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 Climate Financial Risk Forum Publishes 2020 Guide
07/29/2020
The U.K. Climate Financial Risk Forum has published its first guide providing practical recommendations for the financial services sector on how to respond to climate-related financial risks. The CFRF was established by the U.K. Prudential Regulation Authority and Financial Conduct Authority and is made up of industry representatives from the banking, insurance and asset management sectors, as well as others such as the London Stock Exchange Group and the Green Finance Institute. The CFRF aims to build capacity and share best practice across the finance industry in order to improve the financial services sector's response to the financial risks arising from climate change.
Read more.TOPIC: Sustainable Finance -
EU Sustainable Finance Taxonomy Regulation Published
07/22/2020
A new EU Regulation on the establishment of a framework to facilitate sustainable investment (commonly referred to as the Taxonomy Regulation) has been published in the Official Journal of the European Union. The Taxonomy is a classification system for sustainable activities that is designed to provide a shared understanding of the environmental sustainability of activities and investments. The Regulation sets out the environment objectives for the Taxonomy and the criteria for determining whether an economic activity qualifies as environmentally sustainable. It also makes various amendments to the Sustainable Finance Disclosure Regulation, including requiring the European Supervisory Authorities to develop regulatory technical standards specifying the content and presentation of information demonstrating that a given investment does not significantly harm relevant environmental objectives.
Read more.TOPIC: Sustainable Finance -
European Commission Publishes FAQs on Sustainable Finance Initiatives
07/10/2020
The European Commission has published Frequently Asked Questions on the EU taxonomy and Green Bond Standard. The EU taxonomy is a classification system that will create a common language for sustainable activities, to help determine whether an economic activity is environmentally sustainable. The Green Bond Standard establishes labels for financial products that are judged to be "green". The taxonomy and Standard are two products of the Commission's 2018 Action Plan on Financing Sustainable growth.
Read more.TOPIC: Sustainable Finance -
Financial Stability Board Statement on COVID-19 Impact on Benchmark Reform
07/01/2020
The Financial Stability Board has published a statement on the impact of COVID-19 on global benchmark reforms. Although the FSB acknowledges some aspects of benchmark reform will be delayed due to the effects of COVID-19, many areas can go on as planned and the FSB considers that firms should continue to make wider use of risk-free rates to reduce reliance on IBORs. Firms should also ensure their transition programs facilitate a transition away from LIBOR before the end of 2021. The FSB will publish a report on the remaining challenges for benchmark transition later in July.
View the FSB's statement on the impact of COVID-19 on LIBOR benchmark reform. -
UK Conduct Regulator Announces Expectations for Approved Persons Regime for Benchmark Administrators During COVID-19
06/30/2020
The U.K. Financial Conduct Authority has announced its expectations for benchmark administrators and firms using Appointed Representatives that are subject to the Approved Persons Regime during COVID-19. The APR has been superseded by the Senior Managers and Certification Regime for most solo- and dual-regulated firms. However, as benchmark administrators were a new category of authorized firm, they were granted a one-year extension from the roll-out of the SM&CR and so remain subject to the APR until December 7, 2020, when the SM&CR for benchmark administrators that do not undertake other regulated activities will be implemented.
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International Organization of Securities Commissions Proposes Artificial Intelligence Requirements for Market Intermediaries and Asset Managers
06/25/2020
The International Organization of Securities Commissions has issued a consultation on proposed guidance on the use of artificial intelligence and machine learning by market intermediaries and asset managers. The draft guidance is intended to assist IOSCO member jurisdictions to develop appropriate regulatory frameworks to mitigate the risks arising from the increased use of AI and ML by financial institutions. Comments on the draft Guidance can be submitted until October 26, 2020.
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UK Conduct Regulator Consults on Permanent Ban for Marketing Speculative Illiquid Securities to Retail Investors
06/18/2020
The U.K. Financial Conduct Authority has launched a consultation on its proposals to make permanent its ban on the mass-marketing of speculative illiquid securities to retail investors. The FCA’s temporary product intervention measures, restricting the sale of speculative illiquid securities to retail investors other than sophisticated or high net worth investors, came into force on January 1, 2020 for a period of one year. The FCA’s consultation sets out the FCA’s plan for making the measures permanent and extending them to include listed bonds with similar features to speculative illiquid securities that are not regularly traded. Responses to the consultation should be submitted by October 1, 2020.
Read more.TOPIC: Consumer Protection -
European Banking Authority Publishes Amended Draft Technical Standards for Passport Notifications
06/18/2020
The European Banking Authority has published amending draft Regulatory Technical Standards and Implementing Technical Standards on passporting notifications under the fourth Capital Requirements Directive. CRD4 requires an EU bank wishing to establish a branch in another EU Member State to notify the national regulator of its home Member State of certain information. In the event of any changes in the information supplied, the relevant bank must notify the national regulators of both the home and host Member State at least one month prior to the change coming into effect. In 2014, the EBA produced RTS on the information to be provided to the national regulators in connection with the exercise of these passporting rights, and ITS on the forms, templates and procedures for such notifications.
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European Banking Authority Publishes Peer Review of Deposit Guarantee Scheme Stress Test Results
06/17/2020
The European Banking Authority has published the results of its peer review of EU deposit guarantee schemes. The EU Deposit Guarantee Scheme Directive establishes requirements for EU DGSs, including that Member States conduct stress tests of their DGSs. Member States were required to report on their stress tests by July 3, 2019, and the EBA has based its peer review report on the results of the tests. The report is intended to assess the resilience of EU DGSs and identify good practices and areas for improvement.
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UK Publishes Post-Brexit Cyber Sanctions Regulations
06/17/2020
The U.K. Government has published the Cyber (Sanctions) (EU Exit) Regulations 2020 and an explanatory memorandum. The Regulations are made under the Sanctions and Anti-Money Laundering Act 2018, which was introduced to enable the U.K. Government to implement international sanctions following its departure from the EU. The majority of the SAMLA provisions entered into force on November 22, 2018. The purpose of the Regulations is to ensure that the U.K. has an effective cyber sanctions regime at the end of transitional period (currently scheduled for December 31, 2020) as part of the U.K.'s exit from the EU.
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UK Payment Systems and Conduct Regulators Publish Joint Statement on Access to Cash
06/16/2020
The U.K. Payment Systems Regulator and U.K. Financial Conduct Authority have published a joint statement on their approach to maintaining access to cash for those that need it in light of bank branch and cash machine closures due to COVID-19. The regulators have adopted a series of actions, including mapping which regions have seen branch and cash machine closures, working with banks, building societies, the Post Office and Link to ensure access to these facilities is re-established as soon as possible and focusing on the needs of vulnerable consumers who require ongoing access to cash. In the longer-term, the regulators will work to ensure reasonable access to cash is maintained, including through use of shared services and local community initiatives, and anticipate additional powers to preserve access to cash from upcoming legislation announced in the U.K. Government’s 2020 budget.
View the PSR's statement on access to cash.
View the FCA's statement on access to cash.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Working Group on Risk-Free Rates Publishes Recommendation on Voluntary Compensation for Swaptions
06/16/2020
The EU Working Group on Risk-Free Rates has published its recommendation on voluntary compensation for swaptions affected by the CCP discounting transition from EONIA to €STR. The recommendation follows the Working Group’s March 2020 consultation on the topic. The Working Group recommends that counterparties exchange voluntary compensation for relevant legacy swaption contracts and that market participants contact their swaption counterparties promptly to determine whether compensation is required.
Read more.TOPIC: LIBOR Transition -
European Banking Authority Call for Input on Impact of De-Risking on Financial Institutions and Consumers
06/15/2020The European Banking Authority has launched a call for input to understand why financial institutions choose to “de-risk” (meaning they elect not to service a particular customer or category of customers on the basis of higher money laundering and terrorist financing risks) instead of managing the risks of working with those customers. Responses are sought from financial institutions and end users by September 11, 2020. The call for input will inform the EBA’s Opinion on the risks of money laundering and terrorist financing affecting the EU’s financial sector.
View the EBA's call for input. -
European Securities and Markets Regulator Publishes 2019 Annual Report and Updated 2020 Work Program
06/15/2020
The European Securities and Markets Authority has published its 2019 Annual Report together with an updated version of its 2020 Work Program, incorporating changes in response to the COVID-19 pandemic.
ESMA’s 2019 Annual Report discusses ESMA’s work in 2019, which included: (a) the entry into force of EMIR 2.2, including significant new responsibilities for ESMA in the authorization and supervision of CCPs; (b) ESMA’s common supervisory action on the application of the revised Markets in Financial Instrument Directive’s requirements on the assessment of appropriateness, for which ESMA will consider whether any follow-up work is needed in 2020; (c) reviews of MiFID II and the Markets in Financial Instruments Regulation, including on fair access to, and lowering the cost of, market data and the consolidated tape; and (d) sustainable finance, including technical advice delivered to the European Commission on the integration of sustainability risks for investment firms and investment funds into relevant EU legislation, a report on undue short-termism in securities markets and contributions to the technical expert group on sustainable finance which is due to deliver technical advice on delegated legislation relating to the EU Benchmarks Regulation.
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UK Government Amends Sanctions Legislation
06/13/2020
HM Treasury has published the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations and the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations, amending certain aspects of the U.K. sanctions regime. The legislation is made under the Sanctions and Anti-Money Laundering Act 2018, which was introduced to enable the U.K. Government to implement international sanctions following its departure from the EU. The majority of the SAMLA provisions entered into force on November 22, 2018.
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FICC Markets Standards Board Publishes Case Studies for Managing LIBOR Transition Conduct Risks
06/11/2020
The FICC Markets Standards Board has published a Spotlight Review on case studies for navigating conduct risks during the LIBOR transition, which is due to be completed by the end of 2021. The Review will be of interest to all market participants, including sell-side, buy-side and corporates. It is intended to assist in the identification and management of conduct risks related to the LIBOR transition. The Review assesses risks to market fairness and effectiveness that could arise during the LIBOR transition and discusses how market participants could tackle these risks. Using practical case studies, the Review draws attention to how uncertainties might lead to decision-making challenges for market participants offering new products to clients or changing performance benchmarks.
The U.K. Financial Conduct Authority published a statement in November 2019 setting out its expectations of firms relating to governance and accountability, replacing LIBOR with alternative rates in existing contracts, offering new products with alternative rates, communicating with customers about the transition from LIBOR and best practice for firms investing on behalf of clients.
View the FMSB Spotlight Review on case studies for navigating LIBOR transition conduct risks.
View the FCA's statement on conduct risks.TOPIC: LIBOR Transition -
European Commission Publishes Draft Delegated Regulation on Fees Charged to Third-Country Central Counterparties
06/11/2020
The European Commission has published a draft delegated regulation on the fees charged by the European Securities and Markets Authority to central counterparties established in third-countries that are recognized by ESMA and able to provide clearing services in the EU. The draft regulation will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. EMIR 2.2, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulation can be submitted until July 9, 2020.
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EU Statement on Open Access Requests for Exchange-Traded Derivatives
06/11/2020
The European Securities and Markets Authority has published a statement on the open access provisions for exchange-traded derivatives under the Markets in Financial Instruments Regulation.
MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades in transferable securities, money market instruments and ETDs concluded on a trading venue of their choice, which will in turn allow the members of a trading venue to select the CCP they wish to use for clearing. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions are controversial since they mean that valuable intellectual property and IT systems developed by exchanges effectively must be made available to competitors or new market entrants. It has been argued that the open access requirements make the EU unattractive as a location for exchange businesses due to the commercial disadvantages that result for those exchanges which have successfully invested in innovation.
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European Commission Publishes Draft Delegated Regulations on Criteria for Tiering of Third-Country CCPs and on Comparable Compliance
06/11/2020
The European Commission has published two draft delegated regulations, the first is on the criteria for determining whether a third-country CCP is systemically important and the second is on the minimum elements to be assessed by the European Securities and Markets Authority when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of that assessment. The draft regulations will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. “EMIR 2.2” is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulations can be submitted until July 9, 2020.
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Bank of England Confirms Daily Compounded SONIA Index
06/11/2020
Following the discussion paper published on February 26, 2020, the Bank of England has announced that it will begin publishing a daily compounded Sterling Overnight Index. It is expected that this will start in early August, although the BoE will confirm the date in due course. The daily compounded index would represent the return on an investment earning daily interest at the SONIA rate; market participants could calculate the interest payable on their instruments by reference to the change in the index between two dates. The BoE has decided not to proceed with publishing the proposed SONIA period averages due to lack of industry consensus on the usefulness of such data and the underlying conventions. The BoE will consider producing this data if market participants are able to reach a more united view.
Read more.TOPIC: LIBOR Transition -
UK Regulators Acknowledge European Systemic Risk Board Recommendation on Financial Institution Distributions
06/08/2020
The Bank of England and U.K. Prudential Regulation Authority have publicly acknowledged the ESRB's Recommendation on the restriction of distributions during COVID-19. The ESRB recommends that EU financial institutions refrain from making dividend distributions, entering into buy-backs of ordinary shares or creating obligations to pay variable remuneration to material risk takers where those actions reduce the quantity or quality of own funds at the EU group level and sub-consolidated or individual level. The BoE and PRA note that the Recommendation applies to U.K. authorities during the Brexit transition period.
View the BoE and PRA's joint statement on the ESRB's Recommendation.
View details of the ESRB's Recommendation.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Systemic Risk Board Announces Further Actions to Combat Impact of COVID-19
06/08/2020
The European Systemic Risk Board has announced a series of further actions designed to combat the impact of COVID-19 on European financial markets. The actions relate to the five priority areas already identified by the ESRB as requiring particular focus in the context of the COVID-19 pandemic, as follows:- Implications for the financial system of guarantee schemes and other fiscal measures to protect the economy: the ESRB has published a Recommendation introducing minimum requirements for national monitoring of the financial stability implications of the various debt moratoria and guarantee schemes introduced by Member States to support economies through COVID-19 (Recommendation A); national regulators are also advised to regularly report information on these schemes to the ESRB in accordance with reporting templates to be published by the ESRB by June 30, 2020 (Recommendation B); national regulators implicated by the Recommendation should communicate the actions they have taken, or intend to take, in response to the Recommendation A by July 31, 2020 and Recommendation B by December 31, 2020;
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Final EU Guidelines on Compliance Function Requirements Under MIFID II
06/05/2020
The European Securities and Markets Authority has published final guidelines on the compliance function requirements that are set out in the revised Markets in Financial Instruments package. The final guidelines replace ESMA's 2012 guidelines issued under MiFID I.
Read more.TOPIC: MiFID II -
UK Conduct Regulator Publishes Guidance on Branch Access During COVID-19
06/04/2020
The U.K. Financial Conduct Authority has published guidance for banks on continuing to make branch access available for essential services. In considering reopening and operating branches, banks should balance the needs of their customers against the safety and welfare of their staff. Maintaining access to essential services for vulnerable customers, such as access to cash, telephone banking and in-person payments, should be a particular priority. Firms should also prioritize the reinstatement of access to cash and essential services in local areas which have lost access to bank branches as a result of the pandemic, and, where this is not possible, should ensure they communicate clearly with customers through websites and physical signs at branches to point them to alternatives, including Post Office services.
View the FCA's guidance on branch access during COVID-19.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
UK Conduct Regulator Update on COVID-19 Response and 2020 Expectations
06/04/2020
The U.K. Financial Conduct Authority’s Executive Director of Supervision for Investment, Wholesale and Specialists, Megan Butler, has given a speech setting out the FCA’s current priorities, its expectations of firms during the COVID-19 pandemic and the outcomes it is focusing on for the wealth management sector, as well as the future priorities for financial regulation.
The FCA initially prioritized immediate relief for firms and consumers, including on mortgages and unsecured lending products, at the outset of the COVID-19 crisis, but is now looking at how it will respond to the challenges of COVID-19 on a more long-term basis. This longer-term approach includes ensuring a good level of operational resilience (in line with the FCA’s ongoing consultation on that topic), that markets can continue to function well, that customers are treated fairly and protected from scams and that the FCA understands firms’ financial resilience so that they can fail in an orderly manner.
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UK Prudential Regulator Publishes Further Guidance on IFRS 9 and Capital Requirements
06/04/2020
The U.K. Prudential Regulation Authority has published a “Dear CEO” letter providing further guidance on IFRS 9 and capital requirements in the context of COVID-19. The PRA published a “Dear CEO” letter in March 2020, advising firms on the application of certain key concepts (including the definition of "default" in the Capital Requirements Regulation and expected credit loss accounting under IFRS 9). This guidance related in large part to payment holidays, many of which are now coming to an end. The PRA’s latest guidance therefore focuses on exits from those initial payment deferrals.
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Bank of England Warns Financial Market Infrastructures Against Profit Distributions
06/04/2020
The Bank of England has written to CEOs of U.K. financial market infrastructure providers, urging them to carefully consider the additional risks and potential financial and operational demands of COVID-19 when determining shareholder distributions or variable remuneration. U.K. FMI providers are expected to discuss any intended shareholder distributions with the Bank of England.
View the BoE's Dear CEO letter to FMIs.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Consultation on Proposed Capital Requirements of Non-Modellable Risks Under the Fundamental Review of the Trading Book
06/04/2020
The European Banking Authority has opened a consultation on proposed Regulatory Technical Standards on capital requirements of non-modellable risks under the Fundamental Review of the Trading Book. The Regulation amending CRR, which was finalized in June 2019, implements, among other things, the Basel III revised requirements to calculate own funds requirements for market risk (FRTB). It will apply directly across the EU from June 28, 2021. The consultation closes on September 4, 2020.
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European Banking Authority Provides Additional Opinion on Strong Customer Authentication Requirements for Account Servicing Payment Service Providers
06/04/2020
The European Banking Authority has published an Opinion on the obstacles to the provision by third-party service providers of account information and payment initiation services under the revised Payment Services Directive. PSD2 and the related Regulatory Technical Standards on strong customer authentication and common and secure communication require account servicing payment service providers to establish access interfaces through which third-party service providers can securely access a customers’ payment accounts. Where the ASPSP provides a dedicated interface (as opposed to a modified customer interface), the SCA RTS require it to ensure that there are no obstacles to the provision of services by third-party service providers. The EBA has published the Opinion in response to queries from market participants on issues arising in this area.
Read more.TOPIC: Payment Services -
EU Consultation on Draft Guidelines on Outsourcing to Cloud Service Providers
06/03/2020
The European Securities and Markets Authority has opened a consultation on draft guidelines on outsourcing to cloud service providers. The draft guidelines cover: (i) governance, documentation, systems and procedures that firms should have in place; (ii) the assessment and due diligence to be undertaken before outsourcing arrangements are entered; (iii) minimum elements that outsourcing agreements should include; (iv) exit strategies; and (v) access and audit rights. The consultation closes on September 1, 2020. ESMA expects to publish the final guidelines in Q4 2020 or Q1 2021.
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European Securities and Markets Authority Publishes Updated Transparency and Position Limits Opinions for Third-Country Trading Venues
06/03/2020
The European Securities and Markets Authority has published two opinions on the application of post-trade transparency and position limits rules to third-country trading venues.
The first opinion relates to post-trade transparency requirements under the Markets in Financial Instruments Regulation. Under MiFIR, EU investment firms must publish information on transactions in financial instruments traded on an EU trading venue. ESMA’s opinion states that information about transactions concluded on a third-country trading venue should also be made public in accordance with MiFIR, but it is unnecessary for EU firms to republish such information where the transparency rules of the third-country trading venue are similar to those applicable to EU trading venues under MiFIR.
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EU Extends Period for Lower Short Sale Disclosures
06/03/2020
The European Securities and Markets Authority has published a Decision renewing the temporary lower threshold for disclosures of net short positions in shares. ESMA's original Decision has been in effect since March 16, 2020 and was due to expire on June 16, 2020. The Decision to renew the measures will apply from June 17, 2020 for a further three months. The lower thresholds apply to all holders of net short positions in shares traded on an EU regulated market (i.e., exchange) who must notify the relevant national regulator if the position reaches or exceeds 0.1% of the issued share capital and of each 0.1% above that threshold.
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European Banking Authority Publishes Roadmap on Investment Firm Regulation and Directive Deliverables
06/02/2020
The European Banking Authority has published a new roadmap under the Investment Firm Regulation and the Investment Firm Directive. The IFR and IFD introduce a more tailored regulatory regime for many EU investment firms that reflects the risks inherent in the diverse activities those firms undertake. It also aims to amend the prudential requirements imposed on certain investment firms to avoid the imposition of undue administrative burdens by removing them from the scope of the revised Capital Requirements Regulation and Capital Requirements Directive. The majority of both the IFR and IFD will apply from June 26, 2021.
The EBA's roadmap sets out the timing for the EBA to produce final versions of Regulatory Technical Standards, Implementing Technical Standards, Guidelines and Reports. The EBA must also establish a list of capital instruments and a database of administrative sanctions. The mandates will be delivered in four phases, starting from December 2020, and cover:- Thresholds and criteria for investment firms to be subject to the CRR;
- Capital requirements and composition;
- Reporting and disclosure;
- Remuneration and governance;
- Supervisory convergence and supervisory review and Pillar 2; and
- Environmental, social and governance exposures.
View the EBA's IFR and IFD Roadmap.
View details of the IFR and IFD. -
Extension of Senior Managers Regime to Benchmark Administrators
06/02/2020
The U.K. Financial Conduct Authority has published a Policy Statement and final rules and guidance on the application of the Senior Managers Regime to Benchmark Administrators. The final rules will apply from December 7, 2020 to Benchmark Administrators authorized in the U.K. that do not undertake any other regulatory activities. The FCA’s SMR was originally implemented for banks in 2016 and was extended to all FCA solo-regulated firms authorized under the Financial Services and Markets Act 2000 in December 2019. Benchmark administrators were only obliged to become FCA-authorized by the end of 2019 pursuant to the EU Benchmark Regulation, and so were granted a one-year extension from the roll-out of the SMR.
Read more.TOPIC: Conduct & Culture -
European Securities and Markets Authority Publishes Final Technical Advice on FRANDT Clearing Services Provision Under EMIR REFIT
06/02/2020
The European Securities and Markets Authority has published its final report and technical advice on the conditions for clearing services providers’ commercial terms to be considered fair, reasonable, non-discriminatory and transparent, in accordance with changes introduced under the revised European Market Infrastructure Regulation, or EMIR Refit. EMIR Refit requires the European Commission to adopt legislation setting out these conditions by June 18, 2021. The Commission tasked ESMA with publishing technical advice on the conditions, which ESMA launched a consultation on in October 2019. ESMA’s final technical advice takes account of the responses received to the consultation.
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UK Prudential Regulator Publishes Statement on Electronic Signatures
06/02/2020
The U.K. Prudential Regulation Authority has published a statement on the use of electronic signatures in the context of remote working arrangements during the COVID-19 pandemic. The PRA has stated that, in the absence of specific legal provisions to the contrary, firms are entitled to use electronic signatures to submit forms and other regulatory documents to the PRA. The advice does not extend to the use of electronic signatures more generally.
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European Banking Authority Publishes Guidelines on COVID-19 Exposures Reporting
06/02/2020
The European Banking Authority has published guidelines on bank reporting and disclosure of exposures subject to measures designed to protect borrowers from the economic impact of the COVID-19 crisis. The measures include payment moratoria, which are exempt from prudential treatment as forbearance measures and therefore not subject to the usual supervisory reporting framework. Public guarantee schemes introduced in many Member States are also not captured by existing reporting frameworks. This has created a data gap, which has implications for the risk-analysis of individual institutions and for overall financial stability in the EU.
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FCA Publishes Final Guidance on COVID-19 Measures for Mortgage Providers
06/02/2020
The U.K. Financial Conduct Authority has published final guidance on how mortgage lenders should treat customers coming to the end of a payment holiday, or those yet to request one, in light of the COVID-19 pandemic. The guidance will come into force on June 4, 2020 and remain in force until October 31, 2020, unless renewed or updated. The guidance covers: (i) fair treatment of customers seeking, or coming to the end of, a payment deferral; (ii) options for customers able, or unable, to resume full payments; (iii) the interaction of the guidance with the FCA’s Mortgage Conduct of Business Sourcebook; (iv) training, monitoring, record keeping and Credit Reference Agency reporting; (v) repossessions; and (vi) debt help and money guidance.
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UK Joint Money Laundering Steering Group Publishes Revised Guidance
06/01/2020
The Joint Money Laundering Steering Group has published amendments to its Guidance following its consultation launched on February 3, 2020. The revisions to the Guidance account for changes introduced by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which came into force on January 10, 2020. The 2019 Regulations amend the existing Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to incorporate changes arising from the EU's Fifth Anti-Money Laundering Directive.
The JMLSG's consultation on proposed new Guidance on how the U.K. Money Laundering Regulations apply to crypto-asset exchange providers and custodian wallet providers closed on May 18, 2020. The final new Guidance is still to be published.
The JMLSG is currently consulting on draft guidance on Pooled Client Accounts, with comments due by June 10, 2020.
View the June 2020 JMLSG Guidance.
View details of the JMLSG's consultation on pooled client accounts.
View details of the JMLSG's consultation on crypto-asset exchange provider and custodian wallet provider guidance. -
Guidance Published on Financial Services Exclusions in the UK Corporate Insolvency and Governance Bill
06/01/2020
Following the introduction of the Corporate Insolvency and Governance Bill into Parliament on May 20, 2020, the U.K. government has published a series of guidance notes on the measures proposed in the Bill. The proposed measures, first announced by Secretary of State for Business, Energy and Industrial Strategy on March 28, 2020, are intended to protect companies and businesses facing major funding and operational difficulties in the current COVID-19 pandemic. Once final, the Bill will amend current U.K. insolvency law by, among other things, introducing a new moratorium, establishing a new restructuring plan procedure for failing companies that includes a mechanism to bind a dissenting class of creditors to the plan, and banning termination clauses that would come into effect when a company enters into insolvency, begins a moratorium or starts the new restructuring plan procedure. The Bill will also temporarily remove the threat of personal liability from wrongful trading for directors of companies where they face financial difficulties as a result of COVID-19, which will apply retrospectively from March 1, 2020.
Read more.TOPIC: COVID-19 -
UK Working Group Publishes Paper on Identifying Tough Legacy Issues in the LIBOR Transition
05/29/2020
The Working Group on Sterling Risk-Free Reference Rates has published a paper on the identification of tough legacy issues. The paper concerns those instances where a contract cannot be amended to reference a suitable alternative rate to LIBOR or use a robust fallback so that the contract moves to a suitable alternative rate on the occurrence of certain events. The Working Group is advocating for the U.K. Government to consider legislation to address tough legacy exposures in contracts governed by English law that reference LIBOR (in sterling or other LIBOR currencies) that remain in operation when LIBOR is proposed to be phased out at the end of 2021. The recommendation is similar to the proposed solution of the Alternative Reference Rates Committee under New York law. The Group advises that other steps should also be taken, including the methodology for LIBOR being modified by either an administrator or official intervention. The latter option of official intervention is controversial, in that the benchmark administrator and its committees would lose control over how the benchmark operates, yet remain liable to regulators for its operation and face other legal risks resulting from external decisions. In the Group's view, the only path for certainty over contracts is for market participants to proactively transition away from LIBOR before the end of 2021.
The paper also sets out the Working Group's analysis of whether tough legacy issues exist for certain types of contracts, covering derivatives, bonds, mortgages and loans.
View the RFRWG paper on tough legacy issues.TOPIC: LIBOR Transition -
International Organization of Securities Commissions Publishes Statement on COVID-19 Disclosure for Issuers
05/29/2020
The International Organization of Securities Commissions, the international policy forum for securities regulators, has published a statement on the disclosure standards that securities issuers should adhere to in the context of COVID-19.
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UK Conduct Regulator Announcement on Continuing Professional Development for Regulated Firms
05/27/2020
The U.K. Financial Conduct Authority will temporarily allow regulated firms subject to continuing professional development requirements to carry over any uncompleted CPD hours to the following 12-month period, for years ending before April 1, 2021. Firms should review the FCA’s conditions for carrying over CPD requirements, which include where an individual, due to the current exceptional circumstances arising from COVID-19, will be unable to complete their CPD hours in their current CPD period. The FCA also notes that firms are still expected to demonstrate that relevant individuals remain competent to carry out their work and it expects most individuals to be able to continue to complete CPD while on furlough or working from home.
View the FCA's announcement on CPD requirements.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Commission Publishes Adjusted 2020 Work Program
05/27/2020
The European Commission has published an adjusted 2020 Work Program to reflect the unexpected challenges arising from COVID-19. The Commission still intends to deliver on the commitments made under its original Work Program, published in January 2020, but has adjusted the timing of certain actions necessary to achieve its objectives. An update on the delivery and expected timing of the objectives under the adjusted Work Program are set out in an amended version of Annex 1 on the Commission’s website.
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EU Consultation on Enhancing Intra-EU Investor Protection
05/26/2020
The European Commission has launched a consultation on the intra-EU investment protection and facilitation framework. The Commission is seeking views on the current EU system for investor protection, in particular, how it might be strengthened to encourage further cross-border investment within the EU. The Commission is also investigating how to make cross-border investments easier in the context of the Capital Markets Union. Both legislative and non-legislative options are being considered to address the divergence of investor protection across the EU and concerns about enforcements of rights and remedies. The consultation closes on September 8, 2020. If its assessment of the feedback indicates that it would be appropriate to do so, the Commission intends to publish a legislative proposal in Q1 2021.
View the consultation page.TOPIC: Consumer Protection -
European Banking Authority Reports on Impact of COVID-19 on EU Banking Sector
05/25/2020
The European Banking Authority has published a report on the impact of the COVID-19 pandemic on the financial health of EU banks. The report is mostly based on supervisory data submitted by banks in Q4 2019 and Q1 2020. The EBA's report confirms that banks have activated their contingency plans in response to the crisis, however, their operational capabilities remain under pressure. In addition, some banks have used parts of their capital and liquidity buffers and are expected to continue to do so in the coming months. The report also confirms that the asset quality of banks is likely to continue deteriorating as non-performing loan volumes increase.
View the EBA's report.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Response to UK Letter on Negotiating Positions
05/22/2020
The EU's chief negotiator, Michel Barnier, has responded to the letter of May 19, 2020 of U.K. chief negotiator, David Frost. Mr. Frost had notified Mr. Barnier that the U.K. government had published U.K. drafts of the proposed Comprehensive Free Trade Agreement between the U.K. and EU, as well as other agreements and schedules. Mr. Frost's letter had also included comments on some of the EU positions in the negotiations. In his letter, Mr. Barnier states that he does not think that the substantive points of the negotiation should be debated through written correspondence, however, he does go on to respond to the comments. Mr. Barnier states that the EU is not bound to follow as precedent deals that the EU has concluded with other countries, and that the EU is only following the commitments made in the Political Declaration agreed between the EU and the U.K. in October 2019. Mr. Barnier also emphasises that the EU is seeking to obtain a "level playing field", which, according to the EU's chief negotiator means upholding the current common high standards applicable in the EU and in the U.K. at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change and relevant tax matters. It would mean that the U.K. could impose tougher regulations after the transitional period, but would be tied to the existing EU level of standards.
Read more. -
Bank of England to Discontinue Three-Month Contingent Term Repo Facility
05/22/2020
The Bank of England has announced that it will discontinue its three-month Contingent Term Repo Facility at the end of May 2020, with the final operation scheduled to take place on May 28, 2020. The BoE’s one-month CTRF operations will continue on a weekly basis until at least June 26, 2020. The BoE has also said that it will reintroduce the operations if necessary.
The CTRF was established by the BoE in March 2020, at the outset of the COVID-19 outbreak, allowing financial market participants to borrow central bank reserves in exchange for less liquid assets.
View the BoE's market notice on amendments to the CTRF.TOPIC: COVID-19 -
UK Prudential Regulator Publishes Guidance on Treatment of COVID-19 Payment Holidays
05/22/2020
The U.K. Prudential Regulation Authority has published a new statement on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address COVID-19. The statement follows the announcements made by the PRA, the U.K. Financial Conduct Authority and the U.K. Financial Reporting Council in March 2020 on financial reporting and audit requirements in light of COVID-19. Those announcements included a letter from the PRA to banks on the application of IFRS 9 (including expected credit loss accounting) to loan arrangements during the pandemic.
Read more. -
UK Conduct Authority Consults on Guidance on COVID-19 Measures for Mortgage Lenders and Payments Firms
05/22/2020
The U.K. Financial Conduct Authority has published two consultations on its draft guidance for firms on mortgages and safeguarding customers’ funds during the COVID-19 pandemic.
The first consultation relates to the FCA’s proposed guidance on how mortgage lenders should treat customers coming to the end of a payment holiday or those yet to request one. The timeframe for customers who have not yet benefited from a payment holiday to apply for one will be extended to October 31, 2020. The current ban on house repossessions will also be extended to October 31, 2020.
Read more.