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Key Regulatory Topics: Weekly Update 25 September - 1 October 2020

01 October 2020

Our weekly update on key regulatory topics affecting the financial services sector.

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Seminars

Autumn Brexit Sessions

The A&O team are hosting regular Brexit updates at 9am on alternate Thursdays until Christmas. To register your interest for these sessions, please click here.

Brexit

Please see our Markets and Markets Infrastructure section for product specific updates relating to Brexit.

BoE and PRA approach to the temporary transitional power (TTP)

On 1 October, the BoE and PRA published a new webpage on the TTP. This explains that the BoE and PRA intend to use the TTP to provide broad transitional relief, with key exceptions, for 15 months after the end of the transition period, until Thursday 31 March 2022 (the TTP period). This means that, in all but a few areas, PRA-regulated firms and BoE-regulated financial market infrastructures (FMIs) do not need to have completed preparations to implement changes in UK law taking effect at the end of the transition period by 11pm on 31 December. Where the TTP applies, firms and FMIs should use the TTP period to prepare for full compliance with their onshored regulatory obligations from 1 April 2022. The webpage provides detail and guidance on: (i) what the TTP can apply to; (ii) what happens when the TTP does apply; (iii) exceptions to the BoE’s general approach; (iv) specific transitional or saving provisions where the TTP does not apply; (v) additional exceptions specifically relating to PRA-regulated firms and FMIs respectively; (vi) the interaction between the TTP and equivalence decisions and equivalence directions; and (vii) the duration of transitional relief. General guidance has also been published on: (a) the BoE’s transitional direction; and (b) the PRA’s transitional direction.
BoE and PRA Webpage
General Guidance – BoE
General Guidance – PRA

FCA updates information on the TTP and publishes rules that will apply at the end of the transition period

On 1 October, the FCA published an updated version of the FCA Handbook to show the rules that will apply at the end of the transition period. Furthermore, the FCA has published updated information on the TTP. Firstly, the FCA’s new webpage on onshoring and the TPP explains that the FCA intends to apply the TTP on a broad basis from the end of the transition period until 31 March 2022. The FCA states that this means that firms and other regulated persons do not generally need to prepare now to meet the changes to their UK regulatory obligations brought about by onshoring. The FCA confirms that where the TTP applies: (i) firms and other regulated persons can continue to comply with their existing requirements for a limited period; and (ii) the FCA expects firms to use the duration of the TTP period to prepare for full compliance with the onshored UK regime by 31 March 2022. Also, the FCA lists: (a) areas where it will not make transitional provision as it would not be consistent with its statutory objectives, or it would not otherwise be appropriate to do so; and (b) key areas where it expects firms and other regulated persons to be preparing to comply with changed obligations ready for 31 December. Secondly, the FCA’s new webpage on transitional directions links documents which set out the full legal effect of the TTP – the FCA has updated its draft directions, annexes and TTP explanatory note. The FCA proposes to make the final TTP directions towards the end of the transition period, and expects to publish them in December. Thirdly, the FCA has published a webpage that details the transitional provisions and regimes in its rules and HM Treasury legislation that will operate from the end of the transition period. Fourthly, the FCA has published a webpage which explains the key requirements of firms where the TTP will not apply – the FCA does not intend to take enforcement action against firms and other regulated persons for not meeting all requirements straightaway, where there is evidence they have taken reasonable steps to prepare to meet the new obligations by 31 December. Finally, the FCA has published: (1) updates to its guidance on EU non-legislative materials, non-Handbook material and forms; and (2) a navigational guide to the Handbook for post-Brexit transition.
FCA Webpage – Onshoring and the TTP
FCA Webpage – Transitional Directions
FCA Webpage – Transitional Provisions and Regimes
FCA Webpage – Key requirements of firms
FCA Updated Guidance – Approach to EU non-legislative materials
FCA Updated Guidance – Approach to non-Handbook
FCA Updated Guidance – Completing forms after Brexit
FCA Navigational Guide

The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020

On 30 September, the Government published the Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020. An explanatory memorandum was also published, which explains that the instrument ensures a coherent and functioning financial services equivalence framework in the UK during and at the end of the transition period. The measures in the instrument add to those made in the Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020. It also contains minor amendments and deficiency fixes to existing financial services EU Exit instruments. The Regulations came into force on 30 September, this being the day after the day on which they were made.
The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020
Explanatory Memorandum

FCA updates webpage on considerations for UK firms after the implementation period

On 30 September, the FCA updated its webpage on considerations for UK firms after the implementation period. The FCA details that if firms deposit client money and/or custody assets in any institution in the EEA, or if their safeguarding institution is in the EEA, then they should think about the legal basis on which that business occurs and how that might change at the end of the transition period. This includes thinking about whether firms will need additional regulatory permissions in the UK and/or in another country. The update also states that such firms are required to carry out periodic due diligence reviews on third parties holding client money and/or custody assets. Furthermore, if firms deposit client money and/or custody assets with any institution in the EEA, they should review their due diligence to ensure that client assets will not be subject to increased risk due to any changes arising from the end of the transition period, and manage the risks accordingly. The FCA also states that firms should make sure that existing safeguards and protections for client assets, especially in the event of insolvency, remain effective from the end of the transition period.
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FCA updates temporary permissions regime (TPR) webpage - EEA firms and fund managers can now notify the FCA if they wish to use the TPR

On 30 September, the FCA updated its webpage on the TPR to announce that EEA firms and fund managers can now notify the FCA if they wish to use the TPR. Notifications should be submitted via the FCA’s Connect system before the end of 30 December. The FCA has also published the relevant revised directions (dated 29 September) for: (i) EEA or Treaty firms; (ii) EEA operators of collective investment schemes (CISs); (iii) EEA alternative investment fund managers (AIFMs), managers of European Venture Capital Funds (EuVECAs) and managers of European Social Entrepreneurship Funds (EuSEFs); (iv) authorised payment institutions (APIs) and registered account information service providers (RAISPs); and (v) e-money institutions (EMIs). FCA Updated Webpage
FCA Revised Direction – EEA or Treaty firms FCA Revised Direction – EEA Operations of CISs FCA Revised Direction – EEA AIFMs, EuVECAs and EuSEFs FCA Revised Direction – APIs and RAISPs FCA Revised Direction – EMIs

Capital Markets

ESMA public statement concerning the applicability of level 3 guidance published under the Prospectus Directive

On 30 September, ESMA published a public statement concerning the applicability of level 3 guidance published under the Prospectus Directive. The public statement contains an update of the status of the Q&As published under the Prospectus Directive, which would no longer apply as of 21 July 2020, because ESMA expected to have updated those Q&As by that date - although the Q&A revision work was placed on hold because of changes introduced to the Q&A process under the new ESMA Regulation, the statement explains that this revision work has now been resumed. The statement provides a status update regarding the Q&As that will be revised or deleted. ESMA gives a breakdown of Q&As which have been identified for revision by either the EC or ESMA subject to the new Q&A procedure. The statement also explains that the CESR Recommendations have not been rescinded and recommends that issuers apply them. ESMA will continue working on Q&As which it was allocated in accordance with the new Q&A procedure. Additionally, ESMA will transfer the Q&As which were determined as interpreting EU Law to the EC.
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Conduct

FCA Dear CEO letter on adequate client assets arrangements

On 30 September, the FCA published a Dear CEO letter stating that it is imperative that firms continue to maintain adequate arrangements that safeguard the client money and/or custody assets (client assets) it holds for customers. The letter highlights areas that are particularly important to maintaining adequate client assets arrangements in the current environment. It also reminds CEOs of their obligations to continue to oversee those arrangements and notify the FCA if they identify any material concerns. The FCA expects firms’ senior management to have appropriate oversight over its client assets arrangements. The FCA draws attention to the following areas which it provides further detail on in the Annex: (i) governance and oversight; (ii) oversight of third parties, including due diligence; (iii) adequate records and reconciliations; (iv) acknowledgement letters for all client money accounts (when holding client money); and (v) accurate and up to date CASS Resolution Packs.
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Consumer/retail

Please see our Conduct section for an update on the FCA’s Dear CEO letter on adequate client assets arrangements.

Please see our Prudential Regulation section for an update on the BoE’s consultation on its proposals to introduce new expectations on Internal Ratings Based (IRB) UK mortgage risk weights.

FCA confirms next stage of support for consumer credit and overdraft customers

On 30 September, the FCA announced that it has confirmed measures to ensure that firms provide tailored support for users of certain consumer credit and overdraft products who continue to face payment difficulties as a result of Covid-19. The guidance will cover users of: (i) credit cards and other revolving credit (store card and catalogue credit); (ii) personal loans; (iii) motor finance; (iv) buy-now pay-later (BNPL); (v) rent-to-own (RTO); (vi) pawnbroking and high-cost short-term credit (HCSTC) products; and (vii) overdrafts. The guidance sets out the FCA’s expectation of firms. Furthermore, the FCA confirms that it expects firms to contact overdraft customers who have received temporary support to determine if they still require assistance. Where a customer needs further support or where a newly affected customer gets in touch asking for help, firms should provide tailored support and the guidance sets out options that may be appropriate. This new guidance ensures consumers will still be able to obtain the support they need from their lenders after 31 October (this being when the current guidance ends). The FCA has published a feedback statement from its draft guidance, which confirms the amendments it has made to the final guidance. The guidance comes into force on 2 October.
FCA Finalised Guidance – Consumer Credit
FCA Finalised Guidance – Overdrafts
FCA Feedback Statement

FCA statement on Covid-19 and 10% depreciation notifications – further temporary measures for firms

On 30 September, the FCA published a statement for firms providing portfolio management services or holding retail client accounts that include positions in leveraged financial instruments or contingent liability transactions. The statement outlines a further six-month extension and amendments to its temporary measure on 10% depreciation notifications which was issued in March. The FCA confirms that it will not take action for breach of COBS 16A.4.3 for services offered to retail investors from 1 October provided that the firm has: (i) issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%; (ii) informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period; (iii) referred these clients to non-personalised communications, perhaps made available on public channels, that outline general updates on market conditions (these could contextualise potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments); and (iv) reminded clients how to check their portfolio value, and how to get in touch with the firm. From 1 October, for services offered to professional investors, the FCA will not take action for breach of COBS 16A.4.3 provided that firms have allowed professional clients to opt-in to receiving notifications.
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FCA annual report on the regulatory perimeter

On 29 September, the FCA published its second annual perimeter report which gives updates on the issues discussed in last year’s report (which sought to provide greater clarity to stakeholders on the FCA’s role and set out specific issues that had arisen). The report includes the issuing of a temporary product intervention in January to ban the mass-marketing of speculative illiquid debt securities and preference shares to retail investors for 12 months – the FCA is currently consulting on proposals to make this ban permanent. The report also sets out other areas where progress has been made or where there is continued harm to consumers and market users around the perimeter, particularly in light of the Covid-19 pandemic. In particular, the report highlights potential perimeter issues relating to: (i) speculative illiquid securities (including speculative minibonds); (ii) unregulated mortgage book purchasers; (iii) unregulated introducers; (iv) mass marketing of high risk investments to retail consumers; (v) SME lending; (vi) credit-like products; (vii) unregulated lead generators (debt advice/debt solutions); (viii) cryptoassets; and (ix) developing payment markets business models. The content of this report will form the basis of a formal discussion with the Economic Secretary to the Treasury later this year, the outputs of which will be published.
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Covid-19

Please see the other sections for product specific updates relating to Covid-19.

Financial crime

Please see our Investigations Insight blog post titled “Financial Institutions in Singapore to Ensure a Culture of Responsibility and Accountability Applies from the Top Down”. The Monetary Authority of Singapore (MAS) has issued its finalised Guidelines on Individual Accountability and Conduct, which will come into effect on 10 September 2021. Most financial institutions regulated by the MAS will be covered by the new Guidelines. They will accordingly need to clearly identify and delineate the responsibilities of senior management and material risk personnel.

Please see our Other Developments section for an update on the draft Bearer Certificates (Collective Investment Schemes) Regulations 2020 being published.

EC speech by Executive Vice-President Valdis Dombrovskis on anti-money laundering (AML) and counter-terrorist financing (CTF)

On 30 September, the EC published a speech by Executive Vice-President Valdis Dombrovskis at the high-level conference on AML and CTF. Mr Dombrovskis states, amongst other things, that: (i) the contributions that the EC has received on its AML action plan to its public consultation broadly support what it has proposed; (ii) the EC’s plan is to present a package of legal proposals on anti-money laundering in the first quarter of 2021; (iii) as part of the European Semester, the EC is working to ensure that EU countries properly apply AML rules in their own territories - the EC is following up on its findings, working with national authorities, and further investigating to sort out the problems; (iv) for EU supervision to work efficiently and seamlessly, an integrated system is needed, where national supervisors and the EU supervisor work effectively together - Mr Domborvskis is in favour of creating a dedicated AML authority with significant and direct supervisory powers regarding the most risky obliged entities; (v) it is favourable to devise a single EU rulebook to clarify, strengthen and align AML obligations across all EU countries; and (vi) the EC plans to support financial intelligence units (FIUs) in carrying out joint analysis, developing standards for reporting suspicious transactions, and providing IT assistance and support for exchanging financial information - the EC will put a coordination and support mechanism in place to support FIUs.
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Fintech

Please see our Consumer/Retail section for an update on the FCA’s annual report on the regulatory perimeter.

Fund regulation

Please see our Brexit section for an update on the FCA updating its temporary permissions regime (TPR) webpage.

Markets and markets infrastructure

ESMA updates statements on the impact of Brexit on MiFID II/MiFIR and the Benchmarks Regulation (BMR)

On 1 October, ESMA updated two statements on the impact of Brexit on MiFID II/MiFIR and the BMR. The original statements were issued in March 2019 and October 2019 reflecting ESMA’s approach if the UK would leave the EU under a no-deal Brexit. However, as the Withdrawal Agreement entered into force on 1 February, and the UK entered a transition period that will end on 31 December, these statements needed to be revised. The statement in respect of MiFID II/MiFIR covers: (i) the MiFID II “C(6) carve-out”; (ii) ESMA opinions on post-trade transparency and position limits; (iii) post-trade transparency for over the counter (OTC) transactions between EU investment firms and UK counterparties; and (iv) the CRR implementing technical standards (ITS) on main indices and recognised exchanges. The statement in respect of the BMR specifically covers the ESMA register of administrators and third-country benchmarks.
ESMA Statement – MiFID II/MiFIR
ESMA Statement – BMR

ESMA final report on its Guidelines on Internal Control for Credit Rating Agencies (CRAs)

On 30 September, ESMA published its final report on its Guidelines on Internal Control for CRAs. The purpose of these Guidelines is to communicate what ESMA considers to be the characteristics and components of an effective internal control structure within a CRA. The guidelines are structured according to two main parts, establishing: (i) ESMA’s views on the components and characteristics that should be present in a CRA to demonstrate a strong framework for internal controls; and (ii) ESMA’s views on the components and characteristics that a CRA should evidence to demonstrate the effectiveness of internal control functions within such a framework. The Guidelines will be translated into all official languages as well as published on ESMA’s website and will apply from 1 July 2021.
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ESMA guidance on the annex to its opinion determining third-country trading venues for the purpose of transparency under MiFIR

On 29 September, ESMA published guidance on the annex to its opinion (published 28 July) determining third-country trading venues for the purpose of transparency under MiFIR. The annex provides the list of venues which meet the relevant criteria defined in the opinion. The guidance covers: (i) overall description of the third-country trading venues’ assessment; (ii) general guidance, specifically updates to the list of venues and venue of execution in post-trade reports; and (iii) guidance related to specific fields – in particular, on market identifier codes (MIC), instruments in scope of the assessment, positive assessments and active/inactive venues.
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ESMA updates Regulatory Technical Standards (RTS) under the BMR

On 29 September, ESMA published its final report containing new sets of draft RTS under the BMR. These contain additional detailed rules to implement the European regulatory framework aimed at ensuring the accuracy and integrity of benchmarks across the EU. Following feedback received on its consultation paper on draft RTS under the BMR (published 9 March), ESMA has taken note of market participants’ concerns with regard to the proportionality of the requirements included in the consultation and has further enhanced proportionality in the final report taking into account: (i) the different risks each benchmark poses; (ii) the materiality of the potential or actual conflicts of interest identified; and (iii) the nature of the input data. Furthermore, ESMA has conducted additional legal analysis to ensure that the draft technical standards would not conflict with its powers under the BMR and has amended some requirements accordingly. The draft standards include provisions ensuring: (a) that the governance arrangements of administrators are sufficiently robust; (b) the potential manipulation of benchmarks is minimised, through additional rules regarding the methodology of calculation and controls to ensure the integrity of the data; and (c) common criteria are used across different Member States for the assessment of the mandatory administration of critical benchmarks and the compliance statement for non-significant benchmarks. By 1 October, ESMA will submit the final draft RTS to the EC, which will then have three months in which to approve or reject them.
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ESMA final report on the MiFID II/MiFIR transparency regime applicable to non-equity financial instruments

On 29 September, ESMA published its final report on the MiFID II/MiFIR transparency regime applicable to non-equity financial instruments. ESMA states that the proposals contained in the report aim at simplifying and bringing more efficiency to an overly complex regime, and fostering harmonised application across the EU. ESMA concluded, following its consultation paper on the MiFIR review report on transparency for non-equity, that the regime was too complicated and not always effective in ensuring transparency for market participants. Thus, ESMA has made several recommendations to the EC to improve the current regime, the key being: (i) deleting the specific waiver and deferral for respectively orders and transactions above the “size-specific to the instrument” threshold; (ii) streamlining the deferral regime and removing the supplementary deferral options left to National Competent Authorities (NCAs) under the current MiFIR text; (iii) transforming the possibility granted to NCAs to temporarily suspend MiFIR transparency provisions into a mechanism coordinated at EU-level; (iv) including the possibility to suspend on short notice the application of the derivative trading obligation similar to the mechanism available in EMIR; and (v) complementing the criteria used to grant equivalence to third-country trading venues for the purpose of the derivative trading obligation with conditions relating to transparency and non-discriminatory access. ESMA has invited the EC to translate these recommendations into legislative proposals. For the recommendations that require Level 2 changes, ESMA intends to publish amendments to its RTS 1 and RTS 2 in due course.

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EP to consider proposed Regulation and Directive on European crowdfunding service providers (ECSPs)

On 28 September the EP updated its procedure files on: (i) the EC’s proposed Regulation on ECSPs for business; and (ii) the proposed Directive making consequential amendments to MiFID II. The update confirms that the EP will consider the proposed Regulation and Directive during its plenary session to be held from 5 to 8 October. This follows the EP’s Economic and Monetary Affairs Committee (ECON) adopting two recommendations for the second reading of the proposed Regulation and Directive respectively (which were published on 30 September). If the EP adopt the proposed Regulation and Directive at second reading, they can then be published in the OJ and enter into force.
ECON Recommendation – Proposed Regulation
ECON Recommendation – Proposed Directive
EP Procedure File – Proposed Regulation
EP Procedure File – Proposed Directive

ESMA updates Q&As on data reporting under MiFIR and EMIR

On 28 September, ESMA published two updated Q&As on data reporting under MiFIR and EMIR respectively. The Q&A for MiFIR includes a new Q&A which clarifies which legal entity identifier (LEI) should be used to identify the “issuer” when reporting reference data on funds to FIRDS under Art. 4 of MAR and Art. 27 of MiFIR. The update also contains two amendments to existing Q&As: (i) clarifications in relation to the reporting requirements under Art. 26 of MiFIR and RTS 22 - the Q&A provides an additional reporting scenario to an existing Q&A where an Investment Firm executes a transaction through an execution algorithm using the membership of its client to execute the order in the market; and (ii) in relation to the national client identifiers for natural persons, clarification on how different national identifiers specified in Annex II of RTS 22 are represented. The amendments also provide clarification on the requirements for Swedish national client identifiers. ESMA states that this Q&A should be implemented six months after its publication. The Q&A for EMIR clarifies that the counterparties should use the underlying to determine the asset class of total return swaps when reporting under EMIR. ESMA has added two new trade repository Q&As: (i) clarifying that the reporting of the field reference entity for credit derivatives can be made with a country code only in the case where the reference entity is a supranational, a sovereign or a municipality; and (ii) indicating how the fields execution timestamp, effective date, maturity date and settlement date should be reported for Forward Rate Agreement derivatives (FRAs).
ESMA Q&A – MiFIR

ESMA Q&A – EMIR

FCA and BoE encourage market participants in further switch to SONIA in interest rate swap markets

On 28 September, the BoE published a statement which states that following close engagement with market participants, the FCA and BoE support and encourage liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 27 October. The intention is to facilitate the further shift in market liquidity toward SONIA swaps, bringing benefits for a wide range of end users and other market participants as they move away from the use of LIBOR. The BoE states that an FCA survey of liquidity providers identified strong support for a change in the interdealer quoting convention that would see SONIA rather than LIBOR become the default price from 27 October 2020, subject to prevailing market conditions at that time. This proposal has also been endorsed by the Working Group on Sterling Risk-Free Reference Rates (RFRWG), and has been included as an update to its roadmap for transition in sterling markets.
BoE Statement
RFRWG Roadmap

ESMA draft rules for third-country (TC) firms under new MiFIR and MiFID II regimes

On 28 September, ESMA published its final report containing draft regulatory and implementing technical standards (RTS and ITS) on the provision of investment services and activities in the EU by TC firms under MiFIR and MiFID II. The draft technical standards are published following the changes to MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by TC firms, introduced by the Investment Firms Regulation (IFR) and Directive (IFD). The report contains three technical standards: (i) draft RTS to specify the information that TC firms must provide to ESMA for the registration in the ESMA register of TC firms, and for the information that third-country firms have to report annually to ESMA; (ii) draft ITS to specify the format in which the information for the registration of the firm and for the annual report to ESMA should be submitted; and (iii) in relation to branches and the revisions made by the IFD which provides for annual reporting to national competent authorities (NCAs), draft ITS to specify the format in which the new flow of information provided by MiFID II is to be reported to NCAs by branches of TC firms. The draft technical standards have been submitted to the EC for the adoption of the final legal text.
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HOC European Scrutiny Committee (ESC) update regarding EU supervision of UK central counterparties (CCPs)

On 28 September, the HOC ESC published a letter (dated 24 September) from the Chair to Mr John Glen (Economic Secretary to the Treasury) which provides an update regarding EU supervision of UK CCPs. Amongst other things, the letter provides updates on: (i) supervisory cooperation between the Bank of England and ESMA; (ii) comparable compliance for “tier 2” non-EU CCPs; and (iii) the EU’s Recovery & Resolution Regulation for CCPs.
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ESMA to recognise three UK central counterparties (CCPs) as third country (TC)-CCPs

On 28 September, ESMA announced that three UK CCPs submitted to ESMA their applications to be recognised as TC-CCPs and, based on these, ESMA adopted the following tiering decisions: (i) LME Clear Limited has been assessed as a Tier 1 CCP; (ii) ICE Clear Limited as a Tier 2 CCP; and (iii) LCH Limited as a Tier 2 CCP. Also, after considering the conditions for recognition under Article 25 of EMIR, ESMA adopted decisions to recognise the three UK CCPs as TC-CCPs. In line with the equivalence decision made by the EC on 21 September (this being that the regulatory and supervisory framework applicable to CCPs established in the UK is equivalent), the recognition decisions will only take effect on the day following the end of the transition period and continue to apply while the equivalence decision remains in force, which is for 18 months until 30 June 2022. In addition, the BoE published a statement welcoming ESMA’s recognition decisions. This explains that the decisions give the formal permission for UK CCPs to operate in the EU, to continue to provide clearing services to their EU members, and for EU banks to continue meet their obligations to UK CCPs.
ESMA Press Release

BoE Statement

International Swaps and Derivatives Association (ISDA) product table on risk free rates (RFR) conventions and IBOR fallbacks

On 28 September, ISDA published its product table on RFR conventions and IBOR fallbacks. ISDA states that it is amending its standard documentation for interest rate derivatives that reference key IBORs to include fallback rates that will apply upon the permanent discontinuation of those IBORs and, in the case of LIBOR, if LIBOR becomes ‘non-representative’. The table sets out how the fallbacks in ISDA’s amended documentation would function for various different products, including certain non-linear products. It is intended to help counterparties understand how the fallbacks would function in their legacy and new derivatives that reference IBORs. ISDA has also revised its FAQs on fallback rate adjustments.
ISDA Product Table

ISDA Updated FAQs

Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) to become governance body for over-the-counter (OTC) derivatives identifiers

On 25 September, the FSB confirmed the ROC of the Global LEI System as the International Governance Body (IGB) for the globally harmonised identifiers used to track OTC derivatives transactions. The FSB explains that the ROC, which is already the governance body of the Global LEI System, will be responsible for the governance of the Unique Product Identifier (UPI), the Unique Transaction Identifier (UTI), and the Critical Data Elements (CDE), which includes the oversight of the UPI service provider designated by the FSB, the Derivatives Service Bureau (DSB). The FSB also published a letter from its Chair to the Chair of the LEI ROC, welcoming the LEI ROC's willingness to undertake the role. The FSB confirms that it transfers all governance and oversight responsibilities in relation to the harmonised derivatives identifiers and data elements to the ROC – this transfer also includes the right to de-designate a UPI service provider and to designate providers and this right should henceforth be exercisable by the ROC. This transfer of all governance and oversight responsibilities to the ROC is effective as of 1 October. The FSB expects the ROC to establish an appropriately rigorous oversight arrangement of DSB and any potential future service providers and ensure that appropriate contingency arrangements are in place so that, in the event of a failure of a service provider to perform or of de-designation, a smooth transition to a newly designated service provider can occur with limited disruptions. The FSB asks the ROC to update the FSB Plenary by January 2021 and, if necessary, on the progress in finalising those oversight and contingency arrangements given their relevance to the effective operation of the UPI and the UPI system, and to the continued monitoring of financial stability risk.
FSB Press Release
FSB Letter

ESMA consultation on the functioning of organised trading facilities (OTFs) under MiFID II

On 25 September, ESMA published a consultation paper on the functioning of OTFs under Article 90(1)(a) of MiFID II. The consultation contains proposals aimed at clarifying the MiFID II provisions relating to OTFs and, more generally, multilateral systems to ensure efficient EU market structures and a more level playing field between all firms operating in the EU while reducing the level of complexity for market participants. Section 3 presents a quantitative analysis of trading on OTFs, including the evolution in volumes traded on OTFs since the application of MiFID II, with a focus on OTF trading in bonds and derivatives. Section 4 focuses on the definition of an OTF, taking particular note of the definition of a multilateral system. In addition, the section analyses more broadly the boundaries of trading venues’ authorisation and OTFs’ use of discretion. Section 5 discusses matched principal trading and presents evidence on how OTFs have been making use of matched principal trading, based on a fact-finding exercise performed by ESMA. After considering the feedback that it receives, ESMA expects to publish a final report and submit it to the EC by March 2021. The deadline for comments is 25 November.
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ESMA consultation on fees for benchmarks administrators under the BMR

On 25 September, ESMA published a consultation paper on fees for benchmarks administrators under the BMR. The consultation contains ESMA’s proposed technical advice on supervisory fees to be paid to ESMA by administrators of a critical benchmark and third country administrators under the recognition regime. The proposal distinguishes between the: (i) one-off recognition fee to be paid by third country administrators applying for recognition; (ii) one-off authorisation fee to be paid by administrators of critical benchmarks applying for authorisation; (iii) annual supervisory fee to be paid by third country administrators; and (iv) annual supervisory fee to be paid by administrators of a critical benchmark. After considering the feedback received, ESMA will publish a final report and submit the technical advice to the EC by 31 January. The deadline for comments is 6 November.
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Payment services and Payment systems

Please see our Brexit section for an update on the FCA updating its temporary permissions regime (TPR) webpage.

PSR requests input on choice and availability of payments as part of its future strategy review

On 1 October, the PSR published a new webpage requesting input on its theme of choice and availability of payments, as part of its future strategy review. The PSR welcomes contributions on any of the three themes by the end of October, with the other two themes being: (i) innovation and future payment methods; and (ii) competition. The PSR will be consulting on its full draft strategy early next year.
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Prudential regulation

ECB amends annexes to the public guidance on the review of the qualification of capital instruments as Additional Tier 1 and Tier 2 instruments

On 30 September, the ECB published a letter containing amendments to the Annexes to the public guidance on the review of the qualification of capital instruments as Additional Tier 1 and Tier 2 instruments. The ECB states that institutions are advised to make use of the updated templates for their new issuances of Additional Tier 1 and Tier 2 instruments.
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BoE consultation on its proposals to introduce new expectations on Internal Ratings Based (IRB) UK mortgage risk weights

On 30 September, the BoE published a consultation paper on its proposals to introduce new expectations on IRB UK mortgage risk weights. The BoE states that the purpose of the proposals is to address the prudential risks stemming from inappropriately low IRB UK mortgage risk weights. An additional benefit from these proposals would be a narrowing of differentials between IRB and standardised approach (SA) UK mortgage risk weights, and a limit on future divergence. The PRA considers that this would support competition between firms on the different approaches. The proposals would result in changes to Supervisory Statement (SS) 11/13 ‘IRB approaches’. The deadline for comments is 30 January 2021.
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Basel Committee on Banking Supervision (BCBS) approves annual global systemically important banks (G-SIBs) assessment and updates work plan to evaluate post-crisis reforms

On 25 September, the BCBS announced that the Basel Committee has: (i) approved the results of an annual assessment exercise for G-SIBs - these will be submitted to the FSB before it publishes the 2020 list of G-SIBs; and (ii) updated its work plan to evaluate its post-crisis reforms to incorporate lessons learned from the Covid-19 crisis - the committee will conduct a range of empirical analyses. The analyses will evaluate: (a) the extent to which its post-crisis reforms have achieved their objectives; (b) the interactions amongst the Basel III reforms and other post-crisis reforms; and (c) whether there are gaps in the regulatory framework or significant unintended effects. The BCBS reiterates its previous guidance that banks should make use of the Basel III capital and liquidity buffers during this crisis to absorb financial shocks and to support the real economy by lending to creditworthy households and businesses. Supervisors will allow banks sufficient time to restore buffers, taking account of economic and market conditions as well as the circumstances of individual banks.
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EBA launches EU-wide transparency exercise

On 25 September, the EBA launched its annual EU-wide transparency exercise, with the objective of providing market participants with updated information on the financial conditions of EU banks as of June, thus assessing the preliminary impact of the Covid-19 crisis on the sector. The exercise will complement the information provided through the Spring EU-wide Transparency exercise of 8 June, by disclosing data with reference date as of March and June. The EBA expects to publish the results of this exercise at the beginning of December, along with the Risk Assessment Report.
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Recovery and resolution

EC notice relating to the interpretation of certain legal provisions of the revised bank resolution framework in reply to questions raised by Member States’ authorities

On 29 September, an EC notice relating to the interpretation of certain legal provisions of the revised bank resolution framework in reply to questions raised by Member States’ authorities was published in the OJ. The notice clarifies provisions contained in applicable legislation. It is emphasised that the notice is merely intended to assist Member States’ authorities in the transposition in national law and implementation of the relevant legal provisions.

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Sustainable finance

EC FAQs on platform on sustainable finance

On 1 October, the EC published a set of FAQs on the setting-up and work of the platform on sustainable finance. The Taxonomy Regulation requires the platform to advise the EC on several tasks and topics related to the EU Taxonomy and support it in the technical preparation of delegated acts – the EC states that the platform will have an unlimited duration, taking into account the different tasks provided for in the Taxonomy Regulation and the need to amend the technical screening criteria of the EU Taxonomy over time, in order to reflect, for instance, changing EU environmental legislation or technological developments.
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Other developments

FCA Handbook Notice 80

On 1 October, the FCA published Handbook Notice 80. The FCA lists out the changes it has made to the Handbook and binding technical standards (BTS), as set out in the instruments detailed in the Notice. The FCA details the legislative changes made, as well as publishing feedback to the following consultations: (i) CP 20/4; (ii) CP 19/27; and (iii) CP 19/33.
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EBA Work Programme 2021

On 30 September, the EBA published its work programme for 2021, covering the following six strategic areas: (i) supporting deployment of the risk reduction package and the implementation of effective resolution tools; (ii) reviewing and upgrading the EU-wide EBA stress testing framework; (iii) becoming an integrated EU data hub, (iv) leveraging on the enhanced technical capability for performing flexible and comprehensive analyses; (v) contributing to the sound development of financial innovation and operational resilience in the financial sector; (vi) building the infrastructure in the EU to lead, coordinate and monitor AML/CFT supervision; and (vii) providing the policies for factoring in and managing ESG risks. Amongst other things, the EBA states that it will take special care of the following in 2021: (a) establishing a culture of sound and effective governance and good conduct in financial institutions; and (b) addressing the aftermath of Covid-19.
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The Business Banking Resolution Service (BBRS) consultation shows demand for new service to resolve SME banking complaints

On 29 September, the BBRS announced that its consultation exercise with stakeholder organisations shows wide demand for a new service to resolve SME banking complaints, as pilot phase customers and stakeholders welcome an alternative approach to dispute resolution. The BBRS has published two reports following an in-depth qualitative study with Live Pilot customers and an extensive consultation exercise with a range of stakeholder groups. The summary report highlights that: (i) there was understood to be a current gap for businesses too large to use the Financial Ombudsman Service but for whom it would be onerous to challenge a bank in court – Alternative Dispute Resolution (ADR) and the BBRS were believed to offer a good solution to this; and (ii) respondents recognised many advantages of ADR. The Live Pilot customer focus group report explored the personal experiences of customers or their representatives taking part in the Live Pilot.
BBRS Press Release
BBRS Summary Report
BBRS Live Pilot Report

Draft Bearer Certificates (Collective Investment Schemes) Regulations 2020

On 28 September, the draft Bearer Certificates (Collective Investment Schemes) Regulations 2020 were published by the Government. An explanatory memorandum was also published, which explains that abolishing bearer certificates, also known as share warrants to bearer, or otherwise implementing measures to prevent their misuse, is required under international standards on anti-money laundering and tax transparency. This instrument closes a technical loophole which still allowed certain collective investment schemes to issue bearer certificates. By prohibiting bearer certificates and making provision for the cancellation and conversion of outstanding bearer certificates, this instrument will increase transparency around who owns and controls UK investment entities and will help deter and identify those who hide their interest in UK entities to facilitate illegal activities.
Draft Bearer Certificates (Collective Investment Schemes) Regulations 2020
Explanatory Memorandum