Key Regulatory Topics: Weekly update 26 June – 2 July 2020
08 July 2020
Our weekly update on key regulatory topics affecting the financial services sector.
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EMIR (9 July at 9:00)
In this webinar, we will provide a more in-depth analysis of the obligations of UK and EU market participants under EMIR and ‘onshored’ UK EMIR at the end of 2020, including changes in scope, counterparty classification, reporting, clearing, margin and intragroup exemptions. Please register here if you would like to attend.
MiFID II (23 July at 9:00)
In this webinar, we will provide a more in-depth analysis of the principal areas of change for UK, EU and third-country firms under MiFIR and UK MiFIR, including transparency, transaction reporting, the share trading obligation and the derivatives trading obligation. Please register here if you would like to attend.
Please see our Consumer/Retail section for an update on the Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020.
Please see our Markets and Markets Infrastructure section for updates on the: (i) BoE’s updated procedure for recognition applications for EEA central securities depositories; and (ii) Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment etc and Transitional Provision) (EU Exit) Regulations 2020.
FCA to re-open notification window for temporary permissions regime (TPR) on 30 SeptemberOn 1 July, the FCA updated its webpage on the TPR for inbound passporting EEA firms and funds, announcing that it will re-open the notification window on 30 September. This will allow firms and fund managers that have not yet notified, to do so before the end of the transition period. There will also be an opportunity for fund managers to update their previously submitted notifications. The FCA will communicate further on this in September. The FCA also published a speech by Nausicaa Delfas (Executive Director of International) at the City & Financial Professional Virtual Roundtables. Nausicaa Delfas states that from 2021, EEA firms will be called to apply for permanent authorisation to replace their temporary permission. The FCA plans to consult later this year on the approach it will take when it assesses applications from overseas firms. Furthermore, the speech details the FCA’s approach after the transition period, stating that it will be guided by its continued commitment to the highest international standards, and by what is right for UK’s markets, building on the strengths of the existing UK regulatory and legal system. The speech also covers the impact of Covid-19 and other changes, including that the FCA are now looking at conduct and resilience of the markets in the medium and longer term.
EC’s speech at the Eurofi General Assembly
On 30 June, the EC published a speech by Michel Barnier (Head of the Task Force for Relations with the United Kingdom) at the Eurofi General Assembly. Mr Barnier’s speech reflects the EU’s views on the UK’s proposals for the chapter in financial services in the UK-EU future agreement, the equivalence process and the overall state of negotiations. Mr Barnier states the proposals are unacceptable and highlights key areas of contention from the EU’s perspective. These include: (i) the creation of a legally enforceable regulatory cooperation framework, compared to the EU’s proposals for a voluntary framework for dialogue; (ii) the UK’s attempt to frame the EU’s process for withdrawing equivalence; (iii) the proposal for fly-in and fly-out provisions for short-term business stays; and (iv) residence requirements for senior managers and boards of directors. The speech reiterates the Political Declaration commitment of ‘best endeavours’ to finalise respective assessments by the end of June and states that the UK has answered 4 out of the 28 questionnaires covering areas where equivalence assessments are possible. Mr Barnier also states the need for the EU to capture all potential risks and refers to the UK government’s paper on the future regulatory framework and that the UK will progressively start to diverge from the EU framework. Furthermore, Mr Barnier outlined that equivalence will only be granted in areas where it is in the interest of the EU, the EU’s financial stability, as well as its investors and consumers.
The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020
On 29 June, the Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020 were made and published by the government, with an Explanatory Memorandum. This instrument revokes a number of pieces of retained EU law and UK domestic law, which would not be appropriate to keep on the statute book after the transition period, as they deal with cross-border activity within the EU and the functioning of EU institutions. Additionally, this instrument makes a small number of minor clarifications and corrections to previous financial services EU exit instruments. Some provisions apply on 30 June, and the remaining provision come into force on IP completion day.
FCA’s additional targeted temporary measures to support consumer credit customers – Covid-19
On 1 July, the FCA published a further set of targeted temporary measures to support consumer credit customers that remain impacted by Covid-19. The FCA has confirmed: (i) if customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so; (ii) firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid; (iii) customers who are negatively impacted by Covid-19 and who already have an arranged overdraft on their main personal current account can request up to £500 interest-free for a further 3 months; (iv) customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to Covid-19, would be able to request one up until 31 October; and (v) any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. This guidance comes into force on 3 July and only applies to credit cards (and other retail revolving credit, such as store cards and catalogue credit), personal loans and overdrafts. The FCA has also published the Covid-19 Credit Cards and Personal Loans (No 2) Instrument 2020.
FCA’s update on banks’ overdraft pricing decisions and plans to support consumers
On 1 July, the FCA published a statement that gives an update on banks’ overdraft pricing decisions and plans to support consumers. The FCA has analysed the strategic, competitive and financial drivers of banks’ overdraft pricing decisions based on their responses – having reviewed the evidence obtained, the FCA does not intend to open a formal investigation at this stage. In respect of the FCA’s changes forcing firms to make their overdraft prices transparent and easy to compare to other products, it will take time to see the full impact of the new rules. The FCA notes that overdraft charges are still higher than other mainstream borrowing products like credit cards and personal loans, though the FCA expects these forms of credit to create more competitive pressure on overdraft charges as consumers respond to the pricing changes and greater transparency. The FCA will be keeping a close watch on how prices develop. The FCA requires firms to publish information on their overdraft pricing alongside the information they already publish about current account services – this information is due to be published in August for the first time and will cover the quarter from 1 April to 30 June.
EC’s consultation on EU rules for consumer credit agreements
On 30 June, the EC published a consultation to gather views on four initiatives that the EC plans to propose in 2020 and 2021: (i) a New Consumer Agenda which will provide a new EU strategic framework for consumer policy in key priority areas and will also take into account the impact of the Covid-19 pandemic on consumers; (ii) empowering the consumer for the green transition; (iii) the review of the Consumer Credit Directive; and (iv) the review of the General Product Safety Directive which will aim to update the directive to account for the challenges brought by new technologies and online selling. The deadline for comments is 6 October.
Financial Services Consumer Panel’s (FSCP) discussion paper on digital advertising in financial services
On 30 June, the FSCP published a discussion paper on digital advertising in financial services. The FSCP states that it is deeply concerned about potential consumer harm linked to digital advertising of financial services and the use of advertising technology or ‘adtech’ to create detailed profiles of individual consumers. It states that while these techniques enable personalised, targeted marketing, they also potentially create an environment for discrimination, manipulation, and exploitation. The FSCP notes that these concerns are seriously heightened by the impact of Covid-19 on the financial situation of UK households.
Draft Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020
On 29 June, the draft Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020 were laid before Parliament. These Regulations amend EU-derived domestic legislation which implements Directive 2013/11/EU on alternative dispute resolution for consumer disputes. The relevant legislation extends time limits for bringing legal action where, at the expiry of the time limit in question, the parties in a dispute brought by a consumer against a trader are engaged in non-binding alternative dispute resolution (ADR). These Regulations remove references to the Directive with the effect that the time limits will only be extended for ADR in which the consumer is resident in the UK and uses the services of an ADR provider which is authorised under the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015.
FCA extends the Senior Managers & Certification Regime (SM&CR) implementation periods for solo-regulated firms
On 30 June, the FCA published a statement on the extension of SM&CR implementation periods for solo-regulated firms. HMT has agreed to delay, from 9 December 2020 until 31 March 2021, the deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons. This will give firms significantly affected by Covid-19 time to make the changes they need. To ensure SM&CR deadlines remain consistent, and to provide extra time for firms that need it, the FCA intends to consult on extending the deadline for the following requirements from 9 December to 31 March 2021: (i) the date the Conduct Rules come into force; (ii) the deadline for submission of information about Directory Persons to the Register; and (iii) references in its rules to the deadline for assessing Certified Persons as fit and proper (which has been agreed by HMT).
FCA’s expectations on the Approved Persons Regime (APR) during Covid-19
On 30 June, the FCA published its expectations to help benchmark administrators and firms using Appointed Representative (AR) arrangements apply the APR during Covid-19. The FCA sets out temporary arrangements for controlled functions. To provide further flexibility to firms at this time, the FCA intends to issue a modification by consent to the 12-week rule. The 12-week rule allows an individual to cover for an Approved Person without being approved, where the absence is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks. If temporary arrangements last longer than 12-weeks as a result of the crisis, firms will be able to notify the FCA that they consent to a modification of the 12-week rule – in these cases, temporary arrangements can last up to 36 weeks. Roles requiring approval under the customer function (CF30) cannot be covered using the 12-week rule. For furloughed staff, unless an individual is permanently leaving their post, they can retain their approval during their absence and will not need to be re-approved by the FCA when they return. The FCA expects these arrangements to be clearly documented internally, so that everyone understands who is responsible for what, and such documents should be available if requested.
Please see the other sections for product specific updates relating to Covid-19.
FCA extends submission deadlines for certain regulatory returns – update on regulatory reporting during Covid-19
On 26 June, the FCA updated its webpage on changes to regulatory reporting during Covid-19, extending submission deadlines for certain regulatory returns. Firms are also reminded of their obligation under Principle 11 to inform the FCA of anything of which it would reasonably expect notice.
PRA’s statement on Covid-19 regulatory reporting and disclosure amendments
On 26 June, the PRA published a statement on Covid-19 regulatory reporting and disclosure amendments. In the PRA’s previous statement 'Covid-19 regulatory reporting and disclosure amendments' published on 2 April, the PRA set out that it would accept delayed submission of certain regulatory returns with deadlines on or before 31 May. That statement noted the PRA would consider in due course the treatment of those returns with a deadline of June onwards. Having considered the fact that firms have now had time to adjust to new ways of working, and the prudential benefits to supervisors of timely submission of regulatory data, the PRA has concluded that it would not be appropriate to continue to apply the reporting measures set out in the previous statement to future submissions. In future, the PRA will therefore, in general, expect on time submission for future regulatory reporting. Firms experiencing difficulty with timely submission should contact their usual supervisor to discuss.
Fees and levies
FCA’s policy statement on regulated fees and levies 2020/21
On 2 July, the FCA published its policy statement on regulated fees and levies for 2020/21. This includes feedback on its CP 20/06 and ‘made rules’. The FCA has also published the following handbook instruments which make the amendments to the Fees Manual, included in Appendix 1 and 2 respectively: (1) the Periodic Fees (2020/2021) and Other Fees Instrument 2020; and (2) the Fees (Primary Market Transaction Fees Amendments) Instrument 2020. The instruments came into force on 2 July.
Please see our Other Developments section for an update on the EC’s July infringements package.
Basel Committee on Banking Supervision finalises AML/CFT guidelines on supervisory cooperation
On 2 July, the Basel Committee on Banking Supervision published an updated version of its guidelines on sound management of risks related to money laundering and financing of terrorism, with guidelines on the interaction and cooperation between prudential and AML/CFT supervisors. These guidelines are intended to enhance the effectiveness of supervision of banks' money laundering and financing of terrorism (FT) risk management, consistent with and complementary to the goals and objectives of the standards issued by the Financial Action Task Force (FATF) as well as principles and guidelines published by the Basel Committee. These guidelines specifically target banks, banking groups (Parts II and III respectively) and banking supervisors (Part IV).
FCA cryptoasset consumer research 2020 paper
On 30 June, the FCA published a cryptoasset consumer research paper. This research relates to cryptoassets that are generally, outside of the regulatory perimeter, and increases the FCA’s collective understanding of the related market size, consumer profiles and attitudes. The following findings are emphasised by the FCA: (a) technical knowledge appears high among most cryptocurrencies owners; (b) most owners hold small sums and are aware of the lack of regulatory protections, as well as that prices are volatile; (c) though, the lack of such knowledge among some presents potential consumer harm to consumers; (d) current owners were more likely to identify that they are not afforded regulatory protection than previous owners, suggesting that consumers’ understanding of the lack of protection has risen over time; (e) the most popular reason for consumers buying cryptocurrencies was as ‘as a gamble that could make or lose money’ – such individuals who held this reason were more likely to hold their cryptocurrencies for longer periods; (f) cryptocurrency exchanges are a key market participant and most consumers used non-UK based exchanges; (g) adverts are important components of the consumer journey with the ability to influence consumer sentiment; and (h) those displaying a lack of knowledge surrounding the technology underpinning cryptocurrencies or the absence of regulatory protections, appear more likely to have financed their purchases of cryptocurrencies with borrowed money and/or other assets.
ESMA’s and EBA’s responses to EC’s consultation on new EU Digital Finance Strategy
On 29 June, the ESAs published their responses to the EC’s consultation on a new EU Digital Finance Strategy. ESMA’s covering letter highlights that its response goes on to raise many specific points in relation to the themes around which the consultation is structured, these include: (i) ensuring a technology-neutral EU financial services regulatory framework that supports innovation; (ii) removing fragmentation in the single market for digital financial services; and (iii) promoting a well-regulated data-driven financial sector. In its covering letter, the EBA states that it agrees with the EC’s focus on: (a) ensuring that the EU financial services regulatory framework is fit for the digital age; (b) enabling consumers and firms to reap the opportunities offered by the EU-wide Single Market for digital financial services; (c) promoting a data-driven financial sector for the benefit of EU consumers and firms; and (d) strengthening digital operational resilience. In particular, the EBA highlights the central importance of comprehensive and ongoing monitoring of the application of innovative technologies in the financial sector as well as knowledge sharing, for example, through the EBA’s FinTech Knowledge Hub.
International Monetary Fund (IMF) working paper on a survey of research on retail Central Bank Digital Currency (CBDC)
On 26 June, the IMF published a working paper which examines the key considerations around CBDC, specifically in respect of use by the general public based on a review of recent research, central bank experiments, and ongoing discussions among stakeholders. It looks at: (i) the reasons why central banks are exploring retail CBDC issuance, including policy and design considerations; (ii) legal, governance and regulatory perspectives; and (iii) cybersecurity and other risk considerations. This paper suggests a structured framework to organise discussions on whether or not to issue CBDC, with an operational focus and a project management perspective.
FSB’s statement on the impact of Covid-19 on global benchmark reform
On 1 July, the FSB published a statement on the impact of Covid-19 on global benchmark reform. The FSB maintains its view that financial and non-financial sector firms across all jurisdictions should continue their efforts in making wider use of risk-free rates in order to reduce reliance on IBORs where appropriate, and in particular to remove remaining dependencies on LIBOR by the end of 2021. Also, the FSB states that LIBOR transition remains an essential task that will strengthen the global financial system. As the G20 in its February communique asked the FSB to identify remaining challenges to benchmark transition by July and to explore ways to address them, the FSB will publish a report in response later this month.
UK Finance user guidance on ESMA’s Financial Instruments Reference Data System (FIRDS)
On 29 June, UK Finance published user guidance on FIRDS. FIRDS was established to create better transparency within financial markets. Data from trading venues and national regulators (NCAs) is made available on FIRDS. FIRDS is then used as one of many sources of reference data to determine whether transactions executed in financial instruments across Europe are reportable to regulatory authorities. The system can, however, be challenging to navigate as the search functionality is less intuitive than it could be. This guidance aims to optimise the FIRDS user experience and provides examples on how to search and verify legal entity identifiers (LEIs), maturity dates and international securities identification numbers, as well as how to avoid common pitfalls.
BoE updates the procedure for recognition applications for EEA central securities depositories (CSDs)
On 26 June, the BoE updated its information in respect of recognition applications for EEA CSDs, The BoE notes that the Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 were published by HMT – under such legislation, if HMT makes any equivalence decisions in relation to the EEA during the transition period, EEA CSDs will be able to apply to the BoE for recognition before the end of the transition period and, in any event, must submit a formal recognition application within 6 months of the end of the transition period. Where an equivalence decision is made by HMT, the BoE will contact EEA CSDs, as appropriate, and notify them of the actions that they need to take, including the manner in which such a recognition application may be made and the information that must accompany it. The procedure for non-EEA CSDs remains unchanged and no equivalence decisions will be made by HMT until after the end of the transition period.
Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment etc and Transitional Provision) (EU Exit) Regulations 2020
On 26 June, the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment etc and Transitional Provision) (EU Exit) Regulations 2020 were made and published by the government, with an Explanatory Memorandum. This instrument ensures that EMIR, as retained EU law, continues to function effectively in the UK. Part 2 makes changes to FSMA to expand the UK’s existing central counterparty (CCP) supervisory framework to cover third country CCPs, in order to ensure that the BoE is able to undertake the necessary supervisory responsibilities required under the EMIR 2.2 framework. Part 3 ensures that the references to EMIR in UK legislation are up to date. It also makes changes to a number of EU Exit Instruments made under section 8 of the EUWA – these instruments addressed deficiencies in EMIR arising as a result of exit, and some updates are necessary to ensure the deficiency fixes now operate effectively with the changes introduced to EMIR by EMIR 2.2. Furthermore, it updates existing legislation in order to ensure the BoE can assess third country CCP applications in line with the new EMIR 2.2 provisions before the end of the transition period. Part 4 addresses deficiencies in EMIR, as amended by EMIR 2.2, to ensure that the UK continues to have an effective regulatory framework for OTC derivatives and CCPs after the end of the transition period. Certain provisions come into force on 25 June, and the remaining provisions come into force on IP completion day.
FCA updates trade repository (TR) registration arrangements under UK SFTR
On 26 June, the FCA updated its webpage on trade repositories (TRs), specifically on registration arrangements under the UK SFTR. The FCA notes HMT’s confirmation of 30 April that it intends to bring forward legislation (similar to the Trade Repositories Regulations) before the transition period ends. The FCA states that it would allow TRs who wish to offer services under the UK SFTR to register with the FCA, or apply in advance, and operate in the UK immediately after the end of the transition period. The legislation would provide for both a conversion and temporary registration regime (TRR) for firms wishing to operate under UK SFTR as a TR in the UK after the end of the transition period.
Payment services and payment systems
FCA and PSR expand on joint work to map access to cash during Covid-19
On 30 June, the FCA announced further information on its work with the PSR on identifying and managing access to cash during the Covid-19 pandemic, following their joint statement of 16 June. Throughout the pandemic, the PSR, FCA, other regulators and the industry have collaborated to create a single database of the UK’s cash access points. The FCA emphasises that despite the decline in its use, cash is still an essential method of payment for many and thus ensuring access to cash is a priority for the FCA and PSR. Developing a better understanding of these needs and characteristics will be a key part of the FCA’s longer-term work to maintain access to cash withdrawals and deposits for consumers and businesses.
EC reports on impact of the Interchange Fees Regulation (IFR) for card-based payment transactions
On 29 June, the EC published a report on the impact of the IFR for card-based payment transactions, building on a comprehensive study (of 11 March) on the application of the IFR, as well as extensive additional input provided by stakeholders. The report concludes that the main objectives of the IFR have been achieved, as interchange fees for consumer cards have decreased, leading to reduced merchants' charges for card payments, and ultimately resulting in improved services to consumers and lower consumer prices. Furthermore, market integration has improved through the increased use by merchants of acquirers (banks servicing merchants) located in other Member States (cross-border acquiring services) and more cross-border card transactions. However, further monitoring and reinforced data gathering are necessary in some areas, including those where only limited time has elapsed since the IFR entered into force. Given the positive impact of the IFR and the need for more time to see the full effects of the IFR, the report is not accompanied by a revision legislative proposal.
ECB consultation on its supervisory approach to consolidation
On 1 July, the ECB published a guide for consultation that aims to clarify its supervisory approach to consolidation projects involving euro area banks. The ECB will make use of its supervisory tools in order to facilitate sustainable consolidation projects. Specifically, the ECB will, for example: (i) not penalise credible integration plans with higher capital requirements; and (ii) accept the temporary use of existing internal models, subject to a strong roll-out plan. The ECB aims to clarify how supervisors use their powers with respect to consolidation projects. The deadline for comments is 1 October.
EBA final Guidelines on the treatment of structural FX under Article 352(2) of the CRR
On 1 July, the EBA published a final report of its Guidelines on the treatment of structural FX under Article 352(2) of the CRR. The structural FX provision, as laid down in Article 352(2) of the CRR, allows competent authorities to authorise, on an ad hoc basis, the exclusion of FX-risk positions of a ‘structural nature’, provided they have been taken on purpose to function as a hedge of the capital ratio(s). Specifically, the Guidelines are deemed to set objective criteria that competent authorities should consider for the purpose of assessing whether the conditions set out in Article 352(2) for receiving the permission are met, while granting a balanced degree of flexibility. In order to harmonise practices among EU jurisdictions, several technical details have been included as part of these Guidelines. The Guidelines will be applicable from 1 January 2022.
ESRB Recommendation amending 2015 Recommendation on EU macroprudential policy framework
On 1 July, Recommendation ESRB/2020/9 (dated 2 June 2020) amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of, and voluntary reciprocity for, macroprudential policy measures was published in the OJ. In response to Eesti Pank’s decision of 6 April to reduce the level of the systemic risk buffer rate to 0%, with effect from 1 May, the General Board of the ESRB has decided to exclude the Estonian measure from the list of macroprudential policy measures which are recommended to be reciprocated under Recommendation ESRB/2015/2.
PRA provides clarifications on the application of credit risk approaches for firms under the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the UK Coronavirus Large Business Interruption Loan Scheme (CLBILS)
On 26 June, the PRA updated its statement on the regulatory treatment of the CBILS and CLBILS. This provides clarifications on the application of credit risk approaches for firms.
CRR Amending Regulation (Regulation (EU) 2020/873) published in the OJ, together with related PRA statement
On 26 June, the CRR Amending Regulation was published in the OJ, which makes changes to the CRR and CRR II to ensure that the regulatory framework interacts appropriately with the various measures that address Covid-19. It enters into force on, and applies from, 27 June 2020, except for amendments to the calculation of the leverage ratio which will apply from 28 June 2021. On 30 June, the PRA published a related statement, setting out its initial views on the measures included in the CRR Amending Regulation.
Recovery and resolution
FSB consultation report on the evaluation of effects of too-big-to-fail (TBTF) reforms
On 29 June, the FSB published a consultation report, setting out preliminary results of its evaluation of the effects of the TBTF reforms for systemically important banks (SIBs). The TBTF reforms being evaluated have three components: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks. This evaluation has not examined the implications of recent economic and financial developments because the analysis in the consultation report was largely completed before the outbreak of Covid-19; though, the report draws a number of conclusions that are relevant to policymakers, market participants and other stakeholders in the current situation. The findings of the report suggest that TBTF reforms have contributed to the resilience of the banking sector and its ability to absorb, rather than amplify, shocks. A key finding of the report is that significant progress has been made since the global financial crisis in establishing resolution regimes and enhancing the resolvability of banks. The final report is expected to be published in early 2021. The deadline for comments is 30 September.
EBA discussion paper – application of early intervention measures in the EU according to Articles 27‐29 of BRRD
On 26 June, the EBA published a discussion paper on the application of early intervention measures in the EU per Articles 27‐29 of BRRD. The BRRD introduced early intervention measures (EIMs) to expand the existing set of powers available to supervisors towards institutions in difficulties. While monitoring the application of EIMs in 2015-2018, the EBA observed a limited use of EIMs across the EU during that period. Instead of EIMs, the competent authorities often preferred to apply other pre-BRRD supervisory powers available to them. The EBA investigated the reasons for these supervisory practices. While recognising that EIMs could be successfully implemented under the existing regulatory framework, the EBA identified key challenges faced by supervisors in the application of the current regulatory framework on the EIMs and various options of addressing them. In particular, the paper concentrates on the following issues identified by the EBA: (i) the interaction between EIMs and other supervisory powers; (ii) disclosure and reputation risks; and (iii) specification of EI triggers. The EBA invites views from external stakeholders, in particular from legal professionals, academics and supervisors from outside of the EU. The deadline for comments is 25 September.
PRA Dear CEO letter on managing climate-related financial risk – thematic feedback from the PRA’s review of firms’ plans and clarification of expectations
On 1 July, the PRA published a Dear CEO letter from its Deputy Governor and CEO Sam Woods, addressing: (i) the management of climate-related financial risk; (ii) thematic feedback from the PRA’s review of firms’ plans; and (iii) clarification of expectations set out in Supervisory Statement (SS) 3/19. The letter, amongst other things, clarifies the PRA’s expectations on timing, stating that firms should have fully embedded their approaches to managing climate-related financial risks by the end of 2021. The PRA recognises that data limitations mean that firms will not be able to embed an end-state analysis of climate-related financial risks within the firm’s capital frameworks by end-2021; however, firms should be able to explain the steps they have taken to ensure that where appropriate, capital levels adequately cover the risks to which the firm is, or might be, exposed. Also, the BoE will be issuing additional guidance and useful material such as reference scenarios prior to the launch of the 2021 climate focused Biennial Exploratory Scenario (BES). Firms should expect climate-related financial risk to be integrated within the PRA’s full range of regular supervisory activities, including the 2021 BES exercise.
The Climate Financial Risk Forum (CFRF) guide to climate-related financial risk management
On 29 June, the CFRF (established by the PRA and FCA in 2019) published a guide to climate-related financial risk management. The guide aims to help financial firms to understand the risks and opportunities that arise from climate change, and provide support on how to integrate this into their risk, strategy and decision-making processes.
HOC European Scrutiny Committee (ESC) letter on UK implementation of the Taxonomy Regulation
On 29 June, the HOC ESC published a letter (dated 25 June) from its chair, Sir William Cash, to John Glen (Economic Secretary to the Treasury) on the UK’s implementation of the Taxonomy Regulation, following up on Mr Glen's letter of 28 May. Sir William Cash states that the ESC was intrigued by Mr Glen’s reference to the fact that the government is considering the extent to which it will align with the EU as regards the taxonomy beyond the end of the transition period, based on the detailed screening criteria for the high-level environmental objectives which the EC is due to begin publishing at the end of this year. Sir William Cash asks Mr Glen to clarify why such alignment is under consideration, and in particular whether the issue of the UK operating something akin to the taxonomy has been raised, or is likely to be raised, in the context of discussions with the EU on ‘equivalence’ for financial services (especially with respect to asset management and investment services).
EC July infringements package
On 2 July, the EC published a webpage on its July infringements package, highlighting key decisions against Member States for failing to comply with their obligations under EU law, grouped by policy area. In section 3, the EC details action taken concerning the transposition and implementation of the Fourth Money Laundering Directive (MLD4), specifically: (i) letters of formal notice; (ii) reasoned opinions; and (iii) referral to Court of Justice of the European Union (CJEU). In a press release, the EC has announced that it has referred Austria, Belgium and the Netherlands to the CJEU, with a request for financial sanctions, for failing to fully implement MLD4 into their national law.
EC July Infringements Package
FCA Handbook Notice 78
On 26 June 2020, the FCA published Handbook Notice 78, which sets out changes to the FCA Handbook made by the FCA Board on 21 May and 25 June. The Handbook Notice reflects changes made to the Handbook by the following instruments: (i) Conduct of Business Sourcebook (Pension Transfers) (No 3) Instrument 2020; (ii) Individual Accountability (FCA-Authorised Benchmark Firms) Instrument 2020; (iii) Handbook Administration (No 53) Instrument 2020; (iv) Variation of Permission and Cancellation Form (Miscellaneous Amendments) Instrument 2020; and (v) Collective Investment Schemes Sourcebook (Miscellaneous Amendments) Instrument 2020.