statement


Fees calculator

BoE consults on 2021/22 fees regime for FMI supervision

On 30 June, the BoE began consulting on proposals for its supervisory fees for FMIs for 2021/22. The proposals cover: (i) the fee rates to meet the BoE’s 2021/22 funding requirement for its FMI supervisory activity and the policy activity that supports this; and (ii) the outcome of 2020/21 actual costs incurred and impact on FMI fees charged for 2021/22. The BoE explains that supervisory and policy activity costs are expected to increase by 16% due to: (a) continued investment in the supervision of operational resilience and cyber risks; (b) the impact from Brexit; (c) work to ensure its supervision keeps pace with the changing payments landscape; and (d) work associated with the development of the CCP stress testing regime. The BoE did not seek full cost recovery for 2020/21 as it agreed to phase in the 2020/21 cost increase over two years. This means that costs this year for all firms increase to capture the remainder of the 2020/21 cost increases as well. Therefore, the proposed fees for 2021/22 are expected to total £10.6 million. The proposed implementation date for the proposals contained in this consultation is Q3 2021, at which point invoices are expected to be issued for the 2021/22 fee year. The deadline for comments is 30 August. 


PSR regulatory fees: 2021/22 fees figures

On 29 June, the PSR set out the figures it will use to calculate the regulatory fees for each PSR fee payer in 2021/22 – payment services providers and payment system operators. The annual funding requirement for 2021/22, is £17,182,260. The Financial Services (Banking Reform) Act 2013 enables the FCA to raise fees to fund the PSR to perform its functions. The FCA does so through its rules requiring specific groups of legal persons to pay specified amounts, or amounts calculated in a specified way. The PSR also has functions under the Payment Accounts Regulations 2015, however the fees payable in relation to these functions are separate from the PSR regulatory fees regime set out in this document. The FCA will invoice fee payers for their PSR fee from July. 


Financial crime

FATF reports and recommendations on opportunities and challenges of new technologies for AML/CFT

On 1 July, FATF published a report on the opportunities and challenges of new technologies for AML/CFT to raise awareness of relevant progress in innovation and specific digital solutions. FATF: (i) assessed the persisting challenges and obstacles to new technologies implementation and how to mitigate them. This included the review and analysis of RegTech and SupTech, both of which can improve the effectiveness of FATF Standards; and (ii) identifies emerging and available technology-based solutions. The report highlights the necessary conditions, policies and practices that need to be in place to successfully use these technologies to improve the efficiency and effectiveness of AML/CFT. FATF notes that when used responsibly and proportionally, innovative AML/CFT technologies can help identify risks and focus compliance efforts on existing and emerging challenges, but manual review and human input remains very important. FATF also published a stocktake on data pooling, collaborative analytics and data protection. This stocktake: (a) examines commercially available or emerging technologies that facilitate advanced AML/CFT analytics within regulated entities or collaborative analytics between financial institutions, while respecting data privacy and protection; (b) analyses the intended objectives and drivers for the use of these new technologies and identifies policy considerations and potential solutions raised by respondents to FATF’s questionnaire and experts when considering or deploying such technologies; and (c) acknowledges that AML/CFT and data privacy and protection are both significant public interests that serve important objectives, which are neither in opposition nor inherently mutually exclusive. The two reports’ findings led to FATF members’ adoption of a set of suggested actions for government authorities to advance the responsible development and use of new technologies for AML/CFT: (1) create an enabling environment by both government and the private sector for responsible innovation to enhance AML/CFT effectiveness; (2) ensure privacy and data protection when implementing new technologies; (3) promote AML/CFT innovation which supports financial inclusion by design; (4) develop and communicate policies and regulatory approaches to innovation that are flexible, technology-neutral, outcomes-based and in line with the risk-based approach; (5) exercise informed oversight; and (6) promote and facilitate cooperation.




Wolfsberg Group paper on demonstrating effectiveness of AML/CTF programmes 

On 30 June, the Wolfsberg Group (WG) published a paper on ways financial institutions can assess risk in defined priority areas and demonstrate the effectiveness of their AML/CTF programmes. In this paper the WG discuss assessing priorities and demonstrating effectiveness and how the Wolfsberg Factors can serve as a useful framework for doing both. The Factors were set out in the WG’s December 2019 statement: (i) complying with AML/CTF laws and regulations; (ii) providing highly useful information to relevant government agencies in defined priority areas; and (iii) establishing a reasonable and risk-based set of controls to mitigate the risks of a financial institution being used to facilitate illicit activity. The WG believes designing, assessing, and measuring AML/CTF programmes based on performance against these defined outcomes will help to achieve the FATFs goal of creating a more effective system to combat ML/TF, while at the same time reducing friction on legitimate customers and supporting governments in achieving their financial inclusion objectives.


FCA Dear CEO letter to retail banks on common AML failings

On 29 June, the FCA published a Dear CEO letter (dated 21 May) sent to retail banks in relation to necessary action to address common control failing in AML frameworks. Although the FCA has observed examples of effective control frameworks and good practice, it is disappointed to continue to identify several common weaknesses in key areas of firms’ financial crime systems and control frameworks, including governance and oversight, risk assessments (business-wide and customer), customer and enhanced due diligence, transaction monitoring, and suspicious activity reports. Further details of the specific issues in each area are set out in the Annex. The FCA expects retail banks to complete a gap analysis against each of the common weaknesses by 17th September. Retail banks should take prompt and reasonable steps to close any gaps identified. The FCA notes that in the supervisory work it conducts, it will continue to consider carefully whether the relevant senior management function holders have carried out their responsibilities appropriately. The FCA expects the senior manager holding the financial crime function to have sufficient seniority to be able to carry it out effectively and to ensure that the gap analysis is promptly completed and its findings shared internally and acted upon as appropriate. The FCA are likely to ask retail banks to demonstrate the steps they have taken in future engagement. 


FATF guidance on proliferation financing risk assessment and mitigation

On 29 June, FATF published guidance on proliferation financing risk assessment and mitigation. The purpose of the guidance is: (i)  to assist public and private sectors in implementing the new requirements to identify, assess and understand their proliferation financing risk (as defined in Recommendation 1); (ii) to assist public and private sectors in implementing the requirement to mitigate the proliferation financing risks, which they identify; and (iii) to provide additional guidance to supervisors/self-regulatory bodies on supervision or monitoring of proliferation financing risk assessment and mitigation. The guidance explains that source of proliferation financing risks depends on factors such as: (a) the risk of a potential breach or non-implementation of targeted financial sanctions under Recommendation 7; and (b) the risk of evasion of targeted financial sanctions. It sets out a list of indicators of the potential breach, non-implementation or evasion of proliferation financing targeted financial sanctions.


ECA report on EU efforts to fight ML in banking sector

On 29 June, the European Court of Auditors (ECA) published a report on EU efforts to fight ML in the banking sector. The ECA found that: (i) overall there is institutional fragmentation and poor co-ordination at the EU level when it came to actions to prevent ML/TF and take action where risk was identified. In practice, AML/CFT supervision still takes place at national level with an insufficient EU oversight framework to ensure a level playing field; (ii) the EC is obliged to publish a list of third countries which pose an ML threat to the internal market - the ECA found that there were shortcomings in relation to communication with listed third countries, and a lack of cooperation by the European External Action Service. Furthermore, to date, the EU has not adopted an autonomous list of high-risk third countries; (iii) the EC carries out a risk assessment for the internal market every two years, which does not indicate changes over time, lacks a geographical focus, and does not prioritise risk effectively; (iv) the EC was slow to assess Member States’ transposition of directives due to poor-quality communication by Member States and limited resources at the EC; (v) EBA staff carried out thorough investigations of potential breaches of EU law, but the ECA found evidence of lobbying of its Board of Supervisors who were part of a deliberative process; and (vi) the ECB has made a good start in sharing information with national AML/CFT supervisors, although some decision-making procedures were slow. The quality of material shared by the supervisors also varied considerably due to national practices, and the EBA is developing updated guidance. The ECA sets out recommendations in relation to these findings to the EC, the EBA and the ECB. 


FATF consults on revisions to Recommendation 24 on transparency and beneficial ownership of legal persons

On 28 June, FATF began consulting on potential amendments to Recommendation 24 on transparency and beneficial ownership of legal persons. FATF’s objective is to strengthen the international standard on beneficial ownership of legal persons so as to ensure greater transparency about the ultimate ownership and control, providing competent authorities timely access to adequate, accurate and up-to-date beneficial ownership information, and to take more effective action to mitigate the risks of misuse. FATF is considering: (i) whether all countries should apply measures to understand the risk posed by all types of legal person created in the country (as currently required) and also to certain foreign-created legal persons; (ii) countries’ experience to date of the creation and operation of beneficial ownership registries, what core elements should be included in a multi-pronged approach, and what supplementary measures should be considered for inclusion; (iii) how to clarify the key attributes of access to information by competent authorities – that access should be timely, and information should be adequate, accurate and up-to-date; (iv) who should have access to beneficial ownership information; and (v) possible measures to strengthen controls on bearer shares and nominees to prevent them from being used to conceal the beneficial owners of legal persons. The deadline for comments is 20 August. FATF will propose revisions to the text for discussions at its October meetings. 


FATF report on ML from environmental crime

On 28 June, FATF published a report on ML from environmental crime to strengthen awareness of the scale and nature of criminal gains and laundering techniques for environmental crimes. This study builds on FATF’s 2020 report on financial flows from the illegal wildlife trade. It brings together expertise from across FATF’s Global Network to identify risk indicators and good practices that governments and the private sector can take to disrupt the profitability of environmental crimes. The report shows: (i) the significant role of trade-based fraud and misuse of shell and front companies to launder gains from illegal logging, illegal mining, and waste trafficking; and (ii) that criminals frequently comingle legal and illegal goods early in the resource supply chains to conceal their illicit source. This can make it difficult to detect suspicious financial flows later in the value chain, to an extent not previously examined by FATF. This report identifies key priorities: (a) all members of the FATF Global Network should consider whether criminals may be misusing their financial and non-financial sector to conceal and launder gains from environmental crimes. This includes countries without domestic natural resources; (b) members must strengthen their operational capacity to detect and pursue financial investigations into environmental crimes. This includes working with foreign counterparts to share information, facilitate, prosecutions, and the effective recovery of assets that are moved and held abroad; and (c) countries should fully implement the FATF standards as an effective tool to combat ML from environmental crime. This includes ensuring AML outreach to relevant intermediaries covered by the FATF Standards, such as dealers in precious metals and stones and trust and company service providers. The report identifies good practices and risk indicators to help financial and non-financial sectors detect potential cases.  FATF note that this study highlights the need for further work including further understanding the financial flows specific to waste trafficking, due in part, to the lack of existing ML cases for this specific crime. 


FATF June 2021 Plenary Outcomes

On 25 June, FATF published the outcomes of its fourth plenary under the German Presidency of Dr. Marcus Pleyer. FATF: (i) finalised a report that details the financial flows linked to environmental crime and a report on the financing of ethnically or racially motivated terrorism, both priorities under the FATF’s German Presidency; (ii) completed a second 12-month review of the progress within the FATF Global Network on implementing the FATF’s revised Standards on virtual assets and virtual asset service providers. The report will be published on 5 July and the FATF will finalise revised guidance on virtual assets and virtual asset service providers in October; (iii) finalised two reports and discussed progress on the use of advanced analytics and machine learning in detecting suspicious activities of ML/TF, analysing financial intelligence, and understanding ML/TF risks; (iv) finalised a report for government authorities that identifies concrete actions to improve asset recovery outcomes, which will help increase assets returned to the victims of crime and remove the drivers for criminal activity; (v) agreed to release a white paper for public consultation on the transparency and beneficial ownership of legal persons to strengthen measures that will prevent criminals from hiding illicit activity and proceeds, a global priority; (vi) discussed the stocktake report arising out of a project to examine and mitigate the unintended consequences resulting from incorrect implementation of the FATF standards; and (vii) updated its statements for countries under review. New jurisdictions subject to increased monitoring are Haiti, Malta, the Philippines and South Sudan, while Ghana is no longer subject to increased monitoring, as set out in an updated list.



Please see the Financial Crime section for FATF’s report, stocktake and recommendations on opportunities and challenges of new technologies for AML/CFT. 

EBA analysis of RegTech use in the EU 

On 29 June, the EBA published an analysis of the current RegTech landscape in the EU. The report assesses the overall benefits and challenges faced by financial institutions and RegTech providers in the use of RegTech. It also identifies potential risks arising from RegTech solutions that supervisors will need to address and proposes actions designed to enhance knowledge and skills in competent authorities. The report looks at the application of technology-enabled innovation for regulatory, compliance and reporting requirements and provides a deep-dive analysis into the five most frequently used RegTech segments: AML/CFT, fraud prevention, prudential reporting, ICT security and creditworthiness assessment. The evidence suggests that the majority of challenges to RegTech market development are internal factors within financial institutions and RegTech providers. These relate to data (quality, security, privacy), interoperability and integration with the existing legacy systems, a lack of financial institutions’ application programming interface capabilities, costly and often lengthy and complex due diligence processes, and limited awareness of RegTech solutions. The current legal and regulatory framework has not been identified as the most material obstacle for RegTech adoption. However, a lack of common regulatory standards across Member States could pose barriers for wider market adoption of RegTech solutions across the Single Market. Building on the existing EBA’s, ESAs’ and competent authorities’ ongoing initiatives, the EBA proposes the following steps to be taken to support sound adoption and scale-up of RegTech solutions: (i) activities to deepen knowledge and address any skill gaps among regulators and supervisors on RegTech, support convergence of supervisory practices across the EU in the treatment of RegTech, and provide clarity on supervisory expectations; (ii) further steps to harmonise the legal and regulatory requirements, where appropriate; and (iii) further leverage the role and expertise of the European Forum for Innovation Facilitators and the national regulatory sandboxes and innovation hubs as a safe testing environment for RegTech solutions. In Q4 2021, the EBA will organise a public online webinar to present and discuss the main findings of the RegTech market analysis in the EU.

Press release



UK and Singapore begin negotiations on digital trade agreement

On 28 June, the UK and Singapore began negotiations on a new digital trade agreement that could remove barriers to digital trade and enable UK exporters to expand into high-tech markets. The announcement states that negotiations will focus on: (i) securing open digital markets for exporters, allowing them to expand into new markets and sell traditional products in new ways; (ii) ensuring free and trusted cross-border data flows, while upholding high standards of personal data protection; (iii) cutting red tape for UK businesses by promoting digital trading systems such as digital customs and border procedures that will save time and money when exporting; (iv) upholding consumer rights and protecting businesses’ valuable intellectual property like source code and cryptography; and (v) deepening our cooperation on future growth sectors like FinTech and LawTech, while working with Singapore to strengthen our collective cybersecurity capabilities and keep our countries safe.


Fund regulation

Please see the Prudential Regulation section for a number of updates relating to the implementation of the new prudential regime for investment firms in the UK and EU.  

Please see the Sustainable Finance section for IOSCO’s consultation on proposed recommendations about sustainability-related regulatory and supervisory expectations in asset management. 

ESRB MMFs issues note 

On 1 July, the ESRB published an issues note on money market funds (MMFs), which sets out the ESRB’s analysis of systemic vulnerabilities in MMFs and preliminary policy considerations on how to reform MMFs. The ESRB explains that there is an underlying tension between the two primary economic functions of MMFs: they offer on-demand liquidity to investors and provide short term funding to borrowers (mainly EU banks), but cannot dispose of their assets easily in all market conditions. This tension might become of systemic concern especially during market stress, as observed at the onset of the Covid-19 pandemic. In such circumstances, MMFs can face both higher redemption requests from investors and a lack of sufficient portfolio liquidity to meet this increased demand. The ESRB policy work will focus on those policy options that would address vulnerabilities within MMFs themselves, being mindful of wider work underway internationally. There are three key desired outcomes of this policy work: (i) to remove first-mover advantages for investors; (ii) not to limit the proposals to specific type of funds but to consider the vulnerabilities of the entire sector; and (iii) to ensure the resilience and functioning of MMFs without the need for central banks to step in during crisis. To inform the EC’s review of the MMF Regulation, the ESRB will refine the policy options set out in this issues note, being mindful of wider work underway internationally. The ESRB will further analyse a range of issues, including the wider markets in which MMFs operate, the behaviour and expectations of investors in MMFs, as well as the structure of MMFs and the liquidity management tools available to them, with a view to adopting a Recommendation by the end of 2021.

Press release

Issues note

First ESMA report on national rules governing fund marketing

On 1 July, ESMA published its first report on national rules on marketing requirements and marketing communications under the Regulation on cross-border distribution of collective investment undertakings. Article 8(2) of the Regulation requires that by 30 June and every second year after, ESMA submit a report to the EP, the Council and the EC, which presents an overview of marketing requirements in all Member States and contains an analysis of the effects of national laws, regulations and administrative provisions governing marketing communications based also on the information received from national competent authorities. Key findings include: (i) national laws, regulations and administrative provisions governing marketing requirements are usually based on the transposition of the AIFMD and the UCITS Directive, although NCAs’ responses showed that some additional national requirements may be applicable; (ii) only a very limited number of NCAs carry out ex-ante or ex-post verification or marketing communications; and (iii) it is expected that greater harmonisation of the marketing requirements will be achieved after the transposition of the Directive on cross-border distribution of collective investment undertakings by 2 August. ESMA will submit a new iteration of the report in two years. 

Press release


FSB consults on policy proposals to enhance MMF resilience

On 30 June, the FSB began consulting on policy proposals to enhance money market fund (MMF) resilience including with respect to the appropriate structure of the sector and of underlying short-term funding markets (STFMs). The proposals form part of the FSB’s work programme on non-bank financial intermediation and are intended to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by IOSCO. The report considers the likely effects of a broad range of policy options to address MMF vulnerabilities, by examining how these options would affect the behaviour of MMF investors, fund managers and sponsors, as well as the options’ broader effects on short-term funding markets, including through impacts on the use of potential substitutes for MMFs. Policy options are grouped according to the main, though not necessarily the only, mechanism through which they aim to enhance MMF resilience. Representative options under each mechanism include: (i) swing pricing (to impose on redeeming investors the cost of their redemptions); (ii) minimum balance at risk and a capital buffer (to absorb losses); (iii) removal of ties between regulatory thresholds and imposition of fees/gates and removal of the stable net asset value (to reduce threshold effects); and (iv) limits on eligible assets and additional liquidity requirements and escalation procedures (to reduce liquidity transformation). Other options that can be considered as variants or extensions of the representative options are also considered. The FSB sets out two relevant sets of considerations for jurisdictions when selecting MMF policy options: (a) how to prioritise specific options in the context of identified vulnerabilities; and (b) how authorities can combine options to address all MMF vulnerabilities prevalent in the jurisdiction. Policies aimed at enhancing the resilience of MMFs could be accompanied by additional reforms in two areas: (1) policies such as stress testing and transparency requirements on STFMs and their participants; and (2) measures that aim at improving the functioning of the underlying STFMs. The deadline for comments is 16 August. 


FCA finds weaknesses in ‘host’ Authorised Fund Management firms’ governance and operations

On 30 June, the FCA published the results of its review into host Authorised Fund Management (AFM) firms – AFMs that delegate investment management to third parties outside of their corporate group. The FCA visited a sample of host AFMs between Q4 2019 and Q4 2020. The FCA's key observations are summarised in four main areas: (i) due diligence over delegated third-party investment managers and funds; (ii) oversight of delegated third-party investment managers and funds; (iii) governance and oversight; and (iv) financial resources. The FCA found that, while some firms were operating well, others did not meet FCA standards – there were weaknesses in governance structures, conflicts of interest management and operational controls. The FCA also found some firms referring to funds as if they were solely operated by delegate third-party investment managers or fund sponsors rather than themselves, and a lack of focus on controlling the risk of harm from investors exposed to inappropriate or poor value products. The review focussed on host AFMs but some of the findings are also applicable to in-house AFMs. The FCA notes that firms which operate effectively typically are well capitalised and well-resourced, with senior management recognising and controlling the conflicts of interest inherent in the business model. The FCA will provide written feedback to all firms in the review and a small number will be required to undertake section 166 Skilled Person reports to improve compliance. The FCA will review the progress each firm has made in 12-18 months. Firms may also be asked to hold additional capital to guard against the risks they have in their business. The FCA is also conducting further work to identify whether changes are needed to the regulatory framework that firms operate under. This could include rule changes.


Official translation of guidelines on stress test scenarios under the MMF Regulation published On 29 June, ESMA published the official translations of its guidelines on stress test scenarios produced under Article 28 of the Regulation on money market funds (MMF Regulation). The guidelines apply to competent authorities, MMFs and managers of MMFs as defined in the MMF Regulation. The guidelines establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs in accordance with Article 28 of the MMF Regulation. The guidelines will apply from two months after the date of their publication on ESMA's website in all EU official languages (30 August). Parts of the guidelines written in red text apply from the dates specified in Articles 44 and 47 of the MMF Regulation.



Markets and markets infrastructure

Please see the Prudential Regulation section for the publication in the OJ of the Implementing Regulation extending the transition period for non-EU CCPs CRR capital requirements. 

EC adopts report on CSDR review

On 1 July, the EC published a report to the EP and the Council following a review of the EU rules on central securities depositories (CSDs) under Article 75 of the CSDR. Article 81(2c) of the ESMA Regulation also requires the EC to assess the potential supervision of third-country CSDs by ESMA. In broad terms, the EC has found that the CSDR is achieving its original objectives to enhance the efficiency of settlement in the EU and the soundness of CSDs. In some areas, the introduction of significant changes to the CSDR would be premature considering the relatively recent application of requirements. Nevertheless, stakeholders have expressed concerns on the implementation of specific rules that already apply (i.e. on cross-border provision of services, access to commercial bank money, framework for third-country CSDs). The Final Report of the High Level Forum on the Capital Markets Union also recommended that the EC conduct a targeted review of the CSDR to strengthen the CSD passport and improve supervisory convergence among national competent authorities, to enhance the cross-border provision of settlement services in the EU, foster competition and generate cost savings. Concerns were also raised about the proportionality of the settlement discipline regime and its impact on financial stability. The EC notes that pressure put on markets by the Covid-19 pandemic seems to shed light on some of those concerns. This report summarises the main areas under review to ensure fulfilment of the objectives of the CSDR in a more proportionate, efficient and effective manner. Stakeholders’ feedback does not point to a need to make fundamental changes to most core requirements of CSDR, which are integral to ensuring transparency and mitigating systemic risks in settlement. Nevertheless, based on the input received, further consideration is needed for the issues identified in this report. As announced in the 2020 CMU Action Plan and the 2021 Commission Work Programme, the EC will consider proposing a REFIT legislative review of CSDR, subject to an impact assessment.



ESMA official translations of Guidelines on written agreements between members of CCP colleges 

On 1 July, ESMA published the official translations of its guidelines on written agreements between members of CCP colleges. These guidelines are based on Article 16(1) of the ESMA Regulation and replace the guidelines adopted by ESMA on 4 June 2013. The objectives of these guidelines are to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision and to ensure the common, uniform and consistent application of Articles 18 and 19 of EMIR and of the Delegated Regulation on colleges. In particular, they aim to propose a standard written agreement to ensure the timely establishment and smooth functioning of a CCP college. The guidelines apply from 1 July. NCAs must make every effort to comply with the guidelines by incorporating them into the written agreements for establishment and functioning of a CCP college. Within two months of the date of publication of the guidelines on ESMA's website in all EU official languages, NCAs must notify ESMA whether they comply, or intend to comply, with them. Reasons must be given for non-compliance.


HMT consults on UK wholesale capital markets review

On 1 July, HMT published a consultation paper (opening on 2 July), on its review of the UK’s regime for wholesale capital markets. The consultation: (i) considers how the UK’s regime for wholesale capital markets can be reformed to deliver a framework that is fair, outcomes-based and supports openness and competitiveness, whilst maintaining regulatory standards; (ii) outlines the government’s proposals to: (a) clarify the regulatory perimeter and conditions governing trading venues and systematic internalisers, to ensure the market can operate in confidence; (b) remove requirements that limit firms’ ability to access the most liquid pools of capital where they can get the best outcomes for investors, for example by removing the share trading obligation and double volume cap; (c) recalibrate the transparency regime for fixed income and derivatives markets ensure instruments are subject to proportionate requirements; (d) review the UK commodities regime to ensure activity is not unnecessarily restricted; and (e) amend the market data regime to enable participants to identify the best available prices; and (iii) considers how the Government can best ensure that the UK’s approach to capital markets regulation enables firms and regulators to address the challenges and opportunities of the future, as well as the present. The deadline for comments is 24 September. Responses to the consultation will be considered in parallel with the Future Regulatory Framework Review. HMT notes its intention to implements changes quickly where possible and that the FCA has committed to take forward any further consultations about parts of the regime that fall within its rules and guidance, and that relate to these proposals, from H2 2021 onwards. 



EBA consults on RTS on risk retention requirements under the Securitisation Regulation

On 30 June, the EBA began consulting on draft regulatory technical standards (RTS) specifying the requirements for originators, sponsors, original lenders and servicers related to risk retention, in line with the Securitisation Regulation. The draft RTS specify in greater detail the risk retention requirements and, in particular: (i) requirements on the modalities of retaining risk; (ii) the measurement of the level of retention; (iii) the prohibition of hedging or selling the retained interest; (iv) the conditions for retention on a consolidated basis; (v) the conditions for exempting transactions based on a clear, transparent and accessible index; (vi) the modalities of retaining risk in case of traditional securitisations of non-performing exposures; and (vii) the impact of fees paid to the retainer on the effective material net economic interest. The draft RTS have been drafted in such a way as to ensure the alignment of interest (risks) and information between the securitisation sponsors, originators, original lenders, and, in the case of traditional NPE securitisations, servicers, on one hand, and the investors buying the securitisation positions on the other hand. Furthermore it aims to facilitate the implementation of the risk retention requirements by the sponsor, originator, original lender and servicer. The RTS carry over a substantial amount of provisions from the EBA RTS on risk retention submitted to the EC in July 2018. The deadline for comments is 30 September. A public hearing will take place on 2 September.


Press release 

PRA and FCA policy statement on margin requirements for non-centrally cleared derivatives

On 30 June, the PRA published a policy statement, jointly with the FCA, on margin requirements for non-centrally cleared derivatives. It sets out the final policy in the form of amendments to onshored Technical Standard 2016/2251 to establish or extend exemptions for some products subject to bilateral margining requirements and to align implementation phases and thresholds of the initial margin requirements to the BCBS and IOSCO standards. This policy statement is relevant to PRA-authorised firms that are financial counterparties for the purposes of Article 2 of EMIR and to all FCA solo-regulated entities and non-financial counterparties in scope of the margin requirements under EMIR. The requirements will be effective immediately. The final policy is largely as consulted on, apart from a minor change to specify that the temporary exemption for single-stock equity and index options will expire on 4 January 2024. The regulators have also temporarily extended the continued use of EEA UCITS as collateral from March 2022 to the end of December 2022 in response to feedback that smaller market participants might be disproportionately affected by costs imposed by the removal of the use of EEA UCITS.

Policy Statement


Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021

On 30 June, the Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021 were published, together with an explanatory memorandum. HMT and the FCA have engaged with financial services firms to identify several obligations which MiFIR imposes on investment firms, and which are costly for firms to implement and fail to serve their intended objectives. In particular, these Regulations amend the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories) Regulations 2001 (SI 2001/995) and Commission Delegated Regulation (EU) 2017/565. The instrument will: (i) remove the obligation on trading and execution venues to publish reports relating to the quality of execution of orders obtained on them; (ii) remove an obligation on investment firms to produce an annual report setting out the top five venues they have used for the execution of client orders, and a summary of the execution outcomes achieved; (iii) revoke an existing requirement for investment firms providing portfolio management services to inform their client whenever the overall value of the portfolio depreciates by 10% and thereafter at multiples of 10%, in respect of professional clients. The instrument also amends an existing obligation for firms to provide detailed contract notes for trades executed on behalf of clients, and quarterly reports on portfolio management services, in respect of wholesale clients; (iv) exempts investment firms providing portfolio management services from the requirement to provide cost benefit analyses to professional clients when they switch the instruments in which they invest; (v) revokes the obligation for an investment firm to provide specified information relating to its services to clients before a service is carried out where the services are provided to eligible counterparties. The instrument allows investment firms, where the client consents and the investment firm has given the client the option of delaying the conclusion of the transaction until the client has received the information, to provide costs and charges information to clients after the transaction has been concluded; and (vi) makes electronic communication with wholesale clients the default mode of communication. The Regulations will mostly come into force on 26 July.


Explanatory memorandum 

Council of the EU publishes text of proposed Directive on credit servicers and credit purchasers

On 29 June, the Council of the EU published a letter sent to the EP on the proposed Directive on credit servicers and credit purchasers. The Council state that should the EP adopt its position at first reading, the Council would approve the EP’s position and the Directive shall be adopted in the wording corresponding to the EP’s position. The text of the Directive on which the Council and the EP have reached political agreement is set out in the Annex. 


Payment systems and payment services 

Please see the Fees/Levies section for the PSR’s regulatory fees for 2021/22. 

HMT consults on protecting access to cash 

On 1 July, HMT began consulting on legislative proposals to protect access to cash. HMT has also published the summary of responses to its October 2020 Call for Evidence, which was used to inform HMT’s policy development, noting that: (i) overall, there was strong support for the government to intervene to protect access to cash through legislation, and respondents welcomed the government’s aim of maintaining an appropriate network of cash facilities; (ii) the majority of respondents supported the government’s views on the potential for cashback to play an important role in cash provision, including the potential to facilitate local cash recycling, support ease of consumer access, and contribute to the continued acceptance of cash; (iii) there was broad support for interventions to ensure the provision of depositing facilities, provided this did not include mandating specific facilities or solutions; (iv) respondents noted that cash acceptance by businesses was crucial for a sustainable cash infrastructure, but largely recognised or supported the government’s position that individuals and businesses should remain free to determine which form of payment they wish to accept; and (v) responses voiced strong support for the FCA being given additional responsibilities for ensuring access to cash and for it being established as lead regulator for retail cash provision. The consultation seeks views on legislative proposals in three key areas: (a) geographic access requirements for providing access to cash withdrawals and deposits; (b) designation of firms to meet requirements to provide access. The government intends to provide HMT with powers to designate firms on whom legislative and regulatory cash access requirements can be imposed, in consultation with the FCA and the relevant firm; and (c) regulatory oversight, including proposals to ensure the FCA, as lead regulator for monitoring and enforcing cash access, has appropriate powers and responsibilities to hold firms to account to meet requirements. The deadline for comments is 23 September. Parliament have also published a written statement by Mr John Glen, Economic Secretary to the Treasury, on the consultation. 


Impact assessment

Summary of responses

John Glen written statement

Prudential regulation

Please see the Fund Regulation section for the official translations of ESMA’s guidelines on stress test scenarios produced under Article 28 of the Regulation on money market funds, as well as ESRB’s issues note on systematic vulnerabilities in money market funds.

ECB speech on supervisory work priorities – Covid-19

On 1 July, the ECB published a speech by Andrea Enria, Chair of the Supervisory Board of the ECB on the ECB’s supervisory priorities. Points of interest include: (i) as the Covid-19 crisis continues, the ECB’s main priority is to ensure that banks are able to identify and manage any credit risks on the horizon at an early stage. While most banks are fully or broadly in line with the ECB’s expectations, certain banks, including some that now have fairly low levels of credit risk, need to address significant gaps in their risk control frameworks, which are the most important safeguard against a significant deterioration in asset quality in the future. Mr Enria highlights some areas of potential concern in that some banks have started to reduce and some are taking on more risks by increasing their leveraged lending activities; (ii) the ECB plans to repeal their recommendation on dividends at the end of Q3 2021 and return to reviewing dividends and share buybacks as part of its normal supervisory process; (iii) the ECB is currently benchmarking banks’ self-assessments against its supervisory expectations on climate-related and environmental risks. The ECB has already started to work on incorporating these risks into its SREP methodology. Although this year’s findings will not be reflected in bank-specific capital requirements, the ECB may need to impose qualitative or quantitative requirements in some specific cases. A full supervisory review (as well as a specific stress test focusing on climate risk) will then follow in 2022; and (iv) Mr Enria points out that the new legislative cycle could provide an opportunity to review the treatment of European branches of third-country banking groups. While third-country banking groups should be free to choose to enter specific markets within the EU via branches or subsidiaries, greater harmonisation of the regulatory and supervisory framework, Mr Enria believes, is warranted. 


EBA Decision confirms quality of unsolicited credit assessments

On 1 July, the EBA published a revised Decision confirming the quality of unsolicited credit assessments assigned by certain External Credit Assessment Institutions (ECAIs) for calculating institutions' capital requirements. Under Article 138 of the CRR, institutions may use unsolicited credit assessments of an ECAI for determining their capital requirements only if the EBA has confirmed that those unsolicited ratings do not differ in quality from solicited ratings of that same ECAI. Since the last EBA Decision, two additional ECAIs have been recognised, and three ECAIs have been de-registered or de-certified. In addition, a registered ECAI has been renamed. The new Decision states that it will enter into force twenty days after it has been published in the OJ.

Press release

Revised Decision 

ESRB General Board 42nd regular meeting on key systemic risks in the EU

On 1 July, the ESRB published a press release in relation to the 42nd regular meeting of its General Board, which took place on 24 June. The General Board assessed the key systemic risks in the EU and the public policy priorities to address them. Among other things, the General Board: (i) highlighted that the improved economic outlook has reduced the probability of severe scenarios and the risk of the Covid‑19 crisis spilling over to the financial system. The General Board noted that the ESRB Recommendation on restriction of distributions could be allowed to lapse at the end of September if economic and financial sector conditions do not deteriorate materially. The General Board will consider this matter at its next meeting on 23 September; (ii) emphasised that the recovery still relies on continued monetary policy and fiscal policy support measures, which have so far helped avoid a surge in insolvencies. The ESRB continues to monitor the financial stability implications of national fiscal measures implemented to safeguard the economy against the pandemic; (iii) noted that potential spillovers from the non-financial private sector to the banking sector, most notably through the channel of deteriorating asset quality, remain a risk that needs to be monitored closely. It also highlighted the importance for banks to appropriately reflect credit risk in their loan classification and provisioning. The General Board noted the increase in asset repricing risk amid rising inflation expectations and long-term bond yields in the US, which could spill over to European bond markets and affect non-bank financial institutions with high duration, liquidity and credit risk; (iv) discussed vulnerabilities related to the EU residential and commercial real estate markets; and (v) considered the financial stability implications of climate change for the EU financial system.

Press release

EBA provides clarification on the implementation of the new prudential regime for investment firm

On 1 July, the EBA published an Opinion on appropriate supervisory and enforcement practices for the process of authorising investment firms as credit institutions under Article 8a of CRD IV in order to ease the implementation of the Investment Firms Regulation/Investment Firms Directive (IFR/IFD). The IFR/IFD classify investment firms according to their business model and size, the latter of which is benchmarked on various thresholds. For the vast majority of investment firms, sufficient clarity already exists with regards to the prudential regime which applies to them. However, in a few cases, especially for investment firms of third country groups, the Opinion provides guidance on the actions to be taken in case of uncertainty on whether these investment firms should apply for authorisation as a credit institution in the absence of the delegated act establishing the methodology for the calculation of the highest threshold (the EUR 30bn threshold), on which the EBA opened a second public consultation, which closes on 17 July. In general, the EBA advises competent authorities to apply a pragmatic approach for those investment firms, where the relevant EUR 30bn threshold for the identification of the prudential regime to be applied to the investment firm cannot be determined without the guidance provided in the EBA regulatory technical standards (RTS) currently being consulted on. More specifically, the EBA advises supervisors not to prioritise any supervisory or enforcement action in relation to the identification of investments firms, until six months after the final methodology is in place. The EBA is not expecting to finalise the draft RTS for submission to the EC before the end of October 2021. It requests the EC to adopt the RTS as quickly as possible after submission by the EBA.

Press release


BCBS final technical amendments for minimum haircut floors for securities financing transactions

On 1 July, BCBS finalised two technical amendments to the standard on minimum haircut floors for securities financing transactions (SFTs). The first technical amendment addresses an interpretative issue relating to collateral upgrade transactions and the second corrects a misstatement of the formula used to calculate haircut floors for netting sets of STFs. The amendments were published for consultation in January and have been finalised as originally proposed. BCBS expects its members to implement its standards on minimum haircut floors for SFTs by 1 January 2023.

Press release

Technical amendments 

ECB Decision to extend temporary exclusion of certain exposures to central banks from the total exposure measure published in OJ

On 30 June, the ECB Decision on the temporary exclusion of certain exposures to central banks from the total exposure measure in view of the Covid-19 pandemic and repealing Decision (EU) 2020/1306, was published in the OJ. In view of the Covid-19 pandemic, the ECB determined on 16 September 2020 that exceptional circumstances exist that warrant the exclusion of the central bank exposures listed in points (a) and (b) of Article 500b(1) of the CRR from the total exposure measure in order to facilitate the implementation of monetary policies. The exclusion of those exposures applied until 27 June. Due to the ongoing pandemic and the resulting and ongoing need for a high degree of monetary policy accommodation, the Governing Council considers that such exceptional circumstances warrant the temporary extension of the exclusion, until 31 March 2022 of certain exposures to Eurosystem central banks from the calculation of institutions’ total exposure measures pursuant to Article 429a(5) of the CRR. This decision extends the effect of the exclusion from 28 June until 31 March 2022. 


FPC and PRA consult on changes to the UK leverage ratio framework

On 29 June, the FPC and PRA began consulting on proposed changes to the UK leverage ratio framework following their reviews in light of revised international standards and the FPC’s ongoing commitment to review its policy approach. The FPC’s consultation sets out its proposed revisions, while the PRA’s consultation sets out its proposals for implementing these changes should they be adopted. The PRA proposes that the implementation date for the changes to the definition of Leverage Exposure Measure and reporting and disclosure resulting from this consultation would be 1 January 2022. The changes to scope and level of application of the minimum requirement, buffers, and related additional reporting and disclosure requirements for firms that would be newly brought into scope of the leverage ratio minimum requirement would become effective on 1 January 2023. The PRA’s proposals are subject to HMT’s proposed revocation of the relevant parts of the CRR, which itself is subject to Parliamentary approval. This is currently anticipated to take effect on 1 January 2022. The deadline for comments is 24 August. 



FCA first policy statement and set of near-final rules on implementation of IFPR

On 29 June, the FCA published its first policy statement (PS21/6) in relation to the first set of proposals to introduce the UK Investment Firms Prudential Regime (IFPR). The FCA explains that, in general, it has implemented its proposals as consulted on in CP 20/24, but has made some amendments to provide more clarity in response to some of the feedback received. The FCA has also made some small amendments to the rules as part of its drafting of proposed rules for its second consultation, CP21/7. PS21/6 provides a summary of feedback and greater clarification in relation to: (i) categorising FCA investment firms as either small and non-interconnected firms (SNIs) or not (non-SNIs); (ii) prudential consolidation and the group capital test; (iii) the types and treatment of own funds. The FCA defines own funds and the items that should be deducted for CET1 purposes; (iv) own funds requirements – the FCA responds to feedback on the amounts of ongoing Permanent Minimum Requirement that will apply to FCA investment firms and how this interacts with the Initial Capital Requirement. The FCA also cover feedback on the applicability and calculation of certain K-factor requirements for firms trading on their own account; (v) transitional provisions that will apply to own funds requirements – this includes the transitional provisions relating to the initial collection and use of K-factor metrics; (vi) concentration risk; and (vii) reporting requirements. The near-final rules accompanying the policy statement will be made final once the relevant Financial Services Act statutory instruments are in place. Some near-final rules may be amended by proposals in the FCA’s second consultation – the FCA intends to publish a consolidated set of near-final rules in the second policy statement (anticipated early Q3). A third consultation is anticipated in early Q3 with a third policy statement expected in Q4 and implementation of the IFPR in January 2022.

Policy Statement

ECB consults on updates to options and discretions policies

On 29 June, the ECB began consulting on proposed updates to its harmonised policies for exercising the options and discretions that it is allowed to exercise under EU law when supervising banks. The ECB is proposing revisions to its policies primarily to account for legislative changes adopted since they were first published in 2016, most notably by CRD V and CRR II. In addition, the ECB is proposing to introduce some changes to the options and discretions instruments on the basis of the experience that it has gained. Most of the revisions pertain to options and discretions in the application of liquidity requirements. The consultation relates to many aspects of supervision, including permissions for banks seeking to reduce their capital, the treatment of certain exposures in the calculation of the leverage ratio as well as some exemptions from the large exposures limit. The ECB’s policies concerning options and discretions are laid down in four instruments: (i) an ECB Guide containing policy guidance for Joint Supervisory Teams when exercising options and discretions on a case-by-case basis in relation to significant institutions (SIs); (ii) an ECB Regulation in which the ECB exercises several options and discretions of a generally applicable nature in respect of SIs; (iii) an ECB Recommendation addressed to national competent authorities concerning the exercise of options and discretions on a case-by-case basis in relation to less significant institutions (LSIs); and (iv) an ECB Guideline, also addressed to national competent authorities, concerning the exercise of options and discretions of a generally applicable nature in relation to LSIs. The deadline for comments is 23 August. 

Press release


ECB Guide

ECB Regulation

ECB Recommendation 

ECB Guideline

EBA consults to review Guidelines on common procedures and methodologies for SREP and supervisory stress testing

On 28 June, the EBA began consulting on its revised Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing. The revisions aim at implementing the recent amendments to CRD V and CRR II, as well as aligning with other regulatory developments and best supervisory practices. The main amendments include: (i) reviewing institutions’ categorisation and application of the minimum engagement model to reflect the new definitions on small and non-complex as well as large institutions, thus better embedding the proportionality principle; (ii) incorporating an assessment of ML/TF risks, in line with the EBA Opinion on how to take into account ML/TF risks in the SREP published in November 2020; (iii) reviewing the provisions on Pillar 2 capital add-ons and the Pillar 2 guidance in accordance with Articles 104a and 104b of the CRD, to ensure that they reflect a purely microprudential perspective; (iv) providing clarifications on the assessment of the risk of excessive leverage and the related Pillar 2 capital add-ons and the Pillar 2 guidance in order to reflect the separate stack of own funds requirements based on the leverage ratio; and (v) adjusting the requirements for the assessment of the interest rate risk in the non-trading book, as well as the assessment of liquidity risk and liquidity adequacy to align them with the current regulatory framework. A public hearing will take place on 31 August. The deadline for comments is 28 September. 

Press release


Draft FSMA 2000 (PRA-regulated Activities) (Amendment) Order 2021

On 28 June, HMT published a draft version of the FSMA 2000 (PRA-regulated Activities) (Amendment) Order 2021, together with explanatory information. The instrument will enact consequential amendments to the FSMA 2000 (PRA-regulated Activities) (Amendment) Order (PRA RAO), as a result of the Financial Services Act 2021 and in order to ensure the Investment Firms Prudential Regime (IFPR) works effectively. The draft instrument: (i) removes the reference to the initial capital requirement of EUR 730,000 for investment firms. Currently, the PRA RAO allows the PRA to choose to designate for its supervision any investment firm that fulfils two criteria: (a) dealing in investments as principal; and (b) being subject to the initial capital requirement of EUR 730,000. The IFPR will make the initial capital requirement of EUR 730,000 obsolete, as it will create new initial capital requirements for investment firms; (ii) makes changes to the PRA RAO which will allow the PRA to continue to designate systemic investment firms after the IFPR is introduced. The draft instrument allows for all investment firms that deal in investments as principal to be eligible for designation by the PRA. However, when designating investment firms, the PRA will continue to have regard to its statutory objectives, the assets of the person or group, and its Statement of Policy on designation; and (iii) makes minor technical changes. HMT plan to lay the instrument before Parliament before the end of 2021. 

Draft instrument

Explanatory information

EBA ITS on supervisory disclosure under the IFD

On 25 June, the EBA published the final draft implementing technical standards (ITS) with regards to the format, structure, contents list and annual publication date of the information to be disclosed by competent authorities in accordance with Article 57(4) of the Investment Firms Directive (IFD). The disclosed information will cover: (i) the text of laws, regulations, administrative rules and general guidance adopted in each Member State; (ii) options and discretions in the application of the prudential requirements; (iii) criteria and methodologies of the supervisory review and evaluation process; and (iv) aggregated statistical data on prudential requirements. The draft ITS provide that competent authorities will have to start disclosing this information by 30 June 2022.

Final report

Implementing Regulation extending transition period for non-EU CCPs capital requirements published in OJ

On 25 June, Implementing Regulation (EU) 2021/1043 on the extension of the transitional provisions related to own funds requirements for exposures to central counterparties (CCPs) set out in the CRR was published in the OJ. The transitional period was set to expire on 28 June and has been extended by one year until 28 June 2022. The extension of the transitional provision is intended to leave time for the EC to finalise its equivalence assessments in accordance with Article 25(6) of EMIR and to adopt equivalence decisions where conditions are met. It would also leave time for ESMA to recognise the third-country CCPs concerned. The Implementing Regulation applied from 29 June. 

Implementing Regulation

Sustainable finance

Please see the Prudential Regulation section for a speech by Andrea Enria, Chair of the Supervisory Board of the ECB on the ECB’s supervisory priorities, as well as a summary of the discussion held in the 42nd regular meeting of the ESRB General Board. 

Please see the Other Developments section for HMT’s policy paper and a speech given by Rishi Sunak, Chancellor of the Exchequer, on the future of financial services in the UK.

ECB and ESRB report on impacts of climate change for the EU financial sector

On 1 July, the ECB and the ESRB published a joint report on how a broadened set of climate change drivers affect financial firms in the EU. It maps out prospective financial stability risks and contributes by further developing the analytical basis for more targeted and effective policy action. The report tackles measurement gaps and, building on previous work in this field, establishes a detailed topology of physical and transition risks arising from climate change across regions, sectors and firms. It also applies a scenario analysis with long-dated financial risk horizons to capture prospective financial losses resulting from the timeliness and effectiveness of climate policies and technologies. The report’s granular mapping of financial exposures to climate change drivers finds three forms of risk concentration: (i) exposures to physical climate hazards are concentrated at the regional level. Around 30% of the euro area banking sector’s credit exposures to non-financial companies are to firms that are subject to a combination of these physical hazards; (ii) exposures to emission-intensive firms are concentrated not only across but also within economic sectors. Exposures to highly emitting firms occupy 14% of collective euro area banking sector balance sheets; and (iii) exposures to climate risk drivers are concentrated in specific European financial intermediaries. Around 70% of banking system credit exposures to firms subject to high or increasing physical risk over the coming decades are concentrated in the portfolios of just 25 banks. In the projected scenario analysis modelling for EU banks, insurers and investment funds, in the event of an insufficiently orderly climate transition, physical risk losses, particularly for high emitting firms, would become dominant in around 15 years. This could lead to a decline in global GDP of up to 20% by the end of the century should mitigation prove to be insufficient or ineffective.

Press release


Data supplement 

IOSCO consults on sustainability-related regulatory and supervisory expectations in asset management

On 30 June, IOSCO began consulting on proposed recommendations about sustainability-related regulatory and supervisory expectations in asset management. The consultation focuses on investor protection issues and proposes that securities regulators consider setting regulatory and supervisory expectations for asset managers regarding sustainability-related risks and opportunities. The recommendations cover five areas: (i) asset manager practices, policies, procedures and disclosure; (ii) product disclosure; (iii) supervision and enforcement; (iv) terminology; and (v) financial and investor education. The recommendations aim to address various challenges, such as existing gaps in skills and expertise and the risk of fragmentation caused by divergent regulatory approaches. These challenges may further contribute to a lack of comparability for sustainability-related products, creating difficulties for investors’ monitoring and decision-making, and therefore facilitating greenwashing. IOSCO outlines: (a) the types of greenwashing at the asset manager and product levels; (b) describes the different regulatory approaches taken by securities regulators to address sustainability-related risks and opportunities; (c) provides an overview of the financial and investor education initiatives conducted by regulators; and (d) asset managers’ sustainability-related practices and firm level disclosures, which are broadly categorised into the following areas, consistent with the TCFD Recommendations – governance, strategy, risk management, and metrics and targets. IOSCO highlights a clear need to address the challenges associated with the lack of reliability and comparability of data at the corporate level and the ESG data and ratings provided by third-party providers. The deadline for comments is 15 August. 


Press release

HoC Treasury Committee launches inquiry into climate change and finance

On 29 June, the HoC Treasury Committee announced the launch of a new inquiry into climate change and finance. The first oral evidence session will be held on 5 July. Mark Carney, the Prime Minister's COP26 finance adviser and Special Envoy for Climate Action and Finance at the UN, will be giving evidence. 


IOSCO report on sustainability-related issuer disclosures

On 28 June, IOSCO published a report on sustainability-related issuer disclosures. The report, developed by IOSCO’s Sustainable Finance Taskforce, reiterates the urgent need to improve the consistency, comparability and reliability of sustainability reporting for investors. The report focuses on the three key elements of IOSCO vision for improvement in issuers´ sustainability-related disclosures, as set out in the Board’s press release in February, namely: (i) establishing an International Sustainability Standards Board (ISSB) with a strong governance foundation – the report provides input to the International Financial Reporting Standards (IFRS) Foundation on governance features and mechanisms for stakeholder engagement that will be essential to the success of the ISSB initiative. IOSCO plans to consider potential endorsement of future standards issued by the ISSB to guide issuers' sustainability-related reporting in their jurisdictions; (ii) building on existing efforts – the report sets out some recommended enhancements to a prototype climate-related financial disclosure standard. Among these, the report suggests: (a) further development of quantitative metrics, including at the industry/sectoral level; (b) clarification of forward-looking metrics and scenario analysis methodologies; and (c) enhancements to the conceptual framework that links sustainability reporting and financial statements; and (iii) the report elaborates on IOSCO’s recommendation that the IFRS Foundation establish a multi-stakeholder expert consultative committee, within its structure, to support the practical delivery of a ‘building blocks’ approach. The current aim is for the ISSB to be set up by COP26 and climate standards to be issued as early as mid-2022. IOSCO’s next steps will also include work on: (1) securities regulators’ supervision of sustainability-related disclosures; and (ii) the development of an audit and assurance framework and related standards for corporate sustainability-related disclosures. In a related speech by Ashley Alder, IOSCO Chair, on the emerging global framework for climate change regulation, further detail about why IOSCO is supporting the ISSB initiative is provided. Ms Alder also confirms that IOSCO is due to publish reports on ESG ratings as well as regulatory expectations for asset managers. 



Other developments

HMT policy paper and speech on a new chapter for financial services in the UK

On 1 July, HMT published a policy paper and a speech given by Rishi Sunak, Chancellor of the Exchequer, on the future of financial services in the UK. The Government is basing its vision around four key themes: (i) an open and global financial hub; (ii) technology and innovation; (iii) green finance; and (iv) a competitive marketplace promoting effective use of capital. On equivalence with the EU, Mr Sunak notes that while mutual decisions on financial services equivalence have not been reached, he sees no reason of substance why the UK cannot or should not continue to provide clearing services for countries in the EU. The documents outline a number of planned reforms, including: (a) integrated Sustainability Disclosure Requirements, which will require companies, pension schemes and financial services firms to report on the impact they are having on the climate - as well as the risks and opportunities facing their business. The Government intends to set out its approach to green finance regulation ahead of COP26. The Government will also work with the FCA to create a new sustainable investment label so that consumers can clearly compare the impacts and sustainability of their investments. Details have also been announced on the types of green projects that will be eligible for funding when the UK issues its first sovereign green bond; (b) a consultation on proposals for new laws on access to cash; (c) consultations on reforms to the regulation of wholesale capital markets and a fundamental review of the prospectus regime following recommendations in Lord Hill’s listings review; (d) the UK is negotiating a mutual recognition agreement with Switzerland; and (e) the development of a new sandbox for financial market infrastructures. 

Press release



FOS Ombudsman news issue 162

On 30 June, the FOS published issue 162 of its Ombudsman news. In this edition, the FOS share new content on its approach to complaints about wedding insurance, business interruption insurance, and loan schemes, such as the Coronavirus Business Interruption Loan Schemes and Bounce Back Loan Scheme.

Ombudsman news

HMT and Monetary Authority of Singapore sign MoU

On 30 June, HMT announced that it has signed an MoU with the Monetary Authority of Singapore (MAS) on financial services regulatory cooperation. The MoU sets out a framework for regulatory co-operation, comprised of: (i) compatibility of regulatory and supervisory frameworks; and (ii) deference. Either party may, where practicable and permissible under its domestic legal framework, defer to the regulatory and supervisory frameworks of the jurisdiction of the other party. In areas where deference applies, the parties commit, among other things, to sharing information on the implementation and enforcement of regulation in that area and to take into account the impact on the other party of relevant regulatory initiatives. The MoU comes as a result of the sixth UK-Singapore Financial Dialogue. The countries agreed on areas of join interest: (a) regulatory cooperation; (b) green finance and carbon markets; and (c) FinTech and stablecoins. The two countries also announced an MoU to enhance bilateral cyber security cooperation, including the sharing of cyber-related information and supervisory best practices. The next Financial Dialogue is expected to take place in 2022.

Joint statement

Press release


FCA 2021/22 business plan to be revealed on 15 July

On 29 June, the FCA announced that it will unveil its 2021/22 business plan in a webinar on 15 July. In the webinar Nikhil Rathi, FCA Chief Executive, will set out the FCA’s role in a post-Covid, post-Brexit and increasingly post-carbon economy. He will also explain how the FCA will keep pace with technological change that is shifting the relationship between consumers and firms, how the FCA will adjust to economic challenges and a growing remit.


FSB launches thematic peer review on corporate debt workouts and seeks stakeholder feedback 

On 28 June, the FSB launched a thematic peer review on corporate debt workouts, in order to support Covid-19 response efforts by examining FSB member jurisdictions’ practices, experiences and lessons from out of court debt workouts (OCWs), and the implications for financial stability. The peer review will: (i) take stock of existing and planned OCW frameworks in FSB jurisdictions; (ii) examine the experience of particular mechanisms that have been, or are being used, to address corporate stress, including the role of financial sector authorities; and (iii) seek to identify good practices and lessons on how well OCW frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and dealing with a large number of distressed corporates. The FSB invites feedback from financial institutions, corporates, insolvency practitioners and other stakeholders on OCWs including on: (a) the types of OCW frameworks (e.g. informal workouts, enhanced workouts and hybrid workouts) most often used in their jurisdiction and why; (b) features of OCW frameworks that may be particularly helpful to minimise the economic and financial system damage caused by corporate defaults due to Covid-19; (c) the appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivise the participation of various stakeholders in an OCW; and (d) experiences and challenges in the use of OCWs, including to manage the volume of non-performing loans in the financial system. The deadline for comments is 9 August. The FSB expects to publish the peer review report in early 2022.

Press release

Terms of reference

FCA Handbook Notice No. 89

On 25 June, the FCA published Handbook Notice No. 89 setting out changes to the handbook that the FCA board approved on 24 June, by the following instruments: (i) Training and Competence Sourcebook (Amendment No 9) Instrument 2021; (ii) FSCS (Miscellaneous Amendments) Instrument 2021; and (iii) Handbook Administration (No 56) Instrument 2021. 


PRA Occasional Consultation Paper – June 2021

On 25 June, the PRA began consulting on proposals to make minor amendments to PRA rules, supervisory statements (SS), reporting data items and instructions, the Branch Return, and associated guidance and notes, in its June 2021 Occasional Consultation Paper. The changes are in relation to: (i) Pillar 2A - amendments to FSA081 template, instructions, and SS32/15; (ii) reporting - changes to FSA042, FSA017 instructions, and MLAR guidance notes; (iii) definition of capital - minor update to the PRA Rulebook and SS7/13; (iv) regulatory reporting - amendments to the Branch Return; and (v) audit committee and auditors - correction and update. The deadline for comments is 25 August.