Happy New Year

Happy New Year to all our readers.

We set out below further developments that occurred over the Christmas period.

JMLSG consultation: syndicated lending – On 16 December 2021, the Joint Money Laundering Steering Group (JMLSG) published a proposed revision to Part II Sector 17 (Syndicated Lending) of its guidance. The proposed revision is a new paragraph (17.29A) to be inserted within Sector 17. The deadline for comments on the revision is 17 January 2022.

FCA Handbook Notice 94 – On 17 December 2021, the FCA published Handbook Notice 94, which sets out changes to the FCA Handbook made by the FCA board on 25 November 2021 and 16 December 2021.

Updated FCA webpage: Dual-regulated firms Remuneration Code (SYSC 19D) – On 17 December 2021, the FCA updated its webpage concerning dual regulated firms Remuneration Code following the publication by the PRA of Policy Statement 28/21 ‘Remuneration: Identification of material risk takers’ (PS28/21). The FCA states that it plans to consult on similar changes in 2022 to clarify its approach for firms subject to the Dual-regulated firms Remuneration Code. This means there will be minor divergences in the respective requirements over the intervening period. In any areas of inconsistency, the FCA considers a firm operating in compliance with the approach in PS28/21, to also be operating in compliance with FCA requirements on material risk taker identification.

The Critical Benchmarks (References and Administrators’ Liability) Act 2021 – On 17 December 2021, there was published on the legislation.gov.uk website, The Critical Benchmarks (References and Administrators’ Liability) Act 2021.

Joint Statement on UK-U.S. Financial Regulatory Working Group – On 17 December 2021, HM Treasury issued the joint statement following the fifth meeting of the UK-U.S. Financial Regulatory Working Group. The Joint Statement outlines the key themes of the meeting and main topics of discussion.

JMLSG publishes revisions – On 20 December 2021, the JMLSG published amendments to Part I Chapter 5.7 (Monitoring customer activity) of its guidance, together with a clarificatory amendment to Part II Sector 16. The new text is available under the “Revisions” tab under “Guidance”, and has been submitted to HM Treasury for Ministerial approval.

FCA statement on 10% depreciation notifications – On 21 December 2021, the FCA issued a statement extending until 31 December 2022 the temporary measures on the requirement for firms to issue 10% depreciation notifications to investors (COBS 16A.4.3 UK).

FCA IFPR newsletter: notification deadline reminder – On 21 December 2021, the FCA issued an Investment Firm Prudential Regime (IFPR) newsletter in which it reminded FCA investment firms and their parent undertakings who have not been subject to the UK Capital Requirements Regulation definition of capital and wish to count their existing instruments as own funds for the purpose of MIFIDPRU 3, to notify it via Connect no later than 1 January 2022.

2021 list of UK headquartered G-SIIs – On 21 December 2021, the PRA disclosed the 2021 list of UK headquartered Global Systemically Important Institutions (G-SIIs). It also disclosed their respective sub-categories, applicable scores and G-SII buffers.

Update for firms on PRIIPs RTS Article 18 and related rules – On 29 December 2021, the FCA issued a statement providing an update for firms on PRIIPs RTS Article 18 and related rules. The FCA notes that as part of the Financial Services Act 2021, Parliament legislated to extend the Undertakings for the Collective Investment in Transferable Securities (UCITS) exemption in The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (as enacted in retained EU law) by 5 years – from 31 December 2021 to 31 December 2026. The FCA states that it intends to make consequential amendments to the UK PRIIPs regulatory technical standards (RTS) and the associated Handbook guidance to reflect the new end date of the UCITS exemption in the UK’s PRIIPs Regulation. The FCA does not propose to take enforcement action against firms for breach of Article 14(1) if they provide a UCITS key investor information document or a non-UCITS retail schemes key investor investment document in accordance with Article 14(2).

Changes to LIBOR as of end-2021 – On 4 January 2022, the FCA issued a press release concerning the end of the 24 LIBOR settings and the 6 most widely used sterling and Japanese yen settings being published using a changed methodology.

Updated FCA webpage: cancelling a temporary permission – On 5 January 2022, the FCA updated its webpage setting out information on how to cancel a temporary permission if a firm is in the temporary permissions regime or the supervised run-off regime.

EBA publishes final guidelines on the delineation and reporting of available financial means of deposit guarantee schemes – On 17 December 2021, the European Banking Authority (EBA) published final guidelines on the delineation and reporting of available financial means of deposit guarantee schemes (DGSs). The purpose of the guidelines is to ensure that only funds that credit institutions originally contributed to a DGS fund, or that stem indirectly from such contributions, such as recoveries, will count towards reaching the target level of said DGS fund. Conversely, funds that stem directly or indirectly from borrowed resources should not count towards the target level. These clarifications aim at preventing a situation whereby a DGS could meet the target level by taking out a loan, instead of raising contributions from the industry. The guidelines apply from 30 March 2022.

SRB MREL reporting update: checklist on reported liabilities and sign-off form – On 17 December 2021, the Single Resolution Board (SRB) provided an update on the minimum requirement for own funds and eligible liabilities (MREL) reporting by publishing a checklist on reported liabilities and a sign off form. Banks under the SRB’s remit are asked to use a checklist when preparing the quarterly reporting on MREL/total loss absorbing capacity (TLAC) under Article 1(a) of Commission Implementing Regulation 2021/763 (‘the quarterly reporting’) and to complete a sign-off form with the submission of each quarterly reporting, in order to provide additional assurance on liabilities reported as eligible for MREL.

New ESMA Q&As – On 17 December 2021, the European Securities and Markets Authority (ESMA) updated the following Questions and Answers: (i) application of the Alternative Investment Fund Managers Directive; (ii) improving securities settlement in the EU and on central securities depositories; (iii) application of the UCITS Directive; and (iv) Securities Financing Transactions Regulation data reporting.

ESMA calls to deprioritise buy-in supervision – On 17 December 2021, ESMA issued a statement intended to clarify the practical implementation of the EU Central Securities Depositories Regulation settlement discipline regime.

Commission Delegated Regulation of 17 December 2021 supplementing MiFIR by specifying criteria for derogation of the principle that approved publication arrangements and approved reporting mechanisms are supervised by ESMA – On 17 December 2021, the European Commission (Commission) adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (MiFIR) by specifying criteria for derogation from the principle that approved publication arrangements and approved reporting mechanisms are supervised by ESMA. The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation. It will enter into force and apply on the third day following that of its publication in the Official Journal of the European Union (OJ).

EBA proposes amendments to technical standards on the mapping of ECAIs for securitisation positions – On 17 December 2021, the EBA issued a public consultation to amend the Implementing Regulation on the mapping of credit assessments of External Credit Assessment Institutions for securitisation. The consultation runs until 31 January 2022.

EBA consults on amending technical standards on benchmarking of internal models – On 17 December 2021, the EBA issued a consultation on the amendment of the Implementing Regulation for the 2023 benchmarking of internal approaches used in credit risk and market risk. While new instruments have been included for the 2023 market risk exercise, the credit risk IRB and IFRS 9 templates have remained untouched. However, for the IRB relevant data collection, some clarifications in the instructions are proposed and some issues are discussed with a view to apply future amendments to the implementing technical standards (ITS). The consultation runs until 18 February 2022.

Commission Delegated Regulation 2021/2268 of 6 September 2021 amending the regulatory technical standards laid down in Commission Delegated Regulation (EU) 2017/653 – On 20 December 2021, there was published in the OJ, Commission Delegated Regulation (2021/2268 of 6 September 2021 amending the RTS laid down in Commission Delegated Regulation 2017/653 as regards the underpinning methodology and presentation of performance scenarios, the presentation of costs and the methodology for the calculation of summary cost indicators, the presentation and content of information on past performance and the presentation of costs by PRIIPs offering a range of options for investment and alignment of the transitional arrangement for PRIIP manufacturers offering units of funds referred to in Article 32 of PRIIPs Regulation as underlying investment options with the prolonged transitional arrangement laid down in that Article. The Delegated Regulation applies from 1 July 2022. However, Article 1, point 13 applies from 1 January 2022.

Directive 2021/2261 of 15 December 2021 amending the UCITS Directive as regards the use of key information documents by management companies of undertakings for collective investment in transferable securities – On 20 December 2021, there was published in the OJ, Directive 2021/2261 of 15 December 2021 amending the UCITS Directive as regards the use of key information documents by management companies of UCITS. The Directive enters into force on the day following that of its publication in the OJ.

The EBA paves the way for setting up a central database on anti-money laundering and countering the financing of terrorism – On 20 December 2021, the EBA published draft RTS on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in the EU. The European Reporting system for material AML/CFT weaknesses (EuReCA) will be a key tool for coordinating efforts to prevent and counter money laundering and terrorism financing in the EU.

EBA consults on the performance-related triggers for non-sequential amortisation systems in simple, transparent and standardised on-balance-sheet securitisations – On 20 December 2021, the EBA issued a consultation on draft RTS specifying and, where relevant, calibrating the minimum performance-related triggers for simple, transparent and standardised (STS) on-balance-sheet securitisations that feature non-sequential amortisation. The Capital Markets Recovery Package amended the Securitisation Regulation in several aspects, including creating a specific framework for STS on-balance-sheet securitisation to ensure that the EU securitisation framework provides for an additional tool to foster economic recovery in the aftermath of the COVID-19 crisis. These draft technical standards aim at providing technical clarification on these triggers. The consultation runs until 28 February 2022.

EBA publishes the methodology for investment firms to be reclassified as credit institutions – On 20 December 2021, the EBA published two final draft RTS regarding the reclassification of investment firms as credit institutions. These final draft RTS, which are part of the EBA’s roadmap for the implementation of a new prudential regime for investment firms, will provide clarity in the calculation of the EUR 30 bn threshold for investment firms looking to understand whether they should be applying for authorisation as a credit institution, as well as assist competent authorities in the monitoring of firms’ position triggering a reclassification.

EBA introduces enhanced proportionality in supervisory reporting – On 20 December 2021, the EBA published final draft ITS on supervisory reporting with respect to common reporting, asset encumbrance, G-SIIs and additional liquidity monitoring metrics. Proportionality was a key consideration in the proposed changes, making reporting requirements better suited to the size and risk of the institutions.

European Commission (Platform on Sustainable Finance): Considerations on voluntary information as part of Taxonomy-eligibility reporting: Appendix 1 – On 20 December 2021, the Commission updated the ‘news’ section of its webpage concerning the Platform on Sustainable Finance. The update concerns the publication of considerations on voluntary information as part of Taxonomy-eligibility reporting. This document is intended to provide supplementary information in order to help users of the EU taxonomy with the disclosures required under Article 8 of the Taxonomy Regulation.

Distributed ledger technology: member states endorse agreement reached with European Parliament – On 21 December 2021, the Council of the EU issued a press release stating that EU ambassadors had endorsed the provisional political agreement, reached on 24 November, between the Council Presidency and the European Parliament’s negotiators on a draft Regulation setting out a pilot regime for market infrastructures based on distributed ledger technology (DLT). The provisional political agreement on the draft Regulation was endorsed by EU ambassadors in the committee of permanent representatives. It will now be formally adopted by the Council and the European Parliament. It will then be published in the OJ and enter into force.

Brexit reminder: implications for all SEPA payment scheme participants – On 21 December 2021, the European Payments Council issued a press release stating that it had been notified that some EEA-based SEPA payment scheme participants were not complying with the extra information requirements mandated under the Funds Transfer Regulation, notably regarding the need to provide the full address of the Originator/Debtor. The EPC urges all relevant SEPA payment scheme participants to complete as soon as possible the identification of their customers with incoming and outgoing cross-border SEPA transactions involving both a UK and an EEA payment account, and to ensure that all customers concerned provide the necessary extra SEPA transaction data.

SRB approach to CRR discretion on leverage and MREL calibration – On 22 December 2021, the SRB issued a short statement concerning its monitoring of regulatory changes related to competent authorities’ discretion to temporarily exclude certain exposures to central banks from the calculation of an institution’s total exposure measure (i.e. leverage amount), as granted by the Capital Requirements Regulation. The SRB states that it will monitor the regulatory changes – whether or not competent authorities deem it necessary to extend the measure beyond March 2022 – and their impact in the computation methodology of the leverage amount that might lead to consequences for the final MREL targets. If needed, the SRB will take corrective actions in the annual MREL setting by re-calibrating the final targets on the basis of changed leverage amounts and requirements.

ESMA report on CRA market share calculation – On 22 December 2021, ESMA issued a report on credit rating agency (CRA) market share calculation. Article 8d of the CRA Regulation requires issuers or related third parties, who intend to appoint two or more CRAs to rate an issuance or entity, to consider appointing at least one CRA with no more than 10% of the total market share in the EU. In order to assist issuers or related third parties with this assessment, Article 8d of the CRA Regulation requires ESMA to publish a list of registered CRAs and the types of credit ratings they issue, together with a calculation of CRAs’ revenues from credit rating activities and ancillary services at group level.

Daisy Chain: member states ready to negotiate with European Parliament – On 21 December 2021, the Council of the EU issued a press release stating that EU ambassadors had endorsed a Council negotiating mandate on amending the EU’s bank resolution framework. The so-called ‘Daisy Chain’ proposal introduces targeted adjustments that will play an essential role in improving an EU institution’s resolvability.

The Daisy Chain proposal amends the EU bank resolution framework by:

incorporating a dedicated treatment for the indirect subscription of instruments eligible for internal MREL;
further aligning the treatment of G-SII groups with a multiple point of entry resolution strategy with the treatment outlined in the Financial Stability Board’s TLAC Sheet (TLAC standard); and
clarifying the eligibility of instruments in the context of the internal TLAC.

Commission Implementing Regulation 2021/2284 of 10 December 2021 laying down ITS for the application of the Investment Firm Regulation with regard to supervisory reporting and disclosures of investment firms – On 22 December 2021, there was published in the OJ, Commission Implementing Regulation 2021/2284 of 10 December 2021 laying down ITS for the application of the Investment Firm Regulation with regard to supervisory reporting and disclosures of investment firms. The Regulation enters into force on the twentieth day following that of its publication in the OJ.

EU Taxonomy: Commission begins expert consultations on Complementary Delegated Act covering certain nuclear and gas activities – On 1 January 2022, the Commission issued a press release reporting that it had begun consultations with the Member States’ Expert Group on Sustainable Finance and the Platform on Sustainable Finance on a draft text of a Taxonomy Complementary Delegated Act covering certain gas and nuclear activities. The Platform on Sustainable Finance and the Member States Expert Group on Sustainable Finance must be consulted on all Delegated Acts under the Taxonomy Regulation, given their expert role foreseen by the Taxonomy Regulation. They will have until 12 January 2022 to provide their contributions. The Commission will analyse their contributions and formally adopt the complementary Delegated Act in January 2022. It will be then sent to the co-legislators for their scrutiny.

ESMA publishes guidance on appropriateness and execution-only requirements under MiFID II – On 3 January 2022, ESMA published a final report on guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements. The guidelines aim to ensure a common, uniform, and consistent implementation of the MiFID II requirements related to the assessment of appropriateness and to execution-only by providing explanations, clarifications, and examples on how the relevant obligations should be fulfilled. The guidelines will be translated into the official languages of the EU and published on ESMA’s website. The publication of the translations will trigger a two-month period during which Member State competent authorities must notify ESMA whether they comply or intend to comply with the guidelines. The guidelines will apply six months after the date of the publication on ESMA’s website in all EU official languages.

ESMA launches call for evidence on DLT – On 4 January 2022, ESMA issued a call for evidence seeking input from stakeholders on the use of DLT for trading and settlement and on the need for amending the RTS on regulatory reporting and transparency requirements. The deadline for responding to the call for evidence is 4 March 2022.

EBA alerts on the detrimental impact of unwarranted de-risking and ineffective management of money laundering and terrorist financing risks – On 5 January 2022, the EBA issued an opinion on the scale and impact of de-risking in the EU and the steps Member State competent authorities should take to tackle unwarranted de-risking. Among other things, in the opinion the EBA advises the Commission to clarify, in the Payment Account Directive, the interaction between AML/CFT requirements and the right to open and use a payment account with basic features, and to take advantage of the forthcoming review of the revised Payment Services Directive (PSD2) to ensure more convergence in the way payment institutions access credit institutions’ payment accounts services. The EBA is committed to following-up with Member State competent authorities on the actions they have taken to tackle unwarranted de-risking going forward.

ESMA guidelines on delayed disclosure under MAR – On 5 January 2022, ESMA published a final report on the amendment of the Market Abuse Regulation (MAR) guidelines on delayed disclosure in relation to prudential supervision. The guidelines are adding certain cases to the list of legitimate interests of issuers for delaying public disclosure of inside information.

The amended guidelines clarify the following:

in case of redemptions, reductions and repurchases of own funds subject to supervisory authorisation, the institutions have a legitimate interest to delay the disclosure of inside information until the prudential competent authority has authorised the transactions;
there is a legitimate interest for the institution to delay the disclosure of the draft Supervisory Review and Evaluation Process (SREP) decision informally communicated to an institution, until that decision becomes final following the completion of the decision-making process of the prudential competent authority;
in respect of the content of the SREP decisions, the Pillar 2 Capital Requirements (P2R) are expected to be considered as inside information and as highly likely to be price sensitive whereas Pillar 2 Capital Guidance (P2G) may only be inside information. Examples of situations where price sensitivity is expected are when:
- the difference between the P2G and the institution’s level of capital is not minor and is likely to involve a major reaction by the institution, such as a capital increase; and
- the institution’s P2G is not in line with market expectations, so a price impact can be expected.

ESMA report ‘FIRDS Transparency System: Instructions on download and use of full and delta transparency results’ – On 6 January 2022, ESMA issued a report ‘FIRDS Transparency System: Instructions on download and use of full and delta transparency results’. The purpose of the document is to provide details on the files containing transparency calculation results that ESMA will be publishing, how to access them, and how to use them. The intended audience are the EU market participants and Member State competent authorities that need to make use of the results of transparency calculations for the purpose of MiFIR.

ESMA updates guidelines tracker – On 6 January 2022, ESMA issued an updated version of its guidelines tracker document.

Global

Call for comments on margining practices during the March 2020 market turmoil – On 20 December 2021, the International Organization of Securities Commissions and other global regulators extended the deadline for the call for comments on margining practices during the March 2020 market turmoil. The deadline for comments is now 26 January 2021.

The IFSB issues Exposure Draft of Revised Standard on Solvency Requirements for Takaful/ Retakaful Undertakings – On 20 December 2021, the Islamic Financial Services Board issued for consultation an exposure draft of a revised standard on solvency requirements for Takaful/Retakaful undertakings. The deadline for comments on the consultation is 6 February 2022.

United Kingdom (and EU regulation)