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Key Regulatory Topics: Weekly Update 26 August - 1 September 2022

01 September 2022

It has been another quiet week; OFSI published updated guidance for financial sanctions to reflect the extension of reporting obligations to cryptoasset exchange providers and custodian wallet providers. ICE Benchmark Administration began consulting on the potential cessation of all ICE Swap Rate settings based on USD LIBOR on 30 June 2023.  The FCA published its quarterly data for the number of skilled persons reports it commissioned in April – June, a fitting prelude to our annual FCA & PRA enforcement themes and trends webinar (details below).

Consumer/retail

Please see the Sustainable Finance section for a report published by IOSCO on retail investor education in the context of sustainable finance markets and products.

Financial crime and sanctions

EBA reports on functioning of AML and CFT colleges

On 1 September, the EBA published a report on the functioning of AML/CFT supervisory colleges for 2021. The findings show that although competent authorities are committed to implementing the AML/CFT colleges framework, they need to do more to ensure ongoing collaboration and proactive information exchange within colleges. The report sets out: (i) the EBA’s observations of good practices, which include well-structured and organised college meetings by lead supervisors, pro-active participation and sharing of comprehensive information by some members and an effective involvement of prudential supervisors in some colleges; and (ii) areas for improvement, with six actions for college members to undertake going forward. In particular, it highlights that, due to their immaturity, AML/CFT colleges are not yet fully embedded in supervisory processes. The EBA reminds supervisors of the importance to exchange information in colleges on an ongoing basis and without delay, particularly where material weaknesses in the institution’s AML/CFT framework have been identified. It also emphasises the need for colleges to be organised in a more risk-sensitive manner with more frequent meetings being held for those cross-border institutions that are exposed to higher risks of ML/TF. Throughout 2022, the EBA will continue to monitor and provide technical support to competent authorities in this process to ensure that AML/CFT colleges function effectively and achieve their objectives

Press release

Report

OFSI updated financial sanctions guidance

On 30 August, OFSI updated its guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018 to reflect the coming into force of amendments set out in the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022 and the Sanctions (EU Exit) (Miscellaneous Amendments) (No 2) Regulations 2022. These regulations extend the reporting obligations to cryptoasset exchange providers and custodian wallet providers. These firms will need to inform OFSI as soon as practicable if they know or reasonably suspect a person is a designated person or has committed offences under financial sanctions regulations, where that information is received in the course of carrying on their business. OFSI has also published a blog post outlining what firms’ reporting obligations are and how they can be met. It provides information and examples on what type of offences are relevant and how to submit reports to OFSI.

Guidance

Blogpost

Fintech 

Please see the Financial Crime and Sanctions section for OFSI’s updated guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018 to reflect the coming into force of reporting obligations for cryptoasset exchange providers and custodian wallet providers.

Markets and markets infrastructure 

 

IBA consults on potential cessation of ICE Swap Rate based on USD LIBOR

On 30 August, ICE Benchmark Administration (IBA) began consulting on the potential cessation of all ICE Swap Rate settings based on USD LIBOR on 30 June 2023. IBA does not expect to have sufficient input data required to calculate the Swap Rate settings after the cessation of USD LIBOR on this date. As a result, IBA is consulting on its intention to cease the publication of all USD LIBOR ICE Swap Rate benchmark “runs” (i.e. USD LIBOR Rates 1100, USD LIBOR Spreads 1100 and USD LIBOR 1500) for all tenors immediately after publication on June 30, 2023. The accompanying press release stresses that the consultation is not, and must not be taken to be, an announcement that IBA will cease or continue the publication of USD LIBOR ICE Swap Rate, or any other ICE Swap Rate settings after June 30, 2023, or any other date. The deadline for comments is 7 October.

Press release

Consultation

Prudential regulation 

ECB to re-evaluate SREP

On 1 September, the ECB announced that it has appointed five high level experts to review the effectiveness and the efficiency of the Supervisory Review and Evaluation Process (SREP) as well as how it relates to other supervisory processes. The group will engage with major relevant stakeholders and other international experts to gather information and perspectives on supervisory best practices. Its mandate runs until the end of the Q1 2023.

Press release 

Sustainable finance

IOSCO report on retail investor education on sustainable finance

On 31 August, IOSCO published a report on retail investor education in the context of sustainable finance markets and products. IOSCO explains that securities regulators have increasingly focused on whether sustainable finance claims are accurate and if investors have the information they need to evaluate sustainable finance products. However, to make informed decisions, retail investors need to understand the characteristics of such products. Accordingly, the report: (i) identifies some of the main challenges and sound practices for developing educational content on these matters, informing investors of the features and risks of sustainable investments and fostering educational activities that create the conditions for better protecting and informing retail investors on the opportunities and risks related to sustainable finance products; and (ii) describes educational activities that regulators should consider, taking into account the level of sustainable finance and retail investor participation in their markets. This includes: (a) explaining to retail investors how to obtain sustainability-related information and to search and understand whether the offered product(s) matches their sustainability-related preferences; and (b) supporting initiatives of market participants to help retail investors understand ESG certifications, labels and scores regarding the financial products offered to individuals and encouraging and/or facilitating training that helps financial advisors better understand greenwashing and how to protect investors against unsubstantiated or misleading sustainability claims. The report includes a collection of examples of investor education materials and tools for possible reference or use.

Press release

Report

Other developments

FCA skilled persons reports Q1 2022/23

On 1 September, the FCA published data for the number of skilled persons reports it commissioned in Q1 of the 2022/23 financial year (April – June). These independent reports are commissioned by the FCA to obtain a view from a third party about aspects of a regulated firm's activities if the FCA is concerned or wants further analysis. In Q1 2022/23: (i) just under half (4) of the reports were commissioned in the retail banking and payments sector, with a further 2 in the retail investments sector, 1 in the investment management sector and 2 in the wholesale markets sector; and (ii) just over half (5) of the reports focused on controls and risk management frameworks, 2 focused on governance and individual accountability and 2 focused on financial crime. Of the 9 skilled person reviews commissioned in Q1, two were commissioned under the FCA's power to contract directly with a skilled person.

Data