FIG Bulletin Recent developments 19 July 2021
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FIG Bulletin Recent developments 19 July 2021
General 5
MLRs 2017: Money Laundering and Terrorist Financing (Amendment) (No 2) (High-Risk
Countries) Regulations 2021 5
UK FTA with Norway, Iceland and Liechtenstein 5
India-UK Financial Markets Dialogue 5
Financial stability: FSB interim report on lessons learnt from COVID-19 5
BoE Financial Stability Report and FPC summary and record 6
Resilience of market-based finance: BoE report 6
Change in control assessments: PRA letter on regulator power to object 6
Online fraud and financial promotion: FCA letter 7
Financial promotion: FCA case studies on good and bad practice 7
FCA 2021/22 business plan 7
SFDR: European Commission delays application date of RTS 8
EU Platform on Sustainable Finance draft papers on extending environmental objectives
and considering social taxonomy structure 8
Pensions dashboards: EIOPA consults on technical advice 8
G20 communique: financial services aspects 9
Banking and Finance 10
UK CRR: Draft Capital Requirements Regulation (Amendment) Regulations 2021 10
UK implementation of Basel III standards: PRA PS17/21 10
COVID-19: PRA removes guardrails on shareholder distributions by large banks 10
GBP LIBOR loan contracts: Sterling Working Group publishes timelines and considerations
for borrowers 11
BRRD: RTS on estimating Pillar 2 and combined buffer requirements for setting MREL 11
CRR: EBA guidelines on criteria for use of data inputs in risk-measurement model 11
Effective Islamic deposit insurance systems: IADI and IFSB core principles 11
2Payments 12
PSD2: EBA consults on guidelines on limited network exclusion 12
Use of CBDCs to enhance cross-border payments: CPMI, BIS, IMF and World Bank report 12
UK-US collaboration in digital payments: TheCityUK report 12
Securities and Markets 14
Benchmarks (Provision of Information and Documents) Regulations 2021 14
UK EMIR: FCA update on reporting LIBOR transition modifications 14
UK MiFIR: FCA statement on supervision of commodity position limits 14
UK MiFIR: FCA consults on LIBOR transition and derivatives trading obligation 15
UK MiFIR: FCA update on data reporting and LIBOR transition 15
BMR: LIBOR removed from list of critical benchmarks 16
Regulation on pilot regime for market infrastructures based on DLT: ECON adopts report 16
SSR: European Commission consults on draft Delegated Regulation amending notification
threshold 16
MAR: ESMA consults on amendments to guidelines on delayed disclosure of inside
information 17
EMIR: ESMA methodology for assessing third-country CCPs 17
EMIR: ESMA annual report on supervisory measures and penalties 17
EMIR: ESMA consults on draft guidelines for derivatives reporting 17
EMIR and SFTR: ESMA final report on simplification and harmonisation of TR fees 18
EMIR and MiFIR: ESMA consults on clearing and derivative trading obligations in light of
benchmark transition 18
MiFID: ESMA statement on payment for order flow and zero-commission brokers 19
MiFIR: ESMA statement on supervisory approach to open access provisions for ETDs 19
MiFIR: ESMA consults on transparency requirements for equity and non-equity
instruments 20
Crowdfunding Regulation: ESMA letter raises timing and interpretation concerns 20
CCP Recovery and Resolution Regulation: ESMA consults on RTS and guidelines 21
FX Global Code: GFXC updates Code, publishes new templates for disclosures and guidance
on pre-hedging 21
3Insurance 22
COVID-19 BI insurance test case: FCA updates webpage 22
Part VII insurance business transfers: FCA GC21/3 on proposed changes to its approach 22
Solvency II: EIOPA supervisory statement on SCR breach 23
Solvency II: EIOPA opinion on use of risk mitigation techniques by (re)insurers 23
Solvency II: EIOPA consults on revision of guidelines on contract boundaries and on
valuation of technical provisions 24
Nat Cat insurance protection gap: EIOPA feedback statement on pilot dashboard 24
Funds and Asset Management 25
UK open-ended funds review: BoE and FCA conclusions 25
PRIIPs Regulation: European Commission consults on extending temporary exemption for
UCITS from requirement to provide KIDs 25
4General
MLRs 2017: Money Laundering and Terrorist Financing (Amendment) (No 2)
(High-Risk Countries) Regulations 2021
The Money Laundering and Terrorist Financing (Amendment) (No 2) (High-Risk Countries)
Regulations 2021 (SI 2021/827) have been made, and came into force on 13 July 2021. The
Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds
(Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs 2017) by substituting the list
of high-risk third countries in Schedule 3ZA for a new list. On the new list, Ghana is no longer
classed as a high-risk country for the purposes of enhanced customer due diligence requirements
in regulation 33(3), and Haiti, Malta, Philippines and South Sudan are now classed as high-risk
countries for the purposes of enhanced customer due diligence.
HM Treasury has also published updated advisory notices about the risks posed by
unsatisfactory money laundering and terrorist financing controls and money laundering and
terrorist financing controls in overseas jurisdictions.
UK FTA with Norway, Iceland and Liechtenstein
The Department for International Trade has announced that it has signed a new free trade
agreement (FTA) with the three non-EU members of the European Economic Area (EEA), which
are also members of the European Free Trade Association (EFTA): Iceland, Norway, and
Liechtenstein. A copy of the draft agreement has been published by EFTA. Among other things,
the FTA covers services and investment, including commitments to liberalise investment and
cross-border trade in services. The agreement includes sector-specific commitments on financial
services, recognition of professional qualifications and special visa arrangements for business
travel. It also covers digital trade, including commitments to facilitate cross-border data flows,
for example by prohibiting data localisation requirements.
India-UK Financial Markets Dialogue
HM Treasury has published a joint statement on the first India-UK Financial Markets Dialogue,
having held the inaugural meeting. The Dialogue was established at the tenth Economic and
Financial Dialogue (EFD) in October 2020 to deepen bilateral ties in the financial sector. The
statement explains that financial cooperation is one of the key pillars of the 2030 roadmap
adopted by the UK and India during the recent meeting of the two prime ministers. The Dialogue
is one of the key elements of this cooperation. Both sides have agreed that there is significant
scope for strengthened financial services cooperation.
Negotiations for a future India-UK FTA are expected to take place later in 2021.
Financial stability: FSB interim report on lessons learnt from COVID-19
The Financial Stability Board (FSB) has published an interim report on the lessons learnt from
the COVID-19 pandemic from a financial stability perspective. The aim of the report, which was
prepared in collaboration with standard-setting bodies, is to identify preliminary lessons for
financial stability from the COVID-19 experience and aspects related to the functioning of the
G20 financial regulatory reforms that may warrant further attention at the international level.
The interim report will be used to engage with external stakeholders on preliminary findings and
issues raised from the analysis to date. The FSB will publish the final report in October 2021 and
this will set out any next steps.
5BoE Financial Stability Report and FPC summary and record
The Bank of England (BoE) has published the Financial Stability Report for July 2021 and the
financial policy summary and record (FPSR) of the meetings of its Financial Policy Committee
(FPC) on 30 June 2021. Both documents contain a Financial Policy Summary, with the FPSR
setting out a record of the FPC's deliberations in reaching a consensus view on that summary and
the contents of the FSR.
In the documents the FPC sets out its view of the outlook for UK financial stability and issues
relating to the resilience of the financial system, including the:
FPC's approach to reducing disruptions to market‐based finance;
the outcome of the joint BoE-Financial Conduct Authority (FCA) review of open‐ended
investment funds;
the use of credit sensitive rates in the transition from LIBOR;
the need for additional policy measures relating to cloud service providers and other
critical third parties; and
the review of the UK leverage ratio framework.
The FPC's next policy meeting will be on 23 September 2021 and the record of that meeting will
be published on 8 October 2021.
Resilience of market-based finance: BoE report
The BoE has published a report assessing the resilience of market-based finance. The report
explains the FPC's framework for assessing vulnerabilities in market-based finance and past
work to build its resilience. It also summarises key aspects of the "dash for cash" in March 2020
and how this was catalysed by vulnerabilities in market-based finance. In addition, the report
sets out the FPC's current areas of focus, and includes international work to assess and, where
necessary, remediate vulnerabilities exposed during the "dash for cash". Finally, it identifies next
steps.
The report also includes the conclusions of the joint BoE and FCA review into vulnerabilities
associated with liquidity mismatch in open-ended funds (reported further in our Funds and asset
management regulatory news).
Change in control assessments: PRA letter on regulator power to object
The House of Commons Treasury Committee has published a letter sent to it by Sam Woods,
chief executive of the Prudential Regulation Authority (PRA), which, among other things,
considers the conditions for assessing a proposed change in control of a regulated firm.
Under the change in control framework set out in Part 12 of the Financial Services and Markets
Act 2000 (FSMA), the appropriate regulator may only object to an application for a change in
control if there are reasonable grounds for doing so on the basis of the six assessment criteria set
out in section 186 of FSMA.
The PRA regards the section 186 criteria as sensible and does not consider that they need to be
changed from a prudential supervisory perspective. However, it notes that, before the
implementation of the Acquisitions Directive, the regulator could object to an acquisition unless
it was satisfied that it was appropriate for an acquisition to take place in the light of the relevant
criteria. The PRA considers that the change made by the Acquisitions Directive shifted the
burden of proof. Therefore, in its letter, the PRA raises with HM Treasury the possibility of
reverting to the pre-Acquisitions Directive approach. Its view is that this would assist the
6regulator where the position is unclear and be conducive in practice to a more robust approach
to the review of acquisitions.
Online fraud and financial promotion: FCA letter
The House of Commons Work and Pensions Committee has published a letter sent to it by Nikhil
Rathi, FCA Chief Executive focussing on online fraud. In the letter, Mr Rathi emphasises that the
FCA continues to believe the best way to protect consumers from illegal online scams is for
financial harm to be included as an online harm in the government's proposed Online Safety Bill.
The FCA calls for the Online Safety Bill to be revised to cover paid-for advertising, as well as
user-generated content. Its aim is that online platforms, such as search engines and social media
platforms, should be required to identify and remove fraudulent content, regardless of its
content. It suggests that the duties of care in the Bill could be revised to include an obligation to
prevent the communication of financial promotions that have not been approved for
communication by an FCA-authorised firm. Online platforms and their senior managers would
be required to implement measures including appropriate gateway systems and controls to
prevent publication, steps to ensure fraudulent and misleading financial promotions are dealt
with rapidly and processes that allow authorities to share intelligence on non-compliant financial
promotions.
The FCA considers that the exemptions in the Financial Promotion Order (FPO) concerning high
net worth and sophisticated investors are a significant vulnerability in the financial promotion
regime. It states that these exemptions enable unauthorised firms to issue financial promotions
to investors without complying with any of its rules and have been used to target consumers with
inappropriate high-risk investments or scams. The FCA calls for changes to the ability to self-
certify qualification for the exemptions and to the thresholds in the exemptions.
Mr Rathi also states that the FCA is considering the impact of the removal of exemptions in the
FPO that derived from the E-Commerce Directive as a consequence of Brexit. In particular, the
FCA is reviewing the operations of the major online platforms to determine whether, following
these changes, they are now subject to the financial promotion restriction and, if so, whether
they are compliant.
Financial promotion: FCA case studies on good and bad practice
The FCA has published a new webpage setting out video case studies to illustrate good and bad
practice when promoting financial services and the FCA's expectations for promotions to be
clear, fair and not misleading. The FCA warns that the examples it provides are mock scenarios
and are not a comprehensive illustration of its rules. It is for firms to ensure that the promotions
that they communicate or approve comply with all relevant requirements.
FCA 2021/22 business plan
The FCA has published its business plan for 2021/22 in which it sets out its aims for the
forthcoming year. With the uncertainty caused by the pandemic likely to continue, the FCA is
looking to build on the consumer priorities of last year's plan which focused on delivering fair
value in the digital age, enabling effective consumer investment decisions, ensuring credit
markets work and making payments safe and accessible. The regulator is also focused on
reinforcing the effectiveness of UK wholesale markets, as well as several cross-market issues
including fraud, operational resilience, ESG, and diversity and inclusion.
Read our commentary in our separate briefing: FCA Business Plan 2021 – 2022.
7SFDR: European Commission delays application date of RTS
On 9 July 2021, an article published on Reuters.com reported that the date of application of
regulatory technical standards (RTS) under the Sustainable Finance Disclosure Regulation
(SFDR) has been delayed from 1 January 2022 until 1 July 2022.
EU Platform on Sustainable Finance draft papers on extending environmental
objectives and considering social taxonomy structure
On 12 July 2021, the European Commission published the following documents extending the
EU taxonomy with regard to environmental objectives, and a draft report on a social taxonomy,
both produced by the EU Platform on Sustainable Finance:
a consultation paper, "Report on taxonomy extension options linked to environmental
objectives". In this consultation paper, the Platform examines the premises, issues and
options for and against extending the EU Taxonomy "beyond green" to include
significantly harmful (SH) activities and no significant impact (NSI) activities (both
relating to environmental sustainability) within the overall EU sustainable finance
framework. The Platform describes this paper as a work in progress. It has been
published to gather feedback, which will further inform the Platform as it continues with
this work; and
a draft report by the Platform's Subgroup 3, "Social taxonomy". In this report, the
Subgroup considers the structure for a social taxonomy, as well as the relationship
between the social and environmental taxonomies and the regulatory environment. It has
identified four main differences between a social and an environmental taxonomy,
outlined in the report. The suggested structure of a social taxonomy is both vertical and
horizontal. The vertical dimension focuses on products and services for basic human
needs and basic infrastructure. The horizontal dimension takes into account impacts on
different groups of stakeholders affected by economic activities (workers, consumers and
communities). Sustainable corporate governance is regarded as setting the bar for
environmental and social sustainability in economic entities. In this area, the focus is on
topics including bribery, taxation and lobbying.
On a related webpage, the Platform explains that comments are welcome on both documents
until 27 August 2021. After considering responses, the Platform will submit final reports with
advice to the Commission in autumn 2021. The advice will feed into the Commission's report on
the potential extension of the taxonomy framework, which is to be adopted by the end of 2021
under Article 26(2a) and (2b) of the Taxonomy Regulation.
Pensions dashboards: EIOPA consults on technical advice
Following the European Commission's request for technical advice on the development of best
practice for national pension tracking systems and pension dashboards, the European Insurance
and Occupational Pensions Authority (EIOPA) has launched the following two consultation
papers:
"Technical advice on the development of pension tracking systems"; and
"Technical advice on the development of pension dashboards and the collection of
pensions data".
The consultations end on 8 September 2021. EIOPA plans to publish its final advice to the
European Commission on 1 December 2021.
8G20 communique: financial services aspects
The G20 has published a communique following a meeting of finance ministers and central bank
governors in Venice on 10 July 2021. On financial sector-related reforms, the communique states
that the G20, among other things:
looks forward to appraising the development of a detailed work plan on data gaps,
following the International Monetary Fund concept note on a possible new data gaps
initiative, prepared in cooperation with the Financial Stability Board;
looks forward to discussing at its October 2021 meeting the Sustainable Finance Working
Group synthesis report and a multi-year G20 Roadmap on sustainable finance, initially
focused on climate. It will work to promote implementation of disclosure requirements or
guidance, building on the FSB's Task Force on Climate-related Financial Disclosures
(TCFD) framework to prepare the way for future global coordination efforts aimed at
developing a baseline global reporting standard. It also welcomes the FSB roadmap for
addressing financial risks from climate change;
reiterates its commitment to a timely and effective implementation of the G20 Roadmap
to enhance cross-border payments by relevant authorities. It looks forward to the FSB
report setting quantitative global targets for addressing the challenges of cost, speed,
transparency and access, which is to be delivered in October 2021. It reiterates that no
global stablecoins should commence operation until all relevant legal, regulatory and
oversight requirements are adequately addressed through appropriate design and by
adhering to applicable standards; and
welcomes the Financial Action Task Force (FATF) work on money laundering risks
resulting from environmental crimes and recognises the links between climate and
biodiversity threats and other serious crimes. It reaffirms its commitment to
implementing and strengthening global standards on beneficial ownership transparency
and virtual assets regulation and supervision within its jurisdictions. It strongly supports
the FATF's ongoing project to revise the current recommendation on beneficial
ownership transparency.
9Banking and Finance
UK CRR: Draft Capital Requirements Regulation (Amendment) Regulations 2021
A draft version of the Capital Requirements Regulation (Amendment) Regulations 2021 has been
published, together with a draft explanatory memorandum. The Regulations contain
amendments to the UK Capital Requirements Regulation (UK CRR) relating to the
implementation in the UK of certain standards developed by the Basel Committee on Banking
Supervision (BCBS) that were implemented in the EU through the Capital Requirements
Regulation (CRR) II. HM Treasury intends to transfer to the Prudential Regulation Authority
(PRA) Rulebook those provisions of the UK CRR and related legislation that are affected by the
implementation of the BCBS provisions. Therefore, once the Regulations are made, the PRA will
be able to make final rules in PS17/21 (see below).
These Regulations also contain additional EU Exit-related amendments to the UK CRR which
are required to ensure that these pieces of legislation continue to operate effectively now the UK
has left the EU.
UK implementation of Basel III standards: PRA PS17/21
Following its consultation in CP5/21, the PRA has published a policy statement,
PS17/21, providing feedback on the responses to its consultation and giving its near-final policy
on implementing certain Basel III standards. The PRA will also make rules that restate elements
of the EU CRR and related onshored EU level 2 regulations made under the EU CRR that are
being revoked by HM Treasury (see item above). The PRA has not made the rule instruments at
this stage because HM Treasury must first revoke the relevant parts of UK CRR, as provided for
in the Financial Services Act 2021, before the PRA can replace them in PRA rules.
In response to feedback, the PRA has made changes to some of the policy it consulted on, the
details of which are outlined in PS17/21. It considers that the changes will reduce the overall
costs to firms, while maintaining the prudential benefits of implementing Basel III.
The policy material is set out in Appendices to PS17/21, many of which have been published
separately and are accessible via the PRA's implementation of Basel standards webpage.
This policy is intended to take effect at the same time as HM Treasury's revocation of the
relevant parts of the UK CRR, which will be on 1 January 2022.
COVID-19: PRA removes guardrails on shareholder distributions by large banks
On 13 July 2021, the PRA published a statement updating its December 2020 statement on its
temporary approach to shareholder distributions by large UK banks in the light of the COVID-19
pandemic. In the statement, the PRA announces that the framework of temporary "guardrails"
that applied to banks' distributions to ordinary shareholders in respect of their 2020 results has
been removed with immediate effect. The PRA's view is that these guardrails are now no longer
necessary, in the light of developments including the progress of vaccination programmes and
banks' capital positions and trajectories, based on the interim results of the Bank of England's
(BoE) 2021 solvency stress test.
The PRA states that bank boards should continue to exercise an appropriate degree of caution
around the level of any shareholder distributions. Its view is that this would be consistent with
its standard approach to capital-setting and shareholder distributions through 2021. Under this
10framework, bank boards are responsible for making distribution decisions subject to the
standard constraints of the regulatory framework, including the regular annual stress test.
GBP LIBOR loan contracts: Sterling Working Group publishes timelines and
considerations for borrowers
The Working Group on Sterling Risk-Free Reference Rates (RFRWG) has published a paper,
GBP LIBOR loan contracts – Timelines and considerations for borrowers, to help borrowers
understand and achieve the end of Q3 milestone relating to actively transitioning legacy sterling
LIBOR loans. Among other things, the paper sets out why market participants should aim to
convert their loans by the end of the third quarter of 2021 rather than waiting until the end of
2021 when most LIBOR currency-tenor settings will be discontinued.
BRRD: RTS on estimating Pillar 2 and combined buffer requirements for setting
MREL
Commission Delegated Regulation (EU) 2021/1118 containing regulatory technical standards
(RTS) specifying the methodology to be used by resolution authorities to estimate the Pillar 2
and combined buffer requirements at resolution group level has been published in the Official
Journal of the European Union (OJ). This is for the purpose of setting the minimum
requirement for own funds and eligible liabilities requirement (MREL) under the Bank Recovery
and Resolution Directive (BRRD).
The Delegated Regulation will enter into force on 28 July 2021.
CRR: EBA guidelines on criteria for use of data inputs in risk-measurement model
The European Banking Authority (EBA) has published a final report on guidelines on criteria for
the use of data inputs in the risk-measurement model referred to in Article 325bc under Article
325bh(3) of the CRR.
The guidelines will apply from 1 January 2022.
Effective Islamic deposit insurance systems: IADI and IFSB core principles
The International Association of Deposit Insurers (IADI) and the Islamic Financial Services
Board (IFSB) have published core principles for effective Islamic deposit insurance systems
(CPIDIS). The CPIDIS consists of 17 core principles for the development and implementation of
an effective Islamic deposit insurance system (IDIS). The principles take account of the
specificities of Islamic banks, while complementing existing international standards in this area,
primarily IADI's core principles for effective deposit insurance systems.
It is envisaged that jurisdictions will use the CPIDIS and their compliance assessment
methodology as a benchmark for assessing the quality of their IDIS and for identifying gaps in
their Islamic deposit insurance practices, including measures to address them.
The IADI and IFSB state that their work on this issue will continue with a series of pilot tests for
the CPIDIS that will be used to help develop a joint IADI-IFSB handbook for the assessment of
compliance with the CPIDIS.
11Payments
PSD2: EBA consults on guidelines on limited network exclusion
The European Banking Authority (EBA) is consulting on guidelines on the limited network
exclusion (LNE) under the revised Payment Services Directive (PSD2).
The EBA explains that Article 3(k) of PSD2 introduced an exclusion for services based on specific
payment instruments that can be used only in a limited way. However, Article 37(2) of PSD2
provides that for payment transactions over EUR1 million, payment service providers (PSPs)
relying on the exclusions under Article 3(k)(i) or (ii) of PSD2 must notify their competent
authority. Competent authorities, in turn, must assess whether or not the activity qualifies as a
limited network. Payment instruments that could be covered by the LNE include store cards, fuel
cards, membership cards, public transport cards, parking ticketing and meal vouchers.
The EBA believes that the implementation and application of the LNE requirements diverges
significantly between member states, which impedes the single market for payment services in
the EU and creates opportunities for regulatory arbitrage. The EBA also believes that consumers
are sometimes unaware that they do not benefit from the protection envisaged under PSD2.
Therefore, the EBA is proposing guidelines to bring about convergence on a number of aspects of
the LNE. In particular, the draft guidelines address specificities for each type of limited network
exclusion envisaged under Article 3(k) of PSD2, including, where relevant, criteria and indicators
on how to qualify a limited network of service providers and limited range of goods and services
as such. The guidelines also cover the EBA's expectations on the use of payment instruments
within a limited network, the application of the LNE by regulated PSPs and electronic money
issuers, and the application of the notifications to competent authorities.
The deadline for responses is 15 October 2021 following which the EBA will publish final
guidelines.
Use of CBDCs to enhance cross-border payments: CPMI, BIS, IMF and World
Bank report
The Committee on Payments and Market Infrastructures (CPMI), the BIS Innovation Hub, the
International Monetary Fund (IMF) and the World Bank jointly published a report for the G20
on the use of central bank digital currencies (CBDCs) for cross-border payments.
This report takes stock of the international dimension of CBDC projects and the extent to which
they could be used for cross-border payments. It also investigates possible macro-financial
implications associated with the cross-border use of CBDCs.
The G20 has made enhancing cross-border payments a priority and endorsed a comprehensive
programme to address the key challenges. The report is part of this work.
UK-US collaboration in digital payments: TheCityUK report
TheCityUK has published the first report in a series of six focussing on financial innovation
between the UK and the US markets: "UK-US financial innovation: digital payments". The report
argues that removing regulatory obstacles to establish a deep and successful digital payments
market would offer substantial mutual benefits to both markets. Recommendations fall under
the headings of open banking; privacy and international data transfer; licensing regimes; cross-
12border payments; and financial inclusion. TheCityUK intends to work closely with HM Treasury
and the industry to progress these issues in the coming months.
13Securities and Markets
Benchmarks (Provision of Information and Documents) Regulations 2021
The Benchmarks (Provision of Information and Documents) Regulations 2021 (SI
2021/812) have been published, together with an explanatory memorandum. The Regulations
came into force on 9 July 2021. They make provision in respect of a notice or permission given
by the Financial Conduct Authority (FCA) to a benchmark administrator under Articles 22A,
22B, 23A and 23D of the UK Benchmarks Regulation (UK BMR) where the FCA is considering
whether to wind down a critical benchmark.
These Articles were inserted into the UK BMR by way of the Financial Services Act 2021. They
form part of a suite of amendments to the UK BMR that give the FCA additional powers to
manage an orderly wind-down of a critical benchmark. The Regulations will be used for the
wind-down of LIBOR. However, they apply to any critical benchmark regulated under the UK
BMR. They may also apply where the FCA decides not to wind down a critical benchmark.
UK EMIR: FCA update on reporting LIBOR transition modifications
Following its March 2021 statement on its webpage for "UK EMIR news" clarifying that an
amendment to a reference rate or applying a fallback in place of LIBOR would constitute a
modification that is reportable under UK EMIR, the FCA has added to the webpage follow-up
guidance on how it expects this modification to be reported under Article 9 of the retained EU
law version of the European Market Infrastructure Regulation (UK EMIR).
The FCA's advice covers:
reporting of fallbacks in accordance with the ISDA protocol;
reporting of bespoke fallbacks; and
reporting where a reference rate is otherwise amended.
The FCA reiterates the statement it made in its March 2021 update that, while it expects firms to
make the necessary preparations to ensure the relevant UK EMIR reports are updated in a timely
manner, it will apply its supervisory powers for this requirement in a proportionate and risk-
based manner.
UK MiFIR: FCA statement on supervision of commodity position limits
The FCA has published a statement on supervision of commodity position limits.
The FCA refers to its December 2020 supervisory statement, which included a change in its
approach to commodity derivative position limits in the light of potential constraints on market
functioning during the COVID-19 pandemic because of inflexibilities in the commodity
derivatives position limits regime. The FCA confirms that its policy remains that it does not
intend to take supervisory or enforcement action for positions that exceed limits where the
position is held by a liquidity provider to fulfil its obligations on a trading venue.
The FCA refers to HM Treasury's wholesale markets review consultation which includes
proposals on reforming the Markets in Financial Instruments Directive (MiFID) commodity
derivatives position limits regime to limit the scope of the position limits to agricultural contracts
and physically settled contracts. The FCA supports these proposals, and has decided that, while
changes to the scope of the regime is being considered, it will not take supervisory or
enforcement action in relation to commodity derivative positions that exceed position limits on
cash-settled commodity derivative contracts, unless the underlying is an agricultural commodity.
14However, it will keep this position under review, and reconsider if there are indications of
market abuse.
The FCA clarifies that its existing supervisory and enforcement approach relating to position
limits remains for physically deliverable and agricultural commodity derivative contracts. In
addition, its approach does not affect the responsibilities of members or participants of a trading
venue under the position management rules of that venue, or the FCA's expectation that firms
trading or arranging trades in commodity derivatives comply with their other market conduct
obligations.
UK MiFIR: FCA consults on LIBOR transition and derivatives trading obligation
The FCA has published a consultation paper , CP21/22, on LIBOR transition and the derivatives
trading obligation (DTO).
The DTO, which is set out in Article 28 of the UK Markets in Financial Instruments Regulation
(UK MiFIR), requires financial and certain non-financial counterparties to conclude transactions
in standardised and liquid over-the-counter (OTC) derivatives only on regulated trading venues.
Article 32 of UK MiFIR specifies that derivatives that are subject to the DTO must be subject to
the derivatives clearing obligation (DCO) under UK EMIR, admitted to trading on at least one
regulated trading venue and be sufficiently liquid to trade only on those venues.
The FCA intends to amend the UK regulatory technical standards (RTS) on the trading
obligation for certain derivatives (DTO RTS), which are set out in the onshored version of
Commission Delegated Regulation (EU) 2017/2417, to remove derivatives referencing GBP
LIBOR from the current DTO and replace them with overnight indexed swaps (OIS) referencing
SONIA. The FCA's liquidity analysis indicates that SONIA OIS as a class of OTC derivatives is
sufficiently liquid to impose a DTO.
The FCA's proposals follow on from the Bank of England's (BoE) May 2021 consultation paper
on changes to the DCO, which will remove contracts referencing GBP LIBOR from the DCO's
scope, replacing them with contracts referencing SONIA.
The FCA intends to monitor market developments and liquidity in OIS referencing €STR and
SOFR over the coming months. Its view is that OIS referencing €STR do not yet display the same
level of liquidity of EURIBOR or other products currently subject to the DTO and OIS
referencing SOFR may also not yet meet relevant criteria to be sufficiently liquid.
The instrument making the proposed amendments to the DTO RTS, the Technical Standards
(Markets in Financial Instruments Regulation) (Derivatives Trading Obligation) Instrument
2021, is set out in Appendix 1 to CP21/22. The FCA intends for it to enter into force on 20
December 2021.
The deadline for responses is 25 August 2021. The FCA intends to publish a policy statement in
late Q3 or early Q4 2021.
UK MiFIR: FCA update on data reporting and LIBOR transition
The FCA published a new webpage aiming to clarify expectations for investment firms and
trading venues submitting UK MiFIR transaction reports and instrument reference in relation to
LIBOR transition. On its webpage, the FCA responds to the following two questions:
15 Should a transaction report be submitted when the reference rate for a
previously reported contract changes from LIBOR to an alternative rate
(whether as a result of the application of a fallback or otherwise)?
The FCA states that, where the only amendment to the contract is the reference rate and
associated spread, a new transaction report should not be submitted. Where other
amendments are made to the contract that result in a reportable transaction, such as a
change in notional, a new transaction report should be submitted in accordance with
applicable requirements (described briefly on the webpage).
Are trading venues required to amend financial instrument reference data
when the reference rate for an instrument changes from LIBOR to an
alternative rate (whether as a result of the application of a fallback or
otherwise)?
The FCA advises that where the change in reference rate would result in a new ISIN being
generated on request, trading venues should request the new ISIN, terminate the existing
instrument and submit financial instrument reference data for the new instrument in
accordance with the UK onshored Delegated Regulation (EU) 2017/585 (RTS 23).
However, if the change would not cause a new ISIN to be generated, and no other
changes are being made to the instrument that would result in a new ISIN being
generated, no action is required by trading venues.
BMR: LIBOR removed from list of critical benchmarks
European Commission Implementing Regulation (EU) 2021/1122 amending Implementing
Regulation (EU) 2016/1368 adding the Norwegian Interbank Offered Rate to and removing
LIBOR from the list of critical benchmarks used in financial markets established pursuant to the
EU Benchmarks Regulation (BMR) has been published in the Official Journal of the EU.
The Implementing Regulation will enter into force on 10 July 2021.
Regulation on pilot regime for market infrastructures based on DLT: ECON
adopts report
The European Parliament's Economic and Monetary Affairs Committee (ECON) has announced
that it has adopted a report on the proposed Regulation on a pilot regime for market
infrastructures based on distributed ledger technology (DLT). The announcement highlights
details on financial instruments eligible for the pilot.
The pilot is part of the European Commission's Digital Finance Strategy.
SSR: European Commission consults on draft Delegated Regulation amending
notification threshold
The European Commission is consulting on a draft Delegated Regulation amending the EU Short
Selling Regulation (SSR) as regards the adjustment of the relevant threshold for the notification
of significant net short positions in shares under Article 5(2) of the SSR. The aim of the draft
Delegated Regulation is to adjust the relevant threshold for the notification to competent
authorities of significant net short positions in shares set out in Article 5(2) of the SSR from
0.2% to 0.1% (and each 0.1% above that).
Comments can be made on the draft Delegated Regulation until 12 August 2021.
16MAR: ESMA consults on amendments to guidelines on delayed disclosure of
inside information
The European Securities and Markets Authority (ESMA) has published a consultation paper on
the review of its guidelines on delayed disclosure of inside information under the EU Market
Abuse Regulation (MAR) in relation to its interaction with prudential supervision.
ESMA explains that, under MAR, issuers can delay the disclosure of inside information where
immediate disclosure is likely to prejudice an issuer's legitimate interest, the delay of disclosure
is not likely to mislead the public and confidentiality is ensured. ESMA's MAR guidelines include
a list of legitimate interests of issuers that are likely to be prejudiced by immediate disclosure of
inside information. The purpose of this consultation is to build and expand on these guidelines,
in the context of the interaction between the MAR transparency obligations vis-à-vis inside
information and the prudential supervisory framework.
ESMA proposes to amend the current guidelines by:
clarifying that, in case of redemptions, reductions and repurchases of own funds, pending
the prudential supervisor's authorisation, the institution has a legitimate interest to delay
disclosure of inside information until authorisation is granted;
clarifying that in case of draft Supervisory Review and Evaluation Process (SREP)
decisions and related preliminary information, the institution has a legitimate interest in
delaying disclosure of inside information until that information becomes final; and
adding a separate section to clarify that Pillar 2 Capital Requirements and Pillar 2 Capital
Guidance contained in the SREP under the Capital Requirements Regulation (CRR) and
Directive (CRD) package, are likely to meet the definition of inside information under
MAR and, therefore, would need to be disclosed as soon as possible, once final.
The consultation closes on 27 August 2021. ESMA will consider the responses it receives to the
consultation and expects to publish a final report including its amended MAR guidelines at the
end of 2021.
EMIR: ESMA methodology for assessing third-country CCPs
ESMA has published a methodology for assessing, under Article 25(2c) of EMIR, whether a third
country central counterparty (CCP) or some of its clearing services are of such substantial
systemic importance that the third country CCP should not be recognised to provide certain
clearing services or activities in the EU.
EMIR: ESMA annual report on supervisory measures and penalties
ESMA has published its annual report on the supervisory measures and penalties that national
competent authorities have imposed under Articles 4, 9, 10 and 11 of EMIR.
EMIR: ESMA consults on draft guidelines for derivatives reporting
ESMA is consulting on draft guidelines for reporting trades in derivatives under Article 9 of
EMIR and on obligations for trade repositories (TRs) under Articles 78 and 81. The draft
guidelines cover a wide set of topics relating to reporting, data quality and data access under the
EMIR Refit Regulation. ESMA has also published validation rules that clarify dependencies
between data fields and their applicability in the different use cases.
The consultation closes on 30 September 2021.
17EMIR and SFTR: ESMA final report on simplification and harmonisation of TR
fees
ESMA published its final report on technical advice to the European Commission on the
simplification and harmonisation of fees to trade repositories (TRs) under EMIR and the EU
Regulation on reporting and transparency of securities financing transactions (SFTR). In light of
its advice, ESMA expects the Commission to amend the following Delegated Regulations on fees
for TRs:
Commission Delegated Regulation (EU) 272/2012 (relating to credit rating agencies
(CRAs));
Commission Delegated Regulation (EU) 1003/2013 (relating to TRs under EMIR);
Commission Delegated Regulation (EU) 2019/360 (relating to TRs under the SFTR).
EMIR and MiFIR: ESMA consults on clearing and derivative trading obligations in
light of benchmark transition
ESMA has published a consultation paper proposing draft RTS that would amend the RTS on the
clearing obligation (CO) and on the derivative trading obligation (DTO) under Article 5(2) of
EMIR and Article 32 of MiFIR respectively. ESMA's proposals would amend the scope of the CO
and the DTO to accompany the benchmark transition for OTC derivatives away from EONIA and
LIBOR and on to new Risk-Free Rates (RFR).
It explains that, following benchmark reform, EONIA and LIBOR will cease at the end of 2021.
The exception to this is USD LIBOR, which is scheduled to continue until June 2023 (although
ESMA points out that various communications have been made with a view to stopping USD
LIBOR from being used as a reference rate in new contracts as soon as possible and at latest by
31 December 2021). ESMA refers to the international efforts from regulators and market
participants to replace these benchmarks and transition to new RFRs in a number of currencies.
For the OTC derivative market, this means that new derivative contracts are expected to no
longer reference EONIA or LIBOR from 3 January 2022, whereas derivatives referencing RFRs
such as €STR in EUR, SONIA in GBP or SOFR in USD are being traded and cleared.
Three Commission Delegated Regulations on the CO and one on the DTO mandate a range of
interest rate and credit derivative classes to be cleared, and for a subset of these, to also be
traded on venue. ESMA recognises that, in light of transition to RFRs, the scope of the CO and
the DTO for the classes and currencies impacted by these changes needs reviewing (that is,
interest rate derivative classes in EUR, GBP, JPY and USD). The draft RTS include proposed
amendments to reflect the changes deriving from this transition.
ESMA will consult the European Systemic Risk Board on the draft RTS on the CO. It has
discussed the proposals with a number of relevant authorities from third countries to facilitate
international convergence as far as possible.
The consultation closes on 2 September 2021. ESMA expects to submit its final report to the
European Commission in autumn 2021 and aims to ensure that the scope of derivatives classes
subject to the CO and the DTO reflects the transition to the new alternative rates at the
beginning of 2022.
18MiFID: ESMA statement on payment for order flow and zero-commission
brokers
ESMA has published a statement warning firms and investors on risks arising from payment for
order flow (PFOF) and from certain practices by "zero-commission brokers".
PFOF is the practice of brokers receiving payments from third parties for directing client order
flow to them as execution venues. Zero-commission brokers are firms that charge no explicit
commissions for the execution of client orders and market their services as bearing no costs for
investors. ESMA states that these firms often receive PFOF from third parties, which may
compensate for the lack of direct commissions charged to clients.
ESMA's view is that in most cases it is unlikely that PFOF could be compatible with the Markets
in Financial Instruments Directive (MiFID) and related legislation, explaining its concerns in
greater detail in the statement.
ESMA requests national competent authorities (NCAs) to prioritise PFOF in their supervisory
activities for 2021 or early 2022. These supervisory activities should assess the actual impact of
PFOF on firms' compliance with best execution, conflicts of interest and inducements
requirements, including whether firms receiving PFOF are able to demonstrate that they
consistently achieved the best possible result for retail clients when executing their orders.
MiFIR: ESMA statement on supervisory approach to open access provisions for
ETDs
ESMA has published a statement on its supervisory approach to the provisions on non-
discriminatory and open access to trading venues and CCPs for transferable securities, money
market instruments and exchange traded derivatives (ETDs) under Articles 35 and 36 of the EU
Markets in Financial Instruments Regulation (MiFIR).
ESMA explains that Article 54(2) of MiFIR enables NCAs to temporarily exempt trading venues
and CCPs from the MiFIR access provisions for ETDs. NCAs had granted a number of
exemptions under this provision, which expired on 3 July 2021. It notes that co-legislators have
strongly indicated their intention to extend the transitional period for ETDs. The Council of the
EU has suggested in its General Approach on the European Commission's proposal for a
Regulation on a pilot regime for market infrastructures based on distributed ledger technology
(known as the DLT pilot regime) amending Article 54(2) of MiFIR to extend the transitional
period by two years to 3 July 2023. ESMA also understands that the European Parliament has
indicated support for extending the transitional period by two years. ESMA believes that,
although the legislative procedure in relation to the proposal for a Regulation on a DLT pilot
regime is not yet concluded, both co-legislators seem to hold identical positions on an extension
of the transitional period, which suggests that the extension will in all likelihood be established.
ESMA considers that it is important to consider this likely upcoming legislative change when
applying the MiFIR open access provisions for ETDs. It is also mindful of the administrative
burden in processing potential access requests that would, in the light of the expected extended
transitional period, not result in effective access arrangements.
On this basis, ESMA states that it expects NCAs not to prioritise actions in relation to the
provisions in Articles 35 and 36 of MiFIR with respect to trading venues and CCPs that
benefitted from transitional arrangements under Article 54(2) of MiFIR in respect of ETDs.
19MiFIR: ESMA consults on transparency requirements for equity and non-equity
instruments
ESMA is consulting on the review of transparency requirements for equity and non-equity
instruments under Commission Delegated Regulation (EU) 2017/587 (RTS 1) and Commission
Delegated Regulation (EU) 2017/583 (RTS 2), both made under MiFIR.
The consultation reflects the findings and recommendations of various MiFID review reports
published by ESMA in 2019 and 2020, as well as feedback received from stakeholders. The
proposals include:
providing more clarity on non-price forming transactions and the reporting of such
transactions which will help obtain a better picture of the actual split between lit and OTC
trading;
a recalibration of the regime for commodity derivatives ensuring better tailored
transparency requirements for this class of derivatives;
providing further clarity on the reporting fields for post-trade transparency and the
reporting of reference data with the overall objective of improving the quality of post-
trade transparency data;
providing clarification on the pre-trade transparency requirements for new types of
trading systems, i.e. frequent batch auctions and hybrid systems; and
increasing the pre- and post-trade large in scale thresholds for the trading of ETFs to
achieve a more meaningful level of transparency in the ETF market.
The consultation closes on 1 October 2021. ESMA will analyse the feedback in Q4 2021 and aims
to publish a final report and submit draft RTS to the European Commission for endorsement in
Q1 2022.
Crowdfunding Regulation: ESMA letter raises timing and interpretation concerns
ESMA has published a letter it sent to the European Commission, on the Regulation on
European crowdfunding service providers for business (Crowdfunding Regulation). In the letter,
ESMA sets out some important interpretation issues that have emerged from its interaction with
NCAs and market participants. The issues are summarised in an Annex to the letter. ESMA
considers it would be highly beneficial to NCAs and market participants if the Commission
clarified these uncertainties.
ESMA also highlights concerns, shared by NCAs, about potential issues relating to the date of
application of the Crowdfunding Regulation as well as the expected date of application of the
delegated and implementing acts to be adopted by the Commission under the Crowdfunding
Regulation.
It is due to submit most of its technical standards to the Commission on the date the
Crowdfunding Regulation will apply (that is, 10 November 2021). Notwithstanding the
significant number of mandates, ESMA will endeavour to submit its technical standards before
this date, including some or all of the draft technical standards it is due to submit by May 2022.
However, ESMA believes it is already unavoidable that the full endorsement process will not be
concluded before 10 November 2021. As a result, the Crowdfunding Regulation will begin to
apply significantly before the application of the technical standards the Commission should
adopt. ESMA is concerned about harmonisation and level playing field issues among member
states during the interim period between the date the Crowdfunding Regulation applies and the
date the technical standards apply. It believes that this is also likely to make the authorisation
process more complex for both NCAs and applicants.
20ESMA points out that slightly delaying the Crowdfunding Regulation application date would
enable a more orderly and harmonised application of the regime.
CCP Recovery and Resolution Regulation: ESMA consults on RTS and guidelines
ESMA has published consultation papers on the following RTS and guidelines mandated under
the Regulation on the recovery and resolution of CCPs (CCP Recovery and Resolution Regulation
or CCPRRR):
Draft Guidelines on CCP recovery plan indicators (Article 9(5) CCPRRR);
Draft Guidelines on CCP recovery plan scenarios (Article 9(12) CCPRRR);
Draft RTS on the methodology for calculation and maintenance of the additional amount
of pre-funded dedicated own resources (Article 9(15) of CCPRRR);
Draft RTS further specifying the factors that shall be considered by the competent
authority and the supervisory college when assessing the CCP recovery plan (Article
10(12) CCPRRR);
Draft Guidelines on the consistent application of the triggers for the use of Early
Intervention Measures (Article 18(8) CCPRRR);
Draft RTS specifying the conditions for recompense (Article 20(2) of CCPRRR); and
Draft Guidelines further specifying the circumstances for temporary restrictions in the
case of a significant non-default event in accordance with Article 45a of EMIR.
The deadline for responding to all the consultations is 20 September 2021. ESMA will consider
the feedback received to the consultation in Q3 2021 and expects to publish reports containing
final versions of the guidelines and the draft RTS by Q4 2021/Q1 2022.
FX Global Code: GFXC updates Code, publishes new templates for disclosures
and guidance on pre-hedging
The Global Foreign Exchange Committee (GFXC) has published an updated version of its FX
Global Code, following a three-year review of the Code. It has also published:
a paper setting out the outcomes of its review of the Code;
commentary on principle 11 and the role of pre-hedging in today's FX landscape; and
a webpage providing links to the Algo Due Diligence Template, Algo Due Diligence
Template Instructions, Transaction Cost Analysis (TCA) Data Template and TCA Data
Template – Example Spreadsheet.
Eleven of the Code's 55 principles have been amended. The changes from the 2018 version are
highlighted in the appendix to the GFXC's review outcomes paper. The revisions are designed to
strengthen the Code's guidance on anonymous trading, algorithmic trading and transaction cost
analysis, disclosures and settlement risk.
The GFXC has indicated that standardised Disclosure Cover Sheets for liquidity providers and
for FX e-trading platforms will be made available by the GFXC in August, alongside the
publication of a guidance paper on last look.
21Insurance
COVID-19 BI insurance test case: FCA updates webpage
The Financial Conduct Authority (FCA) has updated the webpage on its business interruption
(BI) insurance test case. The FCA has published the Supreme Court order varying the High Court
declarations made in the test case. These declarations are the culmination of the test case
judgment (FCA v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm)), and
declare how, and to what extent, the policies in the representative sample respond to BI losses
arising from the COVID-19 pandemic. The FCA has also published:
a table on the declarations arranged by policy type. It is intended to help policyholders
navigate the declarations by highlighting the most relevant declarations by policy type.
The FCA encourages policyholders to speak to their insurance intermediaries or their
advisers in the first instance for questions arising from the declarations; and
a table setting out the outcome of the test case and key paragraphs of the High Court and
Supreme Court judgments according to policy type in the representative sample of 21
policy wordings. It is intended to provide a starting point to highlight the overall
conclusions on coverage, causation and "trends" or "other circumstances" clauses and
certain key paragraphs of the judgments by policy type.
The FCA indicates that the Supreme Court order marks the final resolution of the test case. It
repeats its view that insurers should not include the period between 17 June 2020 and the final
resolution of the test case when relying on any time limits within which policyholders must make
claims that were potentially affected by the test case or take any other step under the terms of
their policies.
The FCA also states that insurance intermediaries acting for policyholders should seek to
support them progress their claims quickly with their insurer. They should also consider whether
it is fair, and in the policyholders' best interests, to notify the policyholder if the intermediary
reasonably considers that they may have a claim under their policy.
Part VII insurance business transfers: FCA GC21/3 on proposed changes to its
approach
The FCA has published a guidance consultation, GC21/3, on proposed changes to the guidance
on its approach to the review of Part VII insurance business transfers.
In GC21/3, the FCA sets out its plan to update its finalised guidance, FG18/4: The FCA's
approach to the review of Part VII insurance business transfers. Since May 2018, when FG18/4
was originally published, the regulatory landscape has changed following the UK's withdrawal
from the EU. The FCA also proposes to amend FG18/4 following its experience of the guidance
on a diverse range of insurance business transfers and stakeholder feedback, to clarify its
expectations on Part VII transfers. The text of the amended version of FG18/4 (marked up to
show the changes proposed) is set out in Annex 1 to GC21/3.
The FCA considers that the updated guidance will maintain, and enhance, the savings and
efficiency delivered by the original FG18/4 (which it estimated could be up to £50,000 per
affected insurance business transfer). It goes on to explain that the updated guidance is
consistent with information it would currently communicate directly to an individual firm or
practitioner. As a result, the updated guidance has the benefit of confirming the FCA's position
more widely. Many of the proposed changes are points of clarification designed to give firms
more precise guidance where questions have been raised before.
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