Financial Services Speedread 29 July 2022

1. Delegated Regulations and Implementing Regulation on position limits and controls under MiFID

On 26 July 2022, the following Commission Delegated and Implementing Regulations relating to commodity derivatives position limits, management controls and reporting under the MiFID II were published in the Official Journal of the European Union:

• Commission Delegated Regulation (EU) 2022/1299: trading venues should have arrangements to monitor the positions held by end position holders and parent undertakings in each commodity derivative traded on their venues and will have accompanying accountability obligations with respect to this monitoring;
• Commission Implementing Regulation (EU) 2022/1300: updated reporting templates specifying fields to be reported for all commodity derivative positions across all maturities of all contracts; and
• Commission Delegated Regulation (EU) 2022/1302: updates to the calculations of net position held by a person in a commodity derivative and procedures for applying exemptions.

2. Future Regulatory Framework (FRF) Review: Proposals for Reform

On 20 July 2022, the response to the Future Regulatory Framework Review (FRF Review) was published. The FRF Review was consulted on in October 2020 and November 2021. The Government intends to legislate for changes to the regulatory framework via the Financial Services and Markets Bill 2022-23.

The response confirms that the Government intends to:

• introduce a new secondary growth and competitiveness objective for the PRA and the FCA;
• require regulators to have regard to the Government's commitment to achieve a net zero economy by 2050, by including a reference to this commitment in the regulatory principles;

• introduce a requirement for the PRA and the FCA to notify the Treasury Select Committee when they publish a consultation on any matter and a requirement for the PRA and the FCA to respond to any Parliamentary Committee that has responded to a consultation published by one of the regulators;
• introduce a requirement for the FCA, the PRA and the PSR to publish statements of policy on how they carry out cost benefit analysis (to include requirements on what must be covered as part of the statement); and
• create a legislative framework for the designated activities regime, to enable the Treasury to bring activities related to or connected to financial markets within the FSMA model and allow for a proportionate regulation of these activities.

3. Financial Services and Markets Bill

On 20 July 2022, the Financial Services and Markets Bill was introduced to the House of Commons. MPs will next consider the Bill at Second Reading on Wednesday 7 September 2022.

4. The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022

On 19 July 2022, the Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022 (the Regulations) were published. The Regulations form part of a package of instruments supporting the introduction of the IFPR and Basel 3 standards and gives effect to parts of the Financial Services Act 2021.

Key features of the Regulations include the following:

• introducing a transitional provision in respect of risk retention requirements for certain securitisations following the implementation of the IFPR;
• amendments to section 48D of the Banking Act 2009 to ensure that short-term liabilities owed to both PRA-regulated and FCA-regulated investment firms with permission to underwrite or deal on own account will continue to be exempt from bail-in;
• repealing the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014 (as it is redundant following the removal of FCA-regulated investment firms from the UK resolution regime); and
• correcting deficiencies which have arisen as a result of the UK’s withdrawal from the EU by, for example, replacing references to European jurisdictions with references to the United Kingdom and updating references to EU directives which have now been transposed to EU retained law or replaced with domestic legislation.

5. FCA Annual Report and Accounts 2021/22

On 19 July 2022, the FCA published its Annual Report and Accounts for 2021/22. The FCA used the powers granted under section 166 of FSMA to review aspects of a firm's activities in 38 cases, and in 6 cases the FCA appointed a skilled person firm to undertake the review. The sector where the most skilled person reviews were commissioned was the investment management sector (11 reviews), followed by the retail investments sector and the retail banking and payments sector (eight reviews each).

6. FCA Perimeter Report 2022

On 19 July 2022, the FCA published its Perimeter Report. The FCA is working with the Treasury in preparation for its consultation on the UK's overseas framework and the operation of the Overseas Persons Exemption (OPE). The FCA is of the view that greater oversight of firms using the OPE would be beneficial. The FCA also sets outs its concerns regarding the marketing of contracts for difference (CFDs) and other high risk derivative products to retail clients.

For more information, please see our briefing.

7. Mansion House Speech by Nadhim Zahawi, Chancellor of the Exchequer

On 19 July 2022, The Rt Hon Nadhim Zahawi MP, Chancellor of the Exchequer, delivered his first Mansion House speech. The Chancellor emphasised the importance of financial services to private sector growth, his view that inflation is the most pressing problem to the global economy, and the objective of the Financial Services Bill to facilitate growth and competitiveness.

8. European Commission updates the format in which information is to be submitted by branches of third country firms

On 14 July 2022, the European Commission updated the format in which branches of third-country firms (for example European branches of UK firms) and competent authorities have to report the information referred to in Article 41(3) and (4) of Directive 2014/65. The updated format can be found here.

9. European Commission publishes Regulation (EU) 2022/1210 with regard to the format of insider lists and their updates

On 14 July 2022, the European Commission published Regulation (EU) 2022/1210 laying down implementing technical standards (ITS) updating the number and format of template insider lists under the Market Abuse Regulation, including a specific template for personal data of persons having regular access it inside information.

10. ESMA explains classification of third-country counterparties in weekly position reports

On 12 July 2022, the European Securities and Markets Authority (ESMA) released an Opinion on the classification of third-country counterparties, clarifying how third-country financial entities should be classified in the weekly positions reports on commodity derivatives and emission allowances derivatives under MiFID.

The Opinion states that for the purpose of the weekly position reports, third-country financial entities should be classified as they would be classified if they were established in the EU. The aim of this is to improve the quality and consistency of these reports.

NCAs are expected to ensure that trading venues reflect the amended classification in the weekly reports at the latest 3 months after the publication of the Opinion.

11. FCA and Bank of England launch joint consultation proposing amendments to the UK Margin Rules.

On 12 July 2022, the PRA and the FCA launched a joint consultation proposing amendments to the UK Margin Rules. If adopted, the proposals would:

• allow interests in non-UK funds (including EEA UCITS) to qualify as eligible collateral under the UK Margin Rules, where certain criteria are met;
• introduce a six-month grace period during which newly in-scope entities need not comply with the rules; and
• clarify the scope of the CCP exemption.

The proposed changes are intended to address shortcomings in the rules that have been identified by the derivatives industry since they were onshored at the end of the Brexit implementation period.

12. CMA: Press release: Six high street banks broke Competition Markets Authority (CMA) banking rules

On 22 July 2022 the CMA issued a press release concerning the breaches by six high street banks of the CMA banking rules. These rules require banks to conform to strict rules when informing customers regarding their services, and the breaches were as follows:

• Barclays failing to keep information on interest rates up to date for overdrafts on two webpages;
• Bank of Ireland listing incorrect details of branch locations through Open Banking (after some had permanently closed) as well as wrong information about some current account charges. There were also issues with the information provided to tablet users regarding the Bank of Ireland's service quality;
• HSBC failing to publish information about the maximum amount it can charge customers for overdrafts in all the places it should have done, along with displaying out of date information relating to interest rates for their business account overdrafts on one of its webpages;
• Lloyds Banking Group publishing incorrect service quality rankings relating to personal and business current accounts in leaflets and branch posters which gave potential customers a misleading impression of its performance. The group also failed to keep information in relation to interest rates up to date for one of its overdrafts on one of its webpages;<li>Metro Bank overcharging 92 customers for entering an unarranged overdraft; and
• NatWest not updating records following branch and ATM closures, in addition, they listed incorrect interest rates for small business loans when sharing information with independent price comparison tools.

The relevant banks all subsequently confirmed that they would be making changes to their operations in order to prevent further breaches.

13. BoE: Speech by Nathanaël Benjamin, Executive Director, Authorisations, Regulatory Technology, and International Supervision: New tides

On 20 July 2022, Nathanaël Benjamin delivered a speech at UK Finance on financial and operational resilience.

In relation to operational resilience, Benjamin identified that that the increased digitalisation of financial services, including digital providers and assets, has altered the way that consumers and businesses transact. Further, he identified how this presented operational and regulatory risks for the banking sector and, in particular, investment banks, as they try to remain competitive in a changing market place.

Benjamin restated the expectation that financial service firms continue to work independently and collectively towards operational resilience. This includes the need for firms to assess the risks posed by, for example, critical third-party suppliers and to develop systematic stress scenarios, with the ultimate aim of implementing comprehensive operational risk policies.

14. SRB publishes Resolvability Assessment and Heat-map

On 13 July 2022, the Single Resolution Board (SRB) published its assessment of bank resolvability for the first time. The resolvability assessment and 'heat-map' for 2021 shows that banks have made significant progress in the SRB's priority areas.

Key findings include:

• developing resolvability is "a marathon, not a sprint";
• large banks are the most advanced category, demonstrating sound progress on the resolution capabilities that the SRB has prioritised in 2020-2021; and
• the SRB expects banks to achieve full resolvability by the end of 2023.

15. ESMA updates Q&As on the application of the UCITS Directive and AIFMD

On 20 July 2022, ESMA released updated Q&As in relation to the application of the UCITS Directive and the AIFMD.

Reconciliation frequency requirements are explained to depend on trade frequency, such that if an AIF or UCITS trades on a daily basis, daily reconciliations are required. In relation to reconciliations with tri-party collateral managers, the tri-party collateral manager is required to transmit the end-of-day positions on a fund-by-fund basis to allow the depositary to record the end-of-day positions.

A further question was added with relation to delegation, explaining that where the marketing of the AIF or UCITS is performed by a third party distributor, AIFMs and UCTIS Man Cos remain responsible for compliance with Articles 4 of Regulation (EU) 2019/1156, irrespective of who is the actual entity marketing the fund, and of the relationship it has with the third party distributor.

16. FCA updates webpage regarding disclosure requirements for EEA UCITS

On 14 July 2022, the FCA updated its webpage on rules that apply to firms and fund managers in the TPR with respect to disclosure requirements for EEA UCITS.

In the UK, the exemption from the requirement for EEA UCITS to produce a PRIIPs KID has been extended until 31 December 2026. The FCA confirms that this exemption applies to both EEA UCITS recognised under s272 FSMA and those recognised under TMPR. This means that when being marketed to retail investors in the UK, EEA UCITS that are recognised under either s.272 FSMA or the TMPR must produce a UCITS KIID.

The FCA also notes that the TMPR is due to end on 31 December 2025. The FCA is engaging with the Treasury on the disclosure requirements that would apply in the event of an equivalence decision under the Overseas Funds Regime.

No updates for this edition of the FSS.

17. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 (SI 2022/860)

On 21 July 2022, the Treasury published The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 (SI 2022/860) amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), with the effect of extending the "travel rule" to crypto-asset businesses (amongst other changes).

The MLRs now require crypto-asset exchange provides and custodian wallet providers to ensure that crypto-asset transfers of above EUR 1,000 which are:

• made as a single transaction; or
• made as multiple transactions, from a single originator that appear to be linked (and therefore when taken together meet or exceed the EUR 1,000 threshold),

are accompanied by detailed personal information of both the originator and beneficiary (i.e. are subject to the travel rule).Further, transfers below the EUR 1,000 threshold and therefore outside the travel rule, will require the name and account number of both originator and beneficiary and a unique transaction identifier (as opposed to detailed personal information).

The above information must be retained for five years.

The SI will come into force in stages, with Regulations 1, 2 and 12 coming into force on 11 August 2022, Regulation 5 coming into force on 1 September 2023, Regulations 16 and 17 coming into force on 1 April 2023 and all others coming into force on 1 September 2022.

18. UK Government amends UK Money Laundering Regulations (UK MLRs) by substituting the list of high-risk third countries for a new list

On 12 July 2022, the UK Government published Statutory Instrument (SI) 2022/782 which amends the UK Money Laundering Regulations (UK MLRs) by substituting the list of high-risk third countries for a new list.

Key changes include:

• Malta is no longer classed as a high-risk third country for the purposes of enhanced customer due diligence requirements; and
• Gibraltar is now classed as a high-risk third country for the purposes of enhanced customer due diligence requirements.

We understand from the explanatory note of the SI that a full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.

19. FCA publishes findings from its SME collections and recoveries review

On 12 July 2022, the FCA published its findings from its multi-firm review into the assessment of how retail banks treat their SME customers who are in collections and recoveries (the Review). The FCA also sets out the key actions retail banks should take.

• gaps in policies and procedures;
• staff training that did not adequately cover conduct requirements;
• manual interventions within systems which appeared to make delivering fair customer outcomes more difficult;
• absence of outcomes testing or QA that considered whether customers had received fair outcomes from the end-to-end treatment they received;
• in many cases record keeping was poor;
• the FCA saw instances of customers providing information indicating characteristics of vulnerability that were not considered or suitably responded to.

In terms of next steps, the FCA has provided individual feedback to each retail bank they looked at. The FCA also published a Dear Chair letter to firms regarding the action needed to ensure fair treatment of SME customers during collections and recoveries. The FCA asked the Board of each firm to carefully consider the contents of the letter and Review and take the necessary steps to seek assurance that their business complies with their expectations.

20. Digital Payments Initiative – Response by the Payment Systems Regulator (PSR)

On 21 July 2022, the PSR issued a response to the digital payments initiative report. The response was in respect on the PSR Panel's report published in May, which highlighted the challenges to the take-up of digital payments and the potential solutions and regulatory actions.

The response followed stakeholder roundtable discussions held by the PSR, and highlighted the following key issues:

• a focus on more effective communication and industry engagement to encourage consistent terminology for account-to-account retail payments, including improving the functionality and access to open banking account-to-account retail transactions;
• a review of the design of proposed Card-Acquiring Market Review remedies to help merchants compare card-acquiring services' prices and service features, including periodic review of the market;
• examining rules and standards needed to support growth of open baking account-to-account retail transactions with the PSR overseeing such open banking agreements as the regulator of payment systems in the UK;
• the PSR should undertake a role in monitoring and publicising progress towards its strategic outcome, although clarifying that addressing the cause of the digital exclusion lies beyond its remit;
• identifying the need for improvement in data on and analysis of the UK payments landscape to identify trends, risks and opportunities and to measure and evaluate its impact;
• the need to evaluate the potential and use cases of variable recurring payment (VRP) before placing any formal requirements on account providers or other participants;
• enhancing the visibility of a customer's balance during a payment journey would be helpful to giving consumers more control over their payments and therefore enhancing take-up of digital payments;
• that the PSR will continue to work to ensure functional capability of open banking retail payments; and
• recognising that customers and merchants would benefit from improved functionality in digital recurring payments, although that new investments in Direct Debit need to be proportionate to their benefits.

The PSR highlighted four priority issues that will need to be addressed to promote open banking account-to-account retail transactions:

• the system’s functional capability;<li>dispute processes;<li>access and reliability; and<li>a sustainable funding model.

21. HM Treasury Consultation on Payments Regulation and the Systemic Perimeter

On 20 July 2022, the Treasury issued a consultation and call for evidence to explore reforms to the systemic payments perimeter under supervision of the Bank of England (the Consultation). The Consultation sets out the rationale for expanding the Bank of England's supervision of systemic risk relating to payments beyond payment systems and associated service providers, set out in the Banking Act 2009. The Treasury believes that the Banking Act could be widened to introduce an additional category of payments ‘provider’, an entity or actor within the payment chain, that poses systemic risk in its own right to the financial system or UK economy. The distinguishing feature of this category is that the source of risk would be the provider itself where such a provider’s disruption or outage could have material adverse impacts on the financial system.

The Consultation also includes proposals for expanding the Bank of England's ability to gather information when monitoring risks to require any persons to provide information or documents in connection to any of its functions so as to keep markets under constant review.

Separately, the Treasury outlines the government's considerations as to how the payments regulatory framework fits with the outcomes of its Financial Services Future R

22. DCMS, BEIS and OAI: Guidance on the National AI Strategy: AI Action Plan

On 18 July 2022, the Department for Business, Energy & Industrial Strategy (BEIS), the Department for Digital, Culture, Media and Sport (DCMS) and the Office for Artificial Intelligence published the National AI Strategy: AI Action Plan. This sets out plans for regulating the use of Artificial Intelligence (AI) to help to develop consistent rules to promote innovation and protect the public. The approach to regulation is based on the following six core principles, which require developers and users to:

• make sure that AI is used safely;
• ensure that AI is technically secure and functions as designed;
• make sure that AI is appropriately transparent and explainable;
• consider fairness;
• identify a legal person to be responsible for AI; and
• clarify routes to redress or contestability.

• context specific;
• pro-innovation and risk-based;
• coherent; and
• proportionate and adaptable.

The proposal welcomes responses from stakeholders.

23. Treasury Committee launches inquiry into crypto-assets

On 13 July 2022, the Treasury called for written evidence as it launches its new inquiry into crypto-assets (the Inquiry). The Inquiry will explore the role of crypto-assets in the UK, as well as the opportunities and risks they bring.

Key areas the Inquiry will investigate include:

• whether crypto currencies are likely to replace traditional currencies;
• how regulation could be balanced to provide protection for consumers without stifling innovation;
• whether the Government and regulators are suitably equipped; and
• what lessons the UK can learn from overseas.

24. SFDR: Delegated Regulation on RTS on content and presentation of taxonomy-related sustainability disclosures

On 25 July 2022, Commission Delegated Regulation (EU) 2022/1288 (the Delegated Regulation) supplementing the Sustainable Finance Disclosure Regulation (SFDR) was published in the Official Journal of the European Union.

The Delegated Regulation was adopted by the European Commission in April 2022, and contains regulatory technical standards setting out requirements in relation to disclosures to be made by market participants under the SFDR on the content and presentation of the information relating to the principle of "do no significant harm"; the content, methodologies and presentation of information relating to sustainability indicators and adverse sustainability impacts; and the content and presentation of the information relating to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports.

The Delegated Regulation also contains the following annexes:

• Annex 1: template principal adverse sustainability impacts statement (PAIS);
• Annex 2 and Annex 3: template pre-contractual disclosure for specified financial products; and
• Annex 4 and Annex 5: template periodic disclosure for specified financial products.

25. House of Commons (European Scrutiny Committee): Letter from Rt Hon Jacob Rees-Mogg MP regarding Retained EU Law

On 21 June 2022, Jacob Rees-Mogg, Minister for Brexit Opportunities and Government Efficiency, wrote to the House of Commons to inform them that the initial phase of the review into retained EU law (REUL). The cross-government exercise identified a catalogue of REUL detailing 24000 pieces, spanning more than 300 policy areas and 21 sectors of the UK economy, including financial services.

The public have now been invited to scrutinise the REUL via an interactive dashboard that was operationalised on 21 June 2022, ahead of the introduction of the 'Brexit Freedoms' Bill. This Bill will make it easier to amend, repeal and replace retained EU law.

26. Bank of England, PRA and FCA set out potential measures to oversee critical third parties in a move to increase resilience of the financial sector

On 21 July 2022, the Bank of England, PRA and FCA published a discussion paper setting out potential measures to strengthen the resilience of services provided by critical third parties (CTPs) to the UK Financial Sector, due to the benefits that well-managed outsourcing can bring to firms, and financial market infrastructure firms (FMIs).

The measures set out by the discussion paper include:

• a framework for identifying potential CTPs;
• minimum resilience standards which would apply to the services that designated CTPs provide to firms and FMIs; and
• a framework for testing the resilience of material services that CTPs provide to firms and FMIs.

The measures proposed are intended to complement (but not replace) firms and FMIs' existing responsibilities to manage risks from outsourced contracts.
Participants should send responses via email to: DP3_22@bankofengland.co.uk by 23 December 2022.

27. HM Treasury Report on UK Secondary Capital Raising Review

On 19 July 2022, HM Treasury published a report and updated webpage on the UK Secondary Capital Raising Review detailing a series of recommendations to the Government, FCA and Pre-Emption Group (PEG), following Mark Austin's review on how further capital raising processes by companies that are already listed could be made more efficient.

The FCA published a statement confirming that it welcomes the published report, and that its findings align with the FCA's strategic priority to ensure that UK wholesale markets continue to be regarded as one of the leading global markets of choice for issuers, intermediaries and investors.

28. FCA updates its webpage on fines published during the calendar year ending 2022

On 15 July 2022, the FCA updated its webpage on fines published during the calendar year ending 2022. The total amount of fines issues by the FCA in 2022 to date is £26,679,560‬, and the updated webpage can be found here.