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Key Regulatory Topics: Weekly update 5 – 11 February 2021

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

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Please see our Brexit financial services webpage, which contains, amongst other things, tables detailing Brexit statutory instruments, equivalence decisions, EEA transitional regimes and UK regulators’ publications.

Pleases see the Other Developments section for a speech, given by Andrew Bailey, BoE Governor, looking at, among other things, the benefits of a global financial system and the issue of EU equivalence.

HoC European Scrutiny Committee confirms ongoing files following end of transition period

On 11 February, the HoC European Scrutiny Committee published a letter (dated 10 February 2021) from Sir William Cash, Committee Chair, to Michael Gove, Chancellor of the Duchy of Lancaster, stating that, in the light of the end of the Brexit transition period and the UK-EU trade and co-operation agreement (TCA), it intends to continue to scrutinise only a limited number of files. The files that the Committee retains an active interest in amongst other concerns: (i) engage the Protocol on Ireland/Northern Ireland to the UK/EU Withdrawal Agreement; (ii) are relevant to the TCA; and/or (iii) concern the UK’s new relationship with the EU more broadly. The files include the EU's proposed Regulation on markets in cryptoassets (MiCA) and Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation). The Committee expects to continue to scrutinise and engage with the Government on these files and ask that all outstanding and future requests for further information are promptly addressed. Files not listed in the letter are deemed to have been cleared from scrutiny and all open correspondence between the Committee and the Government closed. The Committee confirms that it will continue to scrutinise and report to the HoC on all new EU documents deposited by the Government.

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Capital markets

Please see the Markets and Market Infrastructure section for the EP’s announcement that it has adopted the proposed Directive amending MiFID II as regards information requirements, product governance and position limits to help the EU's economic recovery from the Covid-19 pandemic, and the proposed Regulation amending the Prospectus Regulation as regards an EU Recovery prospectus and other amendments to facilitate the recapitalisation of companies affected by the Covid-19 pandemic

Consumer / retail

Please see the Payments and Payment Services section for two calls for views launched by the PSR exploring greater protections for consumers using payment systems, relating to: (i) protection against APP scams (CP21/3), and (ii) consumer protection in interbank payments (CP21/4).

In Credit Podcast: Episode 4 - The Woolard Review

‘In Credit’ is a podcast series where our leading Consumer Finance team discuss regulatory updates and provide industry insight. Their most recent episode discusses the Woolard Review and draws out the most urgent recommendations. To listen please click here, if you would like to keep up to date with further episodes then click here to join our mailing list.

FCA report on 2020 financial lives survey and October 2020 Covid-19 panel survey

On February 11, the FCA reported on its latest financial lives survey (FLS) and its October 2020 Covid-19 panel survey, looking at consumers’ financial situations, the financial products they choose and their experiences of engaging with financial services firms. The FCA found that: (i) the number of consumers with low financial resilience – meaning over-indebtedness or with low levels of savings or low or erratic earnings – has grown from 10.7 million to 14.2 million; (ii) many adults reported that they were likely to cut back on essentials (33% or 17.5m) or to use a food bank (11% or 5.6m); 8.1 million (16%) expected to take on more debt. However, 48% of adults have not been affected financially by Covid-19, and 14% have actually seen an improvement in their financial situation; (iii) one in six (17% or 3.2m) mortgage holders have taken up a mortgage payment deferral and four in ten of them report that they would have struggled without such measures; and (iv) there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events who are at greater risk of harm.

Press release



FCA portfolio letter on supervision strategy for retail banking

On 5 February, the FCA published a portfolio letter sent to retail banks, setting out the key risks of harm that retail banks’ activities are likely to pose over the next two years, the FCA’s expectations in relation to mitigating these risks, and the work the FCA will undertake to monitor firms’ progress. The four supervision priority areas the FCA identifies are: (i) ensuring fair treatment of borrowers, including those in financial difficulties - the FCA highlights that in the current Covid-19 environment, lenders are facing growing operational and financial pressures and more customers may have difficulties meeting their borrowing commitments; (ii) ensuring good governance and oversight of customer treatment and outcomes during business change over the next two years - the FCA highlights risks to customers potentially arising from firms seeking to change business models and revenue sources, and reducing costs by cutting budgets or making transformational changes; (iii) ensuring operational resilience over the next two years and beyond - the FCA considers that there are too many IT outages and incidents, which often stem from underlying weaknesses in the governance and oversight of operations and technology, especially in respect of change programmes or where significant business services and underlying functions are outsourced; and (iv) minimising fraud and other financial crime - the FCA considers that retail banking services are at high risk of being abused for money laundering and other financial crime and has identified common areas of weakness in many retail banks, including weaknesses in systems and oversight. The FCA also highlights its ongoing work in relation to Brexit and LIBOR transition.

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

PRA and FCA statements on Covid-19 regulatory reporting amendments

On 5 February, the PRA and the FCA published updated guidance setting out their approach to regulatory reporting in response to the current Covid-19 conditions. The FCA will allow flexibility in the submission deadline for annual reports and accounts. For this return only, firms may apply a 2-month extension to the deadline for submissions due up to and including 31 July 2021. Consistent with the measures announced by the FRC and FCA, the PRA will accept a delay in the submission by UK banks and designated investment firms of their annual reports and accounts by up to two calendar months, where the remittance deadlines contained in the PRA Rulebook fall on or before Saturday 31 July 2021. For building societies, while the PRA is prepared to accept a similar delay, firms considering this may need to consider other statutory requirements that apply to them. The PRA recognises that the pandemic may be creating challenges for some firms’ ability to meet other regulatory reporting deadlines. The PRA is prepared to consider being flexible in its expectations of firms’ submissions for such reporting where the remittance deadlines fall on or before 31 March 2021, and where the reporting is not time critical for supervisors. Firms expecting to experience difficulty with timely submission should contact their usual supervisor to discuss.

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Fees / levies

EC adopts delegated regulation amending payment contribution arrangements for the SRB

On 11 February, the EC adopted a Delegated Regulation amending Delegated Regulation (EU) 2017/2361 as regards the arrangements for the payment of contributions to the administrative expenditures of the Single Resolution Board (SRB). In particular, the Delegated Regulation amends the current system of invoicing of the SRB and introduces dedicated rules for the year 2021. As a result of the change to the levying system, there will be a gap in the transmission of data from the ECB to the SRB from December 2019 to June 2021. The system therefore needs to allow the SRB to initially raise contributions for the year 2021 based on the same data that were used for the collection of 2020 contributions, since the ECB will not transmit new data until it invoices supervisory fees by 30 June each year. In 2022, the SRB will recalculate the contributions for year 2021 on the basis of the data received by the ECB after it invoices supervisory fees in June 2021. The Delegated Regulation enters into force and applies on the day after its publication in the OJ.

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EC consultation on annual supervisory fees to be charged by ESMA for TRs EMIR and SFTR activity

On 9 February, the EC began consulting on a draft Delegated Regulation amending Delegated Regulations (EU) 1003/2013 and (EU) 2019/360 as regards the annual supervisory fees charged by ESMA to trade repositories (TRs) for 2021. The EC explains that two out of the four trade repositories that were based in the UK before 1 January 2021 have transferred their business to the EU and continue to provide their services in the Union. These new trade repositories have effectively started their activity in the Union in January 2021 and therefore under the current methodology for calculating annual fees, their annual supervisory fee for 2021 would be negligible. To ensure that they pay a supervisory fee which is proportionate to their actual turnover in the EU for this year, the EC proposes to include a new article in each of the two delegated regulations on changing the reference period for the calculation of the applicable turnover of trade repositories from 2020 to January to June 2021. The deadline for comments is 9 March 2021. The EC intends to adopt the Delegated Regulation in Q2 2021.

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Financial crime

Please see our Investigations Insight blog for a post on the Supreme Court’s decision that the Serious Fraud Office does not have the power to issue a section 2 notice to obtain documents from a non-UK company with extraterritorial application: KBR Inc v The Director of the Serious Fraud Office [2021] UKSC 2.

This week we have also published a post on firms’ obligations to record telephone conversations and electronic communications while remote working, after the FCA set out its expectations in the latest edition of its Market Watch Newsletter emphasising that there is no excuse for non-compliance.


Please see the Brexit section for a letter from the HoC European Scrutiny Committee to Michael Gove, Chancellor of the Duchy of Lancaster, setting out the files that, in the light of the end of the Brexit transition period and the UK-EU trade and co-operation agreement, it intends to continue to scrutinise.

ESAs joint letter to EU co-legislators on DORA

On 9 February, ESMA published a letter sent by the ESAs to the EU co-legislators (the EP, the EC and the Council of the EU) on the legislative proposal for a Regulation on digital operational resilience for the financial sector (DORA). The ESAs highlight challenges and suggest amendments to ensure successful implementation of the framework: (i) due to the complexity of the governance and decision-making process between the Oversight Forum, Joint Committee and the Boards of Supervisors of the ESAs, the ESAs propose the creation of a joint-ESAs executive body which would integrate the role of the Oversight Forum and be responsible for the overall oversight work for cross-sectoral critical third party providers (CTPPs), as well as the establishment of a cross-ESAs team to work on the oversight of CTPPs; (ii) due to the mismatch between the powers given to the ESAs to conduct their oversight work and the lack of powers relating to the follow-up process of their own recommendations, the ESAs propose far greater involvement for the ESAs in the follow-up process and the introduction of effective enforcement measures at EU level that can be applied directly to CTPPs. Enforcement actions against a CTPP could be endorsed by competent authorities through the Board of Supervisors of one or more of the ESAs. Moreover, DORA could allow for market transparency tools to strengthen the oversight framework and to encourage CTPPs to adhere to recommendations, through publishing high-level information on the recommendations issued to each CTPP along with the respective intention of each CTPP to follow those recommendations; (iii) the ESAs highlight major concerns about the lack of resources they will receive to carry out their new tasks and responsibilities under DORA (at least 10 regulatory technical standards, two implementing technical standards, one set of guidelines and several recurring reports) in addition to further policy work. The ESAs do not believe that they will be able to complete these deliverables within the proposed deadlines, even with some redeployment; and (iv) the ESAs suggest a more comprehensive inclusion of the principle of proportionality in a more flexible way across the legal act, as the current proposal excludes only micro-enterprises from the application of certain requirements and does not make any reference to sectoral legislation when defining the financial entities in scope.

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Fund regulation

Please see the Prudential Regulations section for the EBA consultation on draft implementing technical standards on the information concerning the new prudential requirements that competent authorities will be required to disclose publicly for MiFID investment firms.

Productive Finance Working Group first steering committee meeting

On 5 February, the BoE published the minutes of the first meeting of the steering committee of the Productive Finance Working Group (PFWG) held on 26 January 2021. The PFWG discussed: (i) its purpose and ultimate objectives - it is expected to run for six months, with the aim of facilitating: (a) the launch of at least one long term asset fund (LTAF); (b) the establishment of the regulatory framework for an LTAF, so that its structure meets the needs of a broad range of investors; and (c) the creation of the necessary operational infrastructure, including intermediaries’ distribution channels (including investment platforms) being able to support and offer nondaily dealing funds. The FCA noted that it is open to re-examining its regulatory framework, including its distribution rules; (ii) the most significant barriers to productive investment to focus on - these included reluctance from investors to invest in non-daily priced and less liquid funds, the lack of existing authorised fund structures, and the capability of many investment platforms to support non-daily dealing funds, as well as legislative barriers; and (iii) the deliverables from the Technical Expert Group (TEG) ahead of the next meeting, including the intended target market for the LTAF considering the challenges of distributing a new product to the retail market. The FCA suggested that the TEG should consider three broad classes of solutions: recommendations of potential changes to rules and regulations (for example, around disclosure and permitted links); improvements to operational infrastructure (for example, platform dealing frequency); and shifting the ‘fiduciary narrative’ (for example, shifting the focus from cost to net returns and to longer horizons). The BoE has also published the PWFG’s terms of reference.


Terms of reference

Markets and markets infrastructure

Working Group consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR

The Working Group on Sterling Risk-Free Reference Rates has begun consulting on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds upon the occurrence of a permanent cessation event or a pre-cessation event, and to seek feedback on the successor rate to be recommended. The different successor rates considered are overnight SONIA, compounded in arrears, and term SONIA. The Working Group highlights potential considerations which should be taken into account including: (i) the stages of development of each of the rates, and their current usage (in the case of overnight SONIA, compounded in arrears) and expected use cases (in the case of term SONIA) in the SONIA-linked bond market; (ii) alignment with the existing SONIA-linked bond market, the derivatives and loan markets; (iii) the economic, operational and contractual implications of each of the rates; and (iv) the implications for global consistency of approach for fallbacks across different IBORs. The deadline for comments is 16 March 2021.

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EP adopts proposed legislation amending MiFID II and the Prospectus Regulation – Covid-19

On 11 February, the EP announced it has adopted the proposed Directive amending MiFID II as regards information requirements, product governance and position limits to help the EU's economic recovery from the Covid-19 pandemic. The proposed Directive will enter into force on the day after its publication in the OJ. The EP also adopted, with amendments, the proposed Regulation amending the Prospectus Regulation as regards an EU Recovery prospectus and other amendments to facilitate the recapitalisation of companies affected by the Covid-19 pandemic Both sets of rules belong to the Capital Markets Recovery Package, which is part of the EU’s overall Covid-19 recovery strategy. Amendments to the proposed Regulation include: (i) allowing the offerors of shares admitted to trading on a regulated market or SME growth market continuously for at least the last 18 months to draw up an EU Recovery prospectus for a set amount of shares; (ii) clarification of the minimum information to be provided in an EU Recovery prospectus; (iii) that the EU Recovery prospectus regime will expire on 31 December 2022; and (iv) that Member States may allow issuers to apply the requirement that annual financial reports must be prepared in a single electronic reporting format to financial years beginning on or after 1 January 2021 provided the state notifies the Commission by 21 days after publication of this regulation and its intention is justified.

Press release

Provisional text of the Directive

Provisional text of the Regulation

GLEIF Unveils Issuance and Infrastructure Models for Verifiable LEI

On 11 February, the Global Legal Entity Identifier Foundation (GLEIF) set out the issuance and technical infrastructure models for its recently announced verifiable Legal Entity Identifier (vLEI) system. A vLEI is a secure digital attestation of a conventional LEI. When fully developed, the vLEI will enable instant and automated identity verification between counterparties operating across all industry sectors, globally. GLEIF has designed all vLEIs in the form of Verifiable Credentials, in accordance with the World Wide Web Consortium’s open standard Verifiable Credentials Data Model. This process establishes GLEIF as the digital ‘root of trust’ and enables GLEIF to safeguard the integrity of the trust chain. Each vLEI must be issued by a GLEIF-certified vLEI issuer to a legal entity client that has an LEI. Once obtained, the vLEI can be used as a basis to issue additional credentials to members of the organisation. To fulfil its global potential, the vLEI system will interoperate seamlessly and securely with all technology models, e.g. blockchain, distributed ledger consortia by adopting a ‘network of networks’ approach. GLEIF now invites software developers to engage with the program’s existing stakeholders from the pharmaceutical, healthcare, telecom, automotive and financial services sectors, with a view to exploring opportunities to leveraging vLEI identity verification in future applications, services and business models.

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CEU comparison table on trialogue negotiating positions of EU institutions on proposed Directive on credit servicers and credit purchasers

On 10 February, the Council of the EU (CEU) published a three-column table to commence trialogues, comparing the negotiating positions taken by the EC, the CEU and the EP on the proposed Directive on credit servicers and credit purchasers.

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Update on BoE and FCA MoU on the supervision of market infrastructure and payment systems

On 9 February, the FCA provided an update on the BoE and FCA MoU on the supervision of market infrastructure and payment systems. The frameworks for co-operation with these authorities are set out in 2 MoUs which the signatories are required to review annually, including by seeking feedback from supervised firms. The BoE and FCA after consulting have concluded that the MoU’s arrangements for co-operation remain effective, with appropriate co-ordination and no material duplication. Industry respondents acknowledged the efforts made on co-operation and the BoE and FCA remain committed to effective co-operation. The authorities recognise that policy co-operation will be even more important from 2021 as a result of the UK leaving the EU. The authorities re-affirmed their commitment to co-operate domestically and internationally to ensure sound rulemaking that reflects awareness of each other’s’ objectives.

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Payment services and payment systems

Please see the Markets and Market Infrastructures section for an update from the FCA, on the MoU between it and the BoE on the supervision of market infrastructure and payment systems.

PSR calls for views on protections against APP scams and consumer protection in interbank payments

On 11 February, the PSR launched two calls for views exploring greater protections for consumers using payment systems, relating to: (i) protection against APP scams (CP21/3), and (ii) consumer protection in interbank payments (CP21/4). The PSR sets out three measures for Bacs and Faster Payments that could help, applied individually or in combination, to prevent APP scams: (a) improving transparency on outcomes, by requiring PSPs to publish their APP scam, reimbursement and repatriation levels; (b) greater collaboration to share information about suspect transactions, by requiring PSPs to adopt a standardised approach to risk-rating transactions and to share the risk scores with other PSPs involved in the transaction; and (c) introducing mandatory protection of customers, by changing industry rules so that all payment firms are required to reimburse victims of APP scams who have acted appropriately. In relation to interbank payments, the PSR considers possible risks and gaps under the current interbank systems, particularly the Faster Payments Service and what may be needed to support the processing of retail payments at scale. The level of protection offered differs depending on whether consumers use a debit card, credit card or Faster Payments. The PSR is considering measures that make it easier for consumers to make a claim when something goes wrong, as well as measures that benefit businesses by providing certainty about what happens when a payment is disputed. The deadlines for comments on both calls for views are 8 April 2021.

Press release



PSR consultation on delivery and regulation of the New Payments Architecture

On 5 February the PSR began consulting on the delivery and regulation of the New Payments Architecture (NPA). Pay.UK, the operator of Bacs and Faster Payments, is responsible for facilitating the delivery of the NPA, which includes procuring a provider to build and run central infrastructure services for the NPA by running a competitive tender. The PSR has reached the view that: (i) there are unacceptably high risks that the NPA programme will not provide value for money and could delay or prevent the benefits to competition and innovation in payment services; (ii) there is a need to manage potential risks of disruption to payments during the migration of Bacs and Faster Payments transactions to the NPA; and (iii) the current pandemic means payment service providers face new costs and risks, which will affect the resources they have available to support the design of the NPA and migration of transactions to it. As a result of these concerns, the PSR is consulting on: (a) narrowing the scope of the initial contract for delivery of those NPA services that will provide an enhanced immediate payments service, and enable Faster Payments transactions to move to the NPA; (b) the appropriate way to secure this contract; and (c) reducing risks to competition and innovation in the NPA. The deadline for comments on the risks to delivery of the NPA and the options for reducing these risks by changing the scope of and approach to the initial procurement is 19 March 2021. The PSR will follow up in Q3 2021. The deadline for comments on proposals for mitigating competition risks including the pricing principles is 5 May 2021. The responses will inform a policy statement, expected in Q4 2021.

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Prudential regulation

EC adopts delegated regulation with regard to RTS specifying the methodology for the identification of G-SIIs

On 11 February, the EC adopted a Delegated Regulation amending Delegated Regulation (EU) 1222/2014 supplementing CRD IV with regard to 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. The list of EU globally systemic important banks (G-SIBs) identified by BCBS and the G-SIIs identified by Member States’ authorities have to date been identical. The G-SII identification framework comprises for the first time an additional EU methodology to allocate G-SII buffer rates to identified G-SIIs. Relevant authorities wishing to make use of this additional EU methodology shall provide clear and observable evidence of the proposed decisions under the sound supervisory judgement principle. In order for observable data to be available across very large institutions in the EU that fall in scope of this exercise, the EBA is including in its technical standards on supervisory reporting the requirement to collect frequent and harmonised data to support the additional EU methodology. The annual G-SII exercise starts from end of April with the deadline for the institutions to disclose systemic importance indicators being November when the relevant authorities shall notify identified G-SIIs and correspondent G-SII buffer rates. In order to strengthen national supervisory practices as regards such specifications of data points, the EBA is issuing Guidelines every year addressed to national competent authorities.

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EBA consultation on draft ITS on supervisory disclosure under the IFD

On 11 February, the EBA began consulting on draft implementing technical standards (ITS) on the information concerning the new prudential requirements that competent authorities will be required to disclose publicly for all types of MiFID investment firms. The information that competent authorities will have to disclose every year covers supervisory approaches and aggregate statistical data on the new prudential requirements for investment firms, in particular: (i) the text of laws, regulations, administrative rules and general guidance adopted in each Member State; (ii) options and discretions in the application of the prudential requirements; (iii) criteria and methodologies of the supervisory review and evaluation process (SREP); and (iv) aggregated statistical data on prudential requirements. The first disclosure date under these draft ITS is set by 30 June 2022. The deadline for comments is 11 May. A public hearing on the consultation will take place via conference call on the 19 March.

Press release

Consultation paper

PRA statement on supervisory benchmarking exercise relating to capital internal models

On 9 February, the PRA published a statement to provide greater clarity on the 2021 supervisory benchmarking exercise relating to banks' capital internal models, which relates to reporting reference dates on or around year-end 2020. The statement addresses a difference that has arisen between the intended specifications for this supervisory benchmarking exercise and the applicable UK legislation. For the 2021 supervisory benchmarking exercise, the PRA encourages firms to use the draft implementing standards in relation to market risk and credit risk data, in preference to the outdated versions designed for the 2019 benchmarking exercise (i.e. for year-end 2018 reporting). The PRA would not object to firms submitting information on this basis only. This approach to market risk and credit risk reporting takes into account that these published annexes for the 2021 reporting package had equivalents for the 2019 supervisory benchmarking exercise that have been incorporated into UK law. In contrast, firms are not required or expected to submit the IFRS 9 data for the 2021 supervisory benchmarking exercise. This reflects the fact that the annexes relating to IFRS 9 data are scheduled to be implemented for the first time for the 2021 benchmarking exercise and so no requirement to submit IFRS 9 information has been brought into UK law. In considering a pragmatic approach to these current highly unusual circumstances, the PRA has taken into account the additional reporting challenges caused by Covid-19, as well as the technical and operational challenges to switching the data requirements at a late stage. The PRA notes that reporting based on the final draft requirements adopted by the EBA, and submitted to the EC, would be consistent with the approach taken by UK and other EU firms in prior years. The PRA will set out its proposals for the 2022 benchmarking exercise (i.e. in relation to reference dates on or around year-end 2021) in a consultation paper in due course.

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Sustainable finance

Please see the Brexit section for a letter from the HoC European Scrutiny Committee to Michael Gove, Chancellor of the Duchy of Lancaster, setting out the files that, in the light of the end of the Brexit transition period and the UK-EU trade and co-operation agreement, it intends to continue to scrutinise.

EC report on consultation on the renewed sustainable finance strategy

On 10 February, the EC published a summary report of its consultation on a renewed EU sustainable finance strategy. The overall feedback from the consultation on the objectives and direction of travel of the EU’s sustainable finance strategy was generally supportive. Key opportunities highlighted for mainstreaming sustainability into the financial sector included: (i) providing an enabling climate and environmental long term policy framework; (ii) utilising the Covid-19 recovery phase for redirection of capital; (iii) intensifying international dialogue and cooperation ; (iv) using innovations and new technologies, including financial system digitalization; (v) raising awareness; and (vi) creating new skills and knowledge. The key challenges raised regarding the mainstreaming of sustainability in the financial sector included: (a) non-sustainable short-term profit-seeking practices and greenwashing; (b) prevention of the social and economic risks related to the transition and the management of stranded assets; (c) the availability, comparability, and quality of data on ESG; (d) risk of complexity of the overall new regulatory framework; (e) the visibility of the pipeline projects to investors; and (f) the need to incorporate consideration of biodiversity impacts within sustainable finance activities. The EC intends to adopt the renewed sustainable finance strategy in H1 2021.

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Other developments

BoE speech – the case for an open financial system

On 10 February, the BoE published a speech, given by Andrew Bailey, BoE Governor, looking at the benefits of a global financial system and the UK’s current and future role in it. Mr Bailey discusses: (i) the open UK financial system and its commitment to financial stability; (ii) the importance of participating in international standard-setting bodies, such as the FSB, BCBS, IOSCO and IAIS; (iii) the issue of EU equivalence. Mr Bailey notes that the post-Brexit equivalence process has not been straightforward and considers that it would be reasonable to think that a common framework of global standards combined with the common basis of the rules, since the UK transposed EU rules from the outset, would be enough for the EU to base equivalence on. He considers that the EU is holding the UK to a higher standard than any other countries by arguing that it needs to better understand how the UK intends to amend its rules; (iv) why the UK must adapt and change its rules, stressing that none of the UK plans for reform mean that it should or will create a low-regulation, high-risk financial centre and system; and (v) the effective application of rules, as in supervision, across borders, particularly between the UK and the EU. My Bailey notes the 36 MoUs agreed between the BoE/PRA and supervisors across Europe and welcomes the content of the joint declaration on financial services that was contained in the UK-EU trade agreement. This co-operation will be supported by a MoU to be agreed by March 2021, to enable discussions on how to move forwards on equivalence determinations.

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FCA review on how financial firms implement technology change

On 5 February, the FCA published the findings from its multi-firms review of how firms implement technology change, the impact of change failures and the practices used to help reduce the impact of incidents resulting from change management. The FCA explains that change related incidents are consistently one of the top causes of failure and operational disruption. The analysis showed that, in general, change was managed effectively by the industry with 1.6% of technology changes resulting in an incident. However, due to the volume of change implemented by sample firms, this resulted in significant disruption; amounting to over 13,767 incidents in 2019, of which 14% had customer-facing impact. Practices identified as contributing to change success: (i) firms with well-established governance arrangements have a higher change success rate; (ii) relying on high levels of legacy technology is linked to more failed and emergency changes; (iii) firms that allocated a higher proportion of their technology budget to change experienced fewer change related incidents; (iv) frequent releases and agile delivery can help firms to reduce the likelihood and impact of change related incidents; and (v) effective risk management is an important component of effective change management capabilities. Practices identified as contributing to change failure: (a) most firms do not effectively track third-party changes; (b) firms’ change management processes are heavily reliant on manual review and actions; (c) legacy technology impacts firms’ ability to implement new technologies and innovative approaches; and (d) major changes were twice as likely to result in an incident when compared with standard changes.

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