FS weekly highlights—2 April 2020

FS weekly highlights—2 April 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
Financial crime
Complaints, compensation and claims management
Investigations, enforcement and discipline
Competition in financial services
Markets and trading
Regulation of capital markets
Regulation of derivatives
Investment funds and asset management
Securities financing transactions
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Regulation of personal pension and stakeholder products
Payment services and systems
Sustainable finance
Dates for your diary

 

Coronavirus (COVID-19)

EBA statement provides guidance on supervisory reporting and Pillar 3 disclosures in light of coronavirus (COVID-19)

The European Banking Authority (EBA) issued a statement designed to provide additional guidance on how to use flexibility in supervisory reporting. The statement details further possible actions to those set out in the EBA’s statement of 12 March 2020.

Sources: Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19 and EBA press release: EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

EBA statement clarifies measures on dividends distribution, share buybacks and variable remuneration to mitigate coronavirus (COVID-19) impact

The EBA issued a statement designed to clarify its expectations in relation to dividend and remuneration policies. This statement details further actions to those set out in the EBA’s statement of 12 March 2020.

Sources: Statement on dividends distribution, share buybacks and variable remuneration and EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

ECB’s Andrea Enria discusses EU banks’ responses to coronavirus (COVID-19)

The European Central Bank (ECB) published an interview with the chair of its supervisory board, Andrea Enria, conducted on 30 March 2020 bythe Financial Times. Enria discussed the coronavirus (COVID-19)-related request for EU banks to stop paying dividends, saying the extraordinary measures which have been imposed by governments to fight the pandemic will ratchet up the demand for credit, because corporates, firms and households will, in many cases, need banks’ support.

Source: Andrea Enria—Interview with the Financial Times.

EBA statement on actions to mitigate financial crime risks in light of coronavirus (COVID-19)

The EBA issued a statement designed to clarify its expectations in relation to measures to prevent money laundering and terrorist financing (ML/TF). The EBA reminds credit and financial institutions that it remains important to continue to put in place and maintain effective systems and controls to ensure that the EU’s financial system is not abused for ML/TF purposes, and asks competent authorities to support them in this regard.

Sources: EBA statement on actions to mitigate financial crime risks in the COVID-19 pandemic and EBA press release: EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

Coronavirus (COVID-19)—implementation of outstanding Basel III standards deferred

The Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed a set of measures—including the deferral of Basel III implementation—to provide additional operational capacity for banks and supervisors to respond to the immediate and global financial stability issues posed by the coronavirus (COVID-19).

Source: Governors and Heads of Supervision announce deferral of Basel III implementation to increase operational capacity of banks and supervisors to respond to COVID-19.

ESMA encourages NCAs not to prioritise supervisory action for late publication of MiFID II best execution reports

The European Securities and Markets Authority (ESMA) issued a public statement to provide clarity on issues caused by the coronavirus (COVID-19) pandemic, in relation to the general best execution reports required under regulatory technical standards (RTS) 27 and 28 of MiFID II. In view of the exceptional circumstances, ESMA encourages national competent authorities (NCAs) not to prioritise supervisory action against execution venues and firms in respect of the deadlines for these reports during the pandemic.

Source: ESMA provides clarifications for best execution reports under MiFID II.

ESMA extends deadline for stakeholder group applications due to coronavirus (COVID-19) pandemic

ESMA is currently seeking applicants for its Securities and Markets Stakeholder Group, announced on 14 February 2020, and announced that it is extending that deadline for applications to 9 April 2020.

Source: ESMA extends deadline for stakeholder group applications.

ESMA issues guidance on financial reporting deadlines during the coronavirus (COVID-19) epidemic

ESMA issued a public statement on financial reporting deadlines applicable to listed issuers under the Transparency Directive due to the impact of the coronavirus (COVID-19). In the statement, ESMA acknowledges the difficulties issuers are facing in preparing financial reports, and those challenges auditors are facing in carrying out audits of accounts in the time required for the legislative deadlines. As a result, ESMA recommended that National Competent Authorities (NCAs) apply forbearance powers toward issuers who require delays to the publication of their financial reports, while noting that issuers should keep investors informed of any expected delays in publication.

Source: ESMA issues guidance on financial reporting deadlines in light of COVID-19.

Coronavirus (COVID-19)—ESMA clarifies supervisory action on SFTR

ESMA revised its 19 March 2020 public statement on co-ordinated supervisory actions on the application of the Securities Finance Transactions Regulation (EU) 2015/2365 (SFTR). It clarifies that SFTs concluded between 13 April 2020 and 13 July 2020 (and SFTs subject to backloading under SFTR) should not be prioritised by national competent authorities (NCAs) in their supervisory actions towards counterparties, entities responsible for reporting and investment firms in respect of their reporting obligations under SFTR or the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR).

Source: ESMA clarifies position on SFTR backloading.

Application date of the transparency calculations for equity instruments of 1 April 2020 unchanged despite coronavirus (COVID-19) pandemic

ESMA decided to keep the date of application of the transparency calculations for equity instruments of 1 April 2020 unchanged. ESMA was asked by some stakeholders to postpone the date, on the basis of the market circumstances created by the coronavirus (COVID-19) pandemic. The application of new tick-sizes was cited as particularly problematic in the current environment. ESMA acknowledges the severity of the situation and is working to alleviate market participants’ burden to the maximum extent possible, as some recent publications show, in particular delaying the application of new obligations which require significant technological changes.

Source: ESMA confirms application date of equity transparency calculations.

Coronavirus (COVID-19)—ISDA and others request delayed phase-in of margin requirements for non-centrally cleared derivatives

The International Swaps and Derivatives Association (ISDA) submitted a letter on behalf of 21 industry associations and their members to the Basel Committee on Bank Supervision (BCBS), and the International Organization of Securities Commissions (IOSCO). In the letter, the associations request that BCBS, IOSCO and global regulators suspend the current timeline for the margin requirements for non-centrally cleared derivatives to allow market participants to focus their resources on ensuring continued access to the derivatives market.

Source: Joint trade association letter on impact of COVID-19 on Initial Margin phase-in.

Coronavirus (COVID-19)—GFXC says the principles of the FX Global Code can help in time of ‘intense volatility’

The Global Foreign Exchange Committee (GFXC) is encouraging market participants to be aware of how their actions can ensure the FX market remains ‘robust, open, fair and appropriately transparent’ given the intense volatility caused by the coronavirus (COVID-19) pandemic. The GFXC says it is possible that FX market participants may execute larger than usual FX volumes during end-of-month benchmark fixings. In addition, FX market participants may face more operational constraints, reflecting lockdown in some financial centres.

Source: GFXC issues statement on FX market conditions.

Coronavirus (COVID-19)—WFE says industry focused on keeping regulated markets open, resilient, and reliable

The World Federation of Exchanges (WFE) issued a statement on Market Infrastructure (MI) Business Continuity Planning, saying MIs are ‘both prepared and focused on ensuring the regulated markets remain open, resilient, reliable and consistent at this time of crisis’. In the statement the WFE acknowledges the G20’s concerns that there is still work to be done to make the system safer, especially around aspects of the over-the-counter derivatives market. But the WFE says the industry remains focused on ensuring that the exchange-traded market remains ‘that haven and place of safety for investors, companies and policymakers alike’.

Source: Business continuity planning at resilient market infrastructures.

SRB sets out relief measures to mitigate impact of coronavirus (COVID-19)

The Single Resolution Board (SRB) published a letter from its chair, Elke König, to banks under the SRB's remit, outlining potential operational relief measures related to the coronavirus (COVID-19) outbreak. König also published a blog post setting out the SRB’s approach to the disruption caused by coronavirus. The SRB aims to alleviate the immediate burden on banks with operational relief measures, using the flexibility in the resolution framework. It will postpone less urgent information or data requests related to the upcoming 2020 resolution planning cycle.

Sources: Letter to banks under the SRB's remit on potential operational relief measuresCommunication from the SRB on the potential COVID-19 outbreak relief measures and An extraordinary challenge: SRB actions to support efforts to mitigate the economic impact of the COVID-19 outbreak

FCA publishes advice on avoiding coronavirus (COVID-19)-related financial scams

The Financial Conduct Authority (FCA) published consumer-facing advice on avoiding coronavirus (COVID-19)-related financial scams. The webpage sets out tactics used by scammers, ways consumers can protect themselves, and contact details for reporting suspected scams.

Source: Avoid coronavirus scams.

FCA sets out expectations on firm resilience during coronavirus (COVID-19) outbreak

The FCA published a webpage setting out its expectations of how firms continue operating in light of the coronavirus (COVID-19) outbreak. The FCA said it wants, where it can, to provide flexibility to regulated firms to ensure financial resilience.

Source: FCA’s expectations on financial resilience for FCA solo-regulated firms.

FCA sets out responsibilities of senior managers in identifying key financial workers during coronavirus (COVID-19) pandemic

The FCA issued a statement to make clear to firms how they should prioritise who should need to travel to the office during the coronavirus (COVID-19) pandemic and the responsibilities of senior managers in doing so. This statement applies to all FCA-regulated firms across the UK, including in Scotland, Wales and Northern Ireland.

Source: Identifying key financial workers—responsibilities of senior managers.

FCA updates coronavirus (COVID-19) advice pages for firms and consumers

The FCA updated its advice pages for firms and consumers on the coronavirus (COVID-19) pandemic.

Sources: FCA information for firms on coronavirus (COVID-19) response and  Coronavirus (COVID-19): support for consumers.

FCA, FRC and PRA publish guidance on financial reporting during coronavirus (COVID-19) pandemic

In response to the current coronavirus (COVID-19) situation, the FCA, the Financial Reporting Council (FRC) and the Prudential Regulation Authority (PRA) announced a series of actions to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets. The regulators note that companies and their auditors currently face unprecedented challenges in preparing and auditing financial information.

Source: Joint statement by the FCA, FRC and PRA.

Coronavirus (COVID-19)—FCA and PSR endorse CMA’s approach to business co-operation under competition law

The Payment Systems Regulator (PSR) and the FCA issued a joint statement expressing support for the Competition and Markets Authority (CMA)’s guidance on its approach to business co-operation under competition law, which was published on 25 March 2020.

Source: PSR and FCA respond to the CMA’s guidance on business co-operation under competition law.

FCA approves FOS 2020/2021 budget revised in light of coronavirus (COVID-19)

The Financial Ombudsman Service (FOS) announced that the FCA had approved the FOS’s 2020/21 budget as set out in FOS 2020/3: Fees Manual (Financial Ombudsman Service Case Fees 2020/2021) Instrument 2020 (No. 2). The FOS revised its funding arrangements for the coming year to take account of the impact of coronavirus (COVID-19) on firms.

Sources: FOS budget for 2020/21 and FOS 2020/3: Fees Manual (Financial Ombudsman Service Case Fees 2020/2021) Instrument 2020 (No. 2).

Coronavirus (COVID-19)—FCA updates statement on short selling

The FCA updated its statement on short selling bans and reporting, as part of its response to the coronavirus (COVID-19) pandemic. The statement confirms that the FCA has now made the reporting system changes required in order to match ESMA’s temporary change to the threshold for notifying net short positions to competent authorities under the Short Selling Regulation (SSR). The threshold falls from 0.2% of issued share capital to 0.1%.

Source: COVID-19: FCA updates statement on short selling bans and reporting.

FCA publishes advice on avoiding coronavirus (COVID-19)-related financial scams

The FCA published consumer-facing advice on avoiding coronavirus (COVID-19)-related financial scams. The webpage sets out tactics used by scammers, ways consumers can protect themselves, and contact details for reporting suspected scams.

Source: Avoid coronavirus scams.

Coronavirus (COVID-19)—FCA delays publication of SM&CR directory

In light of the coronavirus(COVID-19) outbreak, the FCA delayed—for at least a month—the publication of the directory of certified and assessed persons, which was due to be published on the financial services Register by the end of March 2020. The timing of the launch is now under review and the FCA will provide further updates on the webpage.

Source: COVID-19: Directory of certified and assessed persons.

Coronavirus (COVID-19)—FCA updates guidance and advice for payment and retail banking firms

The FCA updated its webpage providing information for firms on its coronavirus (COVID-19) response, setting out its expectations of payment and retail banking firms. The FCA said firms should manage the risks to consumers and provide support to both consumers and businesses. The FCA delayed or postponed work to enable firms to focus on this, and is ‘actively considering whether we should make further changes to regulatory or supervisory deliverables and expectations’.

Sources: FCA information for firms on coronavirus (COVID-19) response: Webpage update and  Strong Customer Authentication: Webpage update.

FCA Dear CEO letter to firms servicing retail investors during coronavirus (COVID-19) pandemic

The interim chief executive of the FCA, Christopher Woolard, wrote to firms that provide services to retail investors. Woolard sets out the FCA’s approach to issues around client identity verification, supervisory flexibility over best execution and over-10% depreciation notifications, the FCA’s implementation of investment pathways and other measures, and financial resilience.

Source: Dear CEO letter to firms providing services to retail investors about coronavirus (COVID-19).

Coronavirus (COVID-19)—FCA updates guidance for lenders on mortgage holidays

The FCA updated its guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators as the coronavirus (COVID-19) situation develops. The update concerns payment holidays and the ways lenders should set them taking into account the circumstances of the individual case.

Source: Update: Mortgages and coronavirus: our guidance for firms.

PRA statement and Dear CEO letters address distribution of profits by banks and insurers

The Prudential Regulation Authority (PRA) issued a statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to coronavirus (COVID-19). Sam Woods, deputy governor of the PRA, wrote Dear CEO letters to the largest systemically important UK deposit takers echoing the PRA’s statement. The PRA requested confirmation that the banking groups agree to cancel payments of outstanding 2019 dividends and not pay cash bonuses to senior staff; the PRA requests a statement as such by 9pm on 1 April 2020. Woods’s letter to insurers reminds them to consider the need to protect policyholders and maintain safety and soundness in considering distributions to shareholders and variable remuneration.

Sources: PRA statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to COVID-19Letter from Sam Woods to insurers on distribution of profits and  Letters from Sam Woods to UK deposit takers on dividend payments, share buybacks and cash bonuses.

PRA issues statement on VAR back-testing exceptions temporary approach

The PRA issued a statement which sets out the regulator’s temporary approach to value at risk (VAR) back-testing in light of the coronavirus (COVID-19) outbreak. The approach is relevant to firms experiencing an elevated level of VAR back-testing exceptions.

Source: Statement on VAR back-testing exceptions temporary approach.

PRA issues statement on exposure value for internal models method counterparty credit risk

The PRA issued a statement which sets out the regulator’s temporary approach to calculating exposure under the internal models method (IMM) counterparty credit risk in light of the coronavirus (COVID-19) outbreak. This statement is relevant to firms using the IMM to calculate CCR exposure.

Source: Statement on exposure value for internal models method counterparty credit risk.

Coronavirus (COVID-19)—PRA Dear CEO letter on IFRS 9, capital requirements and loan covenants

The PRA published a Dear CEO letter on coronavirus (COVID-19) and International Financial Reporting Standard (IFRS) 9, capital requirements and loan covenants. The letter sets out the PRA’s guidance on consistent and robust IFRS 9 accounting and the regulatory definition of default; the treatment of borrowers who breach covenants due to COVID-19; and the regulatory capital treatment of IFRS 9.

Source: Letter from Sam Woods ‘COVID-19: IFRS 9, capital requirements and loan covenants’.

COVID-19—FCA updates guidance for insurers on changing policies on renewal

The FCA updated its webpage on insurance and coronavirus (COVID-19), setting out further guidance on its expectations of firms considering making changes to existing policies at renewal.

Source: Insurance and coronavirus (COVID-19): our expectations of firms.

Coronavirus(COVID-19)—APPG on Fair Business Banking urges FCA to suspend imminent change to overdraft rules

The All-Party Parliamentary Group (APPG) on Fair Business Banking called on the FCA to suspend an imminent change to overdraft rules which will see some interest rates on overdrafts increase tenfold. Due to the new FCA rules, from April 2020, banks can only charge for overdraft users a simple annual interest rate—without additional fees and charges so that all users of unarranged overdrafts will be better off or see no change. In many scenarios, however, rates for users of arranged overdrafts will increase significantly, with some rising from as low as 3% to the new industry standard of 39.9%.

Source: Statement from the APPG regarding fee-free overdrafts.

Coronavirus (COVID-19)—FCA urges customers to avoid branches unless for essential services

The FCA published a statement urging customers to only visit branches of banks, building societies, the Post Office and credit unions where absolutely necessary. The statement says firms are working closely with FCA, the Prudential Regulation Authority and HM Treasury to maintain branch access for essential services (such as counter services or supporting a bereavement), balancing the needs of their customers with the safety and welfare of staff during the coronavirus (COVID-19) pandemic.

Source: Banks and building societies—branch access for essential services.

TPR and FCA urge savers not to rush pensions decisions in response to COVID-19

The Pensions Regulator (TPR) and the FCA are urging savers to keep calm and not rush to make any decisions about their pension in response to the coronavirus (COVID-19) pandemic. They say fears over the impact of the pandemic on markets and personal finances may make savers more vulnerable to scams or making a decision that could damage their long-term interests.

Sources: COVID-19: savers—stay calm and don't rush financial decisions and  TPR statement.

PSR publishes Annual Plan and Budget for 2020/21, but says timetable likely to change

The Payment Systems Regulator (PSR) published its Annual Plan and Budget for the year 2020/21, setting out its key aims and activities for the period, alongside its expected costs. The plan was drafted before the uncertainty caused by the coronavirus (COVID-19) pandemic, but the PSR says it will aim to ensure the UK’s payment systems remain world-leading and deliver good outcomes for all users; it will continue its work to protect the interests of the people and businesses who rely on payment systems in unprecedented times; and it aims to make sure that everyone can choose to make payments in ways that work for them as the economy, payments markets and individuals’ preferences change.

Source: Payment Systems Regulator publishes Annual Plan and Budget for year 2020/21.

LSB updates product sale guidance in light of Coronavirus Business Interruption Loan Scheme

The Lending Standards Board (LSB) updated its ‘Standards of Lending Practice for Business Customers, Product Sale’ guidance, to take account of short-term measures to support lending to SMEs impacted by the coronavirus (COVID-19) pandemic.

Source: COVID-19: LSB Standards of Lending Practice for business customers.

WFE says short-selling bans interfere with price formation, increasing uncertainty

The WFE issued a statement criticising recent bans on short-selling as ‘damaging to markets and failing to achieve their desired effect’. The WFE says even in a declining market, short-selling is only a small part of market activity, notably compared with sales of existing long positions. Bans ‘risk reinforcing the false notion that the revaluation of prices reflects a deficiency in the market—rather than a change in the value of the asset’. WFE says it supports instead market transparency and, in this regard, recognises the regime ESMA put in place to report and publish net short positions in securities exceeding 1% of the free floated shares.

Source: The World Federation of Exchanges warns against short-selling bans.

FIA says short-selling bans are ineffective and significantly harm market quality

The Futures Industry Association (FIA) and its affiliated organisations, the FIA Principal Traders Group (FIA PTG) and the FIA European Principal Traders Association (FIA EPTA), issued a statement opposing calls for short-selling bans by global policymakers in light of the coronavirus (COVID-19) outbreak. FIA president and CEO Walt Lukken said prohibitions on short selling ‘have been shown to significantly degrade market liquidity and price formation of those affected products while increasing trading costs and volatility’.

Source: FIA opposes short-selling bans.

Coronavirus (COVID-19)—Association of British Insurers respond to Treasury Select Committee letter

The Association of British Insurers (ABI) published an extract from its initial response to the Treasury Select Committee's letter, seeking answers how the insurance market is responding to the coronavirus (COVID-19) outbreak.

Sources: ABI responds to Treasury Select Committee letter and  ABI letter.

CFTC chair discusses coronavirus (COVID-19) pandemic and broader policy initiatives

ISDA published an interview with Heath Tarbert, chair of the Commodity Futures Trading Commission (CFTC). Tarbert discusses the CFTC’s reaction to the pandemic and its broader policy initiatives, including cross-border rules, position limits and benchmark reform.

Source: IQ Interview with CFTC chair Heath Tarbert.

Coronavirus (COVID-19)​—IAIS steps to address impact on insurance sector

The Executive Committee of the International Association of Insurance Supervisors (IAIS) held a conference call to continue its discussions of the impact of the coronavirus (COVID-19) on the global insurance sector.

Source: IAIS Executive Committee takes steps to address impact of COVID-19 on the insurance sector.

Coronavirus (COVID-19)​—IMF advises bank supervisors on steps to maintain banking system safety

As part of a series of blogs in response to the coronavirus (COVID-19) pandemic, the International Monetary Fund (IMF) set out steps for banking supervisors to take in order to prepare for a shock to the financial sector from the coronavirus, similar in magnitude to the 2008 crisis.

Source: Maintaining banking system safety amid the COVID-19 crisis.

UK Finance warn’s consumers of ‘smishing’ in light of coronavirus (COVID-19)

UK Finance warned customers to be ‘on the lookout’ for ‘smishing’ text message scams from criminals who are exploiting the coronavirus (COVID-19) outbreak. Smishing is a term used to describe when criminals send text messages pretending to be other organisations, often government departments or banks, intending to trick individuals to give away their personal and financial information or money. UK Finance urges customers to not click on any links in these messages and to always log into their bank account to update their information or make payments.

Source: Scam alert: criminals using COVID-19 smishing text messages to target consumers.

ICMA note discusses ESMA statement on SFTR reporting in light of COVID-19

The International Capital Market Association (ICMA) published a summary of the latest ESMA statement on the SFTR, issued on 19 March 2020 (and updated on 26 March 2020), and its practical implications for reporting parties. ICMA welcomes and clarifies ESMA’s statement, which in effect delayed the start of the SFTR reporting obligations on credit institutions and investment firms until 13 July 2020.

Source: ICMA offers clarification of ESMA’s delay to the SFTR go-live.

Insurance bodies issue statement on coronavirus (COVID-19) pandemic

A group of professional bodies in the EU insurance sector have issued a statement on the coronavirus (COVID-19) pandemic. It sets out changing work practices and protective measures taken by the signatories. They also called for close co-ordination between the financial services sector and policymakers, regulators and supervisors to minimise the effects of COVID-19 on Europe’s economy as much as possible.

Source: European financial services will maintain support for customers, employees and EU economy within governments’ boundaries during COVID-19 pandemic.

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Brexit news

UK to retain the financial regulators’ ‘Temporary Transitional Power’ for two years from the end of the Transition Period

The economic secretary to the Treasury, John Glen, made a written ministerial statement on Brexit, saying HM Treasury will retain the financial regulators’ ‘Temporary Transitional Power’ (TTP), which was introduced via the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019, and shift its application so that it is available for use by the UK regulators for a period of two years from the end of the Transition Period.

Source: Financial services update: Written statement—HLWS183.

HoL EU Financial Affairs Sub-Committee calls for structured dialogue between the UK and the EU on cross-border financial services

The House of Lords EU Financial Affairs Sub-Committee wrtoe to the chancellor of the exchequer, Rishi Sunak, to urge the government to establish a structured dialogue between the UK and the EU to support cross-border financial services and manage any future divergence.

Source: Close UK-EU co-operation needed in financial services after Brexit.

ESMA withdraws TR registration of DTCC Data Repository (Ireland) PLC

ESMA withdrew the trade repository (TR) registration of DTCC Data Repository (Ireland) PLC (DDRIE). DDRIE has been registered as a TR since 1 March 2019. Its registration was part of the Brexit contingency plan of DTCC Group to ensure continuity of services in the EU in case of a no-deal Brexit. As the no-deal Brexit scenario did not materialise, this withdrawal decision follows DDRIE’s official notification to ESMA on 3 February 2020 of its intention to renounce its registration as a TR under the conditions set out in Article 71(1)(a) of the European Market Infrastructure Regulation (EU) 648/2012 (EMIR).

Source: ESMA withdraws registration of DTCC Data Repository (Ireland) PLC.

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MiFID II

ESMA publishes final report on investor protection under MiFID II

ESMA submitted to the Commission its final report on inducements and costs and charges disclosures under Directive 2014/65/EU (MiFID II). Among other advice, ESMA encourages the Commission to conduct further analysis on inducements and scale back certain disclosure obligations.

Sources: ESMA advises the European Commission on inducements and costs and charges disclosures and  ESMA final report.

ESMA encourages NCAs not to prioritise supervisory action for late publication of MiFID II best execution reports

ESMA issued a public statement to provide clarity on issues caused by the coronavirus (COVID-19) pandemic, in relation to the general best execution reports required under regulatory technical standards (RTS) 27 and 28 of MiFID II. In view of the exceptional circumstances, ESMA encourages NCAs not to prioritise supervisory action against execution venues and firms in respect of the deadlines for these reports during the pandemic.

Source: ESMA provides clarifications for best execution reports under MiFID II.

Application date of the transparency calculations for equity instruments of 1 April 2020 unchanged despite coronavirus pandemic

ESMA decided to keep the date of application of the transparency calculations for equity instruments of 1 April 2020 unchanged. ESMA was asked by some stakeholders to postpone the date, on the basis of the market circumstances created by the coronavirus (COVID-19) pandemic. The application of new tick-sizes was cited as particularly problematic in the current environment. ESMA acknowledges the severity of the situation and is working to alleviate market participants’ burden to the maximum extent possible, as some recent publications show, in particular delaying the application of new obligations which require significant technological changes.

Source: ESMA confirms application date of equity transparency calculations.

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UK, EU and international regulators and bodies

EBA publishes second edition of the Financial Education Report

The EBA published the second edition of the Financial Education Report. The report is based on the EBA financial education repository, which consists of more than 120 financial education initiatives taken by the national authorities. The report describes the most common approaches used by the national authorities and the lessons learned and experiences gained in the area of financial education and financial literacy.

Source: EBA identifies trends and lessons learned in financial education and literacy initiatives in its second Financial Education Report.

PRA publishes occasional consultation setting out proposed minor amendments

The PRA published occasional consultation paper CP3/20, setting out its proposals to make minor amendments to PRA rules, supervisory statements, National Specific Templates and associated LOG files, and the market risk sensitivities data item and associated instructions. The consultation closes on 26 June 2020.

Source: Occasional consultation paper—March 2020 consultation paper 3/20.

Financial Conduct Authority publishes Handbook Notice—No 75

The FCA released Handbook Notice—No 75, which outlines changes made to the Handbook and other material created by the FCA. Of particular interest are the changes made to the Handbook by two instruments: Listing Rules (Contents of Circulars) (Amendment) Instrument 2020 and Listing Rules (Disclosure of Rights of Securities) Instrument 2020.

Source: Handbook Notice—No 75.

PSR publishes Annual Plan and Budget for 2020/21, but says timetable likely to change

The PSR published its Annual Plan and Budget for the year 2020/21, setting out its key aims and activities for the period, alongside its expected costs. The plan was drafted before the uncertainty caused by the coronavirus (COVID-19) pandemic, but the PSR says it will aim to ensure the UK’s payment systems remain world-leading and deliver good outcomes for all users; it will continue its work to protect the interests of the people and businesses who rely on payment systems in unprecedented times; and it aims to make sure that everyone can choose to make payments in ways that work for them as the economy, payments markets and individuals’ preferences change.

Source: Payment Systems Regulator publishes Annual Plan and Budget for year 2020/21.

ESMA extends deadline for stakeholder group applications due to coronavirus (COVID-19) pandemic

ESMA is currently seeking applicants for its Securities and Markets Stakeholder Group, announced on 14 February 2020, and announced that it is extending that deadline for applications to 9 April 2020.

Source: ESMA extends deadline for stakeholder group applications.

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Authorisation, approval and supervision

FCA sets out responsibilities of senior managers in identifying key financial workers during coronavirus (COVID-19) pandemic

The FCA iissued a statement to make clear to firms how they should prioritise who should need to travel to the office during the coronavirus (COVID-19) pandemic and the responsibilities of senior managers in doing so. This statement applies to all FCA-regulated firms across the UK, including in Scotland, Wales and Northern Ireland.

Source: Identifying key financial workers—responsibilities of senior managers.

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Prudential requirements

FCA sets out expectations on firm resilience during coronavirus (COVID-19) outbreak

The FCA published a webpage setting out its expectations of how firms continue operating in light of the coronavirus (COVID-19) outbreak. The FCA says it wants, where it can, to provide flexibility to regulated firms to ensure financial resilience.

Source: FCA’s expectations on financial resilience for FCA solo-regulated firms.

Amendments to ITS on supervisory reporting under CRR published in Official Journal

Commission Implementing Regulation (EU) 2020/429 of 14 February 2020 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards (ITS) with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 (the CRR), was published in the Official Journal of the EU.

Source: Commission Implementing Regulation (EU) 2020/429 of 14 February 2020 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council.

EBA publishes three final draft RTS under CRR 2

The EBA published three final draft regulatory technical standards (RTS) under the CRR as amended by Regulation (EU) 2019/876 (together CRR 2). The RTS concern liquidity horizons for the Internal Model Approach (IMA) under points (a) to (d) of Article 325bd(7), back‐testing requirements and profit and loss attribution requirements under Article 325bf(9) and 325bg(4), and the criteria for assessing the modellability of risk factors under the IMA under Article 325be(3).

Sources: Final draft RTS on liquidity horizon for the IMAFinal draft RTS on backtesting and PLA requirements and  Final draft RTS on risk factor modellability.

EBA statement clarifies measures on dividends distribution, share buybacks and variable remuneration to mitigate coronavirus (COVID-19) impact

The EBA issued a statement designed to clarify its expectations in relation to dividend and remuneration policies. This statement details further actions to those set out in the EBA’s statement of 12 March 2020.

Sources: Statement on dividends distribution, share buybacks and variable remuneration and EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

PRA statement and Dear CEO letters address distribution of profits by banks and insurers

The PRA issued a statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to coronavirus (COVID-19). Sam Woods, deputy governor of the PRA, wrote Dear CEO letters to the largest systemically important UK deposit takers echoing the PRA’s statement. The PRA requested confirmation that the banking groups agree to cancel payments of outstanding 2019 dividends and not pay cash bonuses to senior staff; the PRA requests a statement as such by 9pm on 1 April 2020. Woods’s letter to insurers reminds them to consider the need to protect policyholders and maintain safety and soundness in considering distributions to shareholders and variable remuneration.

Sources: PRA statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to COVID-19Letter from Sam Woods to insurers on distribution of profits and  Letters from Sam Woods to UK deposit takers on dividend payments, share buybacks and cash bonuses.

Coronavirus (COVID-19)—implementation of outstanding Basel III standards deferred

The Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed a set of measures—including the deferral of Basel III implementation—to provide additional operational capacity for banks and supervisors to respond to the immediate and global financial stability issues posed by the coronavirus (COVID-19).

Source: Governors and Heads of Supervision announce deferral of Basel III implementation to increase operational capacity of banks and supervisors to respond to COVID-19.

EBA statement provides guidance on supervisory reporting and Pillar 3 disclosures in light of coronavirus (COVID-19)

The EBA issued a statement designed to provide additional guidance on how to use flexibility in supervisory reporting. The statement details further possible actions to those set out in the EBA’s statement of 12 March 2020.

Sources: Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19 and EBA press release: EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

PRA issues statement on VAR back-testing exceptions temporary approach

The PRA issued a statement which sets out the regulator’s temporary approach to value at risk (VAR) back-testing in light of the coronavirus (COVID-19) outbreak. The approach is relevant to firms experiencing an elevated level of VAR back-testing exceptions.

Source: Statement on VAR back-testing exceptions temporary approach.

PRA issues statement on exposure value for internal models method counterparty credit risk

The PRA issued a statement which sets out the regulator’s temporary approach to calculating exposure under the internal models method (IMM) counterparty credit risk in light of the coronavirus (COVID-19) outbreak. This statement is relevant to firms using the IMM to calculate CCR exposure.

Source: Statement on exposure value for internal models method counterparty credit risk.

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Financial stability, recovery and resolution 

SRB publishes its ‘Expectations for banks’

The SRB published its final ‘Expectations for banks’ document, along with an overview of SRB responses to the industry consultation which closed on 4 December 2019. The document, which has been updated to reflect industry feedback, sets out the capabilities the SRB expects banks to demonstrate in order to show that they are resolvable.

Sources: SRB publishes key bank resolution policy: Expectations for banksSRB Expectations for banks and Industry responses.

SRB sets out relief measures to mitigate impact of coronavirus (COVID-19)

The SRB published a letter from its chair, Elke König, to banks under the SRB's remit, outlining potential operational relief measures related to the coronavirus (COVID-19) outbreak. König also published a blog post setting out the SRB’s approach to the disruption caused by coronavirus. The SRB aims to alleviate the immediate burden on banks with operational relief measures, using the flexibility in the resolution framework. It will postpone less urgent information or data requests related to the upcoming 2020 resolution planning cycle.

Sources: Letter to banks under the SRB's remit on potential operational relief measuresCommunication from the SRB on the potential COVID-19 outbreak relief measures and An extraordinary challenge: SRB actions to support efforts to mitigate the economic impact of the COVID-19 outbreak

COVID-19: IMF advises bank supervisors on steps to maintain banking system safety

As part of a series of blogs in response to the coronavirus (COVID-19) pandemic, the IMF set out steps for banking supervisors to take in order to prepare for a shock to the financial sector from the coronavirus, similar in magnitude to the 2008 crisis.

Source: Maintaining banking system safety amid the COVID-19 crisis.

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Financial crime

EBA statement on actions to mitigate financial crime risks in light of coronavirus (COVID-19)

The EBA issued a statement designed to clarify its expectations in relation to measures to prevent money laundering and terrorist financing (ML/TF). The EBA reminds credit and financial institutions that it remains important to continue to put in place and maintain effective systems and controls to ensure that the EU’s financial system is not abused for ML/TF purposes, and asks competent authorities to support them in this regard.

Sources: EBA statement on actions to mitigate financial crime risks in the COVID-19 pandemic and EBA press release: EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.

FCA publishes advice on avoiding coronavirus (COVID-19)-related financial scams

The FCA published consumer-facing advice on avoiding coronavirus (COVID-19)-related financial scams. The webpage sets out tactics used by scammers, ways consumers can protect themselves, and contact details for reporting suspected scams.

Source: Avoid coronavirus scams.

UK Finance warn’s consumers of ‘smishing’ in light of coronavirus (COVID-19)

UK Finance warned customers to be ‘on the lookout’ for ‘smishing’ text message scams from criminals who are exploiting the coronavirus (COVID-19) outbreak. Smishing is a term used to describe when criminals send text messages pretending to be other organisations, often government departments or banks, intending to trick individuals to give away their personal and financial information or money. UK Finance urges customers to not click on any links in these messages and to always log into their bank account to update their information or make payments.

Source: Scam alert: criminals using COVID-19 smishing text messages to target consumers.

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Complaints, compensation and claims management

PRA publishes rules for FSCS Management Expenses Levy Limit for 2020/21

The PRA published policy statement PS8/20, Financial Services Compensation Scheme—Management Expenses Levy Limit 2020/21. PS8/20 provides feedback to responses to consultation paper CP1/20 Financial Services Compensation Scheme—Management Expenses Levy Limit 2020/21, and contains the final rules for the Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit (MELL) for 2020/21.

Source: Financial Services Compensation Scheme—Management Expenses Levy Limit 2020/21.

FCA approves FOS 2020/2021 budget revised in light of coronavirus (COVID-19)

The FOS announced that the FCA had approved the FOS’s 2020/21 budget as set out in FOS 2020/3: Fees Manual (Financial Ombudsman Service Case Fees 2020/2021) Instrument 2020 (No. 2). The FOS revised its funding arrangements for the coming year to take account of the impact of coronavirus (COVID-19) on firms.

Sources: FOS budget for 2020/21 and FOS 2020/3: Fees Manual (Financial Ombudsman Service Case Fees 2020/2021) Instrument 2020 (No. 2).

FCA and FOS issue information as BrightHouse enters administration

On 30 March 2020 Caversham Finance Limited, t/a BrightHouse, was placed into administration. Chris Laverty, Trevor O’Sullivan and Helen Dale of Grant Thornton UK LLP were appointed as joint administrators. Caversham Finance is a rent-to-own retailer, which lends to customers to purchase household furniture as well as providing cash loans up to £1,000 for a fixed term of 18 months. The FCA said it is in regular contact with the firm and the administrators with regard to the fair treatment of customers.

Sources: Caversham Finance Limited, trading as BrightHouse and Caversham Finance Limited t/a BrightHouse enters administration.

FSCS declares 15 firms in default in February 2020

The FSCS declared 15 failed regulated firms in default during February 2020. A declaration of default means the FSCS is satisfied a firm is unable to pay claims for compensation made against it. This paves the way for customers of that firm to make a claim for compensation with the FSCS.

Source: FSCS declares 15 firms in default in February 2020.

FSCS says it is continuing to review LCF advice claims despite coronavirus (COVID-19) outbreak

The FSCA confirmed it is continuing to review the information it has gathered to help determine what misleading advice was given by London Capital and Finance (LCF). In light of the ongoing coronavirus (COVID-19) situation, the FSCS says it wants to reassure LCF customers that it is doing everything it can to continue working to reach a point where it can assess claims as efficiently and effectively as possible.

Source: FSCS continuing to review information relating to LCF advice claims.

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Investigations, enforcement and discipline

Uncle Buck Finance LLP enters administration following FCA action

The FCA issued a press release stating that Uncle Buck Finance LLP (Uncle Buck) had entered administration. The FCA had concerns that Uncle Buck was failing to meet the adequate resources threshold condition. Given the severity of these concerns, the FCA has required Uncle Buck to stop lending to customers. Following this action, the members of Uncle Buck have placed the firm into administration. The FCA will continue to supervise Uncle Buck and is in close contact with the administrators concerning the fair treatment of customers.

Source: Uncle Buck LLP enters administration following FCA action.

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Competition in financial services

Coronavirus (COVID-19)—FCA and PSR endorse CMA’s approach to business co-operation under competition law

The PSR and FCA issued a joint statement expressing support for the CMA’s guidance on its approach to business co-operation under competition law, which was published on 25 March 2020.

Source: PSR and FCA respond to the CMA’s guidance on business co-operation under competition law.

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Markets and trading

Summary of responses to consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR

The Bank of England’s (BoE) Working Group on Sterling Risk-Free Reference Rates (RFRs) published a summary of responses received to its consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR. This paper considered four methodologies that could be used to calculate the credit adjustment spread for fallback language in sterling cash instruments. The consultation identified a strong consensus in favour of the historical five-year median approach, in line with the approach adopted by ISDA, as the most appropriate methodology for credit adjustment spreads in both cessation and pre-cessation fallbacks for sterling LIBOR linked cash products maturing beyond end-2021.

Sources: Summary of responses—Consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR and  Transition to sterling risk-free rates from LIBOR.

CFTC chair discusses coronavirus (COVID-19) pandemic and broader policy initiatives

ISDA published an interview with Heath Tarbert, chair of the Commodity Futures Trading Commission (CFTC). Tarbert discusses the CFTC’s reaction to the pandemic and its broader policy initiatives, including cross-border rules, position limits and benchmark reform.

Source: IQ Interview with CFTC chair Heath Tarbert.

Coronavirus (COVID-19)—GFXC says the principles of the FX Global Code can help in time of ‘intense volatility’

GFXC is encouraging market participants to be aware of how their actions can ensure the FX market remains ‘robust, open, fair and appropriately transparent’ given the intense volatility caused by the coronavirus (COVID-19) pandemic. The GFXC said it is possible that FX market participants may execute larger than usual FX volumes during end-of-month benchmark fixings. In addition, FX market participants may face more operational constraints, reflecting lockdown in some financial centres.

Source: GFXC issues statement on FX market conditions.

Coronavirus (COVID-19)—WFE says industry focused on keeping regulated markets open, resilient, and reliable

The WFE issued a statement on Market Infrastructure (MI) Business Continuity Planning, saying MIs are ‘both prepared and focused on ensuring the regulated markets remain open, resilient, reliable and consistent at this time of crisis’. In the statement the WFE acknowledges the G20’s concerns that there is still work to be done to make the system safer, especially around aspects of the over-the-counter derivatives market. But the WFE says the industry remains focused on ensuring that the exchange-traded market remains ‘that haven and place of safety for investors, companies and policymakers alike’.

Source: Business continuity planning at resilient market infrastructures.

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Regulation of capital markets

ESMA launches call for evidence on the availability and use of credit rating information and data

ESMA published a call for evidence on the availability and use of credit rating information and data. The aim is to gather information on the specific uses of credit ratings as well as how the users of credit ratings are currently accessing this information. The call for evidence is open until 3 August 2020 and input is welcomed from all interested stakeholders, including users of credit ratings such as public authorities and financial market participants, credit rating agencies (CRAs) and distributors of credit rating data.

Source: ESMA publishes call for evidence on credit rating information and data.

ESMA updates list of market makers and authorised primary dealers using exemption under Short Selling Regulation

ESMA updated its list of market makers and authorised primary dealers who are using the exemption under Article 17 of Regulation (EU) 236/2012 (the Short Selling Regulation).

Source: List of market makers and authorised primary dealers who are using the exemption under the Regulation on short selling and credit default swaps.

Coronavirus (COVID-19)—FCA updates statement on short selling

The FCA updated its statement on short selling bans and reporting, as part of its response to the coronavirus (COVID-19) pandemic. The statement confirms that the FCA has now made the reporting system changes required in order to match the European Securities and Markets Authority’s temporary change to the threshold for notifying net short positions to competent authorities under the Short Selling Regulation (SSR). The threshold falls from 0.2% of issued share capital to 0.1%.

Source: COVID-19: FCA updates statement on short selling bans and reporting.

WFE says short-selling bans interfere with price formation, increasing uncertainty

The WFE issued a statement criticising recent bans on short-selling as ‘damaging to markets and failing to achieve their desired effect’. The WFE said even in a declining market, short-selling is only a small part of market activity, notably compared with sales of existing long positions. Bans ‘risk reinforcing the false notion that the revaluation of prices reflects a deficiency in the market—rather than a change in the value of the asset’. WFE says it supports instead market transparency and, in this regard, recognises the regime ESMA put in place to report and publish net short positions in securities exceeding 1% of the free floated shares.

Source: The World Federation of Exchanges warns against short-selling bans.

FIA says short-selling bans are ineffective and significantly harm market quality

The FIA and its affiliated organisations, the FIA PTG and the FIA EPTA, issued a statement opposing calls for short-selling bans by global policymakers in light of the coronavirus (COVID-19) outbreak. FIA president and CEO Walt Lukken said prohibitions on short selling ‘have been shown to significantly degrade market liquidity and price formation of those affected products while increasing trading costs and volatility’.

Source: FIA opposes short-selling bans.

ESMA issues guidance on financial reporting deadlines during the coronavirus (COVID-19) epidemic

ESMA issued a public statement on financial reporting deadlines applicable to listed issuers under the Transparency Directive due to the impact of the coronavirus (COVID-19). In the statement, ESMA acknowledges the difficulties issuers are facing in preparing financial reports, and those challenges auditors are facing in carrying out audits of accounts in the time required for the legislative deadlines. As a result, ESMA recommended that NCA’s apply forbearance powers toward issuers who require delays to the publication of their financial reports, while noting that issuers should keep investors informed of any expected delays in publication.

Source: ESMA issues guidance on financial reporting deadlines in light of COVID-19.

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Regulation of derivatives

EMIR RTS exempting STS securitisation hedging derivatives from margin requirements published in Official Journal

Two Commission Delegated Regulations amending EMIR Level 2 measures have been published in the Official Journal of the EU—Commission Delegated Regulation (EU) 2020/447 of 16 December 2019 supplementing EMIR with regard to regulatory technical standards (RTS) on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk associated with covered bonds and securitisations and amending Commission Delegated Regulations (EU) 2015/2205 and (EU) 2016/1178—and Commission Delegated Regulation (EU) 2020/448 of 17 December 2019 amending Commission Delegated Regulation (EU) 2016/2251 as regards the specification of the treatment of OTC derivatives in connection with certain simple, transparent and standardised (STS) securitisations for hedging purposes.

Sources: Commission Delegated Regulation (EU) 2020/447 of 16 December 2019 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk associated with covered bonds and securitisations, and amending Delegated Regulations (EU) 2015/2205 and (EU) 2016/1178 and  Commission Delegated Regulation (EU) 2020/448 of 17 December 2019 amending Delegated Regulation (EU) 2016/2251 as regards the specification of the treatment of OTC derivatives in connection with certain simple, transparent and standardised securitisations for hedging purposes

ESMA consults on EMIR REFIT technical standards on trade repositories

ESMA launched a consultation on draft regulatory and implementing technical standards (RTS and ITS) under Regulation (EU) 2019/834 (EMIR REFIT) covering reporting to and registration of trade repositories (TRs), data reconciliation and validation, and publication and provision of data by TRs to the relevant authorities.

Source: ESMA consults on technical standards on trade repositories under EMIR REFIT.

ESMA publishes draft RTS for CCP colleges

ESMA published its Final Report containing draft regulatory technical standards (RTS) for central counterparty (CCP) colleges under EMIR 2.2.

Source: ESMA publishes draft regulatory technical standards for CCP colleges.

ESMA technical advice on procedural rules for imposing penalties on third-country CCPs, TRs and CRAs under EMIR

ESMA published technical advice to assist the European Commission in formulating procedural rules for penalties imposed on third-country CCPs, TRs and CRAs under EMIR, as amended.

Source: Final Report: TA on procedural rules for penalties imposed on third-country CCPs, TRs and CRAs.

ESMA withdraws TR registration of DTCC Data Repository (Ireland) PLC

ESMA withdrew the TR registration of DTCC Data Repository (Ireland) PLC (DDRIE). DDRIE has been registered as a TR since 1 March 2019. Its registration was part of the Brexit contingency plan of DTCC Group to ensure continuity of services in the EU in case of a no-deal Brexit. As the no-deal Brexit scenario did not materialise, this withdrawal decision follows DDRIE’s official notification to ESMA on 3 February 2020 of its intention to renounce its registration as a TR under the conditions set out in Article 71(1)(a) of EMIR.

Source: ESMA withdraws registration of DTCC Data Repository (Ireland) PLC.

Coronavirus (COVID-19)—ISDA and others request delayed phase-in of margin requirements for non-centrally cleared derivatives

ISDA submitted a letter on behalf of 21 industry associations and their members to the BCBS, and IOSCO. In the letter, the associations request that BCBS, IOSCO and global regulators suspend the current timeline for the margin requirements for non-centrally cleared derivatives to allow market participants to focus their resources on ensuring continued access to the derivatives market.

Source: Joint trade association letter on impact of COVID-19 on Initial Margin phase-in.

ISDA Interest Rate Derivatives Definitions to be updated

ISDA has been working with its members to draft the 2020 ISDA Interest Rate Derivatives Definitions, an update of the 2006 definitions.

Source: 2020 ISDA Interest Rate Derivatives Definitions.

CFTC chair discusses coronavirus (COVID-19) pandemic and broader policy initiatives

ISDA published an interview with Heath Tarbert, chair of the Commodity Futures Trading Commission (CFTC). Tarbert discusses the CFTC’s reaction to the pandemic and its broader policy initiatives, including cross-border rules, position limits and benchmark reform.

Source: IQ Interview with CFTC chair Heath Tarbert.

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Investment funds and asset management

ESMA consults on AIF leverage risk

ESMA launched a consultation on draft guidance to address leverage risks in the alternative investment fund (AIF) sector. The consultation is part of the ESMA response to the April 2018 recommendations of the European Systemic Risk Board on liquidity and leverage risk in investment funds.

Source: ESMA consults on guidance to address leverage risk in the AIF sector.

ESMA consults on draft ITS under regulation on cross-border distribution of funds

ESMA launched a consultation on the standard forms, templates and procedures that national competent authorities (NCAs) should use to publish information on their websites to facilitate the cross-border distribution of funds. The consultation, which sets out draft implementing technical standards (ITS) under the Regulation on cross-border distribution of funds (Regulation (EU) 2019/1156), is open until 30 June 2020.

Source: ESMA consults on standardised information to facilitate cross-border funds distribution.

FCA Dear CEO letter to firms servicing retail investors during coronavirus (COVID-19) pandemic

The interim chief executive of the FCA, Christopher Woolard, wrote to firms that provide services to retail investors. Woolard sets out the FCA’s approach to issues around client identity verification, supervisory flexibility over best execution and over-10% depreciation notifications, the FCA’s implementation of investment pathways and other measures, and financial resilience.

Source: Dear CEO letter to firms providing services to retail investors about coronavirus (COVID-19).

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Securities financing transactions

Coronavirus (COVID-19)—ESMA clarifies supervisory action on SFTR

ESMA revised its 19 March 2020 public statement on co-ordinated supervisory actions on the application of the SFTR. It clarifies that SFTs concluded between 13 April 2020 and 13 July 2020 (and SFTs subject to backloading under SFTR) should not be prioritised by national competent authorities (NCAs) in their supervisory actions towards counterparties, entities responsible for reporting and investment firms in respect of their reporting obligations under SFTR or MiFIR.

Source: ESMA clarifies position on SFTR backloading.

ICMA note discusses ESMA statement on SFTR reporting in light of COVID-19

The ICMA published a summary of the latest ESMA statement on the SFTR, issued on 19 March 2020 (and updated on 26 March 2020), and its practical implications for reporting parties. ICMA welcomed and clarifies ESMA’s statement, which in effect delayed the start of the SFTR reporting obligations on credit institutions and investment firms until 13 July 2020.

Source: ICMA offers clarification of ESMA’s delay to the SFTR go-live.

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Banks and mutuals

SRB publishes its ‘Expectations for banks’

The SRB published its final ‘Expectations for banks’ document, along with an overview of SRB responses to the industry consultation which closed on 4 December 2019. The document, which has been updated to reflect industry feedback, sets out the capabilities the SRB expects banks to demonstrate in order to show that they are resolvable.

Sources: SRB publishes key bank resolution policy: Expectations for banksSRB Expectations for banks and Industry responses.

PRA statement and Dear CEO letters address distribution of profits by banks and insurers

The PRA issued a statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to coronavirus (COVID-19). Sam Woods, deputy governor of the PRA, wrote Dear CEO letters to the largest systemically important UK deposit takers echoing the PRA’s statement. The PRA requested confirmation that the banking groups agree to cancel payments of outstanding 2019 dividends and not pay cash bonuses to senior staff; the PRA requests a statement as such by 9pm on 1 April 2020. Woods’s letter to insurers reminds them to consider the need to protect policyholders and maintain safety and soundness in considering distributions to shareholders and variable remuneration.

Sources: PRA statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to COVID-19Letter from Sam Woods to insurers on distribution of profits and  Letters from Sam Woods to UK deposit takers on dividend payments, share buybacks and cash bonuses.

ECB paper considers effect of possible EU diversification requirements on the risk of banks’ sovereign bond portfolios

The ECB published a working paper which evaluates the possible effects of recent policy constraints on risk and diversification in the sovereign bond portfolios of the major European banks.

Source: The effect of possible EU diversification requirements on the risk of banks’ sovereign bond portfolios.

UNEP FI launches portfolio analysis tool for banks

The United Nations Environment Programme Finance Initiative (UNEP FI) announced that signatories of the Principles for Responsible Banking and UNEP FI member banks have developed a tool to help banks analyse the impacts associated with their retail (consumer and business banking) and wholesale (corporate and investment banking) portfolios. UNEP FI says the analysis will enable banks to set targets where it matters in order to drive their contribution to society’s goals, as required by the Principles for Responsible Banking.

Source: UNEP FI Portfolio impact analysis tool for banks.

COVID-19—FCA updates guidance and advice for payment and retail banking firms

The FCA updated its webpage providing information for firms on its coronavirus (COVID-19) response, setting out its expectations of payment and retail banking firms. The FCA says firms should manage the risks to consumers and provide support to both consumers and businesses. The FCA delayed or postponed work to enable firms to focus on this, and is ‘actively considering whether we should make further changes to regulatory or supervisory deliverables and expectations’.

Sources: FCA information for firms on coronavirus (COVID-19) response: Webpage update and  Strong Customer Authentication: Webpage update.

SRB sets out relief measures to mitigate impact of coronavirus (COVID-19)

The SRB published a letter from its chair, Elke König, to banks under the SRB's remit, outlining potential operational relief measures related to the coronavirus (COVID-19) outbreak. König also published a blog post setting out the SRB’s approach to the disruption caused by coronavirus. The SRB aims to alleviate the immediate burden on banks with operational relief measures, using the flexibility in the resolution framework. It will postpone less urgent information or data requests related to the upcoming 2020 resolution planning cycle.

Sources: Letter to banks under the SRB's remit on potential operational relief measuresCommunication from the SRB on the potential COVID-19 outbreak relief measures and An extraordinary challenge: SRB actions to support efforts to mitigate the economic impact of the COVID-19 outbreak

ECB’s Andrea Enria discusses EU banks’ responses to coronavirus (COVID-19)

The ECB published an interview with the chair of its supervisory board, Andrea Enria, conducted on 30 March 2020 by the Financial Times. Enria discussed the coronavirus (COVID-19)-related request for EU banks to stop paying dividends, saying the extraordinary measures which have been imposed by governments to fight the pandemic will ratchet up the demand for credit, because corporates, firms and households will, in many cases, need banks’ support.

Source: Andrea Enria—Interview with the Financial Times.

LSB updates product sale guidance in light of Coronavirus Business Interruption Loan Scheme

The LSB updated its ‘Standards of Lending Practice for Business Customers, Product Sale’ guidance, to take account of short-term measures to support lending to SMEs impacted by the coronavirus COVID-19 pandemic.

Source: COVID-19: LSB Standards of Lending Practice for business customers.

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Consumer credit, mortgage and home finance

Coronavirus (COVID-19)—APPG on Fair Business Banking urges FCA to suspend imminent change to overdraft rules

The APPG on Fair Business Banking called on the FCA to suspend an imminent change to overdraft rules which will see some interest rates on overdrafts increase tenfold. Due to the new FCA rules, from April 2020, banks can only charge for overdraft users a simple annual interest rate—without additional fees and charges so that all users of unarranged overdrafts will be better off or see no change. In many scenarios, however, rates for users of arranged overdrafts will increase significantly, with some rising from as low as 3% to the new industry standard of 39.9%.

Source: Statement from the APPG regarding fee-free overdrafts.

Coronavirus (COVID-19)—FCA updates guidance for lenders on mortgage holidays

The FCA updated its guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators as the coronavirus (COVID-19) situation develops. The update concerns payment holidays and the ways lenders should set them taking into account the circumstances of the individual case.

Source: Update: Mortgages and coronavirus: our guidance for firms.

AG opinion on interpretation of unfair terms in consumer contracts directive

In NG & OH v SC Banca Transilvania SA (Case C-81/19), the Advocate General (AG) of the Court of Justice of the European Union (CJEU) issued an opinion on the interpretation of Directive 93/13/EEC on unfair terms in consumer contracts (UTCCD). The question related to the interpretation of Articles 1(2), 4(2) and 6(1) of the UTCCD in the context of a loan agreement denominated in a foreign currency. The order for reference was made by the Curtea de Apel Cluj (Court of Appeal, Cluj, Romania).

Source: NG & OH v SC Banca Transilvania SA (Case C-81/19) ECLI:EU:C:2020:217.

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Regulation of insurance

Solvency II correcting delegated regulation published in Official Journal

Commission Delegated Regulation (EU) 2020/442 correcting Delegated Regulation (EU) 2015/35 (Solvency II Delegated Regulation) supplementing Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), was published in the Official Journal of the EU. Amendments include corrections to Annex 10, the section ‘Risk weights for flood risk’.

Source: Commission Delegated Regulation (EU) 2020/442 of 17 December 2019 correcting Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

PRA reviews effective value test parameter under Solvency II

The PRA published a statement announcing that it has reviewed and updated the effective value test (EVT) parameters under the Solvency II Directive 2009/138/EC. Having taken into account current market conditions, the minimum deferment rate parameter to be used in the EVT—which is set out in supervisory statement SS3/17—will be retained at 0.5% per annum with effect from 31 March 2020.

Source: Review of Solvency II effective value test parameters—applicable from 31 March 2020.

Gefion Insurance A/S ceases writing business

The European Insurance and Occupational Pensions Authority (EIOPA) announced that the Danish Financial Supervisory Authority, Finanstilsynet, ordered Gefion Insurance A/S to cease writing business with immediate effect. Gefion primarily offers insurance to individuals and small and medium sized companies, and focuses on specialty lines, operating in the following EU Member States: Denmark, France, Germany, Ireland, Italy and Poland. In addition, the company does business in the UK.

Source: Cross-Border Co-operation Platform on Gefion Insurance A/S.

PRA statement and Dear CEO letters address distribution of profits by banks and insurers

The PRA issued a statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to coronavirus (COVID-19). Sam Woods, deputy governor of the PRA, wrote Dear CEO letters to the largest systemically important UK deposit takers echoing the PRA’s statement. The PRA requested confirmation that the banking groups agree to cancel payments of outstanding 2019 dividends and not pay cash bonuses to senior staff; the PRA requests a statement as such by 9pm on 1 April 2020. Woods’s letter to insurers reminds them to consider the need to protect policyholders and maintain safety and soundness in considering distributions to shareholders and variable remuneration.

Sources: PRA statement on deposit takers’ approach to dividend payments, share buybacks and cash bonuses in response to COVID-19Letter from Sam Woods to insurers on distribution of profits and  Letters from Sam Woods to UK deposit takers on dividend payments, share buybacks and cash bonuses.

Coronavirus (COVID-19)—FCA updates guidance for insurers on changing policies on renewal

The FCA updated its webpage on insurance and coronavirus (COVID-19), setting out further guidance on its expectations of firms considering making changes to existing policies at renewal.

Source: Insurance and coronavirus (COVID-19): our expectations of firms.

BoE extends its Contingent Term Repo Facility

The BoE announced that it will continue to offer its CTRF on a weekly basis through April 2020. The CTRF, launched last week, is a temporary enhancement to the BoE’s sterling liquidity insurance facilities to address the impact of the coronavirus (COVID-19) outbreak.

Source: Extension of the Contingent Term Repo Facility (CTRF)—Market Notice 30 March 2020.

Coronavirus (COVID-19)​—IAIS steps to address impact on insurance sector

The Executive Committee of the IAIS held a conference call to continue its discussions of the impact of the coronavirus (COVID-19) on the global insurance sector.

Source: IAIS Executive Committee takes steps to address impact of COVID-19 on the insurance sector.

Insurance bodies issue statement on coronavirus (COVID-19) pandemic

A group of professional bodies in the EU insurance sector have issued a statement on the coronavirus (COVID-19) pandemic. It sets out changing work practices and protective measures taken by the signatories. They also called for close co-ordination between the financial services sector and policymakers, regulators and supervisors to minimise the effects of coronavirus on Europe’s economy as much as possible.

Source: European financial services will maintain support for customers, employees and EU economy within governments’ boundaries during COVID-19 pandemic.

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Regulation of personal pension and stakeholder products

TPR and FCA urge savers not to rush pensions decisions in response to coronavirus (COVID-19)

TPR and the FCA are urging savers to keep calm and not rush to make any decisions about their pension in response to the coronavirus (COVID-19) pandemic. They say fears over the impact of the pandemic on markets and personal finances may make savers more vulnerable to scams or making a decision that could damage their long-term interests.

Sources: COVID-19: savers—stay calm and don't rush financial decisions and  TPR statement.

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Payment services and systems

Current Account Switch Service publishes annual report for 2019

The Current Account Switch Service (CAcSS) published its annual report for 2019, saying it achieved more than one million switches across the year. More banks joined the CAcSS in 2019, taking the total to 49 participants covering 99% of the market. The report also sets out CAcSS activities including awareness-raising and publications.

Source: The Current Account Switch Service annual report: a successful 2019.

Coronavirus (COVID-19)—FCA updates guidance and advice for payment and retail banking firms

The FCA updated its webpage providing information for firms on its coronavirus (COVID-19) response, setting out its expectations of payment and retail banking firms. The FCA says firms should manage the risks to consumers and provide support to both consumers and businesses. The FCA delayed or postponed work to enable firms to focus on this, and is ‘actively considering whether we should make further changes to regulatory or supervisory deliverables and expectations’.

Sources: FCA information for firms on coronavirus (COVID-19) response: Webpage update and  Strong Customer Authentication: Webpage update.

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Sustainable finance

BIS paper explores reserve management and sustainability, and the case for green bonds

The BIS published a working paper which explores how central banks might expand the usual triad of objectives—liquidity, safety and return—to fit environmental sustainability considerations into their reserve management frameworks. This can be done either by explicitly articulating sustainability as a defined purpose of holding reserves, or implicitly as a supporting aspect of existing policy purposes. In each case, this will involve additional trade-offs. The paper assesses these, based on the example of green bonds.

Source: Reserve management and sustainability: the case for green bonds?

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Dates for your diary

 

DateSubjectEvent
3 April 2020Financial crime

Deadline for responses to JMLSG consultation on proposed amendments to its guidance, to take account of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019

3 April 2020Regulation of derivatives

Deadline for responses to the working group on euro risk-free rates’ consultation on swaptions impacted by CCP discounting transition from EONIA to the €STR.

 

6 April 2020

Conduct requirements



Consumer credit, mortgage and home finance

Part 3 of the annex to the Overdrafts (Information and Tools) Instrument 2019 (FCA 2019/86) comes into force on this date.

 

6 April 2020

Conduct requirements



Regulation of personal pension and stakeholder products

Part 2 of Annex B of the FCA’s Conduct of Business Sourcebook (Retirement Outcomes Review) Instrument 2019 (FCA 2019/4) enters into force on this date.

 

9 April 2020

UK, EU and international regulators and bodies

 

Deadline for responses to ESMA’s application for members for its Securities and Markets Stakeholder Group

 

9 April 2020

Competition in financial services

Banks and mutuals

Deadline for responses to FCA consultation paper ‘CP20/1: Introducing a Single Easy Access Rate for cash savings’.

 

9 April 2020Payment services and systems

Deadline for responses to the ECB’s consultation on a draft Regulation amending Regulation (EU) No 1409/2013 on payments statistics.

 

 

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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.