FS weekly highlights—23 July 2020

FS weekly highlights—23 July 2020

In this issue

 

 

Coronavirus (COVID-19)
Brexit news
MiFID II
PRIIPs
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial stability
Risk management and controls
Financial crime
Consumer protection
Conduct requirements
Complaints, compensation and claims management
Regulation of benchmarks and IBOR reform
Regulation of capital markets
Regulation of derivatives
Investment funds and asset management
Securities financing transactions
Crowdfunding
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Business interruption insurance test case
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Dates for your diary

 

Coronavirus (COVID-19)

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

EBA publishes list of coronavirus (COVID-19) public guarantee schemes

The European Banking Authority (EBA) published a list of the public guarantee schemes issued in response to the COVID-19 pandemic. The list, which complements the information included in the EBA’s report on the implementation of selected COVID-19 policies, aims to provide transparency on the existence of public guarantees, as well as responding to the European Commission’s request for a stock-take of such guarantees.

Source: EBA publishes overview of public guarantee schemes issued in response to the COVID-19 pandemic.

ESMA issues statement on accounting for coronavirus (COVID-19)-related rent concessions

The European Securities and Markets Authority (ESMA) issued a public statement recommending co-ordination of supervisory action in relation to issuers’ accounting for COVID-19-related rent concessions.

Source: ESMA recommends supervisory co-ordination on accounting for COVID-19-related rent concessions.

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Brexit news

Brexit: ESMA urges firms to prepare contingency plans for the end of the transition period

ESMA is urging financial market participants to finalise preparations and implement suitable contingency plans in advance of the end of the UK’s transition period on 31 December 2020. ESMA also confirms that previously agreed memoranda of understanding (MoUs) on co-operation and information exchange concluded with the UK’s FCA remain valid and will come into effect at the end of the transition period.

Source: ESMA tells market participants to continue preparations for the end of the UK transition period.

House of Lords select committee seeks clarity from government on future UK-EU relationship in financial services

The House of Lords EU Services Sub-Committee wrote to the City minister and economic secretary to the Treasury, John Glen MP, to seek clarity on topics including UK-EU equivalence decisions, future UK-EU regulatory co-operation and the government’s plans for financial services, particularly the role for Parliament in the future regulatory framework. The letter, dated 20 July 2020, follows a meeting of the sub-committee on 2 July 2020 in which Glen gave evidence on the UK-EU negotiations in financial services and UK financial services after Brexit.

Source: Government pressed for clarity on future relationship in financial services.

For further information, see: Financial Services passporting, equivalence and the UK post-Brexit.

FCA confirms MoUs with ESMA and EU regulators

The Financial Conduct Authority (FCA) confirmed that its memoranda of understanding (MoUs) with ESMA and EU securities regulators covering co-operation and exchange of information will come into effect at the end of the transition period, which is set to expire on 31 December 2020.

Source: FCA confirms MoUs with ESMA and EU securities regulators.

FCA eCommerce Directive webpage describes changes at the end of the Brexit transition period

The FCA published a webpage setting out changes facing UK and EEA firms that currently rely on an exclusion host state regulation for e-commerce activities provided from one EEA state to a person in another EEA state under the Electronic Commerce Directive (ECD). The ECD exclusion is on the basis that the host state regulator can rely on the regulation of the firm’s home state because both are within the same EEA regulatory framework. It can be used to cover activities within a financial services passport, but can also cover activities not covered by passporting. It does not cover effecting or carrying out insurance contracts.

Source: e-Commerce Directive—changes at the end of the transition period.

ISDA updates Brexit FAQs (version 8)

The International Swaps and Derivatives Association (ISDA) published version 8 of its Brexit FAQs, which have been updated to assess possible outcomes of the current negotiations in respect of any future EU/UK trading relationship, including a no-deal outcome at the end of the implementation period (IP completion day). The regulatory FAQs have been updated to reflect the position as at 30 June 2020.

Source: Brexit FAQs—Version 8.

HM Treasury consults on UK approach to implementing CRD V

HM Treasury launched a consultation on updating the UK’s prudential regime before the end of the Brexit implementation period. The consultation seeks views on the UK’s approach to transposing the Capital Requirements Directive V (Directive (EU) 2019/878) (CRD V), which amends Directive 2013/36/EU (CRD IV) to update the EU’s regulatory framework for capital and liquidity requirements. CRD V entered into force on 27 June 2019 and must be transposed into national law by 28 December 2020. The consultation closes on 19 August 2020.

Source: Consultation on updating the UK’s Prudential Regime before the end of the transition period.

For further information, see: Impact of Brexit: CRR and prudential regulation—quick guide.

Treasury sets out rationale for amending transitional period for third country benchmarks in the UK

HM Treasury published a policy statement setting out its rationale for extending the transitional period for third country benchmarks under the UK Benchmarks Regulation from 31 December 2022 to 31 December 2025. This will allow UK supervised entities to continue using benchmarks provided by administrators located outside the UK in new financial contracts and instruments without these benchmarks being registered with the FCA until end-2025. This prevents the risk of UK firms losing access after end-2022 to important benchmarks provided by non-UK administrators who are unable or unwilling to apply for continued market access through the existing third country regime under the UK Benchmarks Regulation.

Source: Policy paper: Amending the transitional period for third country benchmarks in the UK.

For further information, see: Impact of Brexit: Benchmarks Regulation—quick guide.

City of London Corporation publishes report on UK cross-border trade in services with Australia

The City of London Corporation published a report, dated 15 July 2020, on UK cross-border trade in services with Australia. The report sets out an analysis of market access for financial services, identifying policy areas where joint focus, either through free trade agreement (FTA) negotiations or other trade tools such as mutual recognition agreements and regulatory dialogue, could address common goals.

Source: City of London Corporation report on UK cross-border trade in services with Australia.

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MiFID II

ESMA publishes MIFIR transparency review reports and extension of remaining MiFID II review reports

ESMA published two Markets in Financial Instruments Regulation (EU) 600/2014 (MIFIR) transparency review reports, one on the MiFIR transparency regime for equity instruments and one on MIFIR pre-trade transparency obligations applicable to systematic internalisers in non-equity instruments. ESMA also published a timeline setting out further extension of remaining MiFID II review reports in light of the COVID-19 pandemic. These upcoming review reports cover SME growth markets, algorithmic trading, organised trading facilities and transaction reporting.

Source: ESMA publishes its first review reports on the MiFIR transparency regime.

For further information, see: MiFID II & MiFIR—pre- and post-trade transparency.

ESMA publishes opinion on pre-trade transparency waivers for equity and non-equity instruments under MiFIR

ESMA published an opinion providing guidance on pre-trade transparency waivers for equity and non-equity instruments under the MiFIR.

Sources: Opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments and   Press release.

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PRIIPs

ESAs notify European Commission of PRIIPs KID review outcome

The European Supervisory Authorities (ESAs) (consisting of ESMA, the European Insurance and Occupational Pensions Authority (EIOPA) and the EBA) wrote to the European Commission regarding the outcome of their review of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). The joint letter follows the consultation paper published on 16 October 2019 on the draft regulatory technical standards (RTS) to amend Delegated Regulation (EU) 2017/653 (the PRIIPs Delegated Regulation).

Sources: ESAs notify the European Commission about the outcome of the review of the PRIIPs key information document,   EBA press release and  ESMA press release.

For further information, see: Packaged Retail and Insurance-based Investment Products (PRIIPs)—essentials.

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UK, EU and international regulators and bodies

Treasury Committee approves FPC and MPC (re)appointments

The Treasury Committee approved the appointment of Jonathan Hall to the Financial Policy Committee (FPC) and the reappointments of Andy Haldane and Silvana Tenreyro to the Monetary Policy Committee (MPC). The Committee held the appointment and reappointment sessions on 20 July 2020 and is satisfied that all three witnesses have the professional competence and personal independence to be appointed or reappointed.

Source: Committee approves appointment of Jonathan Hall to FPC and reappointments of Andy Haldane and Silvana Tenreyro to MPC.

UK-Singapore financial dialogue discusses green finance, closer co-operation and coronavirus (COVID-19) responses

HM Treasury announced that senior UK officials have met with their counterparts from the Monetary Authority of Singapore (MAS) to exchange views on financial market developments and explore areas for deeper co-operation. Discussions focused on responses to the COVID-19 pandemic, green finance and the future UK-Singapore relationship.

Source: Policy paper: UK-Singapore 5th financial dialogue: joint communiqué.

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Authorisation, approval and supervision

FCA consults on Certification Regime implementation extension

The FCA launched a consultation on proposed changes to its rules following the extension to the deadline by which FCA solo-regulated firms need to have implemented the Certification Regime. The FCA says its proposals recognise the exceptional stress placed on financial services firms by the COVID-19 pandemic and the importance for firms to fully and properly implement the Certification Regime and to train staff effectively in the Conduct Rules. Feedback is sought by 14 August 2020.

Source: FCA seeks views on extending the implementation deadlines for the Certification Regime and Conduct Rules.

For further information, see: SM&CR—essentials for solo-regulated firms.

FCA warns of fake Financial Services Register

The FCA announced that it is aware of an attempt to reproduce its Financial Services Register on a non-FCA website. The FCA is currently working to get the page taken down and has alerted members of the public through its website and social media channels.

Source: Fake Financial Services Register website.

HMT policy paper outlines proposal to streamline FCA process for cancelling authorisations

HM Treasury published a policy statement setting out its intention to streamline the FCA’s process for cancelling the authorisation of firms no longer carrying out FCA-regulated activities. The policy statement sets out how the new procedure will work in practice, including the situations in which it can be triggered.

Source: Policy paper: Changes to the FCA’s cancellation of authorisation process.

For further information, see: Financial Conduct Authority—cancelling permission and requirements and  Financial Conduct Authority—authorisation.

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Prudential requirements

EEA Joint Committee decisions on Solvency II, BRRD and CSDR level 2 measures published in Official Journal

Three decisions of the EEA Joint Committee (No 17/2019, No 19/2019 and No 20/2019—dated 8 February 2019) amending Annex IX (Financial services) to the EEA Agreement have been published in the Official Journal. These decisions incorporate a number of level 2 measures and amendments relating to Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (Bank Recovery and Resolution Directive (BRRD)) and Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on central securities depositories (Central Securities Depositories Regulation (CSDR)) into the EEA Agreement.

Sources: Decision of the EEA Joint Committee No 17/2019 of 8 February 2019 amending Annex IX (Financial Services) to the EEA Agreement [2020/936],   Decision of the EEA Joint Committee No 19/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/937], and Decision of the EEA Joint Committee No 20/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/938]

For further information, see: Solvency II—essentialsBank Recovery and Resolution Directive (BRRD)—essentials, and  Central Securities Depositories Regulation—essentials.

Coronavirus (COVID-19)—HoC EU Scrutiny Select Committee highlights EU regulation relaxing capital requirements for banks

The House of Commons European Scrutiny Select Committee published a list of documents to be reported to the House of Commons as legally and/or politically important, which includes an update on the EU’s Proposal for a Regulation amending Capital Requirements  Regulations (EU) No 575/2013 (CRR) and Regulation (EU) 2019/876 (CRR II) as regards adjustments in response to the COVID-19 pandemic. The final Regulation (Regulation (EU) 2020/873) entered into force on 27 June 2020.

Source: Sixteenth Report of Session 2019−21 (section 5).

EBA proposes guidelines on applying the alternative treatment of exposures to tri-party repurchase agreements under CRR II

The EBA launched a consultation on proposed guidelines specifying the conditions that institutions will need to comply with when they use the alternative treatment under the CRR, as amended by CRR II, with regard to tri-party repurchase agreements facilitated by a tri-party agent for large exposures purposes. The consultation closes on 22 October 2020.

Source: EBA consults on guidelines specifying the conditions for the substitution approach in the context of ‘tri-party transactions’ for large exposures purposes.

For further information, see: The treatment of large exposures under CRD IV.

EBA consults on draft RTS on default probabilities and loss given default for default risk model under the internal approach for market risk

The EBA launched a consultation on draft regulatory technical standards (RTS) on default probabilities (PDs) and losses given default (LGDs) for default risk model for institutions using the new internal model approach (IMA) under the Fundamental Review of the Trading Book (FRTB). Responses are sought by 22 October 2020.

Source: EBA consults on draft technical standards on default probabilities and loss given default for default risk model under the internal approach for market risk.

HM Treasury consults on UK approach to implementing CRD V

HM Treasury launched a consultation on updating the UK’s prudential regime before the end of the Brexit implementation period. The consultation seeks views on the UK’s approach to transposing CRD V, which amends CRD IV to update the EU’s regulatory framework for capital and liquidity requirements. CRD V entered into force on 27 June 2019 and must be transposed into national law by 28 December 2020. The consultation closes on 19 August 2020.

Source: Consultation on updating the UK’s Prudential Regime before the end of the transition period.

For further information, see: Impact of Brexit: CRR and prudential regulation—quick guide.

HM Treasury statement on applicability of EU targeted banking package

HM Treasury issued a statement on the applicability in the UK of the EU targeted banking package, which comprises Regulation (EU) 2020/873 amending the CRR and the CRR II to make certain adjustments in response to the COVID-19 pandemic.

Sources: HMT statement—COVID-19 related amendments to the Capital Requirements Regulation and Second Capital Requirements Regulation (Regulation (EU) 2020/873) and   Press release.

PRA article discusses internal models and the calculation of appropriate capital requirements

The Prudential Regulation Authority (PRA) published an article explaining how it checks that insurance firms are ensuring their models continue to produce appropriate capital requirements. It discusses firms’ use of internal models and the concept of model drift, noting that for life insurers, and to a lesser extent general insurers, the observed increases in capital requirements calculated using internal models are significantly lower than the increases in other related measures, such as standard formula capital and best estimate liabilities.

Source: How does the Prudential Regulation Authority check that insurance firms are ensuring their models continue to produce appropriate capital requirements?

ECJ rules on legality of national law on co-operative banks under the CRR

The European Court of Justice (ECJ) issued its judgment in the case of OC and others v Banca d’Italia and others (C-686/18). In its judgment, dated 16 July 2020, the ECJ considered whether Italian legislation adopted by the Bank of Italy as part of its task of prudential supervision of Italian people’s banks was compatible with EU law, including the CRR and Commission Delegated Regulation (EU) 241/2014 (RTS on own funds under the CRR).

Source: OC and others v Banca d’Italia and others C-686/18.

OC and others v Banca d'Italia and others

European Union – Free movement of capital. Article 29 of Regulation (EU) No 575/2013 and arts 16 and 17 of the Charter of Fundamental Rights of the European Union should be interpreted as not precluding legislation of a member state which prohibited people's banks established in that member state from refusing the redemption of capital instruments but which allowed those banks to defer, for an unlimited period, the redemption of the shares held by the withdrawing shareholder and to limit the amount to be redeemed in full or in part, provided that the limitations on redemption imposed when exercising that option did not go beyond what was necessary, in the light of the prudential situation of the banks concerned, in order to ensure that the capital instruments they issued qualify as Common Equity Tier 1 instruments, having regard, in particular, to the matters referred to in art 10(3) of Delegated Regulation (EU) No 241/2014, which was a matter for the referring court to ascertain. The Court of Justice of the European Union (First Chamber) so held, among other things, in proceedings concerning acts adopted by the Bank of Italy as part of its task of prudential supervision of Italian people's banks.

See: [2020] All ER (D) 113 (Jul).

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Financial stability 

FSB stocktake shows most financial authorities consider climate risks

The Financial Stability Board (FSB) published a stocktake of financial authorities’ experience in including climate-related risks in financial stability monitoring. The stocktake includes information provided by national authorities, international and private sector bodies. Around three-quarters of those surveyed plan to consider climate-related risks in financial stability monitoring. Certain financial authorities have quantified climate-related risks although no such approach provides a complete assessment of these risks to the global financial system.

Source: FSB stocktake considers climate risks and financial stability .

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Risk management and controls

EBA issues latest report on remuneration practices in EU banks

The EBA published its report on benchmarking of remuneration practices in EU banks for the financial years 2017 and 2018 and high earners data for 2018. The report shows a significant increase in high earners between 2010 and 2018, while the number of identified staff decreased significantly from 2016 to 2018. The report also concludes that there was insufficient harmonisation in remuneration practices across institutions and Member States.

Source: The EBA observes an increase in high earners in 2018 and the persistence of differences in remuneration practices across the EU.

FCA says firm culture is still key for remuneration committees

The FCA wrote to chairs of remuneration committees setting out its findings and observations from the 2019/20 remuneration round and how it plans to assess firms’ remuneration policies and practices throughout 2020/21. Culture in financial services remains a key area of focus for the FCA across all sectors.

Source: Letter to Remuneration Committee chairs.

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Financial crime

European Commission call for tenders on new AML/CTF programme

The European Commission published a call for tenders entitled: ‘Preparatory action—Capacity building, programmatic development and communication in the context of the fight against money laundering and financial crimes’. The deadline for receipt of the tenders is 8 October 2020, 16:00 (Brussels time).

Source: A call for tender (reference FISMA/2020/OP/0005) entitled ‘Preparatory action—capacity building, programmatic development and communication in the context of the fight against money laundering and financial crimes’ has been published.

For further information, see: The anti-money laundering regime.

HM Treasury seeks views on economic crime levy

HM Treasury opened a consultation on the subject of the economic crime levy, which the government intends to introduce to fund new government action to combat money laundering, and help deliver the reforms committed to in the 2019 Economic Crime Plan. HM Treasury seeks views ‘on the design principles of the levy, and how this levy could operate in practice, to ensure that it is proportionate and effective’. It is hoped that the levy will raise approximately £100m per year. The consultation closes on 14 October 2020.

Source: Economic Crime Levy consultation.

Fraudster sentenced to two years in custody for £110,000 scam

UK Finance reported that Christopher Mambi, 22, from North London, who committed £116,382 of fraud between 17 October 2019 and 29 December 2019, has received a custodial sentence of two years and six months at Inner London Crown Court after pleading guilty to 22 counts of fraud. Mambi was initially given a 17-month suspended sentence for fraud in 2019. However, he continued to commit further offences by using fraudulent bank cards and providing false address and name details to commit fraud. The investigation into Mambi’s offences was conducted by the Dedicated Card and Payment Crime Unit (DCPCU), a specialist police unit sponsored by the banking and finance industry that investigates the criminals responsible for fraud. Detective Sergeant Ben Hobbs investigated the case for the DCPCU and said ‘this sentencing is a warning to those who believe they can benefit financially from fraud that they will be caught and punished’.

Source: Dalston criminal sentenced for £110k scam.

GLEIF blog on the role of legal entity identifiers in EU AML-CTF legislative reforms

The Global Legal Entity Identifier Foundation (GLEIF) published a blog on the role of legal entity identifiers (LEIs) in the European Commission’s anti-money laundering and counter-terrorist financing (AML-CTF) legislative reforms. In May 2020 the Commission put forward a series of measures designed to strengthen the EU's AML-CTF rules, including an Action Plan for legislative reform of the EU’s AML-CTF framework in early 2021. GLEIF argues that the LEI ‘harnesses precisely the kind of technological innovation referenced in the Action Plan’.

Source: Supporting the EC’s illicit money clampdown.

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Consumer protection

FCA publishes FS20/12: Intergenerational differences—summary of responses and next steps

The FCA published feedback statement FS20/12 setting out the FCA’s approach to intergenerational differences following feedback to the FCA’s discussion paper DP19/2 on the topic published in May 2019. FS20/12 responds to stakeholder feedback, sets out why intergenerational difference is an important issue, and on the basis of its findings and the feedback received, sets out where the financial services sector can do more to meet consumer needs. The FCA has also published a video of its conference held in July 2019, discussing issues on the intergenerational financial challenges.

Sources: FCA webpage: FS20/12: Intergenerational differences: summary of responses and next steps,   FS20/12: Intergenerational differences: summary of responses and next steps—Feedback to DP19/2 and  FCA video: intergenerational differences.

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Conduct requirements

HM Treasury consults on new regulatory framework for approval of financial promotions

HM Treasury launched a consultation on its proposals to establish a regulatory ‘gateway’ through which authorised firms must pass before they can approve the financial promotions of unauthorised firms. The proposals are intended to strengthen the ability of the FCA to ensure the approval of financial promotions operates effectively. The consultation closes on 25 October 2020.

Source: Open consultation: Regulatory framework for approval of financial promotions.

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Complaints, compensation and claims management

FCA, PRA and Bank of England consult on Complaints Scheme

The FCA,PRA and the Bank of England (BoE) (the Regulators) launched a joint consultation paper (FCA—CP20/11 and PRA—CP8/20) on Complaints against the Regulators under the Financial Regulators’ Complaints Scheme (the Scheme). The Regulators are proposing a revised version of the Complaints Scheme which is more user friendly, using plain language to make it more accessible. The closing date for responses to this consultation is 14 September 2020.

Source: FCA, PRA and Bank of England launch Complaints Scheme consultation.

For further information, see: Complaints against UK financial services regulators.

Complaints Commissioner annual report and FCA response published

The Office of the Complaints Commissioner published ‘Reviewing how the financial services regulators consider complaints: Annual report 2019/20’, to which the FCA responded.

Sources: Reviewing how the financial services regulators consider complaints: Annual report 2019/2020—Issued 16 July 2020 and   The Financial Conduct Authority’s response to the Complaints Commissioner’s Annual report 2019–20.

Complaints Commissioner criticises FCA for delay and refusal to reimburse costs

The FCA responded to two reports issued by the Complaints Commissioner in June 2020. While the FCA agreed with some of the Commissioner’s recommendations, it did not agree with a recommendation to reimburse professional costs that may have been incurred for quantifying losses.

Sources: FCA response 00633 and FCA response to 00738.

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Regulation of benchmarks and IBOR reform

Treasury sets out rationale for amending transitional period for third country benchmarks in the UK

HM Treasury published a policy statement setting out its rationale for extending the transitional period for third country benchmarks under the UK Benchmarks Regulation from 31 December 2022 to 31 December 2025. This will allow UK supervised entities to continue using benchmarks provided by administrators located outside the UK in new financial contracts and instruments without these benchmarks being registered with the FCA until end-2025. This prevents the risk of UK firms losing access after end-2022 to important benchmarks provided by non-UK administrators who are unable or unwilling to apply for continued market access through the existing third country regime under the UK Benchmarks Regulation.

Source: Policy paper: Amending the transitional period for third country benchmarks in the UK.

For further information, see: Impact of Brexit: Benchmarks Regulation—quick guide.

Working Group discuss development of sterling risk-free reference rates

The BoE published the meeting minutes of the Working Group on Sterling Risk-Free Reference Rates–May 2020. The Working Group on Sterling Risk-Free Reference Rates, which is made up of experts from major sterling swap dealers, discussed the development of sterling risk-free reference rates in a virtual meeting held on 14 May 2020. Also noted in the meeting minutes is consideration of the Tough Legacy Task Force paper, the impact of COVID-19 on the transition and next steps on credit spread methodologies for fallbacks in cash products referencing GBP LIBOR.

Source: Minutes of the Working Group on Sterling Risk-Free Reference Rates - May 2020 .

BoE updates ‘Transition to sterling risk-free rates from LIBOR’ webpage

The BoE updated its ‘Transition to sterling risk-free rates from LIBOR’ webpage by including a section on the Non-Linear Derivatives Task Force.

Source: Working Group updates (2019 onwards).

For further information, see: LIBOR transition.

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Regulation of capital markets

EEA Joint Committee decisions on Solvency II, BRRD and CSDR level 2 measures published in Official Journal

Three decisions of the EEA Joint Committee (No 17/2019, No 19/2019 and No 20/2019—dated 8 February 2019) amending Annex IX (Financial services) to the EEA Agreement have been published in the Official Journal. These decisions incorporate a number of level 2 measures and amendments relating to Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (Bank Recovery and Resolution Directive (BRRD)) and Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on central securities depositories (Central Securities Depositories Regulation (CSDR)) into the EEA Agreement.

Sources: Decision of the EEA Joint Committee No 17/2019 of 8 February 2019 amending Annex IX (Financial Services) to the EEA Agreement [2020/936],   Decision of the EEA Joint Committee No 19/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/937], and Decision of the EEA Joint Committee No 20/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/938]

For further information, see: Solvency II—essentialsBank Recovery and Resolution Directive (BRRD)—essentials, and  Central Securities Depositories Regulation—essentials .

Association for Financial Markets in Europe releases Q2 2020 data snapshot

The Association for Financial Markets in Europe (AFME) published its data snapshot on AFME securitisation for the second quarter of 2020. Key highlights of the Q2 2020 European Issuance include the fact that €49.9bn of securitised product was issued in Europe, an increase of 65.8% from Q1 2020 and a decrease of 17.8% from Q2 2019. Of this, €13.2bn was placed, representing 26.5% of the total, compared to 71.1% placed in Q1 and 45.6% in Q2 2019.

Source: AFME Securitisation Data Snapshot: Q2 2020 .

FCA consultation on delaying implementation of ESEF published

The FCA published a consultation on the proposed delay to the implementation of the European Single Electronic Format (ESEF). The consultation closes on 28 August 2020.

Source: CP20/12: Consultation on delay to the implementation of the European Single Electronic Format.

PRA publishes PS17/20 updating SS9/13 on Securitisation: significant risk transfer

Th ePRA published policy statement PS17/20, which provides updates to supervisory statement SS9/13, Securitisation: Significant Risk Transfer, as consulted on in chapter 8 of consultation paper CP3/20, ‘Occasional Consultation Paper—March 2020’. The PRA notes that it received no responses to this chapter of CP3/20 and has made no changes to the draft policy.

Source: Responses to Occasional Consultation Paper 3/20—Chapter 8: Securitisation: Updates to significant risk transfer.

AIMA report says short selling is an essential tool for responsible investment

The Alternative Investment Management Association (AIMA) and law firm Simmons & Simmons published a report titled ‘Short Selling and Responsible Investment’ which examines how short selling can be used in the context of responsible investment. The paper notes that short selling can be an excellent tool for achieving two common goals of contemporary responsible investment: mitigating undesired environmental, social, and governance (ESG) risks and, when taken in aggregate, creating an economic impact by influencing the nature of capital flows through ‘active’ investing.

Source: Short selling is an essential tool for responsible investment: Enabling investors to hedge against ESG risks, create positive impact.

 

Regulation of derivatives

ISDA announces release of Collateral Management Transformation Toolkit

ISDA announced the release of its the Collateral Management Transformation (CMT) Toolkit. The CMT Toolkit was developed to help ISDA members ‘identify some of the collateral management operational processes that could benefit from efficiency improvements' and builds on recommendations from ISDA’s 2017 document titled ‘A Blueprint for the Optimal Future State of Collateral Processing’. The blueprint provides a set of principles that the industry could work towards given the ever-changing nature of the collateral management process. Members can download the toolkit by filling in their details on the ISDA website.

Source: Collateral Management Transformation Toolkit – Custodial Onboarding Process.

ISDA details global IM collected for derivatives in the first quarter of 2020

ISDA published the ‘Global IM Collected for Derivatives in the First Quarter of 2020'. The publication highlights that there was a high increase in initial margin (IM) collected by global central counterparties (CCPs) for over-the-counter derivatives and exchange-traded derivatives (ETD) throughout the first quarter of 2020. The cause of this was sizeable asset price movements that led to large variation margin and IM calls from CCPs. Also during this period, traded and cleared derivatives volumes increased in the first quarter of 2020 due to market volatility created from COVID-19. Moreover, total IM for interest rate derivatives and credit default swaps reached $US 342.8bn at the end of the first quarter. an increase of 51.9% from the end of the first quarter of 2019.

Source: Global IM Collected for Derivatives in the First Quarter of 2020.

Paper promotes role of derivatives in sustainable finance

The European Capital Markets Institute (ECMI) of the Centre for European Policy Studies (CEPS) published a paper concerning the roles of derivatives in sustainable finance, in light of the growing focus on sustainability for policymakers. The report demonstrates that derivatives can contribute by helping the EU to raise and channel the required capital towards sustainable investments, helping firm hedge risks concerning environment, social and governance factors, facilitating transparency, price discovery, market efficiency and contributing to long-termism.

Source: Derivatives in Sustainable Finance: Enabling the Green Transition.

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Investment funds and asset management

ESMA publishes translations of guidelines on liquidity stress testing in UCITS and AIFs

ESMA issued the official translations of its guidelines on liquidity stress testing (LST) in UCITS and AIFs. National competent authorities (NCAs) to which these guidelines apply must notify ESMA whether they comply or intend to comply within two months.

Sources: ESMA publishes translations for guidelines on liquidity stress testing in UCITS and AIFs and   Guidelines on liquidity stress testing in UCITs and AIFs.

For further information, see: AIFMD—essentials and   Undertakings for Collective Investment in Transferable Securities (UCITS)—essentials.

AIMA report says short selling is an essential tool for responsible investment

The Alternative Investment Management Association (AIMA) and law firm Simmons & Simmons published a report titled ‘Short Selling and Responsible Investment’ which examines how short selling can be used in the context of responsible investment. The paper notes that short selling can be an excellent tool for achieving two common goals of contemporary responsible investment: mitigating undesired environmental, social, and governance (ESG) risks and, when taken in aggregate, creating an economic impact by influencing the nature of capital flows through ‘active’ investing.

Source: Short selling is an essential tool for responsible investment: Enabling investors to hedge against ESG risks, create positive impact.

 

Securities financing transactions

ICMA says nearly 1.5m trades were reported under SFTR in the first week

The International Capital Markets Association (ICMA) says that in the first week of reporting under the Securities Financing Transactions Regulation 2015/2365 (SFTR), firms have reported 1,435,727 SFTs, with a cash value of EUR14.3trn and collateral value of EUR17.8trn. Repo (both repurchase transactions and buy/sell-backs) accounted for 398,006 transactions (27.7% of the total), a total cash value of EUR13.5trn (94.7%) and collateral value of EUR17.5trn (98.4%).

Source: Almost 1.5m trades reported under SFTR in week one.

For further information, see: Securities Financing Transactions Regulation (SFTR)—essentials.

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Crowdfunding

Council of the EU adopts new rules for crowdfunding platforms

The Council of the EU issued a press release announcing that it has adopted at first reading new rules to improve the way crowdfunding platforms operate across the EU. The new rules consist of the European Crowdfunding Service Providers Regulation and a MiFID II Amending Directive. The Regulation now needs to be adopted by the European Parliament at second reading before it can be published in the Official Journal and enter into force.

Source: Capital markets union: Council adopts new rules for crowdfunding platforms.

For further information, see: The regulation of crowdfunding platforms.

 

Banks and mutuals

PRA consults on approach to supervising new and growing UK banks

The PRA published consultation paper CP9/20, in which it sets out its proposed approach to supervising new and growing non-systemic UK banks. All the proposals are clarifications of the PRA’s current supervisory approach with the exception of proposed changes to the calculation of the PRA buffer for new banks and setting expectations in relation to solvent wind down plans. The consultation ends on 14 October 2020.

Sources: Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks and  Climbing mountains safely—Speech by Sarah Breeden.

EBA issues latest report on remuneration practices in EU banks

The EBA published its report on benchmarking of remuneration practices in EU banks for the financial years 2017 and 2018 and high earners data for 2018. The report shows a significant increase in high earners between 2010 and 2018, while the number of identified staff decreased significantly from 2016 to 2018. The report also concludes that there was insufficient harmonisation in remuneration practices across institutions and Member States.

Source: The EBA observes an increase in high earners in 2018 and the persistence of differences in remuneration practices across the EU.

EBA looks for ways to reduce reporting costs

The EBA announced that it is looking for ways to optimise supervisory reporting requirements and reduce reporting costs for institutions, especially smaller ones. To facilitate this effort, the EBA launched a questionnaire addressed to European banks and a call for case studies to obtain evidence on reporting costs as well as industry views on ways to reduce such costs and make the supervisory reporting more efficient. Responses to the questionnaire are expected by 1 October 2020 and submission of the case studies are expected by 31 October 2020.

Source: EBA is looking into ways to reduce reporting costs.

FCA draft guidance on branch or ATM closures

The FCA has published draft guidance on its expectations of firms when closing a branch or ATM (or converting a free to use ATM to a pay to use ATM). The draft guidance applies to FCA-regulated firms that operate physical sites like bank branches, building society branches, credit union offices or cashpoints. The consultation closes on 30 July 2020.

Source: FCA provides guidance to firms on maintaining access to cash for customers.

Coronavirus (COVID-19)—ECB paper looks at firms’ expectations on access to finance

The European Central Bank (ECB) published a working paper setting out firms’ expectations on access to finance at the early stages of the COVID-19 pandemic. It provides novel information on the propagation of the pandemic-induced real shock to firms’ financial conditions. It uses firm-level survey data from end February to early April 2020 for a large sample of euro area SMEs and large firms.

Source: Firms’ expectations on access to finance at the early stages of the COVID-19 pandemic.

Coronavirus (COVID-19)—HoC EU Scrutiny Select Committee highlights EU regulation relaxing capital requirements for banks

The House of Commons European Scrutiny Select Committee published a list of documents to be reported to the House of Commons as legally and/or politically important, which includes an update on the EU’s Proposal for a Regulation amending the CRR and CRR II as regards adjustments in response to the COVID-19 pandemic. The final Regulation (Regulation (EU) 2020/873) entered into force on 27 June 2020.

Source: Sixteenth Report of Session 2019−21 (section 5).

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Consumer credit, mortgage and home finance

COVID-19—UK Finance blog sets out further support for personal loan, credit card and overdraft customers

Following the FCA’s updated guidance to enable lenders to provide further relief for customers whose finances are temporarily affected by the COVID-19 pandemic, UK Finance published a blog noting that its members have provided 1,018,246 credit card and 707,421 personal loan payment deferrals and have made available over 27m interest free overdraft buffers on the first £500 of borrowing.

Source: Further support for personal loan, credit card and overdraft customers.

For further information, see: FCA: Treating Customers Fairly—essentials.

Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

SI 2020/Draft: These draft Regulations are laid to establish the first part of a debt respite scheme for people in problem debt. This part gives eligible people in problem debt who receive professional debt advice access to a 60-day period in which interest, fees and charges are frozen and enforcement action is paused in England and Wales. They come into force partly on the day that section 157, 181, and 187 of the Renting Homes (Wales) Act 2016 and Schedule AA1 to the Mental Capacity Act 2005 come into force, and fully on 4 May 2021.

The full draft legislation can be found here. The draft explanatory memorandum can be found here.

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Regulation of insurance

EEA Joint Committee decisions on Solvency II, BRRD and CSDR level 2 measures published in Official Journal

Three decisions of the EEA Joint Committee (No 17/2019, No 19/2019 and No 20/2019—dated 8 February 2019) amending Annex IX (Financial services) to the EEA Agreement have been published in the Official Journal. These decisions incorporate a number of level 2 measures and amendments relating to Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (Bank Recovery and Resolution Directive (BRRD)) and Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on central securities depositories (Central Securities Depositories Regulation (CSDR)) into the EEA Agreement.

Sources: Decision of the EEA Joint Committee No 17/2019 of 8 February 2019 amending Annex IX (Financial Services) to the EEA Agreement [2020/936],   Decision of the EEA Joint Committee No 19/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/937], and Decision of the EEA Joint Committee No 20/2019 of 8 February 2019 amending Annex IX (Financial services) to the EEA Agreement [2020/938]

For further information, see: Solvency II—essentialsBank Recovery and Resolution Directive (BRRD)—essentials, and  Central Securities Depositories Regulation—essentials .

EIOPA issues supervisory statement on coronavirus (COVID-19) and the treatment of credit insurance schemes under Solvency II

The European Insurance and Occupational Pensions Authority (EIOPA) published a supervisory statement on the Solvency II recognition of schemes based on reinsurance with regard to the COVID-19 and credit insurance. It sets outs EIOPA’s view on the exceptional supervisory treatment—for Solvency II (Directive 2009/138/EC) purposes—of schemes based on reinsurance implemented by Member States in the context of the European Commission ‘Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak’ adopted on 19 March 2020.

Source: Supervisory statement on the Solvency II recognition of schemes based on reinsurance with regard to COVID-19 and credit insurance.

EIOPA publishes ultimate forward rate for 2021

EIOPA published the calculation of the ultimate forward rate (UFR) for 2021. For the euro, the applicable UFR as of 1 January 2021 will be 3.6%.

Source: EIOPA publishes the ultimate forward rate (UFR) for 2021.

EIOPA report examines impact of ultra-low yields on the insurance sector

EIOPA published a report on the impact of ultra-low yields on the insurance sector, including the first effects of the COVID-19 crisis. EIOPA says the ultra-low interest rate environment remains a key concern for the insurance market as it constitutes one of the most important sources of systemic risk for insurers for the future.

Source: Ultra-low yields and COVID-19 crisis significantly affecting the European insurance sector.

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Business interruption insurance test case

FCA publishes draft transcript of first day of business interruption insurance test case trial

The FCA published a draft transcript of the first day of the business interruption (BI) insurance test case trial, which occurred on 20 July 2020, on its website. The FCA says a final transcript will be published when it is available.

Sources: Business interruption insurance and  Business Interruption Insurance Test Case Draft Transcript of Day 1 of Trial (20 July 2020).

Hearing details for business interruption insurance test case published

The HM Courts & Tribunals Service announced that the hearing of the Financial Conduct Authority business interruption test case will commence on 20 July​ 2020 at 10.30 am.

Source: Business and Property Courts Rolls Building Cause List.

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Payment services and systems

EDPB consults on interplay of Second Payment Services Directive and GDPR

The European Data Protection Board (EDPB) opened the consultation period on ‘Guidelines 06/2020 on the interplay of the Second Payment Services Directive and the GDPR’. Comments should be sent by 14 September 2020.

Source: Guidelines 06/2020 on the interplay of the Second Payment Services Directive and the GDPR - version for public consultation .

For further information, see: Payment Services Directive 2 (PSD2)—one minute guide.

PSR publishes decisions on applications for exemption from the requirement to introduce Confirmation of Payee

The Payment Systems Regulator (PSR) published its decisions on 16 applications for exemption from the requirement to introduce Confirmation of Payee. The PSR approved 15 applications for exemptions under the terms of Specific Direction 10 (Confirmation of Payee) and issued revised deadlines as appropriate. The PSR refused one application.

Sources: Decisions on applications for exemption from the requirement to introduce Confirmation of Payee (CoP) July 2020 and   Press release.

Joint Authorities Cash Strategy Group publishes update on cash infrastructure developments

HM Treasury published an update on developments within the UK’s cash infrastructure and the work of the Joint Authorities Cash Strategy (JACS) Group, which comprises HM Treasury, the FCA, the BoE and the PSR.

Source: Joint Authorities Cash Strategy Group: update.

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Fintech and cryptoassets

HM Treasury consults on proposal to regulate cryptoassets promotions

HM Treasury launched a consultation on its proposal to bring certain cryptoassets into the scope of financial promotions regulation. Under the proposal, the perimeter of the financial promotions regime would be expanded to include certain types of cryptoasset for the first time, with the aim of enhancing consumer protection while continuing to promote responsible innovation. The consultation closes on 25 October 2020.

Sources: Open consultation: Cryptoasset promotions and   Proposals to strengthen protections around promotion of financial products and cryptoassets published.

Treasury launches review to boost UK fintech sector

The economic secretary to the Treasury, John Glen, announced a review into the UK’s financial technology industry to identify opportunities to support further growth in the sector. The independent Fintech Strategic Review, which will be led by Ron Kalifa OBE, former CEO of Worldpay, will establish priority areas for industry, policy makers and regulators to explore in order to support the ongoing success of the UK fintech sector.

Source: Review launched to boost UK fintech sector.

WFE calls for taxonomy of global stablecoins and cryptoassets

The World Federation of Exchanges (WFE) responded to the FSB consultation addressing the regulatory, supervisory and oversight challenges raised by global stablecoin (GSC) arrangements. WFE generally welcomed the FSB’s approach and recommendations, but called for an expanded application of the proposals by creating a taxonomy for all GSC and cryptoassets, applying the recommendations to all cryptoassets, and applying the cross-border cooperation recommendations and information-sharing requirements to the supervision of all those trading GSC/crypto-assets.

Source: The World Federation of Exchanges calls to address development of global stablecoins with a taxonomy—and to include crypto-assets.

FCA and City of London Corporation to collaborate on coronavirus (COVID-19) ‘digital sandbox’

The FCA and the City of London Corporation announced that they are to collaborate on the pilot of a ‘digital sandbox’ to support innovative firms tackling challenges caused by the COVID-19 pandemic. The partnership will see both organisations work together to develop and launch a digital testing environment to provide firms with access to high-quality data sets to allow for the testing and validation of technology solutions.

Source: FCA and City Corporation collaborate to help innovative companies drive recovery from coronavirus.

 

Sustainable finance

Commission publishes new rules for EU climate benchmarks and ESG disclosures

The European Commission published the texts of three delegated regulations which it adopted on 17 July 2020, supplementing the Benchmarks Regulation (EU) 2016/1011 and setting out minimum technical requirements for EU climate benchmarks, as well as a number of environmental, social and governance (ESG) disclosure requirements.

Sources: Commission Delegated Regulation (EU) …/... supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and publishedCommission Delegated Regulation (EU) …/... supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the minimum content of the explanation on how environmental, social and governance factors are reflected in the benchmark methodology and  Commission Delegated Regulation (EU) …/... supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks.

For further information, see: Voluntary environmental, social and corporate governance (ESG) reporting.

New rules adopted by the European Commission for EU Climate Benchmarks

The European Commission adopted new rules setting out minimum technical requirements for EU Climate Benchmarks. The EU Climate Benchmarks is an initiative that aims to ensure that investors wishing to adopt climate-conscious investment strategies can make informed decision and do not fall for ‘financial products being marketed as “green” or more generally “sustainable”, when in fact they do not meet basic environmental standards’. As part of the technical requirements, the sectors to which the benchmark is allocated are now ‘required to reduce their carbon emissions from one year to the next’. The new rules adopted by the Commission also include several Environmental, Social and Governance disclosure requirements. This initiative is part of the Commission’s sustainable finance agenda and will contribute to increase the level of transparency and comparability of products available to the public.

Source: Sustainable Finance: Commission adopts new rules for EU Climate Benchmarks.

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

FSB stocktake shows most financial authorities consider climate risks

The FSB published a stocktake of financial authorities’ experience in including climate-related risks in financial stability monitoring. The stocktake includes information provided by national authorities, international and private sector bodies. Around three-quarters of those surveyed plan to consider climate-related risks in financial stability monitoring. Certain financial authorities have quantified climate-related risks although no such approach provides a complete assessment of these risks to the global financial system.

Source: FSB stocktake considers climate risks and financial stability .

Paper promotes role of derivatives in sustainable finance

The ECMI of the CEPS published a paper concerning the roles of derivatives in sustainable finance, in light of the growing focus on sustainability for policymakers. The report demonstrates that derivatives can contribute by helping the EU to raise and channel the required capital towards sustainable investments, helping firm hedge risks concerning environment, social and governance factors, facilitating transparency, price discovery, market efficiency and contributing to long-termism.

Source: Derivatives in Sustainable Finance: Enabling the Green Transition.

ESAs and AFME respond to Commission consultation on Renewed Sustainable Finance Strategy

The AFME and the ESAs responded to the European Commission’s consultation on a Renewed Sustainable Finance Strategy. The ESAs support the Commission’s ambition to strengthen the European policy framework to enhance the resilience of the financial sector to environmental, social and governance (ESG) risks, and facilitate the ongoing transformation towards a more sustainable economy, but highlight certain topics of importance. AFME calls for more clarity of the roadmap to 2050, better data, and a more holistic approach.

Sources: ESAs joint letterESMA responds to European Commission consultation on renewed sustainable finance strategyEBA response to European Commission’s consultation on the Renewed Sustainable Finance StrategyEIOPA responds to the European Commission’s consultation on a renewed sustainable finance strategy and  Banks call for more clarity over roadmap to 2050 decarbonisation targets.

ISDA responds to Renewed Sustainable Finance Strategy consultation

ISDA responded to the European Commission’s consultation on the Renewed Sustainable Finance Strategy. The ISDA has responded to questions which relate to derivatives, and endorsed responses made by the Association for Financial Markets in Europe.

Source: ISDA Publishes Response to European Commission Consultation on the Renewed Sustainable Finance Strategy.

IE calls on Commission to increase the supply of sustainable investments

Insurance Europe (IE) responded to the European Commission consultation on sustainable finance strategy, calling on the Commission to increase the supply of suitable sustainable investments, ensure proportionate environmental, social and governance (ESG) rules and increase access to data.

Source: EC must act to increase supply of suitable sustainable investments, ensure proportionate ESG rules and increase access to data.

Global Infrastructure Investor Association survey notes rising role of ESG factors

The Global Infrastructure Investor Association (GIIA) published the results of its ‘Infrastructure Pulse Survey’ of the European and Americas markets. This quarterly survey aims to provide a regular snapshot of sentiment in the sector while monitoring emerging trends.

Source: New Infrastructure Pulse Survey.

AIMA report says short selling is an essential tool for responsible investment

The AIMA and law firm Simmons & Simmons published a report titled ‘Short Selling and Responsible Investment’ which examines how short selling can be used in the context of responsible investment. The paper notes that short selling can be an excellent tool for achieving two common goals of contemporary responsible investment: mitigating undesired environmental, social, and governance (ESG) risks and, when taken in aggregate, creating an economic impact by influencing the nature of capital flows through ‘active’ investing.

Source: Short selling is an essential tool for responsible investment: Enabling investors to hedge against ESG risks, create positive impact.

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Dates for your diary

 

DateSubjectEvent

 

26 July 2020

 

 

Prudential requirements

 

 

Art 34(g) of Commission Delegated Regulation (EU) 2018/959 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards of the specification of the assessment methodology under which competent authorities permit institutions to use Advanced Measurement Approaches for operational risk will apply from this date.

 

31 July 2020

 

Payment services and systems

 

Deadline for responses to the BoE’s  Industry Review of the clearing house automated payment system (CHAPS) enhanced ISO 20022 messages.

 

31 July 2020

 

Conduct requirements

 

The Conduct of Business Sourcebook (Platform Switching) Instrument 2019 comes into force on this date.

 

31 July 2020

 

Financial stability

 

Deadline for responses to FSB’s consultation on report on ’ Guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution’.

31 July 2020

 

UK, EU and international regulators and bodies

 

Deadline for responses to chapters 4 of FCA consultation paper ‘CP20/7: Quarterly Consultation No 28’.

 

 

 

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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.