FIG Bulletin Recent developments 3 August 2020 2 General 5 COVID-19: FCA guidance consultation on cancellations and refunds 5 COVID-19: FCA updated statement on handling complaints 5 COVID-19: Treasury Committee relaunches inquiry into decarbonisation of UK economy and green finance 5 PRIIPs Regulation: HM Treasury amendments to retained EU law 5 FCA communications with firms 6 CRD V: PRA CP12/20 on implementation 6 FCA Handbook Notice 79 7 FCA enhanced Financial Services Register launched 7 Employer Salary Advance Schemes: FCA statement 7 Fair treatment of vulnerable consumers: FCA GC20/3 8 JMLSG guidance on cryptoasset businesses and pooled client accounts 8 COVID-19: European Commission proposed amendments to CRR, MiFID, Securitisation Regulation and Prospectus Regulation 9 Brexit: EBA communication on firms' preparations for end of transition period 9 CRD and MiFID: ESMA and EBA consult on assessment of suitability of management body members 9 CRD: EBA consultation on updating internal governance guidelines 10 Taxonomy regulation: European Commission roadmap on Delegated Regulation on taxonomy-related disclosures by undertakings reporting non-financial information 10 Banking and Finance 11 Asset encumbrance: PRA PS18/20 and updated supervisory statements 11 COVID-19: ECB and PRA statements on dividend payments, share buybacks and assessment of distribution plans 11 COVID-19: PRA updated statement on implementation of EBA guidelines on reporting and disclosure of exposures 12 COVID-19: ECB letter to banks about remuneration policies 12 COVID-19: ECB vulnerability analysis of banking sector 13 3 COVID-19: ECB letter to banks about operational capacity to deal with distressed debtors 13 COVID-19: ECB extends recommendation on dividends and bonuses and clarifies timeline to restore buffers 13 €STR: ECB consults on publishing compounded term rates 13 BRRD: EBA consults on RTS on indirect subscription of MREL instruments within groups 14 BRRD: EBA consults on ITS on reporting of MREL decisions 14 2021 EU-wide stress test: EBA update 14 Business continuity: SRB operational guidance on operational continuity in resolution and FMI contingency plans 14 Consumer Finance 15 Mortgages: FCA CP20/13 on intra-group switching and certain mortgages 15 Mortgages: FCA statement on mortgage prisoners 15 Motor finance discretionary commission models and consumer credit commission disclosure: FCA PS20/8 16 COVID-19: FCA call for input on ongoing support for mortgage and consumer credit customers 16 Payments 18 Payments landscape review: HM Treasury call for evidence 18 PSR launches new future strategy 18 Securities and Markets 19 Title transfer collateral arrangements: FCA Dear CEO letter 19 BMR: European Commission proposal to address LIBOR cessation risks 19 COVID-19: ESMA extends lower short position reporting threshold 20 COVID-19: ESMA draft RTS further postpone CSDR settlement discipline 20 MiFID and MiFIR: ESMA guidance on third-country trading venues and transparency 20 T2-T2S consolidation project: ECB extends project timeline 20 Insurance 22 External auditors: PRA CP11/20 on matching adjustment 22 COVID-19: FCA sets new commencement date for rules on access to travel insurance 22 4 COVID-19: FCA updates on business interruption insurance test case 22 Solvency II: EIOPA launches single rulebook 22 COVID-19: EIOPA statement on Solvency II supervisory reporting 23 COVID-19: IAIS consults on the impact for the insurance sector 23 5 General COVID-19: FCA guidance consultation on cancellations and refunds On 31 July 2020, the UK Financial Conduct Authority (FCA) published a guidance consultation on cancellation (for example, of holidays and events) and refunds in light of COVID-19. The guidance builds on statements made by the FCA in June 2020 about handling refund requests. The proposed guidance is aimed at both credit and debit card firms as well as insurance providers. It is designed to ensure that these firms handle enquiries and claims from consumers in a reasonable timescale, fairly and in a way that minimises inconvenience to the consumer. The guidance consultation closes on 13 August 2020. The FCA plans to publish final guidance by the end of September 2020. COVID-19: FCA updated statement on handling complaints On 31 July 2020, the FCA updated its statement on how firms should handle complaints during the COVID-19 pandemic. The statement clarifies that: • the FCA considers that firms have now had enough time to embed new ways of working. Therefore, a failure to comply with requirements in chapter 1.6 of the Dispute Resolution: Complaints sourcebook (DISP), or other complaint handling requirements, should only arise in exceptional circumstances connected to the impact of COVID-19. Any firm that is facing difficulties in complying with DISP 1.6 should contact the FCA; • senior managers continue to be accountable for effectively overseeing how their firms handle complaints. Where firms are experiencing reduced complaint handling capacity, they are expected to prioritise paying complainants promptly if they have been offered redress and accepted that offer (including compensation awarded by the Financial Ombudsman Service (FOS)); • firms should be mindful that the FCA expects them to cooperate with the FOS on any complaints that it is considering, and respond to requests for information in a timely fashion, as required by DISP 1.4.4R; and • claims management companies (CMCs) are expected to allow firms the time requested in their holding responses, to give a final response before referring complaints to the FOS, if the CMC consider this amount of time reasonable. The FCA intends to review and update the statement by the end of October 2020. COVID-19: Treasury Committee relaunches inquiry into decarbonisation of UK economy and green finance On 24 July 2020, the Treasury Committee relaunched its inquiry on decarbonisation and green finance to seek additional written evidence on how and whether the UK's response to COVID-19 should take the government's target for net zero carbon emissions by 2050 into account. Written submissions are requested by 28 August 2020. PRIIPs Regulation: HM Treasury amendments to retained EU law HM Treasury has published a policy statement on amendments to the retained EU law version of the PRIIPs Regulation (UK PRIIPs Regulation). The PRIIPs Regulation is onshored by the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 (SI 2019/403). HM Treasury intends to make the following changes to the UK PRIIPs 6 Regulation to avoid consumer harm and to provide more certainty to industry once the UK ceases to be bound by the EU regime: • an amendment to enable the FCA to clarify the scope of the PRIIPs Regulation through their rules. This will enable the FCA to address existing, and potentially future, ambiguities in relation to certain types of investment product. The definition of a PRIIP will remain unchanged. The amendment is needed because of significant industry uncertainty about the precise scope of PRIIPs (for example, in relation to corporate bonds); • an amendment to replace the term "performance scenario" with "appropriate information on performance". This will allow the FCA to clarify what information on performance should be provided in a key information document (KID). The methodology for calculating performance scenarios has been criticised for producing misleading results; and • an amendment that delegates power to HM Treasury to further extend the exemption for UCITS (for up to five years). The government currently considers that the existing rules for UCITS disclosure are satisfactory. This will enable HM Treasury to consider the appropriate timing for the transition of UCITS funds into any domestic successor that may result from the planned review of the UK framework for investment product disclosure, and bring forward a statutory instrument to amend the exemption date. HM Treasury intends to legislate for these amendments when parliamentary time allows. HM Treasury intends to conduct a more wholesale review of the disclosure regime for UK retail investors in the longer term. This review will explore how to harmonise the PRIIPs regime with requirements contained in the Markets in Financial Instruments Directive (MiFID). FCA communications with firms The FCA has published a new webpage explaining how it communicates with the firms it regulates and highlighting the portfolio supervision letters it has published to date. The webpage gives links to all the portfolio letters the FCA has published to date. Going forward, whenever the FCA sends a portfolio letter, it will add it to this webpage. CRD V: PRA CP12/20 on implementation The PRA has published a consultation paper, CP12/20 together with its appendices, on the implementation of the CRD V Directive ((EU) 2019/878). In CP12/20, the PRA sets out proposals for implementing reforms introduced by the CRD V Directive relating to: • pillar 2; • remuneration and governance; • intermediate parent undertakings; and • third-country branch reporting. These reforms will apply to banks, building societies, and PRA-designated investment firms. Appendix 1 sets out the draft text of the PRA Rulebook instruments, Appendix 2 sets out the draft text of PRA EU exit instruments which are intended to come into force on IP completion day, and Appendix 3 to CP12/20 sets out the proposed amendments to Statements of Policy and Supervisory Statements. The deadline for responses is 30 September 2020. The PRA intends to publish a second consultation in autumn 2020 on the remaining elements of CRD V not covered in CP12/20. 7 In line with the deadlines specified in the CRD V Directive, the PRA intends to finalise these proposals by 28 December 2020 and to apply them from 29 December 2020. It will, however, revise certain measures with effect from the end of the Brexit transition period. FCA Handbook Notice 79 The FCA has published Handbook Notice 79, which sets out changes to the FCA Handbook by the following instruments made by the FCA board on 30 June, 13 July and 23 July 2020: • COVID-19 Credit Cards and Personal Loans (No 2) Instrument 2020 (FCA 2020/30); • COVID-19 Motor Finance and High Cost Credit (No 2) Instrument 2020 (FCA 2020/31); • Glossary Amendment (Multilateral Development Banks) Instrument 2020 (FCA 2020/32); • Financial Services Compensation Scheme (Determination of Default) Instrument 2020 (FCA 2020/35); • Enforcement (Fifth Money Laundering Directive) Instrument 2020 (FCA 2020/37); and • Consumer Credit (Bounce Back Loans) Instrument 2020 (FCA 2020/38). FCA enhanced Financial Services Register launched The FCA has announced the launch of its enhanced Financial Services Register. The redesign of the register aims to make it easier for users to navigate and understand the information it contains. Key enhancements include: • clearer navigation and design; • more information on the register's purpose, how to use it, and how to avoid scams; and • information being made more prominent, including past actions against individuals and firms, and consumer protections. The FCA intends to publish its directory of certified and assessed persons on the register later in 2020. The FCA will review and improve the register on an ongoing basis to ensure it meets the needs of users. Employer Salary Advance Schemes: FCA statement The FCA has published a statement explaining its view of the risks and benefits of Employer Salary Advance Schemes (ESAS), and setting out issues that both employers and employees should consider when offering or using these schemes. The FCA explains that ESAS are often promoted as an alternative to high cost credit and have a broadly similar economic effect. They allow employees to access, usually for a fee, some of their salary before their regular payday. Most of these schemes do not fall under the FCA's regulation, as they do not meet the definition of credit under consumer credit legislation, but they can raise similar issues. The FCA identifies the following four risks for employees and employers: • lack of credit regulation: the rights and protections under consumer credit law do not apply, as ESAS usually operate outside of credit regulation; • lack of transparency about cost: although the amount of the transaction fee might be a modest sum, there is a risk that employees might not appreciate the true cost and how this compares with credit products such as loans; 8 • dependency and repeat use: if an employee takes their salary early, it is more likely they will run short towards the end of the next payday, potentially leading to a cycle of repeat advances and escalating fees; and • lack of visibility for credit reference agencies: credit reference agencies (CRAs) will not record use of the product, so creditors who subsequently carry out credit searches won't necessarily be aware that the customer is using ESAS. The FCA also makes some suggestions as to how these risks could be mitigated. It says that it intends to continue to monitor the ESAS market for developments, including the emergence of new business models. It has increased contact with firms who are proposing ways of increasing the availability of alternatives to high cost credit, and welcomes these developments. It encourages innovators and other businesses with innovative ideas on this issue who wish to benefit from the FCA's Innovate services to contact it at [email protected]. Fair treatment of vulnerable consumers: FCA GC20/3 The FCA has published a guidance consultation, GC20/3, on the fair treatment of vulnerable consumers. The consultation forms the second stage of a two-stage consultation process. In July 2019, in stage one, the FCA published a consultation, GC19/2, on the aims and content of the draft guidance. In GC20/3, the FCA sets out its policy decisions taken in the light of feedback to GC19/2 and seeks views on an updated version of the draft guidance, set out in Annex 4. The aim of the guidance is to ensure that vulnerable consumers experience outcomes as good as those for other consumers and receive consistently fair treatment across the sectors regulated by the FCA. For these purposes, a vulnerable consumer is defined as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. The guidance is relevant to all firms involved in the supply of products and services to retail customers who are natural persons, even if they do not have a direct client relationship with the customers. The FCA has also published a report on the outcome of research on the experiences of vulnerable customers and case studies on the experiences of vulnerable consumers (dated January 2020). The deadline for responses is 30 September 2020. The FCA intends to finalise the guidance later in 2020 or early in 2021. JMLSG guidance on cryptoasset businesses and pooled client accounts The Joint Money Laundering Steering Group (JMLSG) has published the following final versions of new anti-money laundering (AML) and counter-terrorist financing (CTF) guidance on cryptoasset businesses and pooled client accounts: • Part I of its AML and CTF guidance, which includes new guidance on pooled client accounts (see the new Annex 5-V), as well as a minor amendment to guidance in paragraph 5.3.53 on the criteria for using providers of electronic verification of identity, digital identity or trust services; and • Part II of its AML and CTF guidance, which includes new sectoral guidance for cryptoasset exchange providers and custodian wallet providers (see the new chapter 22). The new guidance has been approved by the JMLSG board and has been submitted to HM Treasury for approval. 9 COVID-19: European Commission proposed amendments to CRR, MiFID, Securitisation Regulation and Prospectus Regulation On 24 July 2020, as part of a capital markets recovery package designed to help financial markets support the EU's recovery from the coronavirus crisis, the European Commission published targeted adjustments to the Prospectus Regulation, MiFID, the Capital Requirements Regulation (CRR) and the Securitisation Regulation. The next step is for the European Parliament and the Council of the EU to agree the legislative texts. Brexit: EBA communication on firms' preparations for end of transition period The European Banking Authority (EBA) has published a press release on financial institutions' preparations for the end of the Brexit transition period. The EBA calls on EU and UK firms to finalise their preparations and to provide adequate information to their EU customers regarding the availability of services after the end of the transition period. Among other things, the EBA highlights the following issues: • UK firms that intend to continue to provide services in the EU must fully establish their EU-based operations. In particular, they should ensure that associated management capacity, including appropriate technical risk management capabilities, is in place ahead of time, and is commensurate to the magnitude, scope and complexity of their activities, to allow for effective and efficient management of risks they generate; • UK-authorised payment and electronic money institutions wishing to continue to offer services to EU-based customers after 31 December 2020 must ensure that they are appropriately authorised by an EU competent authority. The EBA warns that firms making late applications may not obtain authorisation in time, as the timeline for the completion for a new authorisation may vary significantly based on the nature, scale and complexity of the service to be provided and the quality of the application submitted. It states that UK-based account information service providers (AISPs) and payment initiation service providers (PISPs) will no longer be entitled to access customers' payment accounts held at EU payment service providers and their eIDAS certificates under Article 34 of the Commission Delegated Regulation (EU) 2018/389 will be revoked; and • EU-based customers with concerns about Brexit that have not yet been contacted by firms have the right to contact firms and their competent authorities directly. Firms should ensure adequate support and communication channels for these customers. CRD and MiFID: ESMA and EBA consult on assessment of suitability of management body members The European Securities and Markets Authority (ESMA) and the EBA have published a consultation paper on revising their joint guidelines on the assessment of the suitability of members of the management body and key function holders in accordance with the CRD IV Directive and MiFID. The proposed changes reflect the amendments introduced by the CRD V Directive ((EU) 2019/878) (CRD V) and the Investment Firms Directive (IFD) relating to the assessment of the suitability of members of the management body. The regulators have also published a track changes version showing their proposed revisions to the guidelines. 10 The consultation closes on 31 October 2020, after which the EBA and ESMA will finalise their updated joint guidelines. The amended guidelines are expected to enter into force six months after publication. CRD: EBA consultation on updating internal governance guidelines The EBA has published a consultation paper proposing changes to its guidelines on internal governance made under Article 74 of the Capital Requirements Directive. The proposed changes reflect the amendments introduced by CRD V and the IFD relating to credit institutions' and investment firms' sound and effective governance arrangements. The EBA has also published a track changes version showing its proposed revisions to the guidelines. The consultation closes on 31 October 2020, after which the EBA will finalise its updated guidelines. It is expected that the amended guidelines will enter into force on 26 June 2021. Taxonomy regulation: European Commission roadmap on Delegated Regulation on taxonomy-related disclosures by undertakings reporting non-financial information The European Commission has published, for consultation, a roadmap on a delegated regulation on taxonomy-related disclosures by undertakings reporting non-financial information supplementing the Taxonomy Regulation ((EU) 2020/852). The Taxonomy Regulation requires undertakings subject to an obligation to publish nonfinancial information under the Non-Financial Reporting Directive (2014/95/EU) (NFRD), including large banks and insurance companies, and large listed companies, with more than 500 employees, to include in non-financial statements (or consolidated non-financial statements) information on how and to what extent their activities are associated with environmentally sustainable economic activities. Article 8(4) of the Taxonomy Regulation mandates the Commission to adopt by 1 June 2021 a delegated act specifying the content and presentation of the information that needs to be disclosed, including the methodology to be used to comply with them. The deadline for responses is 8 September 2020. The Commission intends to adopt the delegated regulation in the second quarter of 2021. 11 Banking and Finance Asset encumbrance: PRA PS18/20 and updated supervisory statements The UK Prudential Regulation Authority (PRA) has published a policy statement, PS18/20, and the following updated supervisory statements on asset encumbrance: • SS24/15 on the PRA's approach to supervising illiquidity and funding risks; • SS9/17 on recovery planning; and • SS20/15 on supervising building societies' treasury and lending functions. PS18/20 is relevant to all PRA-regulated firms except credit unions and insurance firms. It sets out feedback received from the PRA's September 2019 consultation in CP24/19. Respondents to the consultation generally welcomed the proposals and only requested clarifying changes. The PRA has made two minor changes to its policy to reflect that the term "market counterparties" does not refer to central banks, and to explain that building societies should have an appropriate forward view of collateral availability (and not a comprehensive one). Among other things, the revised policy means firms need to consider the prudential risks posed by elevated asset encumbrance, monitor them through clearly-defined metrics and set limits where appropriate. This should be documented in firms' internal liquidity adequacy assessment process (ILAAP) documents. Firms also need to consider the effects that increased asset encumbrance might have on their abilities to maintain or restore their financial viability during a variety of stress scenarios. Firms should ensure that their levels of asset encumbrance do not unduly impair the amount and cash value of the assets which could be lent against in resolution, including by the Bank of England (BoE) within its usual risk tolerance. The updated supervisory statements come into effect immediately. COVID-19: ECB and PRA statements on dividend payments, share buybacks and assessment of distribution plans On 28 July 2020, the PRA published a statement on dividend payments and share buybacks, confirming when it will assess firms' distribution plans. The statement has been published in response to the European Central Bank's (ECB) recommendation on dividend payments (also published on 28 July 2020) in which the ECB extends its previous advice to banks on dividend distributions and share buy-backs, asking that they are not paid until 1 January 2021. The ECB also updated its FAQs on supervisory measures in reaction to the coronavirus. The PRA states that it will undertake its assessment of firms' post-2020 distribution plans in Q4 2020. The assessment will be based on the current and projected capital positions of the banks and will take into account the level of uncertainty on the future path of the economy, market conditions, and prevailing capital trajectories. The PRA notes that it has already published information on the topic, welcoming the decisions of large UK banks to suspend dividends and buybacks on ordinary shares until the end of 2020, and setting out expectations that banks will not pay cash bonuses to senior staff. 12 COVID-19: PRA updated statement on implementation of EBA guidelines on reporting and disclosure of exposures On 28 July 2020, the PRA published an updated statement on the implementation of European Banking Authority (EBA) guidelines addressing gaps in reporting data and public information in the context of COVID-19. The EBA guidelines require firms to make disclosures in three templates. Templates one and two relate to loan moratoria, while template three relates to public guarantee schemes. As highlighted in its previous statement on 10 July 2020, the PRA realises that there may be practical difficulties caused by the publication of the EBA guidelines and templates close to the 30 June 2020 disclosure reference date. The PRA realises that producing the disclosures to a high standard will take some time and so it will exercise some flexibility in its assessment of the timeliness of the disclosures. Disclosures made for subsequent reference dates, including 31 December 2020, should be made as part of the Pillar 3 report. Relevant firms should make disclosures in accordance with the statement on a biannual basis. Firms may disclose as at 30 June and 31 December, or may disclose at the half-year and year-end dates for their financial year if they have an accounting reference date other than 31 December. The PRA expects firms to continue making disclosures for reporting periods ending on dates up to and including 31 December 2020. The PRA will keep its approach to these disclosures under review for disclosure reference dates after 31 December 2020. The statement includes a link to the reporting templates. COVID-19: ECB letter to banks about remuneration policies On 28 July 2020, the ECB published a letter to banks about remuneration policies in the context of COVID-19. The ECB is of the view that the level of economic uncertainty due to the COVID-19 pandemic remains elevated. Therefore, credit institutions need to maintain a sufficiently large amount of capital to absorb potential losses and to support the economy by providing credit. The ECB expects credit institutions to adopt extreme moderation in relation to variable remuneration payments until 1 January 2021. This is particularly relevant to identified staff (material risk takers) to the extent these payments may result in a deterioration in the amount or quality of total capital for a bank. Credit institutions should take account of the need to preserve or rebuild a sound capital base, and should therefore consider the extent to which it is possible to reduce the payment of variable remuneration. If a reduction in variable remuneration cannot be implemented, a credit institution should consider whether a larger part of variable remuneration could be deferred for a longer period of time, as well as considering the payment of variable remuneration in instruments. Credit institutions should also not adopt measures that compensate staff for the reduction or loss of variable remuneration. These supervisory expectations are not intended to apply to cases where a credit institution is subject to a legal obligation to pay variable remuneration. The appropriateness of remuneration policies and practices will form part of supervisory assessments. 13 COVID-19: ECB vulnerability analysis of banking sector On 28 July 2020, the ECB published the results of its COVID-19 vulnerability analysis of banks directly supervised within the Single Supervisory Mechanism (SSM). The ECB has carried out a supervisory exercise to assess how the economic shock caused by the COVID-19 pandemic could impact banks and has aimed to identify potential vulnerabilities within the banking sector using a three-year horizon. The results show that the euro area banking sector can withstand pandemic-induced stress, but if the situation worsens, there will be a material depletion of bank capital. COVID-19: ECB letter to banks about operational capacity to deal with distressed debtors The ECB has published a letter to banks about the operational capacity to deal with distressed debtors in the context of COVID-19. The ECB aims to clarify operational expectations on the management of the quality of loan portfolios, so that credit institutions can better provide financial support to businesses that have, or may come, under distress as a result of the COVID19 pandemic. The ECB expects the content of the letter to be discussed at board level and for responses from individual credit institutions to be sent to the ECB by 15 September 2020. COVID-19: ECB extends recommendation on dividends and bonuses and clarifies timeline to restore buffers On 28 July 2020, the ECB published a recommendation on dividend distributions during the COVID-19 pandemic, along with information about its supervisory expectations in relation to executive pay. The recommendation extends previous advice to banks on dividend distributions and share buybacks, asking that they are not paid until 1 January 2021. In a related press release, the ECB sets out a number of supervisory expectations, including the expected pace to restore capital and liquidity positions. The recommendation repeals the ECB's March recommendation on dividend distributions. More information about the ECB's supervisory measures is contained in a set of FAQs. Sections on dividend distribution and remuneration have been updated. €STR: ECB consults on publishing compounded term rates The ECB has published a consultation on the publication by the ECB of compounded term rates using the euro short-term rate (€STR). The ECB is considering publishing compounded term rates based on €STR on a daily basis shortly after €STR is published. Maturities could range from one week up to one year. It also envisages publishing a daily index, making it possible to compute compounded rates over non-standard periods. The consultation document sets out the proposed rate compounding formula, index calculation methodology and publication policies. The ECB also asks for views on day-count conventions and states that it proposes determining tenors using the European modified previous business day convention. Accordingly, when a date falls on a non-business day, the preceding business day will be used, unless the first preceding business day is in the previous calendar month. In the latter case that date will be the first following business day. 14 The ECB's initiative aims to encourage and support the wider use of €STR by providing a "golden source" for compounded €STR values and, in line with the EU Benchmarks Regulation (BMR), to provide a rate that can be used in contractual fallback provisions in contracts using euro LIBOR and EURIBOR. The consultation closes on 11 September 2020. BRRD: EBA consults on RTS on indirect subscription of MREL instruments within groups The EBA has published a consultation paper on draft regulatory technical standards (RTS) on indirect subscription of minimum requirement for own funds and eligible liabilities (MREL) instruments within groups under Article 45f of the Bank Recovery and Resolution Directive (BRRD). The consultation closes on 27 October 2020. BRRD: EBA consults on ITS on reporting of MREL decisions The EBA is consulting on draft implementing technical standards (ITS) under Article 45(j) of the BRRD, specifying uniform reporting templates, instructions and methodology for the identification and transmission, by resolution authorities to the EBA, of information on MREL. Comments can be made on the consultation until 24 October 2020. Once finalised, the EBA will send the draft ITS to the European Commission for endorsement. 2021 EU-wide stress test: EBA update The EBA has announced that its Board of Supervisors (BoS) has agreed on the tentative timeline and sample of the 2021 EU-wide stress test. The exercise is expected to be launched at the end of January 2021 and its results should be published at the end of July 2021. The 2021 EU-wide stress test will be carried out at the highest level of consolidation on a sample of 51 banks. The EBA has published a list of the tentative sample. It includes the banks that were going to participate in the postponed 2020 stress test, with some adjustments to ensure sufficient coverage in terms of total assets as well as to reflect changed conditions for specific institutions. UK banks are excluded from the sample although their EU27 subsidiaries are included when necessary. The final sample remains subject to adjustments, depending on possible events, such as mergers, divestments, or restructuring. Business continuity: SRB operational guidance on operational continuity in resolution and FMI contingency plans The Single Resolution Board (SRB) has published two documents containing operational guidance on: • operational continuity in resolution; and • financial market infrastructure (FMI) contingency plans. 15 Consumer Finance Mortgages: FCA CP20/13 on intra-group switching and certain mortgages The UK Financial Conduct Authority (FCA) has published a consultation paper, CP20/13, setting out proposals designed to support certain consumers within the mortgage market. In CP20/13, the FCA consults on two proposed interventions to help two different groups of mortgage borrowers: • to make rules that will make it easier for lenders to offer switching options to consumers who are in a closed book within the same financial group as the lender. This would mirror the flexibility that active lenders have, under the FCA's existing rules, when their existing customers wish to switch; and • to issue guidance stating that firms should allow borrowers to delay repayment of the capital at maturity on interest-only and part-and-part mortgages up to 31 October 2021. This is provided borrowers are up-to-date with payments and they continue to make interest payments. Comments can be made on CP20/13 until 8 September 2020. The FCA intends to publish final rules and guidance in a policy statement in Q3 2020. The proposed rule changes on intra-group switching will come into effect immediately after the policy statement is published. If the FCA proceeds with the proposed guidance on maturing interest-only and part-and-part mortgages, this will come into effect on 31 October 2020. Mortgages: FCA statement on mortgage prisoners The FCA has published a statement explaining the work the FCA has carried out to explore what further interventions may help mortgage prisoners. The FCA recognises the challenges faced by mortgage prisoners and the impact of COVID-19. It defines mortgage prisoners as being borrowers who are up to date with payments, but who are unable to switch to a new mortgage deal and, depending on their loan and borrower risk characteristics, are potentially paying more than they need to. It also highlights the FCA's latest consultation paper, CP20/13, reported above. Other points of interest in the FCA's statement include the following: • the FCA expects to consult in winter 2020 on potential remedies to help borrowers who are with inactive firms and able to switch, but are not switching mortgages; • the FCA is working with the Money and Pensions Service to provide further support for borrowers with inactive firms who may be struggling financially. Together they are creating specific online information and a dedicated phone line as a key source of information and advice; and • some stakeholders have raised concerns that the mortgage regulatory perimeter could affect the fair treatment of borrowers whose mortgages are owned by an unregulated entity. At this stage, the FCA does not believe that a change to the perimeter would solve all the concerns that mortgage prisoners have. However, it will continue to monitor this issue. Chapter 8 of the statement sets out the FCA's analysis relating to this issue. 16 Motor finance discretionary commission models and consumer credit commission disclosure: FCA PS20/8 The FCA has published a policy statement, PS20/8, and final rules on motor finance discretionary commission models and consumer credit commission disclosure. The FCA is banning commission models that give motor finance brokers and dealers an incentive to raise customers' finance costs. The ban follows FCA concerns over the widespread use of commission models linking the broker's commission to the customer's interest rate under the finance agreement and allowing brokers wide discretion to set or adjust that rate. This creates a potential conflict of interest. The FCA is also changing some of its rules to make sure credit brokers give consumers more relevant information about commission. These changes apply across all credit sectors. The FCA consulted on the rules in CP19/28. PS20/8 summarises the feedback the FCA received to CP19/28 and its response to it. The FCA has made some technical changes to the draft rules consulted on, but is going ahead with its proposals largely as planned. Read more in our briefing: Consumer credit broker commission: Motor finance discretionary models out, disclosure rules amended. The new rules will come into force on 28 January 2021. COVID-19: FCA call for input on ongoing support for mortgage and consumer credit customers On 31 July 2020, the FCA published a call for input on ongoing support for consumers affected by the COVID-19 pandemic in respect of mortgages and consumer credit. The FCA explains that its payment deferral guidance remains in effect and continues to provide temporary support until 31 October 2020, which means that consumers who have not yet had a payment deferral, or who need further support at the end of an initial payment deferral, can request a deferral of up to 3 months until that time. However, it is aware that many consumers who have benefitted from second payment deferrals under its temporary guidance will have payment deferrals that end from September 2020 onwards. The FCA wants to ensure that all consumers who need it get appropriate and sustainable support when their current temporary arrangements end. It also wants to gather views on whether and under what circumstances any aspect of its current guidance should continue beyond 31 October 2020 and, if not, what, if anything, should take its place. Where consumers are unable to resume payments once their current temporary arrangements end, the FCA is looking for the following outcomes: • consumers get appropriate forbearance that is in their interests; • consumers receive a consistent level of treatment and good outcomes, whoever their lender is; • firms have the systems and processes to provide their customers with the help they need; • firms recognise vulnerability and respond to vulnerable consumers' needs; and • consumers receive the support they need in managing their finances. The deadline for responses is 7 August 2020. If the FCA determines that further guidance is needed in respect of mortgages, it will publish draft guidance in late August, followed by final guidance in early September 2020. If it concludes that it should provide further guidance in 17 respect of consumer credit, it will publish draft guidance in mid-September, followed by final guidance in late September 2020. 18 Payments Payments landscape review: HM Treasury call for evidence HM Treasury has published a call for evidence as part of the payments landscape review. The call for evidence is the first stage in the review, which was announced in June 2019. A payment network describes the entirety of participants, processes and systems, and the links between them, which constitute the process for transmitting money from a payer to the payee using any particular payment instrument. It describes the entire chain from payer to payee. For example, payments made by card form a single payment network for that method of payment. The call for evidence sets out the government's aims for payments networks in the UK: • UK payments networks need to operate for the benefit of end users, including consumers; • the payments industry should promote and develop new and existing payments networks; • UK payments networks should facilitate competition by permitting open access to participants or potential participants on reasonable commercial terms; and • UK payment systems must be stable, reliable and efficient. The call for evidence seeks feedback on these objectives, asking what the industry, regulators and government need to do to better meet the objectives. The government is keen to ensure that the UK maintains its status as a country at the "cutting edge" of payments technology. The call for evidence closes on 20 October 2020. A related webpage explains how to submit responses. Following the call for evidence, the government will provide a summary of responses and will set out next steps for the review. PSR launches new future strategy The Payment Systems Regulator (PSR) has launched the development of its future strategy, and is requesting input, before it formally consults, on its priorities and what stakeholders can expect from it in the future. The PSR focuses on the following three key themes that it believes are particularly relevant to current issues in payments. It has also developed a high-level target outcome for each theme. • innovation and future payment methods; • competition; and • choice and availability of payment methods. This launch of the engagement phase is the beginning of a three-month period in which the PSR will invite comments and discussion on its three main themes. Although themes will be launched throughout the period, contributions to all themes are allowed until the end of the engagement phase in September 2020 (details on how to comment are available on this webpage). At the end of this engagement phase, the PSR will use all input to inform a full draft strategy. This draft strategy will form the basis of a formal consultation at the end of 2020 or beginning of 2021. From the week commencing 7 September to 16 October 2020 the PSR will hold panel events, regional "virtual" roadshows and ongoing engagement with social media across all themes. 19 Securities and Markets Title transfer collateral arrangements: FCA Dear CEO letter The UK Financial Conduct Authority (FCA) has published a Dear CEO letter to firms acting as brokers in wholesale financial markets, who currently, or may in the future, offer services (including clearing broker and prime broker services) involving holding clients' cash or securities as collateral. The FCA notes it is common market practice to enter into title transfer collateral arrangements (TTCA) with clients over that collateral, allowing firms to use the cash or securities to secure obligations owed to them by their clients. Outside such arrangements, cash and securities given to the firm when providing investment services to a client are likely to be client money or custody assets under the Client Assets sourcebook (CASS). In all cases, firms must ensure compliance with any applicable CASS rules, including obligations relating to the use of TTCAs and the correct application of the exclusions in CASS for TTCAs. The FCA has recently identified examples of inappropriate use of TTCAs by firms, amounting to failures of compliance with the CASS rules. Additionally, it has seen examples of the same types of firms incorrectly classifying financial transactions as falling within the prudential matched principal exemption. This means that they are holding lower financial resources than may be required and also acting outside the limitations of their regulatory permissions. The protection of client money and custody assets is a long-standing priority for the FCA. It is particularly important during the COVID-19 pandemic, given the increased risk of client defaults and firm failures. Firms with business models using TTCAs to hold collateral for leveraged client trading are reminded that it is their responsibility to ensure they have the correct regulatory permissions for the activities they undertake. This includes considering whether they can genuinely rely on the matched principal exemption for prudential categorisation purposes. Firms are asked to review the use of TTCAs in their business and confirm to the FCA, by 4 August 2020, that the senior manager with responsibility for client assets, or alternatively the senior manager responsible for compliance, has considered the issues in the appendix to the letter and will bring any issues to the attention of its board. If any rule breaches are identified in relation to a firm's use of TTCAs or regulatory permissions, immediate steps should be taken to rectify them and the FCA should be notified accordingly. BMR: European Commission proposal to address LIBOR cessation risks The European Commission has adopted a legislative proposal for a regulation amending the Benchmarks Regulation (BMR) as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. The proposal's aim is to ensure that when a widely used benchmark is phased out, as is currently the case with LIBOR, it does not cause disruptions to the economy and harm EU financial stability. The Commission has also published related Q&A, an impact assessment report and an executive summary. 20 COVID-19: ESMA extends lower short position reporting threshold On 30 July 2020, Decision (EU) 2020/1123 of the European Securities and Markets Authority (ESMA) was published in the Official Journal of the EU (OJ). The decision renews ESMA's decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital. In accordance with Article 28(10) of the Short Selling Regulation, ESMA is required to review the requirement, which was first imposed in March 2020, at appropriate intervals and at least every three months. The decision entered into force on 17 June 2020 and applies for a period of three months (that is, until 17 September 2020). COVID-19: ESMA draft RTS further postpone CSDR settlement discipline On 28 July 2020, ESMA announced that, in light of COVID-19, it is working on draft regulatory technical standards (RTS) to further delay the entry into force of the settlement discipline regime under the Central Securities Depositories Regulation (CSDR) until 1 February 2022. In response to a request to ESMA by the European Commission following representations from stakeholders, the RTS will postpone the date of entry into force of Delegated Regulation (EU) 2018/1229 (RTS on settlement discipline) until 1 February 2021. ESMA aims to publish the final report on further postponing the date of entry into force of the RTS by September 2020. Following the endorsement of the RTS by the Commission, the Commission Delegated Regulation will then be subject to the non-objection of the European Parliament and of the Council of the EU. MiFID and MiFIR: ESMA guidance on third-country trading venues and transparency ESMA has announced that it has updated information about transparency opinions for thirdcountry trading venues (TCTVs) under the Markets in Financial Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation (MiFIR). ESMA has made available: • guidance on the implementation of the list of trading venues. The guidance provides additional information about trading venues with positive assessments and partially positive assessments. It also explains how to populate the venue of execution in posttrade reports and sets out guidance relating to specific fields; and • an updated Annex to ESMA's June 2020 opinion determining TCTVs for the purpose of transparency under MiFIR. An ESMA webpage contains links to all of the transparency opinions and annexes and explains that ESMA remains open to assessing additional TCTVs. T2-T2S consolidation project: ECB extends project timeline The European Central Bank (ECB) has published a press release on the T2-T2S consolidation project. The timeline for launching the project has been extended by one year and is now scheduled to go live in November 2022. This is due to issues with market participants being ready for the project 21 because of the COVID-19 pandemic and the rescheduling of global migration of cross-border payments to ISO 20022. The Eurosystem Collateral Management System (ECMS) is also being delayed from November 2022 to at least June 2023. The T2-T2S consolidation project is a Eurosystem project to consolidate TARGET2 (T2) and TARGET2-Securities (T2S) in terms of both technical and functional aspects. The aim is to meet challenging market demands by replacing T2 with a new real-time gross settlement (RTGS) system that will offer enhanced and modernised services. The messaging standard ISO 20022 will be used. 22 Insurance External auditors: PRA CP11/20 on matching adjustment The UK Prudential Regulation Authority (PRA) has published a consultation paper, CP11/20, setting out its expectations and guidance relating to auditors' work on the matching adjustment (MA). The proposals are intended to increase clarity and transparency on how the MA should be considered as part of the external audit of firms' Solvency and Financial Condition Report (SFCR). The PRA's aim is to ensure clarity both for SFCR users about the extent to which auditors have taken account of the MA in their audit opinions and also for the auditor as to how it should incorporate information about the MA into its overall SFCR opinion. The proposals would result in changes to the PRA's supervisory statement on Solvency II: external audit of, and responsibilities of the governing body in relation to, the public disclosure requirement (SS11/16). The PRA includes the draft amendments to SS11/16 in an appendix to CP11/20. The consultation closes on 30 October 2020. The PRA proposes that the draft changes to SS11/16 would be effective for SFCR audits carried out in respect of periods ending on or after 31 December 2020. COVID-19: FCA sets new commencement date for rules on access to travel insurance On 27 July 2020, the UK Financial Conduct Authority (FCA) published the COVID-19: Deferral of Commencement (Access to Insurance) Instrument 2020 (FCA 2020/33). The new instrument came into force on 27 July 2020 and changes the commencement date for the policy contained in the Insurance: Conduct of Business Sourcebook (Access to Travel Insurance) Instrument 2020 (FCA 2020/3) to 26 April 2021. The exception is Annex A and Part 1 of Annex B, which came into force on 1 June 2020. COVID-19: FCA updates on business interruption insurance test case The FCA has updated its webpage on the High Court business interruption insurance test case publishing the following documents: • the draft transcript of the third, fourth, fifth, sixth and seventh days of the trial; and • the agreed facts. The trial has now concluded and judgment is awaited. The FCA advises that the exact date of judgment is not known. Lord Justice Flaux expressed a hope that judgment would be available by the middle of September, although he made clear that this was not a binding indication. The FCA will update its webpage when the judgment is released and when a final transcript is available. Solvency II: EIOPA launches single rulebook The European Insurance and Occupational Pensions Authority (EIOPA) has announced that it has launched its Solvency II single rulebook. The single rulebook is an online tool that aims to promote the consistent implementation of the Solvency II regulatory framework for insurance supervision. As well as covering the Solvency II Directive (2009/138/EC), it also includes the Solvency II Delegated Regulation (EU) 2015/35, 23 Delegated Regulation (EC) 2016/467, Delegated Regulation (EC) 2018/1221, implementing technical standards, and EIOPA's guidelines, opinions, and supervisory statements. A user guide is also available. EIOPA plans to expand the scope of the single rulebook by adding Q&As via its Q&A process. COVID-19: EIOPA statement on Solvency II supervisory reporting On 27 July 2020, EIOPA published a statement on Solvency II supervisory reporting in the context of the COVID-19 pandemic. EIOPA uses the statement to explain that insurance and reinsurance undertakings should now start to comply with the deadlines provided in the Solvency II framework. Specifically: • insurance and reinsurance undertakings are expected to report a calculation (if it is available as of reference date), or an estimate, of the solvency capital requirement at the end of each quarter reference date instead of the last calculated one. The Solvency II quarterly own funds template with a reference date between 30 June and 31 December 2020 should be used; and • national competent authorities are requested to submit information received quarterly to EIOPA no later than two weeks upon receipt. This follows EIOPA publishing recommendations on supervisory flexibility regarding the deadline of supervisory reporting and public disclosure by insurers in March 2020. COVID-19: IAIS consults on the impact for the insurance sector On 24 July 2020, the International Association of Insurance Supervisors (IAIS) published a consultation on the impact of the COVID-19 pandemic on the insurance sector, supervisors and the future work of the IAIS. The consultation closes on 28 August 2020. 24