Blog: Securities and markets regulatory news, April 2021 # 3 | Hogan Lovells – JDSupra – JD Supra

Contents:

  • Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021
  • UK Money Markets Code updated by BoE
  • UK Listing Review: government response
  • UK EMIR: trade association letter on use of EEA UCITS as collateral
  • MiFID: European Commission adopts Delegated Regulation correcting MiFID Delegated Regulation (EU) 2017/565
  • EMIR and SFTR: ESMA reports on quality of data published
  • LIBOR transition: FMSB case studies for conduct risk in back book transition

Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021

The Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021 (SI 2021/494) have been published, together with an explanatory memorandum.

The Regulations, made under section 8 of the European Union (Withdrawal) Act 2018, amend primary and secondary legislation, and parts of retained EU law, to address deficiencies arising from the withdrawal of the UK from the EU. They amend UK financial services law to reflect the creation of a UK Emissions Trading Scheme (ETS). Specifically, the Regulations are concerned with amendments which govern access to a UK ETS access platform, what is required of an auction platform and the auctioning and trading of emissions allowances as financial instruments.

The Regulations came into force on 22 April 2021. Their operation is dependent on the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021, which were laid before Parliament in draft on 11 February 2021.

UK Money Markets Code updated by BoE

The Bank of England (BoE) has updated its UK Money Markets Code. The Code sets out best practice in the unsecured, repo and securities lending markets in the UK. Although the overarching principles of the Code have not changed, there have been significant changes in the following areas:

  • diversity and inclusion: the updated Code recognises and promotes the benefit of diverse and inclusive money market participants’ teams;
  • working from home: the updated Code reflects the response to COVID-19, and emphasises it is acceptable to work from home, provided the same level of robust systems and controls are applied;
  • environmental, social and governance (ESG) criteria: ESG criteria are becoming increasingly relevant to financial markets and the updated Code adds commentary about its increasing importance;
  • electronic trading: electronic trading via platforms is now more widely used, especially in the repo market. The updated Code sets out how it applies to such trading and details best practice for using electronic venues; and
  • trade settlement discipline: the updated Code stresses the importance of high standards of settlement discipline, in response to concern in the market that the level of non-settled trades has increased.

The updated Code has been recognised as an industry standard by the Financial Conduct Authority (FCA).

UK Listing Review: government response

The government has issued a written statement by Rishi Sunak, Chancellor of the Exchequer, confirming how the government will take forward the recommendations made in Lord Hill’s report on the independent review of the UK’s listing arrangements. In his statement, the Chancellor:

  • agrees to present an annual report on the State of the City to Parliament, beginning in 2022;
  • states that the Listing Review’s recommendation that HM Treasury consider an additional “growth” or “competitiveness” objective for the FCA will be carefully considered as part of the ongoing Future Regulatory Framework Review;
  • strongly welcomes the recommendation for review of the UK’s prospectus regime. The Chancellor confirms that the government will bring forward a public consultation on this subject later in the year;
  • in the context of improving the efficiency of further capital raising by listed companies, agrees that bringing together expertise in this technical area will assist in considering what more can be done. The Chancellor will convene such a group, with HM Treasury officials considering over the coming weeks what form this will take; and
  • confirms that BEIS will take forward the Listing Review’s recommendation as to how technology can be used to improve retail investor involvement in corporate actions, and their undertaking of an appropriate stewardship role, as part of its wider consideration of findings from the Law Commission’s recent scoping study on intermediated securities. BEIS expects to announce a response to this study later this year.

UK EMIR: trade association letter on use of EEA UCITS as collateral

The International Swap and Derivatives Association (ISDA), the Alternative Investment Management Association (AIMA), the Investment Company Institute (ICI), the Institutional Money Market Funds Association (IMMFA) and the Securities Industry and Financial Markets Association Asset Management Group (SIFMA AMG) have written a joint letter sent to the BoE, HM Treasury and the FCA. Explaining their reasons, in the letter, the associations urge the Prudential Regulation Authority (PRA) to permit use of EEA UCITS for initial margin (IM) purposes in the UK Uncleared Margin Requirements (UMR) Binding Technical Standards (the UK onshored version of Commission Delegated Regulation (EU) 2016/2251) once the current “standstill” comes to an end on 31 March 2022.

MiFID: European Commission adopts Delegated Regulation correcting MiFID Delegated Regulation (EU) 2017/565

The European Commission has adopted a Delegated Regulation (Amending Delegated Regulation) and Annex correcting Delegated Regulation (EU) 2017/565 which supplements the Markets in Financial Instruments Directive (MiFID) (the EU MiFID Org Regulation).

To fully comply with MiFID, the Amending Delegated Regulation will make the following amendments to the EU MiFID Org Regulation:

  • correct Article 1, paragraph 1 to clarify that it requires the application of Article 64(4), Article 65 and Chapter VIII of the EU MiFID Org Regulation instead of Article 59(4), Article 60 and Chapter IV; and
  • correct errors that appeared in several cross-references in Annex I to the EU MiFID Org Regulation relating to client assessment, order handling, client order and transactions, reporting to clients, communication with clients and organisational requirements.

The next step is for the Council of the EU and the European Parliament to consider the draft Amending Delegated Regulation. If neither the Council or the Parliament object, it will be published in the Official Journal of the European Union and will enter into force on the twentieth day following that of its publication.

EMIR and SFTR: ESMA reports on quality of data published

The European Securities and Markets Authority (ESMA) has published its first annual data quality report highlighting its supervisory activities relating to the quality of data reported to trade repositories under the European Market Infrastructure Regulation (EMIR) and the Regulation on reporting and transparency of securities financing transactions (SFTR). The report aims to provide an overview of the state of play under the two reporting regimes and provide information on national competent authorities’ and ESMA’s ongoing work to improve the quality of the data.

LIBOR transition: FMSB case studies for conduct risk in back book transition

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published a Spotlight Review on “LIBOR transition – Case studies for navigating conduct risks in back book transition“.

The FMSB notes that this Spotlight Review builds on, and should be read in conjunction with, its first series of “LIBOR transition – Case studies for navigating conduct risks“, published in June 2020, which focused on moving new business off LIBOR. The latest paper examines certain risks to market fairness and effectiveness that might arise when transitioning existing LIBOR-based contracts with maturities extending beyond end-2021 to alternative risk-free rates. The FMSB states that it will be of interest to market participants across the sell-side, buy-side and corporates, and could be used to help inform the identification and management of certain LIBOR transition-related risks.

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