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

  • European Supervisory Authorities Publish Joint 2020 Work Programme
    10/02/2019

    The Joint Committee of the European Supervisory Authorities has published its 2020 work program, outlining revisions to the Joint Committee’s scope of work and the matters it will focus on in 2020. The Joint Committee consists of representatives from the European Banking Authority, the European Insurance and Occupational Pensions Authority, the European Securities and Markets Authority, the European Commission and the European Systemic Risk Board. 

    Read more.
  • EU Publishes Technical Advice on Disclosure Requirements for New Climate Benchmarks
    09/30/2019

    The European Commission's Technical Expert Group has published a final report on EU climate benchmarks and benchmark Environmental, Social and Governance disclosures. The Commission set up the TEG on Sustainable Finance when it published its legislative proposal for amending the EU Benchmark Regulation as part of its action plan on Sustainable Finance. The proposed legislation will create two new categories of low carbon benchmarks: the EU Climate Transition Benchmark (EU CTB) and the EU Paris-aligned Benchmark (EU PAB). It also includes ESG disclosure requirements for all investment benchmarks. The final text of the proposal has been agreed and it is expected to be published in October/November 2019.

    The TEG report provides technical advice to the Commission on: (i) the minimum ESG disclosure requirements for all benchmarks, except interest rates and currency benchmarks, and specific ESG disclosure requirements for EU CTBs and EU PABs; and (ii) the minimum technical requirements for the methodology of EU CTBs and EU PABs. In addition, the report includes recommendations on other areas of work that are connected to the benchmark ESG disclosures, such as the proposed EU Classification System of Sustainable Activities (i.e. the EU Taxonomy) and changes to the disclosure requirements in the Markets in Financial Instruments package to take into account ESG disclosures.

    View the report.
  • European Economic and Social Committee Publishes Opinion on Sustainable Finance Reforms
    09/19/2019

    The European Economic and Social Committee has published an Opinion on the European Commission’s Reflection Paper, “Towards a Sustainable Europe by 2030”, which was published earlier this year. The Commission’s Reflection Paper considers Europe’s competitive advantages in delivering sustainable development, assesses the EU and global climate change challenges that must still be tackled, and sets out policy changes and proposals that will enable the EU to adhere to the UN’s 2030 Agenda for Sustainable Development and the 17 Sustainable Development Goals.

    Read more.
  • Final EU Guidelines on EU Credit Rating Agency Disclosure Obligations and Advice on Sustainable Finance in the Credit Rating Market
    07/18/2019

    The European Securities and Markets Authority has published two documents relating to sustainable finance in the credit rating sector. The first document is technical advice for the European Commission, responding to the Commission's mandate in its 2018 Action Plan for Sustainable Finance for ESMA to assess the current practice within the credit rating market concerning sustainability considerations. ESMA has assessed the extent to which environmental, social or governance factors are considered within credit rating agencies' credit assessments. ESMA concludes that CRAs are including ESG factors in their ratings, but it is difficult to assess the extent to which each factor is being considered in the various asset classes. ESMA warns that credit ratings should not be understood as providing an opinion on sustainability characteristics of an issuer or entity and recommends that the CRA Regulation should not be revised to require the consideration of sustainability characteristics in CRAs' credit assessments. However, ESMA advises that it may be appropriate to update the disclosure requirements in the CRA Regulation to enhance the transparency on how CRAs are considering the ESG factors.

    Read more.
  • EU Seeks Feedback on Taxonomy for Sustainable Economic Activities
    07/04/2019

    The European Commission's Technical Expert Group on sustainable finance has launched a call for feedback on the taxonomy for sustainable economic activities. The TEG's Report on Taxonomy was published on June 18, 2019, alongside the Commission's Guidelines on reporting climate-related information, an interim TEG report on EU climate benchmarks and a TEG report on an EU green bond standard. The Report on Taxonomy links to the EU's proposed Regulation on the establishment of a framework to facilitate sustainable investment.

    Feedback on the TEG's Report on Taxonomy should be submitted by September 13, 2019.

    View the Report on Taxonomy.

    View further details on the call for feedback.

    View the Commission's Guidelines on reporting climate-related information.
  • UK Government Publishes Green Finance Strategy
    07/02/2019

    The U.K. Government has published a Green Finance Strategy for transforming finance for a greener future. The Green Finance Strategy has two objectives: to align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by Government action and to strengthen the competitiveness of the U.K. financial sector. The Strategy document states that these objectives will be met by:
     
    1. Greening finance: ensuring current and future financial risks and opportunities from climate and environmental factors are integrated into mainstream financial decision-making, and that markets for green financial products are robust in nature. Some of the action committed to by the Government includes: (i) announcing an expectation for all listed companies and large asset owners to disclose by 2022 (as per the recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures); (ii) establishing a joint taskforce with U.K. regulators, chaired by Government, to examine the most effective way to approach disclosure and exploring the appropriateness of mandatory reporting; (iii) clarifying responsibilities for the Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee to have regard to the Paris Agreement when carrying out their duties. The Government states that it will publish an interim report by the end of 2020, which will include an assessment of these steps.
    Read more.
  • European Securities and Markets Authority Issues Survey on Short-Term Pressure Imposed by the Financial Sector
    06/24/2019

    The European Securities and Markets Authority is seeking responses to its survey examining short-term pressure on corporations from the financial sector. The survey forms part of an investigation prompted by the European Commission into how short-termism in market practices may be inhibiting the EU’s progress towards a sustainable economy. ESMA’s survey is aimed at investors, issuers, management companies of undertakings for the collective investment in transferable securities, self-managed UCITS investment companies, alternative investment fund managers and the trade associations of financial market participants. Responses to the questionnaire must be submitted by July 29, 2019.

    Read more.
  • New EU Guidelines on Disclosure of Climate-Related Information
    06/18/2019

    The European Commission has published new, non-binding Guidelines on reporting climate-related information. The new Guidelines are supplementary to the guidelines issued by the Commission in 2017 on reporting non-financial information. The new Guidelines are intended to assist large public entities (with over 500 employees) to report climate-related information under the EU Non-Financial Reporting Directive. The new Guidelines incorporate the recommendations of the Financial Stability Board's taskforce on climate-related financial disclosures, taking into account the EU's forthcoming taxonomy on sustainable activities. The new Guidelines include guidance on reporting of climate-related information related to business models, key performance indicators, risks and their management. Further guidelines for banks and insurance companies are set out in the annex.

    Read more.
  • Regulators Issue Recommendations on Sustainable Finance in Emerging Markets
    06/05/2019

    The Growth and Emerging Markets Committee, a committee of the International Organization of Securities Commissions that aims to promote the development and efficiency of emerging securities and futures markets, has published a series of recommendations on the development of sustainable finance in emerging markets and the role that securities regulators play in this arena. The report also contains an overview of sustainability-related regulatory initiatives in emerging markets and market trends arising in the sustainability sector.

    Read more.
  • International Task Force Report Shows Further Progress Needed for Climate-Related Financial Disclosures
    06/05/2019

    The Task Force on Climate-Related Financial Disclosures has issued its 2019 status report outlining progress on adoption of the TCFD disclosure recommendations for improved climate-related financial disclosures by companies. The TCFD was established by the Financial Stability Board in 2015 with the aim of managing climate-related risk in markets. In 2017, it published a set of voluntary disclosure recommendations for companies to provide information on their climate-related financial risks. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

    Read more.
  • Chair Appointed for EU Coordination Network on Sustainability
    05/23/2019

    The European Securities and Markets Authority has announced that Ana María Martínez-Pina Garcia, (Vice-Chair of the Comisión Nacional del Mercado de Valores in Spain) has been appointed as Chair of ESMA's new Coordination Network on Sustainability.

    View the announcement.
  • EU Technical Advice on Incorporating Sustainability Factors Into EU Regulation
    05/03/2019

    The European Securities and Markets Authority has published its final report and technical advice to the European Commission on incorporating sustainability risks and factors into European regulation. The European Commission sought advice from ESMA and the European Insurance and Occupational Pensions Authority in July 2018 on the introduction of environmental, social and governance considerations into the Markets in Financial Instruments Directive II, the Insurance Distribution Directive, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Solvency II Directive. The introduction of sustainability considerations into European regulation sits against the backdrop of the European Commission's Sustainability Action Plan, which aims to encourage sustainable investment and mitigate climate change risk in line with the 2016 Paris Agreement and UN 2030 Agenda for Sustainable Development. In response, ESMA opened consultations seeking input from stakeholders, which closed on February 19, 2019.

    Read more.
  • UK Regulators Host the First Meeting of the New Climate Financial Risk Forum
    03/13/2019

    The Financial Conduct Authority and the Prudential Regulation Authority have published press releases following the first meeting of the Climate Financial Risk Forum on March 8, 2019. The CFRF is a joint forum established by the PRA and FCA in late 2018. The CFRF aims to encourage financial sector approaches towards managing the financial risks from climate change as well as supporting green finance. The CFRF will develop practical tools and approaches to reduce the barriers for firms looking to adopt a strategy for minimizing financial risks from climate change. The regulators are concerned with both the impact of climate change itself and the transition to supporting a low carbon economy. Both the FCA and the PRA consulted in late 2018 on the impact of climate change. The PRA consulted on a draft Supervisory Statement on managing the financial risks from climate change and the FCA consulted on climate change and green finance and the potential changes to its regulatory approach to these issues. The FCA consultation set out specific actions that the FCA intends to take in the short term in four areas - capital markets disclosures, public reporting requirements, green finance and pensions.

    Read more.
  • Report of the Technical Expert Group Subgroup of the European Commission on Green Bond Standard: Proposal for an EU Green Bond Standard
    03/06/2019

    In its Interim Report on green bonds, the Technical Expert Group has made a proposal for an EU Green Bond Standard. Green bonds are bonds specifically earmarked to be used for climate-related and environmental projects. The aim of the consultation was, in light of the European Commission’s Action Plan on Financing Sustainable Growth published in March 2018, to create a standard that would further improve the credibility of green bonds and help the EU market mature.

    Read more.
  • European Commission Requests Report on Potential Undue Short-Term Pressure by Financial Service Participants on Corporations
    02/06/2019

    The European Commission issued a call for advice to each of the European Supervisory Authorities requesting evidence and possible advice on potential undue short-term pressure by financial service participants on corporations. The call for advice relates to Action 10 of the EU's Sustainable Finance Action Plan, which aims to foster transparency and long-termism in financial and economic activity by exploring possible drivers of undue short-termism. The Commission wants the ESA's report to: (i) provide evidence of any short-termism and, if any, the consequences thereof; (ii) assess the drivers of such short-termism, including the effects of regulation on financial market participants, for example, the guidance on remuneration practices; (iii) identify existing regulations that either mitigate or exacerbate short-term pressures; and (iv) evaluate the need for regulatory or policy action and propose specific areas where action is needed.

    The Commission considers that pressure of this kind could lead corporations to overlook long-term risks and opportunities, such as those related to climate change and other factors related to sustainability. Companies facing short-term pressure could, as a result, forgo investment in areas important for a successful transition towards a sustainable economy. The ESAs are due to publish their report in December 2019.

    View the call for advice.
  • International Organization of Securities Commissions Consults on Sustainable Finance in Emerging Markets
    02/01/2019

    The International Organization of Securities Commissions has launched a consultation on sustainable finance in emerging markets and the role of securities regulators. The consultation discusses the challenges affecting the development of sustainable finance in capital markets, focusing on sustainable assets in emerging markets and measures to facilitate market development in this area. Responses to the consultation can be submitted by April 1, 2019.

    Read more.
  • UK Regulator Considers Potential Regulatory Refinements for Climate Change
    10/15/2018

    The U.K. Financial Conduct Authority has published a Discussion Paper on climate change and green finance in which it calls for comment on potential changes to its regulatory approach in these areas. The Discussion Paper sets out specific action that the FCA intends to take in the short term in four focus areas - capital markets disclosures, public reporting requirements, green finance and pensions.

    First, the FCA is considering whether the regulatory approach to disclosures by issuers in the capital markets should be amended. In particular, the FCA is asking for comments on: (i) the difficulties that issuers may have in determining materiality of climate-related issues such that a specific disclosure would be warranted; (ii) whether investors would benefit from greater comparability of disclosures; (iii) whether further prescribed requirements on climate-related disclosures should be introduced to facilitate more consistent disclosures by issuers. This final point includes whether the introduction of a "comply or explain" approach to the Task Force on Climate-related Disclosures would facilitate more effective markets.

    Read more.
  • UK Prudential Regulator Consults on Managing Financial Risks from Climate Change
    10/15/2018

    The Prudential Regulation Authority has published a consultation paper on a draft Supervisory Statement on managing the financial risks from climate change. The consultation follows the PRA's publication in September 2018 of its report "Transition in thinking: The impact of climate change on the U.K. banking sector." The consultation paper is relevant to banks, insurers, re-insurers, building societies and PRA-designated investment firms. The PRA wants firms to take a strategic approach to financial risks from climate change by taking into account current and credible risks and identifying actions needed now to mitigate existing and future risks.

    Read more.
  • Prudential Regulator Reports on Climate-Related Financial Risks for the UK Banking Sector
    09/26/2018

    The U.K. Prudential Regulation Authority has published a report entitled "Transition in thinking: The impact of climate change on the U.K. banking sector".

    The purpose of the report is to: (i) examine the financial risks from climate change that impact PRA regulated banks, building societies and designated investment firms; (ii) assess how those entities are responding to and managing the financial risks from climate change; and (iii) assist those entities in understanding the PRA's supervisory approach to the financial risks from climate change. The report will also be used to inform the Bank of England's wider work to assess the system-wide financial risks from climate change.

    Read more.
  • International Task Force Report Shows Momentum Building for Climate-Related Financial Disclosures
    09/26/2018

    The Task Force on Climate-related Financial Disclosures has issued a status report outlining progress on adoption of the TCFD disclosure recommendations issued in June 2017. The TCFD was established by the Financial Stability Board in 2015 and its 2017 recommendations provide a voluntary framework for companies to develop more effective climate-related financial disclosures through their existing reporting processes. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

    Read more.
  • European Commission Proposes Legislative Package on Sustainable Finance
    05/24/2018

    The European Commission has published a package of legislative reforms on sustainable finance. The aim of the package of reforms, which form part of the Commission's broader Capital Markets Union initiative, is to ensure that environmental, social and governance considerations are consistently integrated into the investment and advisory process across sectors. The proposed measures comprise:

    (i) a proposed Regulation on the establishment of a framework to facilitate sustainable investment. This will establish an EU-wide classification system for environmentally sustainable economic activities and ensure that investment strategies are oriented towards economic activities that genuinely contribute to achieving environmental objectives. The proposed Regulation will empower the European Commission to adopt delegated acts to specify technical screening criteria to assess the contribution of a given economic activity to a particular environmental objective as substantial. A list of six environmental objectives is set out in the proposed regulation, namely: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; and protection of healthy ecosystems (which includes biodiversity conservation).

    Read more.
  • Financial Stability Board Publishes its 2016 Priorities
    02/27/2016

    The Financial Stability Board published its letter, dated February 22, 2016, to the G20 Finance Ministers and Central Bank Governors in advance of the G20 meeting in Shanghai. The letter sets out the FSB's priorities for 2016 which are: (i) to support the full and consistent implementation of the agreed regulatory reforms by reporting on progress  and assessing whether reforms result in their intended outcomes; (ii) analyzing structural vulnerabilities in asset management activities, including developing policy responses on liquidity mismatch in funds, leverage within funds, operational risks in transferring investment mandates and securities lending activities of funds and asset managers; (iii) to publish a peer review on the implementation of the shadow banking framework; (iv) reducing misconduct risk, in particular, the role of incentives in preventing misconduct; (v) addressing the decline in correspondent banking (about which the FSB published a four-point plan in 2015); (vi) disclosure of climate-related financial risks; (vii) CCP resilience and recovery; (viii) assessing macro-prudential policy frameworks and tools; (ix) completing the regulatory capital framework for banks; (x) assessing implementation of resolution reforms including the total loss absorbing capacity (TLAC) framework published at the end of 2015; (xi) removing legal and regulatory barriers to reporting of derivatives trades; and (xii) assessing the implications of financial technology for financial stability. The G20 published a Communiqué following the Shanghai meeting which refers to the FSB's work and notes the progress made on implementing financial regulatory reforms.
     
    View the FSB letter.

    View the G20 Communique.