Includes developments in relation to: climate-related risks; non-bank lending; retail investment legislative package; and insurance stress test 2022
Click on the headings below to access each section:
Issue 1158 / 5 May 2022
- Financial Stability Board
- Financial Conduct Authority
- LinkedServices List and Payment Accounts – FCA completes review-29 April 2022
- Director of Competition, Interim Wholesale Director and Senior Advisor – FCA makes new appointments-4 May 2022
- APPG Judicial Review and Single View Initiative – FCA publishes minutes from Board meeting-4 May 2022
- Consumer Support – FCA publishes speech-5 May 2022
- Digital Regulation Cooperation Forum
Financial Stability Board
Climate-related risks – FSB publishes interim report for consultation - 29 April 2022
The Financial Stability Board (FSB) has published for consultation an interim report on supervisory and regulatory approaches to climate-related risks (the Report). The FSB previously published a Roadmap for Addressing Climate-related Financial Risks in July 2021, as previously reported in this Bulletin.
The Report makes a range of recommendations with a view to assisting supervisory and regulatory authorities in developing their approaches “to monitor, manage and mitigate cross-sectoral and system-wide risks arising from climate change and to promote consistent approaches across sectors and jurisdictions”. Recommendations include accelerating the identification of authorities’ climate-related data needs and an expansion in the use of climate scenario analysis and stress tests for macroprudential purposes. The Report also presents some early thinking on macroprudential policies and tools that could complement microprudential measures. It encourages authorities and standard-setting bodies to undertake research and analysis in the near to medium term on appropriate enhancements to their regulatory frameworks.
The deadline for responses to the Report is 30 June 2022. The FSB will publish its final recommendations in the fourth quarter of 2022.
FSB Interim Report: Supervisory and Regulatory Approaches to Climate-related Risks
Financial Conduct Authority
Linked Services List and Payment Accounts – FCA completes review - 29 April 2022
The FCA has published a webpage announcing that it does not intend to update its Linked Services List (the List) containing details of the most representative services linked to payment accounts subject to a fee in the UK (as required under the Payment Account Regulations). According to the FCA, the List meets and continues to meet the relevant statutory requirements and its purpose – to help consumers to make an informed choice when choosing payment accounts – is being fulfilled.
The FCA will update the webpage with more information shortly.
Director of Competition, Interim Wholesale Director and Senior Advisor – FCA makes new appointments - 4 May 2022
The FCA as announced the appointment of three individuals to its senior leadership team, filling the roles of Director of Competition, Interim Wholesale Director and Senior Advisor.
The FCA has appointed Graeme Reynolds as its Director of Competition. Mr Reynolds was most recently one of the FCA’s chief economists, and will lead the FCA’s teams undertaking market competition studies and those investigating competition enforcement cases.
The FCA has appointed Simon Walls as its Interim Wholesale Director. Mr Walls has been Head of Wholesale Markets at the FCA since 2016, having been with the FCA/Financial Services Authority since 2006 in a variety of roles, including seven years in asset management supervision.
The FCA has also announced that Mel Gunewardena will take up a Senior Advisor Role in May 2022. Mr Gunewardena is currently Chief Market Intelligence Officer at the Commodity Futures Trading Commission in Washington DC and a former Managing Director at Goldman Sachs.
APPG Judicial Review and Single View Initiative – FCA publishes minutes from Board meeting - 4 May 2022
The FCA has published the minutes of its board meeting on 23 and 24 March 2022. Among other things, the Board decided that the FCA should defend the application for permission for judicial review and, if permission is granted, the judicial review itself, brought by the All-Party Parliamentary Group on Fair Business Banking (APPG). The APPG seeks to challenge the lawfulness of the FCA’s decision in September 2021 not to use its powers to require any further redress to be paid to interest rate hedging products (IRHP) customers.
Separately, the board expressed its support for the Single View Initiative (the Initiative), which gathers key information about firms in dashboard form so that decisions and actions can be faster and better informed. The board was informed that findings from the piloting phase showed a reduction in triaging time and how the Initiative highlighted potential harms requiring investigation and supervision
FCA Board meeting minutes: 23 & 24 March 2022
Consumer Support – FCA publishes speech - 5 May 2022
The FCA has published a speech delivered by Sheldon Mills, Executive Director, Consumer and Competition at the FCA, at the Building Societies Annual Conference 2022.
Mr Mills focused on a number of points related to the theme of supporting consumers in challenging times, including:
- the role the financial services industry has to play in helping consumers manage their personal finances in the context of the cost of living crisis;
- the opportunities open banking can bring for building societies and their members; and
- the growth in later life lending, and the importance of suitable advice and responsible lending when serving older borrowers.
Mr Mills also highlighted how the FCA will be raising standards through its new consumer duty, and noted the extension of the FCA’s product design and fair value rules, which will apply to building societies for the first time.
Speech by Sheldon Mills, FCA Executive Director, Consumers and Competition: Supporting consumers in challenging times
Digital Regulation Cooperation Forum
Annual report, work plan and algorithmic processing discussion papers – published by the DRCF - 28 April 2022
The Digital Regulation Cooperation Forum (DRCF) has published its first annual report for 2021/22 together with an annual plan of work outlining its priorities for 2022/23. It has also published two discussion papers relating to its work on algorithms. The DRCF was formed in July 2020 by the Competition and Markets Authority (CMA), Ofcom and the Information Commissioner’s Office (ICO). The FCA joined as a full member in April 2021.
The DRCF explains in its annual report that the CMA, Ofcom, the ICO and the FCA now routinely share knowledge and skills, pool resources and work together to identify important industry trends and innovations. Building on that progress, the DRCF workplan for 2022/23 refers to a number of proposed projects that will help tackle current and future digital challenges, including encouraging responsible innovation and exploring different models for how work is coordinated with industry to support innovation.
The DRCF has also published two discussion papers based on the work of its algorithmic processing workstream. The first of these papers considers the current and potential harms and benefits of algorithmic processing and explores possible roles for the UK regulators in this context. The second paper looks at the auditing of algorithms.
The DRCF invites responses to the questions set out in the two papers by 8 June 2022.
Digital Regulation Cooperation Forum: Annual report 2021 to 2022
Digital Regulation Cooperation Forum: Plan of work for 2022 to 2023
Discussion paper: The benefits and harms of algorithms: a shared perspective from the four digital regulators
Discussion paper: Auditing algorithms: the existing landscape, role of regulators and future outlook
BANKING AND FINANCE
Issue 1158 / 5 May 2022
- Council of the European Union
- European Banking Authority
- Review of the EU banking macroprudential framework – EBA publishes response to European Commission’s call for advice-29 April 2022
- Environmental risks in prudential framework – EBA publishes discussion paper-2 May 2022
- CRR – EBA publishes final report on draft ITS on the mapping of credit assessments of ECAIs for securitisation-3 May 2022
- Equivalence of confidentiality and professional secrecy regimes – EBA publishes updated Guidelines-3 May 2022
- Non-bank lending – EBA publishes final report on advice toEuropeanCommission-4 May 2022
- CRD IV – EBA publishes final report on draft ITS on benchmarking of internal models-5 May 2022
- Bank of England
- Prudential Regulation Authority
Council of the European Union
Updates to EU bank resolution framework – Council of the EU announces provisional agreement on ‘Daisy Chain’ proposal - 28 April 2022
The Council of the EU (the Council) has announced a provisional agreement with the European Parliament on the proposed Regulation making targeted amendments to the Capital Requirements Regulation (575/2013/EU) (CRR) regarding total loss absorbing capacity (TLAC), the minimum requirement for own funds and eligible liabilities (MREL) and the Bank Recovery Resolution Directive (2014/59/EU) (BRRD). The focus of the proposed Regulation, adopted by the European Commission (the Commission) in October 2021 and referred to as the ‘Daisy Chain’ proposal, is on the treatment of indirect subscriptions for instruments eligible for internal MREL.
The provisional agreement introduces a revised deduction regime to avoid double-counting MREL elements at the level of intermediate entities and a carefully framed review clause to take into account the impact on different types of banking structures. It also incorporates a transitional regime for multiple point of entry groups until the end of 2024, subject to an assessment by EU resolution authorities.
The agreement is subject to approval by the Council and the European Parliament, after which it will go through the formal adoption procedure. The agreed revised text has not yet been published.
Press release: Daisy Chains: provision agreement on a revised bank resolution framework
European Banking Authority
Review of the EU banking macroprudential framework – EBA publishes response to European Commission’s call for advice - 29 April 2022
The European Banking Authority (EBA) has published its response to the European Commission’s July 2021 call for advice on the review of the EU banking macroprudential framework under article 513 of the Capital Requirements Regulation (575/2013/EU) (CRR).
Among other things, the EBA recommends a comprehensive review of the interaction between macroprudential measures and other capital requirements, such as the leverage ratio, own funds and eligible liabilities requirements. It also sees room for the harmonisation of methodologies covering both the identification of other systemically important institutions and the setting of buffer rates. The EBA is in favour of establishing an oversight and monitoring system for non-bank lenders and enlarging the scope of the macroprudential framework to cover non-bank lenders.
The Commission is required to review the macroprudential provisions in CRR and CRD IV by June 2022 and, if appropriate, to submit a legislative proposal to the European Parliament and the Council of the EU by December 2022.
EBA advice on the review of the macroprudential framework: Response to the Commission’s July 2021 call for evidence
Environmental risks in prudential framework – EBA publishes discussion paper - 2 May 2022
The EBA has published a discussion paper (EBA/DP/2022/02) on the role of environmental risks in the prudential framework for credit institutions and investment firms, as required by article 501c of the Capital Requirements Regulation (575/2013/EU) (CRR) and article 34 of the Investment Firms Regulation ((EU) 2019/2033) (IFR).
The Paper explores whether and how environmental risks are to be incorporated into the Pillar 1 prudential framework. It stresses the importance of collecting relevant and reliable information on environmental risks and their impact on institutions’ financial losses. It also highlights the need for a holistic regulatory approach that takes into account the EBA’s broader work on ESG, including in relation to transparency measures, risk management, Pillar 2 supervision and macroprudential capital buffers.
The deadline for responses to the discussion paper is 2 August 2022.
EBA Discussion Paper: The role of environmental risks in the prudential framework (EBA/DP/2022/02)
CRR – EBA publishes final report on draft ITS on the mapping of credit assessments of ECAIs for securitisation - 3 May 2022
The EBA has published its final report (EBA/ITS/2022/03) (dated 7 March 2022) containing draft amended implementing technical standards (ITS) to Commission Implementing Regulation EU/2016/1801 on the mapping of credit assessments of external credit assessment institutions (ECAIs) for securitisation, in accordance with article 270e of the Capital Requirements Regulation (575/2013/EU) (CRR). The EBA published a Consultation Paper (EBA/CP/2021/44) on the proposed amendments in December 2021.
The EBA received positive feedback in agreement with its proposals. It is therefore proceeding with the draft ITS as consulted on.
The draft ITS reflect amendments introduced by the new Securitisation Framework (Regulation EU/2017/2401), as well as the mappings for two ECAIs that have extended their credit assessments to cover securitisations.
EBA Final Report: Draft implementing technical standards amending Implementing Regulation (EU) 2016/1801 on the mapping of credit assessments of external credit assessment institutions for securitisation in accordance with Regulation (EU) No 575/2013 (EBA/ITS/2022/03)
Equivalence of confidentiality and professional secrecy regimes – EBA publishes updated Guidelines - 3 May 2022
The EBA has updated its Guidelines for assessing the equivalence of confidentiality and professional secrecy regimes, to widen the scope and the purpose of the assessment. The EBA uses the Guidelines in order to perform its equivalence assessment evaluating the professional secrecy and confidentiality regimes that apply to third-country authorities, thereby facilitating cooperation with third-country authorities as well as the functioning of supervisory and (where relevant) resolution colleges.
The updated Guidelines allow for:
- a wider scope of the assessment to include all relevant provisions in the Capital Requirements Directive (2013/36/EU) (CRD IV), the revised Payment Services Directive ((EU) 2015/2366) (PSD2), the Bank Recovery and Resolution Directive ((EU) 2015/59) (BRRD) and the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4), as applicable to the specific third country authorities; and
- a wider purpose to support cooperation arrangements and facilitate participation in supervisory, resolution and anti-money laundering colleges.
The Guidelines will be translated into the official EU languages and published on the EBA website. National competent authorities will then have two months to report whether they comply with the Guidelines. The Guidelines will apply two months after their publication, at the latest.
EBA Final Report: Guidelines on the equivalence of confidentiality and professional secrecy regimes of third-country authorities (EBA/GL/2022/04)
Principles for the assessment of confidentiality and professional secrecy
Non-bank lending – EBA publishes final report on advice to European Commission - 4 May 2022
The EBA has published a final report (the Report) setting out its technical advice to the European Commission on non-bank lending, which is defined as lending provided by financial intermediaries outside the EU financial services regulator perimeter. This advice responds to the Commission’s February 2021 call for advice on digital finance and related issues, and is accompanied by a letter to the Commission.
The EBA observes that, while the magnitude of non-bank lending remains very small compared to credit provided by banks, developments in the areas of Fintech and BigTech (including in relation to cryptoassets) are reshaping the landscape. The EBA further concludes that analysis of the regulatory regimes currently in place demonstrates that non-bank lending remains largely unharmonised across the EU.
After providing an overview of different Member State approaches to non-bank lending, the Report goes on to identify areas where specific risks flowing from the provision of credit by non-bank lenders have been detected, and sets out proposals to address these risks. The proposals include:
- enhancing disclosure requirements and ensuring that they are fair, effective and well-suited for new forms of lending;
- strengthening requirements for creditworthiness assessments;
- strengthening existing provisions around authorisation and admission to activities, and clarifying the identification of the prudential perimeter; and
- covering all non-bank lenders in a more comprehensive way in the EU-wide AML/CFT framework to achieve greater harmonisation.
EBA Final Report on response to the non-bank lending request from the CfA on digital finance (EBA/Rep/2022)
EBA letter to European Commission: European Commission request to EBA for technical advice on non-bank lending (EBA-2022-D-3928)
CRD IV – EBA publishes final report on draft ITS on benchmarking of internal models - 5 May 2022
The EBA has published a final report (the Report) on draft implementing technical standards (ITS) updating Commission Implementing Regulation (EU) 2016/2070 on the benchmarking of internal models, in preparation for its 2023 benchmarking exercise.
The updated ITS include all benchmarking portfolios and metrics that will be used for the 2023 exercise. The EBA explains that the benchmarking exercise is an essential supervisory tool to monitor and enhance the quality of internal models, which are relevant for the assessment of the institution’s capital adequacy. The exercise covers approved internal ratings-based (IRB) approaches used for own funds requirements calculation of credit and market risk, as well as internal models used for IFRS9.
The EBA will now submit the draft ITS to the European Commission for endorsement. They will apply 20 days after their publication in the Official Journal of the European Union.
EBA Final Report: Draft Implementing Technical Standards on amending Commission Implementing Regulation (EU) 2016/2070 with regard to benchmarking of internal models (EBA/ITS/2022/04)
Bank of England
RTGS Renewal and CHAPS – Bank of England publishes consultation papers - 29 April 2022
The Bank of England (the Bank) has published two consultation papers related to the Real-Time Gross Settlement (RTGS) service: one that sets out proposals for a new framework for RTGS and CHAPS tariffs; and another on the next stage of the roadmap for the RTGS service beyond 2024.
The Bank is in the process of renewing the RTGS infrastructure, with a move to enhanced ISO 20022 for CHAPS payments scheduled for Spring 2023 and implementation of a new core settlement engine in Spring 2024.
The first consultation relates to the recovery of costs incurred by the Bank in building and running the RTGS and CHAPS services. The Bank notes that, going forward, fees will need to cover the cost of building the renewed RTGS service, the future costs of running RTGS (and the CHAPS payment system) together with an allowance to keep the underlying hardware current.
The second consultation seeks industry views on what features they would like to see investment in for the next stage of the roadmap for RTGS beyond 2024. The Bank is particularly interested in hearing from existing RTGS participants on features that could change how organisations currently interact with the service, such as new ways to connect, maintaining and enhancing RTGS resilience and extending operating hours.
The deadline for responses to both consultations is 30 June 2022. The Bank will publish its final tariff approach and feedback summary on the RTGS roadmap in late 2022.
RTGS – CHAPS Tariff Consultation
Roadmap for Real-Time Gross Settlement service beyond 2024
Prudential Regulation Authority
Developing a ‘strong and simple’ prudential framework – PRA publishes Consultation Paper (CP5/22) - 29 April 2022
The PRA has published a Consultation Paper (CP5/22) on the definition of a ‘Simpler-regime Firm’ under the proposed ‘strong and simple’ prudential framework for smaller UK banking firms. It follows the PRA’s April 2021 Discussion Paper (DP1/21) and December 2021 Feedback Statement (FS1/21) on the proposed framework, as previously reported in this Bulletin.
As set out in DP1/21, the PRA is seeking to mitigate the ‘complexity problem’ that can arise when the same prudential requirements are applied to all firms. It aims to achieve this through its ‘strong and simple’ initiative that would seek to simplify the prudential framework for non-systemic domestic banks and building societies, while maintaining their resilience. Since this would be a major change in prudential policy, taking a number of years to develop and implement, the PRA is starting to achieve its aim by first developing a ‘simpler regime’ for the smallest firms. This approach aims to ensure the benefits of simplification are experienced by the largest number of firms as soon possible.
The Consultation Paper sets out the PRA’s proposals for introducing a definition of a ‘Simpler-regime Firm’ in the PRA Rulebook, which would be the first step in designing a strong and simple framework. To be considered a Simpler-regime Firm, a firm must:
- have total assets less than £15 billion, calculated using the average of the firm’s total assets reported during the previous 36 months;
- have at least 85% of its relevant credit exposures located in the UK;
- on the last day of the preceding month, have on- and off-balance-sheet trading book business equal to or less than both 5% of the firm’s total assets and £44 million;
- have total net foreign exchange positions that do not exceed in value 2% of its own funds;
- hold no positions in commodities or commodity derivatives;
- not apply the Internal Ratings Based Approach to calculate its risk-weighted exposure amounts for credit risk;
- not provide clearing, transaction settlement, custody or correspondent banking services to a UK bank or building society, or to a credit institution whose registered office or, if it does not have a registered office, whose head office, is outside the UK;
- not be an operator of a payment system; and
- if it is a subsidiary, only be a subsidiary of a UK undertaking.
The deadline for responses is 22 July 2022. The PRA plans to consult on other aspects of the ‘simpler regime’ layer of the strong and simple framework, including the requirements that would apply under this regime, in early 2023. The second set of proposals is likely to follow in 2024.
The PRA notes that it would also need to take account of other planned changes to prudential regulation when bringing forward these reforms.
PRA Consultation Paper: The Strong and Simple Framework: a definition of a Simpler-regime Firm (CP5/22)
SECURITIES AND MARKETS
Issue 1158 / 5 May 2022
- International Organization of Securities Commissions
- European Commission
- European Securities and Markets Authority
International Organization of Securities Commissions
Market data in secondary equity markets – IOSCO publishes report - 28 April 2022
The International Organization of Securities Commissions (IOSCO) has published a report on market data in secondary markets for equity securities (the Report), following a consultation published in December 2020.
The Report makes a number of observations on the regulation of market data provided by trading venues or OTC markets. First, it notes that both pre-trade data (i.e. information about orders or quotations) and post-trade data (i.e. information about executed trades) are important in promoting the transparency of trading. It also comments that market data is not interchangeable in all cases and that, where appropriate, regulators should ensure fair access across different execution venues. Finally, it notes that consolidation may improve access to market data as well helping to reduce costs, identifying liquidity and comparing execution quality in jurisdictions where there may be fragmented liquidity.
IOSCO Report: Market Data in the Secondary Equity Market: Current Issues and Considerations (FR04/2022)
Retail investment legislative package – European Commission publishes call for evidence - 3 May 2022
The European Commission (the Commission) has published a call for evidence to inform an impact assessment on a retail investment package of measures as part of its Retail Investment Strategy (Ares(2022)339135). The measures would help to ensure that the legal framework for retail investments empowers consumers, enhances their participation in the capital markets and helps ensure improved market outcomes.
The types of measures the Commission could explore include improving the current disclosure regimes and promoting efforts at national level to enhance financial literacy (including on sustainability matters); addressing conflicts of interest in the advisory and non-advisory process and improving professional standards of advisers; and shifting the focus of current suitability and appropriateness regimes from a product-centric approach to a client-centric approach.
The deadline for responses is 31 May 2022.
Retail investment – new package of measures to increase consumer participation in capital markets
European Securities and Markets Authority
Retail investor protection – ESMA publishes final report - 29 April 2022
The European Securities and Markets Authority (ESMA) has published its final report (the Report) containing technical advice to the European Commission on retail investor protection aspects of the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II). The Report follows the Commission’s July 2021 request for advice and ESMA’s subsequent October 2021 call for evidence.
In the Report, ESMA sets out proposals that aim to make it easier for investors to get the key information they need to take well-informed investment decisions, whilst also protecting them from aggressive marketing techniques and detrimental practices. ESMA’s recommendations include requiring the machine readability of disclosure documents to facilitate the development of searchable databases available to the public; addressing information overload by defining what is vital information and by using digital techniques such as the layering of information; and developing a standard EU format of information on costs and charges.
In the associated press release, ESMA also highlights its support for the Commission’s proposal to prohibit the receipt of ‘payment for order flow’ to address the serious investor protection risks arising from this practice.
ESMA Final Report: On the European Commission mandate on certain aspects relating to retail investor protection (ESMA35-42-1227)
MAR – ESMA publishes opinions on amendments concerning the promotion of the use of SME growth markets - 4 May 2022
ESMA has published two opinions on the European Commission’s proposed amendments to the Market Abuse Regulation (596/2014/EU) (MAR) for the promotion of the use of medium-sized enterprise (SME) growth markets (GM). The opinions include revised proposals for: (i) draft regulatory technical standards (RTS) on liquidity contracts for SME growth market issuers adopted under MAR; and (ii) draft implementing technical standards (ITS) on the precise format of insider lists and for updating insider lists adopted under MAR. The standards were initially adopted by ESMA in October 2020.
The draft RTS on liquidity contracts now includes two specific clauses in the contractual template that specifies price limits for liquidity providers and waives the obligation of the liquidity provider to enter orders to trade on both sides of the order book in certain exceptional circumstances impeding the normal functioning of the market.
The draft ITS on insider lists includes a new specific permanent insider section for the insider lists of SME GM issuers where Article 18(6), second subparagraph, applies (under which, where justified by specific national market integrity concerns, member states may require SME GM issuers to include in their insider lists all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information).
Following the adoption of these Opinions, the Commission may adopt the ITS and the RTS with the amendments it considers relevant, or reject them. The European Parliament and the Council may object to the RTS adopted by the Commission within three months.
ESMA Opinion: On the European Commission’s proposed amendments to ESMA’s draft Regulatory Technical Standards on liquidity contracts for SME Growth Market issuers adopted under MAR (ESMA70-449-497)
ESMA Opinion: On the European Commission’s proposed amendments to the draft Implementing Technical Standards on the precise format of insider lists and for updating insider lists adopted under MAR (ESMA70-449-501)
Issue 1158 / 5 May 2022
- European Supervisory Authorities
- European Securities and Markets Authority
- Financial Conduct Authority
European Supervisory Authorities
PRIIPs review – ESAs publish technical advice - 2 May 2022
The European Supervisory Authorities (ESAs), comprising the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), have published a report (JC 2022 20) (dated 29 April 2022) setting out their technical advice to the European Commission (the Commission) with reference to the Commission’s review of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (1286/2014/EU) (PRIIPs Regulation).
The ESAs’ advice addresses all the issues referred to by the Commission in its request of 27 July 2021, including how to better adapt the key information document (KID) to the digital age and whether to extend the scope of the Regulation to other financial products. Additionally, it presents the ESAs’ recommendations on a range of other issues where analysis has shown that changes are needed to achieve optimal outcomes for retail investors. In particular, the ESAs are of the opinion that the KID would prove more useful to retail investors if presented in a much simpler and more user-friendly format.
The ESA’s technical advice will be taken into account in the Commission’s work on developing its Retail Investment Strategy and making appropriate adjustments to the PRIIPs legislative framework.
Call for advice on PRIIPs: ESA advice on the review of the PRIIPs Regulation (JC 2022 20)
Sustainability disclosures for STS securitisations – ESAs publish joint Consultation Paper on draft RTS - 2 May 2022
The European Supervisory Authorities have published a joint Consultation Paper (JC 2022 22) on draft regulatory technical standards (RTS) on the content, methodologies and presentation of the sustainability indicators for simple, transparent and standardised (STS) securitisations.
Under the Capital Markets Recovery Package, the Securitisation Regulation ((EU) 2017/2402) was amended to introduce new optional disclosure provisions for STS securitisations. The draft RTS aim to standardise the type and presentation of the information an originator may opt to disclose about the adverse impacts of assets financed by underlying exposures, on the environment and other sustainability areas. This disclosure is intended to help investors measure and compare the negative impacts on sustainability factors caused by the assets financed by underlying exposures in an STS securitisation.
The deadline for responses is 2 July 2022.
Joint Consultation Paper: STS securitisations-related sustainability disclosures (JC 2022 22)
European Securities and Markets Authority
MMF Regulation – ESMA publishes official translations of Guidelines on stress test scenarios - 4 May 2022
The European Securities and Markets Authority (ESMA) has published a webpage with official translations of its Guidelines on stress test scenarios produced under article 28 of the Money Market Funds Regulation ((EU) 2017/1131) (MMF Regulation).
The Guidelines apply to national competent authorities, MMFs and MMF managers, and establish common reference parameters in relation to scenarios used for the stress tests conducted by MMFs or managers of MMFs.
The Guidelines will apply from 5 July 2022, with the exception of text marked in red, which already applies from the dates specified in articles 44 and 47 of the MMF Regulation.
ESMA Guidelines: On stress test scenarios under the MMF Regulation (ESMA34-49-446)
Financial Conduct Authority
Investment platforms costs and charges – FCA publishes findings from review - 4 May 2022
The FCA has published its findings from a review of investment platforms costs and charges, following on from the publication of its Investment Platforms Market Study in 2019.
Focusing on the experience of non-advised consumers the FCA found that, generally, main platform charges and fund charges were well signposted. Activity-based charges (such as telephone trades costs, foreign exchange and interest on cash) were, however, harder for consumers to locate.
The FCA further identifies examples of good and bad practice, and concludes that platforms must provide the following information to consumers before they invest:
- all costs and charges, clearly explained;
- total prices/aggregated costs, expressed both as a cash amount and a percentage, with a breakdown available; and
- illustrations showing the effect of costs on returns.
This information needs to be provided in good time, before the provision of the investment business. The FCA observes that this may present operational challenges in an online environment, where transactions are typically concluded in a short timeframe. The FCA also advises platforms to be aware of its proposed consumer duty.
MS17/1: Investment Platforms Market Study webpage
Issue 1158 / 5 May 2022
- European Insurance and Occupational Pensions Authority
- Prudential Regulation Authority
European Insurance and Occupational Pensions Authority
Retail investment protection and insurance-based investment products – EIOPA publishes final report - 29 April 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a final report (BoS-22/244) containing technical advice to the European Commission (the Commission) on retail investment protection in relation to the sale of insurance-based investment products. The final report follows the Commission’s July 2021 call for advice and EIOPA’s subsequent consultation paper (BoS-22-020), published in January 2022.
Among other things, EIOPA has recommended the disapplication of non-personalised pre-contractual disclosures under the Solvency II Directive (2009/138/EC) (Solvency II) to address duplication between disclosure requirements under Solvency II and in key information documents (KID) under the Regulation for packaged retail and insurance-based investment products (1286/2014/EU) (PRIIPs KID Delegated Regulation). It has also suggested developing an ‘annual statement’ in the Insurance Distribution Directive ((EU) 2016/97) (IDD), which could include information on paid premiums, past performance and current value of savings.
EIOPA final report on technical advice to the European Commission regarding certain aspects relating to retail investor protection (BoS-22/244)
Prudential Regulation Authority
Insurance stress test 2022 – PRA launches exercise - 4 May 2022
The PRA has launched its biennial insurance stress test (IST 2022) exercise by publishing an updated version of its stress testing webpage, alongside a Dear CEO letter and a ‘Scenario Specification, Guidelines, and Instructions’ document.
The largest regulated life and general insurance firms are being asked to provide information about how a range of stress scenarios would affect their business. The PRA expects participating firms to engage fully and provide comprehensive responses, and will publish a summary of the overall results. Individual firm results will not be published, but will inform the PRA’s supervisory priorities.
In the context of heightened geopolitical and economic risks, the PRA has included an additional question requiring firms to consider the implications of inflationary pressures on their balance sheet and business model.
The PRA will be hosting a webinar for IST participants on 11 May 2022 for the launch of the exercise, and will run a Q&A process ahead of the submission deadline on 28 September 2022. In addition, depending on industry demand, the PRA plans to hold two industry roundtables in July 2022 to give firms the opportunity to discuss and seek clarification on IST 2022.
PRA Life Insurance Stress Test 2022 Scenario Specification, Guidelines and Instructions
PRA ‘Dear CEO’ Letter on the insurance stress test 2022