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Financial Regulatory Developments Focus
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The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • HM Treasury Published Response to Phase I of UK's Financial Services Future Regulation Framework Review
    03/11/2021

    HM Treasury has published its response to the call for evidence on Phase I of the U.K. Financial Services Future Regulatory Framework Review. The FRF Review was announced in March 2019 and will assess whether the U.K. financial services regulatory framework is fit for purpose, taking into account the U.K.'s exit from the EU, climate change and other global and technological challenges. The call for evidence on Phase I of the Review focussed on how the Government and regulators work together to ensure the best outcome for the financial services sector.

    Read more.
  • UK Prudential Regulation Authority Identifies Error in "Higher Paid Material Risk Taker" Definition
    02/25/2021

    The U.K. Prudential Regulation Authority has identified an error in the definition of "Higher Paid Material Risk Taker" within Rule 1.3 of the Remuneration Part of the PRA Rulebook, implementing part of the EU's Fifth Capital Requirements Directive in U.K. laws before the end of the Brexit transitional period. The definition currently requires an individual to be treated as a Higher Paid Material Risk Taker when: (a) their annual variable remuneration exceeds 33% of their total remuneration; and (b) their total remuneration exceeds £500,000. Instead, an individual should be treated as a Higher Paid Material Risk Taker when either condition (a) or (b) are satisfied.

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  • UK Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Ending New Use of GBP LIBOR-Linked Derivatives
    02/24/2021

    The U.K. Working Group on Sterling Risk-Free Reference Rates has published a paper on how market participants can meet the Working Group's intended deadlines for cessation of GBP LIBOR in derivatives. 

    Read more.
  • UK HM Treasury Consults on an Expanded Resolution Regime for CCPs
    02/24/2021

    HM Treasury has opened a consultation seeking views on an expanded resolution regime for CCPs. The existing U.K. CCP recovery and resolution regime was established by the Financial Services Act 2012, which extended to CCPs (with modifications) the special resolution regime for banks and investment firms. Since then, there have been international and EU developments. In particular, the Financial Stability Board published guidance on financial resources for CCP resolution and the EU has published the EU CCP Recovery and Resolution Regulation. The U.K., when it was an EU member state, supported and helped develop the EU Regulation. HM Treasury is proposing to amend the U.K. regime to bring it into line with international standards and the proposals, bar a few technical exceptions, follow the EU Regulation. Responses to the consultation may be submitted until May 28, 2021.

    Read more.
  • Bank of England Publishes Dear CEO Letter on Resolvability Assessment Framework
    02/24/2021

    The Bank of England has published a Dear CEO letter addressed to the CEOs of eight major U.K. banks, emphasizing the importance of the BoE's Resolvability Assessment Framework and the BoE's expectation that banks will take responsibility for their resolvability. The eight banks are in scope of the first RAF reporting and disclosure cycle.

    Read more.
  • Bank of England Publishes Plan for UK Financial Sector Data Collection
    02/23/2021

    The Bank of England has published a plan to transform its ability to collect data from the financial services sector over the next decade. Three key principles of the plan are: (i) defining and adopting common data standards that are consistent across the financial sector; (ii) modernizing reporting instructions to improve how they are written and implemented; and (iii) integrating reporting to facilitate a more efficient approach to data collection. The Transformation Plan was prompted by Huw Van Steenis' 2019 report on the "Future of Finance", which highlighted the importance of data standards and protocols and the value of harnessing data. The BoE published a response to the "Future of Finance" report, in which it undertook to deliver a world-class data strategy.

    Read more.
  • European Securities and Markets Authority Consults on 2021 Supervisory Fees for EU Trade Repositories
    02/22/2021

    The European Securities and Markets Authority has published a consultation on its proposals for recalibrating the 2021 annual supervisory fees to be charged by ESMA to EU trade repositories. ESMA's annual fees are intended to cover its costs for supervising EU trade repositories, and to be proportionate to the turnover of the trade repository concerned.

    Read more.
  • European Banking Authority Publishes Opinion on Removal of Obstacles to Account Access Under Revised Payment Services Directive
    02/22/2021

    The European Banking Authority has published an Opinion requiring EU national regulators to assess the steps taken by account servicing payment services providers to remove obstacles to the provision of account information services and payment initiation services by third-party providers.

    Read more.
  • EU Final Draft Technical Standards on the Determination of Indirect Exposures Published
    02/19/2021

    Following its consultation last year, the European Banking Authority has published a final report and final draft Regulatory Technical Standards on the determination of indirect exposures to underlying clients of derivative and credit derivative contracts. The EU Capital Requirements Regulation, as amended by CRR 2, requires firms to add to the total exposures to a client the exposures arising from derivative contracts listed in Annex II of the CRR and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client. The final draft RTS will form part of the EU's large exposures framework. The final draft RTS include a methodology for the calculation of indirect exposures for different classes of derivative contracts and credit derivative contracts with a single underlying debt or equity instrument and a methodology for calculating exposures arising from contracts with multiple underlying reference names.

    The final draft RTS have been submitted to the European Commission for endorsement.

    View the final report and final draft RTS on the determination of indirect exposures.

    View details of CRR 2.

    View details of the EBA's consultation.
  • Final Draft EU Technical Standards on Disclosures of Indicators of Global Systemic Importance Published
    02/18/2021

    The European Banking Authority has published a final report and final draft Implementing Technical Standards on the disclosure of indicators of global systemic importance by Global Systemically Important Institutions. The EU Capital Requirements regulation requires G-SIIs to disclose annually the values of the indicators used for determining their score in accordance with a set identification methodology. The final draft ITS set out the uniform disclosure formats and associated instructions for the disclosures to be made. The provisions of these final draft ITS will be incorporated into the existing comprehensive ITS on firms' public disclosures and, to facilitate comparability. The format has been aligned with the format set out in the Basel III standards - the "Disclosure of G‐SIB indicators".

    The final draft ITS have been submitted to the European Commission for endorsement.

    View the EBA's final report and final draft ITS on G-SII disclosures.
  • EU Delays Derivatives Margin for Brexit Novations
    02/17/2021

    An EU Commission Delegated Regulation amending Regulatory Technical Standards on the application of EU bilateral margining requirements under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The amendments to the RTS further extend the temporary exemptions from bilateral margining requirements for the following products and transactions.

    Read more.
  • EU Delays Clearing Obligation for Third-Country Intragroup Derivatives and Brexit Novations
    02/17/2021


    An EU Commission Delegated Regulation delaying the clearing obligation under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The Delegated Regulation amends the three Regulatory Technical Standards on the clearing obligation, which provide for the application of the clearing obligation to interest rate swaps and credit default swaps. In particular, for intra-group derivatives transactions conducted with a third-country entity, the exemption from the clearing obligation will be extended until June 30, 2022. The EU has failed to determine whether many third countries are "equivalent" for these purposes, meaning that another delay is necessary to avoid penal charges on intra-group exposures of EU financial groups.

    Read more.

  • UK Government Consults on Legal Safe Harbour for Legacy Contracts to Support the Wind-Down of a Critical Benchmark 
    02/15/2021

    HM Treasury has opened a consultation on supporting the wind-down of critical benchmarks. The Financial Services Bill includes potential enhanced powers for the Financial Conduct Authority to wind-down a critical benchmark and deal with tough legacy contracts. The increased powers are being introduced in response to concerns and uncertainty about the transition from LIBOR to risk free rates by the end of 2021. The Financial Services Bill includes provisions granting the FCA the power to designate a critical benchmark (such as LIBOR) as an "Article 23A" benchmark if its representativeness is lost or at risk, unless representativeness can reasonably be restored and maintained and there are good reasons to do so. This designation would mean that use of the benchmark by supervised entities in relation to particular types of contracts would be prohibited, subject to certain exemptions. 

    Read more.
  • EU Launches Review of the Financial Collateral Directive
    02/12/2021

    The European Commission has launched a targeted consultation related to post-trade services, which considers the EU Financial Collateral Directive. The Commission is also consulting on the Settlement Finality Directive, combining the review of these two Directives since they are closely related. The consultations close on May 7, 2021. The FCD establishes a harmonized EU framework for the use of financial collateral to secure transactions. It provides for close-out netting provisions to be enforceable under their terms and ring-fences the operation of financial collateral arrangements should one of the parties become insolvent, creating protections from the usual insolvency laws of a Member State. The FCD consultation does not cover the re-use of financial collateral given under a security financial collateral arrangement by a collateral taker as this issue has recently been addressed in the Securities Financing Transactions Regulation. The consultation focuses on issues relating to the recognition of close-out netting provisions and its impact on SFD systems.

    Read more.
  • EU Launches Review of the Settlement Finality Directive
    02/12/2021

    The European Commission has launched a targeted consultation related to post-trade services, which considers the EU Settlement Finality Directive. The Commission is also consulting on the Financial Collateral Directive, combining the review of these two Directives since they are closely related. The consultations close on May 7, 2021. The SFD establishes various insolvency carve-outs for designated market infrastructure systems and provides for finality of transactions within such systems. Under the protections currently afforded by the SFD, transfer orders which enter into designated systems within certain deadlines are guaranteed to be finally settled and cannot be unwound at the behest of insolvency officials, regardless of whether the sending participant has become insolvent or transfer orders have been revoked in the meantime. The SFD essentially excludes "insolvency claw-back" rules, such as those for transactions at an undervalue or trading by insolvent or near-insolvent entities, from applying to holdings in designated systems and modifies the timing of "moratorium" rules which prevent transactions by insolvents. This also gives certainty as regards holdings in central securities depositories and as to the finality of transactions in some clearing and payment systems. Under the SFD, each EU Member State automatically recognizes systems that have been designated by other Member States. However, there is no EU regime for third country systems, a lacuna which has already been fixed by the U.K. in its SFD laws after Brexit.

    Read more.
  • European Supervisory Authorities Publish Joint Response on Proposed EU Digital Operational Resilience Act
    02/09/2021

    The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a letter to the European Parliament, the Council of the European Union and the European Commission, setting out responses to the proposed EU Digital Operational Resilience Act, a new piece of EU regulation on digital operational resilience for the financial sector. The European Commission first published the draft DORA in September 2020. It forms part of the European Commission's digital finance strategy, which aims to embrace digital finance for the benefit of consumers and businesses while ensuring digital transformation is soundly regulated. The DORA is particularly focused on combatting risks arising from information and communication technologies in order to protect operational resilience and the performance of the financial system.

    Read more.
    TOPIC: FinTech
  • UK Conduct Regulator Sets Out Supervision Strategy of Retail Banks
    02/05/2021

    The U.K. Financial Conduct Authority has published a letter addressed to the CEOs of retail banks setting out the FCA's approach to retail bank supervision in light of the COVID-19 pandemic.

    In the letter, the FCA identifies the key risks of harm that retail banks' activities may pose over the next two years, sets out its expectations of the actions retail banks need to take to mitigate the risks and discusses the work that the FCA will undertake to ensure firms are meeting the expectations. The risks are grouped into the following four priority supervisory areas:
     
    1. ensuring fair treatment of borrowers, including those in financial difficulties;
    2. ensuring good governance and oversight of customer treatment and outcomes during business change over the next two years;
    3. ensuring operational resilience over the next two years and beyond; and
    4. minimizing fraud and other financial crime.

    View the FCA's letter.
  • UK Conduct Regulator Publishes Recommended Practices for Technology Change Implementation
    02/05/2021

    The U.K. Financial Conduct Authority has published a report on a multi-firm review setting out recommended practices for regulated firms to take to reduce consumer harm when technology change implementation fails. The FCA's review considered how financial firms manage technology change, the impact of technology change failures and the practices used across the industry that help to reduce the impact on consumers and market disruption of such failures. The FCA's report sets out the practices used by firms that contribute to change success and those that lead to change failure, the impact of change failures, governance and management arrangements, build and deployment of technology changes and the impact of the infrastructure used, in particular, the use of legacy systems and of public cloud-based infrastructure.

    View the FCA's report on the implementation of technology change.
  • UK Payment Services Regulator Consults on Delivery and Regulation of the UK's New Payments Architecture
    02/05/2021

    The U.K. Payment Systems Regulator has opened a consultation on the delivery and regulation of the U.K.'s New Payments Architecture. The NPA will reorganize the clearing and settlement of most of the U.K.'s domestic interbank payments, including payments that currently use the BACS and Faster Payments systems. The PSR consulted last year on issues relating to competition and innovation in payment services and remains concerned about these issues. The PSR is also concerned that the current NPA programme will not provide value for money and will delay the achievement of the benefits of the NPA. The PSR is therefore seeking views on its proposals to reduce these risks to the successful delivery of the NPA. The proposals include narrowing the scope of the initial contract for delivery to those services that support the replacement and upgrade of Faster Payments and on ways to mitigate the risks to competition and innovation, including procurement, contractual provisions and governance provisions. Responses to the proposals on reducing the risk to delivery of the NPA may be submitted until March 19, 2021 and responses to the proposals on mitigating competition issues may be submitted until May 5, 2021.

    View the PSR's consultation paper on delivery of the NPA.

    View details of the PSR's consultation on competition and innovation.
  • UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements
    02/04/2021

    The U.K. Government has opened a consultation on the implementation of the Investment Firms Prudential Regime and the remaining Basel III Standards in the U.K. The Financial Services Bill, once it is finalized, will introduce powers for the Financial Conduct Authority and the Prudential Regulation Authority to introduce the IFPR and outstanding Basel III prudential requirements for banks. The FCA has already launched a consultation on some aspects of the IFPR and will consult on the others throughout the year. The PRA is expected to consult on implementation of Basel III in Q1 2021. HM Treasury's consultation concerns those aspects of the two regimes that will require secondary legislation under the Financial Services Bill. The consultation closes on April 1, 2021.

    Read more.
  • European Supervisory Authorities Publish Final Report on Disclosures Under the EU Regulation Sustainable Finance Disclosure Regulation
    02/04/2021

    The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a final report and draft Regulatory Technical Standards on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector. The EU SFDR was published in December 2019 and the majority of its provisions will apply from March 10, 2021. It is designed to encourage the financial services sector to disclose information about their approaches to sustainability risk and consideration of adverse sustainability impacts in the course of their businesses. The ESAs consulted on the draft RTS in April 2020. The ESAs propose that the draft RTS should apply from January 1, 2022.

    Read more.
  • UK Conduct Regulator Publishes Approach to International Firms
    02/03/2021

    The U.K. Financial Conduct Authority has published its final Approach to international firms, setting out its approach to authorization and supervision of international firms providing or seeking to provide financial services that require authorization in the U.K. The FCA has also published a feedback statement summarizing its response to the submissions received in response to its consultation last year. The Approach Document sets out the conditions against which a firm will be assessed and discusses the circumstances in which firms may present higher risks and how the risks could be mitigated. It generally proposes that U.K.-authorized firms should have a U.K. place of business, so would not result in any new regime for EU firms which are currently using the "temporary permissions regime".

    The FCA's Approach Document is not relevant to firms that are operating in the U.K., but do not need authorization to do so, for example, those firms using the Overseas Persons Exclusion. It is not also not relevant for payment services firms, e-money institutions, depositaries, trustees and managers of U.K. authorized funds, international alternative investment fund managers and international benchmark administrators.

    Firms that are or would be subject to dual regulation, should also consider the approach of the Prudential Regulation Authority to the supervision and authorization of firms.

    View the FCA's Approach to International Firms.

    View the FCA's feedback statement.

    View details of the PRA's consultation on its approach to supervising international banks.
  • Final Draft EU Technical Standards Amending Requirements for PRIIPs Key Information Document
    02/03/2021

    The European Supervisory Authorities have published a final report and final draft amending Regulatory Technical Standards on amendments to the RTS on the presentation, content, review and revision of a standardized "key information document" and the conditions for fulfilling the requirement to provide a KID (Commission Delegated Regulation (EU) 2017/653). The RTS supplements the Packaged Retail and Insurance-based Investment Products Regulation, which introduced a requirement for manufacturers of PRIIPs to produce a KID with the intention of improving retail investors' understanding of the financial products they were purchasing.

    The ESAs were asked to review the RTS and present proposals for amending the RTS. In July 2020, the ESAs wrote to the European Commission to explain that agreement among them had not been reached on all of the proposed changes and that, therefore, the final draft amending RTS could not be submitted to the Commission. The Board of the European Insurance and Occupational Pensions Authority did not approve with qualified majority all of the proposals.

    Read more.
    TOPIC: Securities
  • UK Equivalence Decision for Swiss Exchanges Enters into Force
    02/03/2021

    The U.K.'s Swiss share trading obligation equivalence decision has entered into force. The equivalence decision has been made under the U.K.'s Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which came into force on February 3, 2021, and means that U.K. investment firms will be able to comply with the share trading obligation under the U.K. Markets in Financial Instruments Regulation by trading shares on BX Swiss AG and SIX Swiss Exchange AG. 

    Read more.
  • European Securities and Markets Authority Proposes Changes to European Long-Term Investment Funds Regulation
    02/03/2021

    The European Securities and Markets Authority has written to the European Commission proposing a series of amendments to the European Long-Term Investment Funds Regulation. ESMA's letter comes in response to the Commission's consultation on the efficacy of the ELTIF Regulation, which was designed to increase long-term investments in the real economy (e.g. infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises). The consultation was launched in October 2020 and was designed to analyze why the ELTIF market has not developed to a large scale and how well it is contributing to the integration of European capital markets and smart, sustainable growth within the EU.

    Read more.
    TOPIC: Funds
  • EU Amends Rules to Address LIBOR Cessation and Extends Use of Third-Country Benchmarks to 2023
    02/02/2021

    The Council of the European Union has announced that it has adopted the final text of the regulation to address LIBOR cessation, which will amend the EU Benchmark Regulation. According to the Council, the amending Regulation will be published in the Official Journal of the European Union on February 12, 2021 and it will enter into force and apply from February 13, 2021.

    The EU Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks.

    Read more.
  • HM Treasury to Review Ring-Fencing and Proprietary Trading in UK Banks
    02/02/2021

    HM Treasury has published its terms of reference for a review of the operation of ring-fencing legislation and banks' proprietary trading activities in the U.K. The Treasury is required to conduct each review under the Financial Services (Banking Reform) Act 2013. The FS(BR)A introduced reforms based on recommendations made by the Independent Commission on Banking that was established in the wake of the 2008 financial crisis. The U.K. ring-fencing laws require U.K. banks which hold more than £25 billion in core deposits and banking groups whose members hold an average core deposit of more than £25 billion to separate their core retail banking business from their investment banking business. Restrictions limit the products that a ring-fenced bank can offer and where it can conduct business. Restrictions on proprietary trading (being the trading of financial instruments or commodities as principal by banks or investment firms) were introduced for ring-fenced retail banks and came into force in January 2019. The U.K. decided not to impose a complete ban on proprietary trading for all banks, as had been seen in other countries, such as the U.S. under the Volcker Rule. Among the purposes of this legislation is an attempt to limit taxpayer liability for bank bail-outs in future financial crises.

    Read more.
  • European Commission Calls for Advice on Digital Finance from European Supervisory Authorities
    02/02/2021

    The European Commission has published a call for advice on digital finance and related issues from the three European Supervisory Authorities (the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority). The call for advice is in line with the Commission's 2020 digital finance strategy, which set out the Commission's intention to review existing financial services frameworks to protect consumers and the integrity of EU financial sectors.

    Read more.
    TOPIC: FinTech
  • EU Final Draft Standards on Information for Facilitating Cross-Border Distribution of Funds
    02/01/2021

    The European Securities and Markets Authority has published a final report and final draft Implementing Technical Standards setting out the forms, templates and procedures that national regulators should use to publish information on their websites to facilitate cross-border distribution of funds. The Regulation on facilitating cross-border distribution of funds aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. It was brought in at the same time amendments were made to the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive through an amending Directive. Member states are required to transpose the amending Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation applied directly across the EU from August 1, 2019, while the remaining provisions will apply from August 2, 2021.

    The Regulation requires ESMA to draft Implementing Technical Standards on the standard forms, templates and procedures that national regulators should use to publish information on their websites that will facilitate the cross-border distribution of funds. The information must cover:
    • the national laws, regulations and provisions on marketing requirements for Alternative Investment Funds and UCITS; and
    • the regulatory fees and charges applied by the national regulator for the activities of AIFMs, UCITS management companies and managers of European Venture Capital Fund and European social entrepreneurship funds.

    The final draft ITS have been submitted to the European Commission for consideration.

    View the final report and final draft ITS.
    TOPIC: Funds
  • European Securities and Markets Authority Publishes Final Report on Proposed Fees for Benchmark Administrators
    02/01/2021

    The European Securities and Markets Authority has published its final report on proposed supervisory fees for EU benchmark administrators. In 2019, the EU Benchmarks Regulation was amended, granting ESMA new powers to act as competent authority for EU administrators of critical benchmarks and third-country benchmark administrators that have been recognized by ESMA from January 1, 2022. Before these amendments take effect, third-country benchmark administrators may seek recognition from a national regulator of an EU member state. Both the current and new provisions only apply in the absence of an equivalence decision for the relevant third-country where the benchmark administrator is located. The recognition allows EU supervised entities to use the benchmark, for example in financial contracts. The amendments require ESMA to charge fees to the administrators under its supervision. The European Commission tasked ESMA with producing technical standards on those fees.

    Read more.
  • European Securities and Markets Authority Launches 2021 Common Supervisory Action on MiFID II Product Governance Rules
    02/01/2021

    The European Securities and Markets Authority has announced that during 2021 it will be conducting a common supervisory action with national competent authorities on the product governance rules under the Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients' best interests during all the stages of the life-cycle of products or services. The CSA will assess the progress of compliance with the requirements by manufacturers and distributors of financial products.

    ESMA conducts CSAs to promote the convergence of application of EU rules across the EU. Following a CSA into the MiFID II appropriateness requirements, ESMA is considering introducing guidelines to promote further harmonization.

    View ESMA's announcement.

    View details of ESMA's proposed guidelines on appropriateness.
    TOPIC: MiFID II
  • European Securities and Markets Authority Consults on Revised Fees for Credit Rating Agencies
    01/29/2021

    Following a request from the European Commission for technical advice on revising the rules on the calculation and payment of fees, the European Securities and Markets Authority has opened a consultation on proposed fees charged to credit rating agencies by it. Responses to the consultation may be submitted until March 15, 2021. ESMA is due to submit its final technical advice to the Commission by the end of June 2021.

    The EU CRA Regulation provides that ESMA shall charge fees to CRAs to cover ESMA's costs relating to the registration, certification and supervision of CRAs. The different types of supervisory fees payable, the amount of fees payable, the modalities of payment and the reimbursement of fees to national competent authorities are set out in Commission Delegated Regulation 272/2012. ESMA is seeking feedback on its proposals, the key ones of which are to charge a single registration fee of €45,000 and annual supervisory fees of €20,000 to registered CRAs with annual revenues between €1 million and €10 million. In addition, ESMA is proposing an annual endorsement fee of €20,000 to all CRAs endorsing credit ratings for use in the EU and annual fees for all certified CRAs.

    View ESMA's consultation paper.
  • Proposed EU Guidelines on MiFID II Appropriateness Requirements
    01/29/2021

    The European Securities and Markets Authority has opened a consultation on proposed guidelines on the appropriateness and execution-only requirements under the Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. Responses to the consultation may be submitted until April 29, 2021. ESMA is aiming to issue the final guidelines in Q3 2021.

    ESMA is proposing these new guidelines to enhance convergence across the EU on the application of these requirements. The common supervisory action conducted in the second half of 2019, as well as other supervisory interactions, revealed that firms have different understandings of the appropriateness and execution-only requirements and that Member States apply them differently. The proposed guidelines will apply in full to all investment firms providing non-advised services, regardless of the means of interaction with clients.

    View ESMA's consultation on proposed guidelines on the appropriateness and execution-only requirements under MiFID II.
    TOPIC: MiFID II
  • EU Grants Equivalence to More US CCPs
    01/28/2021

    An EU equivalence decision for U.S. CCPs regulated by the U.S. Securities Exchange Commission that are "covered clearing agencies" under the SEC rules has been published in the Official Journal of the European Union. The decision paves the way for these U.S. CCPs to be recognized by the European Securities and Markets Authority upon which they will be able to provide clearing services to EU trading venues and businesses. Relevant U.S. CCPs that potentially would be covered by this designation but which were not previously granted equivalence include the Fixed Income Clearing Corporation, National Securities Clearing Corporation, The Depository Trust Company and The Options Clearing Corporation. ICE Clear Credit LLC also registered with the SEC, however, this CCP already benefits from EU equivalence as it falls within the previous EU equivalence decision for U.S. CCPs regulated by the Commodity Futures Trading Commission. ICE Clear Europe, which was an EU CCP until Brexit, is also recognized under the EU's temporary equivalence for U.K. CCPs. LCH SA is also registered with the SEC, but is an EU CCP and so the equivalence regime is not applicable to it.

    Read more.
  • UK Regulator Proposes Amendments to UK Technical Standards on Secure Customer Authentication
    01/28/2021

    The U.K. Financial Conduct Authority has launched a consultation on proposed changes to the U.K. Regulatory Technical Standards on secure customer authentication and common and secure methods of communication and on proposed payments-related amendments to the Perimeter Guidance Manual and the FCA Payment Services and Electronic Money Approach Document. The proposals are relevant for payment service providers, e-money issuers, payment institutions, e-money institutions and registered account information service providers (AISPs). Responses to the consultation may be submitted until February 24, 2021, for issues relevant to contactless payments, and until April 30, 2021 for the remaining proposals.

    Read more.
  • EU Delays Securities Settlement Discipline Regime to February 2022
    01/27/2021

    EU Regulatory Technical Standards postponing the implementation deadline of the settlement discipline regime under the Central Securities Depositories Regulation have been published in the Official Journal of the European Union. The RTS delay the application date of the settlement discipline rules from February 1, 2021 to February 1, 2022, by amending the existing RTS (Commission Delegated Regulation (EU) 2018/1229). The settlement regime was originally due to apply from September 13, 2020. However, that date was changed to February 1, 2021, amid calls from industry associations and other stakeholders to delay the application date so that systems, procedures and measures could be put in place. The latest delay arises from the impact of the COVID-19 pandemic on the financial services industry. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process.

    View the amending Delegated Regulation.
    TOPICS: COVID-19Securities
  • Basel Committee on Banking Supervision Consults on Technical Amendments to Rules on Haircuts for Securities Financing Transactions
    01/26/2021

    The Basel Committee on Banking Supervision has launched a consultation on two proposed technical amendments to the Basel II Framework rules on minimum haircut floors for securities financing transactions. The proposals aim to address an interpretative issue relating to collateral upgrade transactions and correct a misstatement of the formula used to calculate haircut floors for netting sets of SFTs. Responses to the consultation may be submitted until March 31, 2021.

    View the consultation paper.

    View details of the FSB's delay to the framework for minimum haircuts for uncleared SFTs.
  • HM Treasury Launches Consultation on UK Funds Regime
    01/26/2021

    HM Treasury has launched a consultation on a series of proposed reforms to the U.K.'s funds regime, as part of the U.K. Government's plans to make the U.K. a more attractive location for asset management. Responses to the consultation should be submitted by April 20, 2021.

    Read more.
    TOPIC: Funds
  • EU CCP Recovery and Resolution Regulation Published
    01/22/2021

    The EU Regulation on the recovery and resolution of CCPs has been published in the Official Journal of the European Union. The Regulation sets out the rules and procedures for the recovery and resolution of EU CCPs authorized under the European Market Infrastructure Regulation. The aim of the Regulation is the establishment of a framework for the orderly recovery of a CCP through implementation of recovery plans. A CCP's recovery plan will form part of its operational rules, which are agreed with its clearing members. A CCP's operating rules must also ensure the enforceability of the recovery measures outlined in the recovery plan, including to contracts or assets governed by the law of a third country or to third-country entities.

    If the recovery measures do not restore the CCP's viability, the CCP's resolution authority will have the power to take action to ensure the continuity of the CCP's critical functions and, if needed, resolve the CCP. This includes setting up bridge CCPs. In the event of losses arising under a resolution, these will be borne by a CCP's owners, creditors and counterparties in line with the hierarchy of claims in insolvency. The CCP recovery and resolution framework would apply to all CCPs established in the EU. It is not proposed that the recovery and resolution framework would apply to the wider group of a CCP.

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  • EU Consults on Potential Equivalence for Six Countries For Non-Centrally Cleared OTC Derivatives Risk Mitigation
    01/20/2021

    The European Commission has published for consultation draft equivalence decisions for six countries relating to the risk mitigation requirements for non-centrally cleared OTC derivatives under the European Market Infrastructure Regulation. EMIR requires counterparties to non-centrally cleared derivatives to comply with requirements on timely confirmation, portfolio compression, procedures for reconciliation of disputes and the exchange of collateral, collectively known as the risk mitigation techniques. The European Commission is empowered to adopt an equivalence decision declaring that the requirements of a third country are equivalent to the EMIR requirements on risk mitigation. To date, only the U.S. and Japan benefit from such decisions, both limited in scope. Each of the draft decisions for each country are detailed further below.

    Read more.
    TOPIC: Derivatives
  • EU Authority Issues Statement on Reverse Solicitation under MiFID II
    01/13/2021

    The European Securities and Markets Authority has issued a statement reminding firms of the rules on reverse solicitation under the Markets in Financial Instruments Directive and Regulation. MiFID II provides that EU retail or professional clients may reach outside the EU and acquire services and products from non-EU investment banks (known as "reverse solicitation") and that in these circumstances the third-country firm is exempt from the requirement to establish an EU branch. ESMA has issued the statement following what it describes as "questionable practices" materializing following the end of the Brexit transition period, where firms have purported to opt clients into "reverse solicitation" through either generic terms and conditions amendments or click-through "I agree" boxes online. It is clear from this guidance that ESMA's view is that more is needed than this to invoke the reverse solicitation regime. Notably, the ESMA report does not criticise more robust reverse solicitation protocols that are currently being seen in the market, such as a termination notice by the U.K. service provider of the existing agreement, sometimes with a covering note that the client could at its initiative reach out afresh to request entry into of a new agreement should it so desire.

    View ESMA's statement on reverse solicitation.

    You may like to view our client note, "On the Existence of a Pan-European Reverse Solicitation Regime Under MiFID II, and its Importance on a 'Hard' Brexit".
  • UK Grants Equivalence to Swiss Exchanges for Purpose of UK Share Trading Obligation
    01/13/2021
     

    U.K. legislation has been made granting equivalence to Swiss exchanges under the U.K.'s Markets in Financial Instruments Regulation. The Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which enter into force on February 3, 2021, grant equivalence to two Swiss exchanges - BX Swiss AG and SIX Swiss Exchange AG. U.K. MiFIR requires U.K. investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue. U.K. investment firms will be able to comply with the U.K. MiFIR share trading obligation by trading shares on these Swiss exchanges.

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  • UK Prudential Regulator Consults on its Approach to Supervising International Banks
    01/11/2021

    The U.K. Prudential Regulation Authority has launched a consultation on its proposed approach to supervising international banks. The proposals cover the U.K. activities of PRA-authorized banks and designated investment firms that are headquartered outside of the U.K. or are part of a group based outside of the U.K., including those firms operating in the U.K. through a branch. Responses to the consultation may be submitted until April 11, 2021. Implementation of the final policy is expected to occur in Q2 2021, except for those EEA firms that are in the Temporary Permissions Regime which are expected to meet the expectations "as soon as reasonably practicable" and at least by the time the firm is authorized and exits the TPR.

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  • UK Government Proposes Extending Regulatory Perimeter to Capture Stablecoins
    01/07/2021

    HM Treasury has opened a consultation on the proposed U.K. approach to crypto-assets and stablecoins, in particular a proposal to bring stablecoins into the U.K. regulatory perimeter. Responses to the consultation may be submitted until March 21, 2021. The government will consider the responses to the consultation and publish a response with further details on how the approach would be implemented in law. If the policy approach is followed, the regulators would consult further on rules for firms.

    Read more.
  • UK Prudential Regulator Publishes Final Rules on Implementation of CRD V
    12/28/2020

    The U.K. Prudential Regulation Authority has published its final Policy Statement setting out the final rules for implementing CRD V in the U.K. The Policy Statement confirms the final rules set out in the PRA's near-final Policy Statement, published on December 9, 2020. The Policy Statement also confirms the PRA's proposed approach to enforcing compliance with consolidated prudential requirements for U.K. banking consolidation groups, as proposed in the PRA's consultation paper published on December 9, 2020. The Supervisory Statements and Statements of Policy attached to the Policy Statement should be read together with the PRA's Supervisory Statement, "Non-binding PRA materials: The PRA's approach after the UK's withdrawal from the EU", for guidance on how to interpret the materials after the end of the transition period.

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  • Final Draft EU Technical Standards on Conditions of Impracticability of Bail-in Clauses
    12/23/2020

    The European Banking Authority has published a final report and final draft Regulatory Technical Standards and Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e., bail-in) under the EU Bank Recovery and Resolution Directive. BRRD requires certain firms to include contractual recognition of bail-in in their contractual agreements covering particular liabilities which are governed by the law of a third country. This is now a more significant issue than previously, given the prevalence of English law contractual documentation in European financial markets, including following Brexit. A new exemption to the contractual bail-in requirement was introduced under BRRD 2 (which EU member states must apply through national laws from December 28, 2020) where firms consider that it is legally or otherwise impracticable to include the contractual recognition. Liabilities subject to this waiver cannot count towards MREL, must be senior to unsecured claims arising from certain debt instruments and firms intending to take advantage of the exemption should notify their resolution authority.

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  • International Report on Educating Retail Investors about Crypto-Assets
    12/22/2020

    The International Organization of Securities Commissions has published a report on how regulators can inform retail investors about the risks and characteristics of crypto-assets. The report sets out the potential risks to retail investors, such as lack of market liquidity, volatility, partial or total loss of the invested amount, insufficient information disclosure and fraud. It then goes on to provide guidance on how regulators can develop educational content on crypto-assets and inform the public about unauthorized firms, the various communication channels available to inform the public and how partnerships might be forged to develop and distribute educational content.

    View IOSCO's report on investor education of crypto-assets
  • European Securities and Markets Authority Publishes Guidelines on Reporting Securities Financing Transactions
    12/21/2020

    The European Securities and Markets Authority has published guidelines on the reporting obligations under the EU Securities Financing Transactions Regulation. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The reporting obligation applies from January 11, 2021 for Non-Financial Counterparties. It has applied since July 13, 2020 for banks and investment firms (delayed from April 13, 2020 due to COVID-19), CCPs and central securities depositories and from October 12, 2020 for other Financial Counterparties.

    The guidelines will apply to counterparties to SFTs, trade repositories and relevant EU financial regulators from the day after publication or the day from which the relevant obligation applies.

    The guidelines cover:
    • the reporting start date when it falls on a non-working day;
    • the number of reportable SFTs;
    • the population of reporting fields for different types of SFTs, for margin data and for reuse, reinvestment and funding sources data;
    • the approach used to link SFT collateral with SFT loans;
    • the generation of feedback by trade repositories and its subsequent management by counterparties, in the case of rejection of reported data and reconciliation breaks; and
    • the provision of access to data to authorities by trade repositories.

    View the guidelines on reporting under SFTR.

    View details of the delays to SFTR reporting due to COVID-19.
    TOPIC: Securities
  • European Securities and Markets Authority Renews Notification Requirement for Net Short Positions at or Exceeding 0.1%
    12/17/2020

    The European Securities and Markets Authority has renewed its decision requiring holders of net short positions in shares traded on an EU-regulated market to notify national regulators if the position reaches or exceeds 0.1% of issued share capital. ESMA originally introduced the requirement on March 16, 2020 for a period of three months and has extended it twice since then. This latest extension will apply the requirements from December 19, 2020 until March 19, 2021. The temporary transparency obligations are a response to perceived threats to market integrity arising from the COVID-19 pandemic. They apply to any natural or legal person, irrespective of their country of residence, but do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making activities, or stabilization activities.

    The European Free Trade Association's Surveillance Authority published a decision on the same day renewing its decision imposing the same transparency obligations for shares admitted to trading on an EEA regulated market. The renewed requirements also apply from December 19, 2020 until March 19, 2021.

    View ESMA's decision.

    View the EFTA decision.
    TOPICS: COVID-19Securities
  • European Commission Publishes New EU Cybersecurity Strategy
    12/16/2020

    The European Commission and High Representative of the Union for Foreign Affairs and Security Policy have published details of a new EU Cybersecurity strategy, which aims to enhance the EU's resilience to cyber threats and build a cybersecure digital transformation. The overall strategy is set out in a Communication, which is accompanied by two legislative proposals. The first legislative proposal is for a new EU Directive on the resilience of critical entities (the proposed CER Directive), which will enhance and repeal the existing 2008 European Critical Infrastructure Directive (Council Directive 2008/114/EC). The second proposal is for a new Directive on cybersecurity across the EU (NIS2), which would augment and repeal the existing NIS Directive (Directive (EU) 2016/1148). The Commission consulted earlier this year on proposals for each of these legislative proposals.

    Read more.
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