Financial Services SpeedRead: 16 March 2021
Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.
IN THIS THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD, WE COVER THE FOLLOWING 18 UPDATES |
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Financial Markets 1. ESMA confirms decision on reporting of net short position of 0.1% and above will expire 2. European Commission publishes a consultation on the supervisory convergence and the single rule book 3. FCA and PRA consult on amendments to UK Margin Rules under UK EMIR 4. FCA publishes annual transparency calculations for equity and equity-like instruments for 2021/22 5. FCA announces the date for the end of LIBOR 6. FCA updates it Statement of Policy on suspending the use of pre-trade transparency waivers 7. ESMA publishes disclosure requirements under the Prospectus Regulation 8. HM Treasury publishes UK Listing Review |
Senior Managers and Governance 9. House of Commons Library Research publishes briefing on "Executive accountability in financial services: the Senior Managers and Certification Regime" |
Financial Crime 10. FCA publishes speech by Mark Steward on locking down market abuse 11. FCA fines and prohibits trader for market abuse 12. EBA publishes opinion on risks of money laundering and terrorist financing across the EU |
Retail Investments 13. FCA: Updated webpage: FS19/2: a duty of care and potential alternative approaches – summary of responses and next steps 14. The CMA launches consultation on the future governance of open banking |
Payments 15. FCA confirms changes to contactless payment rules |
FinTech 16. ECON publishes a draft report with recommendations on the proposal for a regulation on a pilot regime for market infrastructures based on DLT 17. ECON publishes a draft report on proposed Regulation on markets in cryptoassets |
Others 18. HM Treasury publishes remit and recommendations for the Financial Policy Committee Budget 2021 |
Brexit |
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No updates for this fortnight's edition of the FSS. |
Financial Markets |
1. ESMA confirms decision on reporting of net short position of 0.1% and above will expireOn 15 March, ESMA confirmed it would not be renewing its decision to require notification to NCAs from holders of net short positions in shares traded on a EU regulated market where the position reaches, exceeds or falls below 0.1%. ESMA confirms that the measure, which has applied since 16 March 2020, will expire on 19 March 2021. Any outstanding net short position between 0.1% and 0.2% will not have to be reported. The EFTA Surveillance Authority has also decided not to renew their current measure applicable to EEA EFTA States' markets, that will therefore also expire on 19 March 2021. This contrasts with the UK position where the initial notification threshold for the reporting of net short positions to the FCA was lowered from 0.2 percent to 0.1 per cent. 2. European Commission publishes a consultation on the supervisory convergence and the single rule bookOn 12 March, the European Commission issued a targeted consultation on supervisory convergence and the single rulebook. The European single rulebook seeks to reduce differences between national laws and the consultation will consider supervisory practices among national supervisors, supervisory convergence and how the EU's single rulebook works in practice. The consultation will also elicit views on certain aspects of the update to the regulatory framework for the European Supervisory Authorities published in the EU Official Journal in 2019. Feedback from the consultation will inform a report reviewing the ESAs (as set out in the September 2020 Capital Markets Union Action Plan). Areas covered by the consultation include the following:
3. FCA and PRA consult on amendments to UK Margin Rules under UK EMIROn 9 March 2021, the FCA and the PRA launched a joint consultation (the Consultation) on proposed amendments to the margin requirements applicable to non-cleared derivatives under EU Regulation 648/2012 (EU EMIR) and EU Delegated Regulation 2016/2251 (the EU Margin Rules) as each has effect in domestic law (UK EMIR and the UK Margin Rules, respectively). The proposed amendments mirror certain of the recent changes to the EU Margin Rules, which are covered our previous briefing. For more information on the FCA/PRA Consultation please review our briefing. 4. FCA publishes annual transparency calculations for equity and equity-like instruments for 2021/22On 9 March 2021, the FCA announced that it has made available its annual transparency calculations for UK equity and equity-like financial instruments that will take effect from 1 April 2021. The FCA is required to publish annual equity transparency calculations by UK MiFIR. The calculations are available through the FCA's Financial Instrument Transparency Reference System (FITRS).
Based on its calculations, the FCA has assessed 497 shares and 341 equity-like instruments (a category that includes Exchange Traded Funds, depositary receipts and certificates) as having a liquid market. Notably, the FCA states that it has published the SMS of equity instruments for the purposes of the pre-trade transparency regime for SIs. This differs from the approach previously set out in the FCA's Statements of Policy because the FCA now has the capability to publish calculations. 5. FCA announces the date for the end of LIBOROn 5 March 2021, the FCA announced the dates that the panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The FCA has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:
According to the FCA, it is taking steps to help reduce disruption in cases where existing LIBOR contracts are particularly difficult to amend ahead of the LIBOR panels ceasing, often known as the ‘tough legacy’. For more information on the announcement, please see our briefing here. 6. FCA updates it Statement of Policy on suspending the use of pre-trade transparency waiversOn 4 March, the FCA updated its Statement of Policy concerning the use of its temporary power under UK MiFIR, which permits it to apply the Double Volume Cap mechanism (DVC). The DVC is a mechanism which protects the price formation process in equity instruments by limiting the level of dark trading on trading venues (i.e. trading without pre-trade transparency). Under the DVC, if the proportion of trading for an individual equity, taking place under a waiver, exceeds certain thresholds, then the use of those waivers is suspended for 6 months. UK MiFIR gives the FCA the power to make and renew suspensions of waivers under the DVC without undertaking and publishing the calculations of whether trading has exceeded the requisite thresholds. The FCA may suspend the use of a waiver for up to six months and may renew a suspension where it feels that the circumstances which led it to impose the suspension of a waiver continue to exist. In December 2020, the FCA announced that it would not automatically apply the DVC to UK equities and confirms that it is extending this to all equities. In the revised Statement of Policy, the FCA sets out that it is willing to use its temporary powers flexibly and amend its approach to the DVC if another jurisdiction makes an equivalence decision in respect of the UK. 7. ESMA publishes disclosure requirements under the Prospectus RegulationOn 4 March 2021, ESMA published guidelines on the disclosure requirements under the Prospectus Regulation. The guidelines apply to Member State competent authorities and market participants. According to ESMA, these guidelines are intended to establish consistent, efficient and effective supervisory practices among Member State competent authorities when assessing the completeness, comprehensibility and consistency of information in prospectuses and ensure uniform and consistent application of the disclosure requirements. ESMA recommends that issuers involve financial reporting experts to ensure that the financial information in the prospectus satisfy the requirements set out in the guidelines, as well as the general obligation to ensure that the prospectus contains the information necessary for investors to make an informed assessment of the assets, liabilities, profits, losses, financial position, and prospects of the issuer and of any guarantor. The guidelines apply from two months after the date of their publication on ESMA’s website. 8. HM Treasury publishes UK Listing ReviewOn 3 March 2021, HM Treasury published findings from the UK Listing Review chaired by Lord Hill which forms part of the Chancellor's plan to strengthen the UKs position as a leading financial centre and attract successful new businesses to list their companies and grow in the UK. On the same day, the FCA published a statement stating that it welcomes Lord Hill's Listing Review report, as the FCA supports high regulatory standards in the UK, alongside ensuring that capital markets are dynamic and effective for issuers and investors. The FCA stated that it will consider Lord Hill's recommendations, act quickly, and will aim to publish a consultation paper by the summer. The Review's key recommendations include:
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Banking and Prudential |
No updates for this fortnight's edition of the FSS. |
Fund Management |
No updates for this fortnight's edition of the FSS. |
Senior Managers and Governance |
9. House of Commons Library Research publishes briefing on "Executive accountability in financial services: the Senior Managers and Certification Regime"On 15 March, the House of Commons issued a research briefing titled: "Executive accountability in financial services: the Senior Managers and Certification Regime". The report looks at origins of the regime and its impact on financial services firms. The report notes that, four years since the regime was introduced, regulators have only managed to bring one enforcement proceeding against an individual for breach of the rules. The report notes that this has led to questions as to the efficacy of the regime. |
Financial Crime |
10. FCA publishes speech by Mark Steward on locking down market abuseOn 8 March, Mark Steward, Executive Director of Enforcement and Market Oversight, delivered a speech on market abuse. We provide a summary of the key areas covered below.
11. FCA fines and prohibits trader for market abuseOn 4 March 2021, the FCA announced that it had found that an experienced trader engaged in market abuse by executing trades with himself in the share McKay Securities Plc (McKay). This practice known as ‘wash trading’ involved the trader intentionally placing buy orders in McKay shares that traded with his existing sell orders (and vice versa). In total, the trader executed 129 wash trades during the period 18 July 2018 to 22 May 2019. The trader entered orders into the market in such a way as to try and avoid anyone detecting that he was wash trading. Through his wash trading the trader gave false and misleading signals to the market as to demand for and supply of McKay shares. His actions resulted in other market participants seeing what they believed to be legitimate trades in McKay occurring. In addition, the wash trades artificially inflated end of day trading volumes reported to the market. According to the FCA, the trader was aware of the risk that his actions might constitute market manipulation but recklessly went ahead with those actions anyway. The FCA described the trader's "manipulative trading" as serious and described wash trading as "a form of manipulation which undermines market efficiency and integrity." The FCA fined the trader £52,500 for market abuse and prohibited him from performing any functions in relation to regulated activity. The FCA states that the trader demonstrated a high level of cooperation during the investigation and as result the trader's financial penalty was reduced by 25% and the trader additionally received a further 30% settlement discount. The FCA notes that it considers that the fine and the prohibition imposed reflect the serious nature of the breach set out in the Final Notice and should act as a deterrent to other market participants. 12. EBA publishes opinion on risks of money laundering and terrorist financing across the EUOn 3 March 2021, EBA published its biennial opinion on the risks of money laundering and terrorist financing (ML/TF) currently affecting the EU's financial sector. The EBA has identified ML/TF risks that are applicable to the entire financial system, for instance risks associated with the use of innovative financial services, while others affect specific sectors, such as de-risking. The EBA confirmed that the list also includes ML/TF risks that emerge from wider developments such as the COVID-19 pandemic which has had an impact on both firms’ AML/CFT compliance and competent authorities’ supervision. The opinion sets out recommendations to authorities aimed at closing these gaps. Within the opinion, the EBA identified a number of risks associated with virtual currencies, innovative financial services, and identified differences in the treatment by competent authorities of financial institutions’ involvement in facilitating or handling tax-related crimes (‘cum-ex/cum-cum’). The EBA also observes a continuing trend of de-risking, which has implications from a ML/TF, consumer protection and financial stability point of view. The EBA has developed an interactive tool, which gives European citizens, competent authorities and credit and financial institutions access to all ML/TF risks covered in the opinion. The interactive tool is available here. |
Retail Investments |
13. FCA: Updated webpage: FS19/2: a duty of care and potential alternative approaches – summary of responses and next stepsOn 15 March, the FCA updated its webpage on its Feedback Statement on duty of care and potential alternative approaches to confirm that it is planning to consult in May 2021. The FCA has delayed work in this area owing to COVID-19. 14. The CMA launches consultation on the future governance of open bankingOn 5 March 2021, the CMA launched a consultation on the governance of open banking, an initiative that allows consumers and SMEs to share their bank account information securely with trusted intermediaries. UK Finance has submitted proposals that involve creating a new body, with a more broadly-based funding and governance model, and which is industry supported to succeed the Open Banking Implementation Entity. The CMA noted that it will consider these proposals as part of its consultation.
The CMA’s consultation close on 29 March 2021. |
Payments |
15. FCA confirms changes to contactless payment rulesOn 3 March 2021, the FCA published its Policy Statement on "amendments to single and cumulative transaction thresholds for contactless payments" (PS 21/2). PS 21/2 confirms that the FCA will change its contactless payment rules by increasing the single transaction contactless payment threshold from £45 to £100, and increasing the multiple transaction contactless payment from £130 to £300. According to the FCA, there has been an ongoing surge in the use of contactless payments in recent years. Changes in consumer behaviour as a result of Covid-19 has resulted in the FCA's initial increase from £30 to £45 in April 2020. The FCA confirmed that while adoption of contactless payments increases, cash remains an important payment method for many, including vulnerable consumers and small businesses. It is part of the FCA’s Business Payments priority to make sure consumers can access the cash they need. This decision follows the FCA's Consultation Paper on various aspects of payment services (CP21/3) published in January this year. For more information on CP21/3 please see our previous edition of the Financial Services SpeedRead here. |
Fintech |
16. ECON publishes a draft report with recommendations on the proposal for a regulation on a pilot regime for market infrastructures based on DLTOn 11 March 2021, the European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report setting out recommendations on the proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT).
17. ECON publishes a draft report on proposed Regulation on markets in cryptoassetsOn 9 March 2021, the European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report (dated 25 February 2021) setting out recommendations to the European Commission on the proposed Regulation on markets in cryptoassets and amending Directive (EU) 2019/1937 (MiCA). The draft report contains a draft European Parliament legislative resolution, the text of which sets out suggested amendments to the proposed Regulation. The suggested amendments include
For more information on the MiCA proposal, see our briefing. |
Others |
18. HM Treasury publishes remit and recommendations for the Financial Policy Committee Budget 2021On 3 March 2021, HM Treasury published its remit and recommendations for the Financial Policy Committee Budget for 2021. Within the recommendation, there was no abolition of business asset disposal relief (previously entrepreneurs' relief), no one-off wealth tax and no immediate hike in tax rates. The government originally intended to hold a second Budget in Autumn 2020 however, this had been cancelled in light of the COVID-19 pandemic. Within the recommendation, the Chancellor announced a number of revenue-raising measures for corporate and individual taxpayers. Larger companies will see a rise in corporation tax from 2023 but those able to invest in qualifying new plant and machinery in the meantime will receive a "super-deduction" of 130% of expenditure. For individuals, short term relief offered by the extension of the SDLT "holiday" and extension of the furlough and self-employed income support schemes will be more than be offset by the freezing of the capital gains tax annual exempt amount, income tax personal allowance and higher rate threshold for a four-year period from 2022-23. The government is due to publish additional tax-related consultations on 23 March 2021.
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Authors: Emma Tran & Vidhi Mahajan
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