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Key Regulatory Topics: Weekly Update 7-14 October 2022

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Key Regulatory Topics: Weekly Update 8-14 Sept 2023

In advance of its October summit, the FSB this week published a number of papers including a consultation on a framework for the international regulation of cryptoasset activities. Amongst the updates from the EU, the Delegated Regulation to suspend the application date of the mandatory buy-in regime under CSDR until 2 November 2025 was published in the OJ. In the UK, the FCA announced that it would not be prioritising supervisory action in relation to the reporting of LEIs of third country issuers, the PSR published a policy statement confirming the extension of Confirmation of Payee and the PRA began consulting on risks from contingent leverage.

Capital markets

Please see the Other Developments section for seven Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which have been published in the OJ.


Please see the Markets and Markets Infrastructure section for ESMA’s 2023 annual work programme and 2023-28 five-year strategy.

IOSCO final report on retail distribution and digitalisation

On 12 October, IOSCO published a final report setting out measures members should consider when determining their policy and enforcement approaches to retail online offerings and marketing. IOSCO explains that increased digitalisation and cross border offerings bring various new risks associated with the increased complexity of financial products and services, the rapid pace of innovation, the ongoing gamification trends, and increasing levels and volumes of self-directed trading among retail investors. The report presents a toolkit of policy measures to help members address risks that may arise and a toolkit of enforcement measures that leverage a range of powers and technology-based investigatory techniques and enhanced collaboration with other authorities and providers of electronic intermediary services. The report analyses global developments in online marketing and distribution of financial products to retail investors and discusses enforcement challenges encountered by regulators. It sets out examples of how some member jurisdictions have addressed these issues and requests that IOSCO members continue to observe and consider changes in their respective markets.

Press release

Final report

FCA updates guidance for branch closures

On 11 October, the FCA updated its guidance on branch and ATM closures or conversions. The FCA explains that while it has seen examples of good practice, some firms have fallen short of expectations outlined in the original guidance. In some cases firms are making decisions to remove facilities such as counter services from branches, or to permanently and significantly reduce the hours that branches are open, rather than fully closing branches. The updated guidance now applies both to full closures of a branch and partial closures where this would have a significant impact on customers. Where the need for an alternative is identified, firms should now make sure it is in place and accessible before a branch closes or an ATM is converted. The Annex provides details of key feedback themes and the FCA's responses to the related public consultation. The updated guidance applies immediately.

Press release



Please see the Markets and Markets Infrastructure section for ESMA’s 2023 annual work programme and 2023-28 five-year strategy.

FSB consults on framework for international regulation of cryptoasset activities

On 11 October, the FSB proposed a framework for the international regulation of cryptoasset activities. The core components of this framework are: (i) recommendations that promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to cryptoasset activities and markets and strengthen international cooperation, coordination and information sharing; and (ii) revised high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements to address associated financial stability risks more effectively. These revisions strengthen the requirements for users’ redemption rights and for a robust stabilisation mechanism. The FSB states that the proposed recommendations are grounded in the principle of “same activity, same risk, same regulation”: where cryptoassets and intermediaries perform an equivalent economic function to one performed by instruments and intermediaries of the traditional financial sector, they should be subject to equivalent regulation. The FSB considers that regulation should also take account of novel features and specific risks of cryptoassets and address potential financial stability risks that could arise from the growing interlinkages between the cryptoasset ecosystem and the traditional financial system. The two sets of recommendations are closely interrelated and are intended to work together and to be consistent where they cover the same issues and risks. The deadline for comments is 15 December. The FSB will finalise the proposed recommendations by mid-2023 in light of feedback from the consultation. In addition, the FSB is analysing developments and potential risks to financial stability stemming from decentralised finance and will consider in 2023 whether additional policy work is warranted.

Press release


BoE, PRA and FCA discussion paper on AI and ML

On 11 October, the BoE, PRA and FCA launched a joint discussion paper on the regulation of AI and machine learning (ML). The authorities invite responses in relation to: (i) supervisory authorities’ objectives and remits – exploring the best approach to defining and/or scoping the characteristics of AI for the purposes of legal requirements and guidance; (ii) benefits and risks of AI – identifying the areas of benefits, risks, and harms in relation to which the supervisory authorities should prioritise action; and (iii) regulation – exploring whether the current set of legal requirements and guidance is sufficient to address the risks and harms associated with AI and how additional intervention may support the safe and responsible adoption of AI in UK financial services. This includes understanding which areas of the current regulatory framework: (a) would benefit from further clarification with respect to AI; (b) could be extended to better encompass AI; and (c) could act as a regulatory barrier to the safe and responsible adoption of AI in UK financial services. The deadline for comments is 10 February 2023. The BoE and FCA also published a joint report on the state of ML in UK financial services. It covers: (1) ML adoption and use; (2) firms’ ML strategies; (3) benefits, risks and constraints; and (4) case studies to provide specific business contexts in which ML models are currently used.

AI/ML discussion paper

ML report

Fund regulation

Please see our website for a new bulletin in our Great Funds Insight series, which provides a checklist of next steps for asset and fund managers in relation to the SFDR and Taxonomy Regulation RTS.

Please see the Markets and Markets Infrastructure section for a survey launched by IOSCO, directed at asset managers and index providers, which aims to examine the nature of the interaction between these parties.

Please see the Other Developments section for seven Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which have been published in the OJ.

Markets and markets infrastructure 

IOSCO survey on interaction between index providers and asset managers

On 13 October, IOSCO launched a survey directed at asset managers and index providers and to examine the nature of the interaction between these parties. IOSCO has identified potential areas that require further study, including: (i) the role of asset managers in relation to indices and index providers and the role and processes of index providers in the provision of indices; (ii) the potential impact of administrative errors on investment funds; and (iii) potential conflicts of interest that may exist at the index provider in relation to the fund. The survey also seeks information from respondents on their governance and processes during exceptional market events or shocks, particularly the Covid-19 market shock (2020) and the Russian market shock (2022). The deadline for responses is 26 November.

Press release


Amending ITS on template for STS notification requirements for synthetic securitisations published in OJ

On 13 October, Implementing Regulation (EU) 2022/1929 amending the ITS laid down in Implementing Regulation (EU) 2020/1227 as regards the templates for the provision of information in accordance with the STS notification requirements for on-balance-sheet synthetic securitisations, was published in the OJ. The content and format of the notification templates are set out in Annexes I and II of the Implementing Regulation. It will enter into force on 2 November, 20 days following its publication in the OJ.

Implementing Regulation

Delegated Regulation delaying application of CSDR mandatory buy-in regime published in OJ

On 13 October, Delegated Regulation (EU) 2022/1930 amending the RTS on settlement discipline laid down in Delegated Regulation (EU) 2018/1229 to suspend the application date of the mandatory buy-in regime under CSDR, was published in the OJ. The application of the mandatory buy-in regime will now be deferred from 1 February 2022 until 2 November 2025 in order to avoid negative impacts on the efficiency and competitiveness of capital markets in the EU. The Delegated Regulation enters into force on 2 November, 20 days following its publication in the OJ.

Delegated Regulation

BoE results of 2021/22 CCP Supervisory Stress Test

On 13 October, the BoE published the results of its first public CCP Supervisory Stress Test. The exercise was exploratory in nature, to identify vulnerabilities rather than testing CCPs against particular pass-fail thresholds. The test covered the three UK CCPs (ICE Clear Europe Limited, LCH Limited and LME Clear Limited) and each of their clearing services. The BoE states that the results confirm the resilience of the UK CCPs to market stress scenarios that overall are of equal and greater severity than the worst historical market stresses. Each UK CCP has sufficient prefunded financial resources to absorb losses arising from the default of numerous different combinations of clearing members – from the largest pair to a more numerous combination of smaller entities – in a severe market stress scenario at the limits of historical experience. By intentionally testing CCPs against stress events more severe than historical precedence or regulatory requirements – so called ‘reverse stress tests’ – the BoE has enhanced its understanding of CCP resilience and what would be required to deplete CCPs’ financial resources. The BoE considers that this information will help it target its supervision and CCPs focus their risk management. The BoE will publish its CCP stress-testing framework during the course of 2023.

Results report

ESMA updates Q&As on Prospectus Regulation

On 12 October, ESMA updated its Q&As on the Prospectus Regulation. The update includes a new question (15.9) in relation to the application of the prospectus exemption in connection with a takeover by means of an exchange offer. The EC confirms that the reference to "approval" in Article 1(6)(a)(b) refers to the approval process applied by the relevant supervisory authorities designated in accordance with the Takeovers Directive (2004/25/EC) and that have the competence, where applicable, to review the offer document under that directive.


EC report on functioning of the Securitisation Regulation

On 11 October, the EC submitted a report to the EP and the Council on the functioning of the Securitisation Regulation. The report focuses on the functioning of: (i) the risk retention requirement; (ii) the due diligence and transparency requirements; (iii) the rules and definition for private securitisations; (iv) the case for an STS equivalence regime; (v) a regime for sustainable securitisation; (vi) the function of the third-party verification of STS; and (vii) the case for establishing a system of limited-licence banks to replace the current structure of true-sale securitisation built around securitisation special purpose entities (SSPEs). The report also considers issues around the jurisdictional scope of the Securitisation Regulation, as raised in the ESAs opinion, and provides legal interpretations in that context. The EC’s conclusions include that: (a) the EU securitisation framework works well, even though dynamic market growth has not yet materialised. However, more time is needed to get a full picture of the impact of the new securitisation framework, especially due to extraordinary external factors like the Covid-19 pandemic and the accommodative monetary policy of the central banks during that period; (b) targeted improvements to the framework’s functioning can be pursued without changes to the Securitisation Regulation, notably on proportionality of certain requirements. The EC has also invited ESMA to revise the technical standards that set out the details of the transparency regime; and (c) there is no need for a separate green securitisation label in the short and medium term. The EC invites the co-legislators instead to address the issue in the ongoing negotiations on the creation of an EU Green Bond Standard. The report includes an overview of the current and upcoming work on the prudential treatment of securitisation, however the EC notes it will wait for feedback from the call for advice sent to the ESAs before assessing whether adjustments would be appropriate.


ESMA MoUs with People’s Bank of China and Chilean Market Commission on CCPs under EMIR

On 11 October, ESMA published two MoUs that it has entered into with: (i) the People's Bank of China relating to CCPs established in the People's Republic of China; and (ii) the Chilean Market Commission relating to CCPs established in Chile. The MoUs set out the co-operation arrangements between the authorities regarding the relevant CCPs that have applied to ESMA for recognition under EMIR, including in relation to information sharing related to CCPs and to regulatory and supervisory developments in China/Chile. They are also intended to provide ESMA with adequate tools to monitor the ongoing compliance by the CCPs with the recognition conditions in EMIR Article 25. The Chilean MoU took effect on 22 July and the Chinese MoU will take effect on the date that it is signed by the parties.

MoU People’s Bank of China

MoU Chilean Market Commission

ESMA call for evidence on implementation of revised Shareholder Rights Directive

On 11 October, ESMA opened a call for evidence on the implementation of the revised Shareholders Rights Directive (SRD2). ESMA aims to gather information on how market participants perceive the appropriateness of the scope and the effectiveness of the SRD2 provisions on the identification of shareholders, transmission of information and facilitation of the exercise of shareholder rights, as well as on transparency of proxy advisors. ESMA also asks questions to assess the possibility of introducing an EU-wide, harmonised definition of shareholder and whether the rules governing the interaction between investors, intermediaries and issuers as regards the exercise of voting rights and corporate actions processing can be further clarified and harmonised – relevant to Action 12 of the EC’s Capital Markets Union Action Plan. The information gathered will form the basis of the report to be submitted to the EC as part of the SRD2 review. The deadline for comments is 28 November. ESMA intends to deliver the report to the EC by July 2023.

Press release

Call for evidence

ESMA CCP supervisory committee 2023-2025 strategic objectives

On 11 October, ESMA’s CCP Supervisory Committee published its strategic objectives for 2023-2025 which include: (i) strengthening EU CCP resilience – following recent turmoil and volatility on financial markets, ESMA’s focus will be on procyclicality risks, member due diligence and access by non-financial counterparties and concentration risks. ESMA will aim to foster EU wide consistency and coherence and support implementation of the CCP recovery and resolution framework; (ii) addressing third-country CCP (TC-CCPs) cross-border risks - ESMA sets out three priority areas: effective direct supervision of TC-CCPs that qualify as systemically important (Tier 2 CCPs), determining comparable compliance of Tier 2 CCPs and providing effective recognition and monitoring of TC-CCPs that qualify as non-systemically important (Tier 1 CCPs); and (iii) deepening risk and data-driven supervision – ESMA will continue to strengthen its capabilities to identify, understand and assess risks to CCPs and the broader clearing ecosystem in the EU, building further on available data sources, exploring new data sources, whilst at the same time aiming to improve the quality of the data collected. ESMA expects there will be a need to adopt a reviewed strategy for CCPs once changes proposed by the EC following its review of the EU central clearing framework, is agreed by the co-legislators and implemented before the end of the current equivalence and recognition decisions for UK CCPs.

Strategic objectives

ESMA 2023 work programme and five-year strategy

On 10 October, ESMA published its 2023 annual work programme and 2023-28 five-year strategy. ESMA’s priority work areas for 2023 include: (i) enabling sustainable finance – to develop remaining SFDR technical standards and work to better understand and fight against greenwashing; (ii) facilitating technological innovation and effective use of data – develop technical standards and guidelines in order to help the market prepare for the implementation of key new regulations: DORA, MiCA and the DLT Pilot Regime; (iii) investors and issuers – report on the impact of costs and charges for retail investors and coordinate new workstreams on mystery shopping. ESMA will also coordinate a Common Supervisory Action in the area of sustainability, covering the risk of greenwashing in the fast-growing area of sustainable investment products; (iv) markets and infrastructures – develop technical standards on authorisation and registration of benchmark providers. ESMA will also deliver the final technical standards and guidelines mandated under the CCP Recovery and Resolution Regulation; and (v) supervision and convergence – continue risk-based supervision of all EU CRAs, TRs and SRs as well as certain DRSPs, benchmark administrators and third-country CCPs, and work with national authorities to promote supervisory convergence and a common understanding of where major risks lie. ESMA will prepare for the supervision of Consolidated Tape Providers, subject to the ongoing MiFIR review and for the oversight of critical ICT third-party providers with the other ESAs. ESMA’s five-year strategic priorities are: (a) fostering effective markets and financial stability; (b) strengthening supervision of EU financial markets; (c) enhancing protection of retail investors; (d) enabling sustainable finance; and (e) facilitating technological innovation and effective use of data.

2023 work programme

2023-28 five-year strategy

FCA not to prioritise supervisory action on reporting third country issuers’ LEIs under UK SFTR

On 7 October, the FCA announced that it would not be prioritising supervisory action in relation to the reporting of LEIs of third country issuers. In March, the FCA extended a period of forbearance for the reporting of LEIs of third country issuers under UK SFTR in order to reduce potential market disruption resulting from the large number of third country issuers without an LEI. This forbearance was due to expire on 13 October, however many third country issuers still have not acquired an LEI. In recognition of this, the FCA will not prioritise supervisory action in relation to the reporting of LEIs of third country issuers. The FCA will continue to monitor developments and will provide at least six months’ notice to industry should its position change. The FCA expects those responsible to report an LEI for third country issuers where one is available and continue to engage with third country issuers to encourage them to acquire an LEI where one is not. 

UK SFTR news

RTS and ITS on data reporting, data access, TR registration and reconciliation of TR data under EMIR

On 7 October, four Delegated Regulations supplementing EMIR were published in the OJ: (i) Delegated Regulation (EU) 2022/1855 supplementing EMIR with regard to RTS specifying the minimum details of the data to be reported to trade repositories (TRs) and the type of reports to be used; (ii) Delegated Regulation (EU) 2022/1856 amending the RTS laid down in Delegated Regulation (EU) 151/2013 by further specifying the procedure for accessing details of derivatives as well as the technical and operational arrangements for their access; (iii) Delegated Regulation (EU) 2022/1857 amending the RTS laid down in Delegated Regulation (EU) No 150/2013 as regards the details of the applications for registration as a TR and for applications for extension of registration as a TR; and (iv) Delegated Regulation (EU) 2022/1858 supplementing EMIR with regard to RTS specifying the procedures for the reconciliation of data between TRs and the procedures to be applied by the TR to verify the compliance by the reporting counterparty or submitting entity with the reporting requirements and to verify the completeness and correctness of the data reported. Two Implementing Regulations were also published: (a) Implementing Regulation (EU) 2022/1859 amending the ITS laid down in Implementing Regulation (EU) 1248/2012 as regards the format for applications for registration as TRs and for applications for extension of registration as TRs; and (b) Implementing Regulation (EU) 2022/1860 laying down ITS for the application of EMIR with regard to the standards, formats, frequency, and methods and arrangements for reporting. The regulations will enter into force on 27 October (20 days following publication in the OJ).

DR 2022/1855

DR 2022/1856

DR 2022/1857

DR 2022/1858

IR 2022/1859

IR 2022/1860

Payment systems and payment services 

PSR policy statement extends Confirmation of Payee coverage

On 11 October, the PSR published a policy statement confirming the extension of Confirmation of Payee (CoP) to a further 400 PSPs. The policy has been implemented through Specific Direction 17, which splits the PSPs into two implementation groups: (i) Group 1 PSPs, which are larger and/or more complex and are named in Specific Direction 17, must have and use a CoP system with send and respond capability after 31 October 2023; and (ii) Group 2 PSPs, which includes all other PSPs that use unique sort codes, or are building societies using an SRD reference type, must have and use a CoP system with send and respond CoP capability after 31 October 2024. The PSR explains that Group 1 implementation will extend CoP coverage of Faster Payments transactions from 92% to 99%.

Press release

Policy statement

FSB priorities for enhancing cross-border payments under G20 Roadmap

On 10 October, the FSB published the priority themes for the next phase of work under the G20 Roadmap for Enhancing Cross-Border Payments. The FSB states that the Roadmap has now reached an inflection point and needs to move to practical initiatives to enhance payment arrangements. Three priority themes have been identified to focus on in the next phase: (i) payment system interoperability and extension of Real-Time Gross Settlement operating hours and access policies; (ii) legal, regulatory and supervisory frameworks that are both efficient and secure; and (iii) cross-border data exchange and increasing use of standardised messages. The FSB also discusses: (a) levers that can be utilised for supporting collective action; (b) how to create private sector engagement at all levels; and (c) the engagement of public authorities beyond the G20. The FSB will hold a high-level cross-border payments summit in October to launch its new phase of work under the roadmap. The FSB will also develop an updated roadmap, which it will provide to the first G20 Finance Ministers and Central Bank Governors meeting in 2023. The FSB has also published a report on the progress made during the second year of the Roadmap. The work in 2021 and 2022 has focused on establishing the foundational elements of the Roadmap and beginning to pivot from stocktaking, analysis and guidance to practical projects to improve existing systems and develop new ones.

Press release

FSB priorities for next phase of work

Consolidated progress report 2022

Prudential regulation 

Please see the Markets and Markets Infrastructure section for the results of the BoE’s first public CCP Supervisory Stress Test.

Please see the Other Developments section for seven Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which have been published in the OJ.

Two FSB reports on addressing climate-related financial risks

On 13 October, the FSB published a final report on supervisory and regulatory approaches to climate-related risks. The report provides high-level recommendations covering: (i) supervisory and regulatory reporting and collection of climate-related data from financial institutions – authorities are encouraged to accelerate the identification of their data needs for supervisory and regulatory objectives, identify relevant types of data and metrics that they may require from financial institutions and provide key policy considerations to assist authorities in their future work towards expanding regular standardised regulatory reporting requirements; (ii) system-wide supervisory and regulatory approaches and the extent to which supervisory and regulatory tools and policies address climate-related risk – authorities are encouraged to expand the use of climate scenario analysis and stress tests for macro-prudential purposes; and (iii) early consideration of other potential macroprudential policies and tools – authorities and standard-setting bodies are encouraged to undertake research and analysis in the near to medium term on the appropriate enhancements to their regulatory and supervisory frameworks. As approaches develop and mature in the next few years, the FSB will consider in 2024 conducting a peer review of supervisory and regulatory practices against its recommendations. It will also consider in 2025 whether to make an update to the report’s recommendations. The FSB also published a progress report on climate-related disclosures, which takes stock of progress made over the past year by: (a) the International Sustainability Standards Board (ISSB) in developing its global baseline standard; (b) national and regional authorities in promoting climate-related disclosures; and (c) firms in making climate-related disclosures. During the period until the ISSB global baseline standard is agreed and the implementation of that standard across jurisdictions begins to be monitored, there is a continuing need to maintain momentum by monitoring and reporting on progress in firms’ climate disclosures. The FSB has therefore requested that the TCFD prepare another progress report on firms’ disclosures in 2023. The reports have been delivered to G20 Finance Ministers and Central Bank Governors for their 12-13 October meeting.

Press release

Final report on supervisory and regulatory approaches

Progress report on climate-related disclosures

SRB and ECB “in principle” agreement on margin for redemptions of eligible liabilities under CRR

On 12 October, the SRB announced that it had reached an “in principle” agreement with the ECB on the margin requirement for redeeming eligible liabilities under Article 78a(1)(b) of the CRR. The new “in principle” agreement is applicable to authorisations granted as of 1 January 2023, including General Prior Permission (GPP) renewals. The margin will be set at the lower value of either the requested predetermined GPP amount or the institution’s Pillar 2 Guidance. However, a different margin may be set depending on the circumstances of the case. This applies for institutions under the supervision of the ECB.

Press release

PRA consults on risks from contingent leverage in relation to the ICAAP

On 12 October, the PRA began consulting on policy proposals to: (i) update the PRA’s expectations of firms undertaking an Internal Capital Adequacy Assessment Process (ICAAP) to introduce guidance on assessing risks from contingent leverage as part of their assessment of risks of excessive leverage; and (ii) introduce a new reporting rule for firms to report data on trading exposures that may be sources of contingent leverage risk, as part of their existing reporting framework for the UK leverage ratio. The PRA considers that these proposals would help firms identify, monitor, and manage contingent leverage risk and would improve its ability to monitor the evolution of these risks with more granular data, enabling the PRA to take targeted action where relevant. The appendices contain the proposed PRA Rulebook: CRR Firms: Leverage Ratio (CRR) Instrument 2023, which will amend the Reporting (CRR) Part of the PRA rulebook, and the proposed revisions to Supervisory Statement 31/15 on the ICAAP. The appendices also set out the draft reporting templates and associated instructions. The deadline for comments is 3 February 2023. The PRA proposes that the expected implementation date for the changes would be 1 July 2023.

Consultation paper


EBA clarifies status of disclosure guidelines under CRR

On 12 October, the EBA provided clarity on the applicability of several disclosure guidelines that have been replaced totally or partially by the ITS on Pillar 3 disclosure. Three guidelines have been repealed: (i) Guidelines on disclosure requirements under Part Eight of the CRR; (ii) Guidelines on liquidity coverage ratio disclosure to complement the disclosure of liquidity risk management; and (iii) Guidelines on disclosure of encumbered and unencumbered assets. The ITS on Pillar 3 disclosures also specify disclosure requirements on non-performing and forborne exposures that are applicable only to large and other listed institutions. The EBA has considered that such limited scope of application of these disclosure requirements compromises the access by external stakeholders to relevant information on credit quality of exposures of small and non-complex institutions and other non-listed institutions. It has therefore revised the Guidelines on disclosure of non-performing and forborne exposures to clarify that these Guidelines will continue to apply to listed small and non-complex institutions and to other medium-sized institutions that are non-listed, but not to those covered by ITS on Pillar 3 disclosures. The amending Guidelines will apply from 31 December.

Press release

Amending guidelines

FPC financial policy summary and record

On 12 October, the FPC published the financial policy summary and record of its meeting on 30 September. Topics discussed include: (i) UK economic outlook – the rapid and unprecedented increase in yields exposed vulnerabilities associated with the leveraged liability-driven investment (LDI) funds in which many defined benefit pension schemes invest. The FPC consider it important that lessons are learned from this episode and appropriate levels of resilience ensured. The BoE will work with The Pensions Regulator and the FCA to ensure strengthened standards are put in place. However, the FPC notes that LDI funds themselves are typically based outside the UK; (ii) UK bank resilience – the FPC continues to judge that major UK banks have considerable capacity to support lending to households and businesses even with the further deterioration in the economic outlook. The FPC will continue to monitor banking sector resilience, including in the 2022 stress test, and banks’ risk appetite for lending; (iii) UK Countercyclical Capital Buffer (CCyB) – the FPC is maintaining the UK CCyB rate at 2%, which will come into effect on 5 July 2023; (iv) the FPC’s Leverage Ratio Direction – the FPC has revoked its existing Direction to the PRA in relation to the leverage ratio regime, and issued a new Direction on the same terms as in September 2021 with the addition of discretion for the PRA to set additional conditions to exclude central bank reserves on omnibus accounts from the leverage ratio; and (v) the FSM Bill – the FPC supports the Future Regulatory Framework measures contained in the FSM Bill. The FPC considers that the operational independence of regulators is an essential part of the regulatory regime in support of both of its public interest objectives, namely to deliver UK financial stability and strong, sustainable and balanced growth.

Summary and Record 

EC adopts amending RTS on permission to reduce own funds and eligible liabilities requirements

On 11 October, the EC adopted a Delegated Regulation laying down RTS amending Delegated Regulation (EU) No 241/2014 as regards the prior permission to reduce own funds and the requirements related to eligible liabilities instruments under the CRR. The amendments are as a result of revisions to the CRR made by CRR II. The eligibility criteria specified by the amending RTS are: (i) acquisition of ownership of eligible liabilities must not be directly or indirectly funded by the resolution entity (Article 72b(2), point (c)); (ii) eligible liabilities must not contain incentives to redeem (Article 72b(2), point (g)); and (iii) eligible liabilities may only be called, redeemed, repaid or repurchased once the resolution authority has granted prior permission (Article 77(2)). For the permissions regime, the amending RTS specify, as mandated by Article 78a(3) of the revised CRR: (a) the process of cooperation between the competent authority and the resolution authority; (b) the procedure, including the time limits and information requirements, for granting ad-hoc permission; (c) the procedure, including the time limits and information requirements, for granting general prior permission; and (d) the meaning of ‘sustainable for the income capacity of the institution’. The EBA has fulfilled the mandates relating to the two regimes within one RTS to ensure consistency. The Council of the EU and the EP will now scrutinise the Delegated Regulation. If neither object, the Delegated Regulation shall enter into force 20 days following its publication in the OJ.

Delegated Regulation

PRA Dear CFO letter on thematic feedback from 2021/22 auditor reporting

On 11 October, the PRA sent a letter to CFOs of selected PRA-regulated deposit-takers to provide feedback from the PRA’s review of written auditor reports received in 2022. The PRA sets out the main thematic findings briefly in the letter, with further detail provided in the two annexes. The first annex covers thematic findings on IFRS 9 expected credit loss accounting (ECL). The PRA is pleased to hear about the significant efforts made by firms to apply lessons from adapting ECL processes for Covid-19 to the current economic challenges, however improvements are needed, including in relation to: (i) model risk – firms need to deliver on their strategic plans to address limitations in IFRS 9 models, and to closely monitor the performance of old and new models, and react to weaknesses identified; (ii) economic scenarios – it is essential that firms develop capabilities to perform more comprehensive economic sensitivity analysis more quickly, and improve their use of timely, granular, and comparable peer benchmarking data, to support robust governance; and (iii) recovery strategies – firms have made less progress adopting high quality practices for challenge of recovery strategies than in other areas of ECL. In the 2022/23 round of written auditor reporting, the PRA has requested auditors’ views on the extent to which firms are applying the high quality practices set out in the PRA’s 2019 thematic feedback letter, or have alternate processes in place that achieve the same results. In 2023, the PRA intends to discuss firms’ plans to make changes to their ECL approaches that would result in improved consistency. The second annex covers thematic findings on accounting for climate-related financial risks. The PRA is pleased to see firms taking action to enhance their governance, data, and risk assessments. However, firms were at different stages of preparation, particularly in relation to the capture of climate risk in ECL. The PRA encourages all firms to have detailed plans for developing their capabilities to capture the impact of climate risks on balance sheets to ensure that firms’ accounting practices evolve in lock-step with improvements in risk monitoring. As part of the next round of written auditor reporting questions, the PRA has asked for auditors’ views on the progress made in 2022 against the key plan elements set out in the second annex, in order to help the PRA establish a baseline for future monitoring. The letter also sets out briefly the PRA’s observations on disclosure and benchmark reform.


Recovery and resolution 

Please see the Other Developments section for seven Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement, which have been published in the OJ.

EBA updated monitoring report on TLAC and MREL instruments

On 7 October, the EBA published an updated total loss-absorbing capacity and minimum requirement for own funds and eligible liabilities (TLAC/MREL) monitoring report. Following the first TLAC-MREL monitoring report, the EBA has observed that its recommendations have been, overall, well implemented. Key features of the updated report include: (i) the EBA has observed convergence and standardisation in terms of legal drafting of the notes and programmes, deriving also from the actual implementation of the EBA recommendations from the first TLAC/MREL monitoring report and the ESG recommendations in the latest AT1 monitoring report. Therefore, the updated report integrates only a few new recommendations; (ii) in light of the new observations on certain features of the issuances, new parts have been included in the report, namely on make-whole clauses (to be disallowed), clean up calls (to be allowed) and substitution and variation clauses (for which prior approval is needed in certain circumstances); (iii) some sections have been updated based on new analyses, including on netting & set-off waivers and dual governing law / bail-in; (iv) the observations on ESG instruments included in the previous report have been removed since the recommendations were published in the latest AT1 monitoring report; and (v) alignment with the AT1 Report findings/recommendations has been introduced where needed, including on regulatory & tax calls and supervisory approval for early redemptions. The EBA will continue to monitor the quality of the TLAC/MREL instruments issued also with the objective of covering as many jurisdictions as possible and enriching the observations and recommendations.

Press release


Regulatory reform post Brexit 

Government response to EU Affairs Committee report on UK-EU financial services relationship

On 13 October, the HoL European Affairs Committee published the government's response to its report on the UK-EU relationship in financial services. Points of interest include in relation to: (i) equivalence – the Government agrees that other jurisdictions receiving more equivalence decisions from the EU will not in itself create a competitive disadvantage for the UK; (ii) regulatory co-operation – the Government continues to engage with the institutions and member states of the EU, and stands ready to sign the MoU on regulatory cooperation in financial services once the EU is ready to. The Government agrees that the MoU will be a valuable tool as the UK and EU’s regulatory regimes evolve to adapt to the needs of their respective markets, as well as in the event of potential future crises that may require transnational solutions; (iii) revocation of financial services retained EU law - each individual piece of legislation listed in the FSM Bill will only cease to have effect once HMT lays an Order commencing the repeal. HMT will only commence a repeal when the necessary secondary legislation and rules are in place to replace it in domestic legislation. This will be a coordinated process between HMT and the regulators, and the Government and the regulators will ensure that there is sufficient time for HMT and the regulators to consult where necessary, and that there is a sufficient time for firms to adapt to any rule changes before they are applied. When making new rules, regulators will doing so under an enhanced accountability framework, including the new secondary objectives on growth and international competitiveness and a new Cost-Benefit Analysis panel; (iv) data – the government states that service providers can adopt alternative transfer mechanisms if there are changes to the status of the EU's data adequacy decision. It considers that any disruption to adequacy would take a period of time to come into effect and notes that the FPC previously judged that large UK financial services firms were well advanced in mitigating against non-adequacy ahead of the end of the Brexit transition period; and (v) regulators’ new objectives – the regulators will be responsible for operationalising their new objectives. The Government expects that there will be a step-change in the regulators approach, similar to the introduction of the PRA’s secondary competition objective in 2014.


Sustainable finance 

Please see our website for a new bulletin in our Great Funds Insight series, which provides a checklist of next steps for asset and fund managers in relation to the SFDR and Taxonomy Regulation RTS.

Please see the Markets and Markets Infrastructure section for ESMA’s 2023 annual work programme and 2023-28 five-year strategy.

TCFD 2022 status report

On 13 October, the Task Force on Climate-related Financial Disclosures (TCFD) published its 2022 status report, its fifth annual report. The report assesses the developments and progress made over the past five years. The percent of companies disclosing information in line with the TCFD’s recommendations has steadily increased each year as has the amount of TCFD-aligned information companies disclose. The TCFD highlight that since the publication of last year’s status report, there have been further significant actions by regulators and international standard setters to use the TCFD recommendations in developing climate-related reporting requirements and standards, including proposals released earlier this year by the U.S. Securities and Exchange Commission, the ISSB, and the European Financial Reporting Advisory Group. The TCFD will prepare another status report, as requested by the FSB, in October 2023.

Press release


EU Platform on Sustainable Finance report on data and usability of EU Taxonomy  

On 11 October, the EU Platform on Sustainable Finance published a report setting out recommendations on data and usability of the EU Taxonomy, together with appendices to the report which, among other things, contain a simplified disclosure proposal. The main themes of usability issues identified by the report include: (i) misalignment, between the sustainable finance reporting requirements across the regulatory framework including differing definitions of ‘sustainable investment’, ‘do no significant harm’, ‘good governance’ and risk approaches; (ii) sequencing issues across the reporting framework, ensuring that the data is available to financial institutions in order to satisfy their own reporting obligations; (iii) regulatory overload, ensuring that the regulatory reporting requirements are evenly distributed and proportional to financial market participants, financial undertakings, non-financial corporates, public sector actors and SMEs use cases; (iv) interpretive issues, ensuring reporting requirements are clearly understood by all user groups; and (v) regulatory and data gaps, filling any regulatory gap or addressing any regulatory hurdle that might hinder the use of the Taxonomy and fostering the availability and accessibility of data. The report does not address the application of the EU Taxonomy to SMEs or the treatment of SMEs within financial institutions reporting obligations at entity-level or at financial product level. The Platform is preparing a separate report on SMEs.



EU Platform on Sustainable Finance report on minimum safeguards

On 11 October, the EU Platform on Sustainable Finance published a report advising on the application of minimum safeguards in relation to the Taxonomy Regulation. The report does so by: (i) embedding minimum safeguards in existing EU regulation, (ii) identifying substantive topics relating to the standards and norms referenced in Article 18 of the Taxonomy regulation; and (iii) presenting advice on compliance with minimum safeguards. The report focuses in particular on SFDR, the proposed Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The report identifies four core topics for which compliance with minimum safeguards should be defined: human rights, including workers’ rights, bribery/corruption, taxation and fair competition. The Platform recommends that the EC treat as evidence of non-compliance with the minimum safeguards: (a) inadequate or non-existent corporate due diligence processes on human rights (including labour rights, bribery, taxation and fair competition), or a final liability on any of these matters; (b) failing to co-operate with a national contact point (NCP) (under the OECD Responsible Business Conduct Guidelines for Multinational Enterprises) or an assessment of non-compliance with the OECD Guidelines by an OECD NCP; and (c) failing to respond to allegations by the Business and Human Rights Resource Centre. As regulation of human rights due diligence (CSDDD) and sustainability reporting (CSRD) is not yet fully finalised, there remains some uncertainty surrounding their implementation and therefore the Platform intends to revise the report once the CSDDD and CSRD are finalised, and some experience on practical implementation and court rulings is accumulated, The report includes advice on project finance, SME financing, green bonds and how to assess compliance by sub-sovereigns.

Final report

GTAG advice on development of UK Green Taxonomy

On 7 October, the Green Technical Advisory Group (GTAG) published its first piece of advice on developing a UK Green Taxonomy. The advice provides a summary of the first stage of analysis undertaken by GTAG and the recommendations provided to the UK Government, focusing on: (i) onshoring the EU Taxonomy – GTAG recommends that the government should take the approach of ‘adopt some and revise some’. The majority of EU technical screening criteria should be onshored as soon as possible and adopted, with a small number that have been identified as problematic being revised prior to adoption; (ii) Do No Significant Harm (DNSH) – GTAG is developing advice into streamlining DNSH after challenges and complexities were identified in the EU requirements, many of which also relate to specific EU legislation; (iii) international interoperability; and (iv) taxonomy use cases. GTAG recommends that the Green Taxonomy balances the need for scientific rigour and alignment to the UK’s net zero policy objectives, with ensuring the instrument is welcomed by local and global capital markets as both useful and usable. Further updates on GTAG work will be forthcoming, and further recommendations will be published later this year.

Press release


Other developments 

BoE update on progress of joint transformation programme

On 13 October, the BoE provided an update on the progress of the joint transformation programme, which is being led jointly with the FCA and in collaboration with industry to transform data collection from the UK financial sector. Phase 2 of the programme, which began on 22 September will focus on: incident, outsourcing and third party reporting, commercial real estate database, reviewing prudential data collection and retail banking business model date. The BoE will issue the next update from the joint transformation programme in November.


Seven EEA Joint Committee Decisions amending Annex IX (Financial Services) to EEA Agreement published in OJ

On 13 October, seven Decisions of the EEA Joint Committee that amend Annex IX (Financial Services) to the EEA Agreement were published in the OJ. Six of the decisions incorporate Implementing Regulations and Delegated Regulations under the CRR, BRRD, the Transparency Directive and the Regulation on the cross-border distribution of funds. One Decision adds Regulation (EU) 2021/337 as an amending act to the Transparency Directive.

OJ L 267

FSB letter on work to strengthen financial resilience amidst growing financial stability challenges

On 11 October, the FSB published a letter from Klaas Knot, FSB Chair, to G20 finance leaders and central bank governors ahead of their 13-14 October summit. The letter discusses the FSB initiatives in relation to: (i) global financial stability – the FSB continues to work closely with its members to tackle current financial stability issues, including those related to commodity markets or hidden leverage. In November, the FSB will report on progress in strengthening the resilience of non-bank financial intermediation; (ii) a regulatory framework for crypto-assets – the FSB’s recommendations on stablecoins and on cryptoasset activities promote the comprehensiveness and international consistency of regulatory and supervisory approaches (we have covered this item in the FinTech section). Cryptoassets will remain a priority topic for the FSB in 2023 with the FSB’s work focusing on data, operationalising recommendations, further policy work on DeFi and implementation; (iii) improving cross-border payments – the report on the way forward for the Roadmap for Enhancing Cross-border Payments sets out priorities for this new phase of the work (we have covered this item in the Payment Systems and Payment Services section); (iv) containing cyber risks – the FSB will publish a consultative report on 17 October with proposals for achieving greater convergence in cyber incident reporting. The report shall include recommendations to address impediments to convergence, advances work on establishing common terminologies related to cyber incidents and proposes the development of a common format for incident reporting exchange; and (v) addressing climate-related financial risks – On 13 October, the FSB published reports on the Task Force on Climate-related Financial Disclosures (TCFD), progress in achieving consistent and decision-useful disclosures and recommendations on supervisory and regulatory approaches to climate-related risks (we have covered these items in the Prudential Regulation section).

Press release


FCA authorisations update

On 10 October, the FCA published an update covering its progress on service standards for authorisations case work, outlining areas where it is not meeting the statutory and voluntary timelines for authorisations, and setting out a strategy for closing any gaps. Factors inhibiting the FCA’s ability to meet deadlines include: (i) increased scrutiny of applications following the Gloster review recommendations; (ii) incomplete or poor-quality applications, in particular under the MLRs, PSRs and EMRs; and (iii) an increased volume of applications as a result of the expansion of SM&CR. The FCA is reviewing its voluntary service metrics to determine whether they remain appropriate, including the service metric of 5 calendar days for Approved Person CF/SIF applications, which is no longer achievable considering the additional scrutiny. Despite this, the FCA is near target for Part 4A authorisation applications, MLR registrations, variations of permission and change in control applications. The FCA sets out its strategic transformation programme aimed at improving assessment times, which includes the digitisation of application forms. A digital Senior Management Function application form will be beta tested this year.