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.
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UK Conduct Regulator Consults on Changes to Listing Rules for SPACs
04/30/2021
The U.K. Financial Conduct Authority has launched a consultation on proposed changes to its listing rules for special purpose acquisition companies. SPACs are companies set up for the purpose of raising money from investors to fund the acquisition of an operating business. They have attracted much attention over the last year as an alternative way for target companies to go public without going through the traditional initial public offering process.
Read more.TOPIC: Securities -
UK Law Commission Consults on Digital Assets and Electronic Trade Documents
04/30/2021
The U.K. Law Commission has launched two consultations, one on digital assets and the other on electronic trade documents. Responses to the consultations can be submitted until July 30, 2021.
Digital Assets
The Law Commission has issued a Call for Evidence on digital assets following a request from the government for recommendations for reforms to U.K. laws that will ensure that the laws can accommodate both cryptoassets and other digital assets. The Call for Evidence will be followed by a consultation at the end of 2021 with proposals for law reforms.
The existing laws of England and Wales do not provide legal certainty as to the legal status of digital assets. Providing certainty would encourage the use of the laws of England and Wales and jurisdiction in digital asset transactions. The Call for Evidence requests feedback about, and evidence of, the ways in which digital assets are being used, treated and dealt with by market participants. It also seeks views on the potential consequences of digital assets being "possessable."
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UK Prudential Regulator Consults on "Strong and Simple" Prudential Framework for Small Banks
04/29/2021
In what would be a significant policy change, the U.K. Prudential Regulation Authority has published a discussion paper in which it proposes introducing a "strong and simple" prudential framework for non-systemic banks and building societies that are not internationally active. The aim is to simplify the prudential regulation of these firms, reducing costs for firms, but to maintain their resilience. The consultation closes on July 9, 2021, and will be followed by a consultation with proposals.
The existing regulatory approach broadly applies the same requirements to all banks and building societies, irrespective of their size and activities. Certain prudential rules are simplified for smaller banks and building societies, but to a lesser extent than in some other jurisdictions. The PRA notes that a graduated framework may take years to implement. Therefore, it is starting with the smallest firms and will consider how it might be built out for larger, non-systemic U.K. domestic firms. The plans follow the principles of the Basel Standards and consider how other jurisdictions have implemented similar regimes, such as Australia, Canada and the U.S.
The discussion paper sets out what the simpler regime might look like, including:- the possible approaches to identifying firms that will be in scope by looking at, for example, their activities, cross-border business and risk exposures;
- the possible requirements under the regime; and
- ways in which firms might transition in and out of the regime, such as by using an intermediate stage or PRA waivers.
View the PRA's discussion paper. -
UK Conduct Regulator Publishes Discussion Paper on Strengthening the Financial Promotion Rules for High-Risk Investments
04/29/2021
The U.K. Financial Conduct Authority has published a discussion paper seeking feedback on how the U.K. financial promotion rules might be strengthened to reduce consumer harm arising from investing in inappropriate high-risk investments that do not meet a customer's needs. Feedback to the paper can be submitted until July 1, 2021. The feedback will help the FCA to develop the proposed rules on which it intends to consult later this year.
According to the FCA, one of the main ways a consumer gains an understanding of the risks and regulatory protection associated with an investment is from the information included in a financial promotion. However, although the financial promotion might meet the FCA's requirement to be fair, clear and not misleading, the investment may still be inappropriate for that investor. High-risk investments are those to which marketing restrictions apply under the rules and include non readily realizable securities (NRRSs), peer to peer (P2P) agreements, non mainstream pooled investments (NMPIs) and speculative illiquid securities (SISs). Since January 2020, the marketing of speculative illiquid securities to retail investors has been banned, first under a temporary product intervention measure, then made permanent from January 1, 2021. The measure restricts the mass-marketing of non-transferable bonds (sometimes colloquially termed "mini-bonds") and preference shares to retail investors and requires improved disclosure to be made to high net worth and sophisticated investors.
Read more.TOPIC: Consumer Protection -
UK Proposals to Ease Unbundling of Research and Best Execution Rules
04/28/2021
The U.K. Financial Conduct Authority has launched a consultation on certain proposed changes to the U.K. rules on the unbundling of research and best execution reporting, which are part of the Markets in Financial Instruments Directive (as inherited from the EU). The consultation closes on June 23, 2021, and the FCA is expected to publish its response and final rules in the second half of this year. The proposals are set out in brief below. Some of these are in the same areas covered by the EU MiFID II Quick Fix Regulation, but the FCA is not copying those rules, and it goes further in most areas.
Read more.TOPIC: MiFID II -
UK Chancellor Responds to Kalifa Review of UK FinTech
04/26/2021
The Chancellor of the Exchequer Rishi Sunak has published a written statement on the U.K. Government's response to the Kalifa Review of U.K. FinTech. The Kalifa Review made a series of recommendations to ensure the U.K.'s competitiveness in fintech globally. HM Treasury welcomed the Review at the time. The Chancellor's statement describes the following actions that the U.K. Government has committed to in response.
Read more.TOPIC: FinTech -
HM Treasury Publishes Response to Consultation on Insolvency Changes for Payment and Electronic Money Institutions
04/26/2021
HM Treasury has published its response to feedback on its December 2020 consultation on a proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR is designed to address shortcomings of the existing insolvency regime and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Key objectives of the regime will include returning customer funds as soon as reasonably practicable, facilitating timely cooperation with payment systems and authorities and rescuing the institution as a going concern or winding it up in the best interests of creditors.
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UK Government Announces Boost to UK FinTech and Financial Services
04/19/2021
The U.K. Government has announced plans to boost the U.K.'s fintech and financial services sectors. Chancellor of the Exchequer Rishi Sunak outlined the plans at U.K. FinTech Week, describing the government's vision for a greener and more technologically advanced financial services sector. The Government's announcement builds on the recommendations in the recent Kalifa Review of U.K. Fintech and Lord Hill's Review of the U.K. Listing Regime.
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Bank of England and HM Treasury Announce Central Bank Digital Currency Taskforce
04/19/2021
The Bank of England and HM Treasury have announced a joint central bank digital currency Taskforce. The Taskforce will be chaired by Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England and Katharine Braddick, Director General of Financial Services at HM Treasury, with other U.K. authorities involved as and when required.
The Taskforce's primary function is to oversee investigations into a possible U.K. CBDC. At present, the U.K. has not yet decided whether to issue a CBDC.
Read more.TOPIC: FinTech -
HM Treasury Statement on UK Listing Review
04/19/2021
Chancellor of the Exchequer Rishi Sunak has published a statement responding to Lord Hill's Review of the U.K. Listing Regime. Lord Hill's U.K. Listings Review was published in March 2021 and assessed how, following Brexit, the existing U.K. listing regime could be reformed to attract more companies, particularly technology and life sciences companies, to raise capital in London. The Review made 14 specific recommendations, including some requiring consultations by the U.K. Financial Conduct Authority and HM Treasury.
Read more.TOPIC: Securities -
HM Treasury Launches Consultation on Regulation of Non-Transferable Debt Securities
04/19/2021
HM Treasury has launched a consultation on the regulation of non-transferable debt securities, colloquially known as "mini-bonds". The consultation was prompted by the collapse of London Capital & Finance PLC, an FCA- regulated issuer of bonds which stated on their face that they were non-transferable, issued primarily to retail investors, which fell into administration in January 2019. An investigation into regulatory failings in the supervision of LC&F was subsequently launched and chaired by Dame Elizabeth Gloster, culminating in a report that was highly critical of the U.K. Financial Conduct Authority's supervision of LC&F and included policy recommendations for HM Treasury. HM Treasury is now consulting on possible changes to the regulatory regime governing NTDS. Responses to the consultation should be submitted by July 12, 2021.
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UK Conduct Regulator Appoints New Leaders for ESG and Technology
04/19/2021
The U.K. Financial Conduct Authority has appointed Sacha Sadan as its Director of Environment, Social and Governance, a new role which will develop the FCA's approach to sustainable finance domestically and internationally. Ms Sadan was formerly Director of Investment Stewardship at Legal and General Investment Management.
Read more.TOPIC: People -
UK Regulators Publish Dear CEO Letter for Banks and Building Societies on Deposit Aggregators
04/14/2021
The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint Dear CEO letter addressed to CEOs of U.K. banks and building societies on the risks of accepting deposits from deposit aggregators.
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Financial Stability Board Publishes FAQs on Securities Financing Data Collection and Aggregation
04/12/2021The Financial Stability Board has published a series of FAQs to assist FSB member jurisdictions in their implementation of standards for the handling of securities transactions financing data.
The FSB introduced its SFT Data Standards in 2015 for the collection and aggregation of data on SFTs. The Standards were intended to improve understanding on trends and developments in the SFT markets given the risks they pose to global financial stability. The FAQs offer technical guidance for FSB members on the reporting and collection of information regarding SFTs.
View the FSB's FAQs.TOPIC: Securities -
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.
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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.TOPIC: LIBOR Transition -
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.TOPIC: LIBOR Transition -
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.
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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.
Read more.TOPIC: Sustainable Finance -
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.TOPIC: Sustainable Finance -
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.
Read more.TOPIC: Recovery & Resolution -
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.
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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.
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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.
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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.TOPIC: Payment Services -
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.
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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.TOPIC: LIBOR Transition -
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.
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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.
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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:
- ensuring fair treatment of borrowers, including those in financial difficulties;
- ensuring good governance and oversight of customer treatment and outcomes during business change over the next two years;
- ensuring operational resilience over the next two years and beyond; and
- 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.
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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.TOPIC: Sustainable Finance