FS weekly highlights—3 September 2020

FS weekly highlights—3 September 2020

In this issue

 

Coronavirus (COVID-19)
Brexit news
MiFID II
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial crime
Complaints, compensation and claims management
Investigations, enforcement and discipline
Regulation of benchmarks and IBOR reform
Regulation of capital markets
Regulation of derivatives
Investment funds and asset management
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Dates for your diary

 

Coronavirus (COVID-19)

 

For further information on the effects of COVID-19 on financial services, see: Coronavirus (COVID-19)—key developments for financial services lawyers and  Coronavirus (COVID-19)—key financial services issues.

Coronavirus (COVID-19)—FCA announces two-month extension to complaints data summary reporting deadline

The FCA updated its webpage setting out changes to regulatory reporting during the coronavirus pandemic. The FCA says that, due to the extensions it has allowed to complaints data returns, it will allow flexibility in relation to the 31 August 2020 deadline required by DISP 1.10A.3R(1) for the publication of the complaints data summary required by DISP 1.10A.1R.

Source: Changes to regulatory reporting during coronavirus (updated webpage).

ESMA report examines impact of coronavirus (COVID-19) on EU financial markets

ESMA published its second Trends, Risks and Vulnerabilities (TRV) report of 2020, analysing the impact of the coronavirus on financial markets during the first half of the year and highlighting the risk of a potential decoupling of financial market performance and underlying economic activity. ESMA says such a decoupling raises the question of the sustainability of the current market rebound.

Source: ESMA sees high risk of decoupling of financial market performance and underlying economic activity

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Brexit news

 

Brexit survey—preparing for the end of the transition period

As the summer draws to a close and the end of the Brexit transition period approaches, lawyers are starting to re-focus on what that means for legal practice. We are continuing to engage with the legal market on the key issues and priorities regarding preparations for the end of the Brexit transition and beyond. Please answer our short survey to have your say.

Brexit readiness checklist—updated Brexit transition guidance from the European Commission

The European Commission published updated guidance to help stakeholders prepare for the end of the transition period. The guidance includes a 'Brexit readiness checklist' for doing business with the UK from 1 January 2021, highlighting changes that will take effect when the transitional arrangements end and the UK ceases to participate in the EU Single Market and Customs Union. Subjects covered include trade in goods, chemicals, energy, provision of services, recognition of qualifications, company law, contracts, data protection and IP rights. Further new and updated guidance may be issued as the transition period progresses, so stakeholders are advised to monitor these pages for updates.

Source: Getting ready for the end of the transition period.

PRA sends Dear CEO letter to firms preparing for the Temporary Permissions Regime

The deputy governor for prudential regulation and CEO of the PRA, Sam Woods, wrote a ‘Dear CEO’ letter to all PRA-regulated firms preparing for the end of the Brexit transition period and for entering the Temporary Permissions Regime (TPR). Woods notes that it is important that firms are operationally prepared to enter the TPR and able to meet the regulatory requirements that will apply once in it.

Source: Letter from Sam Woods: ‘Temporary Permissions Regime—operational readiness’

FCA Market Watch on MiFID II transaction reporting

The FCA published Market Watch 64 on Brexit and MiFID II transaction reporting. The FCA notes that its temporary transitional power (TTP), which is intended to minimise disruption for FCA-regulated entities at the end of the Brexit transition period, will not apply in the area of MiFID II transaction reporting. Accordingly, firms and approved reporting mechanisms should comply with the changes to their regulatory obligations by the end of the transition period on 31 December 2020. The FCA also notes that its Financial Instruments Transparency System (FITRS) will be re-opened for industry testing on 5 October 2020 and its Financial Instruments Reference Data System (FIRDS) remains open for testing.

Source: Market Watch issue 64: market conduct and Brexit and MiFID II transaction reporting issues.

ISDA and AFME request extension of relief for Brexit-related novations

ISDA and the Association for Financial Markets in Europe (AFME) published a letter to the European Commission and ESMA requesting the amendment of Commission Delegated Regulation (EU) 2019/5641 and Commission Delegated Regulation (EU) 2019/5652 (the Novation RTS).

Source: ISDA requests extension of relief on Brexit-related novations.

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MiFID II

 

ESMA calls for evidence on the MiFID II/MiFIR transparency regime for equity and non-equity instruments

ESMA published a call for evidence (CfE) in the context of its intention to review Commission Delegated Regulation (EU) 2017/587 (RTS 1) and Commission Delegated Regulation (EU) 2017/583 (RTS 2) starting from Q4 2020-Q1 2021. RTS 1 and RTS 2 contain the main implementing measures relating to the MiFID II/MiFIR transparency regime for equity and non-equity instruments. The deadline for responding to the CfE is 31 October 2020.

Source: ESMA publishes call for evidence in the context of the review of transparency requirements for equity and non-equity instruments.

 

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UK, EU and international regulators and bodies

 

BoE publishes research agenda to facilitate collaboration

The Bank of England (BoE) launched a new ‘Bank of England Agenda for Research’, setting out its key areas for new research over the coming years and a set of priority topics for 2021. It covers monetary policy, macroprudential policy and microprudential policy.

Sources: Launch of the new Bank of England Agenda for Research and Bank of England Agenda for Research.

EBA accepts European Ombudsman’s recommendations on senior staff moves

The EBA accepted the recommendations made by the European Ombudsman, Emily O’Reilly, after the EBA decided to allow its former executive director to become CEO of the Association for Financial Markets in Europe (AFME). In a letter to the Ombudsman dated 28 August 2020, the EBA confirmed its acceptance of, and outlined its response to, each of the three main recommendations made.

Source: EBA accepts Ombudsman recommendations following former executive director’s move to finance lobby group.

ESMA proposes CCP supervisory committee chair and independent members

ESMA selected the candidates for the Central Counterparty (CCP) Supervisory Committee set-up under the amended European Market Infrastructure Regulation (EMIR 2.2).

Source: ESMA selects chair and independent members for its CCP supervisory committee.

 

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Authorisation, approval and supervision

 

Extension of the Senior Managers & Certification Regime (SM&CR) implementation periods for solo-regulated firms: Bank of England and Financial Services Act 2016 (Commencement No 6 and Transitional Provisions) (Amendment) Regulations 2020

The deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons has been delayed from 9 December 2020 until 31 March 2021. SI 2020/929: Amendments are made to the Bank of England and Financial Services Act 2016 (Commencement No 6 and Transitional Provisions) Regulations 2019 to amend regulation 2(6), which brings into force on 9 December 2020 the employee certification provisions in relation to solo-regulated firms other than benchmark firms, to change the date to 31 March 2021. These Regulations came into force on 1 September 2020.

The official version of the legislation can be found here and further information regarding the change can be found on the following FCA webpage.


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Prudential requirements

 

EBA issues opinion on Commission’s changes to final draft RTS regarding economic downturn under the CRR

The EBA published an opinion on the European Commission’s planned changes to the EBA’s final draft regulatory technical standards (RTS) on the specification of the nature, severity and duration of an economic downturn under Articles 181(3)(a) and 182(4)(b) of the Capital Requirements Regulation (EU) 575/2013 (CRR). In its opinion, the EBA says the Commission’s amendments would alter the agreed policy, and it suggests adjustments aimed at maintaining the agreed policy of the originally submitted text.

Source: EBA issues opinion regarding the European Commission’s intention to amend the EBA’s final draft RTS on economic downturn.

PRA to terminate its temporary approach to VAR back-testing exceptions

The Prudential Regulation Authority (PRA) published a statement setting out its decision to terminate its temporary approach to value-at-risk (VAR) back-testing exceptions from 30 September 2020.

Source: Update to the temporary approach to VAR back-testing exceptions to mitigate the possibility of excessively pro-cyclical market risk capital requirements.

 

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Financial crime

 

FMLC responds to European Commission’s AML/CFT Action Plan

The FMLC responded to the European Commission’s Action Plan on preventing money laundering and terrorism financing (AML/CFT) dated 7 May 2020. The FMLC suggests widening and clarifying the definition of ‘virtual currencies’ in Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (MLD5) so it captures a wider range of virtual currencies and activities. In order to increase transparency, it also proposes that legal entity identifiers (LEIs) should be used by cryptoasset exchange services firms and custodian wallet service providers.

Source: Response to European Commission Consultation: Action plan for a policy on preventing money laundering: 26 August 2020.

 

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Complaints, compensation and claims management

 

Complaints Commissioner says FCA must take action to protect mentally ill consumers

The Complaints Commissioner published a number of final reports regarding complaints against the FCA, some of which have been upheld by the Commissioner. The FCA accepted several recommendations made by the Commissioner and agreed to amend wording in the Financial Services Register about the Financial Services Compensation Scheme (FSCS) and review its supervisory and complaints-handling procedures. The FCA has also agreed to take anticipatory action to ensure that people with mental ill-health disabilities are adequately protected.

Sources: Final report by the Complaints Commissioner: Complaint number FCA00733The FCA’s response to the Complaints Commissioner’s Report FCA00733Final report by the Complaints Commissioner Complaint number FCA00720The FCA’s response to the Complaints Commissioner’s Report FCA00720Final report by the Complaints Commissioner: Complaint number FCA00747.

 

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Investigations, enforcement and discipline

 

Wirecard Card Solutions Limited to wind down its FCA-regulated business

Wirecard Card Solutions Limited announced that it is intending to wind down its FCA-regulated business. It will continue to trade while alternative arrangements are being made with its card providers. The FCA is working closely with Wirecard throughout this process to ensure that customers are treated fairly, and that any action by the firm is taken in the best interests of customers, without compromising on consumer protection.

Wirecard class action raises regulator immunity questions

The German Federal Financial Supervisory Authority, or BaFin, is being sued for abuse of authority following one of the biggest fraud scandals of the decade, with German payment processor Wirecard AG filing for insolvency owing €3.5bn (approximately $US 4.14bn) and its chief executive arrested on suspicion of accounting fraud and market manipulation.

Source: Wirecard has announced that it is winding down its business.

FCA imposes prohibition order on trader convicted in 2015 of insider dealing

The FCA issued a final notice prohibiting Julian Rifat from performing any function in relation to any regulated activities carried on by an authorised or exempt person, or exempt professional firm. After pleading guilty to insider trading, Rifat was sentenced in March 2015 to 19 months’ imprisonment and fined £100,000. According to the FCA, his conviction demonstrates a clear and serious lack of honesty and integrity such that he is not fit and proper to perform regulated activities.

Source: FCA Final Notice: Julian Rifat

 

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Regulation of benchmarks and IBOR reform

 

IBOR reforms: IASB publishes amended IFRS and consults on amended IFRS taxonomy

The International Accounting Standards Board (IASB) published amendments to the International Financial Reporting Standards (IFRS) in response to the ongoing inter-bank offered rates (IBOR) reform. The IASB is also consulting on related proposals to update the IFRS taxonomy to reflect the disclosure requirements included in the amendments. Comments should be provided by 28 September 2020.

Sources: IASB completes response to IBOR reform with amendments to IFRS Standards and IFRS Standards Project Summary, Interest Rate Benchmark Reform—Phase 2Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

Working Group issues recommendations on conventions to support use of SONIA

The Working Group for Sterling Risk Free Rates issued recommendations on conventions to support the use of SONIA in loan markets for Sterling Bilateral and Syndicated Facilities, including Multicurrency Syndicated Facilities where there is a sterling currency option. The Working Group provides recommendations in order to assist market participants who have been awaiting direction on the preferred methodology prior to commencing implementation and developing their standard product offerings.

Source: Statement on behalf of the Working Group on Sterling Risk-Free Reference Rates –Recommendations for SONIA Loan Market Conventions.


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Regulation of capital markets

 

ESMA moves to further postpone CSDR settlement discipline RTS

ESMA published a final report on draft regulatory technical standards (RTS) definitively postponing the date of entry into force of the Commission Delegated Regulation (EU) 2018/1229 (RTS on settlement discipline) until 1 February 2022.

Source: ESMA proposes to further postpone CSDR settlement discipline.

ECB officials say coronavirus (COVID-19) is a ‘wake-up call’ for CMU

The vice-president of the ECB, Luis de Guindos, and Fabio Panetta and Isabel Schnabel, members of the ECB’s executive board, wrote a blog post in which they say that the coronavirus crisis has made capital markets union (CMU) more important than ever, in order to finance the post-crisis recovery. However, they acknowledge that progress on the CMU has slowed, and they call for an ambitious agenda to take the project forward.

Source: Europe needs a fully-fledged capital markets union—now more than ever

Trade data-sf-ec-immutable="" associations call for clarity and forbearance on SRD II

A number of trade associations wrote a joint letter to the European Commission and the ESMA, following up on an earlier request for delay in the date of applicability of the Shareholder Rights Directive II (SRD II), which was rejected by the Commission. In the letter, the associations urge EU and Member State authorities to take action to facilitate the implementation of SRD II rules, and to remediate the gaps in SRD II.

Source: Joint trade associations letter on a delay in the date of applicability of Shareholder Rights Directive II

 

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Regulation of derivatives

 

FCA paper discusses research on presentation of FX costs and exchange rates

The Financial Conduct Authority (FCA) published a paper (occasional paper 56) discussing its research into the ways in which foreign exchange (FX) firms present their costs and exchange rates. The FCA says the results show which approaches help consumers shop around and choose the best deal.

Source: Occasional Paper 56: Fair exchange: Presenting foreign exchange quotes to improve consumer choice.

FIA paper sets out role of derivatives markets in combating climate change

The Futures Industry Association (FIA) published a paper discussing how derivatives markets are helping tackle climate change, noting their role in assisting the global economy to manage risk. The paper argues that market-based innovations in derivatives markets are vital to addressing climate change concerns, and that industry-developed best practices and standards highlight the importance of collaboration among market participants and leveraging industry expertise.

Source: How derivatives markets are helping the world fight climate change.

ISDA CEO welcomes new CFTC cross-border rules

The International Swaps and Derivatives Association (ISDA) published an article in which the ISDA CEO, Scott O'Malia, welcomes the Commodity Futures Trading Commission (CFTC)’s new cross-border rules. O’Malia says that the new rules introduce a broader, more holistic approach to determining the comparability of a foreign jurisdiction’s rules, based on overall outcomes rather than whether each individual requirement is identical.

Source: Deciding on Deference.

ISDA publishes SIMM Methodology document version 2.3

ISDA published the SIMM Methodology document, version 2.3, which will effective from December 5 2020. This version of SIMM includes updates based on 'the full recalibration and industry backtesting of the methodology'.

Source: ISDA Publishes ISDA SIMM v2.3

European Commission adopts Delegated Regulation on CCP colleges

The European Commission adopted a Commission Delegated Regulation amending Delegated Regulation (EU) 876/2013 which supplements Regulation (EU) 648/2012 (EMIR) as regards changes to the composition, functioning and management of colleges for central counterparties (CCPs). EMIR 2.2, which recently amended EMIR, included a mandate that the written agreements determining the practical arrangements for the functioning of colleges should be refined and more standardised. The amending Delegated Regulation includes amendments to the existing Delegated Regulation to enable CCP colleges to adjust smoothly to the amended provisions.

Source: Commission Delegated Regulation (EU) …/... of 1.9.2020 amending Delegated Regulation (EU) No 876/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council as regards changes to the composition, functioning and management of colleges for central counterparties.


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Investment funds and asset management

 

ESMA to update stress tests guidelines under the Money Market Funds Regulation

ESMA confirmed that the 2019 guidelines on stress test scenarios under Regulation (EU) 2017/1131 on money market funds (MMFR) will be updated in 2020. The guidelines will include a modification of the risk parameters to reflect recent market developments related to the coronavirus pandemic.

Source: Risk parameters in ESMA’s guidelines on stress test scenarios under the Money Markets Fund Regulation to be updated.

ESMA drafts document on national thresholds for shareholder identification

The European Securities and Markets Authority (ESMA) published a document listing the EU Member States’ national thresholds for shareholder identification under Directive (EU) 2017/828, the Revised Shareholder Rights Directive (SRD II). The document provides an overview of the relevant rules in SRD II and of the thresholds established by Member States. The document also links to national legislation transposing SRD II. ESMA states that it has drafted this document to increase transparency with regards to the Member States’ regimes.

Source: ESMA PUBLISHES LIST OF THRESHOLDS FOR SHAREHOLDER IDENTIFICATION.

 

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Banks and mutuals

 

Corrigendum to BRRD II published in the Official Journal

A corrigendum to Directive (EU) 2019/879 (BRRD II), which amended Directive 2014/59/EU (BRRD) as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC (the Settlement Finality Directive), was published in the Official Journal.

Banking Competition Remedies publishes updates on performance of Capability and Innovation Fund recipients

Banking Competition Remedies Ltd (BCR) published updates on the performance of Capability and Innovation Fund (CIF) recipients against their public commitments for the period to 30 June 2020. Pool A, B, C and D awardees will submit their next progress reports in October 2020. Pool E awardees will provide their first reporting update in December 2020.

Source: Banking Competition Remedies Ltd (BCR) publishes progress updates on Public Commitments from Pool A, B, C and D Capability and Innovation Fund recipients.

EBA publishes annual report on resolution colleges for 2019

The European Banking Authority (EBA) published its 2019 annual report on resolution colleges, which sets out its observations on the efficiency, effectiveness and consistency of the functioning of resolution colleges during the year and the progress achieved in key areas of resolution planning. The report also highlights the main areas that the EBA plans to monitor in 2020, which primarily address responses to the effects of the coronavirus (COVID-19) pandemic.

Source: EBA publishes its 2019 annual report on resolution colleges.

 

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Consumer credit, mortgage and home finance

 

FCA publishes modification by consent of COBS 8.1.1R

The FCA published a modification by consent of COBS 8.1.1R in the FCA Handbook. The modification provides that COBS 8.1.2R and COBS 8.1.3R do not apply in relation to a child trust fund or a protected account held by a non-contactable retail client until the firm is able to contact the client.

Source: Modification by Consent: COBS 8.1.1R.

 

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Regulation of insurance

 

Insurance Europe publishes response to Solvency II review impact assessment

Insurance Europe (IE) published its response to the European Commission's consultation on its inception impact assessment on the Solvency II review.

Sources: European insurers respond to EC consultation on Solvency II review impact assessment and Response to EC inception impact assessment on Solvency II Directive review.

Insurance Europe publishes response to ECB strategy review

IE published its response to the European Central Bank's (ECB) strategy review, highlighting the significance of interest rates for insurers, as it impacts product offerings and solvency ratios. IE also states that while insurers agreed that a loose monetary​ policy was appropriate as a response to the global financial crisis and the euro-area debt crisis, the response in relation to coronavirus must be prompt, targeted and strong, but it should also be temporary.

Source: ECB strategy review should include plan to exit loose monetary policy measures


 

Payment services and systems

 

PSR publishes annual funding requirement for 2020/21

The Payment Systems Regulator (PSR) published its regulatory fees for 2020/21. Its annual funding requirement is £16.85m.

Source: PSR regulatory fees: 2020/21 fees figures.


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Fintech and cryptoassets

 

BIS paper examines global fintech regulatory challenges

The Bank for International Settlements (BIS) published a paper exploring how digital banking and fintech platform financing are regulated, providing a cross-country overview of the regulatory requirements for fintech activities in 30 jurisdictions.

Source: Regulating fintech financing: digital banks and fintech platforms.

ECB responds to Commission’s consultation on its fintech action plan

The ECB published a response to the European Commission’s public consultation on a new digital finance strategy for Europe/fintech action plan. While the ECB recognises that fintech and innovation may bring significant benefits for financial institutions, their customers, the financial system and the broader economy, it warns that the digital transformation of the banking sector has to be performed taking due account of the risks related to the use of innovative technologies.

Source: ESCB/European banking supervision response to the European Commission’s public consultation on a new digital finance strategy for Europe/fintech action plan.

 

Sustainable finance

 

FMLC responds to ESA consultation on ESG disclosures

The Financial Markets Law Committee (FMLC) responded to the joint consultation paper of the European Supervisory Authorities (ESA) on proposed regulatory technical standards (RTS) for environmental, social and governance (ESG) disclosures.

Source: FMLC response to ESAs’ joint consultation paper: ESG disclosures: 1 September 2020

 

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Dates for your diary

 

DateSubjectEvent

 

September 2020

 

Payment services and systems

 

The BoE plans to publish an update and supporting documentation on ISO 20022. See A new messaging standard for UK payments: ISO 20022.

 

September 2020

Payment services and systems


COVID-19

Due to the coronavirus (COVID-19) pandemic, the PSR will be publishing its Annual Report and Accounts for 2019/2020 in September 2020.

 

September 2020Payment services and systems

The final enhanced messages (or schemas) for the migration of CHAPS to the ISO 20022 messaging standard are expected to be published.

 

September 2020Investment funds and asset management

Managers of MMFs must send their first quarterly reports to competent authorities pursuant to Article 37 of Regulation (EU) 2017/1131 (the MMF Regulation).

 

September 2020Banks and mutuals

Under the proposals set out in PRA consultation CP31/18 (on resolution assessment and public disclosure by firms) the largest UK banks will be required to submit their assessments of their preparations for resolution to the PRA by the end of September 2020.

 

September 2020Regulation of capital markets

ESMA aims to publish the final report on further postponing the date of entry into force of the RTS on settlement discipline by September 2020. ESMA is working on a proposal to possibly delay the entry into force of the Central Securities Depositories Regulation (EU) 909/2014 (CSDR) settlement discipline regime until 1 February 2022.

 

September 2020

COVID-19


UK, EU and international regulators and bodies

Due to the coronavirus pandemic, the FCA will publish its Annual Report and Accounts for 2019/2020 in September 2020, rather than the usual July release.

 

4 September 2020Prudential requirements

Deadline for responses to the EBA consultation on regulatory framework for investment firms.

 

4 September 2020Prudential requirements

Deadline for responses to the EBA’s consultation on draft regulatory technical standards (RTS) on the capitalisation of non-modellable risk factors for institutions using the new Internal Model Approach under the Fundamental Review of the Trading Book is 4 September 2020.

 

4 September 2020Prudential requirements

The FSB will host a virtual consultation workshop on the evaluation of the effects of too-big-to-fail (TBTF) reforms at 13.00 (CEST) on 4 September 2020.

 

7 September 2020Regulation of insurance

Deadline for responses to the EIOPA’s consultation on its discussion paper on the (re)insurance value chain and new business models arising from digitalisation.

 

8 September 2020Consumer credit, mortgage and home finance

Deadline for responses to FCA consultation paper ’CP20/13: Consultation on mortgages: Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages’.

 

8 September 2020Regulation of capital markets

Deadline for responses to the European Commission’s consultation ‘Cross-border investment within the EU – clarifying and supplementing EU rules

 

8 September 2020Sustainable finance

Deadline for responses to the European Commissions initiative that would require large listed companies, banks and insurance companies to publish information on how, and to what extent, their activities align with those considered environmentally sustainable in the EU taxonomy.

 

10 September 2020Financial crime

Deadline for Member States to establish centralised automated mechanisms identifying holders of bank and payment account and safe deposit boxes, as required by MLD4 (as amended by MLD5).

 

10 September 2020Investment funds and asset management

The latest date for compliance with EU Commission implementing Acts for Art 3a, 3b and 3c of SRD II is 10 September 2020.

 

 

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About the author:
Pietra has completed the Bar Professional Training Course at the University of Law and was called to the Bar in 2019. Prior to the BPTC, Pietra undertook a law degree at the University of Bristol.