Includes developments in relation to: Sustainable Finance; the Financial Services Bill; UCITS; MiFID II; LIBOR; Brexit; COVID-19; and Solvency II.

General

Issue 1106 / 22 April 2021

HEADLINES

  1. European Commission
    1. Corporate Sustainability Reporting Directive – Commission adopts proposal–21 April 2021
    2. Sustainable finance – European Commission adopts delegated legislation integrating sustainability into UCITS Directive, AIFMD, MiFID II, Solvency II and IDD– 21 April 2021
    3. Sustainable finance – European Commission publishes communication and legislation on sustainable finance and taxonomy– 21 April 2021
  2. UK Parliament
    1. Financial Services Bill – House of Lords completes report stage and proposes amendments– 21 April 2021
    2. Greensill Capital – Treasury Committee launches inquiry– 20 April 2021
  3. HM Treasury
    1. London Capital & Finance plc – Government announces details of compensation scheme– 19 April 2021
    2. FinTech and financial services – Ambitious plans to boost sector set out by Chancellor– 19 April 2021
  4. Bank of England
    1. Meeting varied people – BoE launches diversity initiative–21 April 2021
  5. Prudential Regulation Authority
    1. Publishing waivers and modifications – webpage updated– 20 April 2021
    2. Remuneration Benchmarking and Remuneration High Earners reporting templates – PRA publishes statement– 22 April 2021
  6. Financial Conduct Authority
    1. Sustainability and technology – FCA makes key new hires– 19 April 2021
    2. London Capital & Finance plc – FCA sets out broad approach to assessing complaints– 19 April 2021
    3. Fees and levies – FCA launches consultation– 20 April 2021
    4. Transformation programme – FCA updates HM Treasury– 20 April 2021
    5. Business plan – FCA announces update– 20 April 2021
    6. Diversity and inclusion – FCA publishes speech– 22 April 2021
  7. Financial Ombudsman Service
    1. Interim Chief Executive and Chief Ombudsman – FOS appoints Nausicaa Delfas– 19 April 2021

European Commission

Corporate Sustainability Reporting Directive – Commission adopts proposal – 21 April 2021

The European Commission has adopted a proposal for a Corporate Sustainability Reporting Directive to alter and expand the current reporting requirements under the Non-Financial Reporting Directive (2014/95/EU) (NFRD). The Directive is designed to improve sustainability reporting at the lowest possible cost.

Following its February 2020 consultation on NFRD revision, the Commission found that there was very strong support for mandatory sustainability reporting standards but there are deficiencies in the current regime, including information being difficult to find and problems in the quality of reporting creating accountability gaps.

Under the proposed Directive, the scope of sustainability reporting requirements would be extended to include all large companies without the previous 500-employee threshold, and listed SMEs (except for listed micro-enterprises). This would catch nearly 50,000 companies compared to the current 11,000.

These companies would have to report information on a wide range of environmental, social and governance (ESG) issues. They would be required to report according to mandatory EU sustainability reporting standards, and the Commission would adopt delegated acts to provide for such standards. To limit the burden on listed SMEs, however, they would be permitted to report according to simpler standards than large companies.

The proposed Directive would introduce a general EU-wide audit requirement for reported sustainability information, starting with a ‘limited’ assurance requirement and potentially moving towards a ‘reasonable assurance’ requirement at a later stage.

The Commission, European Parliament and Council of the EU will now engage in discussions while the European Financial Reporting Advisory Group (EFRAG) starts work on a first set of draft sustainability reporting standards. It aims to have this ready by mid-2022.

Proposal for the Directive

Communication from the Commission

Webpage

Press release

Sustainable finance – European Commission adopts delegated legislation integrating sustainability into UCITS Directive, AIFMD, MiFID II, Solvency II and IDD – 21 April 2021

The European Commission has adopted the following six Commission Delegated Regulations and Directives as part of its work on sustainable finance:

  • a Delegated Directive which supplements the UCITS Directive (2009/65/EC) by specifying, among other things, organisational requirements, how to identify the types of conflicts of interest and the contents of risk management policies for UCITS management companies.
  • a Delegated Regulation which supplements the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and sets out operating conditions, including rules on due diligence and identification of types of conflicts of interest for alternative investment fund managers (AIFMs).
  • a Delegated Directive which supplements the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and contains product governance obligations.
  • a Delegated Regulation which also supplements MiFID II, and contains organisational requirements and operating conditions for investment firms.
  • a Delegated Regulation which supplements the Solvency II Directive (2009/138/EC) by specifying requirements on governance, conflicts of interest and risk management for insurance and reinsurance undertakings.
  • a Delegated Regulation amending Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 as regards the integration of sustainability factors and preferences into the product oversight and governance requirements for insurance undertakings and distributors and into the rules on conduct of business and investment advice for insurance-based investment products.

The delegated legislation has been published as part of the Commission’s communication on sustainability finance and is designed to reinforce obligations contained in Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector and Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable lending (Taxonomy Regulation). 

The next step involves the Council of the EU and the European Parliament to consider the legislation. A set of Commission Q&As states the new requirements are expected to apply from October 2022.

Commission Delegated Directive amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for UCITS (C(2021) 2617 final)

Commission Delegated Regulation amending Delegated Regulation (EU) No 231/2013 as regards sustainability risks and sustainability factors to be taken into account by alternative investment fund managers (C(2021) 2615 final)

Commission Delegated Directive amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors and preferences into the product governance obligations (C(2021) 2612 final)

Commission Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms (C(2021) 2616 final)

Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings (C(2021) 2628 final)

Commission Delegated Regulation amending Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 as regards the integration of sustainability factors and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products (C(2021) 2614 final)

European Commission Q&As

Webpage

Press Release

Sustainable finance – European Commission publishes communication and legislation on sustainable finance and taxonomy – 21 April 2021

The European Commission has adopted a package of measures covering EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties, and directing finance towards the European Green Deal. Among other things, the package includes:

  • political agreement being reached on the text of a Commission Delegated Regulation supplementing the Taxonomy Regulation (EU) 2020/852 relating to climate change mitigation and adaptation (known as the Taxonomy Climate Delegated Act);
  • potential legislation focused on transition finance;
  • a proposal for a Corporate Sustainability Reporting Directive, which will amend reporting requirements contained in the Non-Financial Reporting Directive (2014/95/EU). The Directive aims to extend EU sustainability reporting requirements to all large and listed companies; and
  • the Commission adopting delegated legislation integrating sustainability issues into a number of key pieces of financial services legislation.

European Commission communication: Directing finance towards the European Green Deal

Press Release: Sustainable Finance and EU Taxonomy

Factsheet

Speech by Executive Vice-President Dombrovskis on the Sustainable Finance Package

Sustainable finance package

Q&A: Taxonomy Climate Delegated Act and Amendments to Delegated Acts on fiduciary duties, investment and insurance advice

Sustainable finance package: Commission Delegated Regulation supplementing Regulation (EU) 2020/852 (C(2021) 2800/3)

Annex I to Commission Delegated Regulation supplementing Regulation (EU) 2020/852

Annex II to Commission Delegated Regulation supplementing Regulation (EU) 2020/852

Factsheet

FAQs

Directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) 537/2014, as regards corporate sustainability reporting (COM(2021) 189)

Impact assessment

Executive summary of the impact assessment

FAQs

Corporate sustainability reporting

UK Parliament

Financial Services Bill – House of Lords completes report stage and proposes amendments – 21 April 2021

The House of Lords has completed the report stage of the Financial Services Bill 2019-21. Details of the proceedings are set out in Hansard.

Members discussed digital identification, supervision of the FCA, a new UK Finance Watch body and the response from the regulators to Parliamentary scrutiny. The third reading took place immediately afterwards with no debate.

Following completion of the third reading, the Bill will now pass to the House of Commons for consideration of the House of Lords amendments, which have been published alongside explanatory notes. Among other things, the amendments include new clauses that:

  • amend the Financial Services and Markets Act 2000 (FSMA) to require the FCA to: (i) have regard to the principle that firms should not profit from exploiting consumer vulnerabilities, biases or constrained choices when considering the degree of consumer protection that it should secure; and (ii) make rules (by 6 April 2022) introducing a duty of care owed by FSMA authorised persons towards consumers when carrying on FSMA regulated activities;
  • give HM Treasury the ability to bring interest-free buy-now-pay-later products within the scope of FCA regulation;
  • amend the Payment Services Regulations 2017 (SI 2017/752) to provide that in certain circumstances the provision of cash, where there is no corresponding purchase of goods and services, is to be included in the list of activities that do not constitute a payment service;
  • require the FCA to make rules imposing a cap on the standard variable rates charged to borrowers with inactive lenders or unregulated entities who cannot switch providers because of their financial circumstances (mortgage prisoners); and
  • require the FCA and the PRA to consider the carbon target for net zero emissions as set out in the Climate Change Act 2008.

House of Lords: Hansard - Financial Services Bill

Press Release

House of Lords list of amendments to the Financial Services Bill 2019-21

Explanatory notes

Greensill Capital – Treasury Committee launches inquiry – 20 April 2021

The Treasury Committee has announced that it has launched an inquiry into the failure of Greensill Capital entitled “Lessons from Greensill Capital.”

The inquiry is expected to focus on the regulatory lessons from the failure of Greensill Capital, and the appropriateness of HM Treasury’s response to lobbying in relation to Greensill Capital. The Chair of the Treasury Committee has written to Rt Hon. David Cameron, HM Treasury, the Bank of England (BoE), the FCA and UK Government Investments to ask a series of questions to inform the inquiry. The Committee plans to hold a scene-setting oral evidence session with relevant experts on Wednesday 28 April.

Rt. Hon. Me Stride MP, Chair of the Treasury Committee, stated:

There are questions to be answered in relation to Greensill Capital regarding the operation of the UK’s financial system and its regulation. Also, whether the Treasury responded appropriately to lobbying from Greensill during the pandemic.

UK Parliament Press Release: Treasury Committee launches inquiry

Letter from Rt Hon. Mel Stride MP to UKGI regarding the failure of Greensill Capital

Letter from Rt Hon. Mel Stride MP to HM Treasury regarding the failure of Greensill Capital

Letter from Rt Hon. Mel Stride MP to FCA regarding the failure of Greensill Capital

Letter from Rt Hon. Mel Stride MP to David Cameron regarding the failure of Greensill Capital

Letter from Rt Hon. Mel Stride MP to Bank of England regarding the failure of Greensill Capital

HM Treasury

London Capital & Finance plc – Government announces details of compensation scheme – 19 April 2021

In a written ministerial statement, the Economic Secretary to HM Treasury set out details of the London Capital & Finance Compensation Scheme (LC&F), as well as the government’s approach and next steps for bondholders who suffered losses after investing in LC&F which entered administration in January 2019.

The government describes the situation as “unique and exceptional”, which is why the government-funded scheme is being established. It intends to provide 80% of LC&F bondholders’ initial investment up to a maximum of £68,000, with interest payments or distributions from the administrators to be deducted from the amount of compensation payable. The scheme will be available to all LC&F bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS).

In March 2021, following a judicial review application, the High Court held that securitised bonds purchased from LC&F were not transferable securities and consequently the claimants were not eligible for FSCS protection. The government expects to pay out around £120 million compensation to around 8,800 people in total, and to have paid all LC&F bondholders within six months of securing the necessary primary legislation, which it will bring forward as soon as parliamentary time allows.

At this stage, there is no action for LC&F bondholders to take. The government intends to provide further details on how the scheme will operate in due course.

HM Treasury Policy Paper: London Capital & Finance plc Compensation Scheme

Written Ministerial Statement

Press Release

FinTech and financial services – Ambitious plans to boost sector set out by Chancellor – 19 April 2021

HM Treasury has published a press release containing information about UK FinTech and financial services proposals aimed to boost trade, jobs and economic growth. Rishi Sunak, Chancellor of the Exchequer, set out information about the following strands of work:

A new ‘scale box’ to support fintech firms to scale up. This is a package of measures that aims to enhance the FCA’s regulatory sandbox and support growth stage firms.

The creation of an industry-led Centre for Finance, Innovation and Technology. This would work closely with regional hubs to identify and address sector challenges in support of fintech growth across the UK.

New initiatives in the UK focusing on digital finance. A new taskforce has been established to explore a possible UK central bank digital currency. The Bank of England has also launched an omnibus account to support delivery of faster wholesale payment and settlement using central bank money.

The Chancellor also confirmed how the Government has additional plans for capital markets reform and intends to take forward all of the recommendations directed towards it by the Listing Review. As part of this, the UK aims to consult on changes to the UK prospectus regime this summer, to ensure the rules are not overly burdensome but provide investors with the information they need, tailored to the type of transaction. 

A separate press release from the Department for International Trade stated that a FinTech Export Academy and a FinTech Champions Scheme is expected to be created to provide sector-specific advice. The programme aims to take selected high potential firms and provide them with intensive support to reach international markets.

HM Treasury Press Release

Department for International Trade Press Release

Bank of England

Meeting varied people – BoE launches diversity initiative – 21 April 2021

The Bank of England (BoE) has published speeches by Andrea Rosen (Head of BoE Markets Intelligence and Analysis Division) and Andrew Bailey (BoE Governor) about its new ‘meeting varied people’ diversity initiative.

Among other things, the speeches explain that diversity includes both identity and cognitive diversity which both make for better decision making. Mr Bailey discusses how the BoE’s priority is to speak to a diverse group of people from a broad range of financial institutions, which he hopes will bring positive benefits for ‘financial system resiliency’ and help the BoE better understand what is driving markets, what people expect from future policy and the potential impacts of different decisions.

As part of the meeting varied people initiative, the BoE has updated its Market Intelligence Charter to reflect its diversity objectives clearly.

Speech by Andrea Rosen

Speech by Andrew Bailey

Prudential Regulation Authority

Publishing waivers and modifications – webpage updated – 20 April 2021

The PRA has updated its webpages on waivers and modifications of rules, permissions under the Capital Requirements Regulation (575/2013/EU) (CRR) and approvals under the Solvency II Directive (2009/138/EC) (Solvency II). The PRA announced that, as of 19 April 2021, the consolidated list of waivers, CRR and Solvency II Permissions granted by the PRA to PRA-authorised firms is no longer being provided.

Firms are reminded that they are not required to provide details of a precedent direction or written notice when applying for a waiver or modification of PRA rules, a CRR or Solvency II Permission.

Updated PRA webpage - Capital Requirements Regulation permissions

Updated PRA webpage - Solvency II approvals

Updated PRA webpage – Waivers and modifications of rules

Remuneration Benchmarking and Remuneration High Earners reporting templates – PRA publishes statement – 22 April 2021

The PRA has published a statement advising firms on the PRA’s approach to the Remuneration Benchmarking and Remuneration High Earners reporting templates after it became aware of an issue with them.

The PRA has become aware of issues with the EBA’s XBRL Remuneration reporting templates, for which the EBA released a patch in March 2021. According to the PRA, it and the FCA have worked together to assess the amount of change required and the impact that implementing the proposed patch would have on firms, and have decided not to implement it at this time in order to minimise the burden placed on firms. Instead, it has been decided that the best course of action is to revert back to the XML-based REP004 and REP005 reporting templates for submission of 2020 data via GABRIEL / RegData.

The PRA recognises that for firms with a 31 December year-end, they will be unable to meet the submission deadlines specified in rules 17.4 and 18.3 of the Remuneration Part of the PRA Rulebook. As a result, the PRA expects such firms to submit REP004 and REP005 reporting templates for 2020 data by 1 June 2021. The PRA expects firms with a non-31 December year-end to be able to comply with the submission date. If firms foresee a problem with meeting their usual submission date due to the issues outlined in the PRAs’ statement, they are advised to contact their usual supervisor.

The PRA intends to provide further detail on its expectations with regards to reporting of remuneration data for 2021 and beyond in due course.

PRA Statement on Remuneration Benchmarking and Remuneration High Earners reporting templates

Financial Conduct Authority

Sustainability and technology – FCA makes key new hires – 19 April 2021

The FCA has published a press release announcing the appointment of new sustainability and technology directors. Sacha Sadan has been appointed Director of Environment Social and Governance (ESG), a newly created role which is expected to develop the FCA’s approach to sustainable finance domestically and internationally. The appointment follows a March 2021 letter from the Chancellor of the Exchequer to the FCA Chief Executive, in which the FCA was asked to have regard to the government’s commitment to achieve a net zero economy by 2050.

Ian Phoenix has been appointed as Director of Intelligence and Digital, a role intended to lead the enhancement of the FCA’s intelligence and surveillance capabilities, and to lead digital work to disrupt harmful online activity.

FCA Press Release on key sustainability and technology hires

London Capital & Finance plc – FCA sets out broad approach to assessing complaints – 19 April 2021

The FCA has published a statement setting out its broad approach to assessing complaints made regarding London Capital & Finance plc (LC&F).

The FCA has conducted an initial review of LC&F investors’ direct communications with the FCA between 1 April 2014 and 10 December 2018, the date of the FCA’s first regulatory intervention. This process has identified investors who were given incorrect information that may have led them to conclude their investment would be safer than it was. While the FCA does not believe this was the primary cause of these investors’ losses, it accepts that such communications may have been a factor in their decision to invest, or remain invested.

The FCA intends to offer ex gratia payments to the small number of investors in this category who have not already been compensated by the Financial Services Compensation Scheme. Complaints by other investors will be considered individually in accordance with the complaints scheme. Although the FCA does not expect to make ex gratia compensatory payments to these investors, it intends to write to the majority of complainants, acknowledging the errors it made in relation to LC&F and ensuring they have full information about the government compensation scheme. The FCA anticipates being able to provide a response to complainants by the end of June 2021.

FCA Statement setting out its broad approach to assessing LC&F complaints

Fees and levies – FCA launches consultation – 20 April 2021

The FCA has published a consultation paper on regulated fees and levies rates for 2021/22 (CP21/8). The FCA is consulting on its periodic fees rates for 2021/22, further FCA fee policy proposals, the Financial Ombudsman Service general levy and Money and Pensions Service, Devolved Authorities and HM Treasury illegal money-lending levies for the next financial year.

The FCA recently consulted in CP20/22 on changes to how it will raise regulated fees and levies rates. In chapter 7 of CP21/8, the FCA provides feedback on its CP20/22 proposals relating to authorisation application fees and the introduction of new charges for notifications under the senior managers regime (SMR) and controlled functions for appointed representatives. 

The consultation closes on 25 May 2021. The FCA intends to publish feedback and the final fees and levy rates in a policy statement in July 2021.

FCA Consultation Paper: FCA regulated fees and levies: rates proposals 2021/22 (CP21/8)

Webpage

Transformation programme – FCA updates HM Treasury – 20 April 2021

The FCA has published a letter from the FCA Chair, Charles Randell, to the Economic Secretary to HM Treasury, John Glen, providing an update on the progress the FCA has made with its transformation programme. Topics covered in the letter include:

  • efforts to strengthen the FCA’s structure and make operational improvements to the FCA;
  • action to implement various review recommendations which the FCA aims to complete by the end of 2021; and
  • recommendations for government – among other things, Mr Randell states the FCA has been consistently of the view that financial harms should be included in the Online Safety Bill.

Mr Randell further advises that the FCA Chief Executive, Nikhil Rathi, intends to write to the Treasury Committee with a further update before the FCA’s next accountability hearing on 12 May 2021.

FCA Letter on the progress of the FCAs’ transformational programme

Business plan – FCA announces update – 20 April 2021

The FCA has published a statement announcing it will be publishing its Business Plan for 2021/22 in July 2021, rather than April 2021. The FCA advises that its Business Plan will be published alongside its 2020/21 Annual Report and Accounts and is expected to include an update on plans for transforming the FCA.

FCA Statement: Business Plan 2021/22

Diversity and inclusion – FCA publishes speech – 22 April 2021

The FCA has published a speech by FCA Executive Director for Consumers and Competition, Sheldon Mills, on why black inclusion matters to the regulator. Mr Mills was speaking at an event at which the FCA’s research report on accelerating black inclusion was launched. The report’s analysis focuses on the progression of black colleagues into leadership positions across the UK financial services industry.

Points of interest in Mr Mills’ speech include:

  • while there is a lack of black people across senior roles in financial services, there is a strong business case for—and clear benefits to—improving diversity and inclusion (D&I) at senior levels;
  • black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers and at greater risk of financial harm;
  • firms operating in the capital markets or providing venture capital must consider whether they are sufficiently diverse and inclusive in order to be able to, for example, consider fully the challenges and opportunities in the market; and
  • the FCA wants to see improvements within firms and is considering how best to use its powers, including looking at its supervisory toolbox, exploring the listings framework in the context of D&I and considering whether firms should comply or explain a lack of diversity at senior levels.

FCA Speech by Sheldon Mills: Why Black inclusion matters to us

Financial Ombudsman Service

Interim Chief Executive and Chief Ombudsman – FOS appoints Nausicaa Delfas – 19 April 2021

The Financial Ombudsman Service (FOS) has announced that Nausicaa Delfas has been appointed as Interim Chief Executive and Chief Ombudsman. Ms Delfas currently holds the position of Executive Director of International and Interim Chief Operating Officer (COO) at the FCA. The FCA published a press release noting that Stephanie Cohen will be joining the FCA as its new COO in early June 2021. Ms Delfas will take up her role on 17 May 2021 but until she does, Julia Cavanagh, FOS Chief Financial Officer, will be Acting Chief Executive and Garry Wilkinson will be Acting Chief Ombudsman.

Financial Ombudsman Service Press Release: Nausicaa Delfas appointment as Interim Chief Executive and Chief Ombudsman

Beyond Brexit

Issue 1106 / 22 April 2021

HEADLINES

  1. UK Parliament
    1. UK Emissions Trading Scheme – new statutory instruments laid before Parliament–21 and 22 April 2021
  2. International Swaps and Derivatives Association
    1. UCITS – Trade associations publish joint letter on use of EEA UCITS as collateral under UK EMIR –20 April 2021

UK Parliament

UK Emissions Trading Scheme – new statutory instruments laid before Parliament – 21 and 22 April 2021

Two statutory instruments have been laid before Parliament, along with explanatory memoranda:

  • The Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021 - These Regulations have been made under section 8 of the European Union (Withdrawal) Act 2018 and are part of the process for creating a UK Emissions Trading Scheme (ETS) and accompanying emissions allowance market. They amend financial services law to reflect the fact that the UK is no longer part of the EU ETS but has now established the UK ETS.
  • The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021 – These Regulations make provision for the auctioning of emissions allowances to emit one tonne of carbon dioxide equivalent under the UK ETS and introduce mechanisms to support market stability in this new scheme.

These statutory instruments come into force on 22 April 2021.

The Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021

Explanatory memorandum

The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021

Explanatory memorandum

International Swaps and Derivatives Association

UCITS – Trade associations publish joint letter on use of EEA UCITS as collateral under UK EMIR – 20 April 2021

The International Swaps and Derivatives Association (ISDA) and the Alternative Investment Management Association (AIMA), in conjunction with several other trade associations (the Trade Associations), have published a joint letter addressed to the Bank of England (BoE), HM Treasury and the FCA about EEA Undertakings for the Collective Investment in Transferable Securities (UCITS) and collateral.

The UK onshored version of Commission Delegated Regulation (EU) 2016/2251, which contains binding technical standards (BTS) on uncleared margin requirements, restricts financial counterparties to using UK UCITS for initial margin purposes. However, the impact of the ‘standstill’ approach adopted under the UK rules means that UK counterparties do not have to adapt current procedures and arrangements for exchange of margin in uncleared derivatives business until 31 March 2022.

The Trade Associations expressed concern that once the restriction on the use of UK UCITS as initial margin is in effect, negative consequences are likely to result for the counterparties concerned and for the attractiveness of the UK as a jurisdiction in which to do uncleared derivatives business. For example, the letter highlights the fact that the pool of EEA UCITS is much larger than the pool of UK UCITS, as the vast majority of surveyed funds managed by their members were domiciled in Luxembourg or Ireland. 

The Trade Associations observe that the PRA is currently consulting on amendments to the BTS on uncleared margin requirements, and urges the PRA to take the opportunity to expand the eligibility criteria in the BTS to include EEA UCITS.

Joint Trade Association letter on the use of EEA UCITS as collateral in UK rules on collateralisation

Webpage

Banking and Finance

Issue 1106 / 22 April 2021

HEADLINES

  1. United Nations Environment Programme Finance Initiative
    1. Climate target setting – UNEP FI issues guidelines for banks–21 April 2021
  2. Basel Committee
    1. Work programme 2021-22 – published by Basel Committee–16 April 2021
  3. European Commission
    1. Consumer credit – European Commission carries out mini-sweep –16 April 2021
    2. BRRD – European Commission adopts Delegated Regulation on contractual recognition of stay powers– 22 April 2021
  4. Official Journal of the European Union
    1. BRRD – Commission Implementing Regulation published in the Official Journal –16 April 2021
    2. CRR – Commission Implementing Regulation published in the Official Journal– 21 April 2021
  5. European Central Bank
    1. Internal models – European Central Bank publishes report of its review– 19 April 2021
  6. Single Resolution Board
    1. Crisis management and deposit insurance framework – Single Resolution Board respond to European Commission consultation on its review– 21 April 2021
  7. House of Commons Treasury Committee
    1. Green finance – Treasury Committee publishes report–22 April 2021
  8. Bank of England
    1. Central Bank Digital Currency – Bank of England statement published –April 19 2021
  9. Prudential Regulation Authority
    1. Mortgage loans – PRA publishes statement on regulatory treatment under the Mortgage Guarantee Scheme– 19 April 2021
  10. Financial Markets Law Committee
    1. Sustainable finance – FMLC publishes letter to HM Treasury on UK-EU divergence–22 April 2021
  11. Working Group on Sterling Risk-Free Reference Rates
    1. LIBOR – Working Group publishes paper supporting transition from LIBOR in sterling structured products– 19 April 2021
    2. Safe harbour provisions –Working Group publishes letter– 22 April 2021
  12. Recent Cases
    1. Davis v Lloyds Bank plc [2021] EWCA Civ 557, 16 April 2021

United Nations Environment Programme Finance Initiative

Climate target setting – UNEP FI issues guidelines for banks – 21 April 2021

The United Nations Environment Programme Finance Initiative has published guidelines for climate target setting for banks. The guidelines consist of the following four principles, and additional guidance on each principle:

  • banks will publicly disclose long-term and intermediate targets they have set to support meeting the goals of the Paris Agreement;
  • banks will use science-based decarbonisation scenarios to set those targets;
  • banks will regularly review targets to ensure congruity with current climate science; and
  • banks will establish an emissions baseline and measure and report annually on the emissions profile of their lending portfolios and investment activities.

UNEP FI guidelines for climate target setting for banks

Webpage

Basel Committee

Work programme 2021-22 – published by Basel Committee – 16 April 2021

The Basel Committee on Banking Supervision (BCBS) has published its 2021-22 work programme. The three themes of the work programme are:

  • COVID-19 resilience and recovery, including the ongoing monitoring and assessment of risks and vulnerabilities to the global banking system. The BCBS is conducting an evaluation of the initial “lessons learned” from the pandemic with regards to the Basel III standards and an interim report is expected by summer 2021.
  • horizon scanning, analysis of structural trends and mitigation of risks. The BCBS intends to pursue a forward-looking approach to identifying, assessing and mitigating medium-term risks and structural trends relating to the banking system and seeks to finalise several outstanding initiatives, including on the prudential treatment of banks’ cryptoasset exposures.
  • strengthening supervisory co-ordination and practices, with a focus on the role of artificial intelligence and machine learning.

The BCBS has ended its Basel III policy agenda, focusing now on monitoring the full, timely and consistent implementation of these standards by its members.

Basel Committee Work Programme 2021-22

Webpage

Press Release

European Commission

Consumer credit – European Commission carries out mini-sweep – 16 April 2021

The European Commission has updated its webpage on sweeps to include details on a 2021 mini-sweep on consumer credit. According to the webpage, a ‘sweep’ is a set of checks carried out on websites to identify potential breaches of EU consumer law.

The webpage explains that the consumer protection authorities from 13 Member States and 2 EEA countries took part in mini-sweep of websites advertising and selling consumer credit products. The sweep aimed to check whether traders were complying with EU consumer rules and not misleading consumers or exploiting consumer vulnerabilities.

According to the Commission, 36% of swept websites were flagged for potential issues, and participating authorities will follow up on these. Key findings from the sweep included:

  • 34% of checked creditor websites did not include clear information on how the creditworthiness assessment is performed, including the personal data used for that purpose;
  • for 47% of products identified as short-term high cost, the websites did not include the required standard information for advertising by means of a representative example in a clear, concise and prominent way; and
  • in cases where the Member States had adopted extraordinary consumer credit measures due to COVID-19, 64% of websites did not contain key information in a clear and comprehensible manner.

European Commission webpage on ‘sweeps’

BRRD – European Commission adopts Delegated Regulation on contractual recognition of stay powers – 22 April 2021

The European Commission has adopted a Delegated Regulation (C(2021) 2656 final) on regulatory technical standards (RTS) determining the content of the contractual terms of recognition of resolution stay powers under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).

Article 71a(1) of the BRRD (inserted by the BRRD II Directive (EU) 2019/879)), requires institutions and entities to include in any financial contract governed by the laws of a third country, a contractual term by which the parties recognise that the financial contract may be subject to the exercise of powers to suspend or restrict rights and obligations by the exercise of those powers by a member state resolution authority.

Article 71a(5) of the BRRD empowers the Commission to adopt delegated acts specifying the content of the terms required in Article 71a(1), taking institutions’ and entities’ different business models into account. The RTS sets out a list of mandatory components that must be present in the contractual terms required in the financial contracts.

The Council of the EU and the European Parliament will now scrutinise the draft Delegated Regulation and if neither object, the Delegated Regulation will enter into force on the 20th day following that of its publication in the Official Journal of the European Union.

Commission Delegated Regulation on regulatory technical standards determining the content of the contractual terms on recognition of resolution stay powers (C(2021) 2656 final)

Official Journal of the European Union

BRRD – Commission Implementing Regulation published in the Official Journal – 16 April 2021

Commission Implementing Regulation (EU) 2021/622 (the Implementing Regulation) containing implementing technical standards (ITS) on uniform reporting templates, instructions and methodology for reporting on the minimum requirement for own funds and eligible liabilities (MREL) under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) has been published in the Official Journal of the European Union.

The ITS replace the existing ITS on MREL reporting by resolution authorities that are set out in Commission Implementing Regulation (EU) 2018/308 and include minimum procedural obligations covering reporting periods and submission dates, as well as templates to be used by resolution authorities when informing the European Banking Authority (EBA) of the MREL requirements they have set.

The Implementing Regulation enters into force on 6 May 2021.

Commission Implementing Regulation (EU) 2021/622

CRR – Commission Implementing Regulation published in the Official Journal – 21 April 2021

Commission Implementing Regulation (EU) 2021/637 (the Implementing Regulation) containing implementing technical standards (ITS) on public disclosures by institutions under the Capital Requirements Regulation (575/2013/EU) (CRR) has been published in the Official Journal of the European Union.

The purpose of the ITS is, among other things, to optimise the Pillar 3 policy framework to provide a single comprehensive package, improving clarity for users of information. It also aims to promote market discipline by increasing the consistency and comparability of the information disclosed by institutions, and aligning with the regulatory changes introduced by the CRR II Regulation (EU) 2019/876 (CRR II) and with the Basel Committee on Banking Supervision (BCBS) revised Pillar 3 disclosure framework.

The Implementing Regulation enters into force on 11 May 2021. It will apply from 28 June 2021.

Commission Implementing Regulation (EU) 2021/637

European Central Bank

Internal models – European Central Bank publishes report of its review – 19 April 2021

The European Central Bank (ECB) has published a report containing the results of its targeted review of internal models (TRIM). The TRIM was launched by the ECB in 2016 and aims to assess whether the internal models used by significant institutions in the single supervisory mechanism comply with regulatory requirements and whether their results are reliable and comparable.

The outcomes of the TRIM investigations confirmed that the internal models of significant institutions can continue to be used for the calculation of own funds requirements. However, for some models, limitations were needed to ensure a level of own funds that was appropriate to cover the underlying risk.

The ECB also identified a number of deficiencies to be remediated, and a related press release explains that binding supervisory measures to take corrective action have been issued. Through these measures, the TRIM resulted in a 12% increase (about EUR275 billion), of risk-weighted assets for the affected internal models.

The report emphasises that banks need to continue to invest in the development and maintenance of their internal models. The ECB plans to pursue its risk-based supervision of internal models to ensure that banks continue to meet their regulatory requirements.

ECB Report: Targeted Review of Internal Models Project Report

Press Release

Single Resolution Board

Crisis management and deposit insurance framework – Single Resolution Board respond to European Commission consultation on its review – 21 April 2021

The Single Resolution Board (SRB) has published its response to the European Commission’s targeted consultation of its crisis management and deposit insurance (CMDI) framework.

The CMDI framework sets out the rules for handing bank failures while protecting depositors and consists of three EU legislative texts working together with relevant national legislation: the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD); the Regulation on the Single Resolution Mechanism (806/2014/EU) (SRM Regulation); and the Deposit Guarantee Schemes Directive (2014/49/EU). The consultation (which closed on 20 April 2021) sought to gather stakeholders’ experience with the current CMDI framework as well as their views on the revision of the framework.

Among other things, the SRB makes the following points in its response:

  • it believes the resolution objectives are appropriate for the CMDI framework;
  • deposit guarantee scheme flexibility should be preserved to strengthen the CMDI framework;
  • the resolution framework already has a comprehensive set of tools at its disposal and enhancing these tools, rather than taking additional measures relating to the availability, effectiveness and fitness of these tools in the framework, is preferable; and
  • it seems unnecessary and unhelpful to change SRB governance arrangements if the review of the CMDI framework enhances (rather than overhauls) the resolution toolkit.

Single Resolution Board Consultation Response: Targeted consultation document review of the crisis management and deposit insurance framework

Press Release

House of Commons Treasury Committee

Green finance – Treasury Committee publishes report – 22 April 2021

The Treasury Committee has published its report on the future of green finance. The report makes a series of recommendations for how the government can achieve net-zero by 2050, including:

  • financial products should have climate impact labels;
  • the FCA should have the appropriate remit, powers and priorities to prevent the greenwashing of financial products;
  • the FCA should tackle regulatory barriers that discourage innovative products from coming to market;
  • the principles upon which the UK will fund its transition to net zero should be set out, highlighting cost assessments, methodology and any uncertainties; and
  • clear sectoral pathways towards decarbonisation should be set out, addressing the key policy decisions as to the future of high carbon industries (and regions) that will feel the impact more immediately.

House of Commons Treasury Committee report on the future of green finance

Press release

Bank of England

Central Bank Digital Currency – Bank of England statement published – April 19 2021

The Bank of England (BoE) and HM Treasury have announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential UK CBDC. According to the BoE, a CBDC would be a new form of digital money issued by the BoE for use by households and businesses that would exist alongside cash and bank deposits. The government and the BoE have not yet made a decision on whether to introduce a CBDC in the UK.

Among other things, the Taskforce aims to:

  • coordinate exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC;
  • support a comprehensive assessment of the overall case for a UK CBDC; and
  • monitor international CBDC developments to ensure the UK remains at the forefront of global innovation.

The BoE has also announced the creation of the following:

  • a CBDC Engagement Forum to gather strategic input on all non-technology aspects of CBDC. It will consider issues such as financial and digital inclusion considerations, and data and privacy implications;
  • a CBDC Technology Forum to gather input on all technology aspects of CBDC from a range of expertise of perspectives; and
  • a CBDC Unit which will lead its internal exploration and external engagement around CBDC.

Bank of England Press Release on Central Bank Digital Currency

Central Bank Digital Currency Taskforce Terms of Reference

Webpage

CBDC Engagement Forum Terms of Reference

CBDC Technology Forum Terms of Reference

Prudential Regulation Authority

Mortgage loans – PRA publishes statement on regulatory treatment under the Mortgage Guarantee Scheme – 19 April 2021

The PRA has published an updated statement on the regulatory treatment of retail residential mortgage loans under the Mortgage Guarantee Scheme (MGS). Under the MGS, the government guarantees a portion of the first losses (net of recoveries) on retail residential mortgage loans eligible for the scheme.

The statement provides information on capital, notification, disclosure and reporting requirements for loans under the MGS. Among other things, the PRA clarifies:

  • the operation of firms using the standardised approach for underlying mortgage loans under Articles 245 and 261 of the retained EU law version of the Capital Requirements Regulation (575/2013) (UK CRR);
  • the operation of firms using the internal rating based approach for underlying mortgage loans under Articles 245 and 259 of the UK CRR; and
  • the requirement to obtain a legal opinion on the effectiveness and enforceability of credit protection afforded by a guarantee such as the MGS is satisfied by a legal opinion obtained jointly by firms.

PRA statement on the regulatory treatment of retail residential mortgage loans under the Mortgage Guarantee Scheme

Direction for modification by consent in relation to the Help to Buy Scheme

Updated Webpage

Financial Markets Law Committee

Sustainable finance – FMLC publishes letter to HM Treasury on UK-EU divergence – 22 April 2021

The Financial Markets Law Committee (FMLC) has published a letter sent to HM Treasury on the International Platform on Sustainable Finance (IPSF). HM Treasury announced that the UK had joined the IPSF – a forum to share best practice, compare initiatives and identify barriers to sustainable finance – in February 2021.

The FMLC supports the decision to join the IPSF but draws attention to the risk of uncertainty due to divergence which may arise between sustainable finance standards adopted in the UK and EU, particularly in relation to the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR), the Non-Financial Reporting Directive (2014/95/EU) (NFRD) and the Taxonomy Regulation ((EU) 2020/852). Certain climate mitigation provisions in EU legislation became applicable after the end of the Brexit transition period and none have become EU retained law in the UK.

The FMLC also comments on the fact that the challenges firms are facing are being exacerbated by delays to regulatory technical standards underpinning the SFDR. The FMLC urges HM Treasury to clarify its intentions towards the SFDR and the other pieces of legislation, and suggests considering EU standards or an outcomes-based approach that is consistent with the general direction of the EU.

FMLC letter to HM Treasury

Working Group on Sterling Risk-Free Reference Rates

LIBOR – Working Group publishes paper supporting transition from LIBOR in sterling structured products – 19 April 2021

The Working Group on Sterling Risk-Free Reference Rates (the Working Group) has published a paper considering how to support the transition of GBP LIBOR legacy structured products and considers how a sterling structured products market could be designed using compounded in arrears SONIA (Sterling Overnight Index Average).

The Working Group’s priorities and roadmap envisage a broad-based transition from LIBOR to SONIA by the end of 2021 across sterling bond, loan, derivatives and structured products markets. The paper addresses a range of structured products, including on-balance sheet issuances and repackaging transactions (new and legacy).

To help market participants complete their operational transition plans for structured products by the end of 2021, the paper encourages issuing new structured products based on compounded in arrears SONIA.

The Working Group on Sterling Risk-Free Reference Rates Publication: Transition from LIBOR in Sterling Structured Products

Updated webpage

Safe harbour provisions –Working Group publishes letter – 22 April 2021

The Working Group on Sterling Risk-Free Reference Rates (the Working Group) has published a letter it sent to HM Treasury relating to the possible safe harbour provisions in the Financial Services Bill 2019-21 (FS Bill) supporting the wind-down of critical benchmarks.

The letter states that, given the known challenges post by ‘tough legacy’ LIBOR contracts, the Working Group welcomed the introduction of the FS Bill, which proposes amendments to the retained EU version of the Benchmarks Regulation (EU) 2016/1011 and provides the FCA with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR. The Working Group also welcomed HM Treasury’s recent consultation, published in February 2021, seeking feedback on the case for incorporating a supplementary legal ‘safe harbour’ provision to reduce the risk of contractual uncertainty and disputes that may arise from the transition of tough legacy contracts.

The letter flags that the Working Group has now learnt that the safe harbour protections outlined in the consultation are unlikely to be included in the FS Bill, but understands that this does not represent a substantive decision on the merits of introducing such protections. Given the impending deadline for GBP LIBOR cessation at the end of 2021, the Working Group considers it critical that clarity is given on this point given the concerns regarding potential market disruption or other unintended consequences that may arise.

Working Group on Sterling Risk-Free Reference Rates Letter on safe harbour provisions to support the wind-down of critical benchmarks

Recent Cases

Davis v Lloyds Bank plc [2021] EWCA Civ 557, 16 April 2021

Claim for damages for breach of statutory duty in dealing with a complaint – classification of interest rate hedging product during review process – definition of ‘complaint’ - section 138D FSMA 2000 - DISP sourcebook in the FCA Handbook

The Court of Appeal has upheld the judgment of the High Court in the case of Davis v Lloyds Bank plc, handed down in July 2020, as detailed previously in this Bulletin. Mr Davis’s claim arose out of his unhappiness at the amount of redress offered to him under a process agreed between the FCA and the defendant to review the sale of certain interest rate hedging products.

The claim was brought under section 138D(2) of FSMA 2000 for breach of statutory duty to deal with a complaint “fairly, consistently and promptly” in accordance with rule 1.4.1R of the Dispute Resolution: Complaints sourcebook (DISP) in the FCA Handbook. Mr Davis argued that he had made a ‘complaint’ (within the meaning of DISP) and the bank owed him a statutory duty to consider the complaint, in accordance with the terms of the review as agreed between the bank and the FCA.

The Court of Appeal upheld the High Court’s assessment that Mr Davis had not made a complaint about the interest rate hedging products he was sold, but had in fact made a complaint that one of the products had not been included in the review. It therefore concluded that the complaint was about the scope of the review rather than a complaint about the products as defined in DISP. Consequently, the appeal was dismissed.

Davis v Lloyds Bank plc [2021] EWCA Civ 557

Securities and Markets

Issue 1106 / 22 April 2021

HEADLINES

  1. European Commission
    1. Making financial services work for citizens – European Commission publishes speech– 20 April 2021
    2. Retail investors – European Commission consults on roadmap on strategy–21 April 2021
    3. MiFID II – European Commission adopted Delegated Regulation –21 April 2021
  2. HM Treasury
    1. UK Listing Review – HM Treasury publishes response– 19 April 2021
    2. Non-transferable debt securities – HM Treasury publishes consultation paper– 19 April 2021
  3. Bank of England
    1. UK Money Markets Code – Bank of England publishes update– 21 April 2021
  4. Financial Conduct Authority
    1. A new UK prudential regime for MiFID investment firms – FCA publishes second consultation paper– 19 April 2021
    2. Financial innovation – FCA publishes speech– 20 April 2021

European Commission

Making financial services work for citizens – European Commission publishes speech – 20 April 2021

The European Commission has published a speech by the European Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness, in which she considered how to make financial services work for citizens. Points of interest in Ms McGuinness’ speech include:

  • Availability of cash. As services become increasingly digital, it is important to ensure cash remains available and accepted - if necessary the Commission may decide to take action towards the end of 2021 to protect the availability of cash.
  • International payments. The single euro payments area gives consumers and businesses the right to make payments from their account to another bank account regardless of whether the two accounts are located in the same member state. However, the Commission notes that consumers regularly complain that only domestic International Bank Account Number (IBAN) numbers are accepted for a credit transfer or direct debit. This has proven to be a big issue for the single market and citizens, but also for some FinTech companies as it undermines their business model. The Commission notes its concern on this topic and its intentions to step up efforts to ensure IBAN discrimination does not exist.
  • Retail investment strategy. In early 2022, the Commission intends to publish its retail investment strategy which it aims to use as an opportunity to place retail investors at the heart of its policies and assess the entirety of the retail investor journey. To start, the Commission aims to launch a public consultation shortly to gather views on how the current rules work and what might need to change.

European Commission Speech: ‘Making finance work for citizens’

Retail investors – European Commission consults on roadmap on strategy – 21 April 2021

The European Commission has published a roadmap on a retail investment strategy for the EU. The strategy will consider the entire retail investor journey, providing a coherent approach to enable consumers to benefit from the internal market and address low capital market participation rates.

Investor protection rules are currently set out in various sector-specific legislative instruments including the MiFID II Directive (2014/65/EU), the Insurance Distribution Directive ((EU) 2016/97), the PRIIPs Regulation (1286/2014) and the UCITS Directive (2009/65/EC). Among other things, the Commission has noted the following problems:

  • the rules relating to investment and insurance advance and portfolio management can differ between pieces of legislation;
  • owing to inducements, advice provided by intermediaries may be biased towards products with higher rewards for intermediaries; and
  • as digital innovation becomes increasingly prevalent in the retail investment market, there needs to be an assessment of its impact.

Comments can be made on the roadmap until 18 May 2021.

European Commission roadmap on strategy for retail investors

Feedback form

MiFID II – European Commission adopted Delegated Regulation – 21 April 2021

The European Commission has adopted a Delegated Regulation (Amending Delegated Regulation) correcting Delegated Regulation (EU) 2017/565 supplementing Directive 2014/65/EU (the MiFID II Delegated Regulation) as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of the MiFID II Directive (2014/65/EU).

The Amending Delegated Regulation will:

  • correct Article 1 paragraph 1 of the MiFID II Delegated Regulation to clarify that it requires the application of Article 64(4), Article 65 and Chapter VIII of the MiFID II Delegated Regulation instead of Article 59(4), Article 60 and Chapter IV; and
  • correct errors that appeared in several cross-reference in Annex I to the MiFID II Delegated Regulation relating to client assessment, order handling, client orders and transactions, reporting to clients, communication with clients and organisational requirements.

The Council of the EU and the European Parliament will next consider the draft Amending Delegated Regulation and, if neither object, it will be published in the Official Journal of the European Union and enter into force on the 20th day following its publication.

Amending Delegated Regulation

Annex

HM Treasury

UK Listing Review – HM Treasury publishes response – 19 April 2021

HM Treasury has published a written statement in which the Chancellor of the Exchequer, Rishi Sunak, has confirmed how the government will take forward the recommendations of the UK Listing Review chaired by Lord Hill, which were published in March 2021. In the statement, among other things, the Chancellor:

  • agrees to present an annual report of the State of the City to Parliament, beginning in 2022;
  • states that the Listing Review’s recommendation that HM Treasury consider an additional ‘growth’ or ‘competitiveness’ objective for the FCA will be carefully considered as part of the ongoing Future Regulatory Framework Review;
  • strongly welcomes the recommendation for a review of the UK’s prospectus regime and notes that the government intends to consult on this topic later in the year;
  • in the context of improving the efficiency of further capital raising by listed companies, agrees that bringing together expertise in this area will be helpful, and that a group will be convened for this purpose in the coming weeks; and
  • confirms that the Department for Business, Energy & Industrial Strategy (BEIS) will be taking forward the recommendation on the use of technology to improve retail investor involvement in corporate actions and appropriate stewardship.

Statement by Chancellor of the Exchequer: UK Listings Review – Government response

Non-transferable debt securities – HM Treasury publishes consultation paper – 19 April 2021

HM Treasury has published a consultation paper on proposals to bring the issuance of non-transferable debt securities (NTDS) (often referred to as mini-bonds) within the scope of financial services regulation. NTDS are unlisted bonds typically issued by companies to retail investors to raise finance but the issuance of these bonds is not currently a regulated activity under the Financial Services and Markets Act 2000. As an unregulated activity, investors benefit from few regulatory protections, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme, when investing.

The consultation focuses two options for regulatory reform:

  • making the direct-to-market issuance of certain NTDS, where the proceeds of the issue are used to on-invest or on-lend, a regulated activity; and
  • extending the scope of the Prospectus Regulation (Regulation 2017/1129) to cover NTDS, so that public offers would require an FCA-approved prospectus – this would mean that the issuance of an NTDS would remain an unregulated activity.

The consultation closes on 21 July 2021.

Alongside the consultation, HM Treasury has published independent research into NTDS and their role in the economy and follows a review by HM Treasury in light of the administration of London Capital & Finance plc (LC&F), which issued NTDS in January 2019. An investigation into the FCA’s supervision of LC&F also made a specific recommendation that the government should consider regulating the issuance of NTDS.

Consultation paper: Regulation of non-transferable debt securities

Research into non-transferable debt securities

Webpage

Press Release

Bank of England

UK Money Markets Code – Bank of England publishes update – 21 April 2021

The Bank of England (BoE) has published an updated version of its UK Money Markets Code (the Code) which sets out best practice in the unsecured, repo and securities lending markets in the UK.

Although the core principles of the Code have not changed, there have been significant changes in a number of areas, including the following:

  • Diversity and inclusion. The updated Code recognises and promotes the benefit of diverse and inclusive money market participants’ teams.
  • Electronic trading. Trading in this way via platforms is becoming more widespread, especially in the repo market. The updated Code sets out how it applies to such trading and best practice for using electronic venues.
  • Trade settlement discipline. The updated Code stresses the importance of high standards of settlement discipline, in response to concern that the level of non-settled trades has increased.

The updated Code has been recognised as an industry standard by the FCA.

Bank of England updated publication: The UK Money Markets Code

Press Release

Financial Conduct Authority

A new UK prudential regime for MiFID investment firms – FCA publishes second consultation paper – 19 April 2021

The FCA has published its second consultation paper on the implementation of the Investment Firms Prudential Regime (IFPR) (CP21/7). The IFPR is heavily based on the Investment Firms Regulation ((EU) 2019/2033) and the Investment Firms Directive ((EU) 2019/2034), and its rules aim to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the MiFID II Directive (2014/65/EU). In November 2020 the FCA, together with HM Treasury and the PRA, published a joint statement announcing the IFPR would enter into force on 1 January 2022.

The FCA published its first consultation paper on the IFPR in December 2020 (CP20/24), where it focused on the categorisation of investment firms, prudential consolidation, own funds and own funds requirements, concentration risk monitoring and reporting requirements. The FCA will publish the policy statement and near-final rules on the first consultation in Q2 2021.

In the second of the three consultations the FCA is asking for views on, among other things:

  • remaining aspects on own funds requirement (such as the fixed overheads requirement);
  • the basic liquid assets requirement;
  • remuneration requirements; and
  • risk management, as the FCA intends to introduce an internal capital and risk assessment  process for all FCA investment firms.

The consultation closes on 28 May 2021, and the FCA will issue a third consultation in Q3 2021.

FCA Consultation Paper: A new UK prudential regime for MiFID investment firms (CP21/7)

Webpage

Press Release

Online response form

Proposed templates for the new report to support the IFPR

Reporting forms for CP2

Guidance for completing the templates

Proposed forms for applications

Proposed notifications

Financial innovation – FCA publishes speech – 20 April 2021

The FCA has published a speech by Nikhil Rathi, FCA Chief Executive, on the need to level the playing field in financial innovation in the service of consumers and the market. Mr Rathi credits the success in financial innovation to regulatory open-mindedness, referring in particular to the impact of the regulatory support provided by Project Innovate and the success of the regulatory sandbox.

To further support innovation, the FCA has announced it is taking the Kalifa FinTech Review’s recommendation for a ‘scalebox’ forward. This includes the creation of a regulatory ‘nursery’ by autumn 2021, which aims to provide a period of enhanced oversight for newly authorised firms as they grow used to their regulatory status. The FCA also intends, in partnership with the City of London Corporation, to refine the digital sandbox, focusing specifically on sustainability.

Mr Rathi reiterated his call for the government to take action to provide better financial protection for consumers online. Online platforms are not exempt from the financial promotions regime, and the FCA is evaluating how they are adapting to the new rules. Mr Rathi further stated that search engines and social media firms must take greater responsibility for their role in connecting consumers with investment offers.

The FCA is also reviewing how the FCA’s Regulatory Decisions Committee functions to ensure its internal processes allow for quick action. The review is considering whether decisions on authorisation or on supervisory interventions could be made in a more streamlined way to enable quick, decisive action, particularly to prevent entry or allow removal from UK markets of those who are unable or unwilling to meet the FCA’s standards.

FCA Speech by Nikhil Rathi: Levelling the playing field – innovation in the service of consumers and the market

Asset Management

Issue 1106 / 22 April 2021

HEADLINES

  1. Financial Conduct Authority
    1. Connaught complaints – FCA sets out approach to assessing complaints– 19 April 2021

Financial Conduct Authority

Connaught complaints – FCA sets out approach to assessing complaints – 19 April 2021

The FCA has published a statement setting out its approach to assessing complaints arising from its handling of the collapse of the Connaught Income Fund Series 1 (the Fund). This statement follows the publication of Raj Parker’s report, ‘Independent Review into the FSA and FCA’s handing of the Connaught Income Fund Series 1 and connected companies’ (the Review), and the FCA’s response to that review, in December 2020.

The FCA states that the majority of complaints received from investors concerning the FCA and FSA’s actions in its handling of the collapse of the Fund were investigated, determined with decision letters and closed in 2017. At that time complainants were informed of their right, if they were dissatisfied with the FCA’s decision, to refer their complaint to the Office of the Complaints Commissioner. In regard to these complaints received by the FCA, the FCA committed to reconsidering the issue of remedies once the Review was published.

Since the Review has been published, the FCA has reconsidered these complaints taking account of the FCA’s approach to remedies, the relevant factors in the Complaints Scheme and the statutory framework within which it operates, and has concluded that an apology is the most appropriate remedy in the circumstances. The FCA will be contacting these complainants directly to provide this.

FCA statement on its approach to assessing the Connaught complaints

Insurance

Issue 1106 / 22 April 2021

HEADLINES

  1. European Insurance and Occupational Pensions Authority
    1. Climate change risk scenarios – EIOPA publishes opinion on supervision of use in the own risk and solvency assessment– 19 April 2021­
  2. Prudential Regulation Authority
    1. Solvency II – PRA publishes supervisory disclosures– 20 April 2021
  3. Financial Conduct Authority
    1. COVID-19 – FCA publishes calculator for claims under business interruption insurance policies– 21 April 2021

European Insurance and Occupational Pensions Authority

Climate change risk scenarios – EIOPA publishes opinion on supervision of use in the own risk and solvency assessment – 19 April 2021­

The European Insurance and Occupational Pensions Authority (EIOPA) has published an opinion on the supervision of the use of climate change risk scenarios in the own risk and solvency assessment (ORSA) under the Solvency II Directive (2009/138/EC).

The opinion addresses national competent authorities (NCAs) and aims to enhance supervisory convergence in supervising the use of climate change risk scenarios in the ORSA, applying a risk-based and proportionate approach. EIOPA explains that the insurance and reinsurance industry will be affected by climate change-related physical and transition risks, but only a minority of insurers currently assess such risks in the ORSA.

NCAs should expect insurers to integrate climate change risks into their system of governance, risk-management systems and ORSA, in common with all risks that undertakings are or could be exposed to in line with Solvency II. Insurers are expected to identify material climate change risk exposures and subject those to a risk assessment. NCAs should also expect insurers to assess the long-term risks of climate change using scenario analysis to inform their strategic planning and business strategy, taking into account the size, nature and complexity of their climate change risk exposures. The opinion provides guidance on how to select and use climate change scenarios.

A related press release explains that EIOPA expects NCAs to collect qualitative and quantitative data to perform a supervisory review of the analysis of short and long-term climate change risks in the ORSA. Regular supervisory reporting, most notably the ORSA supervisory report, should help NCAs to collect data.

EIOPA will start monitoring the application of this opinion two years after its publication.

EIOPA Opinion on the supervision of the use of climate change risk scenarios in the own risk and solvency assessment

Press Release

Prudential Regulation Authority

Solvency II – PRA publishes supervisory disclosures – 20 April 2021

The PRA has published supervisory disclosures for year-end 2019 in line with Article 31(2) of the Solvency II Directive (2009/138/EC) (the Solvency II Directive). These disclosures include:

  • aggregate statistical data on key aspects of the application of the prudential framework;
  • a table covering the manner of exercise of the options provided for in the Solvency II Directive;
  • links to the texts of insurance regulations that apply in the UK; and
  • links to the PRA’s supervisory approach.

According to the PRA, the public disclosure is designed to encourage a uniform level of transparency and accountability between supervisory authorities. The material published is intended for PRA-authorised insurance companies.

PRA Solvency II supervisory disclosures, the PRA’s supervisory approach and insurance regulations applicable in the UK

Webpage

Financial Conduct Authority

COVID-19 – FCA publishes calculator for claims under business interruption insurance policies – 21 April 2021

The FCA has published a calculator to assist policyholders prove the presence of COVID-19 in their policy area. The results can be used to help make a claim under their business interruption (BI) insurance policy by identifying how many cases are likely to have occurred in a policy area on a particular date. The FCA has also updated its webpages on the BI insurance test case and on proving the presence of COVID-19 to highlight the existence of this calculator.

FCA business interruption insurance COVID-19 calculator

Business interruption insurance webpage

Business interruption insurance test case – proving the presence of COVID-19

Financial Crime

Issue 1106 / 22 April 2021

HEADLINES

  1. Lending Standards Board
    1. Contingent Reimbursement Model Code for Authorised Push Payment (APP) scams – Lending Standards Board publishes updates– 20 April 2021
  2. Joint Money Laundering Steering Group
    1. Trade finance sectoral guidance – JMLSG publishes proposed revisions for consultation– 20 April 2021

Lending Standards Board

Contingent Reimbursement Model Code for Authorised Push Payment (APP) scams – Lending Standards Board publishes updates – 20 April 2021

The Lending Standards Board (LSB) has published an updated version of the Contingent Reimbursement Model Code (the Code) for APP scams, following their full review of the Code published in January 2021.

The updates include the introduction of governance and oversight requirements to support both the embedding of the Code within the culture of firms and ongoing oversight of the Code’s requirements. These provisions will be effective from 14 June 2021.

Amendments have also been made in respect of the no-blame funding pot to clarify that firms can self-fund no-blame scam cases. These amendments are effective immediately.

The LSB also published a roadmap in March 2021 outlining the activity it intends to undertake to complete the final updates to the Code as part of its review. This includes a call to input on specific topics for which there was insufficient evidence submitted to enable it to form policy decisions. The deadline for responses to the call is 26 May 2021.

Lending Standards Board updated publication: The Contingent Reimbursement Model Code for Authorised Push Payments Scams

Press Release

Joint Money Laundering Steering Group

Trade finance sectoral guidance – JMLSG publishes proposed revisions for consultation – 20 April 2021

The Joint Money Laundering Steering Group (JMLSG) has published for consultation proposed revisions to Sector 15 (trade finance) in Part II of its anti-money laundering and counter-terrorist financing guidance for the financial services sector.

The consultation closes on 18 June 2021.

JMLSG proposed revisions

Press Release

Enforcement

Issue 1106 / 22 April 2021

HEADLINES

  1. Financial Conduct Authority
    1. Temporary Permissions Regime – FCA issues supervisory noticeto Finteractive Ltd–16 April 2021
    2. Extended warranty insurance policies – FCA censures broker– 20 April 2021
    3. Fraud and unauthorised business – FCA commences criminal proceedings-22 April 2021

Financial Conduct Authority

Temporary Permissions Regime – FCA issues supervisory notice to Finteractive Ltd – 16 April 2021

The FCA has published a supervisory notice issued to Finteractive Ltd (FXVC), an investment firm registered in Cyprus, barring it from continuing to offer high risk contracts for difference (CFDs) to UK customers.

FXVC enables consumers to trade CFDs using an online platform, accessible through its website. Since February 2019, the FCA has received almost fifty complaints about FXVC’s activities. The FCA found that FXVC has used a variety of inappropriate techniques, including misleading financial promotions and encouraging users to wrongfully declare they were professional investors.

The FCA considers that FXVC breached its obligations under the MiFID II Directive (2014/65/EU), as well as breaching Principles 6 and 7 of its Principles for Businesses and rules in Chapters 3 and 22.5 of the FCA’s Conduct of Business Sourcebook (COBS). FXVC has been banned from conducting any regulated or market activities in the UK, and it has been required to close all trading positions and return the money to customers.

FXVC was operating in the UK under the Temporary Permissions Regime (TPR) which was put in place for firms that used to operate under an EEA passport and wished to continue to operate in the UK following the end of the Brexit transition period.

FCA Supervisory Notice

FCA Press Release

Extended warranty insurance policies – FCA censures broker – 20 April 2021

The FCA has published a final notice issued to Alsford Page & Gems Ltd (APG), a wholesale and reinsurance broker, for failings related to selling extended warranty insurance policies to retail customers in breach of Principles 3 (management and control) and 6 (customers’ interest) of its Principles for Businesses.

APG’s business is wholesale and reinsurance broking within the Lloyd’s of London insurance market, and it began selling extended warranty insurance to retail customers in 2013 via appointed representatives. The FCA found that, between February 2013 and March 2016, APG’s systems and controls for selling products to retail customers were wholly inadequate and its oversight of its appointed representatives was limited and ineffective. These weaknesses meant that APG had no assurance that its customers were being treated fairly or had the appropriate level of information about the products they were purchasing.

APG agreed to pay compensation totalling £399,902 to customers who purchased extended warranty issuance policies from the appointed representatives during the relevant period. The compensation was equivalent to the brokerage fees that APG made from selling the policies.

In a related press release, the FCA stated that it is seeing increasing examples of this type of misconduct, often as a result of principals’ failure to oversee their appointed representatives appropriately. As a result, the FCA is working to address these issues by carrying out greater scrutiny of firms as they nominate appointed representatives, implementing a range of targeted supervision in high-risk sectors and considering whether rule changes may be required.

FCA Final Notice: Alsford Page & Gems Limited

Press Release

Fraud and unauthorised business – FCA commences criminal proceedings - 22 April 2021

Following an investigation, the FCA has announced that it has commenced criminal proceedings against Larry Barreto and Tassib Hussain for conspiracy to commit fraud by false representation and carrying out regulated activities without authorisation.

Mr Barreto traded as Barreto and Partners, an unauthorised financial services firm, and Mr Hussain is an accountant who ran Keystone Chartered Accountants. Both defendants were involved in falsifying self-employment and employment documentation to support mortgage applications for Mr Barreto’s clients who did not have sufficient income. Mr Barreto also provided advice in relation to regulated mortgage contracts without authorisation to do so.

The plea and trial preparation hearing is scheduled for 19 May 2021.

FCA press release on criminal proceedings for fraud and unauthorised business