Includes developments in relation to: the EU digital finance package; UK EMIR; Principles of Remuneration 2022; and non-workplace pensions
Click on the headings below to access each section:
Issue 1137 / 25 November 2021
- Financial Stability Board
- European Commission
- Council of the European Union
- Council of the European Union and European Parliament
Financial Stability Board
FSB plenary - Summary of recent meeting published - 18 November 2021
The Financial Stability Board (FSB) has published a summary of its plenary meeting held in hybrid format in Basel, Switzerland, on 18 November 2021. Among other things, the group agreed the FSB’s work programme for 2022. The FSB intends, next year, to enhance the resilience of the non-bank financial intermediation (NBFI) sector; seek to address the potential risks associated with the use of crypto technologies, including stablecoins and decentralised finance (DeFi); and assess and address financial risks arising from climate change.
Klaas Knot will take over from Randal Quarles as FSB chair from 2 December 2021. A final version of the 2022 work programme will be published in the New Year.
CMU action plan - European Commission publishes Communication on progress - 25 November 2021
The European Commission (Commission) has published a Communication (COM(2021) 720) addressed to the European Parliament, the Council of the European Union, the European Economic and Social Committee, and the European Committee of the Regions, on the progress of its second action plan on the Capital Markets Union (CMU).
The annexes to the Communication set out the current state of play of the measures in the 2020 CMU action plan. The document also refers to plans for the Commission to accelerate its work to create an open finance framework to allow data to be shared and re-used by financial institutions for creating new services. The Commission also plans to propose a Directive by the third quarter of 2022 that will seek to harmonise targeted aspects of the corporate insolvency framework and procedures.
Council of the European Union
EU digital finance package - Council adopts position on MiCA and DORA - 24 November 2021
The Council of the European Union (Council) has adopted its position on the proposed Regulation on Markets in Crypto-Assets (MiCA) and the proposed Digital Operational Resilience Act (DORA).
The objective of MiCA is to create a regulatory framework for the cryptoassets market that supports innovation while preserving financial stability and protecting investors. DORA aims to establish a comprehensive regulatory framework on digital operational resilience with a view to ensuring that all firms within scope can withstand information and communication technology (ICT)-related disruptions and threats.
The proposed legislation forms part of the European Commission’s digital finance package, published on 24 September 2020 (as previously reported in this Bulletin; see also the item below on an agreement being reached between the European Parliament and the Council on a pilot regime for distributed ledger technology).
The Council and the European Parliament will now enter negotiations on the proposals, with a view to reaching agreement at first reading.
Council of the European Union and European Parliament
Distributed ledger technology - European Parliament and European Council agree pilot regime - 25 November 2021
The European Parliament has agreed a pilot regime with the European Council on the use of distributed ledger technology (DLT) in the financial services industry.
The pilot will be established using a ‘sandbox’ approach, allowing for temporary derogations from certain requirements imposed by EU financial services legislation. The project aims to assist the financial sector to make use of innovative technological advancements while also protecting investors and preserving financial stability. The press release notes that there are currently no authorised financial market infrastructures using DLT to provide trading or settlement services for cryptoassets that qualify as financial instruments.
The pilot will introduce a DLT settlement system and a DLT trading and settlement system, incorporating a number of value thresholds. Operators must have in place appropriate safeguards to protect investors, including defined liability to clients in respect of losses resulting from operational failure. Development and investment in low-emissions DLT is being encouraged so as not to undermine the EU’s climate policies.
Issue 1137 / 25 November 2021
See the Banking and Finance section for an item on a speech relating to the future of UK financial services delivered by the Economic Secretary, John Glen MP.
Banking and Finance
Issue 1137 / 25 November 2021
- Financial Stability Board and Basel Committee on Banking Supervision
- European Commission
- Official Journal of the European Union
- European Banking Authority
- European Central Bank
- Management of climate and environmental risks - ECB publishes report-22 November 2021
- Eurosystem oversight framework for electronic payment instruments, schemes and arrangements - ECB publishes framework - 22 November 2021
- SEPA payment scheme - EPC publishes revised guidance an updated version of its Creditor Identifier Overview and a clarification paper - 22 November 2021
- HM Treasury
- Bank of England
- Prudential Regulation Authority
- Competition and Markets Authority
- UK Finance
- Association for Financial Markets in Europe
Financial Stability Board and Basel Committee on Banking Supervision
G-SIBs - FSB publishes 2021 list and Basel Committee publishes assessment methodology - 23 November 2021
The Financial Stability Board (FSB) has published an updated list of global systemically important banks (G-SIBs) based on 2020 data. The Basel Committee on Banking Supervision (Basel Committee) has also published information relating to its assessment of G-SIBs, including an updated list of denominators of each of the high-level indicators used to calculate banks’ scores.
The number of G-SIBs on the list remains unchanged since November 2020. There has, however, been some movement between the buckets to which G-SIBs are assigned, which determine the higher capital buffer requirements that will apply to each G-SIB from 1 January 2022.
Mortgage Credit Directive - European Commission launches public consultation - 22 November 2021
The European Commission (Commission) has launched a public consultation on its review of the Mortgage Credit Directive (MCD). It has also published a report on its review and conducted a study evaluating the MCD.
In conducting the review, the Commission’s main aims are to:
- assess whether to adapt the rules to take account of present challenges and trends, particularly digitalisation, the need to enhance sustainability and the COVID-19 crisis; and
- ensure the rules guarantee high levels of consumer protection, further the aims of the single market and contribute to financial stability.
The consultation closes on 28 February 2022.
Official Journal of the European Union
CRD IV - Implementing Regulation containing amendments to ITS on benchmarking of internal models under CRD IV Directive published in OJ - 19 November 2021
Commission Implementing Regulation (EU) 2021/1971 amending Implementing Regulation (EU) 2016/2070 laying down implementing technical standards (ITS) for templates, definitions and IT solutions to be used by institutions when reporting to the EBA and competent authorities under Article 78(2) of the CRD IV Directive (2013/36/EU) has been published in the Official Journal of the European Union (OJ).
The draft ITS follows the EBA’s December 2020 public consultation (EBA/CP/2020/26) and its final report to the European Commission (EBA/ITS/2021/03).
The European Commission adopted the Implementing Regulation on 13 September 2021. It will enter into force on 9 December 2021 (20 days after its publication in the OJ).
EBA Commission Implementing Regulation (EU) 2021/1971 laying down implementing technical standards for templates, definitions and IT-solutions to be used by institutions when reporting to the European Banking Authority and to competent authorities in accordance with Article 78(2) of Directive 2013/36/EU of the European Parliament and of the Council
European Banking Authority
CRR and risk-weighted exposure amounts of collective investment undertakings - EBA publishes final report and draft RTS - 25 November 2021
The European Banking Authority (EBA) has published its final report (EBA/RTS/2021/14) on draft regulatory technical standards (RTS) regarding the calculation of risk-weighted exposure amounts of collective investment undertakings (CIUs) under Article 132a(4) of the Capital Requirements Regulation (575/2013/EU) (CRR).
Article 132(a) was introduced by the CRR II Regulation ((EU) 2020/876) and sets out three different approaches for the calculation of minimum capital requirements for institutions’ equity investments in CIUs. The mandate-based approach (MBA) allows institutions to calculate the risk-weighted exposure amount of CIUs in accordance with the limits set in the CIU’s mandate and relevant law. Article 132a(4) mandates the EBA to develop RTS, specifying how institutions should calculate the MBA where one or more of the inputs required for that calculation are not available.
The draft RTS are intended to: (i) clarify the steps to be taken for calculating the exposure value of a CIU’s derivatives exposures where the underlying risk of derivatives is unknown; and (ii) provide for cases where the calculation of the exposure amount to counterparty credit risk of a netting set of a CIU’s derivative exposures is needed.
The final report follows the EBA’s consultation paper (EBA/CP/2020/25) on the matter, published on 16 December 2020.
European Central Bank
Management of climate and environmental risks - ECB publishes report - 22 November 2021
The European Central Bank (ECB) has published a report on its review of banks’ approaches to managing climate and environmental (C&E) risks. The ECB asked 112 significant institutions to conduct a self-assessment of their current practices against, and to submit implementation plans in respect of, the 13 supervisory expectations that were set out in the ECB’s November 2020 Guide on C&E risks, as previously reported in this Bulletin.
Overall, the report finds that the pace of progress remains slow and that, more specifically:
- none of the significant institutions are close to fully aligning their practices with the supervisory expectations;
- few significant institutions have put in place C&E risk practices with a discernible impact on their strategy and risk profile;
- most significant institutions have a blind spot for physical risks and other environmental risk drivers, such as biodiversity loss and pollution; and
- virtually all significant institutions have developed implementation plans to further improve their practices, but their quality varies considerably.
The ECB expects all significant institutions to take decisive action to address the shortcomings set out in a dedicated supervisory feedback letter. In some cases, banks will receive a qualitative requirement as part of the Supervisory Review and Evaluation Process (SREP). The ECB will gradually integrate C&E risk into its SREP methodology, which will eventually influence Pillar 2 capital requirements.
Supervisors are also currently investigating banks’ C&E risk disclosures. The ECB will publish its findings in an updated report on climate and environmental disclosures in the first quarter of 2022, together with individual feedback to the banks.
Eurosystem oversight framework for electronic payment instruments, schemes and arrangements - ECB publishes framework - 22 November 2021
The European Central Bank (ECB) has published its Eurosystem oversight framework for electronic payment instruments, schemes and arrangements (PISA framework). This follows the ECB’s public consultation on the same matter, published on 27 October 2020. The ECB has also published an assessment methodology and exemption policy associated with the PISA framework.
The Eurosystem will use the new framework to oversee firms enabling or supporting the use of payment cards, credit transfers, direct debits, e-money transfers and digital payment tokens, including electronic wallets. The PISA framework will also cover cryptoasset-related services, such as the acceptance of cryptoassets by merchants within a card payment scheme and the option to send, receive or pay with cryptoassets via an electronic wallet.
Firms that are already subject to Eurosystem oversight are expected to have adhered to the principles of the new PISA framework since 15 November 2022. Other firms will have a grace period of one year from the moment they are notified that they will fall within scope.
SEPA payment scheme - EPC publishes revised guidance an updated version of its Creditor Identifier Overview and a clarification paper - 22 November 2021
The European Payments Council (EPC) has published revised guidance documents relating to the single euro payments area (SEPA) scheme rulebooks, available on its webpage. Separately, the EPC has published an updated version of its Creditor Identifier Overview (EPC262-08) (Version 9.0), designed to inform creditors about the need for a creditor identifier (CI) on SDD mandates and future collections and about the institutions in each SEPA country that can issue a CI.
It has also published a clarification paper (EPC132-17) (Version 2.0) on SDD Core and SDD B2B rulebooks, which addresses certain implementation operational issues and provides information about the 2023 SDD Core and SDD B2B scheme rulebooks.
New directions for the future of UK financial services - Speech by economic secretary, John Glen MP - 24 November 2021
HM Treasury has published a speech by the economic secretary to the Treasury, John Glen MP, on 23 November 2021 to the UK Finance Annual Dinner.
In the speech, Mr Glen referred to a need to “dispel that myth of the bad banker,” remarking that: “as we open the chancellor’s ‘new chapter’ for financial services, it’s only fair we acknowledge that banks have taken steps to repair the damage, including by making a bigger tax contribution in the years since the crisis.” Mr Glen also commented on the UK financial sector’s commitment to both diversity and inclusion, and to tackling climate change.
Mr Glen noted that, since his appointment in January 2018, “the landscape is much clearer. We’ve left the EU’s institutional framework. And step by step, where it makes sense, we are taking advantage of those new freedoms to refresh the UK’s position as the world’s pre-eminent financial centre”. With this in mind, Mr Glen drew attention to the Future Regulatory Framework Review consultation, published on 19 November 2021 (as previously reported in this Bulletin).
Finally, Mr Glen confirmed that the government intends to legislate as early as parliamentary time allows, to implement the changes identified in the Wholesale Markets Review. Some of the changes include: (i) giving firms greater choice about where they can trade by revoking the share trading obligation and doubling the volume cap; (ii) recalibrating the transparency regime for fixed income and derivatives markets; and (iii) to remove barriers that prevent the build-up of liquidity, reducing the scope of the position limits regime for commodity derivatives and transferring the setting of position limit controls from the FCA to trading venues.
Bank of England
Cross-border payments - Bank of England publishes speech by executive director for banking, payments and innovation - 22 November 2021
The Bank of England (Bank) has published a speech by Victoria Cleland, executive director for banking, payments and innovation, on cross-border payments, delivered at the Central Bank Payments Conference.
In the speech, Ms Cleland remarked that “despite their importance, many cross-border payments continue to suffer from long-standing challenges of high costs, low speed, limited access and insufficient transparency. These challenges can particularly impact remittances.” On the frictions underlying cross-border payments, she noted that they “have been around for many years. These frictions are multi-dimensional, meaning solutions must be developed holistically across the whole payments ecosystem, including issues such as data and messaging standards.”
Ms Cleland spoke of the Bank’s work in this area, which has focused on upgrading the Real Time Gross Settlement (RTGS) service, the core payments infrastructure in the UK. The upgrades should, according to Ms Cleland, enable longer operating hours and stronger links between payment systems. The Bank intends to consult industry in early 2022 on enhanced functionality under the RTGS service, with a new platform to be launched in late 2023. Ms Cleland also discussed the potential introduction of a UK central bank digital currency (CBDC), which has the potential to improve cross-border payments efficiency. The Bank remains undecided about whether to introduce a CBDC and will consult with HM Treasury in this regard in 2022.
Finally, Ms Cleland called on the private sector to “engage with the policymaking process and start…planning and budgeting”.
Prudential Regulation Authority
Operational resilience, OCIR and financial and mixed activity holding companies - PRA publishes consultation paper (CP21/21) - 25 November 2021
The PRA has published a consultation paper (CP21/21) setting out its proposals to apply the group provisions contained in the Operational Resilience section of the PRA Rulebook relevant to Capital Requirements Regulation (575/2013/EU) (UK CRR) firms to financial and mixed activity holding companies.
The proposals reflect the PRA’s new power under section 192XA of FSMA, introduced by the Financial Services Act 2021, to make rules applying to approved and designated financial and mixed activity holding companies in certain situations.
The PRA is also consulting on minor formatting and clarification amendments to the Operational Resilience and Operational Continuity Parts of the PRA Rulebook, as set out in Annexes 1 and 3, respectively, as well as consequential amendments to the PRA’s Supervisory Statement (SS1/21), ‘Operational resilience: Impact tolerances for important business services’, as set out in Appendix 2.
The PRA consultation closes on 14 January 2022. The proposals on operational resilience would come into force on 31 March 2022, while the proposals on operational continuity in resolution (OCIR) would come into force on 1 January 2023.
Competition and Markets Authority
Open Banking lessons learned - CMA publishes terms of reference - 23 November 2021
The Competition and Markets Authority (CMA) has published the terms of reference for an Open Banking lessons learned review. The Open Banking initiative was launched by the CMA in 2017, following its retail banking market investigation. It is delivered through the Open Banking Implementation Entity (OBIE), funded by the nine largest UK current account providers, and is overseen by the CMA-appointed Implementation Trustee.
The review seeks identify the lessons the CMA should learn from recent issues at OBIE in order to make recommendations for the CMA’s future approach to remedies resulting from market investigations. Kirstin Baker, an independent non-executive director of the CMA, is leading the review.
The review will not revisit the questions considered by the independent investigation into the OBIE, conducted by Alison White, but will take the report into account to answer a number of key questions, including, among others:
- what weaknesses there were in the CMA’s design, implementation and monitoring of the OBIE;
- what factors the CMA should consider when designing, implementing and monitoring remedies in future market investigations;
- what measures or processes would ensure that the governance of market investigations is effective and appropriate, including where scope or timeframes change; and
- what the process for CMA executive and board oversight of remedies should be when the oversight of the Market Investigation Reference Group ends.
The review will be completed within 6 months. The findings will be reported to the CMA Board and published.
Open banking - UK Finance publishes report on future strategy - 22 November 2021
UK Finance has published a report on the future strategy of open banking payments. The report arrives against a backdrop of growth in open banking transactions, which increased fivefold in the year to September 2021.
The report’s key recommendations relate to:
- governance: open banking payment standards should be further developed. A technical group, including industry bodies, should be established once the Competition and Markets Authority (CMA) has reached a decision on open banking governance and a successor body to the Open Banking Implementation Entity (OBIE); and
- a multi-lateral industry framework: a voluntary framework for open banking payments should be explored to prevent market fragmentation.
UK Finance will discuss the report with regulators and other industry bodies with a view to taking the recommendations forward.
Association for Financial Markets in Europe
Sustainable finance and the regulatory landscape - AFME published Guide - 22 November 2021
The Association for Financial Markets in Europe (AFME) has jointly published a guide with Linklaters on sustainable finance regulation in Europe for banks and capital markets. The guide provides an overview of the regulatory landscape, identifying five key elements of the European sustainable finance framework:
- sustainability reporting and disclosures, including the proposed Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR);
- the development of taxonomies for sustainable activities such as the Taxonomy Regulation ((EU) 2020/852);
- the development of market standards;
- the incorporation of environmental, social and governance (ESG) into banks’ risk management; and
- initiatives relating to sustainable corporate governance.
The guide then identifies three priority areas to facilitate the flow of capital to help achieve sustainability objectives: (i) finalising effective foundations; (ii) ensuring coherence and consistency; and (iii) strong international coordination.
Part 2 of the guide sets out a timeline of sustainable finance and ESG matters within the EU and the UK.
Securities and Markets
Issue 1137 / 25 November 2021
- International Organization of Securities Commissions
- Financial Stability Board
- European Systemic Risk Board
- European Securities and Markets Authority
- CCP investment practices for highly liquid financial instruments and money market funds - ESMA publishes consultation paper - 19 November 2021
- Emissions allowances and derivatives thereof - ESMA publishes preliminary report - 19 November 2019
- BMR, CSDR, EMIR, ECSPR, MiFIR and the Securitisation Regulation - ESMA updates Q&As - 19 November 2021
- MiFID recovery package - ESMA publishes final report on draft RTS for new commodity derivativesframework - 22 November 2021
- EMIR - ESMA publishes discussion paper on clearing thresholds - 22 November 2021
- MAR - ESMA publishes annual report on administrative and criminal sanctions - 23 November 2021
- European Commission
- Bank of England and Financial Conduct Authority
- Financial Conduct Authority
International Organization of Securities Commissions
ESG ratings and data products providers - IOSCO publishes final report - 23 November 2021
The International Organization of Securities Commissions (IOSCO) has published its final report (FR09/21) on environmental, social and governance (ESG) ratings and data products providers. This follows IOSCO’s consultation report (CR02/21) on the same matter, published in July 2021. A summary of responses has been included as Annex 3 to the report. Overall, respondents were supportive of IOSCO’s work and broadly in agreement with its proposed recommendations.
The final report sets out ten recommendations in Annex 2. These relate to, among other matters: (i) increasing transparency around the use of methodologies; (ii) ensuring procedures for managing conflicts of interest are appropriate; (iii) and improving communication channels between providers and the entities covered by their ESG ratings or data products without undermining their impartiality.
Financial Stability Board
LIBOR cessation - FSB publishes statement urging engagement and transition - 22 November 2021
The Financial Stability Board (FSB) has published a statement on LIBOR cessation, noting that most LIBOR panels will cease at the end of 2021, save for certain US dollar (USD) settings. In the FSB’s view, the continued reliance of global markets on LIBOR poses a risk to financial stability. Whilst significant progress has been made to transition to risk-free rates (RFRs), swift action is required to ensure the timelines set out by the FSB in its June 2021 roadmap are met. The FSB is particularly concerned by the widespread use of USD LIBOR in emerging markets and developing economies (EMDEs) and therefore considers engagement with EMDEs a critical part of global LIBOR transition.
The FSB encourages market participants to transition to overnight RFRs or, where necessary, RFR-derived term rates. Whilst it acknowledges that regulators, including in the UK and Japan, have taken steps to facilitate the publication of ‘synthetic’ LIBOR rates, it emphasises that active transition is the best way to promote control and certainty and, unlike synthetic LIBOR, provides a permanent solution.
The FSB will continue to monitor the steps taken to complete LIBOR transition over the coming months. In mid-2022, it will conduct a review of three remaining issues: (i) reduction of the stock of legacy contracts using synthetic LIBOR; (ii) any continued issuance of USD LIBOR contracts post-31 December 2021; and (iii) the size of legacy contracts referencing USD LIBOR due to mature after that rate’s cessation in June 2023.
European Systemic Risk Board
Margin calls - ESRB publishes compliance report - 22 November 2022
The European Systemic Risk Board (ESRB) has published a compliance report (ESRB/2020/6) on its recommendation to address the liquidity risks arising from margin calls.
Despite a relatively high degree of compliance with the recommendation, the compliance report highlights several issues where further analytical and policy work may be warranted. In the area of central clearing, these issues relate to:
- the evaluation of the performance of anti-procyclical (APC) tools used by CCPs to determine their initial margins;
- the use of specific APC tools in client clearing, which seems to be lacking;
- the inclusion in the liquidity risk stress test scenarios of any two entities (not only clearing members, as strictly prescribed by the current regulatory framework) to which a CCP has liquidity exposure; and
- a reluctance to implement the pass-through of intraday variation margins.
European Securities and Markets Authority
CCP investment practices for highly liquid financial instruments and money market funds - ESMA publishes consultation paper - 19 November 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper (ESMA91-372-1593) examining the potential extension of the list of financial instruments eligible for investments by central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR) ((EU) 648/2012), including EU Money Market Funds (MMFs).
Under current circumstances and given expected future regulatory reform under the Money Market Funds Regulation ((EU) 2017/1131) (MMFR), ESMA does not believe that there are sufficient grounds to recommend an extension of the list of financial instruments for CCP investments to MMFs at this stage.
ESMA will consider the responses it receives to this consultation paper and expects to publish a final report during the spring of 2022.
Emissions allowances and derivatives thereof - ESMA publishes preliminary report - 19 November 2019
ESMA has published a preliminary report (ESMA70-445-7) (dated 15 November 2021) on the trading of emission allowances (EUAs) and derivatives in the EU carbon market. The report responds to a request made by the European Commission (Commission) to ESMA in its Communication on Energy Prices, ‘Tackling rising energy prices: a toolbox for action and support’, published on 13 October 2021.
The report makes a number of preliminary observations of recent market developments in the carbon market, which are broadly in line with its expected functioning. ESMA intends to conduct an in-depth analysis of the market based on data available by virtue of the application of the Markets in Financial Instruments Directive (MiFID II) (2014/65/EU) and European Market Infrastructure Regulation (EMIR) ((EU) 648/2012). The Commission will then assess whether regulatory action is required.
ESMA will produce a report analysing the trading of EUAs by early 2022.
BMR, CSDR, EMIR, ECSPR, MiFIR and the Securitisation Regulation - ESMA updates Q&As - 19 November 2021
ESMA has updated its Q&As on the following:
- the Benchmarks Regulation ((EU) 2016/1011) (BMR): on the disclosure requirements in Section 3 of Annex I of the benchmark statement, and environmental, social and governance (ESG) factors and ESG objectives;
- the Central Securities Depositories Regulation (909/2014) (CSDR): on partial settlement functionality;
- the European Market Infrastructure Regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories ((EU) 648/2012) (EMIR): on the calculation of positions for the clearing thresholds under Articles 4a and 10 of EMIR, as amended by Regulation 2019/83,; and the hedging definition under Article 10(3) of EMIR;
- the European crowdfunding service providers for business ((EU) 2020/1503) (ECSPR): on (i) the transitional period; (ii) provisions of crowdfunding services and organisation and operational requirements; and (iii) investor protection provisions;
- the Markets in Financial Instruments Directive (MiFID II) (2014/65/EU) and the Markets in Financial Instruments Regulation ((EU) 600/2014) (MiFIR): on the application of product governance requirements to bonds embedding a make-whole clause; and
- the Securitisation Regulation ((EU 2017/2402): on (i) individual fields in disclosure templates; (ii) trigger measurements in investment reports; and (iii) completing synthetic coverage information.
MiFID recovery package - ESMA publishes final report on draft RTS for new commodity derivatives framework - 22 November 2021
ESMA has published its final report (ESMA70-156-4710) on draft regulatory technical standards (RTS) and draft implementing technical standards (ITS) for commodity derivatives under the Markets in Financial Instruments Directive Amending Directive ((EU) 2021/338) (MiFID II Amending Directive). The key changes relate to the ancillary activity test and to the scope of application of position limits.
The final report follows ESMA’s May 2021 consultation on the matter (ESMA70-156-4067), as previously reported in this Bulletin. In short, ESMA has proposed, in the annexes to the report:
- draft RTS 21a laying down rules for the calculation of the net positon held by a person in a commodity derivative, the methodology for calculating the position limits on the size of that position and the procedures for applying for exemptions to position limits. This would repeal existing Commission Delegated Regulation (EU) 2017/591 (RTS 21);
- draft RTS on specifying the content of position management controls by trading venues positions management; and
- draft ITS amending Commission Implementing Regulation (EU) 2017/1093 laying down ITS with regard to the format of position reports by investment firms and market operators.
The draft RTS and ITS have been submitted to the European Commission for endorsement. The revised MiFID II regime for commodity derivatives will apply at the end of February 2022.
EMIR - ESMA publishes discussion paper on clearing thresholds - 22 November 2021
ESMA published a discussion paper (ESMA70-156-5010) that reviews the clearing thresholds under the European Market Infrastructure Regulation ((EU) 648/2012) (EMIR). The review is required by the EMIR Refit Regulation ((EU) 2019/834).
The discussion paper: (i) maps the population that is currently subject to mandatory clearing to assess if the clearing thresholds are fit for purpose following the changes introduced by EMIR; and (ii) assesses whether a revision of these thresholds would be beneficial to tackle the systemic risk associated with over-the-counter (OTC) derivative trading activity, while preserving the clearing obligation as one of the pillars for financial stability in OTC derivative markets.
ESMA concludes that a slight adjustment of the current clearing thresholds would not have a significant impact on the population of counterparties captured by the thresholds.
Feedback to the discussion paper is requested by 19 January 2022 and will be taken into account when ESMA prepares its follow-up report.
MAR - ESMA publishes annual report on administrative and criminal sanctions - 23 November 2021
ESMA has published its annual report (dated 20 October 2021) (ESMA70-156-4673) on administrative and criminal sanctions and other administrative measures imposed under the Market Abuse Regulation (596/2014/EU) (MAR) during 2020.
National competent authorities (NCAs) and other authorities imposed a total of EUR 17.5 million in fines related to 541 administrative and criminal actions under MAR. Overall, financial penalties were significantly lower than the previous year and the imposition of criminal sanctions also decreased.
Establishment of a consolidated tape - Commission adopts proposals to amend MiFID II Directive and MiFIR - 25 November 2021
The European Commission (Commission) has adopted proposals to amend Directive 2014/65/EU (MiFID II Directive) (COM(2021) 726 final) and Regulation (EU) 600/2014 (MiFIR) (COM(2021) 727 final) to reflect the establishment of a consolidated tape. The proposals are part of a wider EU effort to further integrate capital markets.
An accompanying factsheet notes that, at present, data on transactions in financial instruments in the EU is scattered across around numerous platforms. This fragmentation means that only the most sophisticated investors have access to a consolidated data set. The proposals aim to level the playing field by establishing a centralised data base, known as the ‘European consolidated tape’ (ECT), to provide, for equity and equity-like financial instruments, a comprehensive view on the prices and volume of securities traded across the EU’s trading venues. The Commission hopes that the proposals will also tackle liquidity and trade execution risk, both of which result from a lack of correct and current information.
Under the Commission’s proposals, execution platforms across the EU will be required to contribute directly trading data to the ECT. Data standards will be harmonised to ensure the data is usable and comparable. The European Securities and Markets Authority (ESMA) will nominate an existing consolidated tape provider to publish the information as close to real time as possible.
The proposals will now be discussed by the European Parliament and the Council.
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (COM(2021) 727 final)
European single access point - European Commission adopts legislative proposal - 25 November 2021
The Commission has adopted a legislative proposal (COM(2021) 723 final) for a Regulation establishing a European single access point (ESAP), providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability. It aims to reduce barriers to access to information by digital means, increasing the flows of information within the EU, including across borders. It also aims to foster the digital use and re-use of information.
The proposal is part of a package, also comprising: (i) a proposal for a Directive amending certain Directives as regards the establishment and functioning of the ESAP (COM(2021) 724 final); and (ii) a proposal for a Regulation amending certain Regulations as regards the establishment and functioning of the ESAP (COM(2021) 725 final).
Article 1 of the proposed Regulation mandates the European Securities and Markets Authority (ESMA) to establish the ESAP by 31 December 2024. If approved, the Commission will review the functioning and effectiveness of the ESAP five years following the entry into force of the proposed Regulation.
Separately, the Commission has also published a report on the legislative proposals (COM(2021) 723-724-725 final), an impact assessment (SWD(2021) 344 final) and an executive summary of the impact assessment (SWD(2021) 345 final).
The Council of the European Union and the European Parliament will now consider the Proposal. If approved, the Regulation will enter into force on the 20th day following its publication in the Official Journal of the European Union.
European Commission: Proposal for a Regulation of the European Parliament and of the Council establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability
European Commission: Proposal for a Regulation of the European Parliament and of the Council amending certain Regulations as regards the establishment and functioning of the European single access point (COM(2021) 725 final)
European Commission: Proposal for a Directive of the European Parliament and of the Council amending certain Directives as regards the establishment and functioning of the European single access point (COM(2021) 724 final
Bank of England and Financial Conduct Authority
UK EMIR - Bank of England and FCA publish joint consultation paper (CP21/31) - 25 November 2021
The Bank of England (Bank) and the FCA have published a joint consultation paper (CP21/31) detailing their proposals on changes to reporting requirements, procedures for data quality and registration of trade repositories (TRs) under the retained EU law version of the European Market Infrastructure Regulation (648/2012/EU) (UK EMIR). The Bank and the FCA are jointly consulting as they share supervisory responsibilities for the reporting requirements under Article 9 of UK EMIR. Separately, the FCA is also proposing new targeted requirements TRs.
The consultation paper sets out the Bank and FCA’s joint proposals, which include:
- amending the table of reportable fields in the relevant technical standards under UK EMIR to align with international guidance issued by the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions (CPMI-IOSCO);
- introducing notifications and reconciliation processes for counterparties;
- introducing specific requirements for the mandatory delegated reporting requirements under UK EMIR in the relevant technical standards;
- requiring counterparties to use standardised XML schemas when submitting details of their derivatives to a TR; and
- introducing specific requirements for the use of global identifiers.
Separately, the FCA is proposing amendments to the registration process for TRs to streamline the process for those already registered or recognised under the Securities Financing Transactions Regulation ((EU) 2015/2365) (UK SFTR). The FCA also proposes to (i) incorporate the payment of registration fees to align the registration process under UK EMIR and UK SFTR and (ii) impose new requirements on TRs to improve data quality and promote the consistency of reporting.
The joint consultation closes on 17 February 2021. Following consideration of responses, the Bank and the FCA will submit the updated technical standards to HM Treasury for approval under section 138R of FSMA. If approved, the Bank and the FCA will publish a policy statement, alongside any supporting materials. The new UK EMIR rules with new requirements for TRs will also be published in the FCA Handbook.
Financial Conduct Authority
Assessment of securitisation repositories - FCA publishes statement - 19 November 2021
The FCA has published a statement announcing that it “has assessed completeness and now reached the examination stage in the assessment process of applications received from Securitisation Repositories (SRs)” under the retained EU law version of the Securitisation Regulation ((EU) 2017/2402) (UK Securitisation Regulation).
The requirement to report public securitisations within the scope of the UK Securitisation Regulation to a SR that is registered and supervised by the FCA will apply as soon as one SR is registered. The FCA will inform market participants as soon as the registration of the first SR is completed.
Code recognition scheme - FCA recognises updated FX Global Code and the Global Precious Metals Code - 19 November 2021
The FCA has announced that it is recognising the updated FX Global Code (maintained and updated by the Global Foreign Exchange Committee) and the Global Precious Metals Code (maintained and updated by the London Bullion Market Association) (together, the Codes) under its code recognition scheme. The scheme is a process for recognising industry codes for unregulated financial markets and activities. Behaviour that is in line with an FCA recognised code will tend to indicate a person subject to the senior managers and certification regime is meeting their obligation to observe ‘proper standards of market conduct’ in relation to unregulated markets.
The FCA has highlighted that the following practices are not consistent with the Codes:
- ‘last look practices’ that incorporate a delay additional to what is required to complete price and validity checks; and
- pre-hedging practices where firms do not communicate their practices to clients in a manner that allows clients to understand the potential impact on the execution of their order. This includes practices where firms do not have appropriate controls to monitor conflicts of interest or limit access to confidential information.
More broadly, the FCA stressed that signatories to the Codes must make clear and transparent disclosures to market users to explain how their orders will be handled.
The recognition of the Codes will last initially until 22 November 2024.
Global Precious Metals Code
UK IFPR - FCA publishes additional MIFIDPRU application forms - 19 November 2021
The FCA has made available an additional nine MIFIDPRU (the Prudential sourcebook for MiFID (Markets in Financial Instruments Directive (204/39/EC)) Investment Firms) forms under the UK Investment Firms Prudential Regime (IFPR).
The IFPR will come into force on 1 January 2022.
Application under MIFIDPRU 2.3.1R to be exempt from disclosure requirements in MIFIDPRU 8 (disclosure by investment firms) for small and non-interconnected (SNI) firms in consolidated insurance groups
Application under MIFIDPRU 3.3.2R for permission to include interim or year-end profits as common equity tier 1 (CET1) capital before the firm has taken a formal decision confirming the final profit and loss for the year
Application under MIFIDPRU 4.11.9R for permission to exclude positions taken to hedge against the adverse effect of the exchange rate on own funds or an item deducted from capital from net open currency positions for the purpose of Article 352 of the retained EU law version of the Capital Requirements Regulation (575/2013) (UK CRR).
Application under MIFIDPRU 4.12.66R for permission to use sensitivity models to calculate interest rate risk on derivative instruments in accordance with Article 331(1) of the retained EU law version of the Capital Requirements Regulation (575/2013) (UK CRR).
See also the Banking and Finance section for an item on a speech relating to the future of UK financial services delivered by the economic secretary, John Glen MP in which Mr Glen referred to changes arising from the Wholesale Markets Review.
Issue 1137 / 25 November 2021
- European Banking Authority
- European Parliament
- European Commission
- Investment Association
European Banking Authority
Remuneration and governance under the IFD - EBA publishes revised guidelines - 22 November 2021
The European Banking Authority (EBA) has published final reports containing updated guidelines on sound remuneration policies (EBA/GL/2021/13) (Remuneration Guidelines) as well as revised guidelines on internal governance (EBA/GL/2021/17) (Governance Guidelines) under the Investment Firms Directive ((EU) 2019/2034) (IFD).
The Remuneration Guidelines provide detail on how Class 2 investment firms should apply the provisions on remuneration policies and variable remuneration of specific staff. These firms are non-systemically relevant but do not qualify as small and non-interconnected firms and are subject to the full scope of the IFD and the Investment Firms Regulation ((EU) 2019/2033) (IFR). The accompanying press release notes that the Remuneration Guidelines are “as far as possible consistent with those under the Capital Requirements Directive (CRD)” and that “differences between the IFD and CRD (e.g., the absence of a bonus cap and differences in instruments and the length of deferral periods) have been taken into account”.
The Governance Guidelines set out how the IFD governance provisions should be applied by the same subset of Class 2 investment firms, with a view to ensuring the sound management of risks across all three lines of defence (including, in particular, firms’ compliance, independent risk management and internal audit functions).
UCITS and PRIIPs - European Parliament adopts quick fix amendments - 23 November 2021
The European Parliament (Parliament) has announced that it has voted to adopt the following first reading positions in relation to undertakings for collective investments in transferable securities (UCITS):
- Position on the proposed Regulation amending the packaged retail and insurance-based investments products (PRIIPs) Regulation (1286/2014/EU) (P9_TA(2021)0461), extending a transitional arrangement explained below; and
- Position on the proposed Directive amending the UCITS Directive (2009/65/EC) (P9_TA(2021)0462) regarding key information documents (KIDs).
The European Commission (Commission) adopted a legislative proposal in July 2021 for a Directive amending the UCITS Directive which specified that, where a KID is produced for a UCITS under the PRIIPs Regulation, it should be deemed to satisfy the requirements applicable to key investor information for the purposes of the UCITS Directive. At the same time, the Commission adopted a legislative proposal for amendments to the PRIIPS Regulation extending a transitional arrangement under Article 32 which exempts certain firms advising on, or selling, units of UCITS and non-UCITS from the requirement to provide retail investors with a KID. Under the texts adopted by the Parliament, the Article 32 transitional arrangement will be extended until 31 December 2022, with the revisions to the UCITS Directive set to apply from 1 January 2023.
The Commission has been tasked with producing a report addressing certain issues in the PRIIPs Regulation, including the need for a clearer definition of retail investors and the provision of pre-contractual information to professional investors.
Next, the Council of the EU must adopt the legislative proposals. After this, the Regulation and the Directive will enter into force on the day following their publication in the Official Journal of the European Union.
Changes to UCITS and AIFMs Directives - European Commission adopts legislative proposal - 25 November 2021
The European Commission (Commission) has published a legislative proposal (COM(2021) 721 final) for a Directive to amend the Alternative Investment Fund Managers (AIFMs) Directive (2011/61/EU) (AIFMD) and the Directive relating to undertakings for collective investment in transferable securities (UCITS) (2009/65/EC) (the UCITS Directive), regarding delegation arrangements, liquidity risk management, supervisory reporting, provision of depository and custody services, and loan origination, by alternative investment funds.
The proposal for a Directive follows the Commission’s review of the scope of the AIFMD. Since the issues highlighted were equally relevant for the activities of UCITS, the Commission is proposing to amend both AIFMD and the UCITS Directive to better align their requirements.
On AIFMD, the proposed Directive would, amongst other things clarify that AIFMs providing ancillary services involving financial instruments are subject to the rules laid down in the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II). It would also lay down common rules to establish an efficient internal market for loan-originating AIFs, enable AIFs to develop their activities by originating loans in all Member States and facilitate the access to finance by EU companies.
On the UCITS Directive, the proposed Directive would, amongst other things, clarify that the delegation rules laid down in Article 13 apply to all functions listed in Annex II and to the ancillary services referred to in Article 6(3), to ensure uniform application. It would also delegate the power to adopt acts under Article 290 Treaty on the Functioning of the European Union (TFEU) to the Commission in respect of specifying the conditions for delegation from a UCITS management company to a third party, and the conditions under which a UCITS management company can be deemed a letter-box entity and therefore can no longer be considered to be the manager of the UCITS.
Separately, the Commission has also published an impact assessment (SWD(2021)340 final) and an executive summary of the impact assessment (SWD(2021)341 final).
The Council of the European Union and the European Parliament will now consider the proposal. If approved, the Directive will enter into force on the twentieth day following its publication in the Official Journal of the European Union.
European Commission: Proposal for a Directive of the European Parliament and of the Council: amending Directives 2011/61/EU and 2009/65EC as regards relegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (COM(2021) 721 final)
Webpage: COM(2021) 721 final
Webpage: Impact assessment (SWD(2021)340 final)
Webpage: Impact assessment: Executive summary (SWD(2021)341 final)
ELTIF Regulation - European Commission adopts legislative proposal - 25 November 2021
The Commission has adopted a legislative proposal (COM(2021) 722 final) for a Regulation to amend the Regulation on European long-term investment funds (ELTIFs) ((EU 2015/760) (ELTIF Regulation) regarding the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules, and requirements pertaining to the authorisation, investment policies and operating conditions of ELTIFs.
The proposal follows the Commission consultation relating to its review of the ELTIF Regulation, published on 19 October 2020, as well as the European Securities and Markets Authority’s priorities for amendments to the ELTIF Regulation, published 2 February 2021.
Separately, the Commission has also published a report on the functioning of the ELTIF framework (COM(2021) 738 final), an impact assessment (SWD(2021)342 final) and an executive summary of the impact assessment (SWD(2021)343 final).
The Council of the European Union and the European Parliament will now consider the Proposal. If approved, the Regulation will apply six months after its entry into force, being the 20th day following its publication in the Official Journal of the European Union.
European Commission: Proposal for a Regulation of the European Parliament and of the Council: amending Regulation (EU) 2015/760 as regards the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules and as regards requirements pertaining to the authorisation, investment policies and operating conditions of European long-term investment funds (COM 2021) 722 final)
Principles of Remuneration for 2022 - IA publishes report and letter to chairs of FTSE 350 remuneration committees - 18 November 2021
The Investment Association (IA) has published a report amending its principles of remuneration for 2022 (IA principles), alongside a letter to chairs of FTSE 350 remuneration committees.
The accompanying press release notes that investment managers will “expect companies to continue to show restraint and restrict executive bonuses where government support has been taken and not paid back during the year under review”. The letter also refers to the importance of environmental, social and governance (ESG) metrics, noting that these should flow through into determining executive pay and bonuses and should be clearly linked to company strategy. The rationale and robustness of ESG performance-related targets should also be made clear to investors.
Investment managers will expect to see a plan to align pension contributions for directors with the contribution levels of the wider workforce by the end of 2022, as part of wider efforts to ensure fairness and good employee relations.
See also the Asset Management section for an item on the EBA’s revised guidelines on remuneration and governance under the IFD.
Issue 1137 / 25 November 2021
- International Association of Insurance Supervisors
- European Insurance and Occupational Pensions Authority
- Prudential Regulation Authority
- Financial Conduct Authority
International Association of Insurance Supervisors
IAIS annual general meeting and conference - Summary made available -19 November 2021
The International Association of Insurance Supervisors (IAIS) has published a press release summarising its 28th annual general meeting and conference, held virtually. Among the matters discussed were the status of the design of the insurance capital standard (ICS) and the comparability assessment of the Aggregation Method; the IAIS’s commitment to help accelerate supervisory responses to climate change; and the importance of diversity, equality and inclusion considerations to insurance supervisory objectives
European Insurance and Occupational Pensions Authority
Solvency II - EIOPA publishes annual report on capital add-ons - 22 November 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published its annual report on the use of capital add-ons (CAOs) by national competent authorities (NCAs) under the Solvency II Directive (2009/138/EC). During 2020 a total of seven NCAs imposed CAOs on nine solo undertakings (six non-life and three life undertakings). As was the case in 2019, no CAOs were imposed for groups.
Prudential Regulation Authority
Solvency II review - PRA publishes speech - 25 November 2021
The PRA has published a speech by Charlotte Gerken, executive director, insurance, on the PRA’s role in the review of the Solvency II regime. Speaking at the 2021 Insurance Asset Management Conference, Ms Gerken focuses on the opportunity to consider reforms that will promote investments by insurers in the emerging green economy.
Ms Gerken suggested that the following changes to the Solvency II regime, among others, may be considered:
- amendments to matching adjustment (MA) criteria so that certain infrastructure assets, including green infrastructure, are caught;
- reforms to the regime for approving internal models, to allow firms greater flexibility to use forward-looking assessments of risk which are more able to take into account climate risk;
- clarifying the PRA’s liquidity expectations with respect to certain construction phase assets, in order to allow firms to invest productively rather than holding cash or gilts; and
- streamlining the PRA’s application process for MA portfolio changes.
Ms Gerken also remarked that the PRA is looking to facilitate competition in the insurance sector by easing entry.
In the coming months, the PRA will analyse the results of its quantitative impact study and qualitative questionnaire and will discuss the firms’ responses with them. Reform proposals will be drawn up in conjunction with HM Treasury and brought to consultation in 2022.
Financial Conduct Authority
General insurance pricing practices - FCA updates webpage with forms - 19 November 2021
The FCA has updated its webpage on Policy Statement PS21/11 regarding general insurance pricing practices. PS21/11 made minor changes to the rules set out in PS21/5. PS21/5 sets out the requirement for senior managers to provide annual confirmation that their firm has complied with the requirements in the Insurance Conduct of Business sourcebook (ICOBS) 6B.2.60R. The aim of this requirement is to help the FCA hold firms and individuals to account for ending price walking for home and motor insurance. The updated webpage includes examples of the forms that senior managers will need to use, as well as a template cover letter.
Non-workplace pensions - FCA publishes consultation paper (CP21/32) -25 November 2021
The FCA has published a consultation paper (CP21/32) on improving outcomes in non-workplace pensions (NWPs). Currently, NWP customers must choose their own investments from an increasingly wide range of options. The proposals detailed in the consultation paper aim to ensure that customers who choose not to take financial advice can benefit from a professionally designed investment strategy, and reduce the risk of their retirement income being eroded by inflation.
The proposals follow the FCA’s discussion paper (DP18/1) on effective competition in NWPs, published on 2 February 2018. They are intended to implement some of the remedies outlined in the PRA’s feedback statement (FS19/5), published on 30 July 2019.
Under the proposals, the ‘default option’ would be an appropriately diversified basket of investments that take into account climate change and other environmental, social and governance (ESG) risks. As customers approach retirement, these investments would be adjusted to limit market impacts on customers’ savings. The consultation paper also details proposals for NWP providers to warn customers holding high levels of cash and prompt them to consider investing in other assets with the potential for growth.
The FCA consultation closes on 18 February 2022. The FCA intends to publish a policy statement and Handbook rules in 2022. It proposes to give providers 12 months to implement the proposals and will carry out a post-implementation review no earlier than 2024.
Issue 1137 / 25 November 2021
- UK Parliament
- HM Treasury
Economic crime (anti-money laundering) levy - House of Commons publishes amendment paper to the Finance (No. 2) Bill - 18 November 2021
The House of Commons has published an amendment paper to the Finance (No. 2) Bill (Bill). The amendments apply to clauses 53 to 66 in Part 3 of the Bill which introduce the economic crime (anti-money laundering) levy (ECL) that will apply to certain persons regulated under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs).
Three notable changes have been introduced by the amendments:
- the fixed fees (which depend on UK revenue levels) have been set at £10,000 (medium), £36,000 (large) and £250,000 (very large);
- certain distributions are disregarded when calculating a person’s UK revenue; and
- HM Treasury is empowered to make regulations to determine the authority that is to exercise functions where more than one authority has power to do so. HM Treasury may also grant HM Revenue and Customs (HMRC) enforcement functions where either the FCA or the Gambling Commission is the collection authority.
AML and CTF - HM Treasury publishes supervision report 2019/20 - 19 November 2021
HM Treasury has published its ninth annual supervision report on anti-money laundering (AML) and counter-terrorist financing (CTF) for 2019/20. The report relates to the performance of AML and CTF supervisors (including the FCA) between 6 April 2019 and 5 April 2020, as is required under section 51 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs).
The supervision report concludes that supervisory action is broadly consistent with the previous reporting period, and refers to a need for greater consistency in the approach to supervision and enforcement.