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FIG Bulletin

Recent developments

5 October 2020

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General 5

Brexit: FCA reopens temporary permissions regime notification window 5

Brexit: Equivalence Determinations for Financial Services (Amendment etc) (EU Exit)

Regulations 2020 5

Brexit: BoE and PRA webpage and guidance on temporary transitional powers 6

Brexit: FCA updates, guidance on TTP and post-transition period Handbook 6

Brexit: FCA update on considerations for UK firms re client money and assets 8

FCA Handbook Notice 80 9

COVID-19: FCA extends flexibility over 10% depreciation notifications 9

COVID-19: Dear CEO letter on adequate client assets arrangements 10

FCA perimeter report 2019/20 10

EU Digital Finance Strategy and Retail Payments Strategy 10

Platform on Sustainable Finance: European Commission FAQs 11

Second European Commission CMU action plan 11

Banking and Finance 13

IRB UK mortgage risk weights: PRA CP14/20 13

BRRD II: European Commission guidance 13

CRR II: ECB updates annexes to guidance on review of qualification of capital instruments 13

EBA 2020 transparency exercise launched 14

EBA 2021 work programme 14

Banking Business Resolution Service: consultation findings and customer focus group 14

Consumer Finance 15

COVID-19: additional FCA finalised guidance on consumer credit and overdrafts 15

Payments 16

Future strategy review: PSR requests input on three themes 16

SEPA direct debit schemes: EPC guidelines for appearance of mandates 16

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Securities and Markets 17

Brexit: ESMA to recognise three UK CCPS from 1 January 2021 17

Brexit: ESMA updates statements on impact on BMR, MiFID and MiFIR 17

EMIR 2.2: House of Commons European Scrutiny Committee letter to HM Treasury 18

LIBOR transition: FCA survey on switch to SONIA in interest rate swap market 18

MiFID and MiFIR third-country firm regimes: ESMA final draft technical standards 18

MiFIR: guidance on Annex to ESMA opinion determining third-country trading venues for

purpose of transparency 19

MiFIR: ESMA review consultation on reference data and transaction reporting obligations 19

MiFID: ESMA review consultation on the functioning of OTFs 19

MiFIR: ESMA review report on transparency regime for non-equity instruments 20

MiFIR: ESMA updates Q&As on data reporting 20

CRA Regulation: ESMA final guidelines on internal controls for CRAs 20

EMIR: ESMA updates Q&As 20

EMIR: European Commission report on clearing solutions for pension scheme 21

BMR: ESMA final report on draft RTS 21

BMR: ESMA consultation on fees for benchmark administrators 21

MAR: ESMA review report 22

Withholding tax reclaim schemes: ESMA final report 22

OTC derivatives identifiers: LEI ROC appointed as governance body 23

REMIT and wholesale energy trading: ACER establishing expert group 23

ISDA IBOR Fallback Rate Adjustments FAQs updated 23

Insurance 24

COVID-19: HM Treasury letter on insurance companies' deductions of government

grants from BI insurance claims 24

COVID-19: FCA BI insurance test case updates 24

COVID-19: FCA Dear CEO letter to general insurance intermediaries on client money

arrangements 25

Solvency II EVT parameters: PRA review statement 25

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EIOPA launches study on diversification in internal models 25

EIOPA single programming document 2021-23 including annual work programme 2021 26

Funds and Asset Management 27

Draft Bearer Certificates (Collective Investment Schemes) Regulations 2020 27

5

General

Brexit: FCA reopens temporary permissions regime notification window

The UK Financial Conduct Authority (FCA) has updated its webpage on the temporary

permissions regime (TPR) explaining that EEA firms and fund managers can now notify it if they

wish to use the TPR. Notifications should be submitted using the FCA’s Connect system before

the end of 30 December 2020. Firms that have already submitted a notification need take no

further action.

Fund managers that want to update a previously submitted notification should email the FCA,

including their FRN, by the end of 9 December 2020 confirming this. They should be able to

submit updated notifications from 14 December 2020, however, the FCA advises fund managers

that they should only submit updated notifications when they are certain that all the correct

funds are included. Updated notifications must be received by the FCA by the end of 30

December 2020.

Fund managers should continue to follow current processes via their home state regulator for

marketing new funds in the UK and should allow sufficient time for notifications to be received

and processed by the FCA to ensure that any new funds are eligible for the TPR.

The FCA emphasises that if new funds have been added to a fund manager's population since an

earlier notification was submitted, the new funds will not be included in the temporary

marketing permission regime unless the fund manager requests to update their notification and

include the new funds in that updated notification.

Published alongside the webpage are the relevant revised directions:

• revised direction for EEA or Treaty firms;

• revised direction for EEA operators of collective investment schemes;

• revised direction for EEA alternative investment fund managers, managers of European

Venture Capital Funds and managers of European Social Entrepreneurship Funds;

• revised direction for authorised payment institutions and registered account information

service providers; and

• revised direction for e-money institutions.

Brexit: Equivalence Determinations for Financial Services (Amendment etc) (EU Exit) Regulations 2020

The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations

2020 (SI 2020/1055) have been published, together with an explanatory memorandum. The

Regulations concern the UK future regime for equivalence and add to the measures made in the

draft Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020, which were

published in May 2020.

Among other things, the Regulations:

• contain minor amendments and deficiency fixes to existing financial services EU Exit

instruments. These include the Central Securities Depositories (Amendment) (EU Exit)

Regulations 2018 (SI 2018/1320), the Markets in Financial Instruments (Amendment)

(EU Exit) Regulations 2018 (SI 2018/1403), the Credit Rating Agencies (Amendment etc)

(EU Exit) Regulations 2019 (SI 2019/266), and the Equivalence Determinations for

https://www.fca.org.uk/brexit/temporary-permissions-regime-tprhttps://www.fca.org.uk/publication/handbook/temporary-permission-notification-fsma-sep20.pdfhttps://www.fca.org.uk/publication/handbook/temporary-permission-notification-ucits-sep20.pdfhttps://www.fca.org.uk/publication/handbook/temporary-permission-notification-aifm-sep20.pdfhttps://www.fca.org.uk/publication/handbook/temporary-permission-notification-payments-sep20.pdfhttps://www.fca.org.uk/publication/handbook/temporary-permission-notification-emoney-sep20.pdfhttps://www.legislation.gov.uk/uksi/2020/1055/pdfs/uksi_20201055_en.pdfhttps://www.legislation.gov.uk/uksi/2020/1055/pdfs/uksi_20201055_en.pdfhttps://www.legislation.gov.uk/uksi/2020/1055/pdfs/uksiem_20201055_en.pdf

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Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations

2019 (SI 2019/541) (Equivalence Determinations Regulations 2019);

• provide for the FCA and the Bank of England (BoE) to establish, before IP completion

day, cooperation arrangements with EEA regulators where HM Treasury makes an

equivalence direction in relation to an EEA state under regulation 2 of the Equivalence

Determinations Regulations 2019; and

• allow the UK regulators to accept applications from EEA financial services providers for

regulatory decisions set out in Schedule 3 (for the purposes set out in that Schedule)

before IP completion day.

The Regulations came into force on 30 September 2020.

Brexit: BoE and PRA webpage and guidance on temporary transitional powers

The Prudential Regulation Authority (PRA) and the BoE have published a webpage providing

firms and financial market infrastructures with information on the BoE's and PRA’s approach to

the temporary transitional power (TTP). The TTP allows the UK's financial services regulators to

delay or modify firms’ regulatory obligations where they have changed as a result of onshoring

changes arising at the end of the transition period.

The BoE and PRA intend to use the TTP to provide broad transitional relief, with some key

exceptions, for 15 months after the end of the transition period, until 31 March 2022 (the TTP

period). The FCA intend to adopt the same approach in relation to the TTP, as confirmed in its 1

October 2020 public statement.

The webpage covers a number of areas, including:

• application of the TTP and exceptions;

• interaction between the use of the transitional power and equivalence decisions and

equivalence directions; and

• the duration of transitional relief.

The BoE and PRA have also published General guidance on the BoE's transitional

direction and General guidance on the PRA's transitional direction. The guidance documents

support the draft transitional directions published as part of their consultation on changes to

their rules, binding technical standards, and the use of temporary transitional powers required

before the end of the Brexit transition period (CP13/20). The guidance is subject to further

update. The final versions will be published close to the end of the transition period.

Brexit: FCA updates, guidance on TTP and post-transition period Handbook

The FCA has updated its Handbook to reflect the amendments relating to Brexit that will come

into effect at the end of the Brexit transition period. It has also published a webpage setting out

how it intends to use the TTP and, in Handbook Notice 80, published the final versions of certain

instruments amending its Handbook and BTS for which it is responsible.

FCA Handbook and guidance

The FCA Handbook has been updated to:

• incorporate the instruments relating to Brexit that will come into effect on IP completion

day;

https://www.bankofengland.co.uk/eu-withdrawal/temporary-transitional-powerhttps://www.fca.org.uk/brexit/onshoring-temporary-transitional-power-ttphttps://www.bankofengland.co.uk/-/media/boe/files/eu-withdrawal/guidance-on-bank-transitional-direction.pdfhttps://www.bankofengland.co.uk/-/media/boe/files/eu-withdrawal/guidance-on-bank-transitional-direction.pdfhttps://www.bankofengland.co.uk/-/media/boe/files/eu-withdrawal/guidance-on-pra-transitional-direction.pdfhttps://www.bankofengland.co.uk/prudential-regulation/publication/2020/uk-withdrawal-from-the-eu-changes-before-the-end-of-the-transition-periodhttps://www.handbook.fca.org.uk/file/Handbook-Navigational-Guide_Sept-20.pdfhttps://www.fca.org.uk/brexit/onshoring-temporary-transitional-power-ttphttps://www.fca.org.uk/publication/handbook/handbook-notice-80.pdf

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• set out the consolidated texts of the onshored BTS for which the FCA is responsible and

links to relevant EU non-legislative material, such as guidelines produced by ESMA,

EIOPA and the EBA; and

• incorporate banners to indicate the application of directions made by the FCA using TTP.

In conjunction with using the Handbook’s "time travel" functionality, these amendments will

allow users to view a post-IP completion day version of the FCA's Handbook rules and guidance.

The FCA has newly published a Guide to the FCA Handbook for Post-Brexit Transition to help

firms navigate the Handbook in light of the changes following IP completion day, and it has

updated the following documents:

• Brexit: our approach to EU non-legislative materials;

• Brexit: our approach to non-Handbook guidance where it relates to EU-law or EU-

derived law;

• Interpretative guide on completing our forms after the UK's withdrawal from the EU.

TTP

The FCA has published revised draft versions of the main FCA transitional direction (together

with revised versions of Annex A and Annex B) and the FCA prudential transitional direction.

The FCA intends to apply the TTP on a broad basis from the end of the transition period until 31

March 2022. This means firms and other regulated persons do not generally need to prepare

now to meet the changes to their UK regulatory obligations brought about by onshoring.

However, there are areas where the FCA considers that it would not be appropriate for it to grant

relief at the end of the transition period, including where doing so would not be consistent with

its statutory objectives. The FCA confirms the following areas that it expects regulated persons to

comply with changed obligations by 31 December 2020:

• MIFID II transaction reporting;

• EMIR reporting obligations;

• SFTR reporting obligations;

• certain requirements under the Market Abuse Regulation;

• issuer rules;

• contractual recognition of bail-in;

• Client Assets sourcebook (CASS) requirements;

• market-making exemption under the Short Selling Regulation;

• use of credit ratings for regulatory purposes;

• securitisation;

• electronic commerce EEA firms;

• mortgage lending after the transition period against land in the EEA; and

• for payment services, strong customer authentication and secure communication.

The FCA has published a webpage explaining the key requirements where the TTP will not apply

and updated its webpage on eCommerce Directive – changes at the end of the transition period.

The FCA explains that by reviewing the new Handbook site, alongside the updated TTP

information, firms will be able to see which changes will apply to them. It has also published

webpages on:

• transitional provisions and regimes; and

https://www.handbook.fca.org.uk/file/Handbook-Navigational-Guide_Sept-20.pdfhttps://www.fca.org.uk/publication/corporate/brexit-our-approach-to-eu-non-legislative-materials.pdfhttps://www.fca.org.uk/publication/corporate/brexit-our-approach-to-non-handbook-guidance.pdfhttps://www.fca.org.uk/publication/corporate/brexit-our-approach-to-non-handbook-guidance.pdfhttps://www.fca.org.uk/publication/corporate/guide-to-completing-our-forms-after-brexit.pdfhttps://www.fca.org.uk/publication/handbook/draft-transitional-directions-oct20.pdfhttps://www.fca.org.uk/publication/handbook/draft-transitional-directions-annex-a-oct20.pdfhttps://www.fca.org.uk/publication/handbook/draft-transitional-directions-annex-b-oct20.pdfhttps://www.fca.org.uk/publication/handbook/draft-fca-prudential-transitional-direction-oct20.pdfhttps://www.fca.org.uk/brexit/onshoring-temporary-transitional-power-ttp/key-requirements-firmshttps://www.fca.org.uk/brexit/e-commerce-directive-changes-end-transition-periodhttps://www.fca.org.uk/brexit/onshoring-temporary-transitional-power-ttp/transitional-provisions-regimes

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• transitional directions.

Amendments to FCA rules and BTS

The FCA states that it has proceeded with the majority of the amendments to the Handbook and

to BTS as set out in CP19/27 and CP19/33, except for minor consequential and drafting amends.

Details of specific amendments made to instruments consulted on are set out in Handbook

Notice 80.

The FCA has published the final versions of these instruments:

• Exiting the European Union: Handbook (Amendments) Instrument 2020 (FCA 2020/47)

(consulted on in CP19/27);

• Exiting the European Union: Handbook (Amendments) (No 2) Instrument 2020 (FCA

2020/48) (consulted on in CP19/33); and

• Exiting the European Union: Securitisation Repositories (DEPP and EG) Instrument

2020 (FCA 2020/57) (previously published in near-final form in PS19/15).

The FCA has made the following instruments, which it has not previously consulted on:

• Exiting the European Union: Miscellaneous (Amendments) (No 2) Instrument 2020

(FCA 2020/58). This updates provisions in the Handbook relating to the FCA's powers to

waive rules on a firm-specific basis where the rules incorporate requirements laid down

in EU directives; and

• EU Exit ("IP Completion Day" and Time-Related Amendments) Instrument 2020 (FCA

2020/60, FOS 2020/4). This updates references from exit day to IP completion day in

instruments made by the FCA in 2019, so that these amended provisions now apply by

reference to IP completion day. The instrument also amends other time-related

provisions linked to exit day (such as fee periods, Glossary definitions and guidance

setting out the operation of the withdrawal legislative framework) and inserts definitions

of IP completion day into instruments or legislation where relevant.

The FCA has also published the final versions of the following instruments amending BTS:

• Technical Standards (Payment Services Directive) (EU Exit) (No 2) Instrument 2020

(FCA 2020/49) (consulted on in CP19/27);

• Technical Standards (Prospectus Regulation) (EU Exit) Instrument 2020 (FCA 2020/50)

(consulted on in CP19/27);

• Technical Standards (Securitisation Regulation) (EU Exit) Instrument 2020 (FCA

2020/53) (consulted on in CP19/27);

• Technical Standards (Securitisation Regulation) (EU Exit) Instrument (No 2) 2020 (FCA

2020/54) (consulted on in CP19/33);

• Technical Standards (Transparency Directive) (EU Exit) (No 2) Instrument 2020 (FCA

2020/55) (consulted on in CP19/33); and

• Technical Standards (Fourth Money Laundering Directive) (EU Exit) Instrument 2020

(FCA 2020/59) (consulted on in CP19/27).

Brexit: FCA update on considerations for UK firms re client money and assets

The FCA has updated its webpage on considerations for UK firms preparing for the end of the

transition period, adding a section relating to client money and custody assets.

The FCA emphasises that firms are required to carry out periodic due diligence reviews on third

parties holding client money and/or custody assets. If a firm deposits client money or custody

https://www.fca.org.uk/brexit/onshoring-temporary-transitional-power-ttp/transitional-directionshttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_47.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_48.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_48.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_57.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_57.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_58.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_58.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_60.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_60.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_49.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_49.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_50.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_53.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_53.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_54.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_54.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_55.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_55.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_59.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_59.pdfhttps://www.fca.org.uk/firms/preparing-for-brexit/considerations-uk-firms

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assets with any institution in the EEA, it should review its due diligence to ensure that client

assets will not be subject to increased risk due to any changes arising from the end of the

transition period and manage the risks accordingly.

Firms should make sure that existing safeguards and protections for client assets, especially in

the event of insolvency, remain effective from the end of the transition period.

FCA Handbook Notice 80

The FCA has published Handbook Notice 80, which sets out changes to the FCA Handbook made

by the FCA board on 17 and 30 September 2020. The Handbook Notice reflects changes made to

the Handbook by the following instruments:

• Value Measures Reporting and Monitoring Instrument 2020 (FCA 2020/40), which

introduces new general insurance rules to report and publish data on value measures,

alongside new product governance requirements. It will come into force on 1 July 2021,

except for Annex C which comes into force on 1 January 2021;

• Allocation of the Responsibility for Insurance Distribution Activity or Mortgage Credit

Directive Credit Intermediation Activity Instrument 2020 (FCA 2020/41), which makes

changes to SUP 10C Annex 3D Form A and SUP 10C Annex 7D Form E to align the FCA's

wording with MIPRU 2.2.1R. It also adds a notification requirement in MIPRU 2.2.1BR.

It takes immediate effect;

• Reporting of Information about Directory Persons (Miscellaneous Amendments)

Instrument 2020 (FCA 2020/42), which brings the directory persons report in SUP 16

Annex 47AR in line with Connect. This is to enable the FCA to validate the information

reported on directory persons and to rename, on the form, the PRA material risk taker

role category. It takes immediate effect;

• Consumer Credit (High Net Worth Exemption) Instrument 2020 (FCA 2020/44), which

increases the range of options for individuals and firms for obtaining a statement of high

net worth. It takes immediate effect; and

• Financial Crime Guide (Amendment No 4) Instrument 2020 (FCA 2020/45), amending

the Financial Crime Guide (FCG) to reflect recent regulatory changes to ensure it remains

up to date. It takes immediate effect.

Handbook Notice 80 also includes changes made to the Handbook relating to Brexit, reported

above.

COVID-19: FCA extends flexibility over 10% depreciation notifications

On 30 September 2020, the FCA published a statement announcing a further six-month

extension and amendments to a temporary COVID-19 measure applying supervisory flexibility

over 10% depreciation notifications. The statement is addressed to firms that provide portfolio

management services or hold retail client accounts that include positions in leveraged financial

instruments or contingent liability transactions.

The FCA informed firms in March 2020 that it would apply supervisory flexibility over 10%

depreciation notifications until the end of September 2020. It is extending this previous

flexibility with some amendments.

The FCA will not take action for breach of COBS 16A.4.3 EU for services offered to retail

investors from 1 October 2020 provided that the firm has:

• issued at least one notification in the current reporting period, indicating to retail clients

that their portfolio or position has decreased in value by at least 10%;

https://www.fca.org.uk/publication/handbook/handbook-notice-80.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_40.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_41.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_41.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_42.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_42.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_44.pdfhttps://www.handbook.fca.org.uk/instrument/2020/FCA_2020_45.pdfhttps://www.fca.org.uk/news/statements/coronavirus-ten-per-cent-depreciation-notifications-further-temporary-measures-firms

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• informed these clients that they may not receive similar notifications if their portfolio or

position values further decrease by 10% in the current reporting period;

• referred these clients to non-personalised communications that outline general updates

on market conditions; and

• reminded clients how to check their portfolio value, and how to get in touch with the

firm.

The FCA reminds firms of Principles 6 and 7 of its Principles for Businesses. If it suspects that

potential serious misconduct may cause significant harm to consumers, it will consider the

appropriate response, which may include opening an investigation.

The FCA is also extending its flexibility regarding professional investors. For services offered to

professional investors, from 1 October 2020 the FCA will not take action for breach of COBS

16A.4.3 EU provided that firms have allowed professional clients to opt in to receiving

notifications.

The FCA will adopt this approach for six months (to 30 March 2021).

COVID-19: Dear CEO letter on adequate client assets arrangements

On 30 September 2020, the FCA published a Dear CEO letter stressing the importance of firms

continuing to maintain adequate arrangements to safeguard the client money and custody assets

("client assets") they hold for customers.

In its letter, the FCA highlights areas that are particularly important to maintaining adequate

client assets arrangements in the current pandemic environment. It also reminds firms of their

obligations to oversee those arrangements and to notify the FCA if they identify any material

concerns.

FCA perimeter report 2019/20

The FCA has published its perimeter report 2019/20, which provides an update on the issues

raised in its 2018/19 perimeter report. The report also sets out other areas where the FCA has

made progress, or continues to see harm to consumers and market users around its regulatory

perimeter

EU Digital Finance Strategy and Retail Payments Strategy

The European Commission has published a communication on a Digital Finance Strategy for the

EU. The Commission launched a consultation on the Digital Finance Strategy in April 2020. It

has published a summary of responses to the consultation, which have informed the

communication. The Commission has also published Q&As on the Digital Finance Strategy.

The Digital Finance Strategy forms part of a digital finance package introduced by the

Commission to further enable and support the potential of digital finance in terms of innovation

and competition, while mitigating the risks arising from it. In addition to the communication,

the package includes:

• a proposed Regulation on markets in cryptoassets;

• a proposed Regulation on digital operational resilience for the financial sector;

• a proposed Regulation on a pilot regime for market infrastructures based on distributed

ledger technology; and

• a proposed Directive supporting the Digital Finance Strategy by clarifying and amending

existing EU financial services Directives (the European Union (Statutory Audits)

https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-general-issues.pdfhttps://www.fca.org.uk/publication/annual-reports/perimeter-report-2019-20.pdfhttps://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-591-F1-EN-MAIN-PART-1.PDFhttps://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/2020-digital-finance-strategy-consultation-summary-of-responses_en.pdfhttps://ec.europa.eu/commission/presscorner/detail/en/qanda_20_1685https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12089-Directive-regulation-establishing-a-European-framework-for-markets-in-crypto-assetshttps://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12090-Digital-Operational-Resilience-of-Financial-Services-DORFS-Acthttps://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-594-F1-EN-MAIN-PART-1.PDFhttps://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-594-F1-EN-MAIN-PART-1.PDFhttps://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-596-F1-EN-MAIN-PART-1.PDF

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Directive; the UCITS Directive; the Solvency II Directive; the Alternative Investment

Fund Managers Directive; the Capital Requirements Directive; the Markets in Financial

Instruments Directive; the Payment Services Directive; and the IORP II Directive).

In the communication, the Commission notes that payment services play a key role among

digital financial services and require specific policy measures. The Commission has set these out

in a separate communication entitled "A Retail Payments Strategy for the EU", which it has

published alongside the communication.

The Digital Finance Strategy comprises a package of measures relating to the following four

priorities:

• tackle fragmentation in the digital single market for financial services;

• ensure the EU regulatory framework facilitates digital innovation in the interests of

consumers and market efficiency;

• create a European financial data space to promote data-driven innovation; and

• address the new challenges and risks associated with digital transformation.

In the communication, the Commission sets out a number of key actions under each of the four

priorities. It also highlights the related legislative proposals it has published alongside the

communication.

For further information on the proposed regulation on cryptoassets, read our separate briefing:

The EU proposed cryptoassets regulation: a pathway for clarity?

Platform on Sustainable Finance: European Commission FAQs

The European Commission has published frequently asked questions (FAQs) on the setting-up

and work of the "Platform on Sustainable Finance" (the Platform). The Platform is an expert EU

group required under the Taxonomy Regulation to advise the Commission on issues such as the

development of robust and science-based technical screening criteria for the EU taxonomy, and

policy development.

The FAQs include:

• What are the Platform's tasks relating to sustainable finance?

• What are the rules for selecting or directly appointing members of the Platform?

• How and who was selected as a member?

• Why does the Platform include representatives from non-EU countries (such as the UK

and Switzerland), and from industries with high environmental impact?

• How will the Platform function, what are its concrete deliverables and where can its work

be followed?

• How to engage with the Platform?

The Commission has also updated its webpage on the Platform to include a list of Platform

members.

Second European Commission CMU action plan

The European Commission has published its second action plan on the Capital Markets Union

(CMU). In the action plan, the Commission sets out details of 16 initiatives intended to achieve

three key objectives:

• making financing more accessible to European companies;

https://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-592-F1-EN-MAIN-PART-1.PDFhttps://www.engage.hoganlovells.com/knowledgeservices/insights/the-eu-proposed-cryptoassets-regulation-a-pathway-for-clarity?uid=hPcSJblN1IBvCdRThIyn8ippg2BKs2HX&nav=FRbANEucS95NMLRN47z%2BeeOgEFCt8EGQcV7IzHUHOGQ%3D&utm_medium=email&key=BcJlhLtdCv6%2FJTDZxvL23cPZyCW%2BatN0zGAckwosUSmlWlttVf7c5dw%2Fc9jGWruxmzF4%2Fk20N54uWh9tTpGAmbXPgBQWpnip&utm_source=daily&https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/201001-sustainable-finance-platform-faq_en.pdfhttps://ec.europa.eu/info/publications/sustainable-finance-platform_enhttps://ec.europa.eu/commission/presscorner/detail/en/ip_20_1677

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• making the EU a safer place for individuals to save and invest long-term; and

• integrating national capital markets into a genuine single market.

The initiatives announced by the Commission are intended to complement previously

announced actions and to address new challenges that have subsequently emerged. The

initiatives reflect the final report of the High-level Forum on the CMU, which was published in

June 2020. The Commission has also published a feedback statement on the feedback that it

received on the Forum's final report.

https://ec.europa.eu/info/sites/info/files/business_economy_euro/growth_and_investment/documents/200924-cmu-high-level-forum-feedback-summary-of-responses_en.pdf

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Banking and Finance

IRB UK mortgage risk weights: PRA CP14/20

The UK Prudential Regulation Authority (PRA) has published a consultation paper, CP14/20, on

proposals to introduce new expectations on internal ratings based (IRB) approach UK mortgage

risk weights. The proposals aim to address the prudential risks stemming from inappropriately

low IRB UK mortgage risk weights, narrow differentials between IRB and standardised approach

UK mortgage risk weights, and limit future divergence. The PRA considers that this would

support competition between firms on the different approaches.

The PRA proposes to introduce two complementary expectations on the level of IRB UK

mortgage risk weights. It believes models delivering risk weights below these levels are likely to

be materially deficient in risk capture:

• a risk weight of at least 7% for each individual UK residential mortgage exposure; and

• an exposure-weighted average risk weight of at least 10% for all UK residential mortgage

exposures to which a firm applies the IRB approach.

Both proposals would apply at all levels of consolidation and cover all UK residential mortgage

exposures.

The PRA does not expect the changes to result in significant implementation costs.

The proposals would make changes to the PRA's supervisory statement, SS11/13, on IRB

approaches.

The consultation closes on 30 January 2021. The PRA proposes that the final policy resulting

from this consultation will take effect from 1 January 2022, alongside other IRB reforms.

BRRD II: European Commission guidance

A European Commission notice on the interpretation of certain legal provisions of the revised

Bank Recovery and Resolution Directive (BRRD II) has been published in the Official Journal of

the EU. The notice is in reply to questions raised by member states' authorities. The notice states

that it does not extend in any way the rights and obligations deriving from the legislation nor

introduce any additional requirements of the concerned operators and competent authorities.

The notice states that the Commission will adopt, in the near future, a communication

containing answers to questions that it has received from the European Supervisory Authorities

relating to BRRD II.

CRR II: ECB updates annexes to guidance on review of qualification of capital instruments

The European Central Bank (ECB) has published amendments to the annexes in its guidance on

the procedure to be followed when reviewing the qualification of capital instruments as

additional tier 1 (AT1) and tier 2 (T2) instruments. The ECB explains that the updates are as a

result of amendments made by the updated Capital Requirements Regulation (CRR II), which

entered into force on 27 June 2019.

The ECB advises institutions to make use of the updated templates for their new issuances of AT1

and T2 instruments.

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2020/cp1420.pdfhttps://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2020.321.01.0001.01.ENG&toc=OJ:C:2020:321:TOChttps://www.bankingsupervision.europa.eu/press/letterstobanks/shared/pdf/2020/ssm.2020_letter_public_guidance_at1_and_t2~0ced38e4b5.en.pdf

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EBA 2020 transparency exercise launched

The European Banking Authority (EBA) has announced that it has launched its 2020

transparency exercise. Transparency exercises are part of the EBA's efforts to monitor risks and

vulnerabilities, and to reinforce market discipline.

The EBA expects to publish the results of the exercise in December 2020, together with its risk

assessment report (RAR) for 2020. It will release around 1 million data points on about 130 EU

banks. The data will cover capital positions, financial assets, financial liabilities, risk exposure

amounts, sovereign exposures and asset quality. The exercise will also include data on loans and

advances subject to legislative and non-legislative moratoria following publication of EBA

guidelines on the topic.

EBA 2021 work programme

The EBA has published its work programme for 2021.

The EBA's strategic priorities for 2021 are:

• supporting deployment of the risk reduction package and the implementation of effective

resolution tools;

• reviewing and upgrading the EU-wide EBA stress testing framework;

• becoming an integrated EU data hub, leveraging on the enhanced technical capability for

performing flexible and comprehensive analyses;

• contributing to the sound development of financial innovation and operational resilience

in the financial sector;

• building the infrastructure in the EU to lead, coordinate and monitor AML/CFT

supervision; and

• providing the policies for factoring in and managing ESG risks.

In addition, stemming from its horizontal strategic priorities, the EBA will also prioritise:

• establishing a culture of sound and effective governance and good conduct in financial

institutions; and

• addressing the aftermath of COVID-19.

The work programme also lists 37 specific activities that the EBA intends to undertake in 2021,

including the timings for the main outputs of those activities.

Banking Business Resolution Service: consultation findings and customer focus group

The Banking Business Resolution Service (BBRS) has published two reports:

• BBRS stakeholder consultation summary, which summarises responses to the BBRS'

June 2020 consultation to ensure the service is developed in line with stakeholder needs,

as the organisation prepares to go live; and

• BBRS Live Pilot customer focus group findings, which sets out the findings from a live

pilot customer focus group, which considered the personal experiences of customers and

their representatives who took part in the live pilot.

A related BBRS press release reports that the BBRS consultation shows wide demand for a new

service to resolve SME banking complaints, as the pilot phase customers and stakeholders

welcome an alternative approach to dispute resolution.

https://eba.europa.eu/eba-launches-eu-wide-transparency-exercisehttps://eba.europa.eu/sites/default/documents/files/document_library/About%20Us/Work%20Programme/2021/932669/EBA%202021%20Annual%20Work%20Programme.pdfhttps://thebbrs.org/wp-content/uploads/2020/09/BBRS-stakeholder-consultation-summary-FINAL.pdfhttps://thebbrs.org/wp-content/uploads/2020/09/BBRS-Live-Pilot-customer-focus-group-findings-FINAL.pdfhttps://thebbrs.org/news/live-pilot-perspectives-report/

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Consumer Finance

COVID-19: additional FCA finalised guidance on consumer credit and overdrafts

Following a short consultation, on 30 September 2020, the UK Financial Conduct Authority

(FCA) published finalised guidance setting out additional guidance for firms on consumer

credit and overdrafts in light of COVID-19. It also published a feedback statement, FS20/15, in

response to its consultation. See our separate briefing on the consultation: COVID-19: FCA

proposes further support for consumer credit customers including overdrafts.

The guidance came into effect on 2 October 2020 and supplements the FCA’s July guidance (on

which, see our briefing: COVID-19 - Further support for consumer credit customers: the FCA's

updated guidance).

The guidance covers users of credit cards and other revolving credit (store card and catalogue

credit), personal loans, motor finance, buy-now pay-later, rent-to-own, pawnbroking and high-

cost short-term credit products and overdrafts.

The measures in the guidance will apply both to consumers who have benefited from support

under the existing guidance and continue to face financial difficulties, as well as those whose

financial situation may be newly affected by COVID-19 after the existing guidance ends on 31

October 2020.

The guidance will be kept under review and if circumstances change significantly, the FCA will

consider further measures that may be needed to support consumers. In addition, the FCA will

review the guidance within six months of it coming into effect to determine whether it remains

relevant or whether it needs to be amended, withdrawn or replaced.

https://www.fca.org.uk/publication/finalised-guidance/finalised-guidance-consumer-credit-coronavirus-additional-guidance-firms.pdfhttps://www.fca.org.uk/publication/finalised-guidance/finalised-guidance-consumer-credit-coronavirus-additional-guidance-firms.pdfhttps://www.fca.org.uk/publication/finalised-guidance/finalised-guidance-overdrafts-coronavirus-additional-guidance-firms.pdfhttps://www.fca.org.uk/publication/feedback/fs20-15.pdfhttps://www.engage.hoganlovells.com/knowledgeservices/insights/covid-19-fca-proposes-further-support-for-consumer-credit-customers-including-overdraftshttps://www.engage.hoganlovells.com/knowledgeservices/insights/covid-19-fca-proposes-further-support-for-consumer-credit-customers-including-overdraftshttps://www.engage.hoganlovells.com/knowledgeservices/insights/covid-19-further-support-for-consumer-credit-customers-the-fcas-updated-guidancehttps://www.engage.hoganlovells.com/knowledgeservices/insights/covid-19-further-support-for-consumer-credit-customers-the-fcas-updated-guidance

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Payments

Future strategy review: PSR requests input on three themes

The UK Payment Systems Regulator (PSR) is working on defining its future strategy. It has

published webpages requesting input on three themes:

• innovation and future payment methods;

• competition; and

• choice and availability of payments.

The PSR welcomes contributions on any of the three themes by the end of October 2020. It is

holding two strategy webinars in October 2020 and will provide details about these soon. It will

consult on a full draft strategy early in 2021.

SEPA direct debit schemes: EPC guidelines for appearance of mandates

The European Payments Council (EPC) has published revised guidelines on the appearance of

mandates for the Single Euro Payments Area (SEPA) Direct Debit (SDD) Core Scheme and the

SDD Business-to-Business (B2B) Scheme.

The guidelines contain guidance on the visual presentation of mandates under the SEPA SDD

Core Scheme and the SDD B2B Scheme issued by creditors as part under the SDD schemes to

enable debtors to make payments. They aim to illustrate several ways to reduce mandate

complexity without losing any essential content and while still remaining compliant with the

relevant scheme rulebook.

The EPC also provides advice on when the delivery of the debtor bank's BIC (bank identifier

code) is mandatory in SDD transactions.

The guidelines are intended to supplement section 4.7.2 of the SDD Core and SDD B2B Scheme

Rulebooks, which define the rules for the content of SDD Core and SDD B2B mandates

respectively.

The EPC has also published version 8 of its creditor identifier overview following its annual

review by the Scheme Management Board. The aim of the document is to inform creditors about

the need for a creditor identifier on SDD mandates and forthcoming collections, and about the

institution(s) in each SEPA country that can issue such a creditor identifier.

https://www.psr.org.uk/psr-focus/psr-strategy/innovation-and-future-payment-methodshttps://www.psr.org.uk/psr-focus/psr-strategy/competitionhttps://www.psr.org.uk/psr-focus/psr-strategy/choice-and-availability-of-payment-methodshttps://www.europeanpaymentscouncil.eu/sites/default/files/kb/file/2020-09/EPC392-08%20v6.0%20SDD%20Mandate%20Layout%20Guidelines.pdfhttps://www.europeanpaymentscouncil.eu/sites/default/files/kb/file/2020-09/EPC262-08%20v8.0%20Creditor%20Identifier%20Overview.pdf

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Securities and Markets Brexit: ESMA to recognise three UK CCPS from 1 January 2021

The European Securities and Markets Authority (ESMA) has announced that three central

counterparties (CCPs) established in the UK will be recognised as third-country CCPs (TC-CCPs)

eligible to provide their services in the EU after the end of the Brexit transition period. The three

UK CCPs are ICE Clear Europe Ltd, LCH Ltd and LME Clear Ltd.

ESMA explains that three Delegated Acts on tiering, comparable compliance and fees

supplementing the European Market Infrastructure Regulation (EMIR) were published in the

Official Journal of the EU (OJ) on 21 September 2020. Also, the European Commission adopted,

in the context of the end of the transition period under the withdrawal agreement between the

EU and the UK, an equivalence decision determining for a limited period of time, that the

regulatory and supervisory framework applicable to CCPs established in the UK is equivalent.

Following the UK CCPs submitting their applications to be recognised as TC-CCPs under EMIR,

ESMA conducted the tiering and recognition assessments. It subsequently adopted the following

tiering decisions:

• LME Clear Ltd has been assessed as a Tier 1 CCP;

• ICE Clear Ltd as a Tier 2 CCP; and

• LCH Ltd as a Tier 2 CCP.

In addition, after considering the conditions for recognition under Article 25 of EMIR, ESMA

adopted decisions to recognise the three UK CCPs as TC-CCPs under EMIR. In line with the

equivalence decision, the recognition decisions will only take effect on the day following the end

of the transition period and continue to apply while the equivalence decision remains in force,

which is for 18 months until 30 June 2022.

The Bank of England (BoE) has published a statement welcoming the announcement. In the

statement the BoE confirms that, as part of the recognition process, it has agreed an updated

memorandum of understanding (MoU) with ESMA regarding cooperation and information

sharing arrangements with respect to CCPs. The MoU takes effect from 1 January 2021.

Brexit: ESMA updates statements on impact on BMR, MiFID and MiFIR

ESMA has updated the following public statements:

• statement on the impact of Brexit on the Benchmark Regulation (BMR), in particular on

the consequences for the ESMA register for benchmark administrators and third-country

benchmarks under the BMR; and

• statement on the impact of Brexit on the application of the Markets in Financial

Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation

(MiFIR). The statement covers ESMA’s approach under MiFID to the C(6) carve-out, the

ESMA opinions on third-country trading venues for the purpose of post-trade

transparency, and the position limits regime and post-trade transparency for OTC

transactions. It also covers the implementing technical standards on main indices and

recognised exchanges under the Capital Requirement Regulation (CRR). The statement

updates the ones issued by ESMA in March and October 2019.

https://www.esma.europa.eu/press-news/esma-news/esma-recognise-three-uk-ccps-1-january-2021https://www.bankofengland.co.uk/news/2020/september/boe-statement-on-esma-recognition-decisionshttps://www.esma.europa.eu/sites/default/files/library/esma80-187-610_bmr_brexit_public_statement_2020_q4.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma70-155-10962_statement_brexit_mifid_remaining_issues_2020_q4.pdf

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EMIR 2.2: House of Commons European Scrutiny Committee letter to HM

Treasury

The House of Commons European Scrutiny Committee has published a letter it has sent to John

Glen, Economic Secretary to HM Treasury, relating to EU supervision of central counterparties

(CCPs) under EMIR 2.2.

The letter indicates that the Committee remains concerned about the demands for regulatory

alignment that EMIR 2.2 implies in return for market access, as well as the explicit EU objective

of increasing its domestic clearing capacity for derivatives at the expense of the UK. The

committee therefore raises questions regarding the impact of EMIR 2.2, relating to:

• supervisory cooperation between the BoE and ESMA;

• comparable compliance for "tier 2" non-EU CCPs; and

• the EU’s proposed Recovery and Resolution Regulation for CCPs.

The committee requests a response by 16 October 2020.

LIBOR transition: FCA survey on switch to SONIA in interest rate swap market

The BoE has published the results of a survey of the FCA’s engagement with interest rate swap

liquidity providers and interdealer brokers to determine their support for a change in the

quoting conventions of sterling interest rate swaps in the interdealer market.

A survey of liquidity providers identified strong support for a change in the interdealer quoting

convention that would see SONIA rather than LIBOR become the default price from 27 October

2020, subject to prevailing market conditions at that time. The survey also showed a large

majority supported a move away from the use of GBP LIBOR forward rate agreements to use of

single period swaps which benefit from greater compatibility with the anticipated ISDA IBOR

fallbacks protocol.

This proposal has also been endorsed by the RFRWG and has been included as an update to

its roadmap for transition in sterling markets.

The FCA and the BoE therefore support and encourage all participants in these interdealer markets to take the steps necessary to prepare for and implement these changes to market conventions.

A previously planned initiative to accelerate a change in quoting conventions, which was due to have taken place in March 2020, was disrupted by the impact of COVID-19. In the period leading up to 27 October, the FCA and the Bank of England will engage with market participants to determine whether market conditions allow the switch to proceed smoothly in October.

MiFID and MiFIR third-country firm regimes: ESMA final draft technical standards

ESMA has published a final report, containing draft regulatory and implementing technical

standards (RTS and ITS) relating to the provision of investment services and activities in the EU

by third-country firms under MiFID and MiFIR.

The draft RTS and ITS have been published following changes to the MiFID and MiFIR regimes

introduced by the Investment Firms Regulation (IFR) and the Investment Firms Directive (IFD).

The changes include new reporting requirements from third-country firms to ESMA on an

annual basis in accordance with Article 46 of MiFIR, and the possibility for ESMA to ask third-

https://committees.parliament.uk/publications/2746/documents/27188/default/https://www.bankofengland.co.uk/news/2020/september/fca-and-boe-joint-statement-on-sonia-interest-rate-swaphttps://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/rfr/rfrwgs-2020-priorities-and-milestones.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma35-43-2424_draft_ts_on_provision_of_services_by_tcfs.pdf

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country firms to provide data relating to all orders and transactions in the EU. New annual

reporting requirements from branches of third-country firms to national competent authorities

have also been introduced.

ESMA consulted on the technical standards in January 2020. Annex III to the report provides a

summary of feedback to the consultation paper and ESMA's response.

The draft RTS and ITS have been submitted to the European Commission for adoption.

MiFIR: guidance on Annex to ESMA opinion determining third-country trading venues for purpose of transparency

ESMA has published guidance on the Annex to its opinion determining third-country trading

venues for the purpose of transparency under MiFIR. The Annex (linked to in the opinion and

the guidance) includes the list of venues which meet the relevant criteria defined in the opinion.

MiFIR: ESMA review consultation on reference data and transaction reporting obligations

ESMA is consulting on the MiFIR review report (required under Article 26(10) of MiFIR) on the

obligations to report transactions and reference data. The consultation covers the following

areas:

• topics related to the functioning of Article 26 of MiFIR on the transaction reporting

regime; and

• topics related to the functioning of Article 27 of MiFIR on the supply of financial

instruments reference data and article 4 of the Market Abuse Regulation (MAR) on the

notifications and list of financial instruments, which ESMA considers closely-linked to

the other topics being considered.

The consultation ends on 20 November 2020. ESMA intends to submit its final review report to

the Commission in Q1 2021.

MiFID: ESMA review consultation on the functioning of OTFs

ESMA has published a consultation paper on the functioning of organised trading facilities

(OTF) under Article 90(1)(a) of MiFID. Article 90(1)(a) requires the European Commission to

present a report to the European Parliament and the Council of the EU on the functioning of

OTFs after consulting with ESMA.

Section 3 of the paper contains analysis of trading on OTFs, including details about the volumes

traded on OTFs since the application of MiFID II, with a focus on OTF trading in bonds and

derivatives.

The paper also examines the definition of an OTF, particularly focusing on the definition of a

multilateral system. There is some analysis about the boundaries of trading venue authorisation

and OTFs' use of discretion. Matched principal trading is described, including presentation of

evidence about how OTFs make use of it.

ESMA asks a number of questions in the paper and sets out a number of proposals on which it is

consulting. The consultation closes on 25 November 2020. ESMA expects to publish a final

report for submission to the Commission by March 2021.

https://www.esma.europa.eu/sites/default/files/library/esma70-155-10587_guidance_on_annex_to_transparency_opinion.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma70-154-165_smsc_opinion_transparency_third_countries.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma74-362-773_mifid_ii_mifir_review_report.pdfhttps://www.esma.europa.eu/press-news/consultations/consultation-mifid-ii-mifir-review-functioning-organised-trading-facilities

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MiFIR: ESMA review report on transparency regime for non-equity instruments

ESMA has published its review report on the transparency regime for non-equity instruments

and the trading obligations for derivatives under MiFIR. Publication of the report satisfies

ESMA's mandates under Articles 52(1) to (3) and 52(6) of MiFIR, and Article 17 of Commission

Delegated Regulation (EU) 2017/583. A summary of the responses ESMA received to its

preceding consultation is set out in Annex II to the report.

ESMA makes a number of recommendations for amending the regime in its report. It invites the

Commission to translate its recommendations into legislative proposals where necessary. For

Level 2 changes, ESMA intends to publish amendments to the RTS in due course.

MiFIR: ESMA updates Q&As on data reporting

ESMA has updated its Q&As on data reporting under MiFIR. The Q&As have been updated to

include:

• a new Q&A clarifying which legal entity identifier should be used to identify the "issuer"

when reporting reference data on funds to the Financial Instruments Reference Data

System (FIRDS) under Article 4 of MAR and Article 27 of MiFIR. Due to higher

operational complexities related to changed reporting practices in some jurisdictions, this

Q&A should be implemented six months after its publication;

• an amendment to an existing Q&A to provide clarifications in relation to the reporting

requirements under Article 26 of MiFIR and RTS 22. The Q&A provides an additional

reporting scenario where an investment firm executes a transaction through an execution

algorithm using the membership of its client to execute the order in the market; and

• an amended Q&A relating to national client identifiers for natural persons, clarifying how

different national identifiers specified in Annex II of RTS 22 are represented. The

amendment also provides clarification on the requirements for Swedish national client

identifiers.

CRA Regulation: ESMA final guidelines on internal controls for CRAs

ESMA has published a report on guidelines on internal controls for credit rating agencies

(CRAs). The guidelines set out ESMA's expectations on the characteristics and components of an

effective internal control structure within a CRA as required under Article 6 of the CRA

Regulation.

The guidelines will apply from 1 July 2021.

EMIR: ESMA updates Q&As

ESMA has updated its Q&As on the implementation of EMIR. It has updated the trade repository

Q&A 1(c) to clarify that the counterparties should use the underlying to determine the asset class

of total return swaps when reporting under EMIR. It has also added two new Q&As to:

• clarify that the reporting of the field reference entity for credit derivatives can be made

with a country code only in the case where the reference entity is a supranational, a

sovereign or a municipality; and

• indicate how the field execution timestamp, effective date, maturity date and settlement

date should be reported for Forward Rate Agreement derivatives.

https://www.esma.europa.eu/sites/default/files/library/esma70-156-3329_mifid_ii_mifir_review_report_on_the_transparency_regime_for_non-equity_instruments.pdfhttps://www.esma.europa.eu/document/qa-mifir-data-reportinghttps://www.esma.europa.eu/sites/default/files/library/esma_33-9-371_final_report_guidelines_internal_control_for_cras_0.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma70-1861941480-52_qa_on_emir_implementation.pdf

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EMIR: European Commission report on clearing solutions for pension scheme

arrangements

The European Commission has published a report on clearing solutions for pension scheme

arrangements (PSAs) under EMIR. Its comments include the following:

• PSAs have already started clearing some derivatives voluntarily. The key issue that

remains to be solved is that of cash variation margin in times of stressed market

conditions;

• facilitated access models have been developed over recent years to explore a potentially

viable avenue for PSAs' central clearing. The Commission understands that this option is

already being used by a few PSAs. It intends to explore this further, including its cost for

PSAs. The fact that more than one CCP is adopting such a model seems to be a positive

development; and

• some aspects of banking regulation should be further assessed, including whether the

recent changes in the leverage ratio calculations have helped. Also, ways of securing

liquidity facilities to PSAs in times of stress should be explored.

The Commission refers to the results of the public consultation on clearing solutions for PSAs

launched by ESMA in April 2020. It believes these should provide further insight into recent

market developments and possibly further quantitative data, which it will examine carefully. The

Commission states that its analysis of these issues over the next months will inform its decision

on the PSA's exemption.

BMR: ESMA final report on draft RTS

ESMA has published a final report on draft RTS supplementing the BMR, reflecting mandates

introduced by amendments to the BMR made by the European System of Financial Supervision

Omnibus Regulation. The draft RTS contain additional detailed rules to implement the EU

regulatory framework aimed at ensuring the accuracy and integrity of benchmarks across the

EU.

ESMA consulted on the draft RTS in March 2020. Feedback to the consultation is set out,

together with ESMA's approach, in each relevant section.

By 1 October 2020, ESMA will submit the draft RTS to the European Commission for

endorsement.

BMR: ESMA consultation on fees for benchmark administrators

Following a formal request from the European Commission to provide technical advice on the

issue, ESMA has published a consultation paper on fees for benchmark administrators under the

BMR.

ESMA is designated as the competent authority of administrators of critical benchmarks under

Article 20(1) and of third country administrators recognised under Article 32 of the BMR. These

new supervisory responsibilities start on 1 January 2022.

The consultation paper sets out ESMA's proposed technical advice on supervisory fees to be paid

to ESMA.

The consultation closes on 6 November 2020. ESMA intends to publish a final report and submit

the technical advice to the Commission by 31 January 2020.

https://ec.europa.eu/transparency/regdoc/rep/1/2020/EN/COM-2020-574-F1-EN-MAIN-PART-1.PDFhttps://www.esma.europa.eu/sites/default/files/library/esma80-187-608_final_report_benchmarks_rts.pdfhttps://www.esma.europa.eu/press-news/consultations/cp-fees-benchmark-administrators-under-bmr

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MAR: ESMA review report

Delayed due to COVID-19, ESMA has published its final review report on MAR. ESMA consulted

on its report in October 2019 and the final report builds on the extensive feedback received from

market participants. ESMA has also integrated the advice received from its Securities and

Markets Stakeholder Group.

ESMA's conclusion is that, overall, MAR has worked well in practice and is fit for purpose.

Consultation respondents focused on specific amendments and clarifications rather than a major

overhaul of the legislative framework. Therefore, in the final report, ESMA sets out proposals for

targeted amendments to MAR. It also suggests providing additional guidance in a number of

areas. Highlights are listed in ESMA’s press release.

ESMA has submitted the final report to the European Commission and it is expected to feed into

the Commission's MAR review report, which is required under Article 38 of MAR. ESMA is ready

to provide further technical assistance to develop the legislative amendments suggested in the

final report.

Withholding tax reclaim schemes: ESMA final report

ESMA has published a final report on Cum/Ex, Cum/Cum and withholding tax reclaim schemes

(together, WHT schemes). In the report, ESMA presents the findings of its formal inquiry into

WHT schemes, building on its July 2019 report in which it set out its preliminary findings on

WHT schemes. Among other things, ESMA:

• outlines the general functioning of dividend arbitrages and WHT schemes;

• describes the experiences of national competent authorities (NCAs) regarding their

market surveillance activities and any specific analysis carried out at national level to

assess the presence and the impact of WHT schemes in their jurisdiction;

• collects information from NCAs on the status of current criminal investigations across the

EU; and

• considers WHT schemes from the perspective of regulated firms' obligations under the

MiFID legal framework. Particular reference is made to the obligation for investment

firms to ensure they act honestly, fairly and professionally and in a manner that promotes

the integrity of the market and also to the requirements on the suitability of their

management bodies, whose members are required to act with integrity.

ESMA has concluded that WHT schemes are primarily a tax-related issue, meaning a response

should be mainly sought within the boundaries of the tax legislative and supervisory framework.

As part of its inquiry, ESMA has identified a number of measures adopted by various member

states to limit the risk of WHT schemes being pursued.

In its report, ESMA recommends legislative change to remove the legal limitations on NCAs

exchanging information acquired from other NCAs with tax authorities. Additionally, it

considers a common legal basis should be developed to ensure a consistent and convergent

approach on the exchange of information directly acquired by NCAs in their supervisory activity

with tax authorities.

ESMA has also identified best practices taken from the experience of those NCAs that, because of

an extended remit under national legislation, carry out supervisory activity for WHT schemes.

ESMA will submit the report to the European Parliament.

https://www.esma.europa.eu/sites/default/files/library/esma70-156-2391_final_report_-_mar_review.pdfhttps://www.esma.europa.eu/press-news/esma-news/esma-publishes-outcomes-mar-reviewhttps://www.esma.europa.eu/sites/default/files/library/esma70-155-10272_final_report_on_cum_ex_and_other_multiple_withholding_tax_reclaim_schemes.pdfhttps://www.esma.europa.eu/sites/default/files/library/esma70-154-1193_preliminary_findings_on_multiple_withholding_tax_reclaim_schemes.pdf

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ESMA has also considered whether any potential solution to contribute to the detection and

prosecution of WHT schemes could be achieved through an amendment to MAR. It included the

outcome of this analysis in a dedicated section in its final MAR review report, reported above.

OTC derivatives identifiers: LEI ROC appointed as governance body

The Financial Stability Board (FSB) has confirmed that the Legal Entity Identifier Regulatory

Oversight Committee (LEI ROC) will be the International Governance Body (IGB) for the

globally harmonised identifiers used to track OTC derivatives transactions.

The FSB explains that the ROC, which is already the governance body of the Global LEI System,

will be responsible for the governance of the Unique Product Identifier (UPI), the Unique

Transaction Identifier (UTI), and the Critical Data Elements (CDE). The UPI will identify the

products reported to trade repositories consistently across FSB jurisdictions, the UTI will

identify individual transactions reported to trade repositories and allow authorities to follow

their modifications during their lifecycle, and the CDE will capture other important

characteristics of the transactions.

The ROC will also be responsible for oversight of the UPI service provider designated by the FSB,

The Derivatives Service Bureau.

This transfer of all governance and oversight responsibilities to the ROC will be effective from 1

October 2020.

REMIT and wholesale energy trading: ACER establishing expert group

The Agency for the Cooperation of Energy Regulators (ACER) has published an open letter

announcing that it is setting up a new consultative expert group on matters related to the

Regulation on wholesale energy market integrity and transparency (REMIT) and on energy

trading in general. ACER invites applications for membership to the group by 28 October 2020.

Annexes to the open letter give the terms of reference for the expert group and its rules of

procedure.

ISDA IBOR Fallback Rate Adjustments FAQs updated

The International Swaps and Derivatives Association (ISDA) has published an updated version

of its IBOR Fallback Rate Adjustments FAQs, which address issues arising from key adjustments

that market participants will need to make if fallbacks to risk-free rates are to take effect in

contracts that were originally negotiated to reference the inter-bank offer rates.

https://www.fsb.org/wp-content/uploads/R250920-1.pdfhttps://www.acer.europa.eu/Media/News/Documents/Open%20Letter%20-%20Establishment%20Expert%20Group%20on%20Wholesale%20Energy%20Market%20Trading%20-%20October%202020.pdfhttp://assets.isda.org/media/ddcb20e0/76dd3ab8-pdf/

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Insurance COVID-19: HM Treasury letter on insurance companies' deductions of government grants from BI insurance claims

On 25 September 2020, HM Treasury published a letter from John Glen, Economic Secretary to

HM Treasury, to Huw Evans, Director General of the Association of British Insurers (ABI). Mr

Glen’s letter is in response to a letter from Mr Evans (also dated 25 September 2020) in which

Mr Evans confirms that 12 insurance firms will not make deductions from COVID-19 related

business interruption (BI) insurance claims payments to account for the Coronavirus Small

Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund, the Local Authority

Discretionary Grant Fund (and their equivalents in the devolved nations).

Mr Glen notes that the practice of making these deductions "would mean that taxpayer funds are

being channelled into savings for insurers, rather than supporting businesses to ride out the

disruption brought on by this pandemic". Therefore, Mr Glen commends the 12 insurance

companies for their commitment not to make these deductions and to review settlements where

they have already been made. However, he expresses disappointment that not all insurers have

signed up to this approach, when the deductions are clearly not in line with the intention of the

support schemes. He strongly encourages those insurers to respect the spirit of the government

support schemes and to consider the difficulties being faced by businesses during this time.

Mr Glen also notes that the FCA has recently written to relevant insurers asking them to consider

very carefully the appropriateness of any deductions in the context of individual insurance

policies and providing clarification on how government support should be treated in claim

calculations. Mr Glen states that the government supports the FCA's role in regulating the

conduct of UK insurance providers and in ensuring customers are treated fairly throughout the

COVID-19 pandemic.

Mr Glen says that if grant deductions continue to be made, the government will consider further

action to protect the financial support being issued to businesses.

Mr Glen also welcomes Mr Evans' suggestion that the ABI and HM Treasury officials meet to

consider the treatment of future government grants in insurance claim settlements.

COVID-19: FCA BI insurance test case updates

The FCA has updated its webpage on its BI insurance test case. Among other things, it has

published the skeleton arguments and leapfrog applications of the defendants. On its webpage,

the FCA provides:

• information on the consequentials hearing on 2 October 2020;

• its skeleton argument for the consequentials hearing. It has also published the skeleton

arguments for Arch Insurance (UK) Ltd, Argenta Syndicate Management

Ltd, Ecclesiastical Insurance Office plc and MS Amlin Underwriting Ltd, Hiscox

Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance plc, Zurich

Insurance plc, Hiscox Action Group and Hospitality Insurance Group Action; and

• the leapfrog applications for the FCA, Arch Insurance (UK) Ltd, Argenta Syndicate

Management Ltd, Ecclesiastical Insurance Office plc, MS Amlin Underwriting

Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance

plc and Hiscox Action Group. In addition, the FCA has published the grounds and

witness statement for the Hiscox Action Group.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921682/EST_letter_to_Huw_Evans.pdfhttps://www.abi.org.uk/globalassets/files/subject/public/coronavirus/john-glen-mp-hmt-25-sept2020-final-003.pdfhttps://www.fca.org.uk/firms/business-interruption-insurancehttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-fca-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-arch-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-argenta-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-argenta-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-ecclesiastical-ms-amlin-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hiscox-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hiscox-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-qbe-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-rsa-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-zurich-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-zurich-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hag-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-higa-consequentials-skeleton-argument.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-fca-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-arch-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-argenta-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-argenta-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-ecclesiastical-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-ms-amlin-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-ms-amlin-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hiscox-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-qbe-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-rsa-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-rsa-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hag-application-notice-leapfrog.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hag-grounds-witness-statement.pdfhttps://www.fca.org.uk/publication/corporate/bi-insurance-test-case-hag-grounds-witness-statement.pdf

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COVID-19: FCA Dear CEO letter to general insurance intermediaries on client money arrangements

On 30 September 2020, the FCA published a Dear CEO letter on adequate client money

arrangements, sent to the CEOs of general insurance intermediary firms.

In the letter, the FCA highlights a number of areas that are particularly important to maintaining

adequate client money arrangements in the current pandemic environment. It also reminds

firms of their obligations to continue to oversee those arrangements and notify the FCA if they

identify any material concerns.

The FCA will continue to assess firms' client money arrangements and review the annual

independent external auditors' client assets reports. If the FCA contacts firms in the future, they

should be prepared to explain the actions taken in response to this Dear CEO letter.

Solvency II EVT parameters: PRA review statement

The Prudential Regulation Authority (PRA) has published a statement setting out the findings

from its review of the Solvency II Directive’s effective value test (EVT) parameters, as set out in

the PRA’s supervisory statement, SS3/17. The updated parameters set out in the statement apply

from 30 September 2020.

The PRA explains that firms that have elected to use a minimum deferment rate of 0% to

conduct the EVT prior to 31 December 2021 may continue to do so, notwithstanding the

minimum deferment rate set out in the statement. When conducting the EVT, all firms should

use the published volatility parameter in this statement regardless of the minimum deferment

rate they are using.

In brief, the PRA retains the minimum deferment rate parameter used in the EVT at 0.5% per

annum and the value for the volatility parameter to be used in the EVT of 13%.

EIOPA launches study on diversification in internal models

The European Insurance and Occupational Pensions Authority (EIOPA) has launched a study on

diversification in internal models under the Solvency II Directive.

EIOPA notes that, in general, the modelling of dependencies and aggregation, an effect typically

called diversification, within internal models has a significant impact to the overall solvency

capital requirement (SCR) of insurance undertakings. Therefore, the objectives of this study are

to:

• gain an overview of the current approaches in the market and, on best effort basis,

analyse and compare the levels of diversification;

• facilitate a better understanding of modelling dependencies, aggregation and resulting

diversification benefits; and

• enhance quality and convergence of supervision on diversification in internal models.

As part of the study, EIOPA has published a technical specification providing instructions to

participants, a qualitative questionnaire and a quantitative reporting template.

Insurance undertakings must submit the results to their group national supervisory authority by

15 January 2021. National supervisory authorities must report back to EIOPA by 22 January

2021.

https://www.fca.org.uk/publication/correspondence/dear-ceo-portfolio-letter-giis.pdfhttps://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/solvency-ii/evt-parameters-september2020.pdfhttps://www.eiopa.europa.eu/content/study-diversification-internal-modelshttps://www.eiopa.europa.eu/sites/default/files/feedback/technical_specification_v1.0.docxhttps://www.eiopa.europa.eu/sites/default/files/feedback/qualitative_questionnaire_v1.0.docxhttps://www.eiopa.europa.eu/sites/default/files/feedback/quantitative_reporting_template_v1.0.xlsx

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EIOPA single programming document 2021-23 including annual work programme 2021

EIOPA has published a single programming document 2021-23 (SPD), setting out the activities

EIOPA will undertake during 2021-23 to deliver on its strategic objectives, including its annual

work programme for 2021.

https://www.eiopa.europa.eu/sites/default/files/publications/administrative/eiopa-20-590_spd_2021-2023.pdf

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Funds and Asset Management

Draft Bearer Certificates (Collective Investment Schemes) Regulations 2020

A draft version of the Bearer Certificates (Collective Investment Schemes) Regulations

2020 have been published, together with an explanatory memorandum.

The Regulations amend the Financial Services and Markets Act 2000 (FSMA) to prohibit bearer

certificates for all collective investment schemes based in the UK. They also include a provision

for converting or cancelling existing bearer certificates within a year of the Regulations coming

into force, the payment of dividends or other distributions during that year, and giving notice to

those who hold bearer certificates.

The Regulations are due to come into force on 1 January 2021.

Regulation 48 of the Open-Ended Investment Companies Regulations 2001 already prohibits

most businesses in the UK from issuing bearer certificates.

Abolishing bearer certificates, or otherwise implementing measures to prevent their misuse, is

required under international standards on anti-money laundering and tax transparency. The

Regulations close a technical loophole that still allowed certain collective investment schemes to

issue bearer certificates.

https://www.legislation.gov.uk/ukdsi/2020/9780348212471/pdfs/ukdsi_9780348212471_en.pdfhttps://www.legislation.gov.uk/ukdsi/2020/9780348212471/pdfs/ukdsi_9780348212471_en.pdfhttps://www.legislation.gov.uk/ukdsi/2020/9780348212471/pdfs/ukdsiem_9780348212471_en.pdf

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