The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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UK Acts to Extend Transitional Period for Third-Country Benchmarks
11/29/2023
HM Treasury has published a policy paper and draft legislation for extending the transitional period for third-country benchmarks under the U.K. Benchmarks Regulation. The transitional period will be extended from the end of 2025 to the end of 2030.
The U.K. Benchmarks Regulation provides that no financial instruments and financial contracts in the U.K. may start to reference a benchmark provided by a third-country benchmark administrator unless that benchmark administrator has approval through equivalence, recognition or endorsement. However, the applicability of these provisions to third-country benchmark providers has been extended numerous times. The government will consider whether the third-country benchmarks regime should be revised as part of the Smarter Regulatory Framework. The extension to 2030 is intended to provide certainty to market participants while that assessment and related work is carried out. The draft legislation is intended to come into force on January 1, 2024.
In October this year, the EU extended to the end of 2025 the transitional period for third-country benchmarks under the EU Benchmarks Regulation. -
HM Treasury Seeks Views on Clearing Exemption for Pension Schemes
11/29/2023
U.K. EMIR (the onshored European Market Infrastructure Regulation) generally requires the clearing at a central counterparty of all interest rate swaps and credit default swaps. As announced earlier this year, HM Treasury has launched a review of an applicable exemption for pension funds, with the publication of a call for evidence. Currently, pension schemes meeting certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR due to the difficulty that pension funds would find in funding margin calls; nominally, to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. In June, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 extended the temporary exemption for pension schemes to June 18, 2025.
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Bank of England Proposes Regulatory Regime for Systemic Payment Systems Using Stablecoins
11/27/2023
The Bank of England has published a discussion paper on its proposed approach to developing a regulatory regime for systemic payment systems using stablecoins and related service providers. The BoE’s paper follows the government’s recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins which confirmed that these types of stablecoins will be brought into the U.K. regulatory perimeter.
This is part of HM Treasury’s plan to regulate cryptoassets, focusing first on fiat-backed stablecoins. The BoE will be responsible for the financial stability of systemic payment systems using stablecoins. The Financial Conduct Authority will supervise non-systemic fiat backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only, and has published a discussion paper alongside the BoE's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the bank' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems using fiat backed stablecoins.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
11/03/2023
HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:- Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
- Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
- Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, MiFID II, Payment Services -
HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins
11/03/2023
HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.
The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, Payment Services -
HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
11/03/2023
HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Financial Market Infrastructure, FinTech, Recovery & Resolution -
EU Proposes Reducing Scope of the EU Benchmark Regulation
11/01/2023
The European Commission has published a legislative proposal for reducing the scope of the EU Benchmark Regulation. The EU BMR provides the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks.
The Commission's proposal, designed to ease the burdensome requirements for smaller benchmark administrators, is to change the scope of the BMR by removing the requirement for non-significant benchmark administrators to obtain authorization or registration (EU administrators) or endorsement or recognition (third-country administrators). This will mean that the requirements for governance and control of administrators would no longer apply to these benchmark administrators.
The approval and governance requirements would continue to apply to significant benchmark administrators, critical benchmark administrators and, irrespective of significance, to administrators of the EU Paris-aligned Benchmark or EU Climate Transition Benchmarks.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Securities -
EU Extends Use of Third-Country Benchmarks Until End 2025
11/01/2023
A Commission Delegated Regulation extending the transitional period laid down for third-country benchmarks has been published in the Official Journal of the European Union.
The EU Benchmark Regulation limits the use by EU supervised entities of benchmarks provided by third-country benchmark administrators. Under transitional provisions, no financial instruments and financial contracts in the EU may start to reference a benchmark provided by a third-country administrator on or after December 31, 2023 (extended in 2022 from January 1, 2021), unless the benchmark and administrator are included in the register maintained by the European Securities and Markets Authority following an equivalence decision by the European Commission, or recognition or endorsement by a national regulator. However, a benchmark provided by a third-country administrator that is already being referenced in financial instruments and financial contracts in the EU on January 1, 2024, may continue to be referenced in those contracts and financial instruments.
The Delegated Regulation, which takes effect on October 26, 2023, extends the transitional date from December 31, 2023 to December 31, 2025. The transitional provision does not apply to any EU benchmark whose administrators relocate to a third country during the transitional period.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Securities -
UK Government Publishes Draft Regulations on CCP Recovery & Resolution
10/20/2023
The draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 were laid in Parliament on October 16, 2023. The draft Regulations provide for corporate law modifications and other amendments to ensure that the U.K. CCP resolution regime functions effectively. The Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for U.K. Financial Services") expanded the CCP resolution regime, giving the Bank of England, as resolution authority, additional powers to safely resolve a failing CCP. Most of the provisions of the expanded regime entered into force on August 29, 2023, under the first commencement regulations made under the FSM Act. Using powers conferred by the FSM Act, HM Treasury, through the draft Regulations, aims to ensure legal certainty and coherence by amending provisions of existing legislation, such as the Companies Act 2006 and the Bank Recovery and Resolution (No.2) Order 2014. The draft Regulations are intended to enter into force on December 31, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Recovery & Resolution -
EU Authority Seeks Feedback on Potential Shorter EU Settlement Cycle
10/16/2023
The European Securities and Markets Authority has opened a call for evidence on shortening the settlement cycle in the EU. The existing EU settlement cycle for trades in transferable securities executed on trading venues is by no later than the second business day after the trade takes place, known as T+2. Responses to the call for evidence may be submitted by December 15, 2023. ESMA will report to the European Commission during 2024, although an earlier report may be produced if ESMA considers that regulatory action is needed in response to the move to T+1 or T+0 in other jurisdictions.
ESMA is asking for feedback from financial market participants on the impact on their operations of a reduced securities settlement cycle to T+1 or T+0, what benefits and costs it would bring, and how and when a shorter settlement cycle could be achieved. ESMA considers that the EU landscape is more complex than that in other jurisdictions because there is no centralized EU post-trade financial markets infrastructure and no harmonized securities law. Finally, ESMA seeks input on the impact of developments in other jurisdictions, such as the intended move by the U.S. and Canada to T+1 in mid-2024 and the U.K.'s assessment of changing to T+1 or T+0, an initial report on which is expected by the end of this year (announced as part of the Edinburgh Reforms which are discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services").ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Securities -
UK Extends Temporary Recognition Regime for Third Country Central Counterparties and Transitional Regime for Qualifying Central Counterparties
09/21/2023
The Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2023 were made on September 13, 2023 and will enter into force on November 1, 2023, extending the U.K.'s temporary recognition regime for third-country CCPs to December 31, 2025. The TRR allows third-country CCPs to continue offering clearing services in the U.K., pending full recognition or equivalence decisions being granted. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") granted the Bank of England new rulemaking powers over CCPs and provides for the future framework for market access for overseas CCPs. The extended TRR will enable the current regime for overseas CCPs to continue while the U.K.'s new regime is developed, and ensures that certain overseas CCPs for whom recognition decisions have not yet been granted can continue to offer services in the U.K.
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UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
09/14/2023
The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : AML/CTF, Insider Trading and Sanctions, Financial Market Infrastructure, FinTech -
HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation
08/14/2023
HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.
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HM Treasury Consults on First Financial Market Infrastructure Sandbox – the Digital Securities Sandbox
08/07/2023
HM Treasury has published a consultation on the establishment of a financial market infrastructure sandbox, known as the Digital Securities Sandbox. The sandbox will be established using new powers granted by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"), empowering HM Treasury to set up individual FMI sandboxes. The sandboxes are designed to enhance understanding of the use cases for emerging digital asset technologies, including distributed ledger technology. HM Treasury can modify or disapply legislation and rules within the sandbox to permit different technologies to be tested that would not be possible under the existing legislative and regulatory framework, with the potential to make permanent changes to legislation based on the findings of the sandbox.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Market Infrastructure, FinTech, Securities -
UK Regulatory Guidance on Trading Venue Regulatory Perimeter
08/04/2023
The U.K. Financial Conduct Authority has issued final guidance to clarify the scope of the regulatory perimeter for trading venues and the regulatory approvals needed to conduct their business. The guidance caters for new platforms emerging from technological developments. The guidance is one of the outcomes of HM Treasury's Wholesale Markets Review (which we discuss in our client note, "UK Wholesale Markets Review"). Other aspects of the Review are being implemented through the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") or by amendments to FCA rules.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins, Elias Allahyari
TOPICS : Financial Market Infrastructure, MiFID II -
EU Opinion on Trading Venue Perimeter
04/03/2023
On February 2, 2023, the European Securities and Markets Authority published a final report and an Opinion on the trading venue perimeter. The Opinion clarifies the definition of multilateral systems under the EU's revised Markets in Financial Instruments Directive and sets out guidance on when systems should be considered as multilateral such that authorization as a trading venue would be required. In issuing the Opinion, ESMA is seeking to address the regulatory inconsistencies that have arisen because there is no EU-wide homogenous view as to what constitutes a multilateral system and to provide more certainty about when a system will be considered multilateral, and therefore should apply for authorization as a trading venue. The U.K.'s Financial Conduct Authority recently consulted on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA is expected to publish its final guidance in Q2 2023.
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UK Government Publishes its Proposals for Cryptoasset Regulation
02/14/2023
The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.
The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.
The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.
We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation". -
EU EMIR 3 Proposals Published
01/19/2023
The European Commission published proposals to amend the EU's European Market Infrastructure Regulation (EMIR) in December 2022 (EMIR 3). According to the Commission, some of these measures are aimed at improving the competitiveness of EU CCPs and of EU clearing activities, and to reduce existing reliance by EU counterparties on U.K. CCPs. Since the Brexit referendum, the EU has been grappling with the bloc's continued reliance on U.K. CCPs. The most controversial aspect is a new mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products.
EMIR 3 would also bring in several technical changes relating to the clearing thresholds and how these operate for non-EU exchange trade derivatives (ETDs) and the exemption for certain intragroup transactions. Other proposals seek to mitigate some of the issues arising from the strain on the energy market, in particular the difficulties in fulfilling margin obligations.
Our client note, "Clearing in the EU After EU EMIR 3" describes the EMIR 3 proposals in more detail. -
Global Regulators Publish Discussion Paper on Central Counterparty Practices to Address Non-Default Losses
08/04/2022
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a discussion paper on the practices that central counterparties use to manage losses arising from non-default events, e.g., operational risk, investment risk, custody risk and legal risk.
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UK Regulators Propose Requirements for Critical Third Parties' Services to UK Regulated Firms
07/21/2022
The Bank of England, Prudential Regulation Authority and Financial Conduct Authority (together, the supervisory authorities) have published a discussion paper proposing measures to supervise and enhance the resilience of critical third parties (CTPs) to the U.K. financial sector. Responses to the discussion paper may be submitted until December 23, 2022. The supervisory authorities intend to consult on proposed requirements for CTPs in 2023.
Currently, the supervisory authorities' direct powers over entities providing critical services to U.K. authorized firms, their service providers (authorized e-money institutions, payment institutions and registered account information services) and financial market infrastructures (together, U.K. regulated firms) are limited. The Financial Services and Markets Bill, introduced to Parliament yesterday, would grant HM Treasury and the supervisory authorities' new express powers to oversee such third parties. HM Treasury will be able to designate an entity as a CTP if it provides services to U.K. regulated firms and its failure would pose financial stability or confidence risk to the U.K.
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UK Proposals for Regulating Systemic Payment Activities
07/21/2022
HM Treasury has opened a consultation on payments regulation and the systemic perimeter. The consultation arose out of the Payments Landscape Review and the government’s commitment to consult on bringing systemically important entities within payment chains under Bank of England regulation. Market developments and innovation have changed how risks are dispersed across payment networks. It is therefore likely, according to HM Treasury, that some entities operating in the payments space are not subject to systemic supervision by the Bank of England and as a result pose systemic risks to the U.K. financial system or even to those entities that are subject to Bank of England supervision. This consultation makes various proposals to address such risks or issues. Responses to the consultation may be submitted until October 11, 2022. The government will respond to that feedback in 2023.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
Final UK Policy on Regulation of Central Counterparties and Central Securities Depositories Post-Brexit
07/20/2022
HM Treasury has published its final policy approach to the regulation of central counterparties and central securities depositories under the Financial Services Future Regulatory Framework Review. The response is published on the same day as the Financial Services and Markets Bill is introduced to Parliament, which will implement these changes as well as the reforms to the U.K.’s regulatory architecture post-Brexit. HM Treasury has also published its final response to the Financial Services Future Regulatory Framework Review in which it sets out the government's final policy approach to reforming the U.K.’s regulatory architecture post-Brexit.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan, Wilf Odgers
TOPICS : Brexit for Financial Services, Financial Market Infrastructure -
International Bodies Confirm Application of Principles for Financial Market Infrastructures to Systemically Important Stablecoin Arrangements
07/13/2022
The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.
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EU Consultation on Guidelines for Applications to Operate DLT Market Infrastructures under the EU Pilot Regime
07/11/2022
The European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:- the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
- the method that applicants should use to provide the requested information and documents to their competent authorities.
Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, MiFID II -
EU Distributed Ledger Technology Pilot Regime Published
06/02/2022
The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Cyber Security, Financial Market Infrastructure, FinTech, MiFID II -
UK Task Force Publishes Recommendation for Improving Post-Trade Processes
04/21/2022
report on the Future of Post-Trade. The Taskforce is made up of financial market industry individuals involved in post-trade processing activities and was set up as part of the Bank of England's response to the "Future of Finance" report, which set out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that.
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UK Financial Regulators' Statement on Suspension of Nickel Trading on London Metal Exchange
04/04/2022
The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have published a joint statement on the London Metal Exchange's suspension of nickel trading between March 8-16, 2022. Trading was suspended due to challenging commodity market conditions following Russia's invasion of Ukraine.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : AML/CTF, Insider Trading and Sanctions, Financial Market Infrastructure -
UK Prospectus Review: Government Confirms Policy for Reforms to Boost London's Capital Markets
03/01/2022
Following its consultation last year, HM Treasury has set out its policy approach to amending the U.K. Prospectus regime. The current U.K. Prospectus Regulation will be replaced by legislation when parliamentary time allows. The changes will, among other things, separate the regulation of public offers of securities from the regulation of admissions of securities to trading, as Lord Hill recommended. In addition, the Financial Conduct Authority will be granted greater responsibility for the detail of the new regime through rules. The complete set of reforms will only apply once those rules are implemented. The main changes are set out below.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Consumer Protection, Financial Market Infrastructure, Securities -
European Securities and Markets Authority Publishes Call for Evidence on Climate Risk Stress Testing for Central Counterparties
02/23/2022
The European Securities and Markets Authority has published a Call for Evidence on climate risk stress testing for EU central counterparties. Responses should be submitted by April 21, 2022.
Read more. ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Environmental, Social and Governance, Financial Market Infrastructure -
EU Grants Further Time-Limited Equivalence for UK CCPs
02/09/2022
An EU Commission Implementing Decision extending the equivalence of U.K. CCPs to June 2025 has been published in the Official Journal of the European Union. The equivalence decision applies to U.K. CCPs already established and authorized in the U.K. on December 31, 2020 and will apply from July 1, 2022, which is when the existing equivalence decision expires. Andrew Bailey, in his speech at TheCityUK Annual Dinner in February 2022, questioned why the equivalence decisions are time-limited. Most equivalence decisions for CCPs in other jurisdictions are not time-limited, although the EU is able to revoke a decision if a jurisdiction is deemed not to maintain equivalence with the EU regime.
The Decision follows the announcement yesterday by the Commission on the extension and the launch of a targeted consultation on the review of the central clearing framework in the EU. The consultation is seeking views on ways to improve the competitiveness of EU CCPs and clearing activities while also ensuring the appropriate supervision of their risks. The consultation closes on March 8, 2022.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Brexit for Financial Services, Derivatives, Financial Market Infrastructure -
UK Government Consultation on Regulation of Central Counterparties and Central Securities Depositories
01/17/2022
HM Treasury has released a further consultation under the Future Regulatory Framework Review concerning the regulation of central counterparties and central securities depositories. The Future Regulatory Framework Review is designed to assess whether the U.K. financial services regulatory framework is fit for purpose, considering the U.K.'s exit from the EU, climate change and other global and technological challenges. HM Treasury has published a series of consultations on different aspects of the future framework, including the Phase II consultation in October 2020 and the Proposals for Reform paper published in November 2021. Responses to HM Treasury's latest consultation on CCPs and CSDs may be submitted until February 28, 2022.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Market Infrastructure -
UK Financial Conduct Authority Publishes Feedback Statement on Access to Wholesale Data
01/11/2022
The U.K. Financial Conduct Authority has published a feedback statement relating to the call for input on accessing and using wholesale data. In the feedback statement, the FCA summarizes the responses received and the FCA's findings on whether data are being priced and sold competitively. The FCA confirms that it will undertake the following work to gain a deeper understanding of the potential harm and, where appropriate, take steps to mitigate any harm. In particular, the FCA will focus on the following:
- Trading data: in Spring 2022, the FCA will run an information gathering and analysis exercise that concentrates on the pricing of trading data, underlying costs and the terms for the sale of trading data. The FCA's findings will be published later in 2022.
- Benchmarks: in Summer 2022, the FCA will launch a market study into how competition operates between benchmarks, which will include the pricing of benchmarks, contractual terms and obstacles to switching between benchmarks.
- Credit Rating Agencies: by the end of 2022, the FCA will begin a market study on the competition in the sale of credit rating data, including pricing, contractual relationships, difficulties in entry to the credit rating data market and innovation.
- Alternative data and advanced analytics: the FCA has commissioned research on the nature and scale of alternative data.
ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Competition, Consumer Protection, Credit Ratings, Financial Market Infrastructure -
European Securities and Markets Authority Provides Regulatory Forbearance for EU CSDR Buy-In
12/17/2021
The European Securities and Markets Authority has issued a public statement on the supervisory approach to the implementation of the buy-in regime under the EU Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The settlement discipline regime is set out in EU Regulatory Technical Standards. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. CSDR and the RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a mandatory buy-in process. The application date of the settlement discipline rules has been postponed several times, most recently, citing the coronavirus pandemic, to delay the application date to February 1, 2022.
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European Securities and Markets Authority Provides Regulatory Forbearance for EU Clearing and Derivatives Trading Obligations in Support of LIBOR Transition
12/16/2021
The European Securities and Markets Authority has issued a statement in which it states that EU national regulators should not, from January 3, 2022, prioritize supervisory action for any failures by firms to comply with the mandatory clearing obligation under the European Market Infrastructure Regulation, for interest rate derivatives referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and the derivatives trading obligation for IRD classes referencing GBP LIBOR or USD LIBOR. On November 18, 2021, ESMA submitted final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations in support of the benchmark transition to risk-free rates. However, ESMA is aware of the time that the approval process may take and therefore considers that regulatory forbearance is appropriate.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
European Securities and Markets Authority Publishes Proposed EU Clearing and Derivatives Trading Obligations Changes for LIBOR Transition
11/18/2021
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations for the benchmark transition to risk-free rates. To support the transition away from EONIA and LIBOR to risk-free rates such as €STR, ESMA is proposing to amend the scope of the derivatives clearing and trading obligations for interest rate derivatives denominated in EUR, GBP, JPY and USD. In particular, ESMA is proposing to:- Remove IRD classes referencing GBP and USD LIBOR from the clearing and trading obligations.
- Remove IRD classes referencing EONIA and JPY LIBOR from the clearing obligation.
- Introduce a clearing obligation for IRD classes referencing €STR, SONIA and SOFR.
The draft RTS have been submitted to the European Commission for endorsement.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
Bank of England Drops Warning Against Profit Distributions for Financial Market Infrastructures
11/11/2021
The Bank of England has written to the CEOs of all regulated U.K. financial market infrastructures notifying them that they are no longer expected to discuss prospective shareholder distributions with the BoE.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Conduct & Culture, COVID-19, Financial Market Infrastructure -
European Commissioner Announces Proposed Extension of Equivalence for UK CCPs
11/10/2021
European Commissioner McGuinness has announced that in early 2022 the European Commission will be proposing an extension of the time-limited equivalence granted to U.K. CCPs. The existing equivalence decision is due to expire at the end of June 2022. The Commissioner reiterated that the EU would continue to build out the capability of EU CCPs to reduce the reliance on U.K. CCPs. Furthermore, the EU will seek to strengthen the supervisory powers for EU-level supervision of CCPs. -
Revised Global Principles on Outsourcing for Regulated Participants in the Securities Markets
10/27/2021
The International Organization of Securities Commissions has published an updated Principles on Outsourcing for regulated market participants in the securities markets. The updated Principles are based on IOSCO’s 2005 Outsourcing Principles for Market Intermediaries and 2009 Outsourcing Principles for Markets. However, the updated Principles will also apply to trading venues, market intermediaries, market participants acting on a proprietary basis, and credit rating agencies. Financial market infrastructures may also choose to consider their application, although the Principles are not addressed to those entities.
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European Securities and Markets Authority Supports Delay to Buy-In Regime under EU Central Securities Depositories Regulation
09/24/2021
The European Securities and Markets Authority has published a letter to the European Commission urging the Commission to delay the buy-in regime under the Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The Commission consulted in 2020 on proposals to improve securities settlement in the EU and on central securities depositories, and legislative proposals are expected before the end of 2021.
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Bank of England Publishes Dear CEO Letters to Central Counterparties, Central Securities Depositories and Payment System Operators on Supervisory Expectations for Material Outsourcing to the Public Cloud
09/17/2021
The Bank of England has written to the CEOs of Central Counterparties, Central Securities Depositories, Recognised Payment System Operators and Specified Service Providers subject to the BoE’s supervision, drawing their attention to the BoE’s expectations of material outsourcing arrangements, including the use of the public cloud.
The letters observe that in Q2 2021, the BoE’s Financial Policy Committee found that financial institutions had scaled up their reliance on cloud service providers since the start of 2020, leading to an increasing reliance on a small number of providers and a potential increase in financial stability risk. Reliance on third parties by CCPs, CSDs, RPSOs and SSPs is subject to existing legislation and the Principles for Financial Markets Infrastructure, which the BoE expects firms to comply with. Firms are also expected to have regard to the BoE’s policy on operational resilience and any relevant international standards.
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HM Treasury Consults on Extension of Senior Managers’ Regime to Financial Market Infrastructures
07/20/2021
HM Treasury has published a consultation paper seeking feedback on its proposals for the extension of the Senior Managers’ and Certification Regime to certain U.K. financial market infrastructures. The SMCR was originally implemented for U.K. banks in 2016, extended to all U.K. authorized firms in December 2019, and further extended to U.K. benchmark administrators in December 2020. The government is seeking views on whether and, if so, how the SMCR should be extended to FMIs as well as the proportionate application of it to FMIs. Responses to the consultation on the SMR for FMIs should be submitted by October 22, 2021.
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UK Prospectus Review: Proposed Reforms to Boost London's Capital Markets
07/02/2021
The U.K. government has begun a consultation on proposals to reform the U.K. prospectus regime. This much anticipated consultation sets out proposals based on the important recommendations made in the U.K. Listing Review, which was chaired by Lord Hill. Responses to the consultation should be submitted by September 24, 2021.
The final changes to the prospectus regime will be made through legislation and the rules of the Financial Conduct Authority, following consultation. The existing U.K. Prospectus Regulation will be replaced, in whole or part, by FCA rules.
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UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
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UK to Remove Open Access Regime for Exchange-Traded Derivatives
06/05/2021
The U.K. Government has announced that it will permanently remove the open access regime for exchange-traded derivatives. The regime, established under the EU Markets in Financial Instruments Regulation and onshored into U.K. laws in preparation for the end of the Brexit transitional period, requires a trading venue to provide open and non-discriminatory access to a CCP, with a reciprocal requirement for CCPs to provide access for trading venues, when clearing transferable securities, money market instruments and ETDs. In the EU, a temporary opt-out from the regime was made available and then extended for trading venues and CCPs in relation to ETDs, but that is due to expire on July 3, 2021 (having been extended for a period of one year due to difficulties surrounding COVID-19).
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European Securities and Markets Authority Publishes Recommendations to Reform the EU Central Securities Depositories Regulation
05/20/2021
The European Securities and Markets Authority has published a letter addressed to the European Commission making recommendations for inclusion in the Commission's Review of CSDR. The EU Central Securities Depositaries Regulation provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. There is a single market for CSD services across the EU and a third-country equivalence regime for CSDs. ESMA's recommendations include:
- That the Target2-Securities system, a systemically important common settlement platform, providing settlement services in central bank money for the majority of EEA CSDs, be brought within the scope of CSDR.
- Amendment of the supervision arrangements for T2S. Currently, the European Central Bank oversees T2S, alongside a cooperative framework based on a memorandum of understanding between the ECB, ESMA, the national competent authorities of the CSDs participating in T2S, and the central banks overseeing the CSDs. ESMA considers that CSDR should provide for a cooperative arrangement for supervision/oversight of T2S in the form of a college of supervisors, with clear roles for the participating authorities.
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International Bodies Launch Survey on Margin Calls
05/05/2021
The Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions has published a survey on margin calls as part of an investigation into liquidity shortfalls during the early stages of the COVID-19 pandemic. The combined effect of government measures to contain the pandemic in March 2020, together with market uncertainty, job losses and travel restrictions triggered a pullback in economic activity and stress on market liquidity. The non-bank financial intermediation sector was found to be particularly vulnerable to the liquidity shock.
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UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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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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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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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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