Financial services speedread 28 April 2022 edition
28 April 2022
IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING 23 UPDATES: |
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Financial Markets 1. ESMA Guidelines on certain aspects of the MiFID II Appropriateness and Execution-Only Requirements 2. ESMA Letter to the European Commission on the MiFID II Suitability Consultation 3. European Commission adopts RTS on MiFID II position limits 4. ESMA delivers speech regarding driving forward high-quality supervision and transparency in the single EU capital market 5. The Post-Trade Task Force publishes its report "Charting the Future of Post-Trade" 6. The Bank of England updates its webpage regarding passporting rights for firms operating between the UK and Gibraltar |
Banking and Prudential 7. Bank of England Statement on Capital Arbitrage Transactions 8. Bank of England Publication on Transforming Data Collection Communication to Firms 9. PRA publishes its Business Plan for 2022/23 |
Fund Management 10. European Commission: Targeted Consultation On The Functioning Of The Money Market Fund Regulation 11. Bank of England publishes staff working paper on reducing liquidity mismatch in open ended funds |
Senior Managers and Governance 12. The Confederation of Business Industry publishes survey findings, identifying operational resilience as a key theme 13. Bank of England Consultation Papers on FMI outsourcing and third party risk management |
Financial Crime 14. FATF Report on the State of Effectiveness and Compliance with the FATF Standards 15. The FCA publishes its review in relation to the financial crime controls at challenger banks |
Others 16. FCA Thematic Review: Observations On Wind-Down Planning: Liquidity, Triggers & Intragroup Dependencies 17. Corrigendum published to Commission Delegated Regulation (EU) 2021/2268 amending the RTS laid down in the PRIIPS KID Delegated Regulation (2017/653) 18. Opinion of the European Central Bank of 11 April 2022 on a proposal for a directive of the European Parliament and of the Council on measures for a high common level of cybersecurity across the Union 19. ESAS Publish Joint Committee Annual Report 2021 20. FCA Policy Statement on Diversity and Inclusion on Listed Company Boards and Executive Committees 21. BEIS Publishes the Government Response to its Consultation: Reforming competition and consumer policy 22. The Bank of England publishes Staff Working Paper on heterogeneous effects and spillovers of macroprudential policy in an agent based model of the UK housing market 23. The FCA announces the expansion of its Early and High Growth Oversight |
Financial Markets |
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1. ESMA Guidelines on certain aspects of the MiFID II Appropriateness and Execution-Only RequirementsOn 12 April 2022, ESMA issued guidelines to clarify aspects of MIFID II relating to appropriateness and execution-only requirements (the Guidelines). The aim of the guidelines is to ensure consistent application and supervisory approach to Articles 25 (3) and 25 (4) of MIFID II and Articles 55 to 57 of the MIFID II Delegated Regulation. The Guidelines state that firms should inform their clients clearly and in good time about the appropriateness assessment and its purpose, and that firms should have policies and procedures in place to enable them to collect the information necessary to conduct the appropriateness assessment. This should include polices to ensure the information is up-to-date, accurate and reliable. The Guidelines reiterate that a client's knowledge and experience, and the relevant characteristics of the product, determine if a product is or service is appropriate for that client. Firms must ensure accurate record keeping and retention and compliance in relation to appropriateness assessments. Staff involved in appropriateness assessments should have the adequate level of skill, knowledge and expertise to perform their role. Further arrangements should be made to ensure such staff can identify when an appropriateness assessment is required. Firms should operate and maintain a policy for situations in which a client is a legal person, or group or where natural persons are represented by another natural person. 2. ESMA Letter to the European Commission on the MiFID II Suitability ConsultationOn 19 April 2022, ESMA published a letter (dated 13 April 2022) regarding the consultation on options to enhance suitability and appropriateness assessments. The letter emphasises ESMA's acknowledgement of the importance of appropriateness and the suitability assessment for investor protection under the MiFID II framework, welcomes any proposals to strengthen the framework and improve its consistency, and specifically highlights the following:
3. European Commission adopts RTS on MiFID II position limitsOn 20 April 2022, the European Commission adopted a Delegated Regulation and Annex under MiFID II with regard to commodity derivatives position limits and the exemption application procedure. The new Delegated Regulation will repeal current RTS 21. The changes made have been driven by the EU's capital markets recovery package and a desire to improve the existing methodology. ESMA's related report is here. The European Parliament and Council will now review the Delegated Regulation, and if neither object, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal. 4. ESMA delivers speech regarding driving forward high-quality supervision and transparency in the single EU capital market |
Banking and Prudential |
7. Bank of England Statement on Capital Arbitrage TransactionsOn 13 April 2022, the Bank of England provided an update on the PRA's approach to capital arbitrage transactions. The Bank is aware of firms having conducted or considered deficit reduction transactions with their defined benefit pension schemes to limit the regulatory capital impact, and stated that firms should not engage in transactions which have the aim of offsetting regulatory adjustments, because they may be incompatible with the firm's obligations under the PRA's Fundamental Rules and may therefore pose prudential risks. 8. Bank of England Publication on Transforming Data Collection Communication to FirmsOn 13 April 2022, the Bank of England provided an update on the joint transformation programme it is conducting with the FCA regarding data collection. The Bank announced the end of Phase One 'discovery and design'. In Phase Two, work will continue on commercial real estate as part of a 'Phase One scaling sprint'. Phase Two will start in September 2022, and will focus on commercial real estate, retail banking business model data, incident, outsourcing and third party reporting, asset reporting for insurers and a strategic review of prudential data collections from solo regulated firms. The scaling sprint will focus on identifying scaling opportunities and identifying critical risks to transform data collection. The Bank is looking for 20 full time equivalent staff from firms to join the core delivery team for Phase Two. 9. PRA publishes its Business Plan for 2022/23On 20 April 2022, the PRA published its Business Plan for 2022/23 setting out its strategy, workplan and budget for the upcoming financial year.
Some of the tangible methods proposed to achieve these goals include:
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Fund Management |
10. European Commission: Targeted Consultation On The Functioning Of The Money Market Fund RegulationOn 12 April 2022, the European Commission (EC) launched a public consultation on the adequacy of EU rules on money market funds (MMF) which invest primarily in short-term debt. The consultation is targeted at stakeholders and users of MMFs, in particular to investors and mangers of MMFs to review the impact of the current regime. 11. Bank of England publishes staff working paper on reducing liquidity mismatch in open ended fundsOn 22 April 2022, the Bank of England published the Staff Working Paper 'Reducing liquidity mismatch in open ended funds: a cost-benefit analysis'. This Staff Working Paper reached the conclusion that macroprudential authorities have relatively little experience with non-bank financial institutions and they will need to take more action to address the risks from such non-banks. |
Senior Managers and Governance |
12. The Confederation of Business Industry publishes survey findings, identifying operational resilience as a key themeOn 13 April 2022, the Confederation of Business Industry (CBI) and PwC published the findings of their Financial Services Survey (the Survey), with operational resilience emerging as a key theme throughout. 92% of firms surveyed cited building operational resilience as a key priority for future business strategy and transformation plans. Firms separately identified 'responding to cyber threats' (81%) and 'improving detection of cyber breaches' (71%) as the main priorities to improve cyber resilience and reduce technology risk. The Survey reinforces that operational resilience is a key focus for regulated firms and firms should ensure appropriate governance in relation to operational resilience. 13. Bank of England Consultation Papers on FMI outsourcing and third party risk managementOn 14 April 2022, the Bank of England published three consultation papers on its proposals around outsourcing and third party risk management in Financial Market infrastructures (FMIs). The proposals are set out in three draft supervisory statements for central counterparties, central securities depositaries and recognised payment system operators and specified service providers. The supervisory statements set out non-binding supervisory expectations to provide FMIs with. The statements aim to facilitate greater resilience and adoption of the cloud and other new technologies, set out the Bank's guidance on how it intends to assess compliance with the regulatory framework on outsourcing and third party risk management in FMIs, and complement the Bank's Supervisory Statements on FMI operational resilience. The consultation closes on 14 July 2022. |
Financial Crime |
14. FATF Report on the State of Effectiveness and Compliance with the FATF StandardsOn 19 April 2022, the Financial Action Task Force (FATF) published a review of the state of global efforts to tackle money laundering and terrorist and proliferation financing The FATF found significant progress had been made to establish and enact wide ranging legislation and regulation to counteract money laundering, terrorist and proliferation financing, with 76% of countries having implemented FATF's 40 recommendations. The FATF observed that where governments have not implemented policies and co-ordinated with public and non-public bodies, responses to AML/CTF risks are less effective. The FATF observed that financial instructions tend to have a good understanding of risks but non-financial institutions such as real estate agents, lawyers and accountants tend to struggle to mitigate money laundering and terrorist financing risks. Further, the FATF commented that while there are adequate criminal justice frameworks to tackle money laundering and terrorist financing in most jurisdictions, investigations and prosecutions remain rare. 15. The FCA publishes its review in relation to the financial crime controls at challenger banksOn 22 April 2022, the FCA published a Review which found weaknesses in the financial crime controls of some challenger banks. Key observations included:
The FCA will continue to monitor challenger banks' compliance with their AML obligations and asks challenger banks to consider the key observations and broader findings highlighted in the Review to enhance their financial crime frameworks, |
Retail Investments |
No updates for this edition of the FSS. |
Payments |
No updates for this edition of the FSS. |
Digital Finance and Fintech |
No updates for this edition of the FSS. |
ESG |
No updates for this edition of the FSS. |
Others |
16. FCA Thematic Review: Observations On Wind-Down Planning: Liquidity, Triggers & Intragroup DependenciesOn 11 April 2022, the FCA published its thematic review on wind-down planning. The focus was on liquidity needs during wind-down, and examined firms' intra-group dependencies and wind-down triggers. Firms have an obligation under Threshold Condition COND 2.4 to hold adequate resources, however, the FCA found wide-spread weakness in planning and wind-down documentation. Key observations included:
17. Corrigendum published to Commission Delegated Regulation (EU) 2021/2268 amending the RTS laid down in the PRIIPS KID Delegated Regulation (2017/653)On 13 April 2022, a corrigendum to Commission Delegated Regulation (EU) 2021/2268, amending the RTS laid down in the PRIIPs KID Delegated Regulation (2017/653) was published in the Official Journal of the European Union. Experience gained during the first years of application of Commission Delegated Regulation (EU) 2017/653 revealed that certain elements of the KID needs to be revised in order to ensure that retail investors are provided with appropriate information. Therefore, in order to provide understandable and not misleading information, performance scenarios shown in the KID should now not provide an overly positive outlook for potential return. It is also necessary to impose more prominent warnings about these scenarios To enable retail investors to better understand the types of cost structures of different PRIIPs, information in the KID on costs should now include a description of the main cost elements. For PRIIPs offering a range of investment options, an adjusted presentation of information on costs should be laid down to improve the understanding of the cost implications of those different investment options by retail investors. KIDs for linear PRIIPs and linear underlying investment options should contain in the section titled ‘Other relevant information’ cross-references to separate documents or websites with past performance information. 18. Opinion of the European Central Bank of 11 April 2022 on a proposal for a directive of the European Parliament and of the Council on measures for a high common level of cybersecurity across the UnionOn 13 April 2022, the European Central Bank (ECB) published an opinion (dated 11 April 2022) on a proposal for a directive of the European Parliament and of the Council on measures for a high common level of cybersecurity across the Union (known as the 'revised NIS Directive' or the 'NIS 2 Directive'). The ECB noted its strong support for the objectives of the proposed directive to increase the level of cyber resilience across all relevant sectors, reduce inconsistencies across the internal market, and improve the level of situational awareness and the collective capability to prepare and respond by ensuring efficient cooperation in the EU. It also specifically commented on the following areas:
The ECB will publish specific drafting proposals in a separate technical working document where it recommends that the proposed Directive is amended. 19. ESAS Publish Joint Committee Annual Report 2021On 19 April 2022, the Joint Committee of the European Supervisory Authorities (ESAs) published its Annual Report. The main areas of focus of the Annual Report are the joint risk assessment, enhancement of consumer protection, the development of regulatory and supervisory frameworks for sustainable finance and securitisation. Significant time was given to the regulatory and supervisory framework for sustainability‐related disclosures, with the Joint Committee having drafted 13 Regulatory Technical Standards under the Sustainable Finance Disclosure Regulation (SFDR). In relation to consumer protection, the Joint Committee have worked on the Call for Evidence from the EC in the context of the review of PRIIPs Regulation. Additionally, they reported on the implementation and functioning of the Securitisation Regulation and its jurisdictional scope. 20. FCA Policy Statement on Diversity and Inclusion on Listed Company Boards and Executive CommitteesOn 20 April 2022, the FCA issued finalised rules requiring listed companies to report certain information and make disclosures regarding the representation of women and ethnic minorities on their boards and executive management teams. This enables investors easy access to diversity- related information, and the FCA state in its press release that the rules reflect the FCA's focus on speeding up the pace of change regarding diversity and inclusion in financial services. The rules can be found in the Listing Rules and Disclosure Guidance and Transparency Rules (Diversity and Inclusion) Instrument 2022, and require listed companies to include a statement in their annual financial report setting out whether they have met the following board diversity targets:
These disclosures must be made for the company's financial year starting on or after 1 April 2022. The obligations also require an expanded range of diversity reporting obligations which firms must apply on a 'comply or explain' basis with respect to the representation of women and ethnic minorities. 21. BEIS Publishes the Government Response to its Consultation: Reforming competition and consumer policyOn 20 April 2022, the Department for Business, Energy & Industrial Strategy (BEIS) published the government response to its Consultation on reforming competition and consumer policy which was published in July 2021. The Consultation proposed a reform programme to the UK's competition and consumer policies. The government response includes a number of tangible proposals to implement the findings of the consultation including:
The BEIS clarified in its press release that new measures requiring legal changes will come into effect following parliamentary approval. 22. The Bank of England publishes Staff Working Paper on heterogeneous effects and spillovers of macroprudential policy in an agent based model of the UK housing marketOn 22 April 2022, the Bank of England (BoE) published the Staff Working Paper 'Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market': This Staff Working Paper covered a description of the agent-based model, validation and experiments and concluded that the housing experiments tend to mitigate the house price cycle, a given policy can impact several different risk metrics and the policy experiments affect different types of households differently. These obligations apply to UK and overseas issuers with equity shares or certificates representing equity shares admitted to the premium or standard segment of the official list, excluding open-ended investment companies and shell companies but including close ended investment funds and sovereign controlled companies. 23. The FCA announces the expansion of its Early and High Growth OversightOn 26 April 2022, the FCA published a Webpage confirming the expansion of the Early and High Growth Oversight following a successful pilot. The FCA initiated Early and Growth Oversight in response to its acknowledgement that firms can face challenges in meeting their regulatory obligations in the first few years after authorisation. This approach provides enhanced supervision for firms as they get used to their regulated status, and supports them to understand their obligations. The Webpage announced that throughout 2022 and 2023, Early and High Growth Oversight will be undertaken for up to 300 newly authorised firms. Firms do not need to apply to be part of Early and High Growth Oversight: the FCA will contact Firms directly if they are included. |
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.