Includes developments in relation to: Operational Resilience; the UK-EU MoU; Financial Crime Reporting; COVID-19; MiFID; MiFIR; and LIBOR.

General

Issue 1103 / 1 April 2021

HEADLINES

  1. Prudential Regulation Authority, Financial Conduct Authority and Bank of England
    1. Operational resilience – FCA, PRA and Bank of England publish Policy Statements and supervisory materials –29 March 2021
  2. Bank of England
    1. London Capital & Finance – House of Commons publishes correspondence with BoE –25 March 2021
  3. Financial Ombudsman Service
    1. Financial Ombudsman Service – 2021/2022 plans and budget –31 March 2021

Prudential Regulation Authority, Financial Conduct Authority and Bank of England

Operational resilience – FCA, PRA and Bank of England publish Policy Statements and supervisory materials – 29 March 2021

The FCA, the PRA and the Bank of England (BoE) have published Policy Statements and supervisory materials setting out their final rules and guidance on operational resilience. This follows the publication, in December 2019 and as previously reported in this Bulletin, of Consultation Papers CP19/32 and CP29/19 proposing new rules and guidance in this area, as well as the BoE’s consultation on equivalent proposals for financial market infrastructures (FMIs). More specifically:

  • The FCA has published Policy Statement (PS21/3) ‘Building operational resilience: Feedback to CP19/32 and final rules’. Appendix 1 contains the text of a Handbook instrument that makes relevant amendments to the FCA Handbook: the Operational Resilience Instrument 2021 (FCA 2021/14), which will come into force on 31 March 2022. It sets out a new chapter 15A of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC 15A). The FCA has also incorporated its materials on cyber resilience on a webpage entitled ‘Operational Resilience’.

  • The PRA has published Policy Statement (PS6/21) setting out its final policy in this area. The Appendix makes revisions to the Group Supervision Part of the PRA Rulebook and contains the text of two new Parts: Operational Resilience – CRR Firms and Operational Resilience – Solvency II Firms. The relevant instrument also comes into force on 31 March 2022. The PRA has also published Supervisory Statement (SS1/21): Operational resilience: Impact tolerances for important business services (Appendix 2) and a Statement of Policy: Operational resilience (Appendix 3).

  • The BoE has published a Policy Statement on operational resilience and CCPs, Appendix 1 which contains a Supervisory Statement setting out the BoE's expectations for a CCP's operational resilience framework.

A joint covering document, Operational Resilience: Impact tolerances for important business services, has also been published. The document acknowledges that:

“Some operational configurations and working practices may change permanently as we emerge from the pandemic and these changes will need to be incorporated into operational resilience planning,” and that “work done to meet the requirements of one regulator should be leveraged to meet those of the other. We view the design and goals of our respective policies as the same, while respecting our different objectives and legal frameworks.”

See also the Banking and Finance section for an item on the PRA’s Policy Statement and Supervisory Statement on outsourcing and third party risk management.

Policy Statement (PS21/3): Building operational resilience: Feedback to CP19/32 and final rules

Operational Resilience Instrument 2021

Updated FCA webpage: PS21/3 Building operational resilience

Updated FCA webpage: Operational Resilience

Policy Statement PS6/21: Operational resilience: Impact tolerances for important business services

Joint covering document

Press release

Updated webpage: Bank of England policy on Operational Resilience of FMIs

Bank of England

London Capital & Finance – House of Commons publishes correspondence with BoE – 25 March 2021

The House of Commons has published correspondence relating to the independent investigation into the FCA’s regulation of London Capital & Finance plc (LC&F). The first letter, from Andrew Bailey, Governor of the Bank of England to Mel Stride MP, the Chair of the Treasury Select Committee dated 22 March 2021, sets out Mr. Bailey’s responses to questions raised by the Mr. Stride regarding LC&F’s collapse, including the “lessons” learned by the FCA. Mr Bailey focuses on five lessons:

  • the transparency of the FCA’s prioritisation of resources;

  • the FCA’s statutory objectives in securing appropriate protection for consumers;

  • the rules on non-readily realisable securities introduced by the FCA and their effectiveness;

  • the online advertising of financial products and the scope for fraud and misconduct; and

  • the FCA’s regulatory perimeter (with its focus on activities falling within the perimeter).

The second letter dated 25 March 2021, from Dame Elizabeth Gloster DBE to Mel Stride MP, addresses two points in Mr. Bailey’s letter: the first, on his explanation of what he had intended by his representations; the second, on his suggestions that he was not given a fair opportunity to respond to the alleged criticism in her final report for this investigation.

See also the Enforcement section for an item on a claim for judicial review that challenged an FSCS decision that it would not pay compensation to a category of investors who had suffered losses arising from the collapse of LC&F.

Letter from Andrew Bailey, Governor of BoE, to Mel Stride, Chair of the Treasury Select Committee of 22 March 2021

Letter from Elizabeth Gloster to Mel Stride, Chair of the Treasury Select Committee of 25 March 2021

Financial Ombudsman Service

Financial Ombudsman Service – 2021/2022 plans and budget – 31 March 2021

The Financial Ombudsman Service (FOS) has published its plans and budget for 2021/2022, setting out its ambitions for the year ahead. Plans include:

  • ensuring that the FOS is better equipped to respond to rising complexities and vulnerabilities associated with COVID-19;

  • working together with businesses, regulators and other stakeholders in sharing the FOS’ insight to prevent unfairness from arising; and

  • understanding and improving user experiences of the FOS’ services and associated technology.

The FOS’ budget will focus on reducing costs and improving efficiency, with their base costs being set at £260m, their compulsory jurisdiction levy being set at £96m and their case fee being set at £750. The FOS expects to maintain price stability for the next three years, with no further increases during this period to their levy or case fee.

Financial Ombudsman Service: Our 2021/22 plans and budget

Please see the Banking and Finance section for an item on the FCA’s Feedback statement (FS 21/7) regarding Open Finance.

Please see the Asset Management section for an item on a new FCA Guide on the regulatory implications of employers and trustees providing support on financial matters.

Beyond Brexit

Issue 1103 / 1 April 2021

HEADLINES

  1. HM Government
    1. UK-EU MoU - Technical negotiations concluded -26 March 2021

HM Government

UK-EU MoU - Technical negotiations concluded - 26 March 2021

HM Treasury has issued a press release announcing that technical discussions on the text of the Memorandum of Understanding (MoU) – referred to in the Joint Declaration on Financial Services Regulatory Cooperation alongside the Trade and Cooperation Agreement of December 2020 and previously reported in this Bulletin – have now been concluded. Formal steps now need to be undertaken on both sides before the MoU can be signed, but it is expected that this can be done “expeditiously”.

The MoU, once signed, will create the framework for voluntary regulatory cooperation in financial services between the UK and the EU. The MoU will establish a Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues. The text of the final version of the MoU has not yet been published.

Press release

Please see the Securities and Markets section for an item on a statement made by ESMA to clarify the application of certain Transparency Directive requirements to UK issuers.

Please see the Financial Crime section for an item on an FCA Policy Statement (PS21/4) on the extension of its annual financial crime reporting obligation.

Banking and Finance

Issue 1103 / 1 April 2021

HEADLINES

  1. Bank of England
    1. COVID-19 – Bank of England Financial Policy Committee meeting of March 2021 –26 March 2021
  2. Prudential Regulation Authority
    1. Outsourcing and third party risk management – PRA publishes Policy Statement and Supervisory Statement –29 March 2021
    2. Management Expenses Levy Limit 2021/2022 – PRA Policy Statement –26 March 2021
  3. Financial Conduct Authority
    1. Open Finance – FCA publishes Feedback Statement (FS 21/7) –26 March 2021
  4. Single Resolution Board 
    1. Bail-in for international debt securities – SRB issues new guidance –30 March 2021
  5. European Commission
    1. CRR – Corrigendum to Implementing Regulation on market risk reporting requirements published in OJ –26 March 2021
    2. BRRD – EU Commission adopts Delegated Regulation with RTS on estimating Pillar 2 and combined buffer requirements for setting MREL –26 March 2021
    3. G-SIIs – Delegated Regulation amending RTS on methodology for identification and definition of subcategories published in OJ –29 March 2021
    4. Instant Payments – European Commission launches consultation –31 March 2021

Bank of England

COVID-19 – Bank of England Financial Policy Committee meeting of March 2021 – 26 March 2021

The Bank of England has published the financial policy summary and full record of a meeting of the Financial Policy Committee (FPC) on 11 March 2020. The FPC meets to identify risks to financial stability and to further agree policy actions to safeguard the resilience of the UK financial system.

The summary and record include, among other things, the following observations:

  • the FPC expects banks to use all elements of capital buffers as necessary to continue supporting the UK economy as it recovers in the wake of a rapid COVID-19 vaccination programme;
  • the FPC commented on the joint Bank-FCA review of open-ended investment funds, noting that it will set out in the next Financial Stability Report its view on how a liquidity classification could be developed as well as an approach for developing more consistent and complete swing pricing; and
  • the FPC believes that the development of funds with longer notice periods could increase the supply of productive finance to the economy.

Financial Policy Summary and Record of the Financial Policy Committee Meeting on 11 March 2021

Webpage

Prudential Regulation Authority

Outsourcing and third party risk management – PRA publishes Policy Statement and Supervisory Statement – 29 March 2021

The PRA has published a Policy Statement (PS7/21) to provide feedback to responses to Consultation Paper (CP) 30/19 ‘Outsourcing and third party risk management’ and to set out the PRA’s final Supervisory Statement (SS2/21) ‘Outsourcing and third party risk management’ (Appendix 1).

Consultation respondents welcomed the PRA’s efforts to clarify and modernise regulatory expectations in an area where regulation had not kept pace with technological change. It is noted that the proposals complement those on operational resilience, given the many synergies between the two areas. Respondents also noted that the proposed operational resilience framework:

“provided a helpful lens for firms to assess how they should monitor their outsourcing and third party arrangements and establish end-to-end resilience for their important business services.”

Firms will be expected to comply with the expectations in the Supervisory Statement by 31 March 2022. Outsourcing arrangements entered into on or after 31 March 2021 should meet the expectations by 31 March 2022. Firms should seek to review and update legacy outsourcing agreements entered into before 31 March 2021 at the first appropriate contractual renewal or revision point in order to meet the expectations in SS2/21 as soon as possible on or after 31 March 2022.

See also the General section for an item on the various policy statements and supervisory materials that have been published by the regulators on operational resilience.

Supervisory Statement (SS2/21): Outsourcing and third party risk management

Updated webpage

Policy Statement (PS7/21): Outsourcing and third party risk management

Updated webpage

Management Expenses Levy Limit 2021/2022 – PRA Policy Statement – 26 March 2021

The PRA has published a Policy Statement (PS5/21) which provides feedback to responses received to Consultation Paper (CP) 4/21 ‘Financial Services Compensation Scheme – Management Expenses Levy Limit 2021/2022’, published in January 2021. This CP consulted on a proposed Management Expenses Levy Limit (MELL) for the Financial Services Compensation Scheme (FSCS) of £105.5 million for 2021/2022.

The PRA states that, having considered the responses, the MELL of £105.5 million will apply for the financial year ending 31 March 2022. The Policy Statement also contains the PRA’s final rules, implementing this MELL amount.

Policy Statement PS5/21: Financial Services Compensation Scheme – Management Expenses Levy Limit 2021/22

Press release

Appendix 1: PRA Rulebook: Non Authorised Persons: FCSCS Management Expenses Levy Limit and Base Costs Instrument 2021

Financial Conduct Authority

Open Finance – FCA publishes Feedback Statement (FS 21/7) – 26 March 2021

The FCA has published its Feedback Statement on Open Finance (FS 21/7) following a Call for Input on the same topic, published in December 2019, as previously reported in this Bulletin.

The Call for Input explored the opportunities and risks presented by Open Finance (the extension of open banking-like data sharing to a wider range of financial products such as savings, investments, pensions and insurance) which is “based on the principle that the data supplied by and created on behalf of financial services customers is owned and controlled by those customers”.

The FCA’s Feedback Statement addresses the following main topics:

  • maximisation of the potential of open banking;
  • key themes and issues arising from Open Finance, including risks and benefits, feasibility and cost, the regulatory framework, common standards and infrastructure;
  • draft principles for Open Finance, noting that the version of the principles set out in the Call for Input were a good starting point; and
  • the FCA’s role in this context and next steps.

The FCA notes that it will support the government as it considers the timing, scope and nature of any legislation on Open Finance, by sharing lessons from the implementation and supervision of Open Banking and the development of Pensions Dashboards, among other things. It also plans to assess the regulatory framework that would be needed to support the project.

Feedback Statement FS 21/7: Open finance

Press release

Webpage

Single Resolution Board 

Bail-in for international debt securities – SRB issues new guidance – 30 March 2021

The Single Resolution Board (SRB) has published guidance on reflecting bail-in in the books of international central securities depositories (ICSDs).

The SRB sets out the matters that banks should consider for the operationalisation of bail-in in respect of international bearer debt securities (i.e. eurobonds) issued by and held in the ICSDs, Euroclear Bank (EB) and Clearstream Banking Luxembourg (CBL). The guidance refers to the role of the ICSDs in bail-in, particularly in relation to write-down and conversion. The SRB draws a distinction between the roles played by CSDs as issuer CSDs (that is, CSDs in which securities are issued or immobilised and held) and investor CSDs (that is, CSDs that accept other securities on their platforms that have been issued in numerous local markets).

The SRB expects banks to reflect the guidance in their bail-in playbooks, which relevant banks are expected to develop to describe arrangements, processes and systems capabilities to support the operational execution of write-down and conversion of debt securities, from 2021.

The document should be read in conjunction with the guidance on bail-in playbooks published in August 2020, which covers the identification of instruments, internal and external execution processes and the provision of bail-in data points.

Guidance – Reflecting bail-in in the books of the International Central Securities Depositories (ICSDs)

Annex

Press release

European Commission

CRR – Corrigendum to Implementing Regulation on market risk reporting requirements published in OJ – 26 March 2021

A corrigendum to Commission Implementing Regulation (EU) 2021/453 has been published in the Official Journal of the European Union.

It contains implementing technical standards (ITS) on specific reporting requirements for market risk under the Capital Requirements Regulation (575/2013) (CRR) and inserts Annex III to the Implementing Regulation.

Corrigendum to Commission Implementing Regulation (EU) 2021/453

BRRD – EU Commission adopts Delegated Regulation with RTS on estimating Pillar 2 and combined buffer requirements for setting MREL – 26 March 2021

The European Commission has adopted a Delegated Regulation (C(2021) 1794 final) containing draft regulatory technical standards (RTS) specifying the methodology to be used by resolution authorities to estimate the Pillar 2 and combined buffer requirements at resolution group level, for the purpose of setting the minimum requirement for own funds and eligible liabilities requirement (MREL) under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).

A public consultation on these draft regulatory technical standards closed in October 2020, as previously reported in this Bulletin.

The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation. It will enter into force 20 days after its publication in the Official Journal of the European Union (OJ).

Draft Commission Delegated Regulation (EU) of 26 March 2021, C(2021) 1794 final

G-SIIs – Delegated Regulation amending RTS on methodology for identification and definition of subcategories published in OJ – 29 March 2021

Commission Delegated Regulation 2021/539, amending Delegated Regulation No 1222/2014 (which in turn supplements the Capital Requirements Directive (2013/36/EU) (CRD IV)) has been published in the Official Journal of the European Union (OJ).

Delegated Regulation 1222/2014 contains regulatory technical standards (RTS) which specify the methodology for the identification of global systemically important institutions (G-SIIs) and for the definition of sub-categories of G-SIIs.

In July 2018, the Basel Committee on Banking Supervision (BCBS) published a revised methodology for assessing global systemically important banks. That revised methodology introduced a new indicator to measure systemic importance relating to trading volume, which is included in the category that measures the substitutability of services or of the financial infrastructure provided by a banking group. The revised methodology also included insurance activities in the indicators-based measurement approach used to assess the systemic importance of banking groups. Delegated Regulation 2021/539 revises Delegated Regulation 1222/2014 to take account of these BCBS reforms.

It further reflects changes introduced by Directive 2018/878 (CRD V Directive) which allow competent and designated authorities to use sound supervisory judgement to reallocate a G-SII from a higher subcategory to a lower subcategory on the basis of the additional overall score that accounts for the specificities of the European banking union and the Single Resolution Mechanism within cross-border activity indicators.

Delegated Regulation 2021/539 entered into force, and applied, from 30 March 2021. This is with the exception of the BCBS reforms, which apply from 1 December 2021.

Commission Delegated Regulation 2021/539

Instant Payments – European Commission launches consultation – 31 March 2021

The European Commission has launched a public consultation on an EU-wide instant payments scheme addressed to a range of stakeholders, including payment services users (i.e. consumers, corporate users and merchants), payment service providers (PSPs), technical service providers, relevant public authorities and national regulators. The Commission will use the results of the consultation to determine remaining obstacles and/or potential enabling actions related to the provision of EU-wide instant payments, as well as whether coordinated action will be required to ensure a critical mass of PSPs across the EU offer instant credit transfers.

Stakeholders are invited to respond by 23 June 2021 via an online questionnaire. PSPs and supporting technical service providers are invited to respond to an additional targeted consultation.

European Commission Consultation Document: Public Consultation on Instant Payments

Webpage on the Consultation

Webpage on Instant Payments Roadmap

Please see the Securities and Markets section for an item on a joint ‘Dear CEO’ letter published by the PRA and the FCA on LIBOR transition and a joint statement from the FCA and the Bank of England on switching to SONIA in the sterling non-linear derivatives market.

Securities and Markets

Issue 1103 / 1 April 2021

HEADLINES

  1. European Supervisory Authorities
    1. Securitisation Regulation – ESAs publish joint opinion on jurisdictional scope and Q&As –25 March 2021
  2. European Securities and Markets Authority
    1. EU Money Market Funds Regulation reform – ESMA Consultation –26 March 2021
    2. Fines and Penalties for Benchmark Administrators – ESMA publishes technical advice –26 March 2021
    3. Fines and Penalties for Data Reporting Service Providers under MiFIR – ESMA publishes technical advice –26 March 2021
    4. Administrative and criminal sanctions under MiFID II/MiFIR – ESMA publishes technical advice -29 March 2021
    5. MiFID II/MiFIR - ESMA updates Q&As document on investor protection and intermediaries -29 March 2021
    6. CSDR – ESMA publishes updated Q&As –31 March 2021
    7. Brexit - ESMA publishes statement to clarify transparency requirements applying to UK issuers –31 March 2021
    8. Prospectus Regulation – ESMA updates Q&As –31 March 2021
    9. UCITS – ESMA updates Q&As –30 March 2021
    10. Transaction and reference data reporting under MiFIR – ESMA publishes final report –23 March 2021
    11. Benchmarks Regulation – ESMA updates Q&As –31 March 2021
  3. European Commission
    1. Prospectus exemptions – Delegated Regulation on minimum information content published in OJ –26 March 2021
    2. Position Reporting under MiFID II – Delegated Regulation published in OJ –26 March 2021
    3. Liquidity thresholds and trade percentiles determining SSTI under MiFIR - Delegated Regulation published in OJ –26 March 2021
  4. Prudential Regulation Authority and Financial Conduct Authority
    1. LIBOR – PRA and FCA publish Dear CEO letter on transition –26 March 2021
  5. Financial Conduct Authority and Bank of England
    1. SONIA in the sterling non-linear derivatives market - FCA and Bank of England publish joint statement -29 March 2021 
    2. High Cost Lenders and Claims Management Companies – FCA publishes statement –31 March 2021

European Supervisory Authorities

Securitisation Regulation – ESAs publish joint opinion on jurisdictional scope and Q&As – 25 March 2021

The European Supervisory Authorities (ESAs), made up of the European Banking Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority, have published a Joint Opinion (JC 2021/16) addressed to the European Commission on the jurisdictional scope of the Securitisation Regulation ((EU) 2017/2402) and associated compliance challenges.

The following scenarios are addressed:

  • securitisations where some of the sell-side parties are located in a third country;
  • securitisations with EU investors where all sell-side parties are located in a third country;
  • investments in securitisations by subsidiaries of EU regulated groups, where those subsidiaries are located in a third country; and
  • securitisations where one of the parties is a third country investment fund manager.

The European Commission is invited to undertake a comprehensive review of these matters as part of the upcoming overall reform of this piece of legislation.

The ESAs have also separately published a Q&A document on the Securitisation Regulation, covering the following topics:

  • a summary of the underlying documentation essential to understanding a transaction;
  • the requisite level of completeness of the information described in points (b), (c) and (d) of Article 7(1);
  • the underlying exposure documentation forming part of Article 7(1)(b);
  • the application of ‘Simple, Transparent and Standardised’ (STS) criteria set out in Article 21(9) for transaction documentation; and
  • the provision of STS+ certification (i.e. CRR- and LCR-Assessments) by a Third Party Verifier agent.

ESAs opinion on the Jurisdictional Scope of Application of the Securitisation Regulation

Webpage

Press release

Joint Committee Q&As relating to the Securitisation Regulation (EU) 2017/2402

European Securities and Markets Authority

EU Money Market Funds Regulation reform – ESMA Consultation – 26 March 2021

The European Securities and Markets Authority (ESMA) has published a consultation paper on potential legislative reforms of the EU Money Market Funds Regulation ((EU)2017/1131) (MMF Regulation).

Article 46 of the MMF Regulation requires the European Commission to review the adequacy of the MMF Regulation from a prudential and economic point of view by 21 July 2022, following consultation with ESMA.

In the consultation paper ESMA states that its discussion of potential reforms of the EU MMF regulatory framework takes place in light of the lessons learnt from the difficulties faced by MMFs during the COVID-19 crisis. In March 2020, MMFs faced significant liquidity issues following large redemptions from investors on the liability side, and a severe deterioration of liquidity of money market instruments on the asset side. ESMA further aims to assess the roles played by markets, investors and regulation, and to suggest potential reforms.

The consultation sets out four proposed types of reform:

  • reforming the liability side of MMFs, including requiring MMF managers to use liquidity management tools such as swing pricing;
  • reforming the asset side of MMFs, such as by reviewing requirements around liquidity buffers;
  • reforming the liability and asset side of MMFs through reviewing the status of certain types of MMFs such as stable net asset value MMFs; and
  • external reforms, such as assessing the role of sponsor support.

Responses are welcome by 30 June 2021, and ESMA expects to publish its opinion on this review in the second half of 2021.

Consultation Report – EU Money Market Fund Regulation – legislative review

Press release

Webpage

Fines and Penalties for Benchmark Administrators – ESMA publishes technical advice – 26 March 2021

ESMA has published a final report containing its technical advice on formulating procedural rules relating to fines and penalties imposed on benchmark administrators under its direct supervision. ESMA’s proposals for procedural rules in this context cover issues including:

  • the procedure for the imposition of fines and supervisory measures and the rights of the persons subject to investigation;
  • the procedure for the imposition of periodic penalty payments;
  • the procedure for interim decisions that ESMA may impose where urgent action is needed; and
  • the limitation periods for the imposition of penalties and for the enforcement of penalties.

ESMA’s technical advice is intended to assist the European Commission to produce a Delegated Regulation under Article 48i(10) of Benchmarks Regulation ((EU) 2016/1011).

Final Report: Technical advice on procedural rules for penalties imposed on Benchmark Administrators

Press release

Webpage

Fines and Penalties for Data Reporting Service Providers under MiFIR – ESMA publishes technical advice – 26 March 2021

ESMA has published its technical advice to the European Commission relating to the framework for Data Reporting Service Providers (DRSPs) on the fees, fines and penalties applicable to DRSPs subject to EU supervision as well as the criteria determining whether certain DRSPs may be exempted from ESMA supervision (derogation criteria).

It aims to provide a simple and clear framework by leveraging on the existing frameworks for Trade Repositories and Securitisation Repositories and by streamlining the approach for the assessment of the derogation criteria. The advice is split into three publications, as follows:

  • The first publication, covering the formulation of procedural rules for penalties, fees and fines imposed on DSRPs, follows a consultation paper published by ESMA on 23 December 2020. It provides proposals on specific procedural aspects, including the right to be heard by the Independent Investigation Officer (IIO) and the content of the file to be submitted to the IIO.  
  • In the second publication ESMA proposes application fees, authorisation fees, and an annual supervisory fee for DSRPs.
  • The third publication covers derogation criteria for DSRPs seeking exemptions from ESMA supervision and follows the ESAs’ Review stipulating the transfer of supervisory powers of authorised reporting mechanisms (ARMs) and approved publication arrangements (APAs) from national competent authorities to ESMA.

Following the submission of this technical advice, ESMA will continue working with national competent authorities to ensure a smooth transfer of supervisory responsibilities by 1 January 2022.

Final Report – Technical Advice on procedural rules for penalties imposed on DRSPs

Final Report – Technical Advice on ESMA’s fees to DRSPs

Final Report – ESMA advice on the criteria for DRSP

Press release

Administrative and criminal sanctions under MiFID II/MiFIR – ESMA publishes technical advice - 29 March 2021

ESMA has published a final report (ESMA35-43-2430) containing its technical advice to the European Commission on the application of administrative and criminal sanctions under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (600/2014) (MiFIR). Among other things, the advice includes proposals to include settlement powers in the range of sanctions and measures available to national competent authorities to increase the efficiency of their enforcement proceedings, and to extend the types of sanctions and measures in Article 70(6) of the MiFID II Directive.

ESMA Final Report (ESMA35-43-2430)

Press release

MiFID II/MiFIR - ESMA updates Q&As document on investor protection and intermediaries - 29 March 2021

ESMA has published an updated version of its Q&As document on investor protection and intermediaries topics under the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR).

The updated version contains a new question on the conditions that need to be met in order for inducements to be considered to enhance the quality of a service to a client.

Updated Q&As on MiFID II and MiFIR investor protection and intermediaries topics

CSDR – ESMA publishes updated Q&As – 31 March 2021

ESMA has published an updated version (ESMA70-156-4448) of its Q&As on the implementation of the Central Securities Depositories Regulation (909/2014) (CSDR). The updated Q&As make clarifications in relation to the following:

  • Question 9 on the provision of services in other member states. One of the updated answers clarifies that Article 23 of the CSDR applies to all types of financial instruments, as defined under the MIFID II Directive (2014/65/EU), whether or not admitted to trading, or traded, on trading venues. In addition, the answer to a new question 9(f) clarifies that, for the purpose of Article 23(2) of the CSDR, the "law under which the securities are constituted" should by default be the standard law of the issuance of the securities or, if determined by the issuer, the national law of the issuer (or both).  
  • Question 6 on settlement instructions sent by central counterparties (CCPs). More specifically, a new question 6(f) addresses the exemption from the application of cash penalties and the buy-in requirements for settlement failures relating to transactions involving CCPs.

ESMA - updated CSDR Q&As

Press release

Brexit - ESMA publishes statement to clarify transparency requirements applying to UK issuers – 31 March 2021

ESMA has issued a Statement (ESMA32-61-1156) on the application of transparency requirements to UK issuers (now third country issuers) with securities admitted to trading on EU regulated markets under Article 4 of the Transparency Directive (Directive 2004/109/EC) (TD). The aim of the Statement is to ensure a common supervisory approach by all national competent authorities (NCAs) concerning the application of the accounting frameworks used by UK issuers, in relation to the requirements in Article 4(3) concerning the accounting framework applied in their consolidated and individual financial statements.

Before exempting an issuer from Article 4(3) the NCA should verify that the issuer publishes:

  • consolidated financial statements drawn up in accordance with either EU IFRS, IFRS as issued by the IASB or third country national accounting standards that have been deemed equivalent to EU IFRS; and
  • the minimum information specified in Article 17 of Commission Directive 2007/14/EC in its consolidated financial statements.

UK group issuers may publish the annual accounts of the parent company prepared under UK GAAP.

ESMA Statement concerning UK issuers (ESMA32-61-1156)  

Press release  

Prospectus Regulation – ESMA updates Q&As – 31 March 2021

ESMA has published an updated version of its Q&As on the Prospectus Regulation (PR) ((EU) 2017/1129) (ESMA/2019/ESMA31-62-1258) with four new Q&As on the following topics:

  • the application of the exemption in Article 1(5)(b) PR in a situation concerning non-transferable securities;
  • the application of the PR where shares can be exchanged for global depositary receipts (and vice versa);
  • dissemination of amended advertisements; and
  • the status of transferable securities, more specifically, the impact of restrictions on transferability.

Updated Q&As on the Prospectus Regulation

Press release

UCITS – ESMA updates Q&As – 30 March 2021

ESMA has updated its Q&As on the application of the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) (UCITS).

ESMA has added two new Q&As in relation to ESMA’s guidelines on performance fees in UCITS and certain types of alternative investment funds (AIFs). The Q&As provide clarification on the crystallisation of performance fees and on the timeline of the application of the performance reference period.

ESMA Updated Q&As: Application of the UCITS Directive

Press release  

Transaction and reference data reporting under MiFIR – ESMA publishes final report – 23 March 2021

ESMA has published a final report (ESMA74-362-1013) on the review of transaction and reference data reporting obligations under the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR). The final report contains recommendations and possible amendments to the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and MiFIR with a view to simplifying the current reporting regimes whilst ensuring quality and usability of the reported data. It aims to achieve this through:

  • the replacement of the trading on a trading venue (TOTV) concept with the systematic internaliser (SI) approach for OTC derivatives, taking into account the conclusions of ESMA’s final report on the transparency regime for non-equity instruments and the trading obligation for derivatives;
  • the removal of the short sale indicator;
  • the alignment with reporting regimes such as Market Abuse Regulation (596/2014/EU), the European Market Infrastructure Regulation (648/2012/EU) and the Benchmarks Regulation (EU) 2016/1011;
  • the reliance on international standards, including legal entity identifiers (LEIs), international securities identification numbers (ISINs) and classification of financial instruments codes (CFIs); and
  • the inclusion of three additional data elements with a view to harmonising the way they are reported and avoiding inconsistent and duplicative reporting of the same information at the national level. In particular, these are indicators for: (i) buyback programs; (ii) information on MiFID II client categories; and (iii) transactions pertaining to aggregated orders.

The European Commission is expected to adopt legislative proposals based on these recommendations.

Final Report – MiFIR review report on the obligations to report transactions and reference data

Press release

Benchmarks Regulation – ESMA updates Q&As – 31 March 2021

ESMA has updated its Q&As on the EU Benchmarks Regulation (BMR). The updates relate to transitional provisions which apply to third-country benchmarks, as set out in Article 51(5) of the BMR.

European Securities and Markets Authority – Q&As – On the Benchmarks Regulation (BMR)

Press release

European Commission

Prospectus exemptions – Delegated Regulation on minimum information content published in OJ – 26 March 2021

Commission Delegated Regulation supplementing the Prospectus Regulation as regards the minimum information content of the document to be published for a prospectus exemption in connection with a takeover by means of an exchange offer, a merger or a division has been published in the Official Journal of the European Union (OJ).

The Delegated Regulation will enter into force on 15 April 2021, 20 days after its publication in the OJ.

Commission Delegated Regulation (EU) 2021/528

Position Reporting under MiFID II – Delegated Regulation published in OJ – 26 March 2021

Commission Delegated Regulation (EU) 2021/527 of 15 December 2020, amending Commission Delegated Regulation (EU) of 2017/565, has been published in the Official Journal of the European Union (OJ). It specifies the minimum thresholds above which trading venues are required to make their weekly reports public, in a bid to provide transparency to stakeholders on a wider range of commodity derivatives.

The Delegated Regulation entered into force on 29 March 2021, three days after its publication in the OJ.

Commission Delegated Regulation (EU) 2021/527

Liquidity thresholds and trade percentiles determining SSTI under MiFIR - Delegated Regulation published in OJ – 26 March 2021

Commission Delegated Regulation (EU) 2021/529 of 18 December 2020 has been published in the Official Journal of the European Union (OJ). The Delegated Regulation establishes regulatory technical standards (RTS) amending Delegated Regulation (EU) 2017/583 (RTS 2) as regards adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (SSTI) applying to certain non-equity instruments. This is relevant to the application of transparency waivers and deferrals under the Markets in Financial Instruments Regulation (600/2014) (MiFIR).

The Delegated Regulation will enter into force on 15 April 2021, 20 days after its publication in the OJ.

Commission Delegated Regulation (EU) 2021/529

Prudential Regulation Authority and Financial Conduct Authority

LIBOR – PRA and FCA publish Dear CEO letter on transition – 26 March 2021

The PRA and the FCA have published a joint ‘Dear CEO’ letter dated 26 March 2021 which sets out a list of priority areas for further action by firms to prepare for the cessation of LIBOR. The annex to the letter addresses the following areas:

  • the cessation of new sterling LIBOR business milestones and new LIBOR-referencing syndicated lending;
  • systems readiness for LIBOR cessation, in particular, ensuring systems and processes will be able to robustly manage reliance on fall-backs post-cessation;
  • the active transition of legacy LIBOR exposures to robust alternative reference rates, including transitions for legacy syndicated commitments and legacy derivatives;
  • identifying and mitigating conduct risks during the LIBOR transition;
  • the development of risk-free rate (RFR) market products, including sterling futures, sterling non-linear derivatives and non-sterling LIBOR currencies;
  • internal model changes to market risk models and counterparty credit risk models; and
  • the selection of appropriate alternatives to LIBOR (which the FCA and PRA note should, in sterling cases, usually be SONIA).

The FCA and the PRA note that they are intensifying their supervisory focus on firms’ management and oversight of the risks associated with the transition as we move closer towards the cessation of LIBOR. They expect firms to meet the milestones set by the Working Group on Sterling Risk Free Reference Rates (RFRWG) and the targets of other working groups and relevant supervisory authorities as appropriate.

Dear CEO letter – Transition from LIBOR to Risk Free Rates

Financial Conduct Authority and Bank of England

SONIA in the sterling non-linear derivatives market - FCA and Bank of England publish joint statement - 29 March 2021 

The FCA and the Bank of England (BoE) have published a joint statement announcing that they encourage liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May 2021.

The FCA states that it has engaged with participants in the non-linear derivatives market including “liquidity providers, buy-side firms and interdealer brokers” to explore the feasibility of changing standard trading conventions in non-linear derivatives to a SONIA basis during the second quarter of 2021, as suggested by the Working Group on Sterling Risk-Free Reference Rates in February 2021.  

According to the statement:

“This is an extension of the successful similar change to the interdealer quoting convention for linear sterling swaps during Q4 2020, which has supported a substantial move in trading volumes from GBP LIBOR to SONIA over subsequent months... The proposed change will involve IDBs moving the primary basis of their pricing screens and volatility surface construction for sterling non-linear derivatives from GBP LIBOR to SONIA. As a result, SONIA would be the primary pricing point for swaptions, caps and floors and other non-linear products.”

An FCA survey of market participants identified strong support for a change in the interdealer quoting convention.

FCA Statement

Bank of England updated webpage on Transition to sterling risk-free rates  

High Cost Lenders and Claims Management Companies – FCA publishes statement – 31 March 2021

The FCA has published a statement urging High Cost Lenders (HCLs) and Claims Management Companies (CMCs) to work better together in the resolution of disputes and disagreements on behalf of customers.

The FCA observes that many complaints made to HCLs are handled by CMCs on behalf of their customers, which has given rise to various issues that have caused tension. Some examples of these issues include (i) CMCs presenting a claim for a customer that HCLs insist have not taken out loans with them; and (ii) HCLs suspending lending to clients who have submitted complaints while the claim is being investigated, which sometimes results in customers withdrawing a complaint and being charged a cancellation fee by the CMC.

Following investigation of complaints from HCL firms about CMCs, the FCA has concluded that in most cases the customer has legitimate grounds to complain. The FCA nonetheless reminds CMCs that claims should not be made if there are reasonable grounds to suspect that they are fraudulent, frivolous or vexatious; and that reasonable steps should be taken to substantiate the basis, and identify the merits, of each potential claim.

FCA press release

Asset Management

Issue 1103 / 1 April 2021

HEADLINES

  1. European Securities and Markets Authority
    1. AIFMD – ESMA updates Q&As –30 March 2021
  2. Financial Conduct Authority 
    1. UK-authorised open-ended funds joint survey - FCA and Bank of England publish findings –26 March 2021
    2. Advising on pension transfers – FCA publishes guidance FG21/3 –30 March 2021
    3. Employers and trustees providing support with financial matters – FCA publishes Guide –30 March 2021

European Securities and Markets Authority

AIFMD – ESMA updates Q&As – 30 March 2021

The European Securities and Markets Authority (ESMA) has updated its Q&As on the application of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).

ESMA has added two new Q&As on ESMA’s guidelines on performance fees in undertakings for collective investment in transferable securities (UCITS) and certain types of alternative investment funds (AIFs) (the guidelines). The Q&As provide clarification on the crystallisation of performance fees, the timeline of the application of the performance reference period and the scope of the guidelines in respect of European long-term investment funds (ELTIFs).

The purpose of this Q&As document is to promote common supervisory approaches and practices in the application of the guidelines.

ESMA Updated Q&As – Application of the AIFMD

Press release

Financial Conduct Authority 

UK-authorised open-ended funds joint survey - FCA and Bank of England publish findings – 26 March 2021

The FCA has published a press release containing the findings of a joint survey launched by the Bank of England and the FCA on liquidity management practices in UK open-ended funds. The survey sought to assess the vulnerabilities associated with these funds offering daily redemptions while holding assets that take longer to sell to meet these redemptions.

The survey launched in August 2020 and covered a reporting period of Q4 2019 to Q2 2020 —thereby incorporating the extreme market conditions related to COVID-19 — with 272 authorised fund managers responding. The survey queried the funds’ use of liquidity management tools, particularly pricing adjustments, and the managers’ approach to liquidity assessments and classifications, valuations of less liquid assets, cash management, and internal liquidation governance processes.

The survey found, among other things, that:

  • the funds had a wide range of liquidity tools available to them, but predominantly used swing pricing;
  • the funds intensified and adapted their use of swing pricing during stress periods, with large variations in how they each applied swing pricing;
  • the funds further managed liquidity by holding buffers in the form of cash and non-cash liquid assets;
  • the funds adapted their liquidity management approaches and governance measures temporarily or permanently to respond to COVID-19 stress; and
  • an indicative liquidity classification suggests that managers of corporate bond funds may be overestimating the liquidity of their holdings.

Liquidity Management in UK Open-Ended Funds

FCA press release

Advising on pension transfers – FCA publishes guidance FG21/3 – 30 March 2021

The FCA has published its finalised guidance FG21/3 to help firms give suitable pension transfers advice on a consistent basis.

This guidance is primarily aimed at firms providing advice on the conversion or transfer of pension benefits and relevant advice on where transferred funds may be invested. It is intended to help firms understand how to apply the FCA’s Handbook rules when giving defined benefit (DB) transfer advice.

The FCA found that much of the advice it has reviewed shows that too many firms are struggling to give consistent, suitable advice which meets its rules to consumers, and this was largely due to poor practices or weak record keeping. Even where the FCA did find suitable advice, it saw too many poor practices in the advice process based on a misunderstanding of the requirements, poorly designed systems, outdated processes or inadequate disclosures.

The guidance may require some firms to make changes to their processes where their approach falls short of the FCA’s standards and changes are likely to include the way in which firms:

  • collect information about their client’s circumstances to give suitable advice;
  • use the information they collect to assess whether a DB transfer is suitable; and
  • communicate their advice effectively to consumers.

The guidance comes into effect immediately.

Finalised Guidance FG21/3: Advising on Pension Transfers

Feedback Statement

Webpage

Press release

Employers and trustees providing support with financial matters – FCA publishes Guide – 30 March 2021

The FCA, in conjunction with the Pensions Regulator, has published an updated version of its guidance for employers and pension trustees who may want to help employees with financial matters.

The guidance is designed to give employers and pension trustees information on the things they can do without needing to be authorised by the FCA and help them understand actions which could trigger a requirement for authorisation under the Financial Services and Markets Act 2000. The guide covers, among other things:

  • communicating information about pensions;
  • giving information about other financial workplace benefits; and
  • introducing members to regulated pension products.

The guidance also contains several practical examples and signposts other resources which may provide further assistance.

Guide for employees and trustees

Please see the Securities and Markets section for an item on the European Securities and Markets Authority (ESMA) consultation regarding reform of the EU Money Market Funds Regulation.

Insurance

Issue 1103 / 1 April 2021

HEADLINES

  1. European Insurance and Occupational Pensions Authority 
    1. Use of Legal Entity Identifier (LEI) - EIOPA publishes consultation paper –26 March 2021
    2. General good rules in the context of the IDD – EIOPA completes analysis –29 March 2021
  2. HM Treasury
    1. UK-US bilateral agreement on insurance and reinsurance prudential measures – first Joint Committee meeting -30 March 2021
  3. UK Parliament
    1. Pension scams – Work and Pensions Committee publishes on protecting pension savers –28 March 2021

European Insurance and Occupational Pensions Authority 

Use of Legal Entity Identifier (LEI) - EIOPA publishes consultation paper – 26 March 2021

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on revised guidelines on the use of the legal entity identifier (LEI). According to EIOPA, revisions are necessary to address the obstacles to the wider adoption of the LEI raised by the Financial Stability Board (FSB) in its May 2019 report on the implementation of the LEI as well as certain recommendations made by the European Systemic Risk Board (ESRB) in September 2020. The revised guidelines contain further detail on the scope of the LEI requirement and reporting obligations for national competent authorities (NCAs) relating to LEIs.

EIOPA welcomes comments on the proposal by 30 June 2021. It will then publish a final report on the consultation and submit the revised Guidelines for adoption by its Board of Supervisors.

Consultation paper on the proposal for revised Guidelines on the use of Legal Entity Identifier [LEI]

Webpage

General good rules in the context of the IDD – EIOPA completes analysis – 29 March 2021

EIOPA has published a press release announcing that it has completed its analysis of all published general good rules on registration and professional and organisational requirements that could potentially be non-compliant with the Insurance Distribution Directive ((EU) 2016/97) (IDD). General good rules are “national rules of the Member States which introduce additional requirements reflecting specificities of local markets and apply to incoming firms seeking to carry out cross-border business.”

An overview table with information about adjustments made to general good rules in different member states has also been published.

EIOPA press release

Overview table

HM Treasury

UK-US bilateral agreement on insurance and reinsurance prudential measures – first Joint Committee meeting - 30 March 2021

HM Treasury has published a policy paper concerning the first Joint Committee meeting under the bilateral agreement between the US and UK on prudential measures regarding insurance and reinsurance (the Agreement). The Agreement was signed in December 2018, and entered into force on 31 December 2020. The Agreement addresses three areas of prudential insurance oversight: (i) reinsurance; (ii) group supervision; and (iii) the exchange of insurance information between supervisors.

In the meeting, participants discussed progress made toward timely implementation of the Agreement, including the removal of collateral and local presence requirements for reinsurers and the provisions on group supervision measures. In addition, the US and the UK affirmed their commitment to the Agreement and to close coordination between the two sides as implementation continues.

First Joint Committee meeting policy paper

Webpage

UK Parliament

Pension scams – Work and Pensions Committee publishes on protecting pension savers – 28 March 2021

The House of Commons Work and Pensions Committee has published a report entitled ‘Protecting pension savers — five years on from the pension freedoms: Pension scams’. The report calls on the Government to “act quickly and decisively” to protect pension savers, more than five years on from the introduction of pension freedoms, which have put people at risk of a much wider range of scams and fraud. Further, the report states that the situation is likely to be getting worse rather than better, with the COVID-19 pandemic offering scammers new opportunities. Among other things, the report suggests that:

  • tech firms should stop accepting payment to advertise scams and then further payments from regulators to publish warnings;
  • the Government must rethink its decision to exclude financial harms from the forthcoming Online Safety Bill and use it to legislate against online investment fraud;
  • in the same way as traditional media, online publishers should be required to ensure financial promotions are authorised; and
  • the FCA must “raise its game” and publish information about its enforcement action, with the Committee hearing numerous criticisms that it is not effective in stopping scams, punishing scammers or retrieving scam proceeds.

Full report

Interactive summary

Press release

Financial Crime

Issue 1103 / 1 April 2021

HEADLINES

  1. Financial Conduct Authority 
    1. Annual Financial Crime Reporting – FCA publishes policy statement –31 March 2021

Financial Conduct Authority 

Annual Financial Crime Reporting – FCA publishes policy statement – 31 March 2021

Following a consultation carried out in August 2020, the FCA has published a policy statement on the extension of the FCA’s annual financial crime reporting obligation (PS21/4).

The policy statement proposes, based on the FCA’s understanding of money laundering risks, that additional firms and crypto asset businesses should be brought within the scope of the FCA’s annual financial crime reporting obligations and submit an annual financial crime report (referred to as ‘REP-CRIM’). As such, the FCA is increasing the number of firms required to submit a REP-CRIM return from 2,500 to approximately 7,000.

REP-CRIM is intended to provide the FCA with information on a range of indicators, reflecting the potential money laundering risks of regulated activities carried out by firms. Data required to be reported under REP-CRIM includes information on:

  • politically-exposed persons;
  • high-risk jurisdictions and customers;
  • the number of Suspicious Activity Reports that have been filed;
  • sanctions screening systems; and
  • prevalent frauds.

Firms that will be brought into the scope of REP-CRIM for the first time should take steps to prepare the submission of REP-CRIM returns as and when they become due.

FCA Policy Statement PS21/4: Extension of Annual Financial Crime Reporting Obligation

FCA Supervision Manual (Financial Crime Report) (Amendment No 2) Instrument 2021 – FCA 2021/13

Annual Financial Crime Reporting Requirements for Cryptoasset Businesses Registered under the Money Laundering Regulations

Webpage

Enforcement

Issue 1103 / 1 April 2021

HEADLINES

  1. Payment Systems Regulator
    1. Pre-paid Cards Market Cartel – PSR issues Statement of Objections –31 March 2021
  2. Financial Conduct Authority
    1. FCA Decision Notice – Non-financial misconduct –29 March 2021
  3. Competition Markets Authority 
    1. SME Banking Undertakings 2002 – CMA publishes letter to Danske Bank –30 March 2021
  4. European Securities and Markets Authority 
    1. Conflicts of interest failures under the Credit Rating Agencies Regulation – ESMA fines CRA –30 March 2021
  5. Recent Cases
    1. Financial Conduct Authority v 24HR Trading Academy Limited and another [2021] EWHC 648 –25 March 2021
    2. R (Donegan and others) v Financial Services Compensation Scheme Ltd [2021] EWHC 760 (Admin) –29 March 2021

Payment Systems Regulator

Pre-paid Cards Market Cartel – PSR issues Statement of Objections – 31 March 2021

The Payment Systems Regulator (PSR) has issued a Statement of Objections alleging that Mastercard, allpay, APS, PFS and Sulion engaged in anti-competitive behaviour by agreeing not to compete or poach each other’s public sector clients.

The statement represents the PSR’s provisional findings in a case which relates to pre-paid cards used by local authorities in England, Scotland and Wales to distribute welfare payments, with Mastercard, allpay and PFS having admitted in February 2021 that they took part in the alleged anti-competitive arrangements.

The PSR alleges two infringements of the Competition Act 1998, both of which took the form of coordinated commercial behaviour resulting in market sharing and customer allocation:

  • the first infringement lasted six years, between 2012 and 2018, and involved all five parties agreeing not to target or poach each other’s public sector customers that were part of a network sponsored by Mastercard; and
  • the second infringement lasted two years, between 2014 and 2016, and involved APS and PFS having arranged not to target each other’s public sector customers when a contract was up for renewal, including through public tender.

The parties will now have an opportunity to make representations on the PSR’s provisional findings.

PSR press release

Financial Conduct Authority

FCA Decision Notice – Non-financial misconduct – 29 March 2021

The FCA has published a decision notice dated 1 October 2020 in respect of Jon Frensham, an independent financial adviser and the sole director at Frensham Wealth Limited.

The FCA considers that Mr Frensham is not a fit and proper person and has decided to withdraw his approval to perform his current senior management functions and to make an order prohibiting him from performing any functions in relation to a regulated activity. In March 2017, Mr Frensham was convicted of attempting to meet a child following sexual grooming. He committed this offence whilst he was an approved person. Mr Frensham was sentenced to 22 months’ imprisonment, suspended for 18 months.

Mr Frensham has referred the Decision Notice to the Upper Tribunal (the Tribunal) where he and the FCA will each present their cases. The Tribunal will then determine what, if any, is the appropriate action for the FCA to take, and will remit the matter to the FCA with such direction as the Tribunal considers appropriate for giving effect to its determination. Accordingly, the action outlined in the Decision Notice is provisional and will have no effect pending the determination of the case by the Tribunal.

Decision Notice

Press release

Competition Markets Authority 

SME Banking Undertakings 2002 – CMA publishes letter to Danske Bank – 30 March 2021

The Competition and Markets Authority (CMA) has published a letter to Danske Bank in relation to its breach of the Small and Medium-sized Enterprises (SME) Banking Undertakings 2002.

In 2002, Danske Bank had undertaken not to require, agree or threaten to require that customers open or maintain a business current account (BCA) with it as a condition of receiving, servicing or maintaining a loan; a process known as ‘bundling’.

On 4 May 2020 Danske Bank started to provide loans under the Government’s Bounce Back Loan Scheme (the Scheme) which was designed to enable smaller businesses to access finance more quickly during the COVID-19 pandemic. Danske Bank required 305 of its SME customers (which were operating their business finances through a personal current account with Danske Bank) to open a BCA in order to progress their application for a loan under the Scheme. The CMA found that:

  • these SMEs opened BCAs with Danske Bank which they may not have wanted or needed in order to obtain finance during a critical time; and
  • Danske Bank has been applying charges and fees to the BCAs.

The CMA considered that this breach is likely to have inflicted financial harm on these customers. Danske Bank agreed to end the breach and mitigate its impact by taking various actions (found in its Action Plan).

Given the positive engagement with Danske Bank and the nature and scale of the actions it has proposed and taken, the CMA does not consider it necessary to take formal enforcement action at this time. However, the CMA will monitor this issue closely and reserves the right to take formal enforcement action should Danske Bank fail to adhere to its Action Plan.

Letter from CMA to Danske Bank

Action Plan

Webpage

European Securities and Markets Authority 

Conflicts of interest failures under the Credit Rating Agencies Regulation – ESMA fines CRA – 30 March 2021

The European Securities Markets Authority (ESMA) has fined five entities in the Moody’s Group — based in France, Germany, Italy, Spain and the United Kingdom — a total of €3,703,000 and issued public notices for breaches of the Credit Ratings Agencies Regulation (1060/2009) (CRAR) regarding independence and the avoidance of shareholder conflicts of interest. The breaches related to:

  • the issuance of credit ratings (ratings) in violation of the ban on issuing new ratings on entities where a credit rating agency (CRA) shareholder exceeds the 10% ownership threshold and/or is a board member of the rated entity;
  • failure to disclose conflicts of interests relating to the 5% ownership threshold; and
  • inadequate internal policies and procedures to manage shareholder conflicts of interest.

Public Notice

Press release

Recent Cases

Financial Conduct Authority v 24HR Trading Academy Limited and another [2021] EWHC 648 – 25 March 2021

The FCA has published a press release announcing that the High Court has delivered a summary judgment in proceedings commenced by the FCA against 24HR Trading Academy Limited (24HR Trading) and its sole director, Mohammed Fuaath Haja Maideen Maricar (Maricar).

The court found that 24HR Trading and Maricar had breached the general prohibition in section 19 of the Financial Services and Markets Act 2000 (FSMA). The court found that 24HR Trading unlawfully provided trading “signals” to consumers for a fee. The trading signals were sent via WhatsApp and contained recommendations about contracts for difference (CFDs) relating to currencies and commodities. The court found that these signals amounted to unlawful investment advice.

24HR Trading also encouraged consumers to open trading accounts with ‘partner brokers’ to place CFD trades. Maricar received sign-up and other commissions for this. The High Court ruled that this constituted financial promotion without FCA authorisation.

The High Court has ordered restitution payments of £530,695 plus interest.

FCA press release

R (Donegan and others) v Financial Services Compensation Scheme Ltd [2021] EWHC 760 (Admin) – 29 March 2021

In this claim for judicial review, the claimants challenged a decision announced by the Financial Services Compensation Scheme (FSCS) stating that it would not pay compensation to a category of investors who had suffered losses arising from the collapse of London Capital & Finance plc (LC&F).

The claimants were investors who purchased securitised bonds from LC&F. The FSCS came to its decision on the basis that the sale of the bonds did not fall within any regulated activity because the bonds were said not to be transferable securities, in particular because the bond documentation contained clauses stating that they could not be transferred. The claimants argued that: (i) as a matter of law, the bonds were transferable securities; and/or (ii) that LC&F in any event engaged in the regulated activity of agreeing to deal in transferable securities even if the bonds themselves were not transferable.

Mr Justice Bourne found that the bonds were not transferable securities as they were subject to express terms prohibiting their transfer and were for that reason not negotiable on the capital market. The claimants had also argued that the non-transfer terms were unfair terms for the purposes of the Consumer Rights Act 2015 and were therefore not binding; in the absence of binding non-transfer terms the bonds were transferable securities. Mr Justice Bourne found that an order disapplying the non-transfer provisions would not turn the bonds into transferable securities for regulatory purposes.

Mr Justice Bourne further found that if the bonds were not and did not become transferable securities, then the agreements to subscribe were not agreements in respect of transferable securities.

The claim was therefore dismissed.

Judgement