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Issue 1112 / 3 June 2021
- European Commission
- Prudential Regulation Authority and Financial Conduct Authority
- Prudential Regulation Authority
- International Regulatory Strategy Group
Distance Marketing Directive – European Commission publishes inception impact assessment - 28 May 2021
The European Commission has published an inception impact assessment on its review of the Distance Marketing Directive (2002/65/EC) (DMD). The Commission published an evaluation of the DMD in November 2020, which highlighted several issues, including the effectiveness of the DMD in protecting consumers and its reduced relevance in light of the introduction of other product-specific legislation.
In light of the Commission’s findings, and the expected growth in digital innovation, the DMD is being reviewed. The review aims to ensure a framework for the distance marketing of financial services that is future proof, protects consumers in a digital environment, delivers a level playing field and reduces unnecessary compliance burdens for financial services providers. The Commission is addressing the following policy options:
- No policy change: current efforts to raise providers’ and consumers’ awareness of their duties and rights would be maintained, combined with co-ordinated enforcement through the Consumer Protection Co-operation Network;
- Repeal the DMD: since 2002, product-specific, as well as horizontal, legislation has been introduced, which has reduced the importance and relevance of the DMD;
- Repeal the DMD but move the relevant parts to other legislation: articles on information and the right of withdrawal are still partially effective and relevant, and these could be modernised and introduced in other horizontal legislation; and
- A comprehensive revision of the DMD: the DMD may still be relevant due to its potential use as a safety net where current product-specific legislation does not cover, or does not cover in sufficient detail, some of its provisions.
A full impact assessment is expected to be prepared to support the initiative, which will rely on the information and evidence gathered for the 2020 evaluation and a previous behavioural study, carried out in 2019, on the digitalisation of distance selling and marketing of retail financial services.
The deadline for comments on the inception impact assessment is 25 June 2021 and the Commission aims to publish the next stage of its review in Q1 2022.
Prudential Regulation Authority and Financial Conduct Authority
Counterparty credit exposure – PRA and FCA publish letter to chief risk officers - 2 June 2021
The PRA and FCA have published a joint letter to chief risk officers (CROs) of regulated firms on counterparty exposure management and controls for ‘delivery versus payment’ (DvP) clients. The letter shares the regulators’ observations on good practices related to monitoring and mitigating pre-settlement counterparty credit risks in relation to DvP clients, which they encourage firms to incorporate within their control framework. Examples of good practices contained in the letter include:
- On-boarding of new accounts: a risk-based policy framework should be developed and overseen by a credit function independent of the front office and implemented to ensure that the basic credit profile of every client is within the firm’s risk appetite. More extensive credit analysis is required for higher risk accounts;
- Credit risk framework: every client account, regardless of whether it intends to transact on a DvP-only settlement basis, should be subject to a pre-settlement credit exposure limit;
- On-going oversight of clients: there should be clear internal ownership of the client account to enable consistent oversight, with on-going client monitoring covering financial crime and money-laundering risks;
- Client exposure monitoring: an automated monitoring system should be established to reconcile pre-settlement exposures to risk limits for each client account, with appropriate escalation procedures; and
- Escalation procedure: there should be a robust trade fail management process with systematic and pre-defined escalation trigger points for individual client accounts, ensuring the rapid escalation of trade fails to both the front office and independent control functions.
While implementing the measures above, the regulators also encourage firms to consider any associated conduct risk issues. They intend to request updates from firms by the end of 2021 on the steps they have taken to implement the measures. The regulators will continue to maintain a strong focus on significant loss events in the market and expect firms to conduct risk management reviews within their own organisations as such events occur.
Prudential Regulation Authority
SMCR – PRA publishes policy statement on SMF temporary absences - 1 June 2021
The PRA has published a policy statement (PS11/21), together with updated Supervisory Statements SS28/15 and SS35/15, which confirm its final policy in relation to temporary absences by senior managers under the Senior Managers and Certification Regime (SMCR). This follows a joint PRA and FCA consultation, in Chapter 2 of the FCA consultation paper CP20/23 published in December 2020.
The regulators proposed, in CP20/23, that they would clarify their expectations on firms’ notification requirements when a person performing a Senior Management Function (SMF) takes ‘long-term leave’, namely temporary leave for more than 12 weeks.
The PRA’s final rules confirm that where a firm is keeping the SMF’s role open while they are on long-term leave:
- the PRA expects the firm to notify it that the SMF is on long-term leave (through Form D). The firm will also need to submit Form J as there will be a significant change in the SMF’s responsibilities and, therefore, their Statement of Responsibilities. The firm will then need to resubmit both forms on the SMF’s return;
- the PRA does not expect the firm to seek re-approval for the SMF to perform their role on their return, but the obligation on the firm to carry out a fitness and propriety assessment still applies; and
- another individual can perform the SMF’s role for the duration of their leave and this will be necessary where the SMF has been carrying out a PRA-required function (such as Chief Risk Officer, Head of Internal Audit, Senior Independent Director or committee chair). The interim SMF will need to be approved, which can be time-limited to cover only the period of absence.
Where the firm is not keeping the SMF’s role open, it will need to notify the PRA that the individual is no longer performing an SMF (using Form C). If the SMF returns to the role, they will need to be re-approved.
The PRA clarifies that it does not expect firms to notify it where the SMF is on leave of less than 12 weeks, on holiday or has a short illness.
The PRA rules took effect from 2 June 2021. The FCA confirmed its final rules and guidance in its Handbook Notice 88, published on 28 May 2021, which also came into force on 2 June 2021.
International Regulatory Strategy Group
UK’s G7 presidency – IRSG publishes paper on financial services priorities - 3 June 2021
The International Regulatory Strategy Group (IRSG) has published a paper setting out recommendations for the UK’s G7 presidency to consider in relation to financial services.
In the paper, the IRSG makes a number of suggestions on priorities for financial services including in relation to: the global regulatory landscape; climate change and sustainable finance; and the digital agenda. The paper highlights issues that restrict global trade and recovery, including regulatory fragmentation, emerging protectionism, divergent international standards and cybercrime.
The IRSG considers that the UK’s G7 presidency could tackle the most important challenges for the global economy by focusing on:
- global regulatory coherence for pandemic recovery;
- leadership on sustainable finance ahead of COP26;
- digital policy continuity, including on digital taxation; and
- alignment with G20 global policy priorities.
Banking and Finance
Issue 1112 / 3 June 2021
- Financial Stability Board
- European Banking Authority
- EU CRR – EBA publishes consultation paper on institutions Pillar 3 disclosure of interest rate risk exposures- 28 May 2021
- Benchmarking of internal models – EBA publishes final report on draft implementing technical standards- 3 June 2021
- Mapping climate exposures to risk – EBA publishes results of EU-wide pilot exercise-21 May 2021
- Single Resolution Board
- Bank of England
- Prudential Regulation Authority
- Operational continuity in resolution – PRA publishes policy statement PS9/21 on revised policy- 28 May 2021
- Operational continuity in resolution – PRA publishes policy statement on amendments to reporting and disclosure dates for resolution assessments- 28 May 2021
- NPL securitisations – PRA publishes consultation paper on updated prudential standards- 3 June 2021
- Financial Markets Law Committee
Financial Stability Board
Cross-border payments – FSB publishes consultation paper on quantitative targets - 31 May 2021
The Financial Stability Board (FSB) has published a consultation paper setting out proposals on quantitative targets for addressing the challenges faced by cross-border payments. The consultation covers a number of areas including:
- a description of the principles and key design features underpinning the targets and target metrics;
- a proposal for three market segments for which targets are to be set across four identified challenges for cross-border payments: cost, speed, transparency and access. The market segments are wholesale, retail and remittances. The retail segment is intended to cover non-financial corporates or public sector entities as payers or receivers, and peer-to-peer (P2P) payments other than remittances. The split between remittances and other P2P payments is proposed in recognition of the greater challenges and frictions that some payment corridors in the remittance market face;
- a consideration of relevant factors in setting the targets, relating to the four challenges of cost, speed, transparency and access; and
- proposals on a small number of high-level, simple targets that are focused on end-users.
The FSB proposes the end of 2027 as a common target date for achieving the individual targets, with the exception of the remittance cost target, where a 2030 date has already been set as a United Nations Sustainable Development Group Goal and endorsed by the G20.
The consultation closes on 16 July 2021 and the final recommendations are expected to be delivered for endorsement at the G20 Summit in October 2021.
The FSB also intends to develop an implementation approach for monitoring the targets that sets out: (i) how the targets will be measured and data sources and gaps to be filled; (ii) how progress toward meeting the targets will be monitored; and (iii) the frequency of data collection and publication.
European Banking Authority
EU CRR – EBA publishes consultation paper on institutions’ Pillar 3 disclosure of interest rate risk exposures - 28 May 2021
The European Banking Authority (EBA) has published a consultation paper (EBA/CP/2021/20) on draft implementing technical standards (ITS) in relation to Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book. The ITS are introduced under the Capital Requirements Regulation (575/2013/EU) (CRR), as amended by CRR II ((EU) 2019/876).
Article 448 of the CRR requires institutions to disclose, from 28 June 2021, quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non-trading book activities, as referred to in Articles 84 and 98(5) of the Capital Requirements Directive (2013/36/EU) (CRD IV). To implement this disclosure, the EBA has developed draft ITS amending Implementation Regulation (EU) 637/2021, published in the Official Journal of the European Union on 21 April 2021.
The draft ITS propose qualitative disclosures on how institutions calculate their interest rate risk in the banking book (IRRBB) exposure values based on their internal measurement systems and on institutions’ overall IRRBB objectives and management. They also propose quantitative disclosures on the impact of changes in interest rates on institutions’ economic value of equity and net interest income.
As the underlying regulatory framework relating to IRRBB is under review, the consultation paper takes into account the current regulatory framework, specifically the Basel Pillar 3 disclosure requirements, and the EBA guidelines on the management of interest rate risks arising from non-trading book activities. The draft ITS have been developed with the intention of minimising any potential future changes that might be needed following the finalisation of the review. The EBA is also proposing transitional provisions that should facilitate institutions’ disclosures while the policy framework is finalised.
The consultation closes on 30 August 2021. The EBA is also holding a public hearing on 30 June 2021 and intends to submit the draft ITS to the European Commission in October 2021.
Consultation paper: Draft Implementing Technical Standards amending Implementing Regulation (EU) 637/2021 on disclosure of information on exposures to interest rate risk on positions not held in the trading book in accordance with Article 448 of the Capital Requirements Regulation (575/2013/EU) (EBA/CP/2021/20)
Benchmarking of internal models – EBA publishes final report on draft implementing technical standards - 3 June 2021
The EBA has published a final report on draft implementing technical standards (ITS) updating Commission Implementing Regulation (EU) 2016/2070 on the benchmarking of internal models (EBA/ITS/2021/03), in preparation for its 2022 benchmarking exercise.
The Commission Implementing Regulation contains ITS specifying the information that firms must report to the EBA and national competent authorities (NCAs) in order to enable the assessments of internal approaches for calculating own funds requirements in accordance with Article 78 of the Capital Requirements Directive (2013/36/EU) (CRD IV).
The draft updating ITS contain all benchmarking portfolios and metrics that will be used for the 2022 benchmarking exercise. The exercise will cover approved internal approaches used for own funds requirements for credit and market risk, as well as internal models used for International Financial Reporting Standard (IFRS) 9. The draft updating ITS also cover the following:
- for market risk benchmarking, the framework has been extended to allow for the collection of new information, in particular relating to sensitivity-based-measures. Some instruments have also been clarified and updated, and the overall composition of the portfolio changed compared to the 2021 benchmarking exercise;
- for credit risk, a limited number of additional data fields have been included to understand the level of conservatism incorporated in the risk estimates and the resulting risk weighted exposures amounts, while enhancements have been made to existing data requirements;
- for the IFRS 9 portfolios, a limited number of additional data fields have been included to collect information on additional IFRS 9 parameters, in particular the loss given default; and
- changes and clarifications to the ITS based on the EBA consultation paper published in December 2020 (EBA/CP/2020/26).
The EBA will now submit the draft updating ITS to the European Commission for endorsement. The technical standards will apply 20 days after publication in the Official Journal of the European Union.
Mapping climate exposures to risk – EBA publishes results of EU-wide pilot exercise - 21 May 2021
The EBA has published the results of its first EU-wide pilot exercise on climate risk. We reported on this development in summary in our Bulletin last week and this item provides further details.
The main objective of the exercise was to map banks’ exposures to climate risk and provide insight into the green estimation that banks have carried out so far. It used a sample of 29 volunteer banks from ten EU member states, which together hold 50% of the EU banking sector’s total assets, and focused on these banks’ non-SME corporate exposures. The purpose of the exercise was to assess the performance of existing and newly developed risk assessment and classification tools, and the extent to which banks are: (i) using these effectively; and (ii) meeting related data and methodology challenges.
The EBA’s key findings include that:
- 58% of total non-SME corporate exposures are allocated to sectors that might be sensitive to transition risk, and are concentrated in some specific sectors;
- 35% of banks’ total non-SME corporate exposures are to corporates with greenhouse gas emissions above the median of the distribution;
- the estimated average ratio for the green asset ratio (GAR) across EU banks was 7.9%. The GAR is constructed for each bank by dividing the green amount, relating to a subset of exposures, by the total original exposure; and
- the impact of climate-related risks across banks has different magnitudes and is concentrated in particular sectors.
Overall, the EBA considers that the findings provide a clear picture of banks’ data gaps and highlight the sense of urgency to remedy them if banks are to achieve a meaningful and smooth transition to a low-carbon economy.
More specifically, the EBA considers that more disclosure on transition strategies and greenhouse gas emissions is needed to allow banks and national supervisors to assess climate risk more accurately. The findings also highlight the importance for banks of expanding their data infrastructure to include more granular client information. The EBA indicates that banks’ disclosures will be reinforced by the EBA draft technical standards on Pillar 3 disclosures on climate-change and ESG-related risks, including the definition of the green asset ratio (GAR) which is currently under consultation. These aspects will allow stakeholders to assess more effectively banks’ ESG-related risks and sustainability strategies, and to promote market discipline.
The EBA intends to continue working actively on the measurement and assessment of climate-related risks in the banking sector. These findings are a key starting point to achieving consistent and comparable climate risk assessment tools, particularly in relation to transition risk.
Single Resolution Board
Resolution framework public interest assessment – Single Resolution Board publishes addendum - 31 May 2021
The Single Resolution Board (SRB) has published an addendum setting out its revised approach to the resolution framework public interest assessment (PIA). The SRB’s updated approach takes into account that a bank’s failure may take place under either an idiosyncratic scenario, a system-wide event or as a result of broader financial instability. The updated approach consists of a single assessment and conclusion, under which two sets of circumstances are considered, namely normal market conditions and system-wide events. The SRB considers that this approach strengthens the choice of the best resolution strategy to protect EU taxpayers and promote EU financial stability.
The PIA addendum is being implemented in the current resolution planning cycle. The SRB is also considering whether further enhancements to its PIA framework are needed, including in relation to the protection of covered deposits and the scope of critical functions.
Bank of England
Resolvability assessment framework – Bank of England publishes updated statements of policy - 28 May 2021
The Bank of England (BoE) has published updated versions of several statements of policy (SoPs) on the resolvability assessment framework to reflect the PRA’s final operational continuity in resolution (OCIR) policy. The updated SoPs are those on: the approach to assessing resolvability; restructuring planning; management, governance and communication; and valuation capabilities to support resolvability.
The BoE has revised the SoPs to reflect the publication of the PRA’s policy statement (PS9/21) on its updated operational continuity in resolution (OCIR) policy. The BoE consulted on OCIR-related amendments to the SoPs in October 2020, alongside the PRA’s consultation on its own policy. It has decided to proceed with the changes consulted on, as well as to make revisions to reflect changes in the PRA’s approach to OCIR as set out in PS9/21. The BoE also states that its assessment of firms’ resolvability during 2021 and 2022 is expected to focus on the PRA OCIR policy that came into force on 1 January 2019, taking into account that the PRA’s revised OCIR policy is effective from 1 January 2023.
See also item on the PRA’s policy statements PS9/21 and PS10/21 below in this section.
Prudential Regulation Authority
Operational continuity in resolution – PRA publishes policy statement PS9/21 on revised policy – 28 May 2021
The PRA has published a policy statement (PS9/21) on revisions to its policy on operational continuity in resolution (OCIR), following its consultation paper (CP20/20) published in October 2020. The PRA’s proposed revisions to its OCIR policy are intended to improve firms’ resolvability and support the Bank of England in its approach to assessing resolvability.
In response to feedback, the PRA has amended the definition of ‘critical services’ – the term will now refer to both critical functions and core business lines, and the proposed term ‘essential services’ will not be introduced. The PRA has also decided to delay the implementation of the revised OCIR policy to 1 January 2023, 12 months after the 1 January 2022 date proposed in CP20/20.
The appendices to PS9/21 set out final versions of the following:
- ‘PRA Rulebook: CRR firms: Operational Continuity Instrument 2021’ (PRA 2021/8), which makes amendments to the Operational Continuity Part of the PRA Rulebook; and
- ‘Supervisory Statement (SS4/21): Ensuring operational continuity in resolution’, which will supersede the existing Supervisory Statement on ensuring OCIR (SS9/16).
The PRA emphasises that the current Operational Continuity Part of the PRA Rulebook and SS9/16 will remain in place until both the instrument and SS4/21 come into force on 1 January 2023. Before that date, firms will remain responsible for ensuring they continue to meet the existing OCIR policy while working on the implementation of the revised policy.
See also item below in this section on the PRA’s policy statement PS10/21 and item above in this section on the Bank of England’s publication of updated Statements of Policy.
Operational continuity in resolution – PRA publishes policy statement on amendments to reporting and disclosure dates for resolution assessments - 28 May 2021
The PRA has published a policy statement (PS10/21) on amendments to reporting and disclosure dates for resolution assessments, following its consultation paper (CP19/20) published in October 2020. The policy statement is relevant to UK banks and building societies with £50 billion or more in retail deposits on an individual or consolidated basis, as at the date of their most recent annual accounts.
Following its consultation, the PRA has amended paragraph 2.11 in its Supervisory Statement SS4/19 to remove the proposed expectation that firms’ 2021 resolution assessments should also include the progress made towards, and outstanding steps needed, for meeting the revised operational continuity in resolution (OCIR) policy. This change confirms that for their first report in October 2021, firms should assess their compliance against the OCIR policy that came into force on 1 January 2019.
See also items above in this section on the PRA’s policy statement PS9/21 and the Bank of England’s publication of updated Statements of Policy.
NPL securitisations – PRA publishes consultation paper on updated prudential standards - 3 June 2021
The PRA has published a consultation paper setting out proposed rules relating to the implementation of updated prudential standards agreed by the Basel Committee on Banking Supervision (BCBS) for non-performing loan (NPL) securitisations (CP10/21). The proposals in the consultation are relevant to all PRA-authorised firms to which the Capital Requirements Directive (2013/36/EU) applies.
A revised securitisation capital framework was implemented through the Capital Requirements Regulation (575/2013/EU) (CRR) and Policy Statement (PS29/18): ‘Securitisation: The new EU framework and Significant Risk Transfer’ in order to tackle shortcomings as observed during the global financial crisis. However, the Basel standards that were implemented through this legislation did not provide any specific treatment for the securitisation of NPLs. In order to address this, the BCBS published a technical amendment to be implemented no later than January 2023. The proposals in this consultation paper aim to implement the amendment in the UK and include:
- definitions for non-performing exposure (NPE) securitisations and qualifying NPE securitisations;
- revised rules for calculating capital requirements on exposures to NPE securitisations; and
- a new expectation that the person performing the firm’s Senior Management Function (SMF) 16 (Compliance Oversight) should satisfy themselves that performing loans are not being included in a NPE securitisation for the purpose of reducing the capital charge on those loans.
The proposals would result in the addition of a new Non-Performing Exposure Securitisation Part of the PRA Rulebook (set out in Appendix 1), and amendments to its supervisory statement: ‘Securitisation: General requirements and capital framework’ (SS10/18) (draft amended version set out in Appendix 2).
The consultation closes on 26 July 2021. The PRA proposes that the changes resulting from the consultation would be implemented on 1 January 2022 and would take effect in conjunction with any consequential amendment made by HM Treasury to the retained EU law version of the CRR.
Financial Markets Law Committee
UK ring-fencing regime legislation – FMLC establishes working group on legal uncertainties - 3 June 2021
The Financial Markets Law Committee (FMLC) published a letter to the Chair of the Ring-fencing and Proprietary Trading Independent Review (Review), Keith Skeoch, outlining the remit and proposed output of its recently established working group to consider the legal uncertainties relating to the UK bank ring-fencing regime and identify suggestions on how these might be eliminated or ameliorated.
The FMLC explains that the working group’s work is in parallel to the work of the Review, which is largely concerned with policy issues or aspects of the regime that do not involve questions of legal uncertainty. However, the FMLC’s work may affect some of the Review’s questions on the appropriateness of certain aspects of the regime and any unintended consequences. As well as damaging the effectiveness of the regime, the FMLC points out that legal uncertainty can cause unnecessary costs for ring-fenced banks, and their customers and counterparties. It also provides examples to illustrate the issues that the working group is considering, including:
- uncertainties about how a bank can comply with the law in becoming a ring-fenced bank and on the correct process to be used for reorganisations, including where assets are moved between ring-fenced and non-ring-fenced banking entities;
- the absence of a regulatory process for clarifying in a legally binding manner how banks should behave where the key statutory instruments are uncertain or fail to deal with a particular situation; and
- uncertainty about whether a ring-fenced bank can lawfully participate in a reorganisation of, or otherwise deal with, a minority stake that it holds.
The working group intends to produce a paper setting out the legal uncertainties identified and its suggestions as to how these might be eliminated. It does not expect to complete its work by the deadline for responding to the Review’s call for evidence of 13 June 2021, but expects to share the paper with the Review by the end of July 2021. It also expects to share the paper with HM Treasury in the hope that the FMLC’s suggestions can be addressed. Jan Putnis of this firm is a member of the working group.
See the General section for an item on the PRA’s policy statement (PS11/21) in relation to temporary absences of persons performing Senior Management Functions under the Senior Managers and Certification Regime.
Securities and Markets
Issue 1112 / 3 June 2021
- Financial Stability Board
- International Organization of Securities Commissions
- European Commission
- European Securities and Markets Authority
- EMIR and SFTR – ESMA publishes consultation paper on Guidelines for data transfer between trade repositories- 28 May 2021
- Benchmark administrators – ESMA publishes supervisory briefing-28 May 2021
- CSDR; MiFIR; Securitisation Regulation; BMR; EMIR; SFTR; MiFID II; UCITS and AIFMD – ESMA updates Q&As- 28 May 2021
- EU Investment Firms Regulation – ESMA and EBA publish provisional list of instruments and funds for smallest investment firms- 31 May 2021
- MiFID II/MiFIR – ESMA publishes final report and guidelines on market data obligations- 1 June 2021
- HM Treasury
- Financial Conduct Authority
- International Regulatory Strategy Group
- Fixed Income, Currencies and Commodities Markets Standards Board
Financial Stability Board
LIBOR transition - FSB publishes statement on smooth and timely transition – 2 June 2021
The Financial Stability Board (FSB) has published several statements in support of a smooth and timely transition away from LIBOR by the end of 2021. The statements include:
- an updated global transition roadmap that summarises the high-level steps financial and non-financial firms will need to take now and over the course of 2021 to complete their transition;
- a paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available;
- a statement on the use of ISDA spread adjustments in cash products to support the transition, particularly in loan markets. This remains an area of concern given that significant new lending is still linked to LIBOR; and
- a statement encouraging national regulatory authorities to set globally consistent expectations that regulated entities should cease the new use of USD LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.
The FSB also welcomes the statement published by the International Organization of Securities Commissions on benchmark transition, which reiterates the importance of ensuring a smooth and timely transition away from LIBOR (see also item 12.1 below). In light of the limited time available, the FSB also strongly urges market participants to act now to complete the steps set out in its global transition roadmap. The FSB intends to publish its next full report on progress in November 2021.
International Organization of Securities Commissions
LIBOR transition - IOSCO publishes statement – 2 June 2021
The International Organization of Securities Commissions (IOSCO) has published a statement on benchmark transition, reiterating the importance of ensuring a smooth and timely transition from LIBOR. IOSCO notes that the transition remains a significant regulatory priority and will require market participants to take steps to stop the issuance of new products linked to LIBOR. For this reason, IOSCO explains that the use of LIBOR rates in new contracts should be ceased as soon as practicable, and no later than the timelines set out by national regulatory authorities and/or national working groups in the relevant currencies.
In addition and in light of the significant use of USD LIBOR globally, IOSCO is aware of the importance of reinforcing the transition message and timeline on a global scale. Therefore it is encouraging all global market participants to discontinue any new use of USD LIBOR-linked contracts as soon as practicable and by no later than the end of 2021, in order to avoid the safety and soundness risks associated with continued use.
In line with its communication and outreach program launched in 2019, IOSCO also intends to continue its efforts to inform relevant stakeholders on the alternative rates that comply with the IOSCO Principles on Financial Benchmarks.
MiFID II – European Commission publishes draft Delegated Regulation for consultation - 27 May 2021
The European Commission has published for consultation a draft Delegated Regulation supplementing the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) by specifying the criteria for establishing when an activity can be considered to be ancillary to a firm’s main business at group level.
Article 2(1)(j) of MiFID II exempts a firm from the regulated activities of dealing on own account and providing investment services in relation to commodity derivatives, provided these activities are ancillary to that firm’s, or its group’s, main business, and the main business is not the provision of investment services.
The Commission has the power under Article 2(4) of MiFID II to adopt regulatory technical standards (RTS) specifying the criteria for establishing when an activity is to be considered ancillary to the main business of a group. Directive (EU) 2021/338, which amends MiFID II to help the EU’s economic recovery from COVID-19 (the MiFID II Amending Directive), revisited the ancillary activity exemption and empowered the Commission to adopt a delegated regulation to replace Delegated Regulation 2017/592 (RTS 20).
Proposed changes to the exemption are the deletion of the overall market size test in Article 2 of RTS 20 and the introduction of a new de minimis threshold test. The amended text does not change the established calculation methodology of the trading test and capital employed test in RTS 20, except in relation to the level of the corresponding threshold as set out in the MiFID II Amending Directive.
The consultation closes on 24 June 2021.
Draft Delegated Regulation (EU) …/… of XXX supplementing the Markets in Financial Instruments Directive (2014/65/EU) by specifying the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level
EMIR – European Commission adopts Delegated Regulation specifying commercial terms for clearing services for OTC derivatives – 2 June 2021
The European Commission has adopted a Delegated Regulation specifying the conditions under which commercial terms for clearing services for over-the-counter (OTC) derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT). To facilitate access to clearing for clients, especially those that have a limited volume of activity in the OTC derivatives market, clearing members and clients which provide clearing services must provide those services on FRANDT terms as required under Article 4(3a) of the European Market Infrastructure Regulation (648/2012/EU) (EMIR), as amended by the EMIR Refit Regulation ((EU) 2019/834).
The Delegated Regulation, which specifies the conditions under which commercial terms are to be considered to be FRANDT, aims to:
- increase transparency of the on-boarding process and of prices and other commercial terms on offer;
- ensure that commercial terms are related to costs and risks; prices, fees and discounts are based on objective criteria; and that fees passed on to clients are transparent;
- increase transparency of commercial terms in general and specifically the conditions for acceptance of clearing orders, the suspension of clearing services and close-out of client positions; and
- ensure that notice periods for the termination of clearing services or material changes to commercial terms are fair and provide clients with sufficient time to find another clearing service provider if this is needed.
The Delegated Regulation will now be subject to the scrutiny of the European Parliament and Council of the EU. It will apply in relation to new clients six months from its entry into force. Commercial terms in contracts with existing clients must be brought in line with the requirements laid down in the Delegated Regulation within 12 months from its entry into force.
Commission Delegated Regulation (EU) of XXX supplementing the European Market Infrastructure Regulation (648/2012/EU) by specifying the conditions under which the commercial terms for clearing services for OTC derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent
European Securities and Markets Authority
EMIR and SFTR – ESMA publishes consultation paper on Guidelines for data transfer between trade repositories – 28 May 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper on proposed amendments to its Guidelines on data transfer between trade repositories under the European Market Infrastructure Regulation (648/2012/EU) (EMIR) (the EMIR Guidelines) and new proposed Guidelines on the same topic under the Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR) (the SFTR Guidelines). The amendments to the EMIR Guidelines seek to maintain regulatory authorities’ access to historical data, ensure a high degree of data quality and a competitive trade repository environment. The SFTR Guidelines are intended to establish a data transfer framework in relation to securities financing transactions. Both sets of Guidelines aim to:
- enhance the quality of data available to regulatory authorities, including the aggregations carried out by trade repositories, including where the participant changes the trade repository to which it reports and irrespective of the reason for that change;
- ensure that a competitive multiple-trade repository environment is guaranteed, and that trade repository participants can benefit from competing offers; and
- safeguard a consistent and harmonised way to transfer records from one trade repository to another and support the continuity of reporting and reconciliation, including where a trade repository registration is withdrawn.
The consultation closes on 27 August 2021. Following this, ESMA intends to consider the responses with a view to finalising both sets of proposed Guidelines and aims to publish a final report by Q1 2022.
Benchmark administrators – ESMA publishes supervisory briefing - 28 May 2021
ESMA has published a supervisory briefing ‘Benchmark administrators’ presence in their member states of location and outsourcing’ (ESMA81-393-98). ESMA explains that the supervisory briefing is designed to provide guidance to national competent authorities (NCAs) in respect of the presence of a benchmark administrator in its member state of location and the outsourcing of functions, relevant services or activities, in the provision of a benchmark, under the EU Benchmarks Regulation ((EU) 2016/1011) (EU BMR)).
The purpose of the supervisory guidance is to ensure a consistent application of the EU BMR across the EU. It also provides guidance on how NCAs should effectively supervise benchmark administrators that are part of a group that may include or have links with non-EU entities; on the authorisation and registration processes in their member states; and on appropriate outsourcing arrangements, in particular where the service provider is located outside the EU.
CSDR; MiFIR; Securitisation Regulation; BMR; EMIR; SFTR; MiFID II; UCITS and AIFMD – ESMA updates Q&As - 28 May 2021
ESMA has updated its Q&As in relation to the following legislation:
- Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR): ESMA has added a new Q&A in relation to investor protection and information on costs and charges;
- MiFIR: ESMA has added Q&A 18, which relates to data reporting reference rates not included in Regulatory Technical Standards (RTS) 23 (supply of financial instruments reference data) and RTS 22 (reporting of transactions to competent authorities);
- Undertakings for the Collective Investment in Transferable Securities Directive (2009/65/EC) (UCITS): ESMA has added two new Q&As relating to the performance reference period for the benchmark model and the performance reference period in case of funds’ mergers;
- Alternative Investment Fund Managers Directive (2011/61/EU): ESMA has updated Q&As on: (i) reporting to national competent authorities under Articles 3, 24 and 42 of the AIFMD; and (ii) its guidelines on performance fees in UCITS and certain types of alternative investment funds, which came into effect on 5 January 2021;
- European Market Infrastructure Regulation (648/2012/EU) (EMIR)): ESMA has amended two Q&As in the trade repositories section relating to access to data by regulatory authorities and the reporting of reference rates not included in Commission Implementing Regulation (EU) 2017/105, as well as adding a new Q&A on the reporting of the field ‘delivery type’ for credit derivatives;
- Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR): ESMA has added a new Q&A relating to reporting changes to the reference rate in a securities financing transaction;
- Benchmarks Regulation ((EU) 2016/1011) (BMR): ESMA has updated the Q&As to include a new section on EU climate transition benchmarks, EU Paris-aligned benchmarks and sustainability-related disclosures for benchmarks;
- Central Securities Depository Regulation (909/2014/EU) (CSDR): ESMA has added a Q&A in Part III (Settlement Discipline) relating to the scope of cash penalties; and
- Securitisation Regulation ((EU) 2017/2402): as well as modifying some existing questions, ESMA has updated the Q&As to address new technical questions.
EU Investment Firms Regulation – ESMA and EBA publish provisional list of instruments and funds for smallest investment firms - 31 May 2021
ESMA and the European Banking Authority (EBA) have published a provisional list of additional instruments and funds that national competent authorities (NCAs) may allow some of the smallest investment firms to use as own funds under Article 9(4) of the Investment Firms Regulation ((EU) 2019/2033) (IFR).
The aim of the list is to provide guidance to investment firms and competent authorities ahead of the application of the IFR requirements on 26 June 2021. It is based on information received from NCAs from across the EU and includes instruments and funds that may be used as own funds in addition to the instruments included in the Common Equity Tier 1 list published by the EBA in accordance with the Capital Requirements Regulation (575/2013/EU). Going forward, instruments and funds of investment firms are to be allocated either to this list or the existing Common Equity Tier 1 list, depending on their nature.
The EBA and ESMA intend to assess the terms and conditions of all instruments and funds on the provisional list against regulatory provisions at a later stage, and then aim to update, maintain and publish the list on a regular basis.
MiFID II/MiFIR – ESMA publishes final report and guidelines on market data obligations - 1 June 2021
ESMA has published its final report (ESMA70-156-4305) containing guidelines on obligations relating to market data under the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR).
The aim of the guidelines is to ensure better and uniform application of the provisions in Articles 13, 15(1) and 18(8) of MiFIR and Articles 64(1) and (2) of MiFID II by providing clarity for market participants. The guidelines set out the requirements to publish market data on a reasonable commercial basis and to make market data available free of charge 15 minutes after publication. They apply to national competent authorities, trading venues, approved publication arrangements, consolidated tape providers and systematic internalisers.
The guidelines apply from 1 January 2022 to allow for implementation by market participants. They will be translated into EU official languages in due course.
PRIIPs – HM Treasury announces extension of exemption for UCITS funds - 1 June 2021
HM Treasury has announced that the current exemption for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds from the requirements of the retained EU law version of the Packaged Retail and Insurance-based Investment Products Regulation (1286/2014/EU) (UK PRIIPs Regulation) will be extended by five years to 31 December 2026.
UCITS funds are currently exempted from the requirements of the UK PRIIPs Regulation. This means that, instead of producing a key information document (KID), UCITS funds providers must produce a key investor information document (KIID), as required under the UCITS Directive (2009/65/EC). This exemption currently expires on 31 December 2021 and HM Treasury intends to legislate to extend this exemption to 31 December 2026. The legislation will be made under the power granted to HM Treasury under the Financial Services Act 2021 to extend the exemption by five years, if required.
The announcement is being made to provide certainty for the industry and investors in relation to the disclosures that UCITS funds providers will have to make to retail investors beyond the end of 2021. Depending on the findings of HM Treasury’s review of the UK retail disclosure regime, changes to the UK PRIIPs Regulation may be made, or a successor regulation may be introduced, sooner than 2026.
Financial Conduct Authority
Market conduct – FCA publishes Market Watch issue 67 - 28 May 2021
The FCA has published issue 67 of Market Watch, its newsletter on market conduct and transaction reporting issues. The new issue focuses on how the FCA uses orderbook data to conduct surveillance to identify suspected market manipulation and its supervision of, and communication with, firms on this. It covers matters including:
- Identifying equity manipulation: the FCA uses suspicious transaction and order reports, and other notifications about suspected market abuse, under Article 16 of the UK Market Abuse Regulation (UK MAR), as well as undertaking its own surveillance of market activity. Firms and trading venues are requested to: (i) check that their systems used for short and long client codes are adequate so that incorrect data is not stored; and (ii) maintain good records of their orderbook data. The FCA may make information requests for orderbook data and it assesses firms’ systems and controls to ensure that they have effective surveillance arrangements in place;
- Algorithm design: the FCA’s internal surveillance algorithms identified an algorithmic trading firm that raised potential concerns about the impact that the algorithms responsible for executing the firm’s different trading strategies were having on the market. As a result, the firm adjusted the relevant algorithm and its control framework to help avoid the firm’s activity having an undue influence on the market; and
- Staff conduct: the FCA’s internal surveillance algorithms identified a small number of instances of potential spoofing by a trader at a firm. As a result of enquiries, the firm introduced additional market abuse training for all its trading staff and enhanced its surveillance capabilities to help better identify this activity.
Cryptoasset firms – FCA extends Temporary Registration Regime – 3 June 2021
The FCA has announced that it has extended the temporary registration regime (TRR) for certain existing cryptoasset firms that have applied for registration under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs).
The TRR was established in 2020 to allow existing cryptoasset firms that applied for registration before 16 December 2020 and whose applications are still being assessed, to continue trading. The TRR was due to expire on 9 July 2021, but has now been extended to 31 March 2022.
The FCA explained that a high number of businesses are not meeting the required standards under the MLRs, which has resulted in an unprecedented number of firms withdrawing their applications. The extension is designed to enable cryptoasset firms to continue to carry on business while the FCA proceeds with its assessments.
The FCA highlights that anti-money laundering and counter terrorist financing legislation is aimed at protecting against the transfer and disguise of funds from criminal activity, or funding of terrorist groups. The regulator makes clear that while this is not the only element it will assess in relation to registration applications, it will only register a firm where it is confident that the firm has processes in place to identify and prevent this activity.
International Regulatory Strategy Group
EU Taxonomy – IRSG publishes paper on UK application - 28 May 2021
The International Regulatory Strategy Group (IRSG) has published a paper setting out recommendations for reviewing the EU taxonomy for application in the UK.
While recognising some of the limitations of the EU’s approach, the IRSG endorses the UK government’s approach in the short-term to remain aligned with the principles of the EU taxonomy. It also supports the government’s establishment of the UK Green Technical Advisory Group, a group of experts that will be tasked with reviewing EU taxonomy metrics and ensuring these are aligned with the UK market. It notes that initially adopting the EU taxonomy should minimise the compliance burden on UK firms, while maximising the pool of investors they can attract and, therefore, helping to position the UK at the forefront of the green transition.
In the paper, the IRSG considers the purpose and usability of the EU taxonomy, as well as practical challenges arising from the need to implement a version which reflects the needs and specificities of the UK economy. It advocates a guiding principle in the development of the UK’s approach that criteria are science-based and pragmatic in ensuring that climate science can be translated into an actionable framework for companies of all sizes to engage with.
Given the implementation of the taxonomy will be a long-term project, the IRSG intends to publish a second paper which will focus on the medium-term challenges of dealing with some of the limitations of the EU taxonomy, including the limited concept of transition and the complex compliance burden for firms.
The IRSG is urging the government to accelerate progress on this work with a view to providing significant clarity to UK issuers and financial market participants, preferably in advance of the UN climate change conference in November 2021. The IRSG also urges the government to set out a clear roadmap of how it envisages the UK taxonomy will apply to companies and financial intermediaries in the UK and consider a phased implementation period that could be tied to the rollout of mandatory Task Force on Climate-related Financial Disclosures (TCFD) reporting.
Fixed Income, Currencies and Commodities Markets Standards Board
Annual Report – FMSB outlines areas of focus for 2021 - 2 June 2021
The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published its annual report for 2020. Together with a summary of progress and activities, the report outlines the FMSB’s areas of focus and planned work for 2021, with three key priority areas:
- Prioritising topics for future focus: the FMSB intends to address topics where it can deliver the most impactful outcomes for FICC market participants and wants to have a transparent, structured, member-driven approach to identifying, initiating and prioritising work on new publications, with a balanced focus on existing topics and new emerging issues and opportunities;
- Improving delivery: the FMSB intends to increase pace and efficiency while maintaining the quality and impact of its publications, which includes having better engagement with UK authorities and strengthening member engagement; and
- Extending the FMSB’s reach: the FMSB intends to widen its field of influence across products, markets, regions and types of participants, as well as to increase buy-side engagement and deepen its impact in the UK market.
In addition, the report refers to the significant amount of work that FMSB has undertaken and is currently progressing. This includes: work on LIBOR benchmark reform and setting out expected behaviours of market participants when using or issuing term SONIA products; finalising publications on FICC market structure and the impact of regulatory and technological change on the fairness and effectiveness of wholesale markets; and work on identifying and capturing risks arising from remote working, focusing on areas that affect the fairness and effectiveness of wholesale FICC markets.
Issue 1112 / 3 June 2021
- European Securities and Markets Authority
European Securities and Markets Authority
AIFMD – ESMA updates opinion on reporting information - 28 May 2021
The European Securities and Markets Authority (ESMA) has published an updated opinion (ESMA50-164-4575) on the collection of information for the effective monitoring of systemic risk under Article 24(5) of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).
In its opinion, ESMA provides details of a set of additional information that national competent authorities (NCAs) could require alternative investment fund managers (AIFMs) to report on a periodic basis pursuant to Article 24(5) of the AIFMD. In particular, ESMA aims to provide clarification on three risk measures (value-at-risk, net FX delta and net commodity delta) that are already included in its 2013 opinion, by providing definitions of each measure and practice examples to aid reporting. The remainder of the opinion that does not relate to these matters is unchanged.
ESMA explains that its October 2013 final report on guidelines on reporting obligations, under Articles 3(3)(d) and 24(1), (2) and (4) of the AIFMD, clarify the content of the information that AIFMs should provide to their NCAs when complying with those provisions of the AIFMD. However, ESMA believes that the effective monitoring of systemic risk potentially caused by one AIFM, or a group of AIFMs, would be improved by NCAs adopting a common approach when making use of their power to require additional information under Article 24(5) of the AIFMD. This would allow for a more comprehensive oversight of AIFMs’ activities by supplementing the reporting currently required in areas such as risk measures and short positions.
Issue 1112 / 3 June 2021
- Prudential Regulation Authority
- Financial Conduct Authority
Prudential Regulation Authority
Solvency II – PRA publishes policy statement on deep, liquid and transparent assessments and GBP transition to SONIA - 3 June 2021
The PRA has published a policy statement (PS12/21) on deep, liquid and transparent (DLT) assessments and GBP transition to the Sterling Overnight Index Average (SONIA), under the Solvency II Directive (2009/138/EC) regime. The policy statement is relevant to all UK Solvency II firms and the Lloyd’s Society and its managing agents, but does not apply to non-Directive firms.
The policy statement provides feedback on the PRA’s consultation paper (CP1/21), published in January 2021 and notes that respondents generally welcomed the PRA’s proposals on DLT assessments; the publication of indicative SONIA overnight index swap (OIS) based curves; the credit risk adjustment for SONIA OIS; the long term average spread; the transitional measure on technical positions; matching adjustment applications; and internal models. The PRA has made a number of minor changes to its draft policy as proposed in its consultation paper, which are set out in Chapter 2 of the policy statement.
Appendix 1 of the policy statement sets out the final version of its updated Statement of Policy: ‘The PRA’s approach to the publication of Solvency II technical information’ and Appendix 2 contains the results of the first DLT assessment of the SONIA OIS market.
The new policy takes effect on 3 June 2021. Transition to the new GBP risk-free rate will take effect on the publication of technical information with reference dates from and including 31 July 2021. The PRA explains that this means that the GBP risk-free rates that the PRA will use when calculating daily spread figures (for example, for the long term average spread calculation) will be based on LIBOR swap rates for dates up to and including 30 June 2021, and will switch to SONIA OIS rates for dates from and including 1 July 2021.
Financial Conduct Authority
General insurance pricing practices – FCA publishes policy statement – 28 May 2021
The FCA has published a policy statement on FCA Handbook changes to improve competition and protect home and motor insurance customers from loyalty penalties (PS21/5). The policy statement also summarises the feedback received on the FCA’s consultation paper (CP20/19) and its final report on its market study on general insurance pricing practices, both published in September 2020.
The final rules are in the Non-Investment Insurance Product Governance, Premium Finance, General Insurance Auto-Renewal and Home and Motor Insurance Pricing Instrument 2021 (FCA 2021/19), which is set out in Appendix 1 of PS21/5. The rules consist of a package of measures, including:
- a requirement that when a firm offers a renewal price to an existing customer, that price should be no greater than the equivalent new business price for a new customer;
- changes to the FCA’s existing product governance rules to ensure firms have in place processes to provide products that offer fair value to customers;
- rules requiring firms to offer a range of accessible and easy options for consumers who want to cancel auto-renewal on their contracts; and
- reporting requirements to help ongoing supervision of the home and motor insurance markets and to help the FCA monitor firms.
The rules on pricing, auto-renewal and reporting will come into effect on 1 January 2022. A transitional provision for the rules on pricing and auto-renewal disclosure will give firms until 17 January 2022 to put their processes in place, provided they backdate benefits to customers to 1 January 2022. The rules on systems and controls, retail premium finance rules and product governance will come into effect on 1 October 2021. The new rules supersede the FCA’s finalised guidance on the general insurance distribution chain, which will be withdrawn when the new rules come into effect.
The FCA has also published a research paper, which contains the results of an experiment it has conducted to consider consumer perceptions of, and their responses to, discounts and incentives.
Workplace pensions – FCA publishes statement on required charges and costs - 3 June 2021
The FCA has published a statement on its expectations of workplace personal pension scheme providers in relation to their first required publication of charges and costs information.
Following a consultation in February 2019 (CP19/10), the FCA made final rules (PS20/2) requiring such providers’ Independent Governance Committees (IGCs) to publish and disclose certain administration charges and transaction cost information to members of workplace pension schemes. The first publication of this information is required by 31 July 2021, when IGCs are expected to publish their annual reports.
Following questions raised by a number of firms, the FCA clarifies that it expects the data to be published at the level of the arrangement with each individual employer and believes that employer-level comparisons could help to improve value for money in workplace pensions. The FCA explains its position by reference to statements in its consultation paper CP19/10, policy statement PS20/2 and consultation paper CP20/9.
The FCA also confirms that costs and charges data should not be published at the level of the overarching HMRC registered scheme, as aggregation of costs and charges at that level would not promote meaningful comparisons. However, given the confusion in relation to the FCA’s expectations, it has confirmed that, for this reporting year, it will not act against firms who have prepared disclosures at the registered scheme level, provided they do one of the following:
- disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges); or
- show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (that is, without also disclosing the relevant employer or scheme details against the costs and charges).
The FCA has also clarified that the information does not need to published in IGCs’ annual reports but must be available on a publicly accessible website.
The FCA will consider if any changes to its Handbook are necessary to provide clarity and ensure consistently good outcomes.
See the General section for an item on the PRA’s policy statement (PS11/21) in relation to temporary absences of Senior Manager Functions under the Senior Managers and Certification Regime.
Issue 1112 / 3 June 2021
- European Commission
- Financial Conduct Authority
Yen Interest Rate Derivatives trading market – European Commission re-adopts cartel decision and re-imposes fines - 28 May 2021
The European Commission has re-adopted a cartel decision against ICAP plc (now NEX International Limited), ICAP Management Services Ltd and ICAP New Zealand Limited, imposing total fines of EUR6.45 million for facilitating five cartels in the Yen Interest Rate Derivatives (YIRDs) trading market.
In 2015, the Commission adopted a decision imposing fines on the same ICAP entities for facilitating six bilateral infringements in the YIRDs sector. In November 2017, the General Court annulled one, and shortened four, of these infringements. The General Court also annulled the fines imposed on ICAP on the basis of inadequate reasoning, specifically that the Commission had not provided sufficient reasons for its methodology in setting the fines. This was particularly important, as the Commission had departed from the general methodology set out in the 2006 Fining Guidelines. As ICAP did not appeal, the General Court’s findings on ICAP’s liability for the five infringements became final, albeit without fines.
The Commission has now re-adopted its cartel decision against ICAP for having infringed Article 101 of the Treaty on the Functioning of the European Union (TFEU) by facilitating several cartels in the YIRD trading market and has re-imposed total fines of EUR6.45m on the ICAP entities. The Commission states that the re-adopted decision addresses the procedural error identified by the General Court and includes a detailed reasoning on the fine calculation.
European Commission Press Release (See item ‘Antitrust: Commission re-adopts decision and fines ICAP €6.45 million for facilitating several cartels in the Yen Interest Rate Derivatives trading market’)
Financial Conduct Authority
Woodford fund investigation – FCA publishes letter to House of Commons Treasury Committee - 28 May 2021
The FCA has published a letter from FCA Chief Executive, Nikhil Rathi, to the House of Commons Treasury Committee Chair, Mel Stride, which provides an update on the FCA’s investigation into the LF Woodford Equity Income Fund. In the letter, Mr Rathi explains that the investigation has made progress and information gathering is nearly complete. He also notes that further analysis and legal advice may give rise to additional lines of enquiry and some witnesses may need to be re-interviewed. Nonetheless, the FCA is confident that the investigation work will be completed by the end of 2021.
Mr Rathi also notes that he is unable to provide further details in relation to the investigation for reasons of confidentiality and to ensure that the investigation, and any potential disciplinary process, is credible and fair. He also states that he is unable to give a precise timeline for any public indication of the outcome, although the investigation is a priority for the FCA. He also confirms that Woodford Investment Management Ltd does not hold any FCA permissions that would enable it to engage in retail investment activities. The FCA remains in close supervisory contact with the firm and will continue to engage with authorities overseas on any potential future activities of the firm or its principals.
Commenting on the update, Mr Stride expressed frustration that the investigation has not yielded any results and the date of any findings is still unknown. He makes clear that the Treasury Committee will consider the findings once they are published.