Shearman & Sterling LLP | FinReg
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.
  • LIBOR Panel Bank Submission Cessation Dates Confirmed

    03/05/2021

    The U.K. Financial Conduct Authority has announced the dates for future cessation and unrepresentativeness for all LIBOR settings.  The FCA's statement follows its confirmation in November 2017 that the 20 panel banks for the LIBOR benchmark had agreed to support LIBOR until at least the end of 2021 and the regulator's position that the future of LIBOR could not be guaranteed because the underlying markets (the markets for unsecured wholesale term lending to banks) are no longer sufficiently active. 

    ​Read more.
  • UK Benchmark Regulator Publishes Policy on Exercising New Powers Under the Financial Services Bill
    03/05/2021

    The U.K. Financial Conduct Authority has published Statements of Policy for exercising its new benchmark powers that are being introduced into U.K. law under the Financial Services Bill. Among other things, the Financial Services Bill includes potential enhanced powers for the FCA 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 liability issues for industry participants related to the transition from LIBOR to risk free rates by the end of 2021.  The FCA has also announced today the dates for future cessation and unrepresentativeness for all LIBOR settings.

    Read more.
  • European Banking Authority Publishes Opinion on Money Laundering Risks
    03/03/2021

    The European Banking Authority has published its latest biennial opinion on money laundering and terrorist financing risks affecting the EU financial sector. Key risks relate to: (i) virtual currencies; (ii) the provision of financial products and services through FinTech firms; (iii) weaknesses in counter-terrorism financing systems and controls; (iv) "de-risking" by firms which leads to riskier customers resorting to alternative payment channels; (v) supervisory divergence; (vi) crowdfunding platforms; (vii) divergent approaches to tackling tax-related crimes; and (viii) the COVID-19 pandemic.

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  • UK Listings Review Recommends Major Overhaul of the UK’s Listing and Capital Markets Rules
    03/03/2021

    The U.K. Government has published the report by Lord Hill on the U.K. Listings Review.  The report assesses how, following Brexit, the existing U.K. listing regime could be reformed to attract more companies, particularly innovative technology and life sciences companies, to raise capital in London.  In the context of Brexit, the U.K. is considering the challenges to London's position as a global capital markets hub. The Review makes 14 specific recommendations to address these challenges, including changes to the Financial Conduct Authority's premium and standard segment listing rules on which the FCA will be asked to consult and more general changes in relation to prospectuses on which HM Treasury will need to consult. In addition, the Review identifies longer- term areas for reform, such as secondary capital raises and the greater empowerment of retail investors. 

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  • European Securities and Markets Authority Proposes Improvements to Transparency Directive
    03/03/2021

    The European Securities and Markets Authority has written to the European Commission proposing a series of improvements to the EU Transparency Directive, taking account of lessons learned in the Wirecard case. Wirecard, a German payments group, collapsed in 2018 when it was revealed that €1.9bn was missing from its public accounts. Several of its senior managers remain under police investigation for alleged crimes including fraud and market manipulation. In ESMA's view, the case has highlighted the need for timely and effective enforcement of financial information and proposes the following amendments to the EU Transparency Directive to help achieve this.

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  • European Central Bank Publishes Guide to Pecuniary Penalties for Prudential Regulatory Breaches
    03/02/2021

    The European Central Bank Banking Supervision division has published a guide to its method for setting pecuniary penalties for breaches of prudential regulatory requirements by Eurozone banks that are directly prudentially supervised by the ECB. The ECB will adopt a two-stage approach, first determining the base amount, and then deciding whether to adjust that amount by reference to a range of factors.

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  • FICC Markets Standards Board Appoints Ed Davey as Chief Operating Officer
    03/02/2021

    The FICC Markets Standards Board has appointed Ed Davey as its Chief Operating Officer. The FMSB is responsible for setting standards for the wholesale, fixed income, currencies and commodities markets.
     
    View the FMSB's announcement.
    TOPIC: People
  • European Banking Authority Publishes Revised Guidelines on Risk Factors for Money Laundering and Terrorist Financing
    03/01/2021

    The European Banking Authority has published revised Guidelines on money laundering and terrorist financing risk factors for credit and financial institutions to consider when conducting business relationships and occasional transactions. The Guidelines will enter into force three months after their publication in all official EU languages and will replace the EBA's existing ML/TF Guidelines.

    Read more.
  • European Banking Authority Publishes Opinion on Disclosure Indicators and Methodology Under Taxonomy Regulation
    03/01/2021

    The European Banking Authority has published an opinion and a report on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.

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  • Financial Action Task Force Launches Consultation on Guidance on Proliferation Financing Risk Assessment and Mitigation
    03/01/2021

    The Financial Action Task Force has launched a consultation on its proposed non-binding Guidance on proliferation financing risk assessment mitigation. The FATF updated its Guidance for proliferation financing risks under Recommendation 1 and its Interpretive Note of the FATF Recommendations in October 2020. The new proposed Guidance is intended to provide a common understanding about how countries and firms can implement the new requirements.

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  • European Banking Authority Publishes Draft Regulatory Technical Standards Under EU Capital Requirements Regulation
    03/01/2021

    The European Banking Authority has published draft Regulatory Technical Standards under the revised EU Capital Requirements Regulation, designed to harmonize the methodology for calculating certain technical elements of the standardized approach to counterparty credit risk across the EU. 

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  • European Securities and Markets Authority Publishes Final Report and Advice on KPIs and Disclosure Methodology Under Taxonomy Regulation
    03/01/2021

    The European Securities and Markets Authority has published a final report and advice addressed to the European Commission on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.

    Read more.
  • Kalifa Review of UK Fintech Published
    02/26/2021

    HM Treasury has published the highly-anticipated Independent Strategic Review of U.K. Fintech, led by Ron Kalifa OBE. The aim of the recommendations is to, among others, ensure the U.K.'s competitiveness, attract investments for individual fintechs and raise the U.K.'s status as a global hub. The Kalifa Review makes recommendations in five key areas: (i) policy and regulation; (ii) skills and talent; (iii) investment; (iv) international attractiveness and competitiveness; and (v) national connectivity. The delivery of these recommendations is to be led by the Centre for Finance, Innovation and Technology, which is mandated by the Government but led by the private sector. This post focuses on the policy and regulation discussion.

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  • UK Financial Conduct Authority Makes Four Appointments to Executive Team
    02/25/2021

    The U.K. Financial Conduct Authority has made four new appointments to its executive team:
     
    • Stephanie Cohen will be the FCA's Chief Operating Officer, responsible for the FCA's operations and business performance, systems and infrastructure and finances;
    • Jessica Rusu will be the FCA's Chief Data, Information and Intelligence Officer, leading the transformation of the FCA's data intelligence and information;
    • Sarah Pritchard will be the FCA's Executive Director for Markets, delivering the FCA's statutory market integrity objective within the Supervision, Policy and Competition division; and
    • Emily Sheppherd will be the Executive Director for Authorizations, overseeing authorizations for firms and individuals applying to undertake regulated financial services activity in the U.K.

    Read more.
    TOPIC: People
  • 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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  • European Commission Launches Consultation on EU Crisis Management and Deposit Insurance Framework
    02/25/2021

    The European Commission has launched a consultation to aid its review of the EU crisis management and deposit insurance framework. The framework consists of the EU Bank Recovery and Resolution Directive, the EU Single Resolution Mechanism Regulation and the EU Deposit Guarantee Scheme Directive. It was introduced in the aftermath of the financial crisis and has applied across the EU since 2015 (in the case of BRRD and DGSD) and 2016 (in the case of SRMR). A number of problems have been identified with the framework, as described in the European Commission's November 2020 roadmap for this consultation. Key issues include: (i) incentivization of the use of tools other than resolution by Member States; (ii) discrepancy in the use and availability of insolvency tools across Member States, leading to inconsistent application of the framework; (iii) limited legal certainty and predictability as to when the framework will be used; and (iv) variation in the scope of depositor protection and payout processes across Member States.

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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. 

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  • 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.

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  • 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 Harbor 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.
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