Key Regulatory Topics: Weekly Update 8 - 14 Mar 2024
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Blog Post: 04 April 2024
EU court’s judgment sheds new light on how the ECB should apply national administrative measures
Publications: 03 April 2024
Publications: 03 April 2024
Publications: 02 April 2024
FEES/LEVIES
EC adopts Delegated Regulations on fees charged by ESMA
On 11 March, the EC adopted five delegated regulations to simplify and harmonise the rules relating to ESMA fees: (i) Delegated Regulation amending Delegated Regulation (EU) 2022/805 as regards harmonisation of certain aspects of supervisory fees charged by ESMA to certain benchmark administrators; (ii) Delegated Regulation amending Delegated Regulation (EU) 2019/360 as regards harmonisation of certain aspects linked to fees charged by ESMA to trade repositories; (iii) Delegated Regulation amending Delegated Regulation (EU) 1003/2013 as regards harmonisation of certain aspects linked to fees charged by ESMA to trade repositories; (iv) Delegated Regulation amending Delegated Regulation (EU) 2020/1732 as regards harmonisation of certain aspects linked to fees charged by ESMA to securitisation repositories; and (v) Delegated Regulation amending Delegated Regulation (EU) 272/2012 as regards harmonisation of certain aspects linked to fees charged by ESMA to CRAs. The Delegated Regulations will enter into force on the twentieth day following their publication in the OJ and will apply from 1 January 2025.
Delegated Regulation on fees charged to certain benchmark administrators
Delegated Regulation on fees charged to trade repositories under SFTR
Delegated Regulation on fees charged to trade repositories under EMIR
Delegated Regulation on fees charged to securitisation repositories
Delegated Regulation on fees charged to CRAs
FINANCIAL CRIME AND SANCTIONS
EC adopts delegated regulation amending list of high-risk third countries under MLD4
On 14 March, the EC adopted a delegated regulation updating the list of third-country jurisdictions that have been identified as having strategic deficiencies in their AML and CTF regimes, that pose significant threats to the EU financial system, by amending Delegated Regulation (EU) 2016/1675. The delegated regulation removes Barbados, Gibraltar, Panama, Uganda and the United Arab Emirates from the list and adds Kenya and Namibia to the table in point I of the Annex. These amendments reflect the amendments FATF made in February to its list of ‘Jurisdictions under Increased Monitoring’. The Delegated Regulation will now be submitted to the Council of the EU and the EP for review. If neither object, it will enter into force on the twentieth day following its publication in the OJ.
EC seeks EBA technical advice on RTS and guidelines under the future AML/CFT framework
On 12 March, the EBA published a provisional request for advice from the EC regarding RTS and guidelines under the future AML/CFT framework. The request is provisional as the new AML/CFT framework has not yet entered into force and refers to the text of those mandates as included in the compromise text endorsed by the co-legislators in January. The request for advice concerns standards and guidelines that AMLA will have to develop, and includes the following matters: (i) the methodology for classifying the risk profile of cross-border credit or financial institutions that may be selected for supervision at Union level; (ii) risk-based supervision; (iii) information necessary for the performance of customer due diligence; (iv) the criteria for determining pecuniary sanctions or administrative measures; (v) the minimum requirements of group-wide policies; and (vi) guidelines on the base amounts of such pecuniary sanctions. The deadline for the EBA to deliver the technical advice is 31 October 2025.
FATF publishes guidance on beneficial ownership and transparency of legal arrangements
On 11 March, FATF updated its guidance on beneficial ownership and transparency of legal arrangements following the February 2023 revisions to FATF Recommendation 25. The guidance aims to help stakeholders from the public and private sectors to implement the new requirements more effectively, and should assist countries and the private sector to understand how requirements apply and include practical guidance. It explains FATF’s requirements to obtain adequate, accurate and up-to-date beneficial ownership information for express trusts and similar legal arrangements, and mechanisms to verify this information. The guidance also highlights the importance of international co-operation. FATF plans to assess countries’ implementation of these requirements during its upcoming round of mutual evaluations.
HMT consults on improving the effectiveness of MLRs
On 11 March, HMT published a consultation on improving the effectiveness of the MLRs. The consultation principally covers issues already identified by HMT such as findings from the 2022 Review of the UK’s anti-money laundering and counter-terrorist financing regulatory and supervisory regime. The consultation includes issues put forward by key stakeholders which could reduce burdens and make the regulations more effective at tackling economic crime. The consultation covers four core themes: (i) making customer due diligence more proportionate and effective; (ii) strengthening system coordination; (iii) providing clarity on scope of the MLRs; and (iv) reforming registration requirements for the Trust Registration Service. The deadline for comments is 9 June.
EC publishes report on implementation of MLD4
On 11 March, the EC published a report to the EP and the Council on the implementation of MLD4. The report is based on information gathered from various sources and considers information up to 15 September 2023. The EC also published a staff working document, which includes summaries of the results of the surveys and contributions used in the production of the report. The report covers the following: (i) the transposition of MLD4 and MLD5; (ii) risk assessment and risk mitigation; (iii) NCAs and financial intelligence units, information access and co-operation, including at international level; (iv) beneficial ownership information regarding non-EU entities; (v) PEPs and enhanced due diligence measures; and (vi) fundamental rights. The report notes the EC’s reaction to the level of change to the risk environment in recent years and the EBA’s contribution to harmonisation and supervisory convergence, including substantial improvements regarding information exchange and co-operation between AML and CTF supervisors in the financial sector.
FINTECH
EBA publishes final report on the draft RTS on handling complaints received by issuers of ARTs
On 13 March, the EBA published a final report on the draft RTS that set out the requirements, templates and procedures for handling complaints received by issuers of asset-referenced tokens (ARTs). The draft RTS coverage includes: (i) complaints handing; (ii) the provision of information to ART holders and other interested parties; (iii) templates and recording; (iv) languages; (v) procedure for complaints investigation; and (vi) complaints handling in relation to third parties. Following responses to last year’s consultation, the EBA made a small number of targeted amendments to provide clarity and to align with ESMA, in relation to languages, data protection and electronic complaint submission. The draft RTS will be submitted to the EC for endorsement by 30 June, following which they will be subject to scrutiny by the EP and the Council of the EU before being published in the OJ.
FCA position on cryptoasset Exchange Traded Notes for professional investors
On 11 March, the FCA published a statement on its position on cryptoasset Exchange Traded Notes (cETNs) for professional investors. The FCA confirms it will not object to requests from recognised investment exchanges (RIEs) to create a UK listed market segment for cETNs available to professional investors such as investment firms and credit institutions authorised or regulated to operate in financial markets. Exchanges must have sufficient controls and appropriate safeguards in place, to ensure orderly trading and proper investor protection, and cETNs must meet all relevant requirements of the UK Listing Regime. The FCA continues to hold the view that cETNs and crypto derivatives are ill-suited for retail consumers and so the ban on the sale of cETNs (and crypto derivatives) to retail consumers remains in place and anyone who investors in cryptoassets should be prepared to lose all their money. The FCA is collaborating with government, international partners and industry to develop the UK’s cryptoasset regulatory regime and lead international standards in this space.
EBA consults on guidelines on redemption plans under MiCAR
On 8 March, the EBA published a consultation on the guidelines for redemption plan requirements under MiCAR for issuers of asset-referenced tokens and e-money tokens. The guidelines specify the content of the redemption plan, the timeframe for review and triggers for implementation. Particular points covered include: (i) clarification of the main principles governing the redemption plan, such as the equitable treatment of token holders; (ii) description of the main steps for orderly and timely implementation, including the communication plan, the content of the redemption claims and the distribution plan; (iii) pooled issuance, where the same token is issued by multiple issuers; and (iv) the triggers for the activation of the plan by the competent authority and cooperation with the prudential and resolution authorities. The deadline for comments is 10 June.
FCA report on using synthetic data in financial services
On 8 March, the FCA published a report on the use of synthetic data in financial services, authored by members of the Synthetic Data Expert Group (SDEG). The report reflects the practical experiences of SDEG members when generating or using synthetic data. It gives an overview of the relevant opportunities and risks and focuses on 3 key themes across the data lifecycle: (i) data augmentation and bias mitigation; (ii) system testing and model validation; (iii) internal and external data sharing. Two use cases for each theme are discussed, with learnings and insights, which include fraud detection, credit scoring, open banking, APP fraud and AML. The report shows examples of how synthetic data can be used to foster a more inclusive and fair financial landscape. The FCA webpage links to a survey for stakeholders to provide feedback on the report which will inform its future work programme.
MARKETS AND MARKETS INFRASTRUCTURE
Directive and Regulation improving MiFID II market data access and transparency published in the OJ
On 8 March, Directive (EU) 2024/790 amending MiFID II and Regulation (EU) 2024/791 amending MiFIR as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising trading obligations and prohibiting receiving payment for order flow were published in the OJ. Key changes made include: (i) the establishment of consolidated tapes to provide investors with up-to-date transaction information for the whole EU; (ii) the imposition of a general ban on ‘payment for order flow’, a practice through which brokers receive payments for forwarding client orders to certain trading platforms. Member States in which the practice already existed may allow investment firms under its jurisdiction to be exempt from the ban, provided that the practice only happens in the context of services to clients in that Member State, but the practice must be phased out by 30 June 2026; and (iii) the introduction of new rules on commodity derivatives. The texts will enter into force on 28 March. The Regulation will apply immediately in all member states. However, member states will have until 29 September 2025 to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive.
OPERATIONAL RESILIENCE
EC adopts RTS on classification of ICT-related incidents, contractual arrangements policy and risk management tools under DORA
On 13 March, the EC adopted three RTS on: (i) criteria for the classification of ICT-related incidents and cyber threats, setting out materiality thresholds and specifying the details of reports of major incidents; (ii) detailed content of the policy regarding contractual arrangements on the use of ICT services supporting critical or important functions provided by ICT third-party service providers; and (iii) ICT risk management tools, methods, processes, and policies and the simplified ICT risk management framework. The Council of the EU and the EP will now scrutinise the texts. If neither object, they will be published in the OJ and enter into force on the twentieth day following their publication.
PAYMENT SERVICES AND PAYMENT SYSTEMS
Near-final version of Payment Services (Contract Terminations) (Amendment) Regulations 2024
On 14 March, HMT published a near-final version of the Payment Services (Contract Terminations) (Amendment) Regulations 2024 with a policy note. The draft regulations amend the PSRs to impose new requirements in relation to payment service framework contracts concluded for an indefinite period terminated by a PSP. The minimum termination notice period is increased from two months to 90 days, and PSPs are required to explain the reasons for termination. The draft regulations also make corresponding changes to the Payment Accounts Regulations 2015. The policy note sets out the rationale for the reforms and also discusses the intended exceptions to the rules, including: (i) where providers must cease transactions under money laundering regulation if they are unable to apply customer due diligence measures; (ii) where termination is required pursuant to section 40G of the Immigration Act 2014; (iii) where providers reasonably believe a payment service provided under the framework contract is being used or is likely to be used in connection with serious crime; (iv) where a provider is required to terminate a contract by the FCA, the Treasury or the Secretary of State; and (v) where providers reasonably believe their customer has committed an offence in connection with the provision of goods or services to a third party. HMT welcomes technical comments on the draft regulations by 14 April and intends to lay the regulations in the summer.
HMT update on National Payments Vision
On 8 March, HMT published a statement providing an update on the National Payments Vision, which aims to provide clarity on the UK’s overall strategy and ambition for UK payments and was a recommendation of the independent Future of Payments Review, published in November. The Review found that the UK payments landscape is congested and would benefit from a clear overall strategy. The update confirms that the government has accepted the Review’s recommendation and will publish the National Payments Vision this year, which will serve as a response to the Future of Payments Review.
PRUDENTIAL REGULATION
EC adopts Delegated Regulation on RTS on details of scope and methods for prudential consolidation of an investment firm group under IFR
On 13 March, the EC adopted a delegated regulation supplementing the IFR with regard to RTS specifying the details of the scope and methods for prudential consolidation of an investment firm group. The draft RTS specify the detail of the scope of and methods for prudential consolidation of investment firm groups, in particular for calculating the fixed overheads requirement, the permanent minimum capital requirement, the K-factor requirement on the basis of the consolidated situation of the investment firm group, and the method and necessary details to properly implement Article 7(2) of the IFR, pursuant to Article 7(5) of that Regulation. The technical standards aim to ensure that the proposed regulatory requirements ensure a proportionate and technically consistent framework for prudential consolidation of investment firm groups. The draft RTS cover four key aspects: (i) the scope of prudential consolidation; (ii) the methods for prudential consolidation; (iii) the methodology for prudential consolidation; and (iv) the rules applicable to minority interests and additional Tier 1 and Tier 2 instruments issued by subsidiaries as part of prudential consolidation. The draft RTS will now be reviewed by the Council of the EU and the EP, if neither object it will enter into force on the twentieth day following its publication in the OJ.
Implementing Regulation amending ITS on supervisory disclosure under CRD IV published in the OJ
On 8 March, Implementing Regulation (EU) 2024/796 amending the ITS laid down in Implementing Regulation (EU) 650/2014 as regards the information to be disclosed by competent authorities in accordance with CRD IV, was published in the OJ. The ITS specify the format, structure, contents, and annual publication date of information to be published by competent authorities. The amendments reflect changes made by CRD V and CRR II and remove information related to investment firms that are not subject to the CRR following the adoption of the equivalent ITS under the IFD. The implementing regulation will enter into force on 28 March, the twentieth day following its publication in the OJ.
Implementing Regulation amending to ITS on benchmarking of internal approaches under CRD IV published in the OJ
On 8 March, Implementing Regulation (EU) 2024/348 amending the ITS as regards benchmark portfolios, reporting templates and reporting instructions for the reporting referred to in Article 78(2) of CRD IV was published in the OJ. Institutions are required to submit to their competent authority, at least annually, the results of the calculations of their risk weighted exposure amounts or own fund requirements under their internal approaches for exposures or positions that are included in the benchmark portfolios, to enable the relevant competent authority to assess the quality of those internal approaches. The amendments, among other things, reflect changes in the focus of the competent authorities' assessments and of the EBA's reports on the benchmarking exercise and the related reporting requirements. The Implementing Regulation will enter into force on 28 March, the twentieth day following its publication in the OJ.
RECOVERY AND RESOLUTION
Council of EU published text of Directive on MREL reforms
On 13 March, the Council of the EU published the text of the proposed ‘Daisy Chains’ Directive making targeted amendments to the BRRD and the SRM Regulation concerning the minimum requirement for own funds and eligible liabilities (MREL). The proposal was adopted by the EP in February, and the Council of the EU is expected to formally adopt it shortly. It will enter into force on the twentieth day following its publication in the OJ. Member states will then have six months from the date of entry into force to adopt and publish measures implementing the proposed Directive and to apply those measures from the following day. The amendments to the SRM Regulation will also apply one day after the transposition date.
SRB consultations on the minimum bail-in data template
On 13 March, the SRB published a consultation paper on the minimum bail-in data template (MBDT). The template collects bail-in data in the event of a bank failure or for dry-runs and testing exercises. The MBDT is expected to replace the SRB Bail-in Data Set instructions and represent the sole standard to follow for reporting relevant data. The MBDT has been designed for use in a crisis or for testing exercises during the resolution planning phase, and the consultation is seeking views on the following topics: (a) content of the MBDT documentation; (b) data point model and format; and (c) data collection process. The deadline for comments is 8 May.
PRA policy statement on solvent exit planning for non-systemic banks and building societies
On 12 March, the PRA published a policy statement on solvent exit planning for non-systemic banks and building societies. The policy statement sets out how a firm should prepare for an orderly solvent exit as part of its BAU activities, regardless of how unlikely or distant a prospect solvent exit may seem to the firm. It also provides feedback to the responses the PRA received to CP10/23 on the same topic. Having considered the responses, the PRA has made changes to the final policy to further clarify the PRA’s expectations. In particular, the PRA made changes to its new supervisory statement including: (i) providing further clarity and elaboration of a firm’s solvent exit planning for the transfer and/or repayment of all deposits; and the removal of a firm’s Part 4A PRA permission; (ii) clarifying that a firm’s solvent exit indicators are intended to inform a firm as to when it may need to initiate a solvent exit, but they are not automatic triggers for a solvent exit; (iii) adding examples of stakeholders in a firm’s solvent exit planning on communication; (iv) clarifying that a firm may perform assurance activities internally, or externally as the firm considers appropriate; and (v) providing further details on what a firm should consider regarding exit valuations. The new rules will be set out in the Recovery Plans Part of the PRA Rulebook and can be found in Appendix 1. SS2/24 is set out in Appendix 2 and consequential changes to SS3/21 are set out in Appendix 3. SS2/24, along with the new rules and changes to SS3/21, will come into force on 1 October 2025.
SUSTAINABLE FINANCE
Transition Finance Market Review call for evidence
On 14 March, the Transition Finance Market Review (TFMR) published a call for evidence, seeking input from various market participants on the topics including: (i) the scope of transition finance and any clarity needed; (ii) the credibility and integrity of transition finance including the role of good quality transition plans aligned with the TPT Disclosure Framework; (iii) financing challenges which present barriers to the application of capital in the UK; (iv) the opportunity for investments, products and services to advance transition finance globally; and (v) building the UK as a global hub for transition finance. The deadline for comments is 25 April.
UNEP FI updated guidelines for climate target setting for banks
On 13 March, the United Nations Environment Programme Finance Initiative (UNEP FI) updated its guidelines for climate target setting for banks, which now include banks' capital markets activities. The new guidelines will add, update, and clarify technical language to reflect the evolution of practices, methodologies, and data availability in the three years since the original version was published, including around policy engagement and transition planning. The updates also reflect changes in science, regulation, data, and methodologies that took place in the last three years. The updated version of the guidelines will apply to all new targets and any new iterations of existing targets set by Net-Zero Banking Alliance (NZBA) member banks after 22 April. The guidelines are scheduled to be reviewed every three years.
OTHER DEVELOPMENTS
FOS award limits for 2024
On 13 March, the FOS announced that the FCA has confirmed the increase of its award limits for 2024. The award limit is the maximum amount the FOS can require a financial business to pay when it upholds complaints, and is adjusted each year in line with inflation. From 1 April, the award limits will go up to: (i) £430,000 for complaints referred to them on or after 1 April 2024 about acts or omissions by firms on or after 1 April 2019; and (ii) £195,000 for complaints referred to them on or after 1 April 2024 about acts or omissions by firms before 1 April 2019. The FOS will update its website to reflect these changes from 1 April.
EP adopts proposed Regulation to streamline reporting obligations and reduce the administrative burden for the European Union’s financial sector
On 13 March, the EP announced that it had adopted at first reading the proposed regulation amending the ESRB Regulation, EBA Regulation, EIOPA Regulation, ESMA Regulation and InvestEU Regulation as regards certain reporting requirements in the fields of financial services and investment support. The proposed regulation aims to: (i) facilitate the sharing of reported data between national and EU authorities where both authorities already have the right to collect the data, to avoid duplicative requests and to facilitate the sharing of clean or processed versions of such data; (ii) require authorities to regularly review reporting requirements, remove any redundant or obsolete ones, and minimise the reporting burden; and (iii) allow, under strict confidentiality and data protection conditions, the sharing of data held by authorities with financial institutions, researchers, and other entities, for research and innovation purposes. The file will be followed up by the EP after the European elections in June. The Council of the EU will then need to adopt the regulation. It will enter into force on the twentieth day following its publication in the OJ.
Treasury Committee findings from the Sexism in the City inquiry
On 8 March, the Treasury Committee published its findings from the Sexism in the City inquiry. The Committee notes that while there have been incremental improvements since 2018, progress is still far too slow and many firms are treating D&I as a ‘tick box’ exercise rather than a core business priority. In addition, there has been only a small reduction in the average gender pay gap in financial services, which remains the largest gender pay gap of any UK sector. The Committee places responsibility for tackling these issues with firms’ senior leadership and boards and notes that investors have a key role to play in holding firms to account. The Committee also believes that the government and financial regulators have important roles in driving change. Given the slow progress, the Committee makes various recommendations and in particular welcomes the FCA and PRA proposals to strengthen non-financial misconduct rules and enforcement. Committee recommendations include: (i) legislation to ban the use of NDAs in sexual harassment cases; (ii) stronger protections for whistleblowers in sexual harassment cases; (iii) reduction of size threshold for gender pay gap reporting from 250+ to 50+ employees for firms in the financial services sector; (iv) requirement to explain wide gender pay gaps and publish an action plan. Notably, the Committee also recommended that regulators drop their prescriptive plans for reporting and target setting and focus on ensuring senior leadership and boards take responsibility for improving D&I in the sector.
FCA statement on Treasury Committee findings from the Sexism in the City inquiry
On 8 March, the FCA published a statement on the Treasury Committee’s findings from the Sexism in the City inquiry. The FCA shares the Committee’s view that there is an important role for regulators to play, and continues to believe that greater D&I within firms can deliver improved internal governance, decision making and risk management. The FCA consulted on proposals to boost D&I in financial services and found that, as a starting point, collecting measurable data would benefit firms, employees and the wider economy. The FCA welcomes the Committee’s feedback on the consultation, and, this year, will prioritise proposals on tackling misconduct such as bullying and sexual harassment. The FCA will also consider the Committee’s recommendations on whistleblowing and NDAs, building on existing work, and reflect on views on proposals around firms setting D&I strategies and collecting, reporting and disclosing data. In addition, the FCA will also consider how it engages with boards and other senior leaders on their firms’ culture and encourage them to adopt family friendly policies with equality impact assessments.
ACER updates REMIT guidance to improve reporting of LNG supply contracts and Power Purchase Agreements
On 13 March, the Agency for the Co-operation of Energy Regulators (ACER) published updated transaction reporting guidance relating to the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), following a consultation with stakeholders on improving REMIT data reporting. The amendments focus on guidance on reporting transactions related to liquified natural gas (LNG), Power Purchase Agreements (PPAs), and reliability options. A new Annex VIII to the Transaction Reporting User Manual (TRUM) has been introduced for facilitating LNG supply contract reporting which includes (among other things): (i) new contract types in relation to PPAs and LNG; and (ii) LNG as a new energy commodity. ACER has also made updates to Annex II, Annex IV and Annex VI. Additionally, a new Annex VIII is added which details different types of LNG contracts and how to report them. ACER has also published updated FAQs. Reporting parties are expected to comply with the updated guidance within 6 months of publication. The reporting of the new values will start after ACER and Register Reporting Mechanisms (RRMs) carry out technical implementation. ACER will coordinate with RRMs and inform stakeholders in due time when the reporting of the new values starts.