15 April 2019

Key Regulatory Topics: Weekly Update 5-11 April 2019




Please see the Markets and Markets Infrastructure and Other Developments sections for updates regarding measures taken in preparation for a no-deal Brexit, in addition to an update on the FCA and the ASIC signing MoUs in the latter section.

European Council Decision (EU) 2019/584 extending the period under Article 50(3) TEU

On 11 April, the European Council Decision (EU) 2019/584, taken in agreement with the UK to extend the period under Article 50(3) TEU, was published in OJ. The European Council agreed to a further extension to allow for the ratification of the Withdrawal Agreement. Such an extension should last as long as necessary and, in any event, no longer than 31 October. The European Council also recalled that, under Article 50(3) TEU, the Withdrawal Agreement may enter into force on an earlier date, should the parties complete their respective ratification procedures before 31 October. Consequently, the withdrawal should take place on the first day of the month following the completion of the ratification procedures or on 1 November, whichever is the earliest.

Read more

Extension of TPR notification window

On 11 April, in light of the delay to the process of the UK’s withdrawal from the EU, the FCA directed that the notification window for the temporary permissions regime will be extended and will now close at the end of 30 May 2019. The FCA will keep this under review, and communicate any further changes as appropriate. The FCA additionally flag that any fund managers that, as a result of this extension, wish to update their notification should email by the end of 16 May 2019 at the very latest confirming this and including their FRN.

TPR for inbound passporting EEA investment funds

Temporary permission and variation

The Collective Investment Schemes

Alternative Investment Fund Managers

Electronic Money

Payment Services


FCA Dear CEO letter reminds firms of obligations when approving financial promotions

On 11 April, the FCA published a Dear CEO letter sent to all regulated firms reminding them of their regulatory obligations when approving financial promotions for communication by unauthorised persons. The FCA refers to a January Dear CEO letter, which related to potentially misleading financial promotions. The FCA is writing to firms again to underline how seriously it treats this issue. Before approving a financial promotion, firms must confirm that the promotion complies with the FCA's financial promotion rules. This includes ensuring that any financial promotions approved are fair, clear and not misleading. Despite the January letter, the FCA has identified a number of examples where it appears the due diligence carried out on a financial promotion may have fallen well short of the standards it expects. Even when investment products are not regulated or are issued by persons that are not authorised, firms providing a "section 21 approval" are expected to be able to demonstrate that they have carried out due diligence to ensure the promotion is fair, clear and not misleading. The FCA reminds firms that there is guidance in the Handbook on the issues that should be considered. Given that a number of retail investment products promise high returns or feature complex terms and structures, the FCA considers that they present an inherent challenge to being promoted in a fair, clear and not misleading way. Where the FCA identifies non-compliance by firms approving financial promotions it will take action. If the FCA identifies concerns with the due diligence performed, firms can expect it to examine what governance and oversight failures may have contributed to this, and assess who is responsible. The FCA will also assess what steps the firm has taken to review financial promotions previously approved, and the extent to which the firm has self-identified and reported any issues with these promotions, or with any promotions it has declined to approve.

Read more


Please see the Pensions section for an update on the consultation by the newly launched Money and Pensions Service on national strategy for money and pensions.

EC consults on effectiveness of Distance Marketing Directive

On 9 April, the EC announced a consultation relating to its evaluation of the Distance Marketing of Financial Services Directive (DMD). The EC explains that, since the DMD came into force, the retail financial sector has gone increasingly digital, with new products and actors available on the market, and new sales channels being used. Also, several EU laws relating to financial services have been adopted or updated. As a result, the EC has launched an evaluation of the DMD to assess whether it is still fit for purpose. The aim of the consultation is to ensure that all relevant stakeholders have the opportunity to express their views on the relevance, effectiveness, pertinence and coherence of the DMD. The EC particularly wants to hear from consumers, retail financial services providers and authorities responsible for supervising and enforcing compliance with the DMD's provisions. Responses to the consultation can be made by completing an online questionnaire, which is linked to from the consultation webpage. Comments can be made on the consultation until 2 July. The EC expects to make the conclusions of the evaluation exercise public by the end of this year.

Read more

CLLS responds to FCA consultation on reforming bank charges for overdrafts

On 8 April, the City of London Law Society published the response of its Regulatory Law Committee to the FCA's consultation on reforming the way banks charge for overdrafts (CP18/42). The committee is concerned about the scope of application of the proposed new rules. It states that, as drafted, certain of the new rules specifically do not apply to private banks. However, the FCA's definition of a private bank is worded in such a way that it may exclude certain firms or brands commonly thought of as private banks. The committee does not believe this is an intentional policy decision, but rather an unintended consequence of the way in which a private bank is defined. It explains that, under the FCA's definition, over half of a bank's (or brand's) personal current account customers must be "eligible individuals" for the firm or brand to be classed as a private bank and, therefore, excluded from the new rules. The definition of "eligible individuals" broadly equates to individuals who have held assets to the value of not less than £250,000 over the previous twelve months. Assets in this context mean cash and transferable securities, as defined in MiFID II. However, the committee understands that, while private bank customers hold some assets in listed investment trusts and exchange traded funds, which may qualify as transferable securities, they typically hold a significant proportion of their assets in UCITS, AIFs and other funds, which are classed as units in collective investment undertakings under MiFID (and not transferable securities). As a result, many private bank clients with assets over £250,000 would not qualify as "eligible individuals" and, therefore, some private banks will not meet the FCA's definition of a private bank and will not be exempt from the new rules on overdrafts. The committee considers that this is also a matter of wider regulatory importance, since the definition of a private bank is already used in the Banking: Conduct of Business sourcebook and may be used in other contexts in the future.

Read more


Joint Committee of ESAs provide advice to EC on aspects of cyber resilience

On 10 April, the Joint Committee of the ESAs published the following joint advice to the EC: (i) Advice (JC 2019 26) on the need for legislative improvements on information and communication technology (ICT) risk-management requirements in the EU financial sector. The joint committee considers that every relevant entity should be subject to clear general requirements on the governance of ICT (including cybersecurity) to ensure the safe provision of regulated services. The proposals in the advice promote stronger operational resilience and harmonisation in the sector by applying changes to sectoral legislation. Incident reporting is highly relevant and allows relevant entities and authorities to log, monitor, analyse and respond to ICT operational, ICT security and fraud incidents. As a result, the joint committee calls for streamlining aspects of the incident reporting frameworks across the sector. They also suggest that a legislative solution for an appropriate oversight framework to monitor the activities of critical third-party service providers should be considered; and (ii) Advice (JC 2019 25) on the costs and benefits of a coherent cyber-resilience testing framework for significant market participants and infrastructures within the EU financial sector. The joint committee sees clear benefits of such a framework. However, at present there are significant differences across and within the sector as regards the level of cyber maturity. In the short-term, the EC should focus on achieving a minimum level of cyber-resilience across the sector, proportionate to the needs and characteristics of the relevant entities. The joint committee proposes to establish, on a voluntary basis, an EU-wide coherent testing framework (focused on thread lead penetrating testing). It would do this with other relevant authorities, taking into account existing initiatives. In the long-term, the joint committee aims to ensure a sufficient cyber maturity level of identified cross-sector entities. To implement the proposed reforms, the joint committee highlights the need for a legal basis and an explicit mandate. The advice does not provide technical details of the practical implementation steps. More work is needed by the joint committee, with other authorities and experts, to address specific practical and policy implementation questions.

JC 2019 26

JC 2019 25

FATF Report to the G20 Finance Ministers and Central Bank Governors

On 8 April, the FATF published a Report to the G20 Finance Ministers and Central Bank Governors. The highlights of the report are as follows: (i) the G20, in particular under the German, Argentinian and the Japanese Presidencies, has continued to express its support for the FATF with a view to promote swift and effective implementation of FATF standards worldwide; (ii) under the U.S. Presidency from 1 July 2018, the FATF is prioritising action on ensuring countries effectively regulate and supervise financial activities involving virtual assets and strengthening its focus on combating terrorist financing activities; (iii) technological innovations, including those underlying virtual assets like blockchain and other distributed ledger technologies, may deliver significant benefits to the financial system and the broader economy. However, virtual assets also pose serious money laundering and terrorist financing risks that criminals, money launderers, terrorists, and other illicit actors exploit; (iv) in February 2018, the FATF agreed a new Operational Plan to enhance global efforts against terrorist financing, which focuses on effective action to improve understanding and mitigation of the risks identified. Under the U.S. Presidency, the FATF is prioritising work in three areas: (a) effective implementation; (b) risk understanding and interagency coordination in support of the Operational Plan; and (c) further action to strengthen the global response to Weapons of Mass Destruction proliferation financing; (v) the FATF will continue to improve the transparency and availability of beneficial ownership information through considering further work in this area, its mutual evaluation process, and through collaboration; (vi) the FATF will publish Guidance on the Risk-based Approach for Lawyers, Accountants, and Trust and Companies Service Providers by June of this year; and (vii) de-risking remains a challenge for the countries affected. The FATF has been active in clarifying the international standards to avoid misunderstandings that could contribute to de-risking, publishing guidance on financial inclusion and on correspondent banking, and has continued to publicise those clarifications.

Read more


FSB cryptoassets regulators directory

On 5 April, the FSB published a directory of regulators and other authorities in FSB jurisdictions who deal with crypto-asset issues, which also summarises the scope of their interest. The FSB has delivered the directory to the April G20 meeting of finance ministers and central bank governors. This document is stated as being for information purposes only and should not be relied on as defining the regulatory scope or perimeter of the bodies listed. Publication of the directory is part of ongoing work by the FSB and standard-setting bodies on cryptoassets.

Read more


EIOPA supervisory statement on application of proportionality principle in calculating SCR under Solvency II

On 11 April, EIOPA published a supervisory statement on the application of the proportionality principle in supervision of the solvency capital requirement (SCR) under the Solvency II Directive. In the statement, EIOPA outlines the outcome of discussions on, and analysis of, the proportionality principle in the supervisory review process (SREP), the supervision of the SCR calculated in accordance with the standard formula in particular. The statement has been produced because EIOPA has identified potential divergences in supervisory practices concerning supervision of the calculation of immaterial SCR sub-modules. For this reason, EIOPA advises that a number of key areas should be considered. The key areas are outlined in the statement, and include: (i) Proportionate approach. Supervisors may allow firms, when calculating the SCR at the individual-firm level, to adopt a proportionate approach towards immaterial SCR sub-modules, provided the firm is able to demonstrate required facts to the supervisor's satisfaction. This approach does not apply for calculating the SCR at group level; (ii) Prudent calculation. For immaterial sub-modules, the SCR sub-module should be calculated using prudently estimated inputs, leading to prudent outcomes at the time of the decision to adopt a proportionate approach, and subject to supervisory consent; (iii) Risk management system and own risk and solvency assessment (ORSA). Proper monitoring of any evolution of the risk, triggered by an internal or external source, should be ensured. Monitoring should include the setting of qualitative and quantitative early warning indicators defined by the firm and embedded in the ORSA process; (iv) Supervisory reporting and disclosure. Firms should include information on their risk management system in the ORSA report, as well as structured information on the sub-modules in the regular supervisory reporting (RSR) and in the solvency and financial condition report (SFCR); and (v) SREP. The supervisor should be satisfied and agree with the approach followed by the firm, and should also be kept informed in case of any material change. Also, the supervisor should inform the firm of any concerns. EIOPA is closely monitoring the application of the proportionality principle.

Read more

FCA warns firms in general insurance distribution chains to put customers at the heart of their business models

On 10 April, the FCA published a number of materials relating to its work on the general insurance (GI) sector: (i) a thematic review report (TR19/2), which sets out the FCA’s key findings on the GI distribution chain, its expectations and next steps; (ii) a guidance consultation (GC19/2) on proposed non-Handbook guidance on expectations of firms involved in GI distribution chains; and (iii) a Dear CEO letter, in which the FCA shares its findings and expectations with GI firms and calls on them to act immediately to identify and mitigate any shortcomings. The FCA has found that some GI firms have not responded appropriately to previous FCA work in this area. This means that these firms are insufficiently focused on customer outcomes, including the value of the products and services their customers receive. All GI firms must put customers at the heart of their business models and have appropriate regard for the value customers receive from the GI products they manufacture and distribute. This expectation applies to firms in all parts of the GI distribution chain and is underpinned by the FCA rules and Principles for Businesses. The FCA advises all GI firms to consider TR19/2, GC19/2 and the Dear CEO letter, and its expectations carefully to identify how the findings should apply to them. Firms are expected to take appropriate action immediately to mitigate any issues identified. The FCA has warned that it will not hesitate to take action if it finds actual or potential customer harm. GI products are key to giving UK consumers and businesses the security and stability to go about their daily activities with confidence. As a consequence, the FCA considers it essential that customers can access high quality, good value insurance products that meet their needs and perform in line with their reasonable expectations.

Read more

Second BoE speech on risks for insurers in bulk purchase annuity market

On 10 April, the BoE published a speech by David Rule, BoE Executive Director of Insurance Supervision, on the bulk purchase annuity market, which stipulates: (i) there are four main risks associated with insurers taking on significant annuity obligations: longevity risk, market risk, credit default and downgrade risk, and management and governance risk. Mr Rule considers that, overall, the PRA's implementation of the Solvency II regime addresses these risks well and highlights relevant features of the regime; (ii) the Solvency II risk margin calculation is too sensitive to interest rates, particularly in relation to long-dated insurance risks, such as longevity. This means that the risk margin is too high when interest rates are low and too low when they are high. The PRA is concerned that UK insurers are consequently increasingly exposed to offshore reinsurers and transitional measures on technical provisions are higher than they would otherwise be, giving the impression that UK insurers are more reliant on transitional measures to meet capital requirements. The PRA does not currently see a durable way to implement a change in the risk margin with sufficient certainty for insurers to be able to rely on it for pricing, capital planning and use of reinsurance, but it continues to keep this position under review; (iii) firms with higher proportions of BBB-rated bonds should be stress testing to make sure that they can comfortably absorb downgrades at a time when markets may be less liquid and they cannot easily rebalance their assets. The PRA will explore this in its forthcoming insurance stress test; and (iv) the PRA wants firms to develop their own rating models in respect of restructured equity release mortgage portfolios that take into account all possible sources of credit risk, reflecting guidance on its supervisory statement on the Solvency II matching adjustment. It also intends to check the adequacy of firms' rating processes.

Read more


Navigating EMIR REFIT 2.1: Key changes for derivatives market participants

Article 85 of EMIR mandates a review by the EC. Having almost completed its journey through the EU legislative process, the amended EMIR regulation (EMIR REFIT) is close to final and is expected to enter into force in Q2 of this year. To assist market participants assess their compliance position, A&O has produced four EMIR REFIT maps (based on the COREPER text published on 6 March) on counterparty scope, clearing, reporting and risk mitigation, highlighting the changes from the existing requirements in EMIR. To view our publication, please click here.

Prospectuses and Transparency Directive: ESMA Questions and Answers

On 11 April, ESMA published the 30th updated version of its questions and answers on prospectuses as well as an updated version of its questions and answers on the Transparency Directive (TD). Minor modifications have been made to questions 103 and 104 regarding the prospectuses and question 26 regarding the TD. These questions had been added in the previous version of the questions and answers and apply in the event that the UK leaves the EU without a withdrawal agreement. Question 103 addresses how issuers that have chosen the UK as their home member state should choose a new home member state, question 104 addresses the use of prospectuses approved by the UK before its withdrawal from the EU and question 26 concerns the obligations that an issuer which had the UK as its home member state before the withdrawal and which is admitted to trading on one or more regulated markets in the EU27 member states or the EEA EFTA states has under the TD in relation to disclosing its choice of a new home member state. The questions have been modified to remove references to 29 March as being the date on which the UK leaves the EU, therefore applying if the UK leaves the EU without a withdrawal agreement regardless of the date.

Q&As: Prospectuses

Q&As: Transparency Directive

Commission Delegated Regulations under EMIR preparing for no-deal Brexit published in OJ

On 10 April, the following Commission Delegated Regulations supplementing EMIR were published in the OJ: (i) Commission Delegated Regulation (EU) 2019/564 amending Commission Delegated Regulation (EU) 2016/2251, which supplemented EMIR with RTS on risk mitigation techniques for uncleared OTC derivative contracts. It exempts OTC derivatives contracts that are being novated from a UK counterparty to an EU27 counterparty from EMIR margin obligations for a period of 12 months; and (ii) Commission Delegated Regulation (EU) 2019/565 amending Commission Delegated Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178, which contain RTS on the date at which the clearing obligation takes effect for certain types of contracts. It exempts OTC derivatives contracts that are being novated from a UK counterparty to an EU27 counterparty from EMIR clearing obligations for a period of 12 months. The Delegated Regulations replace two Delegated Regulations adopted by the EC in December 2018 which ceased to apply as a consequence of the extension of the Article 50 period. The Delegated Regulations will apply from the date that the Treaties cease to apply to and in the UK (that is, on the date that the UK formally leaves the EU). They will not apply if the withdrawal agreement has entered into force by that date or the Article 50 process has been extended beyond 31 December.

(EU) 2019/564

(EU) 2019/565

ESMA updates MiFIR data reporting Q&As

On 9 April, ESMA published an updated version of its Q&As on data reporting under MiFIR. ESMA has added one new Q&A on a defined list of instruments (section 19), which provides information on how operators of trading venues should report instrument reference data in cases where they operate on the basis of a defined list of instruments.

Read more

Financial services trade associations urge HMT to recognise EEA derivatives trading venues under UK EMIR and UK MiFIR in event of no-deal Brexit

On 8 April, a number of key UK, EU and international financial services trade associations published a letter sent to HMT on the equivalence of EEA derivatives trading venues under the retained versions of EMIR (UK EMIR) and MiFIR (UK MiFIR) if there is a no-deal Brexit. The trade associations highlight the disruptive impact on UK market participants and European derivatives markets arising from the absence of HMT equivalence determinations: (i) under Article 2a of UK EMIR with respect to EEA regulated markets. This will mean that EEA exchange-traded derivatives (EEA ETDs) are considered OTC derivatives under UK EMIR in a no-deal Brexit; and (ii) under Article 28(4) of UK MiFIR with respect to EEA multilateral trading facilities and organised trading facilities. This will mean that UK financial counterparties and UK non-financial counterparties over the clearing threshold would cease to be able to execute transactions in OTC derivatives subject to the trading obligation under UK MiFIR on those venues in a no deal Brexit. The trade associations urge HMT to prepare the necessary measures to recognise the equivalence of EEA derivative trading venues under UK EMIR and UK MiFIR, with a view to those measures taking effect or very shortly after a no-deal Brexit. They suggest that HMT could make an equivalence direction under the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 or, alternatively, the FCA could grant transitional relief for this purpose using its temporary transitional powers under Part 7 of the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019. They urge HMT and the FCA to indicate the approach that they intend to take as soon as possible.

Read more

Official translations of ESMA guidelines on CCP conflict of interest management under EMIR

On 5 April, ESMA published the official translations of its guidelines relating to the management by CCPs of conflicts of interest under EMIR. The guidelines will apply from 5 June. NCAs must notify ESMA whether they comply or intend to comply with the guidelines by 5 June.

Read more

EC Report: EU loan syndication and its impact on competition in credit markets

On 5 April, the EC published its report on the EU syndicated lending sector (the Report). The Report has been anticipated for some time, having been commissioned by DG Competition from Europe Economics in August 2017, reflecting and responding to increasing antitrust scrutiny of the syndicated lending sector. To date, enforcement action in this sector has been taken by competition regulators in jurisdictions including the UK, Spain, Australia and Turkey. Through the Report, the EC aims to assess whether the syndicated lending market is working efficiently and, in particular, how effective competition in the syndicated lending sector is at present, having regard to its significance as a source of debt finance (particularly on a large scale) for other economic activity within the EU. As such, the Report does not represent enforcement by the EC against any form of anticompetitive wrongdoing, although frequently antitrust scrutiny of general markets or sectors can identify areas for subsequent enforcement action by regulators. Focusing on two areas of syndicated lending (LBOs and project/infrastructure finance) across a sample of six Member States, the Report identifies various competition law risk areas across the different stages of the syndicated lending process, including: (i) lenders’ use of "market soundings" to gauge the appetite of potentially competing banks to participate in a forthcoming syndication; (ii) transparency resulting from competing lenders’ repeated transactional interactions over time; (iii) restrictions requiring the borrower to procure ancillary services (such as hedging) from syndicate members; (iv) conflicts of interest where lenders simultaneously act as debt advisors; and (v) possible coordination among lenders in the event of refinancing faced with borrower default. The majority of these areas are individually identified as "low risk" by the Report, but nonetheless their cumulative effect is to heighten the degree of antitrust risk associated with syndicated lending generally. Against these risks, the Report identifies three key safeguards on the lender side for allaying competition concerns, namely adequate attention to lenders’ duty of care to clients (e.g. through staff training and policies), internal protocols regulating information-sharing between loan syndication and origination functions, and limiting cross-selling of ancillary services. The Report also points to two (not directly competition-related) areas for possible further work by industry and regulators, namely inefficiency in the secondary loan market, frequently as a result of transfer restrictions imposed by borrowers/sponsors, and whether lenders’ cumbersome "know your client" (KYC) requirements can be streamlined in future. A&O has published a bulletin on this report, which can be found here.

Read more


Council of the EU note on outcome of EP first reading of proposed Regulation on a pan-European personal pension product

On 9 April, the Council of the EU published an information note from the General Secretariat of the Council to COREPER and the Council concerning the outcome of the EP’s first reading of the proposed Regulation on a pan-European personal pension product (PEPP Regulation). The EP voted in plenary to adopt the PEPP Regulation at first reading on 4 April. The text of the legislative resolution on the PEPP Regulation that was adopted is set out in an Annex to the note. The note explains that the EP’s position reflects what had been previously agreed between the institutions, and that the Council should therefore be in a position to approve the EP’s position. The PEPP Regulation can then be formally adopted in the wording that corresponds to the EP’s position.

Read more

Newly launched Money and Pensions Service consults on national strategy for money and pensions

On 8 April, the Money and Pensions Services (MAPS) announced its official launch and published a listening document on a national strategy for money and pensions and MAPS' three-year corporate plan. MAPS is consulting on the listening document until 30 June. Input will be obtained during a UK-wide programme of "listening events". Written comments are also invited. Input from interested parties will influence MAPS' strategy to collectively address five building blocks to managing money and pensions well (that is, savings, credit use, debt advice, retirement and financial education). MAPS will publish a national strategy and its corporate plan for 2020-2023 (setting out how MAPS will organise, encourage and monitor the national strategy) in autumn of this year. MAPS has also published the Financial Capability Board's three-year review of lessons learned document, which makes recommendations for the national strategy and should be read alongside the listening document. MAPS has also published its business plan for 2019-20 setting out the key performance indicators for the organisation's "transition year" during which it will continue the three services provided by Pension Wise, Money Advice Service (MAS) and the Pensions Advisory Service (TPAS). Among other things, MAPS expects to publish by the end of 2019/20 the results of tests on different approaches for defaulting pension holders into guidance at the point they seek to access or transfer their pension savings. This will contribute to the evidence base for making the rules on referring pension scheme members to financial guidance required by sections 18 and 19 of the Financial Guidance and Claims Act 2018. The new MAPS customer website will go live towards the end of this year. Until then, guidance will continue to be available through the existing websites of MAS, TPAS and Pension Wise. MAPS will also be responsible for delivering and overseeing pensions dashboards, in partnership with the DWP. It will bring together an industry delivery group that will set out a clear timetable and roadmap to drive progress towards fully operational dashboards throughout this year.

Press release

Listening document

Provisional text of EP’s legislative resolutions on PEPP Regulation

On 5 April, the EP published the provisional editions of the text of the following legislative resolutions adopted by it on the PEPP and the Tax treatment of pension products, including the PEPP. The EP announced that it had adopted the text of the Regulation in its plenary session on 4 April. The next step is for the Council of the EU to adopt the proposed Regulation (as to which, see update above). In the resolution on the tax treatment of pensions products, including the PEPP, the EP: (i) calls on the Council to set out proposals regarding incentives for PEPP savers with a view to enhancing the uptake of the PEPP. The EP suggests three approaches to achieve this; (ii) stresses that tax falls to member states and that any decision to grant special tax relief regarding the PEPP remains an issue for each member state; (iii) mentions that member states have the opportunity to take part in enhanced co-operation; and (iv) instructs its President to forward this resolution to the EC and the Council.

Read more


EBA updates list of appropriately diversified indices under CRR

On 11 April, the EBA published a draft Commission Implementing Regulation and Annex that update the list of diversified indices originally published in December 2013 as part of the ITS set out in Implementing Regulation (EU) 945/2014. The Annex to Implementing Regulation (EU) 945/2014 will be replaced by the text in the Annex to the draft Regulation. The original ITS were required under Article 344 of CRR and relate to the identification of relevant appropriately diversified indices for the purposes of calculating the capital requirements for position risk in equities according to the standardised rules. The EBA has not consulted on the amendments as they do not involve significant changes in substantive terms. The draft Implementing Regulation has been submitted to the EC for endorsement, and will come into force 20 days after its publication in the OJ.

Commission Implementing Regulation


BCBS consults on consolidated Basel framework

On 9 April, the BCBS published a consultative document on a consolidated Basel framework. The consolidated framework is intended to address problems that had arisen from the way in which the BCBS currently publishes standards as standalone pdf documents. This made it difficult for website users to find the standards that are currently in force or to track how the framework has developed over time and will develop in the future. The BCBS is proposing that the consolidated framework will be set out in a modular format, which comprises 14 "standards", setting out requirements on specific topics, each of which is further divided into "chapters". The new format has focused on reorganising existing requirements (effective as of 1 January), not introducing new ones. The BCBS reports, however that "the preparation of the framework did… reveal certain inconsistencies between Basel requirements as well as ambiguities that need to be addressed through minor policy changes" (these "technical amendments" are listed in Section 1). Additionally, the Committee has, periodically, published answers to FAQs to promote consistent global implementation of its standards. The consolidated framework incorporates FAQs alongside the requirements that they clarify. These include several new FAQs which are listed in Section 2 of the consultation, for information. The website enables users to view the requirements that will apply on future dates, i.e. taking into account standards that have been finalised by the Committee but are not yet in effect at the date the user accesses the website (those generally coming into effect on 1 January 2022). Similarly, as the Basel Committee’s standards are modified after 1 January, the website will allow users to look back to the standards as they applied in the past (although this function will not show pre- 1 January rules since transitional rules and other rules that expired before then have not been included). The deadline for comments is 9 August. The BCBS intends to finalise the first version of the consolidated framework shortly afterwards and to maintain it regularly. Given that the proposed technical amendments represent changes in policy, members will be expected to implement them in domestic legislation. The BCBS has also published separately guidelines on implementing the mapping process under the standardised approach (BCBS463). BCBS463 replicates text originally included in Annex 2 of the Basel II framework. The BCBS has decided to publish this text separately from the consolidated framework as it represents guidelines rather than standards.

Read more

Council of the EU adopts Regulation amending CRR on statutory prudential backstop for NPLs at first reading

On 9 April, the Council of the EU announced that it has adopted the proposed Regulation containing amendments to the CRR on the minimum loss coverage for NPLs at first reading. The new rules in the Regulation set capital requirements applying to banks with NPLs on their balance sheets. The aim of these requirements is to ensure that banks set aside sufficient own resources when new loans become non-performing, and create appropriate incentives to avoid the accumulation of NPLs. Different coverage requirements will apply depending on the classifications of the NPLs as unsecured or secured, and whether the collateral is movable or immovable. The Council published the text of the adopted Regulation on 20 March. The text reflects the EP’s position at first reading on the Regulation, which was adopted on 13 March. The Regulation will enter into force on the day following its publication in the OJ.

Read more

EBA final report on RTS on conditions to allow institutions to calculate KIRB in accordance with purchased receivables approach under CRR

On 8 April, the EBA published a report containing final draft RTS on the conditions to allow institutions to calculate KIRB in accordance with the purchased receivables approach under Article 255 of the CRR. Regulation (EU) 2017/2401 made amendments to the CRR relating to the Basel securitisation framework that applied from 1 January that, among other things, introduced the securitisation IRB approach (SEC-IRBA). An institution can use the SEC-IRBA when the securitised exposures are of a type in relation to which they have permission to use the internal ratings based approach (the IRB approach) and they are able to calculate risk-weighted exposure amounts in accordance with the IRB Approach for at least 95% of the underlying exposure amount. The capital requirement on the securitised exposures relating to the SEC-IRBA, including expected loss, is called KIRB. Article 255(10) of the CRR requires the EBA to develop draft RTS to further specify the conditions to allow institutions to calculate KIRB for the pools of underlying exposures in accordance with Article 255(4). The final draft RTS specify the conditions under which institutions may use the provisions on purchased receivables to make them fully workable in the context of securitisation transactions. They cover issues including the general approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework and eligibility conditions for the computation of KIRB. The EBA will submit the final draft RTS to the EC for adoption.

Read more

ECB interim update on TRIM

On 5 April, the ECB published an interim review on the progress of its targeted review of internal models (TRIM). The purpose of the TRIM is to assess whether the internal models currently used by significant institutions in the SSM comply with regulatory requirements and whether their results are reliable and comparable. In the update, the ECB provides a summary of the most common or critical shortcomings identified in the TRIM for general topics, for credit risk and for market risk. The update follows on from the ECB's previous update on the progress of the TRIM published in June 2018. The ECB announces the following next steps: (i) it intends to publish a consolidated version of its guide to internal models in the first half of this year, which will reflect the outcome of its September 2018 consultation on risk-type-specific chapters; and (ii) it will continue TRIM on-site investigations. These are expected to be completed in the second half of this year. The TRIM will conclude in early 2020, following the finalisation of horizontal analysis activities reflecting the results of these investigations and the relevant project documentation. The ECB comments that it expects intense follow-up work by institutions to remediate shortcomings identified in TRIM-related supervisory decisions.

Read more


Second ECB consultation on amending Regulation on SSM supervisory fees

On 11 April, the ECB published a second consultation paper on changes to the ECB Regulation on supervisory fees (Regulation 1163/2014). The consultation takes into account feedback the ECB received during its first consultation on this issue in 2017, as well as during subsequent discussions. While the methodology and criteria for calculating the annual supervisory fees were generally supported, some changes were requested. The proposed amendments set out in the latest consultation paper mainly concern the individual fees the ECB levies on the banks it supervises and the timing of their calculation. The proposals would result in the ECB calculating the fees based on the supervisory costs actually incurred, and levying the fees at the end of the fee cycle. The ECB considers that this makes the process more efficient compared with the existing approach, in which the ECB estimates the fees and levies them throughout the year. The proposed amendments would result in the ECB reducing the minimum fee for around half of the indirectly supervised banks, specifically the smallest ones. They would also simplify the fee calculation process and reduce the bureaucratic burden for the banks. Under the proposals, the ECB would reuse supervisory data already at its disposal to calculate the fees, simplify processes for some banks relating to the verification of assets, and make the fee notices available in all official EU languages. A draft of the ECB's Regulation that would make the proposed amendments to Regulation 1163/2014 is set out in part 5 of the consultation paper. It states that it will enter into force 20 days after publication in the OJ. Related non-legislative changes are explained in part 4. Comments can be made on the proposals until 6 June. The ECB expects that the amendments to Regulation 1163/2014 will enter into force for calculating the annual supervisory fees for the 2020 fee period. For calculating the fees of this year, the ECB intends to follow the existing methodology and procedures.

Read more

CMA annual concurrency report 2019

On 10 April, the CMA published its 2019 annual concurrency report. This is the fifth such report, following a baseline report published in 2014. It reviews how the concurrency arrangements between the CMA and the sectoral regulators have worked over the year from 1 April 2018 to 31 March, and assesses progress since the last annual report. The report contains a review of the competition related work conducted by the CMA and each of the regulators in the regulated sectors over the last year. The CMA considers that the positive progress noted in 2018's concurrency report has been maintained, with a particularly good focus on case delivery. There were seven ongoing cases at the start of the reporting period, three of which have now been closed with an infringement decision having been reached. The CMA comments that this is significant because prior to this reporting period there had only been two infringement decisions since the start of the concurrency regime in 2014. Further, during the reporting period, there has been a good level of new Competition Act 1998 cases, with regulators opening five new cases (one more than in the previous reporting period). The CMA and regulators also carried out significant markets work during the reporting period. Further, reflecting the step change seen in the last report, the CMA and the regulators continue to regularly work together, not just in relation to their concurrent powers but also in relation to all the competition and regulatory tools available to promote and protect competition in the regulated sectors.

Read more

FSB updates G20 on work and current vulnerabilities in financial system

On 9 April, the FSB published a letter it has sent to the G20 finance ministers and central bank governors ahead of their April meeting in Washington. In the letter, the FSB provides an update on its work and outlines current vulnerabilities in the financial system. The FSB is entering a new phase where its priorities are shifting from developing post-crisis reforms to assessing new vulnerabilities and evaluating the effectiveness of the regulatory reforms put in place. Among other things, during the Japanese G20 Presidency, the FSB: (i) will continue to scan the horizon to identify and assess emerging risks. Although the core of the financial system is considerably more resilient than it was a decade ago, potential vulnerabilities persist. In some cases, the vulnerabilities have increased. Loosening lending standards, elevated asset values and high corporate public debt call for particular vigilance. Also, the possibility of a disruptive Brexit remains, as it is not known whether the UK will leave the EU without an agreed withdrawal agreement. A disruptive Brexit could represent an adverse macroeconomic shock, which could be accompanied by significant market volatility. If necessary, the FSB will advise G20 ministers and governors on risks, should they crystallize; (ii) will work with standard-setting bodies to complete the few remaining post-crisis reforms. It will continue to support full, timely and consistent implementation of the agreed reforms. Work on capital standards is almost complete. The remaining work focuses on the insurance sector, with development of the International Association of Insurance Supervisor's capital standards. Work to address structural vulnerabilities from asset management activities will continue; (iii) is currently examining the effects of the financing of SMEs and has just started to evaluate the effects of too-big-to-fail reforms in the banking sector. It is exploring issues around market fragmentation; and (iv) remains committed to improve communication and transparency with other external stakeholders, to increase understanding of its work, and facilitate greater input from a wide array of stakeholders.

Read more

FCA and ASIC sign MoUs

On 8 April, the FCA announced that it has signed two MoUs with the Australian Securities and Investments Commission (ASIC): (i) an MoU on trade repositories (TRs). This MoU is required because the FCA will acquire functions and supervisory powers regarding TRs, which are currently supervised at the European level by ESMA. It will ensure that ASIC can continue to access data on derivatives contracts held in UK TRs, where the information is needed for ASIC to fulfil its responsibilities and mandates; and (ii) an MoU on AIFs. This MoU has been updated to reflect the regulatory regime that will apply to AIFs in the UK post-Brexit. It provides a framework for the FCA and ASIC to work together to ensure AIFMs and AIFs that operate on a cross-border basis are properly supervised in the UK and Australia. It covers Australian managers that manage or market AIFs in the UK and UK managers that manage or market AIFs in Australia, as well as their delegates and depositaries. The aim of the MoUs is to ensure that arrangements are in place for cross-border co-operation between the FCA and ASIC after the UK leaves the EU. The press release also states that both the FCA and ASIC support the continuity of existing equivalence decisions to provide certainty to businesses post-Brexit. HMT has confirmed that existing equivalence decisions granted in respect of Australia by the EC before exit day will generally be incorporated into UK law and will continue to apply post-Brexit. The UK will adopt existing EU equivalence decisions that relate to Australia's supervisory and regulatory regime for trading venues, OTC derivatives markets and credit rating agencies. Similarly, ASIC remains committed to taking steps to provide for continuing recognition post-Brexit of the equivalence of the UK's regulatory and supervisory regime in relation to UK-based foreign financial services providers and market operators that operate in Australia. The MoUs will come into force on the date EU legislation ceases to have direct effect in the UK.

Read more

PRA consults on revisions to branch returns for international banks

On 8 April, the PRA published a consultation paper (CP8/19) on the revision of the branch return for international banks. The PRA's proposals relate to PRA-supervised branches of deposit-takers and designated investment firms that are not UK-headquartered firms. The PRA proposes to change the format and the content of the branch return form for these firms and to provide additional guidance for completing the form. The changes include aligning the concepts used in the return with concepts used in the PRA's wider reporting framework, clarifying that firms must report within 30 business days and replacing the current Excel reporting format with the XBRL reporting format. The changes are intended to improve the quality of the information provided by firms and to enhance the return's ability to assist the PRA in its supervision of international banks. The PRA Rulebook instrument containing the relevant changes to the Third Country Firms and Regulatory Reporting Parts (the CRR Firms: Non CRR Firms: Branch Rules Instrument 2019) is set out in Appendix 1 to CP8/19. An alternative version of the instrument, which will apply if there is a no-deal Brexit, is set out in Appendix 2. Appendixes 3 to 5 of CP8/19 contain proposals for the revisions to the branch return form and to the PRA's supervisory statement on guidelines for completing regulatory returns, as well as draft reporting guidance for the branch return form. The deadline for responses is 7 July. The PRA intends for the changes to the return to take effect for the reporting of the H1 2020 branch return (that is, for the period ending 30 June 2020).

Read more

Revised MoU between FCA and ASA

On 5 April, the FCA published a MoU which it has entered into with the Advertising Standards Authority (ASA). The MoU relates to the arrangements between the FCA and the ASA in carrying out their respective responsibilities under FSMA, the UK code of non-broadcast advertising and direct and promotional marketing, the UK code of broadcast advertising (BCAP Code) and other relevant legislation. The purpose of the MoU is to facilitate and provide a framework for co-operation and co-ordination between the FCA and ASA. It sets out their respective regulatory responsibilities, and the arrangements for co-operation and the exchange of relevant information, which it is necessary to elaborate in an MoU given that the FCA and ASA have separate, but overlapping, mandates. Topics covered by the MoU include multi-media campaigns, the provision of advice, policy and rulemaking, investigation and enforcement, and confidentiality. The MoU contains an Annex which summarises the statutory regulations that advertisements for financial products, services and investments, which fall within the scope of the BCAP Code, must comply with. Each year of operation of the MoU, the FCA and ASA intend to review the MoU and the effectiveness of their co-operation and co-ordination.

Read more

Allen & Overy is an international legal practice with approximately 5,600 people, including some 580 partners, working in more than 40 offices worldwide. A current list of Allen & Overy offices is available at allenovery.com/global/global_coverage.

Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. Allen & Overy LLP is a limited liability partnership registered in England and Wales with registered number OC306763. Allen & Overy (Holdings) Limited is a limited company registered in England and Wales with registered number 07462870. Allen & Overy LLP and Allen & Overy (Holdings) Limited are authorised and regulated by the Solicitors Regulation Authority of England and Wales.

The term partner is used to refer to a member of Allen & Overy LLP or a director of Allen & Overy (Holdings) Limited or, in either case, an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings. A list of the members of Allen & Overy LLP and of the non-members who are designated as partners, and a list of the directors of Allen & Overy (Holdings) Limited, is open to inspection at our registered office at One Bishops Square, London E1 6AD.

© Allen & Overy LLP 2022. This document is for general information purposes only and is not intended to provide legal or other professional advice.