FS weekly highlights—11 June 2020

FS weekly highlights—11 June 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 stability, recovery and resolution
Risk management and controls
Financial crime
Dispute resolution for financial services lawyers
Competition in financial services
Markets and trading
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 coronavirus (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)—BIS bulletin sets out central banks’ response to pandemic in advanced economies

The Bank for International Settlements (BIS) published a bulletin which sets out central banks' responses to the coronavirus (COVID-19) pandemic in the advanced economies of the US, the euro area, Japan, the UK and Canada. The bulletin notes that these central banks responded promptly and forcefully, consistent with their mandates to preserve smooth market functioning and an effective transmission of monetary policy.

Source: Central banks' response to COVID-19 in advanced economies.

FSB Americas group discuss coronavirus (COVID-19) measures, LIBOR and non-bank financial intermediation

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas has held a conference call to discuss global and regional macroeconomic and financial market developments and their potential impact on economies in the Americas. Members exchanged views on the latest financial stability implications of the coronavirus (COVID-19) pandemic, discussing the effectiveness of policy measures authorities have taken to sustain the supply of credit to the real economy, to support financial intermediation, and to preserve the functioning and resilience of the individual and global financial systems.

Source: FSB Americas group discusses financial vulnerabilities and the impact of COVID-19.

Coronavirus (COVID-19)—ESRB outlines second set of measures in response to pandemic

The European Systemic Risk Board (ESRB) published details of a second set of actions in response to the coronavirus (COVID-19) crisis, following an extraordinary meeting of its general board on 27 May 2020. The macroprudential actions adopted by the general board, together with reinforced co-ordination between authorities and across borders, are aimed at ensuring that the European financial system can withstand the shock and preventing a sharper loss of economic capacity and jobs.

Sources: Press release: The General Board of the European Systemic Risk Board takes second set of actions in response to the coronavirus emergency at its extraordinary meeting on 27 May 2020,   Recommendation of the European Systemic Risk Board of 27 May 2020 on monitoring the financial stability implications of debt moratoria, and public guarantee schemes and other measures of a fiscal nature taken to protect the real economy in response to the COVID-19 pandemic (ESRB/2020/8)Letter to EIOPA: Liquidity risks in the insurance sector (ESRB/2020/0072),   Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic (ESRB/2020/7)Report: System-wide restraints on dividend payments, share buybacks and other pay-outsRecommendation of the European Systemic Risk Board of 25 May 2020 on liquidity risks arising from margin calls (ESRB/2020/6) and Report: Liquidity risks arising from margin calls.

Coronavirus (COVID-19)—EIOPA responds to ESRB insurance liquidity call

The European Insurance and Occupational Pensions Authority (EIOPA) issued a statement supporting the views expressed by the ESRB regarding the importance of improving the monitoring of liquidity risks in the insurance sector with the aim of enhancing Europe’s preparedness for potential future shocks.

Source: EIOPA supports the ESRB’s call on enhanced monitoring of liquidity risks in the insurance sector.

EBA bank data shows banks entered coronavirus (COVID-19) crisis with strong capital positions

The European Banking Authority (EBA) published the seventh EU-wide transparency exercise. This additional data disclosure comes as a response to the outbreak of the coronavirus (COVID-19) and provides market participants with bank-level data as of 31 December 2019, prior to the start of the crisis. The EBA says the data confirms the EU banking sector entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.

Source: EBA releases bank-by-bank data at the start of the COVID-19 crisis.

Coronavirus (COVID-19)—ESMA extends EMIR REFIT reporting consultation

The European Securities and Markets Authority (ESMA) decided to extend the response date for its consultation on the technical standards on reporting, data quality, data access and registration of trade repositories under Regulation (EU) 2019/834 (EMIR REFIT) from 19 June to 3 July 2020. The decision has been taken in recognition of market participants’ current focus on coronavirus (COVID-19) crisis work and associated operational constraints, as well as taking into account the high number and the technical complexity of issues on which feedback is requested.

Source: ESMA extends deadline for responses to consultation on EMIR REFIT.

For further information, see: EMIR REFIT and EMIR 2.2 roadmap.

ECON endorses CRR changes in response to coronavirus (COVID-19)

The European Parliament’s Economic and Monetary Affairs Committee (ECON) approved revisions to the Capital Requirements Regulation (EU) 575/2013 (CRR) that are intended to temporarily ease prudential rules to encourage EU banks to lend to companies and households stricken by the coronavirus (COVID-19) crisis.

Source: COVID-19: Revised rules to encourage banks to lend to companies and households.

FCA CEO discusses priorities in the wake of coronavirus (COVID-19)

The interim chief executive of the Financial Conduct Authority (FCA), Chris Woolard, said that the FCA has had to postpone about two thirds of its new planned activity due to the impact of coronavirus (COVID-19), but that it plans to bring back some of those key pieces of work during the summer and autumn of 2020.

Source: Chris Woolard discusses emergency regulation and learning from the coronavirus crisis.

Coronavirus (COVID-19)—BoE Dear CEO letter to UK Financial Market Infrastructures and Specified Providers on distribution of profits and financial stability

The Bank of England (BoE) published a Dear CEO letter to all regulated UK Financial Market Infrastructures and Specified Providers (FMIs) concerning the distribution of profits and variable remuneration. When UK FMI boards considers any distribution of profits to shareholders (or making decisions on bonuses) the BoE expects them to carefully consider additional risks and potential financial and operational demands arising from coronavirus (COVID-19). It also expects that boards contact the BoE in advance of making any distribution to shareholders.

Source: Letter from Sir Jon Cunliffe to FMIs on distribution of profits.

BoE’s Cunliffe warns of coronavirus (COVID-19) impact on non-bank liquidity

The deputy governor of the BoE, Sir Jon Cunliffe, has said that the banking and derivatives reforms that were put in place after the financial crisis have helped the financial system weather the coronavirus (COVID-19) crisis so far. However, he warned that liquidity issues in the non-bank sectors could test the resilience of the system as a whole.

Source: Financial System Resilience: Lessons from a real stress.

Coronavirus (COVID-19)—PRA Dear CEO letter to banks on IFRS 9 and capital requirements

The Prudential Regulation Authority (PRA) published a ‘Dear CEO letter’ to UK banks and building societies on the capital and accounting treatments of initial and further payment deferrals (payment holidays, moratoria or deferrals). The letter relates to the FCA’s guidance dated 2 June 2020 and updates PRA’s previous Dear CEO letter dated 26 March 2020. The letter covers, among other things, consistent and robust application in the context of coronavirus (COVID-19) of the definition of ‘default’ in the CRR and of the expected credit loss accounting (ECL) requirements of International Financial Reporting Standard 9 (IFRS 9). Detailed guidance is set out in the annex to the Dear CEO letter.

Sources: Letter from Sam Woods ‘Covid-19: IFRS 9 and capital requirements – Further guidance on initial and further payment deferrals’ and   Covid-19: IFRS 9 and capital requirements — Further guidance on initial and further payment deferrals.

FCA insight article examines the impact of coronavirus (COVID-19) on firm culture and conduct

The FCA published an insight piece on conduct, culture and coronavirus (COVID-19). The authors argue that the ‘new normal’ of working from home presents major challenges for corporate culture and conduct, but also some opportunities.

Source: Conduct, culture and COVID-19.

For further information, see: The FCA’s expectations around culture in financial services firms.

FCA outlines expectations for 2020 following coronavirus (COVID-19)

Director of Supervision–Investment, Wholesale and Specialist at the FCA, Megan Butler, gave a speech at The Personal Investment Management & Financial Advice Association (PIMFA) virtual festival. The speech outlines the response taken by the FCA to the coronavirus (COVID-19) and its expectations for 2020.

Source: The FCA's response to COVID-19 and expectations for 2020.

FCA updates firm priorities as they reinstate services following coronavirus (COVID-19)

The FCA published an updated statement concerning its expectations of firms as they reinstate services in line with government guidance and offers advice for customers who may need access to bank branch services. The FCA does not expect banking services to operate as normal immediately and appreciates further adjustments may be required depending on the coronavirus (COVID-19) outbreak. The FCA stresses the need for firms to comply with the relevant government guidance.

Source: Banks, building societies and credit unions – branch access for essential services update.

Coronavirus (COVID-19)—FCA extends deadline for consultation on safeguarding customers’ funds

The FCA extended the timeframe of its consultation on the coronavirus (COVID-19) pandemic and safeguarding customers’ funds: proposed guidance for payment firms. In response to requests from trade bodies and other industry participants, the FCA is extending the closing date to 12 June 2020. This is ‘to allow for fuller discussion and better considered responses on this important issue’.

Source: Coronavirus (COVID-19): updated information for firms.

Coronavirus (COVID-19)—FCA information for small businesses

The FCA published information for small businesses that are customers of financial services firms, setting out the government support available during the coronavirus (COVID-19) pandemic and what to do if small businesses feel they have been treated unfairly.

Source: Coronavirus: Information for small businesses that are customers of financial services firms.

Debt providers receive additional £37.8m to aid those impacted by coronavirus (COVID-19)

The government announced an additional £37.8m support package for debt advice providers to enable them to continue to help individuals struggling with their finances following the coronavirus (COVID-19) pandemic. The allocation of the funds will be overseen by the Money and Pensions Service (MaPS), totalling MaPS budget for debt advice to over £100m.

Source: Almost £38 million support package for debt advice providers helping people affected by Coronavirus.

For further information, see: Debt advice.

Coronavirus (COVID-19)–FCA publishes statement on government support for debt advice services

The FCA published a statement on the government support package announced by HM Treasury, which will see an extra £37.8m of funding allocated to providing essential debt advice services and helping more people who are struggling with their finances due to the coronavirus (COVID-19) pandemic.

Source: Statement on government support package for debt advice services.

Coronavirus (COVID-19)—Fair Business Banking APPG calls for six-month payment holiday option

The All-Party Parliamentary Group (APPG) on Fair Business Banking called on the FCA and UK lenders to ‘introduce and proactively offer’ full six-month payment holidays on commercial loans for business customers affected by the coronavirus (COVID-19) crisis. The APPG notes that residential mortgage customers are currently able to obtain payment holidays on the capital element of their mortgages, though the interest element is often the much greater element. It calls for businesses to be able to access such holidays but on the full loan, interest as well as capital.

Source: Full loan payment holidays needed for business customers.

Coronavirus (COVID-19)—Industry taskforce sets out early thinking on how to overcome pandemic-related debt challenge

TheCityUK reported that an industry taskforce comprising over 160 senior practitioners from across UK-based financial and related professional services has published its early-stage thinking on how the private sector can support UK SMEs to manage unsustainable debt built up during the coronavirus (COVID-19) pandemic.

Source: Industry taskforce sets out early thinking on how to overcome SME COVID-19-related debt challenge.

Coronavirus (COVID-19)—OBIE launches app store for Open Banking-enabled financial products

The Open Banking Implementation Entity (OBIE), the body set up by the Competition and Markets Authority (CMA) to deliver Open Banking in the UK, has launched an online app store ‘to help individuals and companies find the right Open Banking-enabled financial products for them’. Its aim is to simplify Open Banking during the coronavirus (COVID-19) crisis.

Source: Open Banking Implementation Entity launches app store to simplify Open Banking during COVID-19 crisis.

For further information, see: Open banking.

Coronavirus (COVID-19)—CEO considers ISDA’s focus for the next six months

The International Swaps and Derivatives Association (ISDA) published a brief video considering what will happen next in the swaps and derivatives market, following the variations in liquidity due to the outbreak of coronavirus (COVID-19), and where the focus should be for the remainder of the year. ISDA Director of Communications, Joel Clark, interviewed ISDA CEO, Scott O’Malia, asking what ISDA has learned from the crisis and what comes next. He also asked how ISDA is preparing for risk-free-rates after the planned cessation of LIBOR at the end of 2021.

Source: Video Interview: What’s Next for Derivatives Markets?

UK Finance blog considers financial crime challenges of lending amid coronavirus (COVID-19)

UK Finance published a blog post explaining the financial crime challenges posed by lending decisions in the current environment and describes what action can be taken to ensure that lending, including the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), reaches the correct businesses efficiently to help the economy during the coronavirus (COVID-19) crisis.

Source: Lending in the current environment – financial crime challenges.

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Brexit news

Brexit Bulletin—'Limited progress' in fourth round of negotiations on the future UK-EU relationship

UK Chief Negotiator, David Frost, issued a statement on 5 June 2020, following the fourth round of talks on the future UK-EU relationship, reporting 'positive' talks but 'limited' progress towards agreement. Key issues, including the level playing field and fisheries, remain areas of difficulty in the talks. EU Chief negotiator, Michel Barnier, also made a statement, lamenting 'no significant progress' as the UK team continues 'to distance' itself from the commitments made under the Political Declaration. Insisting a trade deal remains possible, Barnier identified an agreement on fisheries as a requisite for any compromise. In the remarks, Frost acknowledged that the negotiations have reached an important stage and that work towards an agreement must be accelerated and intensified in order to make progress and conclude talks in good time for individuals and businesses to prepare for the end of the transition period. The UK and EU teams are in discussions on the scheduling of further talks and the high level conference due to take place towards the end of June 2020, while the EU has reiterated 'the door is still open' for the UK to seek an extension to the transition period.

Sources: David Frost's statement following the conclusion of round 4 negotiations with the EU June 5, 2020 and   Press conference by European Commission’s Chief Negotiator, Michel BARNIER, following the fourth round of future relationship negotiations with the UK.

Commons briefing discusses UK-EU negotiating timetable and extension debate

The House of Commons Library released a briefing on the subject of the UK-EU future relationship negotiating timetable. The briefing sets out the timetable and provides an overview of the ongoing debate over whether the post-Brexit transition period should be extended, as well as explaining the process for extending this period.

Source: UK-EU future relationship negotiating timetable: extending the transition.

ECB concludes comprehensive assessment of UBS and Bank of America subsidiaries following Brexit relocation

The European Central Bank (ECB) issued a press release which sets out the results of a comprehensive assessment of UBS Europe SE and Bank of America Merrill Lynch International Designated Activity Company. Both banks were required to undergo the assessment following the relocation of business activity to the euro area from the UK after that country’s exit from the EU. The relocations led to both banks meeting the size criterion for being directly supervised by ECB Banking Supervision.

Source: ECB concludes comprehensive assessment of UBS and Bank of America subsidiaries following Brexit relocation.

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MiFID II

New ESMA guidelines on the MiFID II compliance function

The ESMA published final guidelines on the MiFID II compliance function. They replace the ESMA guidelines on the same topic issued in 2012 and aim to enhance clarity and foster greater convergence in the implementation and supervision of the new MiFID II compliance function requirements.

Source: ESMA provides guidance on the compliance function under MiFID II.

For further information, see: MiFID I, MiFID II and MiFIR—essentials.

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UK, EU and international regulators and bodies

FCA publishes Quarterly Consultation Paper No 28 (CP20/7)

The FCA published Quarterly Consultation Paper No 28 (CP20/7), in which it consults on proposed miscellaneous amendments to the FCA Handbook.

Source: CP20/7: Quarterly Consultation No 28.

FCA June 2020 policy development update

The FCA published its policy development update for June 2020, providing information on its recent and upcoming publications.

Source: Policy development update.

HMT publishes financial secretary to the Treasury’s letter to the Public Bill Committee regarding the clauses that introduce the power to make secondary legislation under the Finance Bill 2020

HM Treasury (HMT) published a letter from the financial secretary to the Treasury to the Public Bill Committee regarding the clauses that introduce the power to make secondary legislation under the Finance Bill 2020. Among other things, the letter includes an explanation to clause 93 concerning a charge for allocating allowances under the emissions reduction trading scheme.

Source: Finance Bill 2020: Public Bill Committee.

Financial Ombudsman News issue 152 published

The Financial Ombudsman Service (FOS) published issue 152 of Ombudsman News, which includes articles on FOS annual complaints data and insight, and FOS strategy for the next five years.

Source: Ombudsman News issue 152.

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Authorisation, approval and supervision

New ESMA peer review methodology aims to increase independence of the process

ESMA published a new peer review methodology, integrating the improvements to this process that were introduced by the revised ESMA Regulation (ESMAR). ESMA notes that peer reviews contribute significantly to supervisory convergence, and ESMAR aims at increasing the independence of the process and its outcome, giving more weight to recommendations to national competent authorities (NCAs) and introducing mandatory and time-bound follow-up.

Source: ESMA announces new methodology for peer reviews.

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Prudential requirements

EBA consults on RTS for the prudential treatment of software assets

The EBA launched a consultation on draft regulatory technical standards (RTS) specifying the prudential treatment of software assets. As the banking sector is moving towards a more digital environment, the aim of the draft RTS is to achieve an appropriate balance between the need to maintain a certain margin of conservatism in the prudential treatment of software assets and their relevance from a business and an economic perspective. The consultation runs until 9 July 2020, with a public hearing to be held on 23 June 2020 from 14.30 to 17.00 CET.

Source: EBA launches consultation on technical standards specifying the prudential treatment of software assets.

EBA consults on RTS on capital requirements of non-modellable risks

The EBA launched a 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. The consultation closes on 4 September 2020.

Source: EBA launches consultation on technical standards on capital requirements of non-modellable risks under the FRTB.

EBA consults on regulatory framework for investment firms

Having launched its roadmap for the implementation of the new regulatory framework for investment firms, the EBA is consulting on prudential requirements; reporting requirements and disclosures; and remuneration requirements.

Source: EBA starts delivering on the implementation of the new regulatory framework for investments firms.

EBA publishes draft cover note on cost of reporting requirements study under CRR

The EBA published a draft cover note concerning a study into the ‘cost of compliance’ for institutions with the CRR’s reporting requirements. The EBA is carrying out this exercise in accordance with Article 430(8) of CRR and is also to assess whether the reporting costs are proportionate to the benefits and to recommend how the reporting cost can be reduced. The findings of this study are to be produced in a report and delivered to the European Commission.

Source: The EBA study of institutions’ reporting costs - ‘cost of compliance study’ under Article 430(8) of the CRR.

For further information, see: CRD IV—essentials.

ECON endorses CRR changes in response to coronavirus (COVID-19)

The European Parliament’s Economic and Monetary Affairs Committee (ECON) approved revisions to the CRR that are intended to temporarily ease prudential rules to encourage EU banks to lend to companies and households stricken by the coronavirus (COVID-19) crisis.

Source: COVID-19: Revised rules to encourage banks to lend to companies and households.

Coronavirus (COVID-19)—PRA Dear CEO letter to banks on IFRS 9 and capital requirements

The PRA published a ‘Dear CEO letter’ to UK banks and building societies on the capital and accounting treatments of initial and further payment deferrals (payment holidays, moratoria or deferrals). The letter relates to the FCA’s guidance dated 2 June 2020 and updates PRA’s previous Dear CEO letter dated 26 March 2020. The letter covers, among other things, consistent and robust application in the context of coronavirus (COVID-19) of the definition of ‘default’ in the CRR and of the expected credit loss accounting (ECL) requirements of International Financial Reporting Standard 9 (IFRS 9). Detailed guidance is set out in the annex to the Dear CEO letter.

Sources: Letter from Sam Woods ‘Covid-19: IFRS 9 and capital requirements – Further guidance on initial and further payment deferrals’ and   Covid-19: IFRS 9 and capital requirements — Further guidance on initial and further payment deferrals.

BCBS publishes FAQs on Basel Framework

The Basel Committee on Banking Supervision (BCBS) published FAQs on the Basel Framework. The FAQs cover a range of issues relating to the reform of benchmark reference rates and clarifications relating to the standardised approach to operational risk.

Source: The Basel Framework: frequently asked questions.

Council of the EU publishes progress report on the strengthening of the Banking Union

The Council of the EU published a progress report on the on the strengthening of the Banking Union.

Source: Presidency progress report on the strengthening of the Banking Union.

For further information, see: Banking Union: The EU banking package

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Financial stability 

Coronavirus (COVID-19)—ESRB outlines second set of measures in response to pandemic

The ESRB published details of a second set of actions in response to the coronavirus (COVID-19) crisis, following an extraordinary meeting of its general board on 27 May 2020. The macroprudential actions adopted by the general board, together with reinforced co-ordination between authorities and across borders, are aimed at ensuring that the European financial system can withstand the shock and preventing a sharper loss of economic capacity and jobs.

Sources: Press release: The General Board of the European Systemic Risk Board takes second set of actions in response to the coronavirus emergency at its extraordinary meeting on 27 May 2020,   Recommendation of the European Systemic Risk Board of 27 May 2020 on monitoring the financial stability implications of debt moratoria, and public guarantee schemes and other measures of a fiscal nature taken to protect the real economy in response to the COVID-19 pandemic (ESRB/2020/8)Letter to EIOPA: Liquidity risks in the insurance sector (ESRB/2020/0072),  Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic (ESRB/2020/7)Report: System-wide restraints on dividend payments, share buybacks and other pay-outsRecommendation of the European Systemic Risk Board of 25 May 2020 on liquidity risks arising from margin calls (ESRB/2020/6) and  Report: Liquidity risks arising from margin calls.

Coronavirus (COVID-19)—BoE Dear CEO letter to UK Financial Market Infrastructures and Specified Providers on distribution of profits and financial stability

The BoE published a Dear CEO letter to all regulated UK Financial Market Infrastructures and Specified Providers (FMIs) concerning the distribution of profits and variable remuneration. When UK FMI boards considers any distribution of profits to shareholders (or making decisions on bonuses) the BoE expects them to carefully consider additional risks and potential financial and operational demands arising from coronavirus (COVID-19). It also expects that boards contact the BoE in advance of making any distribution to shareholders.

Source: Letter from Sir Jon Cunliffe to FMIs on distribution of profits.

FSB Americas group discuss coronavirus (COVID-19) measures, LIBOR and non-bank financial intermediation

The FSB Regional Consultative Group (RCG) for the Americas held a conference call to discuss global and regional macroeconomic and financial market developments and their potential impact on economies in the Americas. Members exchanged views on the latest financial stability implications of the coronavirus (COVID-19) pandemic, discussing the effectiveness of policy measures authorities have taken to sustain the supply of credit to the real economy, to support financial intermediation, and to preserve the functioning and resilience of the individual and global financial systems.

Source: FSB Americas group discusses financial vulnerabilities and the impact of COVID-19.

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Risk management and controls

EBF publishes technical papers on financial institutions’ use of cloud services

The European Banking Federation (EBF) published three technical papers providing legal and technical intelligence to national competent authorities of EU Member States. They examine the different cloud service models that financial institutions deploy, the testing of exit plans and the requirements for banks to register information on all qualifying outsourcing arrangements as part of their risk management framework.

Source: EBF Cloud Banking Forum releases three technical papers.

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Financial crime

Europol establishes Financial and Economic Crime Centre for operational assistance

Europol launched the new European Financial and Economic Crime Centre (EFECC) to enhance the operational support provided to EU Member States and EU bodies against financial and economic crimes. The EFECC will be composed of 65 international experts and analysts. Recent reports by Europol have highlighted that ‘98.9% of estimated criminal profits are not confiscated and remain at the disposal of criminals’. The coronavirus (COVID-19) crisis has also provided an example of how criminals quickly adapt their schemes and exploit vulnerabilities. The EFECC is a response to ‘the exponential increase of financial and economic crime and the involvement of organised crime on a large scale, together with the number of requests for operational support from EU Member States’.

Source: EUROPOL LAUNCHES THE EUROPEAN FINANCIAL AND ECONOMIC CRIME CENTRE.

UK Finance blog considers financial crime challenges of lending amid coronavirus (COVID-19)

UK Finance published a blog post explaining the financial crime challenges posed by lending decisions in the current environment and describes what action can be taken to ensure that lending, including the CBILS and BBLS, reaches the correct businesses efficiently to help the economy during the coronavirus (COVID-19) crisis.

Source: Lending in the current environment – financial crime challenges.

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Dispute resolution for financial services lawyers

Business Banking Resolution Service seeks stakeholder views

The Business Banking Resolution Service (BBRS) is seeking input from stakeholders, and registered and potential customers, to ensure the new service is developed in line with the needs of those who will use the service. The service is due to launch in autumn 2020.

Source: New Business Banking Dispute Resolution Service consults stakeholders ahead of launch this autumn.

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Competition in financial services

Coronavirus (COVID-19)—OBIE launches app store for Open Banking-enabled financial products

The Open Banking Implementation Entity (OBIE), the body set up by the CMA to deliver Open Banking in the UK, has launched an online app store ‘to help individuals and companies find the right Open Banking-enabled financial products for them’. Its aim is to simplify Open Banking during the coronavirus (COVID-19) crisis.

Source: Open Banking Implementation Entity launches app store to simplify Open Banking during COVID-19 crisis.

For further information, see: Open banking.

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Markets and trading

Coronavirus (COVID-19)—BoE Dear CEO letter to UK Financial Market Infrastructures and Specified Providers on distribution of profits and financial stability

The BoE published a Dear CEO letter to all regulated UK Financial Market Infrastructures and Specified Providers (FMIs) concerning the distribution of profits and variable remuneration. When UK FMI boards considers any distribution of profits to shareholders (or making decisions on bonuses) the BoE expects them to carefully consider additional risks and potential financial and operational demands arising from coronavirus (COVID-19). It also expects that boards contact the BoE in advance of making any distribution to shareholders.

Source: Letter from Sir Jon Cunliffe to FMIs on distribution of profits.

FCA Primary Market Bulletin No.29—Changes to best practice note on identifying, controlling and disclosing inside information

In the 29th edition of its Primary Market Bulletin (PMB), the FCA summarises the responses received to its consultation on its best practice note on identifying, controlling and disclosing inside information and describes the changes made to the note as a result.

Source: Primary Market Bulletin Issue No. 29.

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Regulation of benchmarks and IBOR reform

ISDA and UK Finance respond to HMRC on tax impact of LIBOR withdrawal

ISDA and UK Finance have written a joint letter to HM Revenue and Customs (HMRC) in response to its consultation on tax impacts arising from the withdrawal of LIBOR. In their letter, dated 8 June 2020, the associations welcomed the consultation and the draft guidance it included, and highlighted the potential material implications and uncertainties that could arise from certain tax omissions and certain tax aspects of the guidance.

Source: ISDA responds on tax impact of LIBOR withdrawal.

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Regulation of capital markets

Commission publishes delegated regulations amending and correcting delegated regulations supplementing the Prospectus Regulation

The European Commission published delegated regulations amending and correcting Commission Delegated Regulations (EU) 2019/980 and (EU) 2019/979 supplementing the Prospectus Regulation (Regulation (EU) 2017/1129) in respect of the format, content, scrutiny and approval of the prospectus and the prospectus summary.

Sources: COMMISSION DELEGATED REGULATION (EU) …/... amending and correcting Commission Delegated Regulation (EU) 2019/980 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market,   annexCOMMISSION DELEGATED REGULATION (EU) …/... amending and correcting Commission Delegated Regulation (EU) 2019/979 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal and   annex.

For further information, see: The Prospectus Regulation—essentials.

European Commission apparently dismisses call for delay in implementation of the Shareholder Rights Directive II

Better Finance (the European Federation of Investors and Financial Services Users) has reported that, in response to industry lobbyists, who had been calling for a 12-month delay in implementation of the second phase of the Shareholder Rights Directive II (SRD II), the European Commission has dismissed the call for a delay in the wake of the coronavirus (COVID-19) pandemic. The second phase of SRD II is scheduled to come into force on 3 September 2020​.

Source: European Commission helps shareholder engagement by rejecting the request led by financial intermediaries to delay the implementation of the new Shareholder Rights.

High Level Forum publishes recommendations for capital markets union

The High Level Forum (HLF) on capital markets union (CMU) published its final report on the EU’s capital markets union. It sets out 17 inter-connected recommendations aimed at progressing the CMU project, which the European Commission says need to be urgently implemented to remove the biggest barriers in the EU’s capital markets.

Sources: Final report of the High Level Forum on the Capital Markets Union—A new vision for Europe’s capital marketsMarkets4Europe urges the EU to launch the reforms proposed by the report of the High Level Forum on CMU and  High-Level Forum report on CMU comes at key moment for EU capital markets.

For further information, see: The Capital Markets Union.

ESMA fines Scope Ratings €640,000 for breaches of Credit Rating Agencies Regulation

ESMA fined Scope Ratings GmbH (Scope) €640,000 and issued a public notice, for breaches of the Credit Rating Agencies Regulation (CRAR), Regulation (EC) 1060/2009, concerning ‘the systematic application of its 2015 Covered Bonds Methodology (CBM) and its revision.’ Scope committed the breaches negligently and failed to meet the special care required from a credit rating agency.

Source: ESMA fines scope ratings €640,000 for failings in covered bonds ratings.

For further information, see: EU regulatory regime for credit rating agencies.

ICMA launches 39th survey of the European repo market

European banks dealing in repo have been invited to participate in International Capital Market Association (ICMA)’s 39th survey of the European repo market. The survey aims to offer a description of how the European repo market has responded to turbulent market conditions in previous years. The survey was initially established at the request of the ICMA European Repo and Collateral Council. The survey will report the value of repo contracts still outstanding at close of business on 10 June 2020.

Source: Participate.

ICMA updates memorandum to the 2020 GMRA legal opinion for Russia

ICMA published an update memorandum to the 2020 ICMA Global Master Repurchase Agreement legal opinion for Russia relating to moratorium measures introduced to the bankruptcy law. The document is available to members on the ICMA website.

Source: ICMA publishes update memorandum to the 2020 ICMA GMRA legal opinion for Russia relating to moratorium measures introduced to the Bankruptcy Law.

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Regulation of derivatives

Coronavirus (COVID-19)—ESMA extends EMIR REFIT reporting consultation

ESMA decided to extend the response date for its consultation on the technical standards on reporting, data quality, data access and registration of trade repositories under Regulation (EU) 2019/834 (EMIR REFIT) from 19 June to 3 July 2020. The decision has been taken in recognition of market participants’ current focus on coronavirus (COVID-19) crisis work and associated operational constraints, as well as taking into account the high number and the technical complexity of issues on which feedback is requested.

Source: ESMA extends deadline for responses to consultation on EMIR REFIT.

For further information, see: EMIR REFIT and EMIR 2.2 roadmap.

ISDA publishes letter requesting extension of intragroup extension from EMIR clearing obligation

ISDA published a letter co-written with the European Banking Federation (EBF) and the Futures Industry Association (FIA), to the European Commission and the ESMA regarding a derogation from the EMIR clearing obligation for cross-border intragroup transactions. The letter asks for certain equivalence decisions to be expedited, and for the derogation to be extended by a further three years for transactions where one entity is in a jurisdiction that has not yet been found equivalent.

Source: Letter on derogation of EMIR clearing obligation for intragroup transactions.

For further information, see: EMIR—essentials.

Coronavirus (COVID-19)—CEO considers ISDA’s focus for the next six months

ISDA published a brief video considering what will happen next in the swaps and derivatives market, following the variations in liquidity due to the outbreak of coronavirus (COVID-19), and where the focus should be for the remainder of the year. ISDA Director of Communications, Joel Clark, interviewed ISDA CEO, Scott O’Malia, asking what ISDA has learned from the crisis and what comes next. He also asked how ISDA is preparing for risk-free-rates after the planned cessation of LIBOR at the end of 2021.

Source: Video Interview: What’s Next for Derivatives Markets?

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Investment funds and asset management

EBA consults on regulatory framework for investment firms

Having launched its roadmap for the implementation of the new regulatory framework for investment firms, the EBA is consulting on prudential requirements; reporting requirements and disclosures; and remuneration requirements.

Source: EBA starts delivering on the implementation of the new regulatory framework for investments firms.

ESMA supervisory briefing on supervision of costs in UCITS and AIFs

The ESMA published a supervisory briefing on the supervision by national competent authorities (NCAs) in the EU of costs applicable to Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). It is intended to improve convergence across NCAs in the approach to undue costs in order to reduce regulatory arbitrage risks as well as ensuring equal levels of investor protection throughout the EU.

Sources: ESMA PROMOTES CONVERGENCE IN THE SUPERVISION OF COSTS IN UCITS AND AIFS and  Supervisory briefing On the supervision of costs in UCITS and AIFs.

Commission report recommends changes to AIFMD framework

The European Commission published a report to the European Parliament and Council assessing the application and scope of the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). The report concludes that while the AIFMD has helped create an internal EU market for alternative investment funds (AIFs) and increased the transparency of AIF managers (AIFMs), further action may be needed to deepen the EU market for AIFs and ensure the AIFMD framework is fit for purpose in light of technological developments.

Source: Report from the Commission to the European Parliament and the Council assessing the application and the scope of Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers.

For further information, see: AIFMD—essentials.

ESMA updates reporting instructions for money market funds

The ESMA published updated instructions for reporting under the Money Market Funds Regulation (EU) 2017/1131 (MMFR).

Source: ESMA updates reporting instructions for MMF reporting.

For further information, see: Money Market Funds Regulation—essentials.

European Commission seeks feedback on sustainable finance delegated acts

The European Commission has launched public feedback periods for six proposed delegated acts relating to sustainable finance. The proposed delegated regulations and directives set out obligations on investment funds, mutual funds, alternative investment funds (AIFs), investment firms, insurance firms and brokers, and (re)insurance companies to provide clients with clear advice on the social and environmental risks and opportunities attached to their investments. The public feedback periods will close on 6 July 2020.

Sources:

For further information, see: Environmental social governance—the investment market.

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Banks and mutuals

EBA consults on RTS on capital requirements of non-modellable risks

The EBA launched a 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. The consultation closes on 4 September 2020.

Source: EBA launches consultation on technical standards on capital requirements of non-modellable risks under the FRTB.

EBA consults on RTS for the prudential treatment of software assets

The EBA launched a consultation on draft regulatory technical standards (RTS) specifying the prudential treatment of software assets. As the banking sector is moving towards a more digital environment, the aim of the draft RTS is to achieve an appropriate balance between the need to maintain a certain margin of conservatism in the prudential treatment of software assets and their relevance from a business and an economic perspective. The consultation runs until 9 July 2020, with a public hearing to be held on 23 June 2020 from 14.30 to 17.00 CET.

See: LNB News 10/06/2020 98.

Source: EBA launches consultation on technical standards specifying the prudential treatment of software assets.

Coronavirus (COVID-19)—PRA Dear CEO letter to banks on IFRS 9 and capital requirements

The PRA published a ‘Dear CEO letter’ to UK banks and building societies on the capital and accounting treatments of initial and further payment deferrals (payment holidays, moratoria or deferrals). The letter relates to the Financial Conduct Authority’s (FCA’s) guidance dated 2 June 2020 and updates PRA’s previous Dear CEO letter dated 26 March 2020. The letter covers, among other things, consistent and robust application in the context of coronavirus (COVID-19) of the definition of ‘default’ in the Capital Requirements Regulation (EU) No 575/2013 (CRR) and of the expected credit loss accounting (ECL) requirements of International Financial Reporting Standard 9 (IFRS 9). Detailed guidance is set out in the annex to the Dear CEO letter.

Sources: Letter from Sam Woods ‘Covid-19: IFRS 9 and capital requirements – Further guidance on initial and further payment deferrals’ and   Covid-19: IFRS 9 and capital requirements — Further guidance on initial and further payment deferrals.

Council of the EU publishes progress report on the strengthening of the Banking Union

The Council of the EU published a progress report on the on the strengthening of the Banking Union.

Source: Presidency progress report on the strengthening of the Banking Union.

For further information, see: Banking Union: The EU banking package

EBA bank data shows banks entered coronavirus (COVID-19) crisis with strong capital positions

The EBA published the seventh EU-wide transparency exercise. This additional data disclosure comes as a response to the outbreak of the coronavirus (COVID-19) and provides market participants with bank-level data as of 31 December 2019, prior to the start of the crisis. The EBA says the data confirms the EU banking sector entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.

Source: EBA releases bank-by-bank data at the start of the COVID-19 crisis.

ECB publishes annual data on structural financial indicators for the EU banking sector

The ECB updated its dataset of structural financial indicators for the EU banking sector for the end of 2019. This annual dataset comprises statistics on the number of branches and employees of EU credit institutions, data on the degree of concentration of the banking sector in each EU Member State, and data on foreign-controlled institutions in EU national banking markets.

Source: EU structural financial indicators: end of 2019.

ECB report highlights weaknesses in banks’ lending standards

The ECB published a report on banks’ credit underwriting standards, which highlights some weaknesses in the way banks have granted and priced new loans in recent years. The ECB notes that in times of economic downturn or stress such as the current coronavirus (COVID-19) crisis, adequate lending standards and risk-based pricing become even more important as losses materialise.

Source: ECB report shows areas for improvement in banks’ lending standards before the COVID-19 crisis.

FCA updates firm priorities as they reinstate services following coronavirus (COVID-19)

The FCA published an updated statement concerning its expectations of firms as they reinstate services in line with government guidance and offers advice for customers who may need access to bank branch services. The FCA does not expect banking services to operate as normal immediately and appreciates further adjustments may be required depending on the coronavirus (COVID-19) outbreak. The FCA stresses the need for firms to comply with the relevant government guidance.

Source: Banks, building societies and credit unions – branch access for essential services update.

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Consumer credit, mortgage and home finance

Debt providers receive additional £37.8m to aid those impacted by coronavirus (COVID-19)

The government announced an additional £37.8m support package for debt advice providers to enable them to continue to help individuals struggling with their finances following the coronavirus (COVID-19) pandemic. The allocation of the funds will be overseen by the Money and Pensions Service (MaPS), totalling MaPS budget for debt advice to over £100m.

Source: Almost £38 million support package for debt advice providers helping people affected by Coronavirus.

For further information, see: Debt advice.

Coronavirus (COVID-19)–FCA publishes statement on government support for debt advice services

The FCA published a statement on the government support package announced by HM Treasury, which will see an extra £37.8m of funding allocated to providing essential debt advice services and helping more people who are struggling with their finances due to the coronavirus (COVID-19) pandemic.

Source: Statement on government support package for debt advice services.

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Regulation of insurance

Amended ITS on credit assessments of external credit assessment institutions under Solvency II published in Official Journal

Commission Implementing Regulation (EU) 2020/744 on amending Commission Implementing Regulation (EU) 2016/1800 laying down implementing technical standards (ITS) with regard to the allocation of credit assessments of external credit assessment institutions (ECAIs) to an objective scale of credit quality steps in accordance with the Solvency II Directive 2009/138/EC (Solvency II) has been published in the Official Journal.

Source: Commission Implementing Regulation (EU) 2020/744 of 4 June 2020 on amending Implementing Regulation (EU) 2016/1800 laying down implementing technical standards with regard to the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC of the European Parliament and of the Council

For further information, see: Solvency II—essentials.

Coronavirus (COVID-19)—EIOPA responds to ESRB insurance liquidity call

The EIOPA issued a statement supporting the views expressed by the ESRB regarding the importance of improving the monitoring of liquidity risks in the insurance sector with the aim of enhancing Europe’s preparedness for potential future shocks.

Source: EIOPA supports the ESRB’s call on enhanced monitoring of liquidity risks in the insurance sector.

European Commission seeks feedback on sustainable finance delegated acts

The European Commission launched public feedback periods for six proposed delegated acts relating to sustainable finance. The proposed delegated regulations and directives set out obligations on investment funds, mutual funds, alternative investment funds (AIFs), investment firms, insurance firms and brokers, and (re)insurance companies to provide clients with clear advice on the social and environmental risks and opportunities attached to their investments. The public feedback periods will close on 6 July 2020.

Sources:

For further information, see: Environmental social governance—the investment market.

EIOPA consults on regulatory aspects of the digitalisation of the EU insurance market

EIOPA launched a public consultation on its discussion paper on the (re)insurance value chain and new business models arising from digitalisation. Feedback is sought by 7 September 2020.

Source: EIOPA consults on (re)insurance value chain and new business models arising from digitalisation.

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Payment services and systems

EBA publishes opinion on obstacles to third party provider services under the PSD2

The EBA published an opinion concerning obstacles to the provision of third party provide services (TPPs) under the Regulatory Technical Standards (RTS) on strong consumer authentication (SCA) and common and secure communication (CSC). The aim of the opinion is to enable customers to use new and innovative payment services offered by TPPs, which is one of the objectives of the Payment Services Directive (PSD2) (Directive 2015/2366/EU)). The opinion seeks to do this by addressing numerous issues concerning the interfaces provided by account servicing payment service providers (ASPSPs) to TPPs.

Source: EBA publishes Opinion on obstacles to the provision of third party provider services under the Payment Services Directive.

For further information, see: The regulation of payment services providers—essentials.

Coronavirus (COVID-19)—FCA extends deadline for consultation on safeguarding customers’ funds

The FCA is extending the timeframe of its consultation on the coronavirus (COVID-19) pandemic and safeguarding customers’ funds: proposed guidance for payment firms. In response to requests from trade bodies and other industry participants, the FCA is extending the closing date to 12 June 2020. This is ‘to allow for fuller discussion and better considered responses on this important issue’.

Source: Coronavirus (COVID-19): updated information for firms.

Pay.UK Confirmation of Payee research guards against use of nicknames

Pay.UK, the company which runs the infrastructure and services necessary for the UK’s interbank retail payments, has published details of research ahead of the completion of the first phase of the Confirmation of Payee (CoP) account name-checking service. The research reveals that 34 per cent of consumers have in the past made a bank or building society payment to a person using a nickname whilst over a third (37 per cent) of business brands also trade under a different name to that on their business bank or building society account.

Source: Confirmation of Payee service launches in UK to help reduce fraud and misdirected payments.

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Fintech and cryptoassets

European Parliament publishes motion for a Commission proposal on crypto-assets

The European Parliament’s Committee on Economic and Monetary Affairs published a draft report with recommendations to the Commission on Digital Finance ‘emerging risks in crypto-assets – regulatory and supervisory challenges in the area of financial services, institutions and markets’ (2020/2034(INL)). The draft report contains a motion for a European Commission proposal on crypto-assets (as well as a cross-sectoral financial services act on operational and cyber resilience), recommendations as to the content of the requested proposal and an explanatory statement. The European Parliament considers that a Commission proposal is both timely and necessary due to recent developments in the markets.

Source: DRAFT REPORT with recommendations to the Commission on Digital Finance: emerging risks in crypto-assets - regulatory and supervisory challenges in the area of financial services, institutions and markets (2020/2034(INL)).

For further information, see: Cryptoassets—essentials.

ISDA launches e-contract opinions tool

ISDA and aosphere LLP have launched a new service that will ‘enable users to quickly and efficiently assess issues relating to the enforceability of electronically executed and confirmed contracts across the globe’. The tool, called diligence—ISDA e-contracts, covers ISDA’s e-contract opinions and allows ISDA members to rapidly view factors relating to the use of electronic contracts, e-signatures and click-through agreements, including enforceability and admissibility of electronic records in court proceedings.

Source: ISDA and aosphere launch e-contracts service.

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Sustainable finance

ESAs announce public hearing on proposed ESG disclosure standards

The European Supervisory Authorities (ESAs) announced that they are to hold a public hearing on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products. The aim of the hearing, which will take place between 10am and 4pm (Paris time) on 2 July 2020, is to explain and discuss the content of the consultation paper, published on 23 April 2020, on the draft regulatory technical standards (RTS) under Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector.

Source: ESAs announce public hearing on ESG disclosures.

European Commission seeks feedback on sustainable finance delegated acts

The European Commission launched public feedback periods for six proposed delegated acts relating to sustainable finance. The proposed delegated regulations and directives set out obligations on investment funds, mutual funds, alternative investment funds (AIFs), investment firms, insurance firms and brokers, and (re)insurance companies to provide clients with clear advice on the social and environmental risks and opportunities attached to their investments. The public feedback periods will close on 6 July 2020.

Sources:

For further information, see: Environmental social governance—the investment market.

Eurosystem responds to Commission’s sustainable finance and Non-Financial Reporting Directive consultations

The Eurosystem, which comprises the European Central Bank and the national central banks of the Member States whose currency is the euro, has responded to the European Commission’s public consultations on the Renewed Sustainable Finance Strategy and the revision of the Non-Financial Reporting Directive. The Eurosystem notes that the response to the coronavirus (COVID-19) pandemic is an opportunity to step up efforts to achieve the EU’s environmental objectives by incorporating sustainability considerations when steering the financial response to the crisis.

Source: Eurosystem reply to the European Commission’s public consultations on the Renewed Sustainable Finance Strategy and the revision of the Non-Financial Reporting Directive.

Sustainability-Linked Bond Principles now available

ICMA announced that the Green & Social Bond Principles have released Sustainability-Linked Bond Principles (SLBP). The SLBPs are voluntary guidelines for sustainability-linked bonds (SLBs). As SLBs’ characteristics vary depending on whether the issuer achieves the predefined Sustainability Performance Targets, the use of funds for SLBs are for general purposes rather than for underlying sustainable projects as occurs for existing green, social and sustainability bonds. Green & Social Bond Principles surveys had established the need for a bond instrument linked to an issuer’s sustainability strategy and targets.

Source: Green & Social Bond Principles publish Sustainability-Linked Bond Principles and update the Social Bond Principles and other key guidance.

Trade associations urge Commission to create centralised public register for ESG data

A group of financial services trade associations—including Insurance Europe—has called for the European Commission to create a centralised public register for environmental, social and governance (ESG) data in the EU. New regulatory obligations that come from the EU Sustainable Finance agenda require financial market participants to have access to comparable and reliable ESG data, but the organisations say such data is ‘currently rather limited and insufficient to comply with the increasing expectations and new regulatory requirements’.

Sources: Call for EU action: a centralised register for environmental, social and governance (ESG) data in the EU and  Financial services associations call for development of centralised public register for ESG data.

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Dates for your diary

 

DateSubjectEvent

 

14 June 2020

 

 

MiFID II

 

 

Deadline for responses to ESMA the consultation paper on MiFIR review report on transparency for non-equity instruments and the trading obligation for derivatives.

 

 

 

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.