Financial Services SpeedRead: 4 August 2023 edition
04 August 2023
Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.
On 18 July 2023, the PRA and FCA published a Consultation Paper titled "Margin requirements for non-centrally cleared derivatives: Amendment to BTS 2016/2251".
The Consultation contains proposals to:
The proposals apply to:
The Consultation closes on 18 October 2023.
On 14 July 2023, the European Commission adopted a Delegated Regulation extending the transition period for third country benchmarks to 31 December 2025. The Commission has also published a report on the workings of the existing regime.
The third country-regime under the Benchmark Regulation was supposed to apply from the beginning of 2024. However, the Commission found that a majority of third country benchmark administrators are unprepared for the end of the transition period. The Commission concluded that this would have negative effects on the EU market participants, who would no longer be able to access benchmarks and put such participants at a disadvantage. The Commission hopes that the extension will provide legal certainty and business continuity whilst the Commission works towards a more long-term solution.
On 12 July 2023, ESMA published a statement highlighting the risks of securities lending in relation to retail clients, detailing:
In relation to its expectations concerning the practical application of MiFID investor protection requirements, ESMA notes the following:
On 11 July 2023, ESMA published a supervisory briefing on understanding the definition of 'advice' under MiFID. The briefing was based on the Q&A on understanding the definition of advice under MiFID published in April 2010 by ESMA's predecessor, CESR.
The briefing covers the following key points:
The full supervisory briefing is available here.
On 10 July 2023, UK Chancellor of the Exchequer, Jeremy Hunt, gave a speech at Mansion House in relation to the UK financial services regulatory framework. The Government also provided an update to a series of measures it published in December 2022 concerning the post-Brexit UK financial services regulatory framework (the Edinburgh Reforms).
For more information, see our briefing here.
On 7 July 2023, the Financial Services and Markets Act 2023 was published following Royal Assent on 27 June 2023. The Act is a significant piece of post-Brexit legislation and provides a framework for revoking retained EU law and replacing it with UK-specific legislation. It was introduced as a Bill in July 2022. Among other things, the Act:
The Act will have a staggered implementation, with some provisions having come into force on 27 June 2023 and 11 July 2023, while others will come into force on 29 August 2023 and in 2024 (and beyond).
On 5 July 2023, the FCA published a Consultation Paper setting out the framework in respect of a consolidated tape for bonds in the UK (CP23/15). A consolidated tape aims to provide a holistic view of transactions in a specific asset class by collecting market data, such as price and volume associated with trades in financial market.
The Consultation follows the publication of the Wholesale Markets Review in which the Government confirmed plans to introduce a consolidated tape for the UK and forms part of a wider strategy on market data. The Financial Services and Markets Act 2023 gives the FCA rulemaking powers to create a regulatory framework in respect of a consolidated tape in bonds. The FCA is seeking to appoint a single consolidated tape provider (CTP) for bonds, and the Consultation sets out the proposed framework, the FCA's criteria for how a CTP would work, and the tender process for appointing a CTP.
The Consultation also includes a section on a consolidated tape for equities, although the FCA notes that its thinking is less developed in this area but expects a framework to be introduced once the framework for bonds has been established. The FCA also issued a report in respect of the economic model for the UK consolidated tape framework prepared by DotEcon, an external consultancy.
The deadline for comments is 15 September 2023, and the FCA hopes to publish its Policy Statement in December 2023. The FCA hopes to prepare a request for tender document for a UK CTP in 2024.
On 5 July 2023 the FCA published a Policy Statement (PS23/11) setting out finalised guidance on when firms may be operating a multilateral system and so require authorisation as a trading venue. This follows a Consultation Paper (CP 22/18) in which the FCA sought views on the meaning of a multilateral system and how it relates to different types of arrangements including:
Q&As 7, 10, 11 and 12 in Section 5 of the ESMA Q&As on MiFID II and MiFIR Market Structures Topics will no longer form part of FCA's supervisory expectations, as these have now been superseded in domestic guidance.
The final guidance is contained in the Perimeter Guidance (Trading Venues) Instrument 2023 (FCA 2023/25) and enters into force on 9 October 2023.
The FCA advises firms to ensure that they have the correct regulatory permissions ahead of the date. The FCA comments that technology providers should still consider the application of the regulated activities regime (e.g. Article 25 of the RAO) to their operations even where they do need authorisation as a trading venue.
On 5 July 2023, the FCA announced the launch of its new UK wholesale markets pre-application support service (PASS). PASS has been set up to enable the FCA to provide extra support to firms before they apply for authorisation (including pre-application meetings).
PASS is aimed at:
The FCA also published a new webpage for wholesale market firm applicants on the authorisation process.
On 19 July 2023, the PRA issued a Consultation Paper on Pillar 3 Disclosure Requirements (CP14/23). This contains proposals to reduce the number of remuneration disclosures required for smaller banks and building societies, and follows on from the PRA's February 2023 consultations CP4/23 (containing proposals to introduce disclosure requirements for so-called simpler-regime firms) and CP5/23 (containing proposals on amending the definition of small CRR firm and small third-country CRR firm for remuneration purposes).
The PRA confirms that its remuneration requirements will apply to:
The deadline for responses is 20 September 2023. The PRA plans to publish the final policy on remuneration disclosures as part of its Strong and Simple framework in Q4 2023.
On 14 July 2023, ESMA published a report on Suspicious Transaction and Order Reports (STORs). The report covers the period of 2021/2022 and considers:
On 13 July 2023, the EBA published its fourth biennial Opinion on the risks of money laundering and terrorist financing affecting the EU's financial sector. The Opinion also contains information on what can be done by the competent authorities and EU co-legislators to mitigate those risks.
Some AML/CTF risks had been identified in previous EBA Opinions, such as those associated with cryptoassets and innovative financial services. Other risks are deemed to be decreasing, such as those associated with Covid-19.
Other key points to note from the Opinion include:
On 17 July 2023, the FCA published a Guidance Consultation on how financial promotion requirements apply to promotions on social media. The stated aim is to modernise the information firms use when making and approving financial promotions online. To prevent consumer harm, the FCA wants the guidance to be reflective of how social media is being used. The FCA has been keen to respond to an increased trend of "finfluencers" making illegal financial promotions (see the April 26 2023 edition of the FSS here).
The guidance consultation is in light of the Consumer Duty which increases expectations on firms who make or authorise financial promotions and is line with the FCA's 2023/2024 Business Plan strategy to reduce and prevent serious harm and to set and test higher standards.
The consultation closes on 11 September 2023.
You can read the FCA's press release here.
On 11 July 2023, HM Treasury published the response to its December 2022 Consultation on a proposed alternative disclosure framework for UK retail disclosures.
In the response, the Government confirms it plans to repeal retail disclosure requirements in the UK PRIIPs Regulation, so the FCA can deliver a new UK retail disclosure regime tailored to the UK market.
In response to feedback received, the Government confirms it will ensure that the FCA considers concerns raised in relation to:
In relation to other aspects of the future regime, the Government also confirms that it will:
The Government intends to publish a draft Statutory Instrument by 2024 , to enable the FCA to introduce the new retail disclosure regime. The FCA is expected to publish a Consultation Paper seeking draft rules for the new retail disclosure regime in due course.
On 20 July 2023, the Council of EU and the European Parliament announced that a provisional agreement had been reached in respect of the legislative proposal updating AIFMD. The legislative proposal was introduced in November 2021 by the European Commission, and has been making its way through the EU legislative process (see our briefing here).
Notable aspects of the provisional agreement highlighted include measures to:
The provisional agreement must be confirmed by the European co-legislators before it can be formally adopted.
On 20 July 2023, the European Commission adopted a report in respect of the EU Money Market Funds Regulation (MMF Regulation).
The report looks at key changes introduced by the MMF Regulation, market structure and recent market developments, and considers the MMF Regulation from a prudential and economic perspective.
The report concludes that recent events (such as COVID-19 related market turmoil) indicate that safeguards in the MMF Regulation have been working as planned. However, the report cites areas for improvement in the regulatory framework, including the resilience of EU MMFs and structural problems that are external to MMFs. The report argues that harmonised rules to increase the availability of liquidity management tools contained in the 2021 AIFMD legislative proposal should go some way in addressing concerns about the resilience of liquidity management of EU MMFs.
The European Commission confirmed that it will not propose a revision to the MMF Regulation.
On 7 July 2023, the FCA published the detailed findings and good practice from its multi-firm review of liquidity management frameworks. In connection with this, the FCA has also written to the sector in a companion Dear CEO Letter. This follows the FCA's letter to the Boards of Authorised Fund Managers (AFMs) in November 2019, detailing good practice in liquidity management.
The FCA asked a sample of 14 firms of different sizes to provide information on their liquidity management frameworks and followed up with in-depth discussions on their methodologies.
Key findings of the review include:
The FCA expects all UK AFMs and AIFMs to consider the findings for their businesses. In particular, the FCA stated that the examples of good practice set out in the review and the Dear CEO Letter contribute to improved consumer outcomes consistent with the Consumer Duty, which comes into force on 31 July.
On 3 July 2023, ESMA published a Report on national rules governing the marketing of investment funds under the Cross-Border Distribution of Funds Regulation.
The Report sets out ESMA's overview of the marketing requirements across Member States, and analyses the effects of national laws, regulations and administrative provisions implementing such requirements.
Key findings from the report include:
ESMA will submit a new version of the report in two years' time.
On 21 July 2023, HM Treasury published a Policy Statement on Payment Account Contract Termination and Freedom of Expression. This follows HM Treasury's January 2023 Call for Evidence on the Payment Services Regulations 2017 (PSRs), in which it sought views on the workings of the existing regulatory regime. In particular, the Call for Evidence sought views on the effectiveness and fairness of Regulations 51 and 71 in the PSRs in light of recent concerns raised about high-profiles cases involving the closure of payment accounts.
The Policy Statement confirms there will be amendments to the payment services regulatory framework applicable to customers' payment accounts that will involve:
The Government also states that a consumer being a domestic politically exposed person under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is not a valid reason for firms refusing to provide banking services in the absence of other risk factors.
The Policy Statement does not represent the full, formal response to the Call for Evidence, which is expected later in 2023.
On 11 July 2023, the Government issued a call for input in relation to the Future of Payments Review 2023, alongside terms of reference. The Review be focused on the consumer perspective (in this sense both individuals and businesses making and receiving retail payments) and is primarily seeking views on the following areas:
• the most important consumer retail payment journeys both today and in the next 5 years;
• how the UK consumer experience for individuals and businesses compares to other leading economies; and
• the likelihood of in-flight plans and initiatives across the payments landscape delivering world leading payment journeys for UK consumer.
The Review is expected to consider how the UK’s retail payment systems and networks need to adapt to engender innovation in payment services, serve the future retail payments needs of businesses and consumers (the Review is not considering RTGS and CHAPS systems used for wholesale payments) and new forms of digital money.
The deadline for comments is 11 September 2023.
On 5 July 2023, the European Commission and Council published a suite of proposals for a revised payment services and e-money regime. The changes represent an evolution of the current regime, with the implementation of a new PSD3 and Payment Services Regulation (PSR) to replace the incumbent PSD2 and EMD2. Accordingly, electronic money institutions (EMI) and payment institutions (PI) will be consolidated to be supervised and authorised under a single regime. Firms operating under this regime will be required to apply for re-authorisation with their existing operations grandfathered into the regime for a period of 30 months.
Under proposed changes, an open finance framework will be contained in the Financial Data Access Regulation (FIDA). Financial institutions will be required to share client data upon request by another financial institution subject to client consent. The proposed changes will streamline data sharing between institutions.
For further details on the proposed changes, please see our briefing here.
On 12 July 2023, the EBA published a Statement addressed to financial institutions and other entities who intend to commence asset referenced token (ART) or electronic money token (EMT) activities prior to 30 June 2024. The Statement emphasises the need for timely preparation for the MiCAR application in order to prevent any risks of disruptive or sharp business model changes for customers.
The statement sets out the following guiding principles to be adhered to if carrying out ART/EMT activities:
The EBA also warns consumers that ARTs and EMTs do not yet constitute regulated instruments and that the consumer protection provisions under MiCAR are not applicable before 30 June 2024.
On 12 July 2023, the FCA published a copy of a speech delivered at The Economist by Nikhil Rathi, the Chief Executive of the FCA, in relation to the emerging regulatory approach of the FCA towards Big Tech and AI. Key points in the speech included:
On 12 July 2023, the FCA published a statement summarising feedback received following Discussion Paper (DP22/5), intended to start discussion on the impacts of Big Tech entry into financial services, and to identify areas of benefit and risk. The FCA received feedback from a range of stakeholders, setting out the following key themes for discussion:
In line with the holistic strategy of the FCA, including commitments to open banking and development of regulatory frameworks towards Critical Third Parties and AI, the FCA has proposed the following additional steps in response to the feedback received:
On 12 July 2023, ESMA issued a Consultation Paper containing draft regulatory technical standards and implementing standards under MiCAR in relation to cryptoasset service providers (CASPs).
Areas covered by the draft RTS include notification of intention to provide cryptoasset services and authorisation of CASPs. The draft ITS cover standard forms, templates and procedures in respect of a notification of intention to provide cryptoasset services and in respect of the authorisation of CASPs.
The deadline for comments is 20 September 2023 and ESMA plans to publish a final report and submit the draft RTS and ITS to the European Commission for endorsement by 30 June 2024.
On the same day, the EBA issued Consultation Papers on MiCAR, covering:
The deadline for comments to the Consultation is 12 October 2023.
On 4 July 2023, the FCA published a letter from Lucy Castledine, Director of Consumer Investments Supervision, Policy and Competition, urging in-scope firms (i.e. all firms marketing cryptoassets to UK consumers, including firms based overseas) to get ready for the new financial promotions regime for cryptoassets.
The letter notes that once the regime comes into force, there will only be four routes to lawfully communicate cryptoasset promotions to UK consumers, and that persons illegally promoting to UK consumers could be placed on the FCA warning list.
Unregistered or unauthorised cryptoasset businesses marketing to UK consumers are advised to consider:
Cryptoasset firms seeking registration under the MLRs are reminded of the FCA's expectations in this area, and that poor quality/incomplete submissions will be rejected.
On 11 July 2023, the FCA published the following new webpages:
The new webpages are accessible here and here.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.