Financial Services SpeedRead 9 December edition
09 December 2021
IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING 20 UPDATES: |
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Financial Markets 1. FCA Quarterly Consultation 34: Changes to Securities Financing Transactions 2. Primary Market Effectiveness Review: Final changes to listing rules 3. FCA publishes policy statement removing RTS 27 and RTS 28 and exempting SME research from inducement rules 4. One year on: update by European Commission on progress of second CMU action plan 5. European Commission: Legislative proposal to amend MiFID and MiFIR 6. Wholesale Markets Review: Update by HM Treasury 7. Improving the Appointed Representatives regime: FCA and HM Treasury consult on changes |
Banking and Prudential 8. BoE Policy Statement: The Bank of England's review of its approach to setting a minimum requirement for own funds and eligible liabilities (MREL) 9. Call for evidence on EU banking sector's macro-prudential framework 10. IFPR: Implementation of Investment Firms Prudential Regime – Policy Statement (PS 21/17) 11. BoE (PRA): Consultation paper: Operational Resilience and Operational Continuity in Resolution: CRR firms, Solvency II firms, and Financial Holding Companies (for Operational Resilience) (CP 21/21) |
Fund Management 12. New legislative proposal to amend AIFMD and UCITS Directive 13. European Parliament approves 'quick fixes' for PRIIPs and UCITS |
Financial Crime 14. Anti-money laundering: new EU negotiating mandate on transparency of crypto-asset transfers |
Retail investments 15. FCA publishes second consultation paper on consumer duty |
Payments 16. FCA set out final rules for SCA-RTS and amendments to PERG guidance and the Payment Services and Electronic Money approach document |
FinTech 17. Law Commission publishes advice to Government on smart contracts 18. EU co-legislators announce political agreement reached |
Other 19. FCA's new approach to decision-making 20. EU Parliament Think Tank discusses UK's possible re-joining of Lugano Convention |
Financial Markets |
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1. FCA Quarterly Consultation 34: Changes to Securities Financing TransactionsOn 3 December 2021, the FCA released its 34th quarterly consultation paper (CP 21/35). Amongst other proposed changes, the FCA proposes to extend the existing exclusion of Securities Financing Transactions ("SFTs") from reporting under the UK Markets in Financial Instruments regulation ("UK MiFIR") to also include SFTs where the counterparty is a member of the European System of Central Banks ("ESCB") or Bank of England, effective from 31 March 2022. Therefore, under the proposed changes, there would be no reporting requirements on SFTs under UK MiFIR. This proposal intends to reduce the reporting burden and associated costs on firms by not having to report the same transaction twice under the different reporting regimes (UK MiFIR and UK SFTR). SFTs would still be reportable under UK SFTR, which includes where a member of ESCB is a counterparty, but not where the Bank of England is a counterparty. Appendix 4 of CP 21/35 sets out the proposed handbook text in the draft Technical Standards (Markets in Financial Instruments) (Transaction Reporting) Instrument 2022. The FCA can receive comments on the proposed changes to SFTs until 17 January 2022. 2. Primary Market Effectiveness Review: Final changes to listing rulesOn 2 December 2021, the FCA issued a policy statement outlining its final proposed changes to the Listing Rules, as well as minor changes to the Disclosure Guidance, Transparency Rules ("DTRs") and the Prospectus Regulation Rules ("PRRs"). The policy statement follows the FCA's consultation (CP 21/21) in July 2021 on the "effectiveness of our financial markets". The FCA has decided to make the following final changes:
The new rules came into force on 3 December 2021, however the Reform and Modernisation Instrument will enter into force on 10 January 2022. The FCA plans to provide further feedback and outlined next steps regarding its wider review of the listing regime in the first half of 2022. 3. FCA publishes policy statement removing RTS 27 and RTS 28 and exempting SME research from inducement rulesOn the 30 November 2021, the FCA published a policy statement (PS21/20) following its Consultation Paper 21/9 on "Changes to UK MIFID's conduct and organisational requirements" which included proposed changes to the inducement rules on research and the removal of the requirement to produce reports linked to best execution. The policy statement sets out the FCA's final changes to the Conduct of Business Sourcebook (COBS) as follows:
For more insights, see our briefing: 'The MiFID II rollback: Research and best execution'. 4. One year on: update by European Commission on progress of second CMU action planOn 25 November 2021, the European Commission published a communication in which it provided an update on the progress of the second action plan on the Capital Markets Union ("CMU"). The Communication outlines the Commission's adoption of the following four legislative proposals:
5. European Commission: Legislative proposal to amend MiFID and MiFIROn 25 November 2021, the European Commission published proposals to amend MiFIR and MiFID. This forms part of a package of measures introduced by the European Commission as it takes stock one year on from the 2020 Capital Markets Union Action Plan. The measures to amend the existing MiFiR/MiFID regime include the following:
The proposals will now be considered by EU legislators. For more insights on these developments, please see our newsflash: 'EC MiFID II proposals pull rug out of non-lit trading and diverge from UK proposals'. 6. Wholesale Markets Review: Update by HM TreasuryOn 23 November 2021, in a speech to the Treasury, John Glen (Economic Secretary to the Treasury) provided an update on the government's Wholesale Markets Review. Mr Glen noted the "broad consensus" on the issues highlighted in the consultation document. The Government will publish a summary of responses and the Government's proposals in early 2022. Mr Glen confirmed that the Government intends to legislate as early as parliamentary time permits to implement the followings changes identified in the consultation:
As some of the reforms will require changes to regulators' rules and/or guidance. HMT will work closely with the FCA and noted the FCA's commitment to begin this process in the New Year. 7. Improving the Appointed Representatives regime: FCA and HM Treasury consult on changesOn 3 December 2021, the FCA issued a consultation paper CP21/34 outlining proposed changes to the appointed representatives ("AR") regime and on the same day, HM Treasury also issued a Call for Evidence on the appointed representatives regime (together, the "consultations"). The FCA's proposed changes include:
The deadline for comments on the call for evidence and FCA consultation is 3 March 2022. |
Banking and Prudential |
8. BoE Policy Statement: The Bank of England's review of its approach to setting a minimum requirement for own funds and eligible liabilities (MREL)On 3 December 2021, the Bank of England issued a Policy Statement in its approach to setting a minimum requirement for own funds and eligible liabilities including the Bank’s review of its approach to setting a minimum requirement for own funds and eligible liabilities (MREL), accompanied by a revised MREL Statement of Policy. This follows on from the publication of a consultation paper in July 2021 and finalises proposals in relation to resolution strategy thresholds, the calibration of MREL, instrument eligibility, and the application of MRELs within banking groups. The BoE confirms the following:
The BoE confirms that the revised Statement of Policy will apply from 1 January 2022. It also published a statement seeking ideas to support its work to improve depositor outcomes in the event of bank or building society insolvency. 9. Call for evidence on EU banking sector's macro-prudential frameworkOn 1 December 2021, the European Commission published a call for evidence for an evaluation and impact assessment on how the EU banking sector's macroprudential rules are functioning and how they could be improved. The macroprudential review's general aim is to ensure the EU banking sector remains resilient against new and emerging systematic risks. The consultation will also help the Commission prepare the legislative review, and where appropriate legislative proposal, as required under Article 513 of the CRR (Regulation (EU) No 575/2013). The review will also consider the following policy options:
The consultation closes on 18 March 2022. 10. IFPR: Implementation of Investment Firms Prudential Regime – Policy Statement (PS 21/17)On 26 November 2021, the FCA published the third Policy Statement (PS21/17) on the investment firms prudential regime. This follows its earlier consultation paper issued in August (CP21/26). The Policy Statement covers disclosures, remuneration, own funds, partner drawings, depositaries. The FCA confirms the following:
11. BoE (PRA): Consultation paper: Operational Resilience and Operational Continuity in Resolution: CRR firms, Solvency II firms, and Financial Holding Companies (for Operational Resilience) (CP 21/21)On 25 November 2021, the PRA issued a consultation paper on operational resilience and operational continuity in resolution. The PRA is consulting on amending Chapter 8 of the Operational Resilience Part of the PRA Rule Book so that it no longer imposes certain obligations on firms which are part of a group and/or consolidated group and, instead, to impose these obligations onto the holding company. The PRA considers that these proposals would support the initial policy intention of promoting a group level view of operational resilience, as well as align the Rule Book with the PRA’s approach to consolidated prudential requirements, as set out in its Policy Statement PS20/21 "Financial holding companies: Further Implementation". The PRA comments that the costs of transferring responsibility for identifying important group business services, and setting impact tolerances for important group business services, to the holding company would not be material. The deadline for responses is 14 January 2022. |
Fund Management |
12. New legislative proposal to amend AIFMD and UCITS DirectiveOn 25 November 2021, the European Commission adopted a legislative proposal for a directive to amend the Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") and the UCITS Directive (2009/65/EC). The Directive includes amendments to the following provisions of AIFMD:
The proposed changes to the UCITS Directive mirror the delegation arrangements, liquidity risk management, data reporting and the custody services amendments to the AIFMD. 13. European Parliament approves 'quick fixes' for PRIIPs and UCITSOn 23 November 2021, the European Parliament announced its adoption of the following positions on amendments regarding the use of key information documents ("KIDs") under Regulation (EU) No 1286/2014 (the "PRIIPS Regulation") and Directive 2009/65/EC (the "UCITS Directive") at first reading:
Once the Council of the EU adopts the above proposals, the PRIIPS Regulation and UCITS Directive will come into force the day after they are published in the Official Journal of the European Union. |
Senior Managers and Governance |
No updates for this edition of the FSS. |
Financial Crime |
14. Anti-money laundering: new EU negotiating mandate on transparency of crypto-asset transfersOn 2 December 2021, the Council of the EU issued a press release confirming it had agreed on a negotiating mandate with the European Parliament on a proposal to update the current rules on the information accompanying transfers of funds to include certain crypto-assets within its scope. The proposal is part of a wider package of legislative proposals aimed at strengthening the EU's anti-money laundering and countering terrorism financing rules (AML/CFT), put forward by the Commission on 20 July 2021. To ensure the traceability of crypto-asset transfers, the aim of the legislative proposal is to require crypto-asset service providers to collect and provide full information about the sender and beneficiary of the transfers of virtual or crypto assets they run. The Counsel's proposed updates seeks to "streamline and clarify" the Commission's proposal by (i) establishing requirements for crypto-asset transfers between crypto-asset service providers and un-hosted wallets and (ii) requiring a full set of originator information for each crypto-asset transfer (for any transaction amount). Given the urgency of ensuring the traceability of crypto-asset transfers, the Council aims to synchronise the above proposal on the transfer of funds and the market in crypto-assets regulation ("MiCA"). |
Retail Investments |
15. FCA publishes second consultation paper on consumer dutyOn 7 December 2021, the FCA published its second consultation paper (CP21/36) on a new consumer duty. This second consultation follows the first consultation paper (CP21/13) published earlier in the year which outlined the FCA's proposals to implement the new consumer duty. For more information on the initial consultation paper, please see our briefing here. Following on from the first consultation paper, the second paper sets out the feedback received to CP21/13; the FCA's revised proposals and the cost benefit analysis. The proposed handbook text is set out at Appendix 1 and Appendix 2 sets out the draft non-Handbook Guidance for firms on the Consumer Duty. Key points arising from the consultation paper include:
The consultation period is now open and responses can be sent to the FCA up until 15 February 2022. The FCA aim to publish their next policy statement summarising responses and amending their proposals in response to feedback (to the extent necessary) by 31 July 2022. |
Payments |
16. FCA set out final rules for SCA-RTS and amendments to PERG guidance and the Payment Services and Electronic Money approach documentOn 29 November 2021, the FCA issued a policy statement (PS21/19) outlining the final rules for the Regulatory Technical Standards on Strong Customer Authentication and Secure Communication ("SCA-RTS"), alongside amendments to the 'Payment Services and Electronic Money – Our Approach' ("Approach Document") and the Perimeter Guidance Manual ("PERG"). The policy statement summarises the feedback the FCA received on its consultation paper CP21/3 and outlines the FCA's response and the final rules and guidance. The changes to the SCA-RTS include:
The changes to the Approach Document include:
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Fintech |
17. Law Commission publishes advice to Government on smart contractsOn 25 November 2021, the Law Commission published "Smart legal contracts: advice to Government". This advice follows the UK Jurisdiction Taskforce's Legal Statement on the Status of Cryptoassets and Smart contracts published in November 2019. Since November 2019, the Law Commission have been considering whether any additional legislation is required to facilitate the use of smart contracts within England and Wales. Their advice to Government has concluded that the current legal framework is able to support the use of smart contracts and therefore no further legislation is needed. For more information see our briefing here. The Law Commission have also provided an update on two other emerging technology projects. Firstly, on 24 November the Law Commission published an interim update on its digital assets project. The project was put in place as a response to a call for evidence published on 30 April 2021. The update paper sets out the widening scope of the project that has been put in place as a response to stakeholder feedback, in particular relating to the definition of digital asset, the indicia set out in the call for evidence and consideration of a protection regime. As such, the deadline for the project has been extended to the middle of 2022. The Law Commission have also stated that they will be starting a new project focussing on conflicts between the application of the current law to emerging technology as they have identified issues with applying conflict of law rules to the virtual world that such technologies exist in. The Law Commission aim to start this work in mid-2022. For updates on this project, enquiries can be sent to: commercialandcommon@lawcommission.gov.uk. 18. EU co-legislators announce political agreement reachedOn 24 November 2021, the European Parliament announced that a political agreement had been reached between it and the Council of the European Union on the proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The Commission adopted the proposed Regulation in September 2020 as part of its Digital Finance Strategy. Points to note in respect of the agreement:
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ESG |
No updates for this fortnight's edition of the FSS. |
Others |
19. FCA's new approach to decision-makingOn 26 November 2021, the FCA published a policy statement (PS21/16) setting out its new approach to decision-making and issuing statutory notices. To ensure a faster and more effective decision-making process, the FCA confirmed that it would make the changes to the Enforcement Guide ("EG") and Decisions Procedure and Penalties Manual ("DEPP") as set out in its consultation paper (CP 21/5) from July 2021, namely moving decision-making on statutory notices from its Regulatory Decisions Committee ("RDC") to Executive Procedures so that the RDC could focus on contentious enforcement cases. The Executive Procedures would be in charge of certain authorisations, interventions, straightforward cancellation cases and decisions as to whether to start civil and criminal proceedings. The FCA will carry out a 6 month post-implementation review assessing the effectiveness of the changes. 20. EU Parliament Think Tank discusses UK's possible re-joining of Lugano ConventionOn 18 November 2021, the European Parliament's Think Tank published a briefing on the possibility of the United Kingdom re-joining the 2007 Lugano Convention. The main points covered by the briefing include:
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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.