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Key Regulatory Topics: Weekly Update 26 - 31 March 2021

31 March 2021

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

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Webinars

The global transition to a sustainable economy – 28 April

The transition of the economy to align with the aims of the Paris Agreement and the UN Sustainable Development Goals, is set to dominate the next decade. Policy programmes are increasingly focusing on sustainability and ESG (environment, social and governance) issues, with ambitious new policy, regulation and law expected across the world. Coupled with increased ESG litigation and shareholder activism, and market-led developments in green, blue and sustainable finance, businesses across the globe are facing a plethora of new developments. Please join us on 28 April as we discuss some of the key themes of the transition, look at how different regions are addressing these issues and consider the challenges across the investment chain. The conference will be held in three sessions to allow participants from across the globe to attend live, with recordings being made available for sessions falling outside your normal working hours. To register your interest click here.

Brexit

Please see our Other Developments and Markets and Markets Infrastructure sections for product-specific updates relating to Brexit.

Technical negotiations concluded on the UK and EU Memorandum of Understanding (MoU)

On 26 March, HMT announced that technical negotiations have been concluded on the UK and EU MoU. HMT states that formal steps need to be undertaken on both sides before the MoU can be signed but it is expected that this can be done expeditiously. The MoU, once signed, creates the framework for voluntary regulatory cooperation in financial services between the UK and the EU. The MoU will establish the Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues.

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Capital markets

Please see our Markets and Markets Infrastructure section for updates on: (i) the FCA’s Primary Market Bulletin 33; and (ii) ESMA’s clarification of corporate disclosure obligations for UK issuers after Brexit.

Commission Delegated Regulation supplementing the Prospectus Regulation on minimum information content for exemption document

On 26 March, Commission Delegated Regulation (EU) 2021/528, supplementing the Prospectus Regulation on the minimum information content of the document to be published for a prospectus exemption in connection with a takeover by means of an exchange offer, a merger or a division, was published in the OJ. The regulation enters into force on 18 April, this being the 20th day following its publication in the OJ.

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Consumer/retail

Please see our Other Developments section for an update on the Financial Ombudsman Service’s plans and budget for 2021/22.

European Supervisory Authorities (ESAs) report on the application of their guidelines on complaints-handling

On 31 March, the ESAs published a report on the application of their guidelines on complaints-handling, describing the assessment of how the guidelines have been applied since their date of application and the main findings that have been identified. The ESAs state that the guidelines have: (i) been successful in terms of the number of national competent authorities (NCAs) that comply with them; and (ii) contributed to the achievement of the purposes for which they were developed, especially in ensuring a consistent approach to complaints-handling across the banking, insurance and securities sectors, and have also resulted in better outcomes for consumers. The ESAs highlight that there is no need to review the guidelines at this stage and no further assessment of the application of the guidelines is warranted.

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FCA urges Claims Management Companies (CMCs) and High Cost Lenders (HCLs) to work together better

On 31 March, the FCA published a press release urging CMCs and HCLs to work together better. The FCA notes that it is aware that many complaints being made to HCLs are handled by CMCs on behalf of their customers – this has given rise to some tensions, which have been reported to the FCA by both CMCs and HCLs. The FCA reminds HCLs and CMCs that it expects them to work together to resolve disputes and disagreements in the interest of their customers and it encourages CMCs and HCLs to agree streamlined claims handling processes with each other, where possible. The FCA has set out examples of some of the issues causing tension between CMCs and HCLs. Furthermore, the FCA reminds CMCs, inter alia, that: (i) they must not make or pursue a claim if they have reasonable grounds to suspect the claim does not have a good arguable base or is fraudulent, frivolous or vexatious; and (ii) they should take all reasonable steps to investigate the existence and merits of each element of a potential claim before making or pursuing a claim.

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FCA feedback statement on open finance

On 26 March, the FCA published a feedback statement on open finance. The feedback statement follows the FCA’s call for input published in December 2019, summarising the overall key themes from responses and setting out the FCA’s next steps. Amongst other things, the FCA sets out its vision for open finance: (i) consumers and businesses being able to grant access to their data to trusted TPPs and in return gain access to a wider range of financial services/products, having greater control over their data, engaging with their finances, as well as being empowered to make better financial decisions; (ii) increased use of open finance services spurring greater innovation, benefiting consumers by providing a broader range of products and services that better suits their needs; and (iii) widespread use of new services improving the financial health of consumers and businesses in the UK. The FCA wants to help ensure that: (a) the needs of consumers are considered from the outset, including vulnerable and digitally excluded consumers; (b) systems and standards are designed with the consumer in mind; and (c) the right incentives and conditions exist for open finance to develop sustainably. The FCA states that it will: (1) share its lessons from the implementation and supervision of open banking and the development of Pensions Dashboards, including as part of BEIS’s Smart Data Working Group; (2) work with the Government and industry stakeholders to identify what industry roadmaps are needed to support legislation; (3) help convene industry-led efforts to develop common standards to support open finance; (4) assess the regulatory framework that would be needed to support open finance; and (5) support discussions on the future operating model for the Open Banking Implementation Entity (OBIE).

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Covid-19

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

Fees/levies

Please see our Other Developments section for an update on the FCA’s Handbook Notice 86.

Fees Manual (Financial Ombudsman Service Case Fees 2021/2022) Instrument 2021

On 31 March, the FCA published the Fees Manual (Financial Ombudsman Service Case Fees 2021/2022) Instrument 2021. The Annex to the instrument sets out that the Financial Ombudsman Service: (i) makes and amends the scheme rules relating to the payment of fees under the Compulsory Jurisdiction; (ii) fixes and varies the standard terms for voluntary jurisdiction participants relating to the payment of fees under the voluntary jurisdiction; and (iii) fixes and varies the standard terms for the voluntary jurisdiction. The instrument comes into force on 1 April.

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PRA policy statement on Financial Services Compensation Scheme (FSCS) management expenses levy limit (MELL) 2021/22

On 26 March, the PRA published a policy statement on the FSCS, specifically the management expenses levy limit (MELL) for 2021/22. The policy statement provides feedback to responses to the PRA’s Consultation Paper 4/21. The policy statement also contains the final rules for the FSCS MELL for 2021/22. Having considered the responses to its consultation, the PRA has decided to publish the policy as proposed. The FSCS MELL will apply for the financial year ending 31 March 2022.

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Financial crime

Please see our Markets and Markets Infrastructure section for updates on: (i) ESMA’s advice to the EC on the application of sanctions under MiFID/MiFIR; and (ii) the FCA’s Primary Market Bulletin 33.

FCA policy statement on extending the annual financial crime reporting obligation

On 31 March, the FCA published a policy statement on extending the annual financial crime reporting obligation. In July 2016, the FCA introduced an annual financial crime reporting obligation for certain firms, referred to as ‘REP-CRIM’. In August 2020, the FCA consulted on increasing the number of firms that were required to submit the return – the FCA proposed that cryptoasset businesses, and many firms that were not previously included, be brought into scope of the return based on their business activities and the potential money laundering risks. The policy statement sets out the FCA’s final policy and requirements, following the consultation. The FCA states that it is extending the scope of firms which are required to submit a REP-CRIM return from approximately 2,500 to approximately 7,000 firms. The following additional firms will be required to provide the FCA with REP-CRIM information irrespective of their total annual revenue: (i) certain FSMA authorised firms falling within the scope of the Money Laundering Regulations (MLRs) which either: hold client money or assets, or carry on an activity that the FCA considers poses higher money laundering risk; (ii) all payments institutions except for: (a) payment institutions that only carry on at least one of the following payment services: money remittance and account information services and/or payment initiation services: (b) a person with temporary PI authorisation that immediately before IP completion day was providing payment services other than through a branch in the UK or a UK-based agent (as defined in the FCA handbook); (iii) all electronic money institutions; (iv) all Multilateral Trading Facilities (MTFs); (v) all Organised Trading Facilities (OTFs); and (vi) all cryptoasset exchange providers and custodian wallet providers. Firms that will be brought into the scope of REP-CRIM for the first time will need to be prepared to submit the return when it is due.

Policy Statement

Fintech

Please see our Consumer/Retail section for an update on the FCA’s feedback statement on open finance.

Please see our Financial Crime section for an update on the FCA’s policy statement on extending the annual financial crime reporting obligation to all cryptoasset exchange providers and custodian wallet providers.

Please see our Other Developments section for updates on the: (i) FCA’s Handbook Notice 86; (ii) FPC’s financial policy summary; and (iii) FSB’s speech addressing financial stability challenges.

Fund regulation

Please see our Other Developments section for an update on the FSB’s speech addressing financial stability challenges.

ESMA updates Q&As on the application of the Alternative Investment Fund Managers Directive (AIFMD) and Collective Investment in Transferable Securities (UCITS) Directive

On 30 March, ESMA published updated Q&As on the application of AIFMD and UCITS Directive. In respect of the updated AIFMD Q&As, the update contains new Q&As on ESMA’s guidelines on performance fees in UCITS and certain types of Authorised Investment Funds (AIFs). The new Q&As provide clarification on the: (i) crystallisation of performance fees; (ii) timeline of the application of the performance reference period; and (iii) scope of the guidelines in respect of European long-term investment funds (ELTIFs). Regarding the updated UCITS Q&As, ESMA has added two new Q&As on ESMA’s guidelines on performance fees in UCITS and certain types of AIFs. The Q&As provide clarification on the crystallisation of performance fees and on the timeline of the application of the performance reference period.

AIFMD Q&As

UCITS Q&As

BoE and FCA report on liquidity management in UK open-ended funds

On 26 March, the BoE and FCA published a report on liquidity management in UK open-ended funds. The report contains findings of the BoE and FCA joint survey launched in August 2020, covering the reporting period of Q4 2019 to Q2 2020. The report states that the survey provides several important insights into funds’ liquidity management: (i) funds have a wide range of liquidity tools available to them, but predominantly use swing pricing; (ii) funds intensified and adapted their use of swing pricing during the stress period, although there were large variations in how swing pricing was applied; (iii) in addition to the use of liquidity management tools, funds managed their liquidity by holding liquidity buffers in the form of cash and non-cash liquid assets; (iv) some funds adapted their liquidity management approaches and governance measures temporarily or permanently in response to the Covid stress; and (v) an indicative liquidity classification suggests that managers of corporate bond funds may be overestimating the liquidity of their holdings. As stated in its financial policy summary for March, having considered the findings of the survey, the Financial Policy Committee (FPC) will set out, in its next Financial Stability Report, its view on how a liquidity classification could be developed and an approach for how more consistent and complete swing pricing could be developed in order to promote financial stability.

BoE and FCA Report

FPC Financial Policy Summary

ESMA consults on legislative review of the Regulation on money market funds (MMF Regulation)

On 26 March, ESMA published a consultation paper on the legislative review of the MMF Regulation. ESMA states that the Covid-19 crisis has been challenging for MMFs as a number of EU MMFs faced significant liquidity issues during the period of acute stress in March 2020 with large redemptions from investors on the liability side, and a severe deterioration of liquidity of money market instruments on the asset side. In this context, the consultation paper discusses the potential reforms of the EU MMF regulatory framework that could be envisaged, in light of the lessons learnt from the difficulties faced by MMFs during the Covid-19 crisis in March 2020. ESMA will consider the feedback that it receives to this consultation in Q2 and expects to publish its opinion on the review of the MMF Regulation in the second half of this year. The deadline for comments is 30 June.

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Markets and markets infrastructure

Please see our Other Developments section for updates on the: (i) FPC’s financial policy summary and record; and (ii) FSB’s speech addressing financial stability challenges.

ESMA promotes coordinated action on the suspension of best execution reports under MiFID II

On 31 March, ESMA published a statement to promote coordinated action by national competent authorities (NCAs) under MiFID II. The statement relates to the temporary suspension of the obligation on execution venues to make available to the public data related to the quality of execution of transactions on their venues (RTS 27 Reports). ESMA explains that these reports are rarely read and do not enable investors and other users to make any meaningful comparisons on the basis of the information they contain.

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ESMA updates Q&As on the Benchmarks Regulation (BMR) transitional provision

On 31 March, ESMA published its updated Q&As on the BMR. The updated Q&As further clarify the applicable transitional provisions for third-country benchmarks as set out in the BMR. Before the update, the Q&As stated that ESMA considers that the meaning of the term “where the benchmark is already used in the Union” in Article 51(5) of the BMR is “where the benchmark is already used in the Union on or before 1 January 2020 31 December 2021 – in the update, ESMA has amended this to “on or before 31 December 2023”.

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ESMA clarifies corporate disclosure obligations for UK issuers after Brexit

On 31 March, ESMA published a statement concerning the application of transparency requirements by UK issuers with securities admitted to trading on regulated markets in the EU, now third country issuers, under Article 4 of the Transparency Directive (TD). The statement highlights that, from 1 January, UK issuers may use the International Financial Reporting Standards (IFRS), as endorsed by the EU, or as issued by the International Accounting Standards Board (IASB), amongst other accounting standards, when complying with their TD obligations for consolidated financial statements and individual financial statements of single entities.

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ESMA updates Q&As on the implementation of EMIR

On 31 March, ESMA published its updated Q&As on the implementation of EMIR. The updated Trade Repository (TR) Q&A 51 provides further clarifications on two aspects related to intragroup transactions (IGT) reporting exemption: (i) reporting of details of derivatives when the IGT reporting exemption ceases to be valid; and (ii) location of parent undertaking for purposes of the IGT reporting exemption.

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ESMA updates Q&As on Prospectus Regulation (PR)

On 31 March, ESMA published its updated Q&As on the PR. The updated Q&As provide clarification on the: (i) application of the exemption in Article 1(5)(b) PR in a situation concerning non-transferable securities; (ii) application of the PR where shares can be exchanged for global depositary receipts (and vice versa); (iii) dissemination of amended advertisements; and (iv) status of transferable securities.

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ESMA updates Q&As on CSDR

On 31 March, ESMA published its updated Q&As on the CSDR. ESMA explains that the revised ESMA Regulation (Article 16b(5)) specifies that ESMA transfers queries which interpret Union law to the EC. The updated Q&As contain answers provided by the EC that relate to: (i) the provision of CSD services in other Member States - the first Q&A clarifies that Article 23 of CSDR applies to all types of financial instruments, as defined under MIFID II, whether or not admitted to trading, or traded, on trading venues, and the second Q&A clarifies that, for the purpose of Article 23(2) of CSDR, the “law under which the securities are constituted” should by default be the standard law of the issuance of the securities and/or, if determined by the issuer, the national law of the issuer; and (ii) the exemption from the application of cash penalties and the buy-in requirements for settlement fails relating to transactions involving central counterparties (CCPs) – the third Q&A clarifies that only settlement fails relating to transactions for which a CCP interposes itself between the counterparties should be captured by the exemption under Article 7(11) of CSDR.

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ESMA proposes amendments to MiFIR transactions and reference data reporting regimes

On 30 March, ESMA published its final report on the review of transaction and reference data reporting obligations under MiFIR. The final report contains recommendations and possible legislative amendments to MiFID II/MiFIR with a view to simplifying the current reporting regimes whilst ensuring quality and usability of the reported data. It aims to achieve this through the: (i) replacement of the trading on a trading venue (TOTV) concept with the SI approach for OTC derivatives, taking into account the conclusions of ESMA’s Final Report on the transparency regime for non-equity instruments and the trading obligation for derivatives; (ii) removal of the short sale indicator; (iii) alignment with reporting regimes such as MAR, EMIR and the Benchmark Regulation; (iv) reliance on international standards, including LEIs, ISINs and CFIs; and (v) inclusion of three additional data elements with a view to harmonise the way they are reported and avoid inconsistent and duplicative reporting of the same information at the national level. Based on these recommendations, the EC is expected to adopt legislative proposals. ESMA confirms that it is ready to provide additional technical advice on the proposals contained in the report.

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ESMA guidelines on reporting under Articles 4 and 12 of the SFTR

On 29 March, ESMA published guidelines on reporting under Articles 4 and 12 of the SFTR. ESMA states that the guidelines aim to clarify a number of provisions of SFTR and to provide practical guidance on the implementation of some of those provisions. Furthermore, the guidelines will contribute to the reduction of costs along the complete reporting chain. In particular, the guidelines provide clarity as to the following aspects: (i) the reporting start date when it falls on a non-working day; (ii) the number of reportable SFTs; (iii) the population of reporting fields for different types of SFTs; (iv) the approach used to link SFT collateral with SFT loans; (v) the population of reporting fields for margin data; (vi) the population of reporting fields for reuse, reinvestment and funding sources data; (vii) the generation of feedback by TRs and its subsequent management by counterparties, namely in the case of rejection of reported data and reconciliation breaks; and (viii) the provision of access to data to authorities by TRs.

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ESMA updates Q&As on MiFID II and MiFIR investor protection and intermediaries topics

On 29 March, ESMA published updated Q&As on MiFID II and MiFIR investor protection and intermediaries topics. The update includes a new Q&A on how to apply the condition that the inducement is justified by the provision of an additional or higher-level service to the relevant client, proportional to the level of inducements received, as referred to in Article 11(2)(a) of MiFID II. In its answer, ESMA discusses the: (i) meaning of additional or higher-level service; (ii) meaning of providing services to a relevant client; and (iii) expectation for firms to demonstrate that quality enhancements provided to the client are proportional to the level of inducements received.

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ESMA advises the EC on the application of sanctions under MiFID/MiFIR

On 29 March, ESMA published its final report on technical advice to the EC on the application of administrative and criminal sanctions under MiFID II/MiFIR. The technical advice addresses the application of administrative and criminal sanctions, and particularly the need to further harmonise the administrative sanctions set out for infringements of MiFID II/MiFIR requirements. ESMA’s technical advice includes proposals to: (i) amend the MiFID II requirements for National Competent Authorities (NCAs) to disclose and report information on sanctions and measures; (ii) amend the MiFID II requirement for NCAs to liaise with judicial authorities to gather information on criminal sanctions; (iii) include settlement powers among the range of sanctions and measures of Member States’ national NCAs to increase the efficiency of their enforcement proceedings; and (iv) amend the current requirements on MiFID II precautionary measures.

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FCA Primary Market Bulletin 33

On 29 March, the FCA published Primary Market Bulletin 33. This details the results of the FCA’s review of the way that UK issuers announced changes to total voting rights and the effect on major shareholding notifications. As a result of the review, the FCA would like to: (i) remind position holders that Disclosure Guidance and Transparency Rule (DTR) 5.1.2R(2) places a responsibility on them as shareholders to assess whether their position has changed as a result of an event changing the breakdown of voting rights; (ii) remind issuers to report changes to total voting rights clearly and on time as required by the DTR: (iii) report total voting rights at the end of each calendar month during which an increase or decrease occurred, even if this information was disclosed before in accordance with DTR5.5.1R and DTR5.6.1AR; and (iv) report total voting rights figures as a distinct announcement, use ‘Total Voting Rights’ as a headline and to select the proper classification of regulated information as ‘Total number of voting rights and capital’ in accordance with DTR 6.2.2AR, DTR 6.2.2.BR and DTR 6 Annex 1R. Furthermore, the bulletin details the results of the FCA’s review of disclosures by UK issuers for the financial year ending 2019, for the requirements set out in DTR 4.3A, identifying several issues – overall, the FCA is concerned that compliance did not improve markedly after its previous review, and it will revisit this review in the future and assess whether stronger interventions are required.

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FCA and BoE encourage market participants in a switch to SONIA in the sterling non-linear derivatives market from 11 May

On 29 March, the FCA published a statement, stating that the FCA and BoE support and encourage liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May. This is to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR. In the period leading up to 11 May, the FCA and BoE will engage with market participants to determine whether market conditions allow the switch to proceed smoothly.

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Commission Delegated Regulation establishing regulatory technical standards (RTS) regarding adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument in the context pre-trade transparency obligations to be waived under MiFIR.

On 26 March, Commission Delegated Regulation (EU) 2021/529 was published in the OJ. The Delegated Regulation establishes RTS amending Delegated Regulation (EU) 2017/583 as regards adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (SSTI) applicable to certain non-equity instruments, under MiFIR. The Delegated Regulation enters into force on 18 April, this being the 20th day following that of its publication in the OJ.

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Commission Delegated Regulation on thresholds for weekly position reporting of commodity derivatives under MiFID II

On 26 March, Commission Delegated Regulation (EU) 2021/527, amending Commission Delegated Regulation (EU) 2017/565 as regards the thresholds for weekly position reporting under MiFID II, was published in the OJ. Article 83 of Commission Delegated Regulation (EU) 2017/565 establishes the minimum thresholds for the weekly reporting of positions held by specified persons in commodity derivatives, as required under Article 58(1) of MiFID II, and Commission Delegated Regulation (EU) 2021/527 amends certain aspects of those minimum thresholds. The Delegated Regulation entered into force on 29 March, this being the 3rd day following that of its publication in the OJ.

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ESMA final reports on data reporting service providers (DRSPs) under MiFIR

On 26 March, ESMA published three final reports on the DRSP under MiFIR. Firstly, ESMA published its final report on criteria to identify those Authorised Reporting Mechanisms (ARMs) and Approved Publications Arrangements (APAs) that, by way of derogation from MiFIR on account of their limited relevance for the internal market, are subject to authorisation and supervision by a competent authority of a member state. Secondly, ESMA published its final report presenting its technical advice including ESMA’s proposals relating to fees for DRSPs in relation to the new competences granted to ESMA under MiFIR as amended by Regulation 2019/2175. Finally, ESMA published its final report presenting ESMA’s technical advice to the EC on procedural rules for penalties imposed on DRSPs, following the assessment by ESMA of the feedback received on the proposals included in its consultation paper that was published on 23 December 2020.

Final Report – advice on the criteria for DRSP

Final Report – technical advice on ESMA’s fees to DRSP

Final Report – technical advice on procedural rules for penalties imposed on DRSPs

ESMA final report on technical advice on procedural rules for penalties imposed on benchmark administrators under the Benchmarks Regulation (BMR)

On 26 March, ESMA published its final report on technical advice submitted to the EC on procedural rules for penalties imposed on benchmark administrators under the BMR. The report covers: (i) imposition of fines and supervisory measures and the rights of the persons subject to investigation; (ii) imposition of periodic penalty payments; (iii) procedure for interim decisions that ESMA may impose where urgent action is needed; and (iv) limitation periods for the imposition of penalties and for the enforcement of penalties.

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ESAs opinion on the jurisdictional scope of application of the Securitisation Regulation

On 26 March, the ESAs published an opinion on the jurisdictional scope of application of the Securitisation Regulation. The opinion deals with, among other things, the application of: (i) Articles 5 to 7 and 9 of the Securitisation Regulation to third country-based entities; and (ii) the Securitisation Regulation’s provisions to investment fund managers.

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ESAs Q&As on Securitisation Regulation

On 26 March, the Joint Committee of the ESAs published a set of Q&As on the Securitisation Regulation. The document contains answers to questions which fall outside the exclusive competence of either ESMA, EBA or EIOPA. Specifically, the Q&As cover, among other things: (i) a summary of the underlying documentation that is essential for the understanding of a transaction; (ii) required level of completeness of the information described in points (b), (c) and (d) of the first subparagraph of Article 7(1) of the Securitisation Regulation; and (iii) provision of STS+ certification by third party verifier agent.

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PRA and FCA Dear CEO letter on priority areas for transition from LIBOR to risk-free rates (RFRs)

On 26 March, the PRA published a joint Dear CEO letter, published together with the FCA, on the transition from LIBOR to RFRs. The annex to this letter sets out a list of priority areas where further action by firms is necessary to prepare for the cessation of LIBOR including: (i) cessation of new sterling LIBOR business milestones, and cessation of new LIBOR-referencing syndicated lending; and (ii) systems readiness for LIBOR cessation. Furthermore, the letter states that as the final phase of LIBOR transition is beginning, the PRA and FCA are intensifying their supervisory focus on firms’ management and oversight of the risks associated with transition.

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Payment systems and payment services

Please see our Financial Crime section for an update on the FCA’s policy statement on extending the annual financial crime reporting obligation.

Please see our Other Developments section for an update on the FCA’s, PRA’s and BoE’s policy statements on new operational resilience framework.

Please see our Other Developments section for an update on the FSB’s speech addressing financial stability challenges in an age of interconnectedness, innovation, and change.

EC consultation on instant payments

On 31 March, the EC published a consultation on instant payments. The consultation will inform the EC on remaining obstacles as well as possible enabling actions that it could take to ensure a wide availability and use of instant payments in the EU. It will also enable the EC to decide on whether EU coordinated action and/or policy measures are warranted in order to ensure that a critical mass of EU payment service providers (PSPs) offer instant credit transfers. The consultation also seeks to identify factors that would be relevant for stimulating customer demand (from consumers, corporate users and merchants alike) towards instant credit transfers. The consultation aims at identifying the concerns that would need to be addressed to incentivise EU payments market players to offer innovative, convenient, safe and cost efficient pan-European payment solutions based on instant credit transfers. At the same time, it would help establish what features and safeguards would enable the users to reap the benefits of instant payments to the fullest. The deadline for comments is 23 June.

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Lending Standards Board (LSB) call for input for the Contingent Reimbursement Model (CRM) Code for Authorised Push Payment (APP) scams

On 31 March, the LSB published a further call for input for the CRM code for APP scams, following its full review of the CRM code which was published in January. The call for input will explore that the: (i) scope of the Code should more fully reflect the evolving nature and complexity of APP scams to ensure that it is able to remain relevant and in line with developments in the wider payments landscape; (ii) Code should recognise the wider range of participants within the payments industry whilst ensuring that it retains a consistent approach to the standards of protections provided; and (iii) Code should more fully reflect the roles and responsibilities of receiving firms in the customer payment journey.

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Prudential regulation

Please see our Markets and Markets Infrastructure section for updates on the ESAs’ opinion on the jurisdictional scope of application of the Securitisation Regulation.

Please see our Other Developments section for updates on the: (i) FPC’s financial policy summary and record; (ii) FSB’s speech addressing financial stability challenges; and (iii) FCA’s, PRA’s and BoE’s policy statements on operational resilience.

EBA consultation on regulatory technical standards on disclosure of investment policy by investment firms

On 31 March, the EBA published a consultation paper on draft regulatory technical standards (RTS) on disclosure of investment policy by investment firms under Article 52 of the Investment Firms Regulation (IFR). The draft RTS: (i) put forward comparable disclosures that should help stakeholders understand investment firms’ influence over the companies in which they have voting rights and the impact of investment firms’ policies on aspects such as the governance or management of those companies; (ii) put forward templates and tables for the disclosure of information on the investment firm’s voting behaviour, explanation of the votes, and the ratio of approved proposal, with the objective to show if the investment firm is an active shareholder that generally uses its voting rights, and how it uses them; (iii) include information on the use of proxy advisory firms that should help address uncertainties about potential conflicts of interest; and (iv) include information on investment firms’ voting guidelines, including, when relevant, a breakdown by geographical zone, economic sector or topic of the resolution being voted. The EBA notes that these disclosure requirements apply to class 2 investment firms with total assets above €100 million – these firms will have to disclose this information in relation to those companies whose shares are admitted to trading on a regulated market and in which the proportion of voting rights exceeds 5 % of all voting rights issued by the company. The EBA will hold a public hearing on 6 May. The deadline for comments is 1 July.

Consultation Paper

Annex I - Disclosure of investment policy by investment firms

Annex II - Instructions on disclosure of investment policy by investment firms

Commission Delegated Regulation amending regulatory technical standards (RTS) for the specification of the methodology for the identification of global systemically important institutions (G-SIIs) and for the definition of subcategories of G-SIIs

On 29 March, Commission Delegated Regulation (EU) 2021/539, amending Delegated Regulation (EU) 1222/2014, was published in the OJ. Delegated Regulation (EU) 1222/2014 supplements CRD IV with RTS for the specification of the methodology for the identification of G-SIIs and for the definition of subcategories of G-SIIs. The amendments in Delegated Regulation (EU) 2021/539: (i) reflect revisions to the BCBS framework that were published in July 2018; (ii) introduce an additional EU methodology to allocate G-SII buffer rates to identified G-SIIs; and (iii) provide that the detailed specification of the indicator values for assessing G-SIIs will be set in EBA guidelines, rather than by reference to the Basel framework. Most of the Delegated Regulation enters into force on, and applies from, 30 March – save, Regulations (4)(a), 4(b) and (5), which relate to the BCBS reforms and apply from 1 December 2021.

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Corrigendum to Commission Implementing Regulation containing implementing technical standards (ITS) on reporting requirements for market risk under CRR

On 26 March, a corrigendum to Commission Implementing Regulation (EU) 2021/453 was published in the OJ. The Implementing Regulation contains ITS on reporting requirements for market risk under CRR. The corrigendum inserts Annex III to the Implementing Regulation, which contains: (i) a single data point model – all data items referred to in Annexes I and II shall be transformed into a single data point model which is the basis for uniform IT systems of institutions and competent authorities; and (ii) validation rules – the data items referred to in Annexes I and II shall be subject to validation rules ensuring data quality and consistency.

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Recovery and resolution

Single Resolution Board (SRB) issues new guidance on bail-in for international debt securities

On 30 March, the SRB published a document which describes elements that banks should consider for the operationalisation of the bail-in in respect of international bearer debt securities issued by and safekept in the international central securities depositories (ICSDs), Euroclear Bank (EB) and Clearstream Banking Luxembourg (CBL). The SRB notes that the document describes elements that banks should consider with regard to the write-down and conversion of international bearer debt securities (Eurobonds) issued by and safekept in the ICSDs – these securities represent some 30% of the liabilities (in the form of securities) of banks under SRB remit. Furthermore, the document explains the role of ICSDs in a bail-in, the stakeholders involved, processes and steps to follow, data and information requirements, communication timelines and channels used. The document aims to: (i) provide a better understanding of the procedures the ICSDs would apply in the case of the bail-in of international bearer debt securities for which the ICSDs act as issuer CSDs – any actions undertaken by the ICSDs in respect of domestic securities, in their role of investor CSDs, will reflect events taking place on the local market; (ii) provide information to banks and resolution authorities across jurisdictions about how the bail-in of such instruments would be reflected in the books of the ICSDs; and (iii) support banks in preparing their bail-in playbooks, in particular in respect of securities issued and safekept in the ICSDs. The SRB states that banks are expected to reflect the content of this document in their bail-in playbooks, in accordance with the SRB’s ‘Expectations for Banks’ document.

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EC adopts Delegated Regulation supplementing BRRD with regulatory technical standards (RTS) on estimating Pillar 2 and combined buffer requirements for setting the minimum requirement for own funds and eligible liabilities (MREL)

On 26 March, the EC adopted a Delegated Regulation supplementing the BRRD with RTS specifying the methodology to be used by resolution authorities to estimate the requirement referred to in Article 104a of the BRRD, and the combined buffer requirement for resolution entities at the resolution group consolidated level for the purpose of setting minimum requirements for own funds and eligible liabilities under Article 45c(4) of the BRRD. The RTS provide: (i) the parameters under which additional own funds requirement should be estimated and the methodology to do so; (ii) the methodology to adjust the estimated additional own funds requirements; and (iii) a methodology to estimate the combined buffer requirement. The Council of the EU and the EP will scrutinise the draft Delegated Regulation, and it will enter into force 20 days after its publication in the OJ.

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Other developments

The Investment Consultancy and Fiduciary Management Market Investigation Order 2019

On 31 March, the Competition and Markets Authority (CMA) published the Investment Consultancy and Fiduciary Management Market Investigation Order 2019. To address competition problems that the CMA found, the Order introduces a range of reforms to the investment consultancy and fiduciary management sector. Subject to provisions in the Order, pension scheme trustees, investment consultancy and fiduciary management firms must submit compliance statements to the CMA by 7 January of each year.

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Financial Ombudsman Service (FOS) plans and budget for 2021/22

On 31 March, the FOS published its plans and budget for 2021/22. The plans and budget document sets out that, in the year to the end of March 2021, despite the unprecedented impact of Covid-19, the FOS expects to have resolved in excess of 95% of the volume of cases that it originally planned to in its general casework. However, the pandemic has also contributed to the substantial increase in the number of new complaints that it received in 2020/21 – the FOS is projecting that a further 170,000 new disputes could be referred to it in 2021/22.The plans and budget sets out how the FOS is responding to this, including its plans to bring down waiting times.

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FSB speech addressing financial stability challenges in an age of interconnectedness, innovation, and change

On 30 March, the FSB published a speech by its Chair, Randal Quarles, addressing financial stability challenges in an age of interconnectedness, innovation, and change. The speech focuses on non-bank financial intermediation (NBFI) and cross-border payments, which are the FSB’s priority areas that will have significant impact on the financial landscape going forward. Key points of the speech include: (i) in light of the Holistic Review, the FSB intends to publish a report in July for consultation that will set out consequential policy proposals to improve money market mutual funds (MMFs) resilience – this work will also consider the relationship between MMFs and short-term funding markets; (ii) disruptions in bond markets raised questions about the role of leveraged investors and the willingness and capacity of dealers to intermediate in times of stress – work is underway to gather data and analyse dealer behaviour to develop a comprehensive view on their impact on financial market functioning and determine whether policy responses are necessary; (iii) the FSB continues to advance work to improve central counterparty (CCP) resilience and resolvability, as set out in the FSB 2020 resolution report – Mr Quarles is coordinating with the Chairs of the Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO), and the FSB Resolution Steering Group on shaping these details; (iv) the FSB expects to launch a work stream this year aimed at further strengthening the resilience and resolvability of CCPs in default and non-default loss scenarios; (v) the FSB and other standard-setting bodies have begun work on margin activity in centrally cleared and non-centrally cleared markets; (vi) in regard to addressing the core challenges associated with cross-border payments, the FSB will have to decide what the actual improvements that are desired to be seen, and how the FSB will monitor its progress in achieving them; (vii) the FSB is continuing to closely monitor vulnerabilities stemming from the Covid-19 pandemic, including the rise in nonfinancial sector debt; (viii) next month, the FSB will release the final report of its evaluation of the effects of post-GFC banking reforms; and (ix) the FSB intends to deliver recommendations to the G20 in October on cybersecurity to achieve greater convergence in areas such as regulatory reporting of cyber incidents.

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FCA, PRA and BoE policy statements on new operational resilience framework

On 29 March, the FCA, PRA and BoE published policy statements setting out their final rules and guidance on operational resilience. Firstly, the FCA’s PS summarises the feedback that it received to its consultation paper (CP)19/32 and its response, setting out final rules. The FCA has made changes to its policy position in response to feedback to provide firms with more time and flexibility to meet mapping and scenario testing requirements. The FCA has implemented its other proposals as consulted on, and has detailed where it has made amendments to reflect the feedback received. The Operational Resilience Instrument 2021, accompanying the policy statement, contains final rules and guidance – this will come into force on 31 March 2022. In addition, the PRA’s PS on operational resilience: impact tolerances for important business services, provides feedback to responses to the PRA’s CP 29/19. It also contains the PRA’s final policy, this being: (i) a new Operational Resilience section of the PRA Rulebook; (ii) amendments to the Group Supervision Part of the PRA Rulebook; (iii) a new Supervisory Statement (SS) 1/21; and (iv) a new Statement of Policy (SoP). The PRA has also set out the amendments it has made after considering the responses to its CP. Moreover, the PRA has published a joint cover document with the FCA. Amongst other things, the joint covering document notes that a key message from the consultation process is that firms and financial market infrastructures (FMIs) support the authorities’ joined-up approach; firms regulated by both the PRA and the FCA expressed a strong desire for the authorities not to diverge or create duplicative work and the final policy frameworks are designed with this in mind. Additionally, the covering document states that some operational configurations and working practices may change permanently when emerging from the pandemic and these changes will need to be incorporated into operational resilience planning. Furthermore, the BoE published its operational resilience policy which is designed to improve the operational resilience of FMIs and protect the wider financial sector and UK economy from the impact of operational disruptions. The requirements and expectations embed the approach set out in CPs published in December 2019. The BoE has also published: (a) individual policy statements and supervisory statements on the BoE’s operational resilience expectations for Central Counterparties (CCPs) and Central Securities Depositories (CSDRs); and (b) a PS, SS and operational resilience chapter of the Code of Practice for Recognised Payment System Operators (RPSOs) and Specified Service Providers (SSPs).

FCA PS

FCA Operational Resilience Instrument 2021

PRA PS – Impact Tolerances

PRA and FCA Joint Covering Document

PRA Operational Resilience Parts of the PRA Rulebook

PRA SS1/21

PRA SoP

BoE PS – CCPs

BoE SS – CCPs

BoE PS – CSDRs

BoE SS – CSDRs

BoE PS – Recognised Payment System Operators and Specified Service Providers

BoE SS – Recognised Payment System Operators and Specified Service Providers

PRA policy statement on outsourcing and third party risk management

On 29 March, the PRA published a policy statement on outsourcing and third party risk management. This policy statement provides feedback to the PRA’s consultation paper on outsourcing and third party risk management, and contains the PRA’s final Supervisory Statement (SS) 2/21. Having considered the responses to the CP, the PRA has made targeted revisions to the final policy on: (i) definitions and scope; (ii) proportionality; (iii) governance and record-keeping; (iv) pre-outsourcing phase; (v) outsourcing agreements; (vi) data security; (vii) access, audit, and information rights; (viii) sub-outsourcing; and (ix) business continuity and exit plans. Firms will be expected to comply with the expectations in the SS by 31 March 2022. Outsourcing arrangements entered into on or after 31 March 2021 should meet the expectations in the SS by 31 March 2022. Firms should seek to review and update legacy outsourcing agreements entered into before 31 March 2021 at the first appropriate contractual renewal or revision point to meet the expectations in the SS as soon as possible on or after 31 March 2022. As a result of the Covid-19 pandemic, the PRA considers that it is no longer proportionate for firms to make every effort to comply with the indicative timeline and process for reviewing their material legacy outsourcing arrangements as set out in paragraphs 15 and 16 of the EBA Outsourcing Guidelines (GL). Likewise, firms are not expected to inform the PRA if they have not met the timeline set out in the EBA Outsourcing GL. The PRA is planning a follow-up consultation setting out detailed proposals for an online portal that all firms would need to populate with certain information on their outsourcing and third party arrangements, or a subset thereof – this consultation will take into account the comments provided by respondents to CP30/19 on the idea of developing an online portal. The PRA also plans to undertake further analysis on whether additional policy measures to manage the risks that critical third parties could pose to their objectives might be appropriate – subject to the outcome of this analysis, the PRA may engage with industry and other relevant external stakeholders in due course.

Policy Statement

Supervisory Statement

Financial Policy Committee (FPC) financial policy summary and record

On 26 March, the BoE published the financial policy summary and record of the meeting of its FPC on 11 March. In terms of the outlook for financial stability, the FPC outlined: (i) support for the economy to weather economic disruption – in particular, the FPC is maintaining the UK countercyclical capital buffer (CCyB) rate at 0% and expects to maintain the 0% UK CCyB rate until at least December; (ii) that global reforms are needed to make market-based finance more resilient; (iii) detail on the joint BoE and FCA review of open-ended investment funds; and (iv) productive finance to support economic recovery – the BoE, HMT and the FCA have established an industry working group to facilitate investment in productive finance through the launch of a Long-Term Asset Fund (LTAF) structure, and the FCA will publish a consultation on the LTAF in the first half of 2021. The FPC also addressed the UK’s new relationship with the EU – the FPC will remain committed to the implementation of robust prudential standards in the UK. The FPC also set out its thinking on the 2022 cyber stress test – it was agreed that the test should involve a scenario where data integrity had been compromised, and that it will be an exploratory test. The FPC will provide more information on the 2022 cyber stress test in due course. Moreover, in regard to the Liquidity Biennial Exploratory Scenario (LBES), the FPC noted that it planned to use the insights generated by the LBES, combined with experience gained from March 2020 – for example, to feed into international liquidity policy discussions and the FPC’s analysis of non-bank financial intermediation. The FPC intends to publish this analysis in the next financial policy summary. The financial policy summary and record also provides detail on the UK mortgage market, as well as LIBOR transition.

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FCA Handbook Notice 86

On 26 March, the FCA published Handbook Notice 86 which sets out changes to the FCA Handbook made by the FCA board on 25 March, as well as changes made by the Financial Ombudsman Service (FOS) board on 25 March. Specifically, the Handbook Notice reflects changes made to the Handbook by the following instruments: (i) Exiting the European Union: Gibraltar (Fees) Instrument 2021 (FCA 2021/8 / FOS 2021/2); (ii) Fees (Crypto-asset Business) (Periodic Fees) Instrument 2021 (FCA 2021/9); (iii) Fees (Multilateral Trading Facilities and Organised Trading Facilities Fees Amendments) Instrument 2021 (FCA 2021/10); (iv) Financial Services Compensation Scheme (Management Expenses Levy Limit 2021/22) Instrument 2021 (FCA 2021/11); and (v) Financial Services Compensation Scheme (Appointed Representatives) Instrument 2021 (FCA 2021/12). FCA 2021/12 came into force on 26 March, and all of the other instruments come into force on 1 April.

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