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Key Regulatory Topics: Weekly Update 9-15 December 2022

A number of anticipated policy statements and consultations were published this week in the UK, collectively referred to as the Edinburgh Reforms. These include a policy statement setting out the government’s approach to repealing and replacing retained EU law (REUL) on financial services together with three illustrative draft Statutory Instruments to give an indication of how the powers relating to REUL in the FSM Bill will be used, and how the relevant SIs may be structured. The FCA also set out its proposed approach to implementing the outcomes of HMT’s Future Regulatory Framework Review. Over on the continent, the EBA published its roadmap on sustainable finance and ESMA published final draft guidelines on the standard templates, forms and formats to apply for permission to operate a DLT market infrastructure under the DLT Pilot Regulation.

Next week’s update will be published on Thursday 22 December, to cover developments from 16 – 21 December, before we break for the holidays to resume on Friday 6 January 2023. 

Capital markets

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

FCA Primary Market Bulletin issue 42

On 12 December, the FCA published issue 42 of its Primary Market Bulletin. Among other topics, the FCA discusses: (i) ongoing monitoring of climate-related financial disclosures. The FCA reminds companies of its rules, guidance and expectations; (ii) the relationship between UK MAR, the Listing Rules and the National Security and Investment Act; (iii) themes from the FCA’s enquiries into suspected unlawful disclosures of inside information by issuers, directors, advisers and other parties; (iv) the rules and guidance in relation to reverse takeovers, in particular to remind shell companies (including cash shells and special purpose acquisition companies); (v) the findings from the Financial Reporting Council’s report on improving quality and usability of structured digital reporting; and (vi) the FCA’s biannual review of exempted shares.


Conduct and governance 

Please see our Investigations Insight blog for a post on the review of the SM&CR that was announced last week as part of the Edinburgh Reforms. The note discusses what we know so far about the government’s intentions, as well as what changes we might expect to be made to the regime.


Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

EBA thematic review on transparency and level of fees and charges for retail banking products

On 14 December, the EBA published the findings of a thematic review on the transparency and level of fees and charges levied by financial institutions on retail banking products in the EU. The review covers mortgage credit, consumer credit, deposits, payment accounts, payment services and e-money services. Its findings include that: (i) despite the improvements in consumer protection brought about by several EU sectoral directives introduced in the past decade to regulate banking retail products, market practices for fees and charges are causing significant detriment to consumers; (ii) fees and charges vary greatly in terms of level and type, not only across the EU market, but also across financial institutions within the same jurisdiction; (iii) national legal frameworks are mostly subject to the general principle of freedom of contract. Consequently, only in few cases, NCAs have the power to intervene when the level of fees charged is considered not to be reasonable compared to the service offered and limited to payment accounts; (iv) credit institutions’ reliance on fees as a source of revenue varies significantly; and (v) with the exception of payment accounts, the low level of harmonisation and standardisation of fees within EU Member States might cause detriment to consumers when comparing effectively costs of products and services offered by financial institutions.

Press release


ESMA guidance for supervision of cross-border activities of investment firms

On 14 December, ESMA published a supervisory briefing with the objective of ensuring convergence in the EU in the supervision of the cross-border activities of investment firms. ESMA is of the view that, to apply a risk-based approach in relation to the supervision of cross-border activities to retail clients, there are certain minimum steps that need to be taken by the supervising NCA. This includes: (i) at authorisation stage, assessing whether a firm has cross-border plans and whether it is fit to carry them out; (ii) collecting minimum data on firms’ cross-border activities to retail clients on a regular basis; and (iii) as part of ongoing supervision, it entails: (a) ensuring that specific cross-border risks are sufficiently captured in the general risk-based approach that the NCA applies; and (b) when performing investigations / inspections on overall firms’ activities, ensuring adequate representation of firms providing cross-border activities in the sample of firms selected and/or through samples relating to firms’ cross-border based on their nature, scale and complexity. The content of this supervisory briefing is not subject to any ‘comply or explain’ mechanism for NCAs and is non-binding.

Press release

Supervisory briefing

Next steps of FCA review into FSCS compensation framework

On 14 December, the FCA published its response to its December 2021 consultation on the compensation framework within which the FSCS operates, setting out its next steps for the review. The prevailing feedback was that: (i) the high cost of compensation liabilities falling to the FSCS is not a feature of the compensation framework itself, but has occurred because of the harms from certain markets. The most effective way to bring down the cost of claims falling to the FSCS is for firms to improve their conduct to minimise the liabilities in the first place; (ii) firms need to be more financially resilient to address the underlying causes of high redress liabilities; and (iii) removing aspects of consumer protection provided by the FSCS would merely shift the burden of the costs to the consumer. The FCA highlights that, as cases often take years to resolve, liabilities from historic misconduct issues will continue for the time being to fall to the FSCS, before costs will start to come down. However, for the next phase of the review, the FCA’s plans include: (a) in 2023, to review compensation limits to consider whether they remain at an appropriate level for different types of claims; (b) in 2023, to review funding class thresholds to consider whether the class thresholds remain at an appropriate level. The FCA notes that it has highlighted to the government the strong calls for using monies from enforcement-related financial penalties to fund FSCS compensation costs; and (c) to carry out research, in conjunction with the FSCS, to improve the FCA’s understanding of the impact of FSCS protection on consumer decision making, confidence and behaviour, and on firm behaviour and incentives. Following feedback received on the proposed principles for the compensation framework, the FCA has made some changes, which are set out in the statement. The FCA expects to consult on any proposed changes to the compensation rules during 2023/24 with a view to confirming any changes by the end of that financial year.

Press release

Feedback statement

FCA discussion paper on future retail disclosure framework

On 13 December, the FCA published a discussion paper on a future retail disclosure framework. HMT has set out its intention to revoke and replace the PRIIPs Regulation and the UCITS disclosure requirements in its consultation, as part of the Edinburgh Reforms (we have covered this item below). The FCA’s discussion paper complements HMT’s consultation. The FCA divides its questions into three parts: (i) delivery of information to consumers. The FCA highlights in particular that it is considering who should have responsibility for producing disclosure; (ii) presentation of information. The FCA notes that it is interested in making disclosure more interactive and considering whether to introduce the practice of layering, where firms include some information upfront with more detailed information provided later in the process; and (iii) disclosure content. The FCA wishes to understand to what degree it can introduce flexibility at the cost of comparability. It looks at the transparent provision of costs and charges, disclosure of risk and different types of performance information. The FCA wants input on how it can future-proof retail disclosure regulation generally. The deadline for comments is 7 March 2023.

Press release

Discussion paper

Edinburgh Reforms – consultation on repeal of PRIIPs and new retail disclosure framework

On 9 December, HMT began consulting on the replacement of the PRIIPs Regulation with a new retail disclosure framework. The consultation sets out the key issues identified with the PRIIPs Regulation and sets out broadly the government’s intended direction for addressing these. The government proposes to: (i) remove prescriptive requirements and increase flexibility by incorporating requirements into firms’ existing information documents; (ii) reframe the framework around ensuring that investors are empowered to make well-informed decisions related to the product that they are purchasing, rather than focusing on a broad-based comparability as set out in PRIIPs; and (iii) integrate UCITS and PRIIPs disclosure into a coherent UK retail disclosure framework before 2026 (the end of the UCITS exemption from PRIIPs requirements). The government also: (a) considers whether additional powers will be required for the FCA, in particular in relation to the activities of unauthorised persons, such as in relation to overseas funds marketed to retail investors; and (b) outlines its views on some wider retail investment and disclosure issues including improving access to a wider range of investment products (e.g. US Exchange Traded Funds) and digitised disclosure formats. The deadline for comments is 3 March 2023.


Edinburgh Reforms – consultation on reform of Consumer Credit Act 1974

On 9 December, HMT began consulting on its proposals to reform the Consumer Credit Act (CCA), with the ambition of moving the majority of the CCA into the FCA Handbook. HMT notes that there may be some provisions that it will not be desirable or possible to move to FCA rules and if this is the case they will stay in legislation, subject to any modifications or refinements considered appropriate. HMT asks for feedback in relation to: (i) its proposed approach to this reform, including the principles and objectives that will underpin it; (ii) its initial proposals as to how provisions may be replicated in FCA rules. The FCA has categorised provisions accordingly: definitions, scope, information requirements, rights and protections, sanctions, consumer hire and small agreements; and (iii) how this reform can help increase access to credit and financial inclusion. HMT also explores how the consumer credit market can become fairer and take account of inequality. HMT notes that this is the first step in the reform process and that due to its scale and complexity it is envisaged to take a number of years to complete. The deadline for comments is 17 March 2023.



PSR consults on 2023/24 fees

On 13 December, the PSR began consulting on proposed changes to the structure of its regulatory fees. The PSR outlines two main proposals: (i) a minimum threshold for charging fees – in relation to the formula that has been used since 2018, the PSR proposes to charge nothing to fee payers where the calculated fee is less than £100, then distribute the funding shortfall across remaining fee payers. This would provide a time and cost saving to small fee payers by reducing administration, and free up the PSR’s time for more impactful activities; and (ii) a new mechanism to charge ‘special project fees’ which would ensure that payment system operators (PSOs) contribute to the cost of special project work that is directly relevant to them. These would be one-off, significant activities that are time limited, call for extra resources and focus on the activity of one or more PSOs, such as designation activity, market studies or market reviews. PSOs don’t currently contribute to the PSR’s regulatory costs so the PSR considers it would more fairly distribute the costs across industry. This will also allow the PSR to carry out special work, including the card fees market reviews, which are important in protecting businesses and consumers, without impacting other regulatory work. The PSR proposes to charge PSOs with a for-profit business model. The deadline for comments is 3 February 2023. If the PSR adopts the proposals, they will be in force in force from 1 April 2023 to 31 March 2024.


Financial crime and sanctions

Please see the Capital Markets section for the issue 42 of the FCA’s Primary Market Bulletin, where it discusses among other topics, the relationship between UK MAR, the Listing Rules and the National Security and Investment Act.

FCA Market Watch issue 71

On 13 December, the FCA published issue 71 of its Market Watch newsletter. The FCA shares its observations about changes in advisory firms’ insider lists since the publication of Market Watch 60. It has seen considerable reductions in the numbers of permanent insiders at several advisory firms, as well as enhanced monitoring of access to inside information. It sets out briefly the methods by which firms have reduced access. The FCA expects firms to continue to use insider lists to record when they have granted access to relevant inside information to staff who require that access, but firms must also ensure that persons without a specific business need to access the inside information are prevented from doing so. The FCA also reminds firms of the legal requirement within UK MAR to include personal information in insider lists so that the FCA is able to cross-reference the information with MiFIR transaction reports, MAR suspicious transaction and order reports and other information sources. The FCA sets out some advice in response to related queries it has received on: the inclusion of national identifiers for UK nationals, personal telephone numbers, contractors, local data protection laws and the burden of work.  

Market Watch 71


ESMA draft guidelines to applicants for permission to operate a DLT Market Infrastructure

On 15 December, ESMA published final draft guidelines on the standard templates, forms and formats to apply for permission to operate a DLT market infrastructure under the DLT Pilot Regulation. There are different categories of DLT market infrastructures: DLT MTFs, DLT settlement systems or DLT trading and settlement systems. The templates are provided for applicants to request limited exemptions from specific requirements under MiFIR, MiFID II or CSDR, provided they comply with certain conditions. In the final report ESMA summarises and analyses the responses to the consultation on the guidelines and explains how the responses have been taken into account. The guidelines will be published on the ESMA website in the EU official languages in the coming weeks and will enter into force on 23 March 2023.

Press release

Draft final report

Fund regulation 

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

FSB assesses effectiveness of 2017 recommendations on liquidity mismatch in open-ended funds

On 14 December, the FSB published an assessment of the effectiveness of its 2017 Recommendations on liquidity mismatch in open-ended funds (OEFs). The report’s findings include that: (i) overall, there has been no measurable reduction in the degree of structural liquidity mismatch since the 2017 Recommendations were issued. As the OEF sector has grown in absolute terms, the potential impact of vulnerabilities that can arise from OEFs’ structural liquidity mismatch has also grown; and (ii) there remains room for greater uptake of liquidity management tools (LMTs), in particular anti-dilution tools that are intended to pass on the cost of liquidity to redeeming shareholders in both normal and stressed market conditions. Cost, competitive or reputational concerns, as well as operational hurdles, may have prevented OEF managers from including or using LMTs. The report concludes that certain policy enhancements would strengthen the current framework and OEF liquidity management practices: (a) providing a clearer and more specific articulation of the intended outcome of policies to reduce structural liquidity mismatch in OEFs; (b) ensuring that investors bear the costs of liquidity associated with fund subscriptions and redemptions, and enhancing the use, and consistency of use, of LMTs by fund managers; (c) requiring clearer public disclosures from fund managers on the availability and use of LMTs, including by enhancing their engagement with investors; (d) closing identified data gaps to improve authorities’ ability to monitor liquidity mismatch in OEFs and its management from a financial stability perspective; and (e) further promoting the use of fund- and system-level stress testing. The FSB and IOSCO will carry out follow-up work based on the assessment’s findings, including: (1) revisions to the FSB and IOSCO Recommendations to address structural liquidity mismatch and promote greater inclusion and use of LMTs as well as to clarify the appropriate roles of fund managers and authorities in implementing these Recommendations; (2) development of detailed guidance on the design and use of LMTs; (3) work to enhance the availability of OEF-related data for financial stability monitoring; and (4) steps to promote the use of stress testing.

Press release


Edinburgh Reforms – real estate investment trusts tax rule amendments

On 9 December, in the Chancellor of the Exchequer’s announcement of the Edinburgh Reforms, the government committed to amending the tax rules for real estate investment trusts (REITs).  With effect from April 2023, new rules will: (i) remove the requirement for a REIT to own at least three properties, where they hold a single commercial property worth at least £20 million; and (ii) amend the rule that applies to properties disposed of within three years of significant development activity (the cost of development exceeded 30% of the fair value of the property when acquired or on entry into the REIT regime), to ensure that this rule operates in line with its original intention.

Written statement

Markets and markets infrastructure 

Please see the FinTech section for ESMA’s final draft guidelines on the standard templates, forms and formats to apply for permission to operate a DLT market infrastructure under the DLT Pilot Regulation.

Please see the Prudential Regulation section for the ESA’s advice in response to the EC’s October 2021 request for its review of the securitisation prudential framework for banks and (re)insurers.

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

ESMA annual report on CRA market share calculation

On 15 December, ESMA published its annual report calculating the market share of credit rating agencies (CRAs). Under the CRA Regulation issuers or related third parties, who intend to appoint two or more CRAs to rate an issuance or entity, must consider appointing at least one CRA with no more than 10% of the total market share in the EU.


PRA, FCA joint policy statement on margin requirements for non-centrally cleared derivatives

On 15 December, the PRA and FCA set out their final joint policy on margin requirements for non-centrally cleared derivatives. The final policy is implemented through amendments to Binding Technical Standards 2016/2251. The amendments (i) specify the treatment of third-country funds as eligible collateral, including EEA UCITS; (ii) provide a fall-back transition period to address practical issues where firms face immediate application of the bilateral margining requirements; and (iii) update the criteria for a CCP to be excluded from the requirements. In response to the feedback made during the consultation, the PRA and FCA have made some minor changes to the proposals consulted on: (a) extending the eligibility of EEA UCITS as collateral to provide a longer transitional period for firms to become compliant with the new requirements relating to the treatment of third-country funds as eligible collateral; and (b) increasing the fall-back transition period for circumstances where firms come into scope of the margin requirements for the first time, and the rules would otherwise apply immediately. The requirements are effective immediately on publication, which is when the final technical standards instruments come into force.

Policy statement

FCA compels IBA to publish three-month sterling LIBOR after end-December 2022

On 14 December, the FCA published a notice of first decision (dated 23 November) issued to ICE Benchmark Administration (IBA) under Article 21(3) of the UK BMR. The FCA is compelling IBA to continue publishing synthetic 3-month sterling LIBOR for a further period of 12 months until the end of December 2023. The FCA, following talks with industry, concluded that the benchmark could not be ceased at the end of 2022 in an orderly fashion. The FCA also states that subject to the reviews required by Article 21(3) of the UK BMR, the FCA intends to compel IBA to continue to publish synthetic 3-month sterling LIBOR for a final period until the end of March 2024, but not beyond that date.

Notice of first decision

ESMA promotes clarity to market participants on best execution reporting under MiFID II

On 14 December, ESMA issued a statement to NCAs to deprioritise supervisory actions towards execution venues relating to the periodic reporting obligation on them to publish the RTS 27 reports, from 1 March 2023. This obligation is temporarily suspended until 28 February 2023 under the Capital Markets Recovery Package, but is intended to be permanently deleted under the EC’s review of MiFID II/MiFIR, which is currently subject to the legislative procedure at the EP and the Council. De-prioritisation avoids a situation where the obligation temporarily re-applies until the proposed revised MiFID II applies.


Edinburgh Reforms – call for evidence on SSR review

On 9 December, HMT launched a call for evidence as the first step in its review of the Short Selling Regulation (SSR). HMT ask some general questions as to whether short selling should be regulated and if the current regime is effective and proportionate in relation of the burden it places on firms. The call for evidence considers the operation of the current regime, in particular in relation to: (i) restrictions on ‘uncovered’ short selling; (ii) position reporting to the FCA; (iii) public disclosure; (iv) the market maker exemption; (v) the FCA’s emergency intervention powers; and (vi) overseas shares. HMT is also seeking to understand where firms find that the SSR requirements interact with those under other regulations, such as MAR, CSDR, SFTR and MiFID. The call for evidence does not explore provisions in the SSR for UK sovereign debt and UK sovereign credit default swaps, which the government will consider later. The deadline for responses is 5 March 2023.

Call for evidence

Payment services and payment systems 

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

PSR paper on impacts of increases in UK-EEA cross-border interchange fees

On 15 December, as part of its market review on cross-border interchange fees, the PSR published a paper discussing the impact of the UK-EEA cross-border interchange fee increases on UK businesses and consumers. The paper includes: (i) an overview of the functioning of a four-party card payment system and of the changes to the rates of multilateral interchange fees in scope; (ii) the PSR’s initial views on the effects of these higher rates on UK service users and how the increases might harm UK service users (depending, for example, on any price differentiation and pass-throughs); and (iii) a discussion on how merchants or acquirers could mitigate the impact on their own business (for example, through relocation). Feedback on the paper can be provided until 19 January 2023. The PSR intends to publish its interim report of its review in H2 2023.

Press release


Edinburgh Reforms – consultation on information requirements in Payment Account Regulations

On 9 December, HMT opened a consultation for feedback on the information requirements set out in Part 2 and Schedules 1 and 2 of the Payment Account Regulations (PARs). Payment service providers (PSPs) are required to provide customers with a fee information document and a statement of fees, with mandatory requirements as to the content and presentational format of these documents. There are also requirements as to the information that must be provided alongside packaged products. HMT asks stakeholders what negative or positive impacts they consider these requirements to have. HMT expects many of the requirements to be either too prescriptive or less necessary in a UK context. For example, the documents must follow rigid presentational formats, with limited flexibility for firms to provide information in a way that works better for them and their customers. HMT also consider it is unlikely that many consumers use these documents to compare current accounts, particularly because, compared to EU countries, UK current accounts generally have fewer fees and charges associated with normal account usage. The consultation also considers the requirements on the FCA and the Money and Pensions Service, which include maintaining a linked services list and website comparing fees charged by PSPs. The deadline for comments is 17 February 2023.


Prudential regulation 

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

Implementing Regulation on benchmarking of internal approaches for 2023 benchmarking exercise

On 15 December, the EC adopted an Implementing Regulation amending Commission Implementing Regulation (EU) 2016/2070, which supplements CRD IV, specifying the benchmarking portfolios and reporting instructions for institutions to be applied in the annual benchmarking exercises. The amendments reflect the EBA’s proposals for the 2023 benchmarking exercise and will come into force 20 days after publication in the OJ.

Implementing Regulation and Annexes

EC adopts ITS on significant intra-group transaction and risk concentration reports under FICOD

On 15 December, the EC adopted an Implementing Regulation laying down ITS for the application of the Financial Conglomerates Directive (FICOD) with regard to supervisory reporting of risk concentrations and intra-group transactions. The ITS set out scope, frequency and formats of financial conglomerates’ reports on significant intra-group transactions and risk concentrations. The Implementing Regulation will enter into force on 20 days following that of its publication in the OJ. It shall apply from 31 December 2023.

Implementing Regulation and Annexes

Third BCBS report on impact and effectiveness of implemented Basel III reforms

On 14 December, the BCBS issued its third report evaluating the impact and effectiveness of implemented Basel III reforms. The report sets out the BCBS’ first holistic evaluation of how the reforms have affected bank resilience and systemic risk as well as assessing the possible negative side effects on banks' lending and capital costs. The scope of the evaluation is limited to those elements that were implemented by 2019. The BCBS’ findings include that: (i) the implemented reforms are an important driver of the overall increase in bank resilience; (ii) gains in resilience were greater for the banks that were more heavily affected by the reforms, suggesting that the reforms were an important driver; (iii) market-based measures of banking-sector systemic risk have improved, making the financial system less vulnerable to the distress of individual banks; (iv) there is no considerable evidence of negative side effects on banks' capital costs and lending. Instead, banks that were more heavily affected by the reforms saw a greater reduction in their cost of capital. There is some indication, though no robust evidence, that their lending grew less than that of their peers while overall bank lending expanded in most jurisdictions; and (v) in assessing interactions among various elements of the reforms, the report finds that the Basel III Framework does not suffer from redundant elements. It acknowledges that Basel III's more sophisticated and multidimensional framework, which was introduced to address a wider variety of risks, results in higher regulatory complexity, but does not assess whether such complexity could be reduced while maintaining bank resilience.

Press release


FPC financial policy summary and record – December 2022

On 13 December, the FPC published its financial policy summary and record for its meeting held on 28 November and 8 December. Points of interest include: (i) UK bank resilience -  the results of the 2022 annual cyclical scenario stress test will be published in Summer 2023; (ii) countercyclical capital buffer rate (CCyB) – the FPC is maintaining the UK CCyB rate at 2%, due to come into effect on 5 July 2023; and (iii) market based finance - the BoE will run, for the first time, an exploratory scenario exercise focused on non-bank financial institutions’ risks. Further details will be set out in H1 2023.

Summary and Record

ESAs advice to EC on review of securitisation prudential framework

On 12 December, the ESAs published advice in response to the EC’s October 2021 request for its review of the securitisation prudential framework. The advice consists of a review of the securitisation prudential framework for banks and (re)insurers.  In relation to banks, the ESAs advise to improve risk sensitivity in the capital prudential framework by acknowledging the reduction in model and agency risk associated to originators retaining senior securitisation tranches.  They recommend reducing the risk weight floor applicable to senior tranches retained by originators. The ESAs also suggest revisions of the transparency and due diligence requirements, which are more restrictive for securitisations compared with other asset classes, as well as a set of fixes to the capital framework for institutions aimed at clarifying existing requirements, removing some inconsistencies and improving the risk sensitivity in the framework. The ESAs consider that the current liquidity framework should be kept unchanged. The ESAs stress that further analytical work should be conducted to gain a holistic understanding of the relevant factors driving the securitisation market, some of which lie outside the scope of the prudential framework, including the recent monetary policy environment and the role of the due diligence and transparency requirements. For that purpose, the ESAs recommend that they undertake further monitoring work on additional data as it becomes available. In addition, ESMA has started the revision process of the disclosure templates for securitisation transactions and will assess, as a part of this, whether greater proportionality can be introduced into the templates.

Press release

Executive Summary

Banking advice

(Re)insurance advice

Recovery and resolution 

EBA consults on guidelines on the overall recovery capacity in recovery planning under BRRD

On 14 December, the EBA began consulting on draft guidelines on the overall recovery capacity (ORC) in recovery planning under the BRRD. The guidelines aim to set up a consistent framework for the determination of the ORC by institutions in their recovery plans and the respective assessment by competent authorities. The objective of the ORC is to provide a summary of the overall capability of the institution to restore its financial position after a significant deterioration by implementing suitable recovery options. The assessment by competent authorities of an institution’s ORC allows them to understand to what extent an institution would be able to recover from a range of potential crisis situations. The main goal of the guidelines is to harmonise the observed practices on the ORC determination and assessment, so as to improve the usability of recovery plans and make crisis preparedness more effective. The guidelines are composed of two sections: (i) addressed to institutions, aimed at providing guidance on the relevant steps to set-up a reliable ORC framework; and (ii) addressed to competent authorities, complementing the framework by harmonising the core elements of the competent authorities’ assessment of the ORC from both a quantitative and qualitative perspective. The deadline for comments is 14 March 2023.

Press release


Regulatory reform post Brexit

Please see the Consumer/Retail section for a number of items relating to the Edinburgh Reforms.

Please see the Fund Regulation section for the government’s proposals to amend the tax rules for real estate investment trusts. 

Please see the Markets and Markets Infrastructure section for HMT’s call for evidence on the SSR review.

Please see the Payment Services and Payment Systems section for HMT’s consultation on information requirements in Payment Account Regulations.

Please see the Other Developments section for HMT’s response on proposed reforms to the Building Societies Act 1986

The Edinburgh Reforms

On 9 December, the Chancellor of the Exchequer, Jeremy Hunt announced a series of reforms across the financial services sector. These build on the reform agenda set out at Mansion House in 2021 and complement that which will be implemented through the FSM Bill. The government’s reforms that we have not covered elsewhere in this week’s update include: (i) to repeal EU legislation on the European long-term investment fund; (ii) a review into reforming the SMCR in Q1 2023; (iii) committing to having a regime for a UK consolidated tape in place by 2024; (iv) a consultation on reform to the VAT treatment of fund management; (v) a consultation in Q1 2023 on bringing ESG ratings providers into the regulatory perimeter; (vi) a response to the consultation on expanding the investment manager exemption to include cryptoassets; (vii) the establishment of a new industry-led Accelerated Settlement Taskforce to explore the potential of faster settlement of financial trades in the UK; (viii) the launch of an independent Investment Research Review; (ix) to bring forward secondary legislation in Q1 2023 to remove burdens for firms trading commodities derivatives as an ancillary activity, for example, when manufacturers seek to fix the future price of their purchases of specific raw materials; and (x) committing to work with the FCA to examine the boundary between regulated financial advice and financial guidance.

Press release

Written statement

Edinburgh Reforms collection of documents

Edinburgh Reforms – Draft Illustrative SIs

On 9 December, HMT published three draft Illustrative Statutory Instruments (SIs) to give an indication of how the powers relating to repealing retained EU law in the FSM Bill will be used and how the relevant SIs may be structured. The three illustrative SIs cover: (i) the repeal of the Securitisation Regulation with a view to the replacement of most firm-facing requirements by rules made by the FCA and PRA. HMT proposes to use the Designated Activities Regime (DAR) to enable the FCA to make rules for any entities who carry on the designated activities, including by granting the FCA additional rulemaking powers for unauthorised persons. The SI does not cover the full range of securitisation legislation revoked and likely to be restated however; (ii) removing a limitation on the FCA’s rulemaking powers in relation to payments and e-money regulation. It also extends the FCA’s existing powers to make rules for authorised persons in relation to client money, the control of information, and the appointment of auditors so that such rules may also be made in relation to these institutions; and (iii) the reform of the Prospectus Regulation. The SI illustrates how the DAR will be used to create a new Public Offers Regime. It covers the majority of the changes announced by the government in March in the outcome of its consultation on the UK prospectus regime, including those relating to: (a) the proposed new public offer architecture; that is, a general prohibition on public offers of securities with a set of exemptions; (b) admissions to trading on regulated markets; (c) admissions to trading on multilateral trading facilities operating primary markets; (d) forward-looking information; (e) offers of securities not admitted to trading; and (f) the expansion of the regime to include certain non-transferable securities. HMT emphasises that the SIs should not be considered final policy, and the exact drafting design and format will continue to develop.

Prospectus Regulation SI

Prospectus Regulation policy note

Securitisation Regulation SI

Securitisation Regulation policy note

Payments Regulation SI

Payments Regulation policy note

Edinburgh Reforms - government approach to repealing and replacing retained EU law

On 9 December, HMT published a policy statement setting out the government’s approach to repealing and replacing retained EU law (REUL) on financial services. HMT has identified 43 core areas of REUL in scope of this programme. It will deliver the programme by splitting REUL into “tranches”. Work is already underway on the first tranche of REUL in relation to delivering the outcomes arising from the Wholesale Markets Review, Lord Hill’s Listing Review, the Securitisation Review, and the Review into the Solvency II Directive. The second tranche is focused on those areas with the biggest potential benefits to deliver improvements to UK economic growth and includes: (i) remaining implementation of the outcomes of the Wholesale Markets Review and Solvency II; (ii) PRIIPS Regulation; (iii) the SSR; (iv) the Taxonomy Regulation; (v) the Money Market Funds Regulation; (vi) PSD and EMD; (vii) the Insurance Mediation and Distribution Directives; (viii) CRR and CRD; (ix) the Long-Term Investment Funds Regulation; and (x) the consumer information rules in the Payment Accounts Regulations 2015. The government expects to make significant progress on Tranches 1 and 2 by the end of 2023. The government has published illustrative draft Statutory Instruments (SIs) to give an indication of how the powers relating to REUL in the FSM Bill will be used, and how the relevant SIs may be structured. These SIs cover: (a) the replacement of the Prospectus Regulation; (b) the replacement of the Securitisation Regulation; and (c) giving the FCA rulemaking powers in relation to Payments Regulation. The statement also describes how the FSM Bill will interact with the Retained EU Law (Revocation and Reform) Bill.

Policy statement


FCA proposed approach to Future Regulatory Framework implementation

On 9 December, the FCA set out its proposed approach to implementing the outcomes of HMT’s Future Regulatory Framework (FRF) Review. For each of the measures in the FSM Bill, the FCA sets out its current approach and proposed steps for implementation of the draft proposals. The FCA is preparing for FRF implementation once the Bill has Royal Assent - including implementation of changes to its objectives, duties, and accountability arrangements, and of the future transfer of responsibility for firm-facing provisions in retained EU law. The FCA states that its focus is on ensuring an orderly transfer as part of a phased approach, considering there are approximately 40 EU files with firm-facing provisions, which cannot be transferred at once. The timing for this will depend partly on ministerial decisions on the repeal and replacement of retained EU law. It will required coordination with the other regulatory bodies. The next phase will include continuing the work to implement the Wholesale Markets Review (reforming the MiFID framework), the PRIIPs Regulation, PSD, EMD, and the SSR. The FCA has published a webpage on the FRF Review, which will be updated.

FCA FRF webpage

Approach document

Structural reform 

Edinburgh Reforms – review on ring-fencing and proprietary trading

On 9 December, HMT responded to the independent review of the ring-fencing regime and proprietary trading, which made a series of recommendations on improving the regime. In mid-2023, the government intends to consult on the near-term measures suggested in the review, with a view to bringing forward secondary legislation later in the year. Among other changes, these reforms will: (i) take banking groups without major investment banking operations out of the regime; (ii) update the definition of Relevant Financial Institution, in particular with reference to high street financial advisers and with a view to removing a disproportionate compliance burden on banks; (iii) remove blanket geographical restrictions on ring-fenced banks operating subsidiaries or servicing clients outside the EEA; (iv) take forward technical amendments outlined in the review to improve the functioning of the regime, removing unintended consequences, and providing benefits for the sector and the economy; (v) review and update the list of activities which ring-fenced banks are restricted from carrying out, to assess whether certain activities could in future be undertaken safely by ring-fenced banks, including: (a) hedging mortality risk to provide lifetime mortgages; (b) providing inflation swaps to facilitate more project finance, including infrastructure; (c) restructuring loans through the debt for equity swap exemption; and (d) in specific cases, taking strategic equity stakes in certain types of technology companies where those enterprises are partnered with the bank. The government also intends to consult in mid-2023 on plans to increase the deposit threshold for the applicability of the regime from £25 billion to £35 billion. The government agrees with the review’s recommendation to review the practicalities of aligning the ring-fencing and resolution regimes and intends to issue a public call for evidence in Q1 2023 asking for views on the long-term benefits of the ring-fencing regime in light of developments in the resolution regime and relevant advances in the wider regulatory framework.


Sustainable finance 

Please see the Regulatory Reform Post Brexit section for a number of updates in relation to the Edinburgh Reforms.

Please see the Other Developments Section for clarity from the FCA as to its expectations for wholesale investment firms’ applications for authorisation, in particular for those that offer ESG-related advice, products or services as a material part of their business model.

No legislation on UK Green Taxonomy to be made this year

On 14 December, Andrew Griffith, Economic Secretary to HMT, made a statement on the development of a UK green taxonomy. Having received advice from the Green Technical Advisory Group, and following stakeholder engagement, the government believes that there is benefit in reviewing its approach to taxonomy development to maximise the effectiveness of its sustainable finance agenda. Therefore, it will not make secondary legislation under the Taxonomy Regulations this year. HMT intends to first, using powers in the FSM Bill once in force, commence the repeal of the statutory requirement to make technical screening criteria regulations by 1 January 2023, so that the obligation no longer applies. Then it will consider how to use the powers in the FSM Bill to restate and modify retained EU law, and decide whether to change the UK’s approach. The government intends to provide a further update as part of its publication of the Green Finance Strategy in early 2023.


EBA roadmap on sustainable finance

On 13 December, the EBA published a roadmap outlining the objectives and timeline for delivering mandates and tasks in the area of sustainable finance and ESG risks. The roadmap explains the EBA’s sequenced approach over the next three years to integrate ESG risks considerations in the banking framework and support the EU’s efforts to achieve the transition to a more sustainable economy. It covers mandates and tasks set out in: the EBA Founding Regulation, CRR and CRD, IFR and IFD, the Securitisation Regulation, SFDR, the Taxonomy Regulation and the Corporate Sustainability Reporting Directive. It also includes tasks assigned directly by the EC in the context of its Strategy for Financing the Transition to a Sustainable Economy.


FCA announces ESG Advisory Committee to its Board

On 13 December, the FCA announced that it has established a new ESG Advisory Committee to its Board. The Committee will support the FCA Board in executing oversight of ESG-related issues relevant to the FCA as a corporate entity and as a regulator. Additionally, the Committee will provide guidance to the Board on relevant emerging ESG topics or issues and views on how the FCA should develop its ESG strategy in keeping with the organisation’s statutory objectives and regulatory principles. 


Climate Financial Risk Forum third set of guides

On 13 December, the Climate Financial Risk Forum (CFRF) published its third round of guides to help the financial sector develop its approach to addressing climate-related financial risks and opportunities. Established in 2019, the CFRF brings together senior financial sector representatives to share their experiences in managing climate-related risks and opportunities. The guides focusing on the transition to net zero are titled: (i) mobilising investment into climate solutions: phase 1 report; (ii) disclosures: managing legal risks; and (iii) a carbon budget primer for financial institutions. The guides focusing on scenario analysis are: (a) a physical risk underwriting guide; (b) a scenario analysis guide for banks; (c) scenario analysis in financial firms; and (d) a chapter on climate litigation risk. The CFRF also published a guide focusing on disclosure, data and metrics, titled: industry frameworks and metrics in relation to green & transition finance.

CFRF homepage

Other developments

BoE consults on proposed approach for wholesale cash distribution supervisory powers

On 14 December, the BoE began consulting on its proposed approach to its future supervisory powers in respect of wholesale cash distribution (WCD) infrastructure, as provided in the FSM Bill. The consultation discusses: (i) the BoE’s approach to the use of the powers (including enforcement) over firms that have market significance in respect of relevant functions in relation to WCD activities (‘market oversight regime’) and entities who have systemic significance in respect of relevant functions in relation to WCD activities (‘prudential supervision regime’). A cornerstone of the market oversight regime will be the BoE’s new information gathering powers, which will build on, and put on a statutory footing, WCD firms’ current voluntary reporting against their commitments to supporting the WCD infrastructure. The BoE considers that the already existing prudential framework which it applies in respect of FMIs will be suitable to be applied to the prudential supervision regime of any future systemic wholesale cash entity. The legislation also gives the BoE powers of direction, as well as powers of enforcement and sanction; (ii) the principles of supervision; (iii) certain information in relation to the proposed codes of practice. The draft codes of practice will be consulted on separately in 2023; and (iv) the approach to the allocation of fees. HMT will bring firms within scope of the statutory WCD regime by recognition orders. The proposed approach for market oversight is complementary to, and not a replacement of, the existing Note Circulation Scheme, which covers the operational oversight and financial arrangements that underpin the distribution of BoE banknotes in the UK. The deadline for comments is 10 February 2023.


FCA Regulatory Initiative Grid update delayed

On 12 December, the FCA announced that the updated Regulatory Initiatives Grid is expected to be published in the new year. This is on account of the additional time needed to consider any necessary changes to planned or new initiatives following the government's Edinburgh Reforms.


FCA multi-firm review on approaches to D&I in financial services

On 12 October, the FCA published the findings of a multi-firm review assessing how financial services firms are designing and embedding diversity and inclusion (D&I) strategies. Key findings include: (i) all firms were early in the development of their approach on D&I, typically having started serious efforts in 2019 or 2020. Very few firms seemed to have understood D&I as a fundamental culture issue; (ii) firms were most focused on addressing gender representation, with ethnicity starting to receive more attention. On both gender and ethnicity, firms tend to focus most on improving representation at senior leadership level. The FCA cautions that this risks creating a culture where firms attempt to ‘poach’ diverse senior talent rather than develop their own pipelines. This is not a sustainable approach and is unlikely to bring meaningful, long-lasting change; (iii) firms’ D&I strategies are not consistently based on a clear diagnosis of their specific circumstances and challenges. Firms are also not systematically tracking the effectiveness of these measures and initiatives. The FCA cautions that this leads to a lack of understanding about what really works; (iv) there is wide variation in data quality. Poor data quality affected firms’ abilities to carry out intersectional analysis to understand the experiences of different groups; (v) the FCA saw an overreliance, in some firms, on measures such as training, network groups and allyship, which although important, will not alone bring about the kind of systemic change needed; (vi) most firms told us that senior managers were accountable and that D&I goals could affect pay and bonuses, however it was unclear how this worked in practice; and (vii) firms that are part of international groups had generally adopted a group-wide international strategy, without tailoring it to the circumstances of the UK organisation or the characteristics of the UK. Firms are encouraged to consider the FCA's findings and use them to assess their current D&I strategies and practices


ECB SSM supervisory priorities 2023-25

On 12 December, the ECB published its supervisory priorities for 2023-25. Supervised institutions will be asked to: (i) strengthen their resilience to immediate macro-financial and geopolitical shocks. They need to be prudent in developing and planning their business strategies, to keep monitoring closely the risks associated with the fast-changing financial environment and to focus their efforts on risk management; (ii) address digitalisation challenges and strengthen management bodies’ steering capabilities. Banks also need to tackle vulnerabilities and risks stemming from a greater operational reliance on IT systems, third-party services and innovative technologies; and (iii) step up their efforts in addressing climate change. Banks should adequately incorporate climate-related and environmental risks within their business strategy and their governance and risk management frameworks in order to mitigate and disclose such risks, aligning their practices with current regulatory requirements and supervisory expectations. The ECB sets out its main activities under each supervisory priority.

Supervisory Priorities

Edinburgh Reforms – Building Societies Act 1986 amendments

On 9 December, HMT responded to its December 2021 consultation on proposed reforms to the Building Societies Act 1986.  All consultation responses were supportive of the proposals and therefore the government will: (i) legislate to exclude funding from specific BoE Liquidity Insurance Facilities, senior non-preferred debt instruments raised to meet MREL requirements, repurchase agreements of high-quality liquid assets, and deposits from SME’s with a turnover of up to £6.5 million from the funding limit for building societies; and (ii) modernise the Act in lines with changes made to the Companies Act (CA) 2006, including explicitly allowing real-time virtual member participation at general meetings. The government will also legislate to remove the normal retirement age for directors to bring the Act in line with the Equality Act 2010 and the CA 2006. The government has also committed to revisit the treatment of funding obtained through the intermediated savings platforms in the medium term and to review out-of-scope issues raised by respondents at a later date.


DIT consults on enhanced free trade agreement with South Korea

On 9 December, the Department for International Trade (DIT) launched a call for input in relation to its approach to negotiating a new free trade agreement (FTA) with South Korea. DIT seeks input in particular as to: (i) which areas the UK government should prioritise; (ii) where there are existing challenges or constraints when attempting to trade or invest in South Korea and how significant are these barriers; (iii) the impact of removing remaining restrictions to trade or investment; and (iv) whether talks can support increased innovation. The Information Note provides further background information on trade between the two countries. The deadline for responses is 2 February 2023.

Press release

Call for input

Information note

HMT recommendations for the FCA and PRC

On 9 December, HMT published its latest recommendations for the PRC and FCA, setting out aspects of the government’s economic policy to which the bodies should have regard, including: (i) the objective of medium to long-term economic growth; and (ii) the objective to promote the international competitiveness of the UK. HMT refers to the FSM Bill and the FCA and PRA’s new secondary objective to facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy (including in particular the financial services sector) and its growth in the medium to long term. As part of this, the PRC and FCA should have regard to the government's priorities including: (a) to swiftly implement the outcomes of the Future Regulatory Framework Review; (b) to encourage trade, including through the development and maintenance of deference arrangements, and to promote inward investment into the UK; (c) to ensuring that the UK is attractive to internationally active financial services firms and activity; and (d) to actively embrace the use of new technology in financial services, such as crypto technologies, artificial intelligence and machine learning.

Letter to FCA

Letter to PRC

FCA expectations for wholesale investment firms authorisation applications

On 9 December, the FCA provided further clarity as to its expectations for wholesale investment firms’ applications for authorisation. The FCA expects that if firms consider themselves to be out of scope of the Consumer Duty, to explain why. If a firm is in scope, the FCA expects that they set out how they will meet each of the four outcomes that are relevant for their business model. If wholesale investment firms offer ESG-related advice, products or services as a material part of their business model, the FCA expects that they detail the ESG goals for their products and services and how these will be explained to investors.   

FCA application advice