Blog: Financial Regulation Weekly Bulletin – 28 July 2022 – Lexology

Includes developments in relation to the FCA consumer duty, the UK/US financial regulatory working group and STS notification requirements

Click on the headings below to access each section.

GENERAL

Issue 1170 / 28 July 2022

HEADLINES

  1. European Commission
    1. SFDR – Commission Delegated Regulation setting out RTS on content and presentation of sustainability-related disclosures published in OJ–25 July 2022
  2. HM Treasury
    1. UK/US financial regulatory working group meeting – HM Treasury publishes policy paper– 26 July 2022
  3. Financial Conduct Authority
    1. Consumer duty – FCA publishes policy statement PS22/9 and guidance–27 July 2022
    2. Authorisation – FCA updates webpage to reflect introduction of consumer duty–28 July 2022
  4. Financial Ombudsman Service
    1. Ombudsman News – FOS publishes newsletter–27 July 2022
  5. Law Commission
    1. Digital assets – Law Commission publishes consultation paper on law reform–28 July 2022

European Commission

SFDR – Commission Delegated Regulation setting out RTS on content and presentation of sustainability-related disclosures published in OJ – 25 July 2022

Commission Delegated Regulation (EU) 2022/1288 supplementing the Sustainable Finance Disclosure Regulation (EU) 2019/2088 (SFDR) with regard to regulatory technical standards (RTS) specifying the content and presentation of financial market participants’ sustainability-related disclosures has been published in the Official Journal of the European Union (OJ). The RTS specify:

  • the content and presentation of information on the principle of ‘do no significant harm’;
  • the content, methodologies and presentation of information on sustainability indicators and adverse sustainability impacts; and
  • content and presentation of information on the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports.

The RTS will enter into force on 14 August 2022, and will apply from 1 January 2023.

Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088

HM Treasury

UK/US financial regulatory working group meeting – HM Treasury publishes policy paper – 26 July 2022

HM Treasury has published a policy paper following the sixth meeting of the UK/US Financial Regulatory Working Group (Working Group) on 21 July 2022.

The Working Group, which was formed in 2018 to deepen bilateral regulatory cooperation, comprises officials and senior staff from the US Department of the Treasury and HM Treasury, and from the US and UK independent regulatory agencies.

The Working Group meeting focused on seven themes: (1) international and bilateral cooperation, (2) benchmark transition, (3) financial innovation, (4) sustainable finance, (5) non-bank financial intermediation, (6) operational resilience, and (7) cross-border regimes. Among other things, participants discussed the mutual desire to promote multilateral cooperation around risk management in global derivatives markets and regulatory initiatives around the regulation of cryptoassets. On Basel III reforms, participants reaffirmed their commitment to the final prudential standards and reiterated the value of global cooperation in their implementation. Participants will conduct follow-up work on the above topics and other issues of mutual interest, and will continue to engage bilaterally on these aspects ahead of the next Working Group meeting which is expected to take place later in 2022.

HM Treasury: Policy paper

Webpage

Financial Conduct Authority

Consumer duty – FCA publishes policy statement PS22/9 and guidance – 27 July 2022

The FCA has published a policy statement (PS22/9) setting out its final rules and non-handbook guidance (FG22/5) for its new consumer duty (the Duty). The Duty will set higher and clearer standards of consumer protection across financial services and will require firms to put their customers’ needs first.

The Duty comprises an overarching principle, three “cross-cutting rules” and four specified outcomes. Firms must ensure customers receive communications they can understand, customer support which meets their needs, and products and services which match their needs and are priced to offer fair value.

The Duty does not create a fiduciary duty where one does not already exist, and the FCA has decided against introducing a private right of action for customers following a firm’s failure to comply with the Duty. In an accompanying press release, the FCA observes that the Duty “forms part of the FCA’s transformation to becoming a more assertive and data-led regulator”.

The rules introduced under the Duty will come into force on a phased basis. For new and existing products or services that are open to sale or renewal, the rules come into force on 31 July 2023. For closed products or services, the rules come into force on 31 July 2024.

Policy Statement: A new Consumer Duty – Feedback to CP21/36 and final rules (PS22/9)

Final non-Handbook Guidance for firms on the Consumer Duty (FG22/5)

Handbook Instrument: Consumer Duty Instrument 2022 (FCA 2022/31)

Webpage

Press release

Authorisation – FCA updates webpage to reflect introduction of consumer duty – 28 July 2022

The FCA has updated its webpage on the authorisation process for firms to include a new heading: ‘Consumer Duty’.

Here the FCA explains that, since assessments of firms and individuals are forward looking, any firm or individual applying for authorisation by the FCA will have to demonstrate that they can meet the requirements of the consumer duty from now on. This also applies to a firm or individual applying to vary their permissions. This is in spite of the fact that the consumer duty’s implementation period ends on 31 July 2023 for new and existing products or services that are open to sale or renewal, and on 31 July 2024 for closed products or services. 

The FCA published its final rules for its new consumer duty on 27 July 2022, as reported in this Bulletin.

FCA: Updated webpage: Authorisation: what’s involved

Financial Ombudsman Service

Ombudsman News – FOS publishes newsletter – 27 July 2022

The Financial Ombudsman Service (FOS) has published the latest edition of its newsletter ‘Ombudsman News’.

The newsletter highlights the recent appointment of James Dipple-Johnstone as Deputy Chief Ombudsman and Karl Khan as Chief Operating Officer, as well as the publication of new guidance for consumers and businesses on complaints that involve gambling-related harm.

Ombudsman News 173

For Consumers: Complaints that involve gambling-related harm

For Businesses: Complaints that involve gambling-related harm

Law Commission

Digital assets – Law Commission publishes consultation paper on law reform – 28 July 2022

The Law Commission has published a consultation paper containing new proposals to reform the law relating to digital assets, including cryptocurrencies and non-fungible tokens. The Law Commission notes that these reforms are necessary to ensure that such assets are subject to consistent legal recognition and protection, and that they will help achieve the government’s stated goal of the jurisdiction of England and Wales becoming a global hub for digital assets.

The proposals outlined in the consultation paper include:

  • the introduction of “data objects” as a third category of personal property in addition to “things in possession” and “things in action”, either at common law or by statutory intervention;

  • explicit clarification that the special defence of good faith purchaser for value without notice should apply to crypto-token transactions; and

  • clarification of the scope and application of section 53(a)(c) of the Law of Property Act 1925 in respect of certain dealings in specified forms of equitable crypto-token entitlements.

The Law Commission has asked for responses by 4 November 2022.

Law Commission: Consultation paper: Digital assets

Summary

Webpage

Press release

BANKING AND FINANCE

Issue 1170 / 28 July 2022

HEADLINES

  1. European Banking Authority
    1. CRR – EBA publishes report on use of specific exemptions included in the large exposures regime-22 July 2022
  2. HM Treasury
    1. The Financial Services and Markets Act 2000 (Consequential Amendments of References to Rules and Miscellaneous Amendments) Regulations 2022 – Statutory instrument and explanatory memorandum published-22 July 2022
  3. Prudential Regulation Authority
    1. Identifying O-SIIs – PRA publishes consultation paper (CP13/22)-22 July 2022

European Banking Authority

CRR – EBA publishes report on use of specific exemptions included in the large exposures regime - 22 July 2022

The European Banking Authority (EBA) has published a report on the use of specific exemptions included in the large exposure regime under the Capital Requirements Regulation (575/2013/EU) (CRR).

The Report provides detailed quantitative evidence about the use of the exemptions as of June 2021, and quantifies the impact of a potential removal of individual exemptions. The Report’s main finding is that some of the exemptions are widely used across the EU and their removal would have a material impact. Specifically, these are the exemptions set out in points f, g and j of Article 400(1) of the CRR, and points a, c and g of Articles 400(2) and 493(3) of the CRR.

EBA Report: On the use of exemptions from the limits to large exposures, under Article 507(1) of Regulation (EU) No 575/2013 amended by Regulation (EU) No 876/2019 (EBA/Rep/2022/16)

Press release

HM Treasury

The Financial Services and Markets Act 2000 (Consequential Amendments of References to Rules and Miscellaneous Amendments) Regulations 2022 – Statutory instrument and explanatory memorandum published - 22 July 2022

The Financial Services and Markets Act 2000 (Consequential Amendments of References to Rules and Miscellaneous Amendments) Regulations 2022 (the Regulations) have been published, together with an explanatory memorandum.

The Regulations make consequential changes to the Financial Services and Markets Act 2000 (FSMA), as a result of the changes introduced by the Financial Services Act 2021. The changes reflect the transfer of certain prudential requirements set out in UK legislation to the PRA, to implement the remaining aspects of the Basel III.I standards. They also reflect the introduction of the FCA’s Investment Firms Prudential Regime.

The Regulations will come into force on 17 August 2022.

The Financial Services and Markets Act 2000 (Consequential Amendments of References to Rules and Miscellaneous Amendments) Regulations 2022

Explanatory memorandum

Webpage

Prudential Regulation Authority

Identifying O-SIIs – PRA publishes consultation paper (CP13/22) - 22 July 2022

The PRA has published a consultation paper (CP13/22) on proposed changes to the criteria and scoring methodology it uses to identify other systemically important institutions (O-SIIs) under the mandate in Article 32 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (Capital Buffers Regulations). The PRA explains that O-SIIs are firms that are systemically important in a domestic context and the criteria for identifying them are derived from Article 31 of the Capital Buffers Regulations.

The proposals would result in changes to the PRA’s Statements of Policy on “The PRA’s approach to identifying O-SIIs” and “Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU”.

Specifically, the proposals include:

  • removing the European Banking Authority’s (EBA’s) scoring methodology from the O-SII identification process and deleting the EBA’s guidelines, such that O-SII identification is based solely on the PRA’s scoring methodology; and
  • updating specific indicators and weights in the PRA’s scoring methodology for O-SII identification.

The PRA proposes that the implementation date for the changes would be on the date of publication of the final revised Statements of Policy. The PRA therefore expects to carry out the 2022 O-SII designation process under the revised approach and will publish the list of designated firms by 1 December 2022.

The deadline for responses is 22 September 2022.

PRA Consultation Paper: Amendments to the PRA’s approach to identifying other systemically important institutions (O-SIIs) (CP13/22)

SECURITIES AND MARKETS

Issue 1170 / 28 July 2022

HEADLINES

  1. European Commission
    1. Securitisation Regulation – Commission Delegated Regulation on STS notification requirements for on-balance-sheet synthetic securitisations published in OJ–26 July 2022
    2. MiFID II – Two Commission Delegated Regulations and a Commission Implementing Regulation on position limits and controls published in OJ–26 July 2022

European Commission

Securitisation Regulation – Commission Delegated Regulation on STS notification requirements for on-balance-sheet synthetic securitisations published in OJ – 26 July 2022

Commission Delegated Regulation (EU) 2022/1301 amending the regulatory technical standards (RTS) laid down in Delegated Regulation (EU) 2020/1226 has been published in the Official Journal of the European Union. These RTS specify the information that securitisation parties have to provide to the European Securities and Markets Authority (ESMA) in accordance with the simple, transparent and standardised (STS) notification requirements for traditional true sale securities set out under the Securitisation Regulation ((EU) 2017/2402).

The amendments to the RTS specify the information originators must submit to ESMA to comply with the STS notification requirements for on-balance sheet synthetic securitisations, which are now within scope of the STS securitisation framework.  

The delegated regulation will enter into force on 15 August 2022.

Commission Delegated Regulation (EU) 2022/1301

MiFID II – Two Commission Delegated Regulations and a Commission Implementing Regulation on position limits and controls published in OJ – 26 July 2022

Two Commission Delegated Regulations and a Commission Implementing Regulation relating to commodity derivatives position limits, position management controls and position reporting under the Markets in Financial Instruments Directive (2014/65/EU) (MIFID II) have been published in the Official Journal of the European Union:

  • Commission Delegated Regulation (EU) 2022/1299 supplementing Directive 2014/65/EU of the European Parliament and of the Council regarding regulatory technical standards specifying the content of position management controls by trading venues;

  • Commission Delegated Regulation (EU) 2022/1302 supplementing Directive 2014/65/EU of the European Parliament and of the Council regarding regulatory technical standards for the application of position limits to commodity derivatives and procedures for applying for exemption from position limits; and

  • Commission Implementing Regulation (EU) 2022/1300 amending Implementing Regulation (EU) 2017/1093 laying down implementing technical standards regarding the format of position reports by investment firms and market operators.

These regulations will enter into force on 15 August 2022.

Commission Delegated Regulation (EU) 2022/1299

Commission Delegated Regulation (EU) 2022/1302

Commission Implementing Regulation (EU) 2022/1300

ASSET MANAGEMENT

Issue 1170 / 28 July 2022

HEADLINES

  1. European Banking Authority and European Securities and Markets Authority

European Banking Authority and European Securities and Markets Authority

IFD – EBA and ESMA publish joint final report on SREP - 20 July 2022

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have published a joint final report on guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms under the Investment Firms Directive ((EU) 2019/2034) (IFD) (the Guidelines). The EBA and ESMA consulted on draft versions of the Guidelines in November 2021.

The Guidelines set out the process and criteria for the main SREP elements: business models; governance arrangements and firm-wide controls; risks to and adequacy of capital; and liquidity risk and adequacy. The Guidelines also cover the proportionate application of a scoring system depending on a firm’s nature, size and activities; the monitoring of key indicators; cross-border application; and the use of supervisory measures.

Following the consultation, the EBA and ESMA have incorporated minor drafting amendments to the Guidelines, and have amended the Guidelines to clarify that the clearing members’ collateral requirement should be considered in the overall SREP assessment.

The Guidelines will be translated into the official EU languages and published on the EBA and ESMA websites. National competent authorities must report whether they comply with the Guidelines two months after their publication. The date of application for the Guidelines is not specified. However, they state that they are immediately applicable to the 2023 SREP exercises.

Final Report: Joint EBA and ESMA Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under Directive (EU) 2019/2034 (EBA/GL/2022/09) (ESMA35-56-2621)

Press release

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