Financial Services Speedread 15 July
15 July 2022
IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING 26 UPDATES: |
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Financial Markets 1. IOSCO publishes final report on key lessons learned regarding the operational resilience of trading venues and market intermediaries during COVID-19 2. ESMA publishes consultation paper on clearing and derivative trading obligations 3. ESMA publishes report on sanctions and measures imposed under MiFID II in 2021 4. ESMA consults on guidelines on MiFID II product governance requirements and publishes results of common supervisory action on product governance requirements 5. The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022 published in draft 6. EU Commission issues Delegated Regulation (EU) amending regulatory technical standards concerning the date of application of buy-in regime 7. FCA consults on improving equity secondary markets (CP 22/12) 8. FCA issues guidance on FCA's approach to compromises for regulated firms 9. Bank of England policy statement on EMIR 2.2 implementation and on fees for non-UK FMIs 10. FMSB issues statement of good practice on trading platform disclosures 11. High Court finds in favour of CMC regarding its duty to comply with COBS and the Braganza duty |
Banking and Prudential 12. FCA consults on winding down 'synthetic' sterling LIBOR and US dollar LIBOR 13. ECB publishes opinion supporting proposed amendments to supervisory powers, third-country branches, environmental, social and governance risk under the CRD |
Fund Management 14. ESMA reports on penalties and Measures imposed under AIFMD and UCITS Directive in 2021 15. FCA Policy statement on protecting investors in authorised funds following he Russian invasion of Ukraine |
Financial Crime 16. HM Treasury updates list of high risk third countries, removing Malta 17. FATF issues update on implementation of FATF standards on virtual assets and virtual asset service providers |
Retail Services 18. New statutory instrument implemented which amends the RAO in relation to regulated credit agreements entered into by high-net worth individuals |
Payments 19. PSR publishes provision decision regard its consultation on card-acquiring market review remedies |
Digital Finance and Fintech 20. ESMA publishes consultation paper on guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure 21. MICA: Provisional agreement reached between the European Parliament and the Council of the EU |
ESG 22. The Platform on Sustainable Finance publishes its draft report on minimum safeguards 23. European Parliament press release: MEPs do not object to inclusion of gas and nuclear activities 24. FCA delays its consultation on sustainability disclosure requirements and investment labels for asset managers 25. EBA publishes guidelines on the remuneration and gender pay gap benchmarking under CRD and IFD 26. FCA feedback on ESG integration in UK capital markets |
1. IOSCO publishes final report on key lessons learned regarding the operational resilience of trading venues and market intermediaries during COVID-19On 11 July 2022, IOSCO published its final report on the operational resilience of trading venues and market intermediaries during the COVID-19 pandemic & lessons for future disruptions (FR06/22). In summary, the key lessons learned are:
2. ESMA publishes consultation paper on clearing and derivative trading obligationsOn 11 July 2022, the European Securities and Markets Authority (ESMA) published its consultation paper on the clearing and derivative trading obligations in view of the 2022 status of the benchmark transition. This consultation paper presents draft regulatory technical standards (RTS) further amending the RTS on the clearing obligation (CO) and the derivative trading obligation (DTO). The first set of draft RTS were submitted by ESMA to the European Commission in November 2021. The second set of RTS included in Annex III of the consultation paper complements the first set of RTS. It is proposed to add single currency OIS contracts referencing TONA with maturities up to 30Y to the CO and to expand the obligation to centrally clear OIS classes referencing SOFR to additional maturities. For the DTO, it is suggested to add single currency OIS contracts referencing €STR with certain standard characteristics. The public consultation will run until 30 September 2022. 3. ESMA publishes report on sanctions and measures imposed under MiFID II in 2021On 8 July 2022, the European Securities and Markets Authority (ESMA) published a report on the sanctions issued by national competent authorities (NCAs) under the MiFID II framework in 2021. The report identified an overall decrease in sanctions issued compared to the previous year, despite an increase in the number of Member States where sanctions and measures were applied and in the total amount of imposed administrative fines. Overall, in 24 out of 30 Member States NCAs imposed 411 sanctions with an aggregated value of EUR 12,203,139. A review of the sanctions issued shows that although there is spread throughout the MiFID II framework, they tended to have higher concentration in certain areas, for example, Article 16 (Organisational Requirements), Article 24 (General principles and information to clients), Article 25 (Assessment of suitability and appropriateness and reporting to clients) and Article 50 (Synchronisation of business clocks). 4. ESMA consults on guidelines on MiFID II product governance requirements and publishes results of common supervisory action on product governance requirementsOn 8 July 2022, the European Securities and Markets Authority (ESMA) published a consultation paper reviewing guidelines on MiFID II product governance requirements. The consultation is a result of a common supervisory action (CSA) with national competent authorities on the same. On 8 July 2022, ESMA published a public statement on the results of the CSA. Accordingly, ESMA's main proposals in the consultation relate to:
The consultation paper also includes practical examples to help firms comply with applicable product governance requirements in Annex IV and V. The consultation closes on 7 October 2022. 5. The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022 published in draftOn 6 July 2022, the Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022 were published in draft. The Regulations make a number of changes to allow retained EU law to operate effectively following Brexit. In summary, the Regulations amend the:
6. EU Commission issues Delegated Regulation (EU) amending regulatory technical standards concerning the date of application of buy-in regimeOn 6 July 2022, the European Commission issued a Delegated Regulation containing regulated technical standards amending the date of application of provisions in the CSDR concerning the buy-in regime. The draft Delegated Regulation is based on the draft RTS that ESMA submitted to the European Commission in June 2022 (see entry 2 in Ashurst FSS Speedread 16 June 2022 edition). The settlement discipline regime entered into force on 1 February 2022 after being deferred a number of time by delegated acts. Market participants have, however, expressed concerns about difficulties in implementing the mandatory buy-in regime. In March 2022, the European Commission published its legislative proposal which included changes to the settlement discipline regime and, in particular, to the buy-in process. Following the publication of the Regulation for a pilot regime for market infrastructures based on distributed ledger technology (this allows the setting of different dates of application for the various settlement discipline measures), ESMA issued a final report containing a proposal for the amendment of the RTS on settlement discipline in order to formally suspend the application of the provisions on the buy-in regime for three years. It argued that this would give the European Commission and the co-legislators additional time to determine the best way forward to improve settlement efficiency while avoiding potential duplicative implementation costs for market participants. The draft Delegated Regulation will now be scrutinised by EU co-legislators. 7. FCA consults on improving equity secondary markets (CP 22/12)On 5 July 2022, the FCA issued a consultation paper on "Improving Equity Secondary Markets" (CP 22/12). This follows on from the Wholesale Markets Review response published in March 2022 (see Ashurst Speedread 9 March 2022 edition) and the Queen's speech in April 2022, which contained details of the Financial Services and Markets Bill. The changes that the FCA is focusing on are:
There are also general proposals in relation to outages. The deadline for comments is 16 September 2022. 8. FCA issues guidance on FCA's approach to compromises for regulated firmsOn 5 July 2022, the FCA issued its finalised guidance to FCA regulated firms on their approach to compromises with their creditors or shareholders (FG22/4). Compromises are arrangements between a firm and its creditors and/or shareholders that can be used to reorganise a company or group structure, including restructuring debts. FG22/4 aims to help firms understand what information the FCA needs and how the FCA approaches compromises in line with its statutory objectives to secure an appropriate degree of protection for consumers and protect and enhance the integrity of UK markets. 9. Bank of England policy statement on EMIR 2.2 implementation and on fees for non-UK FMIsOn 30 June 2022, the Bank of England (BoE) published its policy statement setting out its approach to 'tiering' non-UK central counterparts based on an assessment of risk they could pose to financial stability. The BoE stated close international cooperation among authorities would be key to ensuring that conflicting requirements do not themselves create a financial stability risk. The incoming tiering system is designed to facilitate deference to the home authorities of non-UK central-counterparties, where the BoE judges that there is effective regulatory and supervisory cooperation. The implementation date for the final policy of tiering and compliance is 1 December 2022. 10. FMSB issues statement of good practice on trading platform disclosuresOn 28 June 2022, the Financial Markets Standards Board released its final Statement of Good Practice on Trading Platform Disclosures. The paper covers all areas of the fixed income, currencies and commodities markets. The guidance addresses platforms through which clients are offered electronic execution through a central limit order book, request for stream, request for quote or similar electronic matching process and platforms on which prices and trades are delivered electronically. The key principles outlined were:
11. High Court finds in favour of CMC regarding its duty to comply with COBS and the Braganza dutyOn 1 July 2022, the High Court published its decision regarding CMC Spreadbet Plc v Tchenguiz [2022] EWHC 1640 (Comm). The High Court had to consider whether the claimant, a spread betting firm (CMC), had complied with the FCA's Conduct of Business sourcebook (COBS) and whether it had observed the Braganza duty in relation to a claim it pursued to recover £1.31 million as a debt, and alternatively as a sum due under contract, from the defendant. The debt was incurred as a result of losses made under a spread betting account in respect of which positions were taken. The Braganza duty as outlined in Braganza v BP Shipping Ltd [2015] UKSC 17) implies a contractual obligation, in the absence of clear language to the contrary, to act rationally when exercising a contractual discretion in good faith and not arbitrarily or capriciously. The defendant (an individual) was an experienced spread betting client and had spread bet positions with a number of spread betting firms. These firms, including CMC, sought to classify him as an elective professional client. With respect to CMC, the defendant was initially classified as a retail client, and then reclassified. The CMC terms of business was provided to the defendant, together with a risk warning notice and an order execution policy. The defendant argued that:
The High Court found in favour of CMC and held that:
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Banking and Prudential |
12. FCA consults on winding down 'synthetic' sterling LIBOR and US dollar LIBOROn 30 June 2022, the FCA published its consultation paper on winding down synthetic LIBOR. The FCA consultation is aimed at assessing whether it continues to be appropriate to compel the publication of synthetic 1, 3 and 6-month sterling LIBOR settings. This is to be judged by whether outstanding contracts referencing a particular LIBOR setting had had appropriate time to transition to an alternative benchmark. The FCA is also seeking opinions on whether any barriers exist to delay transition from US dollar LIBOR and whether as a result it would be appropriate to compel the publication of a synthetic US dollar LIBOR rate. 13. ECB publishes opinion supporting proposed amendments to supervisory powers, third-country branches, environmental, social and governance risk under the CRDOn 30 June 2022, the European Central Bank published its opinion of 27 April 2022 on proposed amendments to the Capital Requirements Directive 2013/36/EU (CRD) regarding supervisory powers, third-country branches, environmental, social and governance risk. The ECB strongly supports the proposed amendments (as set out in the Commission's banking reform package) and makes the following observations, amongst others:
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14. ESMA reports on penalties and Measures imposed under AIFMD and UCITS Directive in 2021On 8 July 2022, ESMA published a report on the penalties and measures imposed under the AIFMD and UCITS Directive in 2021. The report found that over the course of the year:
ESMA's analysis of the data was that NCAs are not equally utilising sanctioning powers, and that (besides the few NCAs who are issuing the majority of the sanctions) the overall amount of sanctions issued remains low. Consequently, ESMA emphasised that they will continue to work in the future to promote further convergence of sanctioning powers by NCAs across the EU. 15. FCA Policy statement on protecting investors in authorised funds following he Russian invasion of UkraineOn 6 July 2022, the FCA issued a policy statement on protecting investors in authorised funds following the Russian invasion of Ukraine. Due to the financial sanctions imposed by the UK and other jurisdictions, some securities have become illiquid or untradeable and normal mechanisms for determining valuation of some securities has stopped operating. The FCA consulted on creating a new class of asset known as 'side-pockets' to allow for authorised fund managers who hold investments affected by sanctions to separate these investments from the fund's other investments. Side pockets would allow new investors to enter the fund without being exposed to affected investments while existing investors could sell the unit which relate to unaffected investments. It is intended that the fund manager would manage the side pocket with the aim of terminating it as soon as it is in the investors' best interests. |
No updates for this edition of the FSS. |
16. HM Treasury updates list of high risk third countries, removing MaltaOn 4 July 2022, HM Treasury issued an update to its guidance in relation to the notice of High Risk Countries as well as publishing the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2022. This follows the publication in June 2022 of two statements by FATF identifying jurisdictions with strategic deficiencies in their AML/CTF regimes. The advisory notice sets out which jurisdictions will be included in forthcoming amendment to Schedule 3ZA of the Money Laundering Regulations and replicates those countries listed by the FATF as high risk, or under increased monitoring. 17. FATF issues update on implementation of FATF standards on virtual assets and virtual asset service providersOn 30 June 2022, the Financial Action Task Force (FATF) published a report on the implementation of FATF standards on virtual assets and virtual asset service providers. The report found implementation of FATF's Travel Rule which requires the private sector to obtain/exchange beneficiary and originator information for virtual asset transfers, needed urgent acceleration by jurisdictions and private sector entities. FATF concluded that it should continue to monitor market trends for material developments that may necessitate further FATF work, including how the FATF Standards apply to Decentralised Finance and Non-Fungible Tokens. |
18. New statutory instrument implemented which amends the RAO in relation to regulated credit agreements entered into by high-net worth individualsOn 30 June, a new statutory instrument was implemented which amends the FSMA Regulated Activities Order (RAO) in relation to regulated credit agreements entered into by high-net worth individuals. Previously, there were limitations on the availability of an exemption such that credit agreements with high-net worth individuals which had the purpose of acquiring or retaining property rights in land or in an existing/projected building could not benefit form the exemption and would therefore amount to a regulated credit agreement. Now the exemption applies and such credit agreements will not be regulated. |
19. PSR publishes provision decision regard its consultation on card-acquiring market review remediesOn 29 June 2022, the Payment Services Regulator (PSR) published it provisional decision on remedies for the card-acquiring market review. The decision follows the PSR's January 2022 consultation on Card-acquiring market remedies (CP22/3). The PSR in CP22/3 found that the supply of card-acquiring services does not work well for merchants. These merchants could make savings by shopping around or negotiating with their current supplier, but many do not. As such, the PSR consulted on four potential remedies to address these concerns in CP22/3. Following industry feedback the PSR set out the below remedies in its provision decision:
The deadline for responses to this document is 5 pm on 3 August 2022. |
Digital Finance and Fintech |
20. ESMA publishes consultation paper on guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructureOn 11 July 2022, the European Securities and Markets Authority (ESMA) published its consultation paper on guidelines on standard forms, formats and templates to apply for permission to operate a distributed ledger technology (DLT)market infrastructure, under (EU) Regulation 2022/858 on a pilot regime for market infrastructures based on DLT (DLTR). Two sets of guidelines are submitted to consultation: the first ones specify the minimum instructions that NCAs should provide to market participants for submitting their applications to them and the second specifies how applicants should provide the requested information and documents to their competent authorities. ESMA will consider the feedback it will receive to this consultation with a view to finalising the guidelines ahead of the application date of DLTR which is 23 March 2023. 21. MICA: Provisional agreement reached between the European Parliament and the Council of the EUOn 30 June 2022, it was announced that the Council of EU and the European Parliament had reached a provisional agreement in relation to Markets in Cryptoassets (MICA) Regulation. The provisional agreement will now need to be approved by Council of the EU and the European Parliament before formal adoption. We will provide a comprehensive review of MICA when it is formally adopted and published in the Official Journal. |
ESG |
22. The Platform on Sustainable Finance publishes its draft report on minimum safeguardsOn 11 July 2022, the Platform on Sustainable Finance published its first draft report on minimum safeguards. The minimum safeguards set out in Article 18 of the Taxonomy Regulation require that companies implement procedures to comply with OECD Guidelines for multinational enterprises and the UN guiding principles on business and human rights. The report on minimum safeguards aims to provide advice on how compliance with minimum safeguards could be assessed. The Platform’s advice will feed into Commission work on the usability of the EU taxonomy. The report recommends the following as signs of non-compliance with minimum safeguards:
The Platform invites feedback on the draft report until 22 August 2022. The Platform will submit a final report with their advice to the Commission in September 2022. 23. European Parliament press release: MEPs do not object to inclusion of gas and nuclear activitiesOn 6 July 2022, the European Parliament rejected a motion to oppose the inclusion of nuclear and gas as environmentally sustainable economic activities as proposed by the Commission's Taxonomy Delegated Act. The Commission believes there is a role for private investment in gas and nuclear activities as transitional activities contributing to climate change mitigation. The inclusion of these activities is time-limited and dependant on meeting specific conditions. The Act will enter into force on 1 January 2023 if the not objection is offered by Parliament or the Council by 11 July 2022. 24. FCA delays its consultation on sustainability disclosure requirements and investment labels for asset managersOn 4 July 2022, the FCA updated its website to announce that its consultation on sustainability disclosure requirements for asset managers, FCA-regulated asset owners and classification of sustainable investment products will be delayed until the autumn. 25. EBA publishes guidelines on the remuneration and gender pay gap benchmarking under CRD and IFDOn 28 June 2022, the European Banking Authority published its final Guidelines on the remuneration benchmarking exercise under the Capital Requirements Directive (CRD), and its final Guidelines on the same under the Investment Firm's Directive. The benchmarking of the gender pay gap will allow competent authorities to monitor the implementation of such measures and their development at different levels of pay. The first benchmarking exercise regarding the gender pay pap should cover the financial year 2023. 26. FCA feedback on ESG integration in UK capital marketsOn 29 June 2022, the FCA issued a feedback statement on its consultation paper CP21/18 on issues relating to ESG-linked debt instruments. The FCA stated there is a clear rationale for regulatory oversight of certain ESG data and rating providers and for a globally consistent regulatory approach informed by the recommendations on ESG data and ratings developed by the International Organization of Securities Commission in 2021. The FCA has set out further details of their approach to ESG-labelled debt instruments in Primary Market Bulletin 41.
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Brexit and Divergence |
No updates for this edition of the FSS. |
Others |
No updates for this edition of the FSS. |
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.