FS weekly highlights—30 July 2020

FS weekly highlights—30 July 2020

In this issue

 

 

Coronavirus (COVID-19)
Brexit news
MiFID II
UK, EU and international regulators and bodies
Prudential requirements
Financial stability, recovery and resolution
Risk management and controls
Financial crime
Consumer protection
Investigations, enforcement and discipline
Dispute resolution for financial services lawyers
Regulation of benchmarks and IBOR reform
Regulation of capital markets
Regulation of derivatives
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.

Coronavirus (COVID-19)—EBA issues guidelines on SREP flexibility

The European Banking Authority (EBA) published guidelines that make available to competent authorities a special procedure for the supervisory review and evaluation process (SREP) for the year 2020. The new guidelines identify how flexibility and pragmatism could be exercised in relation to the SREP framework in the context of the pandemic.

Source: EBA publishes guidelines on a pragmatic and flexible approach to the 2020 supervisory review and evaluation process in light of the COVID-19 pandemic.

Coronavirus (COVID-19)–ECB extends recommendation against paying dividends to January 2021

The European Central Bank (ECB) extended its recommendation that banks should not pay dividends or buy back shares during the COVID-19 pandemic until 1 January 2021, and has asked banks to be ‘extremely moderate’ in relation to variable remuneration. It has also clarified the pace at which it will expect banks to restore their capital and liquidity positions. The Prudential Regulation Authority (PRA) issued a statement noting the ECB’s announcement and confirming that the PRA will undertake its assessment of firms’ distribution plans beyond the end of 2020 in Q4 2020.

Sources: ECB extends recommendation not to pay dividends until January 2021 and clarifies timeline to restore buffers and  PRA statement on dividend payments and share buybacks beyond 2020.

Coronavirus (COVID-19)—ECB executive discusses risk factors for financial sector

The ECB published an interview with a member of its executive board, Fabio Panetta, in which he discusses the EU’s coronavirus (COVID-10) economic response, the state of the European Single Market, and the risks facing banks, including a potential new wave of non-performing loans and a low interest rate environment.

Source: Interview with La Repubblica.

ECB and Magyar Nemzeti Bank agree repo line

The ECB and the Magyar Nemzeti Bank (MNB) agreed to set up a repo line arrangement to provide euro liquidity to Hungarian financial institutions to address possible euro liquidity needs in the presence of market dysfunctions due to the COVID-19 shock.

Source: ECB and Magyar Nemzeti Bank set up repo line to provide euro liquidity.

ECB analysis suggests EU banks can withstand coronavirus (COVID-19) stress

The ECB published the aggregate results of its vulnerability analysis of banks directly supervised within the single supervisory mechanism. The exercise assessed how the economic shock caused by the COVID-19 outbreak would impact 86 euro-area banks and aimed to identify potential vulnerabilities within the banking sector over a three-year horizon. Overall, the results show that the euro area banking sector can withstand the pandemic-induced stress.

Source: Euro area banking sector resilient to stress caused by coronavirus, ECB analysis shows.

AFME responds to the European Commission’s proposals on post-coronavirus (COVID-19) recovery

The Association for Financial Markets in Europe (AFME) issued a press release welcoming the European Commission’s proposals regarding financial markets regulations to facilitate the economic recovery post-COVID-19 crisis, saying that the proposals were a step in the right direction.

Source: AFME reaction to the European Commission’s proposals on post-COVID-19.

Luis de Guindos discusses the financial lessons of the coronavirus (COVID-19) pandemic

The vice-president of the ECB, Luis de Guindos, delivered a speech on ‘Building the financial system of the 21st century: an agenda for Europe and the United States’, in which he discussed the impact of the COVID-19 pandemic, its capacity to accelerate ongoing transformations in the financial sector landscape, and the importance of macroprudential policy in both the bank and non-bank financial sectors to safeguard a stable financial system.

Source: Building the financial system of the 21st century.

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Brexit news

EBA calls on financial institutions to finalise preparations for the end of Brexit transitional arrangements

The EBA reminded financial institutions to adequately prepare for the end of the transition period between the EU and the UK. The EBA calls on the institutions to finalise the full execution of their contingency plans in accordance with the conditions agreed with the relevant competent authorities and ensure adequate communication to concerned EU customers. The EBA stresses that contingency plans remain especially relevant for payment and electronic money institutions.

Source: EBA calls on financial institutions to finalise preparations for the end of the transitional arrangements between the EU and UK.

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

Brexit Bulletin—negotiators target a deal on the future UK-EU relationship by October, but urge preparation for all possible outcomes

In a familiar round of remarks, the UK and EU reported continued deadlock on core issues following the fifth round of talks on the future UK-EU relationship. Once again, both sides reported constructive discussions and positive progress in some areas, but they also highlighted considerable differences on their respective red-lines. Despite this, the talks continue into August 2020, with negotiators on both sides still aiming to reach an agreement. With the Prime Minister's hopes of a deal in July ruled out, UK chief negotiator David Frost believes 'agreement can still be reached in September'. EU chief negotiator Michel Barnier reaffirmed the EU's 'willingness' to reach a deal, but warned that it was 'unlikely' at present, due to the UK's position on competition and fisheries. In light of the continued difficulties and lack of time remaining, both sides acknowledged the possibility of a no-deal outcome, urging preparation for 'all possible scenarios' at the end of the transition period on 31 December 2020.

Sources: David Frost's statement following the conclusion of round 5 negotiations with the EU and Press statement by Michel Barnier following Round 6 of the negotiations for a new partnership between the European Union and the United Kingdom.

Lloyd's of London Part VII Transfer update

Lloyd's of London (Lloyd's) issued an update, stating that the effective date for the transfer of EEA policyholder business to Lloyd’s Insurance Company S.A. (Lloyd’s Europe) has been extended to 30 December 2020 (IP completion day).

Source: The scheme effective date for the transfer of EEA policyholder business from Lloyd’s to LIC has been extended..

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MiFID II

ESMA publishes annual MiFID II/MiFIR report on transparency for bonds, structured finance products, emission allowances and derivatives transparency

The European Securities and Markets Authority (ESMA) published a final report under Commission Delegated Regulation (EU) 2017/583, supplementing Regulation (EU) No 600/2014 on markets in financial instruments (MiFIR) with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives.

Source: ESMA publishes the MiFID/MiFIR annual review report.

ESMA updates list of third country venues for MiFIR transparency opinion

ESMA updated the list of third country venues (TCTV) in the annex to its opinion on post-trade transparency under MiFIR. It updated the list following requests from the industry to assess more venues against the criteria set out in the opinion. ESMA has also issued additional guidance on the implementation of the list of TCTVs.

Source: ESMA updates transparency opinions for 3rd country venues.

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

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UK, EU and international regulators and bodies

Amendment to ECB Supervisory Board to Rules of Procedure published in Official Journal

Amendment 1/2020 of 23 July 2020 to the Rules of Procedure of the Supervisory Board of the ECB has been published in the Official Journal.

Source: Amendment 1/2020 of 23 July 2020 to the Rules of Procedure of the Supervisory Board of the European Central Bank.

ESMA submits opinion on the 2018 discharge process to the European Parliament

ESMA submitted an opinion on the European Parliament’s observations made in the 2018 discharge process. The opinion sheds light on concrete actions taken by ESMA, including in relation to supervisory fees for credit ratings agencies and trade repositories, establishing the Proportionality Committee, and investigating dividend arbitrage trading schemes. In its opinion, ESMA welcomes the European Parliament’s decision to grant ESMA’s executive director discharge in respect of the implementation of ESMA’s budget for the financial year 2018.

Source: ESMA submits opinion to European Parliament on 2018 discharge process.

FCA publishes Handbook Notice No. 79

The Financial Conduct Authority (FCA) published Handbook Notice No. 79, which describes the changes to the Handbook and other material made by the FCA board under its legislative and other statutory powers on 30 June, 13 July and 23 July 2020. Where relevant, it also refers to the development stages of that material, enabling readers to look back at developmental documents if they wish.

Source: FCA publishes Handbook Notice No. 79.

FCA launches ‘simpler and clearer’ Financial Services Register

The FCA launched its updated Financial Services (FS) Register, including a simpler design and clearer language. The FCA says the redesign aims to help consumers protect themselves from harm and will provide a better experience for the Register’s users. The FS Register can help consumers avoid scams, and enables firms to cross-check references and make their key staff known to customers.

Source: FCA launches enhanced Financial Services Register to protect consumers.

PSR panel publishes annual report for 2019/20

The Payment Systems Regulator (PSR) Panel published its annual report for 2019/20, outlining how it has engaged with the PSR over the last 12 months. The report discusses the impact of COVID-19 on the payments sector including the stress it put on businesses dependent on cash and on companies struggling to stay afloat.

Source: PSR Panel annual report 2019/20.

ESRB annual report for 2019 describes response to ‘extraordinary macroeconomic shock’

The European Systemic Risk Board (ESRB) published its annual report for 2019, detailing its response to the COVID-19 pandemic, but also setting out work undertaken on cyber security, monitoring of EU derivatives markets, climate change and residential real estate markets, among other topics.

Source: Annual Report 2019.

Treasury Committee approves new FCA CEO Nikhil Rathi

The Treasury Committee published its report on the appointment of Nikhil Rathi as the new chief executive of the FCA. The Committee held the appointment session on 22 July 2020 and is satisfied that Rathi has ‘the professional competence and personal independence to be appointed’.

Source: Committee approves Nikhil Rathi as new FCA chief executive.

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Prudential requirements

EBA consults on BRRD technical standards relating to bail-in and MREL

The EBA launched three public consultations on draft technical standards under the under the Bank Recovery and Resolution Directive (BRRD) relating to the impracticability of contractual recognition of bail-in, the estimation of Pillar 2 and combined buffer requirements for the purpose of setting the minimum requirement for own funds and eligible liabilities requirements (MREL), and in relation to the reporting of MREL decisions. All three consultations run until 24 October 2020.

Sources: EBA consults on technical standards on impracticability of contractual recognition of bail-inEBA consults on estimation of Pillar 2 and combined buffer requirements for the purpose of setting MREL and  EBA consults on technical standards on reporting of MREL decisions.

For further information, see: Bank Recovery and Resolution Directive (BRRD)—essentials.

PRA consultation on simplified obligations for recovery planning

The PRA published a consultation paper (CP10/20): ‘Simplified obligations for recovery planning’. This sets out proposed changes to supervisory statement SS9/17 ‘Recovery planning’, which will simplify and reduce certain firms’ obligations under the BRRD (Simplified obligations). The consultation closes on 23 October 2020.

Source: Simplified obligations for recovery planning.

PRA publishes policy statement PS18/20 on asset encumbrance

The PRA published policy statement PS18/20, which provides feedback to responses to consultation paper CP24/19, ‘Asset encumbrance’. It also contains updated versions of supervisory statement SS24/15, ‘The PRA’s approach to supervising liquidity and funding risks’ (see appendix 1 to the policy statement), SS9/17 ‘Recovery planning’ (appendix 2), and SS20/15 ‘Supervising building societies’ treasury and lending activities’ (appendix 3).

Sources: Asset encumbrance—PS18/2Recovery planningThe PRA’s approach to supervising liquidity and funding risks and  Supervising building societies’ treasury and lending activities.

EBA consults on draft CRR RTS on indirect exposures

The EBA published a consultation paper (EBA/CP/2020/14) on draft regulatory technical standards (RTS) under Article 390(9) of Regulation (EU) 575/2013 (CRR), as amended by Regulation (EU) 2019/876 (CRR II). The draft RTS specify how institutions should determine indirect credit exposures to underlying clients of derivatives and credit default derivatives. Responses are due by 23 October 2020 and a public hearing will take place on 6 October 2020.

Sources: Consultation paper: Draft regulatory technical standards on the determination of indirect exposures to underlying clients of derivatives and credit default derivatives under Article 390(9) CRR2 and  EBA consults on technical standards specifying the determination of indirect exposures arising from (credit) derivative contracts underlying a debt or equity instrument for large exposures purposes.

For further information, see: CRD IV—essentials.

PRA issues statement on EBA guidelines on reporting and disclosure of exposures subject to coronavirus (COVID-19) measures

The PRA issued a statement providing guidance to firms on the EBA guidelines on the reporting and disclosure of exposures subject to measures applied in response to the COVID-19 outbreak. The statement includes clarification on the expected timing of disclosures as well as providing new PRA disclosure templates.

Source: Statement by the PRA on EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 outbreak.

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Financial stability 

SRB publishes guidance for banks on operational continuity in resolution and FMI contingency plans

The Single Resolution Board (SRB) published operational guidance relating to operational continuity in resolution (OCIR) and financial market infrastructure (FMI) contingency plans. The two guidance documents have been issued following the publication earlier in 2020 of the SRB Expectations for Banks (EfB) document, which set out the capabilities the SRB expects banks to demonstrate to show that they are resolvable, including the dimensions of OCIR and access to FMIs.

Source: SRB publishes operational guidance for operational continuity in resolution and FMI contingency plans.

PRA consultation on simplified obligations for recovery planning

The PRA published a consultation paper (CP10/20): ‘Simplified obligations for recovery planning’. This sets out proposed changes to supervisory statement SS9/17 ‘Recovery planning’, which will simplify and reduce certain firms’ obligations under the BRRD (Simplified obligations). The consultation closes on 23 October 2020.

Source: Simplified obligations for recovery planning.

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Risk management and controls

PSR publishes annual whistleblowing report

The PSR published its Annual Report: 1 April 2018—31 March 2019 under the Prescribed Persons (Reports on Disclosures of Information) Regulations 2017, which sets out the number of whistleblowing disclosures it received in the financial year, and summarises action taken following those disclosures. During the period covered, the PSR received one disclosure of information for assessment as a potentially qualifying disclosure but, following assessment by its whistleblowing team, it was not deemed as such.

Source: Our annual reports on whistleblowing disclosures.

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Financial crime

FATF hosts webinars on money laundering, terrorist financing and coronavirus (COVID-19)

The Financial Action Task Force (FATF) announced that it is organising two webinars, to take place on 30 and 31 July 2020 respectively, on the subject of money laundering and terrorist financing in relation to the COVID-19 pandemic. The 30 July 2020 webinar is on the subject of coronavirus and the changing money laundering and terrorist finance risk landscape, whereas the 31 July 2020 webinar will discuss the impact of coronavirus on the detection of money laundering and terrorist financing. Both webinars will be open to both the public and private sectors and will be published on the FATF website as recordings.

Source: FATF Webinars on Money Laundering and Terrorist Financing and COVID-19.

JMLSG updates guidance on pooled client accounts and on cryptoassets

The Joint Money Laundering Steering Group (JMLSG) published two new pieces of guidance. The board-approved text includes a new annex within Part I: Annex 5-V on pooled client accounts, and a new sectoral piece within Part II: Sector 22 on cryptoasset exchange providers and custodian wallet providers. There is also a minor amendment to paragraph 5.3.53 within Part I.

Source: JMLSG publishes new guidance.

For further information, see: Cryptoassets—essentials.

The Global Human Rights Sanctions (Isle of Man) Order 2020

SI 2020/774: Provisions are made to extend, with modifications, the Global Human Rights Sanctions Regulations 2020, as amended from time to time to the Isle of Man. These Regulations came into force on 22 July 2020.

Source: The Global Human Rights Sanctions (Isle of Man) Order 2020.

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Consumer protection

FCA publishes draft guidance consultation and feedback statement on fair treatment of vulnerable customers

The FCA published GC20/3: Guidance consultation and feedback statement for firms on the fair treatment of vulnerable customers, following its initial consultation GC19/3. The best practice draft guidance aims to provide a framework that allows all firms to accurately assess whether they are treating vulnerable consumers fairly, ensuring consistency across the financial services sector. Comments should be submitted by 30 September 2020. The FCA has also published research on vulnerable consumers’ experiences of dealing with financial services firms.

Sources: FCA press release: New guidance to help firms do more for vulnerable consumersFCA guidance for firms on the fair treatment of vulnerable consumersFinancial Lives Survey 2020Financial Lives: Experiences of vulnerable consumers and  Financial Lives: Experiences of vulnerable consumers—case studies.

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

New FCA head puts consumer protection atop agenda

Law360, London: The FCA is set to transform its regulatory agenda by laying out preventative measures to stop consumer harm and weed out economic crime, the watchdog’s incoming chief executive told MPs on 22 July 2020.

See: New FCA head puts consumer protection atop agenda.

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Investigations, enforcement and discipline

PRA publishes Enforcement Decision Making Committee report

The PRA Enforcement Decision Making Committee (EDMC) published a 2019/20 annual report which covers the period from the EDMC’s establishment (August 2018) until the end of February 2020.

Source: Enforcement Decision Making Committee: 2019/20 report.

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Dispute resolution for financial services lawyers

Re Lehman Brothers International (Europe) (in administration)

Company – Administration order. The joint administrators (the administrators) of Lehman Brothers International (Europe) (in administration) (LBIE) successfully applied for a direction pursuant to para 63 of Sch B1 (Sch B1) to the Insolvency Act 1986 that they be at liberty to consent to a request from the directors of LBIE, pursuant to para 64 of Sch B1, to distribute surplus funds to LBIE's sole shareholder, LB Holdings Intermediate 2 Ltd (in administration). In allowing the application, the Chancery Division decided that the administrators were performing all their functions with the overall objective of rescuing LBIE as a going concern, as required by para 3 of Sch B1 to the Act. Consequently, the court made the direction sought by the administrators.

See: [2020] All ER (D) 132 (Jul).

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Regulation of benchmarks and IBOR reform

European Commission publishes proposed amendments to the Benchmarks Regulation

The European Commission published a proposed regulation which makes targeted amendments to the Benchmarks Regulation (EU) 2016/1011 (BMR) to introduce new powers enabling benchmark regulators to mandate a time-limited replacement rate for a critical benchmark being wound down (such as LIBOR) to be used in existing contracts, as well as a targeted exemption from the BMR for certain currency spot rates.

Sources: Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1011 as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessationCommission Staff Working Document: Executive Summary of the Impact Assessment Report accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1011 as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation and Commission Staff Working Document: Impact Assessment Report accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1011 as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation.

For further information, see: Benchmarks Regulation—essentials.

ECB consults on publication of compounded €STR rates

The ECB launched a consultation on the publication of compounded term rates based on the euro short-term rate (€STR). The publication would take place on a daily basis shortly after the publication of €STR. Published maturities could range from one week up to one year. A daily index, making it possible to compute compounded rates over non-standard periods, is also envisaged as part of the publication. The consultation closes on 11 September 2020.

Sources: Public consultation on the publication by the ECB of compounded term rates using the €STR and  ECB announces public consultation on the publication of compounded €STR rates.

Bloomberg Index Services Ltd starts publishing fallback adjustments

The International Swaps and Derivatives Association (ISDA) announced that Bloomberg Index Services Ltd (BISL) has started to calculate and publish fallbacks that ISDA will implement for certain key interbank offered rates (IBORs). ISDA will soon publish amendments to its standard interest rate derivatives definitions to incorporate these new fallbacks, which are adjusted versions of various risk-free rates (RFRs). The changes to embed the fallbacks should take effect in ISDA’s derivatives documentation at the end of 2020.

Source: Bloomberg Begins Publishing Calculations Related to IBOR Fallbacks .

BoE updates ‘Transition to sterling risk-free rates from LIBOR’ webpage with RFRWG materials to assist firms in their transition plans

The Bank of England (BoE) updated its webpage on ‘Transition to sterling risk-free rates from LIBOR’ with an announcement from the Working Group on Sterling Risk-Free Reference Rates (RFRWG), focused on progress towards key 2020-2021 milestones. The RFRWG has published a suite of materials designed to assist firms in taking action and implementing LIBOR transition plans.

Source: Bank of England ‘Transition to sterling risk-free rates from LIBOR’.

For further information, see: LIBOR transition.

ECB finds preparations for benchmark rate reform are behind schedule, and publishes good practices

The ECB published the results of its industry-wide assessment of banks’ preparedness for benchmark interest rate reforms, finding that the level of preparation leaves room for improvement and banks are generally behind schedule in implementing risk mitigation measures.

Source: ECB publishes good practices for banks to prepare for benchmark rate reforms.

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Regulation of capital markets

Coronavirus (COVID-19)—European Commission adopts capital markets recovery package

The European Commission adopted a capital markets recovery package, as part of the Commission's overall coronavirus recovery strategy. The package aims to make it easier for capital markets to support European businesses to recover from the crisis and proposes targeted changes to the Prospectus Regulation (EU) 2017/1129 (Prospectus Regulation), Markets in Financial Instruments Directive 2014/65/EU (MiFID II), Securitisation Regulation (EU) 2017/2402 (Securitisation Regulation) and Capital Requirements Regulation (EU) 575/2013 (CRR), which are intended to encourage greater investments in the economy, allow for the rapid re-capitalisation of companies and increase banks' capacity to finance the recovery.

Sources: Press release and Coronavirus response: How the Capital Markets Union can support Europe’s recovery.

For further information, see: The Capital Markets Union.

ESMA works on Commission request to delay CSDR settlement discipline regime until 1 February 2022

ESMA is working on a proposal to possibly delay the entry into force of the Central Securities Depositories Regulation (EU) 909/2014 (CSDR) settlement discipline regime until 1 February 2022. This is due to the impact of the COVID-19 pandemic on the implementation of regulatory projects and IT deliverables by central securities depositories, and came as a request from the European Commission.

Source: ESMA is preparing a new RTS to further postpone CSDR settlement discipline.

For further information, see: Central Securities Depositories Regulation—essentials.

FMSB report examines risks of home-working in the FICC sector

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) published a ‘spotlight review’ examining remote working risks in FICC markets. The review identifies the main priorities from a wide range of risks that arise from the new working environment that has developed as a result of the COVID-19 pandemic, with a focus on areas which impact the fairness and effectiveness of wholesale FICC markets, and considers mitigants or strategies to manage these risks.

Source: FMSB publishes spotlight review on examining remote working risks in FICC markets.

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Regulation of derivatives

ISDA announces launch of Risk-free Rate Adoption Indicator

ISDA announced the launch of its Risk-free Rate (RFR) Adoption Indicator developed in partnership with Clarus Financial Technology. The indicator will be used to ‘provide a monthly snapshot of RFR trading activity in interest rate derivatives (IRD) markets based on global cleared over-the-counter and exchange-traded derivatives data from seven central counterparties spanning six currencies'. It will help participants in the derivatives market track progress on the shift to RFRs ahead of 2021, when banks will no longer be compelled by the Financial Conduct Authority to make LIBOR submissions. In addition, ISDA and Clarus developed a number of sub-indicators providing ‘additional granularity’ based on currencies, tenor and over-the-counter versus exchange-traded IRD. The first report, from June 2020, showed that the RFR adoption indicator was at 4.7%.

Source: ISDA Launches Risk-free Rate Adoption Indicator.

Capital requirements for swap participants finalised by CFTC

The US Commodity Futures Trading Commission (CFTC) finalised a new rule on capital requirements for swaps market participants. The requirements will be flexible and offer three potential methodologies for market participants to follow. The CFTC also advanced a proposed rulemaking on swaps margin in a public meeting held via teleconference on 22 July 2020 and opened the proposal for public comment.

Source: CFTC finalizes capital requirements for swap participants.

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Crowdfunding

Commission communication to Parliament endorses Council’s position on EU crowdfunding proposals

Following the adoption by the Council of the EU of its first reading position on 20 July 2020, on a regulation on European crowdfunding service providers for business and a directive amending MiFID II, the European Commission published a communication to the European Parliament endorsing the Council’s position. Following the Council's adoption of its first reading position, the European Parliament is expected to formally endorse the political agreement reached in the interinstitutional procedure.

Source: Communication from the Commission to the European Parliament pursuant to Article 294(6) of the Treaty on the Functioning of the European Union concerning the position of the Council on the adoption of a regulation of the European Parliament and of the Council on European crowdfunding service providers for business and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 and a Directive amending Directive 2014/65/EU on markets in financial instruments.

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Banks and mutuals

ECB announces organisational changes to reflect increased focus on risk-based supervision

The ECB announced changes to the organisational structure of its supervisory arm as it increases its focus on risk-based supervision. The organisational changes will include the creation of two additional business areas in the ECB’s banking supervision arm—bringing the total to seven—and the redistribution of tasks across business areas. Bank-specific supervision will be organised according to banks’ business models and will be supported by teams of risk or subject matter experts. Activities such as supervisory strategy and risk, on-site supervision, and governance and operations will have dedicated business areas.

Source: ECB announces organisational changes to strengthen banking supervision.

EBA consults on BRRD technical standards relating to bail-in and MREL

The EBA launched three public consultations on draft technical standards under the under the BRRD relating to the impracticability of contractual recognition of bail-in, the estimation of Pillar 2 and combined buffer requirements for the purpose of setting the minimum requirement for own funds and eligible liabilities requirements (MREL), and in relation to the reporting of MREL decisions. All three consultations run until 24 October 2020.

Sources: EBA consults on technical standards on impracticability of contractual recognition of bail-inEBA consults on estimation of Pillar 2 and combined buffer requirements for the purpose of setting MREL and  EBA consults on technical standards on reporting of MREL decisions.

For further information, see: Bank Recovery and Resolution Directive (BRRD)—essentials.

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Consumer credit, mortgage and home finance

FCA bans motor finance discretionary commission models and makes changes to disclosure requirements

Following a consultation in October 2019, the FCA published policy statement PS20/8: Motor finance discretionary commission models and consumer credit commission disclosure, which confirms the proposed ban on motor finance discretionary commission models. The FCA will also make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information. The ban and changes will come into force on 28 January 2021.

Source: FCA to ban motor finance discretionary commission models.

FCA issues statement on mortgage prisoners and consults on new mortgage rules and guidance

The FCA published a statement on mortgage prisoners and launched a consultation on measures designed to support some consumers within the mortgage market. The statement sets out the work the FCA has carried out to explore which further interventions may help mortgage prisoners. The consultation (CP20/13), which proposes actions to tackle potential harms that may impact borrowers affected by the COVID-19 pandemic, closes on 8 September 2020.

Source: Statement on mortgage prisoners and consultation on intra-group switching and maturing interest-only and part-and-part mortgages.

For further information, see: Mortgage and home finance conduct of business—responsible lending, charges and arrears requirements.

FCA publishes Dear Board of Directors letter addressed to boards of debt advice firms

The FCA published a letter addressed to the boards of debt advice firms in which the regulator states that it expects the sector to conduct its activities in a way that places consumers at the heart of their business. The FCA expects the leadership of all firms in this sector to consider the contents of the letter and carry out necessary changes to their business model to minimise the risk of harm to consumers and to maintain integrity of the market.

Source: Debt advice firms portfolio letter.

For further information, see: Debt advice.

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Regulation of insurance

Coronavirus (COVID-19)—FCA proposes to extend measures for insurance and premium finance customers in temporary financial difficulty

The FCA announced proposals to extend a series of temporary measures to help customers who hold insurance and premium finance products and who may be in temporary financial difficulties because of COVID-19. The FCA proposes to extend these measures until 31 October 2020 and seeks comments by 5pm on Tuesday 28 July 2020.

Sources: Coronavirus and customers in temporary financial difficulty: updated guidance for insurance and premium finance firms and  Statement on updated guidance for insurance and premium finance firms.

Coronavirus (COVID-19)—EIOPA says private insurance insufficient protection for pandemics

The European Insurance and Occupational Pensions Authority (EIOPA) published its latest Issues Paper on 27 July 2020, highlighting options for developing shared resilience solutions and addressing business interruption risks in the context of pandemics.

Source: Insurance against pandemic risk: EIOPA identifies options for shared resilience solutions.

Coronavirus (COVID-19)—FCA Handbook publishes instrument containing commencement date for access to travel insurance rules

The FCA published the COVID-19: Deferral of Commencement (Access to Insurance) Instrument 2020 (FCA 2020/33) (the Insurance Deferral Instrument), which amends the Insurance: Conduct of Business Sourcebook (Access to Travel Insurance) Instrument 2020 (FCA 2020/3) (the Travel Insurance Instrument, which was originally published in February 2020).

Source: Coronavirus COVID-19: FCA Handbook publishes instrument containing commencement date for access to travel insurance rules.

EIOPA says insurance firms should now comply with Solvency II reporting framework

Following its recommendations of 20 March 2020 on annual and quarterly reporting and publication deadlines, the EIOPA announced that it considers that insurance and reinsurance undertakings should now be in condition to comply with the deadlines provided in the Solvency II framework.

Source: EIOPA statement on Solvency II supervisory reporting in the context of COVID-19.

For further information, see: Solvency II—essentials.

IAIS issues request for feedback on the impact of coronavirus (COVID-19)

The International Association of Insurance Supervisors (IAIS) issued a press release stating that, following up on the June 2020 Stakeholder Dialogue, it is seeking feedback from stakeholders on the implications of the COVID-19 on the insurance sector, supervisors and the future work of the IAIS.

Source: Request for feedback on the impact of COVID-19.

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Business interruption insurance test case

FCA publishes draft transcripts and agreed facts for BI test case trial

The FCA published a draft transcript of the third day of the business interruption (BI) insurance test case trial, which occurred on 22 July 2020, on its website. The FCA says a final transcript will be published when it is available. In addition, the FCA published Agreed Facts 3—prevalence of COVID-19.

Sources: Business Interruption Insurance Test Case Draft Transcript of Day 3 of trial (22 July 2020)Business Interruption Insurance Test Case Draft Transcript of Day 4 of trial (23 July 2020) and Agreed facts 3 - Prevalence of Covid-19.

Coronavirus (COVID-19)—FCA publishes draft transcript of BI insurance test trial

The FCA published a draft transcript of the second day of the business interruption (BI) insurance test case trial, which occurred on 21 July 2020, on its website. The FCA says a final transcript will be published when it is available. The FCA is seeking legal clarity on BI insurance during the COVID-19 crisis.

Source: BUSINESS INTERRUPTION INSURANCE TEST CASE DRAFT TRANSCRIPT OF DAY 2 OF TRIAL (21 JULY 2020).

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Payment services and systems

PSR seeks pre-consultation feedback on its future strategy

The PSR announced the development of its future strategy and seeks feedback ahead of a formal consultation around the end of 2020. It aims to define clear outcomes for the payments sector, priorities for the regulator, and what stakeholders can expect from the regulator in the future.

Source: PSR announces development of new strategy for a changing world.

ECB takes steps to ensure pan-European reach of instant payments in a move welcomed by the Commission

The ECB announced that its governing council has taken significant steps to support the full deployment of instant payments across the euro area, in line with objectives shared with the European Commission. It has announced that pan-European instant payments can be ensured by the end of 2021. All payment service providers (PSPs) which have adhered to the SCT Inst scheme and are reachable in TARGET2 should also become reachable in a TIPS central bank money liquidity account, either as a participant or as reachable party (ie through the account of another PSP which is a participant).

Source: ECB takes steps to ensure pan-European reach of instant payments.

ECB extends timeline of the T2-T2S consolidation project by one year

The Governing Council of the ECB decided to extend the timeline of the T2-T2S consolidation project by one year, following discussions with Europe’s financial community. The project is now scheduled to go live in November 2022. The go-live date for the Eurosystem Collateral Management System (ECMS) will also be extended, with a new date set to be confirmed.

Source: ECB’s Governing Council approves one-year extension to T2-T2S consolidation project timeline.

European Payments Council rounds up Q2 2020 payments publications

The European Payments Council (EPC) compiled a list of Q2 2020 publications that shine a spotlight on the future of payments, open banking and related topics. It includes pieces by the Bank for International Settlements, UK Finance and others.

Source: Around the web—a compilation of some interesting reports about payments published last quarter.

HMT launches call for evidence as part of the Payments Landscape Review

In the first stage of its Payments Landscape Review, HM Treasury (HMT) has issued a call for evidence which sets out the government’s aims for payments networks in the UK, makes a high-level assessment of how well the present system is delivering against the government’s aims, and asks questions about the opportunities, gaps and risks that need to be addressed in order to ensure that the UK ‘maintains its status as a country at the cutting edge of payments technology’. Feedback is sought by 20 October 2020.

Source: Payments Landscape Review: Call for evidence.

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Fintech and cryptoassets

FCA announces six further firms entering the regulatory sandbox

The FCA announced that 22 businesses have been accepted into cohort 6 of its regulatory sandbox to test innovative products and services. This round of applications was the first time the FCA had specified the areas where it wants to see more innovation, which included propositions that ‘make finance work for everyone’ and ‘support the UK in the move to a greener economy’.

Source: Regulatory sandbox—cohort 6.

JMLSG updates guidance on pooled client accounts and on cryptoassets

The JMLSG published two new pieces of guidance. The board-approved text includes a new annex within Part I: Annex 5-V on pooled client accounts, and a new sectoral piece within Part II: Sector 22 on cryptoasset exchange providers and custodian wallet providers. There is also a minor amendment to paragraph 5.3.53 within Part I.

Source: JMLSG publishes new guidance.

For further information, see: Cryptoassets—essentials.

FSB publishes responses to its stablecoin consultation

The Financial Stability Board (FSB) published the responses to its consultation on the regulatory, supervisory and oversight challenges raised by global stablecoin arrangements. The FSB received 49 responses, and plans to publish a summary of findings and final recommendations in October 2020.

Source: Public responses to consultation on Addressing the regulatory, supervisory and oversight challenges raised by ‘global stablecoin’ arrangements.

ISDA and ISLA agreed to deliver digital solutions to their members

ISDA and the International Securities Lending Association (ISLA) announced that they will closely collaborate on ‘two key initiatives to deliver digital solutions’ to their members. Under the terms of the agreement, ISDA and ISLA will 'increase their engagement and cooperation at all levels' to expand electronic contract opinions and apply the Common Domain Model (CDM) to the derivatives and securities lending markets, with the possibility of adding other areas of collaboration over time. Expansion of e-contract opinions is in direct response to an increasing number of derivatives, securities financing and repo transactions being executed electronically, which has been heightened by the COVID-19 pandemic. In relation to CDM, ISLA will model and code specific securities financing transactions components, thereby creating greater alignment between derivatives and securities lending markets. As part of the agreement, ISLA will join ISDA’s CDM Governance Executive Committee and its Architecture and Review Committee.

Source: ISDA and ISLA Agree to Closer Collaboration on Digital Initiatives.

Innovate Finance data suggests COVID-19 may be spurring UK fintech growth

Innovate Finance published data showing that although investment in UK fintech during the first half of 2020 has fallen by over a third compared to the same period last year, it is up by 22% on the second half of 2019. Venture capital investment totalled $1.84bn in the first half of 2020, in over 167 deals, compared to $3bn invested into 263 startups in the first half of 2019, representing a 39% drop in capital. However, the figure for the first six months of 2020 is up from the previous half-year period (H2 2019), when funding totalled $1.5bn.

Source: UK FinTech investment slows, but cautious optimism ahead.

International Banking Federation publishes report on the role of Big Tech in banking

The International Banking Federation published a report on ‘Big banks, bigger techs: how policy-makers could respond to a probable discontinuity’, discussing how authorities worldwide face the difficult challenge of ensuring that regulation and supervision protects consumers and systemic stability ‘while capturing the benefits of innovation and competition’.

Source: Big banks, bigger techs? How policymakers could respond to a probable discontinuity.

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Sustainable finance

European Commission may require some firms to disclose sustainability info

The European Commission released an initiative that would require large listed companies, banks and insurance companies to publish information on how, and to what extent, their activities align with those considered environmentally sustainable in the EU taxonomy. According to the Commission, this would allow ‘investors to make informed choices and will encourage private investment in sustainable activities’. The Commission is seeking views on the initiative until 8 September 2020.

Source: Sustainable finance – obligation for certain companies to publish non-financial information.

European financial associations seek changes to Commission’s plans on integration of sustainability factors and risks into MiFID II, IDD and Solvency II

Insurance Europe (IE) sent a joint letter to the European Commission expressing concern about the proposed changes to the delegated acts under MiFID II, the Insurance Distribution Directive (IDD) and Solvency II on the integration of sustainability factors and risks, in particular the introduction of the new definition of ‘sustainability preferences’ used across all three pieces of legislation.

Source: Joint letter on integration of sustainability factors and risks into MiFID II IDD and Solvency II.

AFME publishes ESG guidelines for high yield bonds

AFME published environmental, social and governance (ESG) guidelines for the European high yield market, which aim to provide guidance on sustainable finance considerations for issuers and investors when leading or otherwise participating in offerings of non-investment grade debt securities (known as ‘high yield bonds’).

Source: AFME publishes first ESG guidelines for European high yield market

Treasury Committee relaunches inquiry into decarbonisation of the UK economy

The Treasury Committee announced that it is relaunching its inquiry into decarbonisation of the UK economy and green finance, to seek additional written evidence on how and whether the UK’s response to coronavirus should take the government’s net zero carbon emissions by 2050 target into account.

Source: Decarbonisation of the UK economy and green finance inquiry relaunched.

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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’.

 

3 August 2020

 

Regulation of benchmarks and IBOR reform

 

The Bank of England (BoE) confirmed that it will publish the SONIA Compounded Index for the first time on 3 August 2020.

 

3 August 2020

 

Regulation of capital markets

 

Deadline for responses to ESMA’s call for evidence on the availability and use of credit rating information and data.

 

4 August 2020

 

Regulation of capital markets

 

Deadline for responses to the European Commissions roadmap relating to the capital markets union (CMU) action plan.

 

5 August 2020

 

Financial stability



Banks and mutuals

 

Deadline for responses to the EBA’s consultation on updated identification methodology for G-SIIs is 5 June 2020.

 

6 August 2020Consumer credit, mortgage and home finance

Deadline for expressions of interest to the FCA’s call to intermediaries for help supporting mortgage prisoners.

 

 

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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.