CONDUCT
FMSB statement of good practice on conflicts of interest
On 20 June, the FICC Markets Standards Board (FMSB) published a consultation on a statement of good practice on conflicts of interest. The aim of the statement is to provide guidance for firms as they consider ways in which conflicts of interest that arise both specifically in connection with their FICC markets business, and more generally across the firm, can be identified, and then prevented, or appropriately managed and mitigated. The FMSB divides conflicts of interest into three broad categories: (i) client vs. client – for example, different clients placing competing orders to deal in the same instrument; (ii) firm vs. client – for example, a public side business area holding a risk position in connection with its market making activities while a private side business area within the Firm is advising investors with respect to an inverse economic position; and (iii) employee vs. firm/employee vs. client – for example, giving or receiving gifts or entertainment to or from persons or entities with whom the Firm conducts or intends to conduct business where the value or frequency may potentially impact the individual’s behaviour or be perceived as improper. The deadline for comments is 6 September.
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CONSUMER/RETAIL
FCA update on loyalty penalty super-complaint
On 19 June, the FCA provided an update on its work following the CMA’s response to the loyalty penalty super-complaint from Citizens Advice. The FCA’s current position on its work in mortgages, cash savings and the home and motor insurance markets is: (i) it has completed its mortgages market study, and is taking forward remedies, including detailed research to understand the characteristics of consumers who do not switch, to inform any further necessary interventions; (ii) as announced in May, it will publish a feedback statement or a consultation paper by the end of the year on its price discrimination work in the cash savings market; and (iii) the market study into general insurance pricing practices in home and motor insurance is ongoing. It will publish its interim findings in the summer. The FCA is also working closely with the CMA, the UK Regulators Network (UKRN) and other regulators on cross-cutting recommendations. The FCA is considering its regulatory approach to cross-cutting issues, including: (a) its work on firm’s duty of care; (b) the identification and fair treatment of vulnerable consumers; (c) fair pricing in financial services; and (d) the future role of Open Finance.
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EBA consultation paper on draft guidelines on loan origination and monitoring
On 19 June, the EBA published a consultation paper on draft guidelines on loan origination and monitoring.
The guidelines aim to ensure that institutions’ practices are aligned with consumer protection rules and respect fair treatment of customers. The guidelines specify the internal governance arrangements, processes and mechanisms as laid down in Article 74(1) of CRD IV, and further specified in the EBA guidelines on internal governance, and requirements on credit and counterparty risk as laid down in Article 79 of CRD IV regarding the granting and monitoring of credit facilities throughout their life cycle. The guidelines also introduce requirements for borrowers' creditworthiness assessment together with the collection of information and data for the purposes of these assessments. The requirements to assess the creditworthiness of consumers and verification of consumer information are developed in accordance with Articles 18 and 20 of the Mortgage Credit Directive. Among other things, the guidelines: (i) clarify internal governance and control framework for the credit granting and credit decision-making process; (ii) set out requirements for information and data collection from borrowers; (iii) set out supervisory expectation for the risk-based pricing of loans; and (iv) specify the ongoing monitoring of credit risk and credit exposures, including regular credit reviews of professional borrowers. The deadline for comments is 30 September and the guidelines will apply from 30 June 2020. They will replace existing EBA guidelines on creditworthiness assessments under the MCD, which were issued in June 2015.
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HMT response to breathing space scheme and statutory debt repayment plan for people in problem debt
On 19 June, HMT published a response to its consultation on a breathing space scheme and statutory debt repayment plan. HMT consulted on the proposal between October 2018 and January. HMT confirms that it will be taking forward its proposal and sets out how the scheme will be designed, funded and administered.
The breathing space will last for a period of 60 days, so that individuals may liaise with professional debt advisers to identify a sustainable debt solution and provide certainty to creditors. In relation to the breathing space scheme, the government is minded to include an oversight role for creditor compliance with breathing space that reflects the current compliance mechanism in insolvency solutions. The government will continue to work with expert stakeholders on the design of this oversight role. Before the end of the year, the government will lay before Parliament the regulations establishing breathing space, with the intention of implementing breathing space in early 2021.
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FINANCIAL CRIME
Please see our Investigations Insight blog post, where Eve Giles, A&O Litigation and Investigations Partner, reflects on her recent interview with Lisa Osofsky, Director of the SFO regarding cooperating witnesses.
FCA thematic review: Understanding the Money Laundering Risks in the Capital Markets
Following on from its 2018 thematic review on money laundering risks in the e-money sector, the FCA has continued its sector-specific review of control frameworks by publishing a further thematic review, this time focusing on the capital markets.
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Anti-money laundering: the SARs regime
On 18 June, the Law Commission published its final report entitled ‘Anti-money laundering: the SARs regime’. The report covers the reporting of suspicious activity in order to seek a defence against money laundering or terrorist financing offences in relation to the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TA). Specifically, the report focuses on the consent provisions in sections 327 to 329 and sections 335, 336 and 338 of POCA and in sections 21 to 21ZC of TA. The report also considers the interaction of the consent provisions with the disclosure offences in sections 330 to 333A of POCA and sections 19, 21A and 21D of TA. The report makes 19 recommendations, which include: (i) that an advisory board should be created to (a) assist in the production of statutory guidance, and (b) to consult on monitoring the effectiveness of the reporting regime and to make recommendations to the Secretary of State as appropriate; (ii) that POCA is amended to require the Secretary of State to issue guidance on suspicion; (iii) that banks should not have to seek consent to repay funds to a victim of fraud and that this may be addressed in statutory guidance to assist the reporter in complying with their obligations; and (iv)
that POCA is amended to provide credit and financial institutions with an exemption from the principal money laundering offences if they ringfence suspected criminal property in accordance with certain criteria Next, the government must consider the report and decide whether to accept any, some or all of the recommendations.
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CLLS response to consultation on transposition of the Fifth Money Laundering Directive
On 17 June, the City of London Law Society (CLLS) published its response to HMT’s consultation on transposing the MLD5 into UK law. The Committee expressed concerns about the government’s proposed broad definition of cryptoassets which covers additional types of activity not currently contemplated by the MLD5. Furthermore, HMT produced guidance in respect of MLD4 confirming that the trust registration process was not intended to apply to statutory, resulting or constructive trusts. CLLS suggests it would be helpful for the UK's implementation of MLD5 to confirm this limitation of scope of the registration requirement. In particular, it would be helpful to exclude trusts formed to comply with statutory or regulatory requirements (such as the statutory trust created in respect of client money held by authorised persons).
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FINTECH
Please see the Other Developments section for the BoE’s speech - "Enable, Empower, Ensure: A New Finance for the New Economy".
FUND REGULATION
Council adopts new rules facilitating access to pension products and investment funds
On 14 June, the Council of the EU announced that it had adopted two key reforms in the framework of the Capital Markets Union: (i) a regulation providing greater choice for people who wish to save for their retirement and expanding the market for personal pensions through the creation of a pan-European pension product (PEPPs); and (ii) a package of measures aimed at removing existing barriers to the cross-border distribution of investment funds. Shortly after signature of the adopted legislation on 20 June, the new measures for PEPPs and cross-border distribution of funds will be published in the OJ and will enter into force 20 days thereafter.
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INSURANCE
PRA updated on complying with supervisory statement SS3/15 in light of the Delegated Regulation amending the Solvency II Delegated Regulation
On 20 June, the PRA updated its webpage on the quality of capital instruments under Solvency II. The updated webpage states that, on 8 July, certain changes to the Solvency II Commission Delegating Regulation will come into effect. As such, both Chapter 2 of supervisory statement SS3/15 (the prohibition on redemption of instruments within 5 years of the date of issue), and the expectation in paragraph 4.4 (that the conversion or write down of restricted Tier 1 instruments would need to apply to the total amount), will no longer be consistent with the Solvency II regime. The PRA is consulting on changes to SS3/15 to realign it with the Solvency II regime in chapter 2 of its June consultation paper (CP13/19). Aside from the specific sections outlined above, the PRA expects firms to continue to meet the expectations of SS3/15 in full until the final policy for CP13/19 is published.
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PRA letter on key regulatory developments in relation to life insurers
On 19 June, the PRA published a letter (dated 17 June) sent to chief actuaries of life insurers. In the letter, Sid Malik, PRA Head of the Life Insurance and Pensions Risk Division, sets out observations from the PRA's regulatory activities over the past 12 months and notes where further work is anticipated. The areas where further industry-wide PRA activity is expected in the next 12 months include: (i) model drift; (ii) proxy modelling; (iii) the treatment of expenses in SII technical provisions and the SCR; and (iv) firms’ monitoring of matching adjustment portfolios. The areas where no further industry-wide PRA activity is planned in the next 12 months include: (i) future management actions; (ii) mortality improvements in SII technical provisions; and (iii) the impact of expected inflation for annuity writers. Mr Malik welcomes any feedback from Chief actuaries.
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Insurance Stress Test 2019
On 18 June, the PRA published a Dear CEO letter on the 2019 insurance stress test (IST). The letter asks the largest regulated life and general insurers to provide information about the impact of a range of stress tests on their businesses. Participation is voluntary and the PRA will not use the IST to set capital requirements. The IST 2019 is split into two broad parts: (i) Sections A and B are core stress test scenarios. Section A contains a scenario that reflects a downturn in the economic environment, and section B contains a set of severe but conceivable scenarios specific to the business models of life and general insurers; and (ii) Section C, which is an exploratory scenario designed to capture information about how different firms are exposed to difficult-to-assess risks e.g. climate change. The deadline for responding to Sections A and B is 30 September and for Section C it is 31 October. In addition, depending on sufficient industry demand, the PRA will host three roundtables during the exercise. These will provide firms the opportunity to discuss and seek clarifications on any aspects of the IST 2019. The life and general insurance roundtables will be held on Friday 12 July and the Section C roundtable (covering climate change, cyber and liability accumulation) will be held on Monday 9 September. The PRA will send invites through their normal supervisory channels two weeks in advance of these meetings.
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Commission Delegated Regulation amending Solvency II Delegated Regulation published in OJ
On 18 June, the Commission Delegated Regulation (EU) 2019/981 which amends the Solvency II Delegated Regulation was published in the OJ. The Regulation amends provisions on calculating the solvency capital requirement (SCR) given the experiences had by firms during the first year of the application of the Solvency II Directive. The Regulation shall enter into force on the 8 July, whereas points (50), (59) to (61), (66) and (74) of Article 1 shall apply from 1 January 2020.
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IAIS strategic plan 2020-2024
On 14 June, the IAIS published its Strategic Plan which sets out the high level goals and strategies of the IAIS for the period 2020 to 2024. The IAIS identified a number of trends and developments in insurance markets and insurance supervision that are likely to affect the association’s mission over the course of 2020–2024. These include: (i) insurance markets are evolving quickly with new lines of business e.g. cyber insurance; (ii) finalisation and implementation of agreed reforms is critically important; (iii) insurance market growth in emerging markets and developing economies will exceed growth in advanced markets; (iv) a number of emerging(ed) policy issues, for example, climate risk and aging populations, are impacting insurance and insurance supervision in a substantive way; and (v) an additional focus on implementation and supporting good supervisory practices is necessary. Under the 2020-2024 Strategic Plan, the IAIS recognised its core functions must evolve to respond to these trends and developments, such as: (i) shifting towards increased monitoring of new vulnerabilities and trends that could pose a threat for policyholder protection and financial stability; (ii) standard setting; (iii) supporting supervisory practises; (iv) supporting observance of standards; and (v) effective operations and transparency.
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IAIS supervisory material consultation
On 14 June, the IAIS published its mid-2019 public consultation package of IAIS supervisory material. The package presents: (i) the outcome of the 2018 public consultation on the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame); and (ii) new revisions released for public consultation, specifically: (i) revisions to ComFrame and insurance core principles (ICPs) based on comments received during the 2018 public consultation on overall ComFrame; (ii) draft revised glossary; (iii) draft ComFrame assessment methodology; (iv) draft revised ICP 22 (anti-money laundering and combating the financing of terrorism); and (v) revisions to ICPs and ComFrame related to the holistic framework development. The deadline for comments is 15 August.
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Revisions related to the holistic framework for systemic risk in the insurance sector
On 14 June, IAIS published a consultation on supervisory material related to the holistic framework for systemic risk in the insurance sector. The IAIS is seeking feedback on revisions to the following Insurance Core Principles (ICPs) and the Common Framework for the supervision of Internationally Active Insurance Groups (ComFrame) material: (i) ICP 9 (Supervisory Review and Reporting) and ComFrame in ICP 9; (ii) ICP 10 (Preventive Measures, Corrective Measures and Sanctions); (iii) ICP 16 (Enterprise Risk Management for Solvency Purposes) and ComFrame in ICP 16; (iv) ICP 20 (Public Disclosure); and (v) ICP 24 (Macroprudential Supervision). The deadline for responding is 15 August.
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MARKETS AND MARKETS INFRASTRUCTURE
SFTR: Countdown to the first reporting go-live date
The 22 March 2019 saw the publication in the Official Journal of the full package of Commission Delegated Regulations under the Securities Financing Transactions Regulation 2015/2365/EU (SFTR), including the long awaited regulatory and implementing technical standards on the reporting of securities financing transactions (SFTs) to trade repositories. The technical standards entered into force on 11 April 2019, which means that for banks and investment firms, reporting go-live will be 11 April 2020 – other counterparty types will be captured from subsequent dates as detailed in the bulletin. With less than a year to go until that first deadline, we take this opportunity to consider the scope and requirements of the SFTR reporting obligations as well as highlighting the key interactions with Regulation 648/2012/EU (EMIR).
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ESMA hearing on SFTR reporting
On 20 June, ESMA announced that it will hold an open hearing on its consultation paper that was published on 27 May on draft guidelines for the reporting under Articles 4 and 12 of the SFTR. The agenda includes, among other things: (i) net exposure basis and variation margining; (ii) margin lending specifics; (iii) margin reporting; and (iv) data quality. The open hearing will take place on 15 July in Paris.
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Delegated Regulation regarding the exemption of the People’s Bank of China from the pre- and post-trade transparency requirements under MiFIR published in OJ
On 20 June, Delegated Regulation (EU) 2019/1000 amending Commission Delegated Regulation (EU) 2017/1799 as regards the exemption of the People's Bank of China from the pre- and post-trade transparency requirements in MiFIR was published in the OJ. Commission Delegated Regulation (EU) 2017/1799 outlines the third-country central banks that are exempt, under Article 1(9) of MiFIR, from MiFID II pre- and post-trade transparency requirements, and adds the People's Bank of China to the list of exempted institutions, as set out in the Annex. The Delegated Regulation enters into force on 10 July (20 days after publication in the OJ).
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ESMA agrees position limits under MiFID II
On 20 June, ESMA published three opinions on position limits regarding commodity derivatives under MiFID II and MiFIR. ESMA’s opinions agree with the proposed position limits regarding: (i) PXE Czech Power Base contracts; (ii) EEX French Power Base contracts; and (iii) EEX French Power Peak contracts. ESMA found that the proposed position limits are consistent with the objectives established in MiFID II and with the methodology developed for setting those limits. ESMA will continue to assess the notifications received and will issue opinions to ensure that the position limits are set in accordance with the MiFID II framework.
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ESMA publishes guidelines on non-significant benchmarks
On 19 June, ESMA published the official translations of its guidelines on non-significant benchmarks under the BMR. The purpose of these guidelines is to ensure common, uniform and consistent application, for non-significant benchmarks, of: (i) the oversight function requirements in Article 5 of BMR; (ii) the input data provision in Article 11 of BMR; (iii) the transparency of the methodology provision in Article 13 of BMR; and (iv) the governance and control requirements for supervised contributors provision in Article 16 of BMR. NCAs to which the guidelines apply must now notify ESMA whether they comply or intend to comply with the guidelines within two months.
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Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (Amendment) Regulations 2019 published
On 18 June, the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (Amendment) Regulations 2019 were published together with an explanatory memorandum. The Regulations were made on 17 June and come into force on 9 July. They make the necessary changes to UK legislation to implement EMIR REFIT. Alongside minor amendments, EMIR REFIT introduces a recalibration of the firms who are subject to clearing and reporting requirements in EMIR, as well as an extension of the clearing exemption for pension funds. The instrument makes small changes to regulation 8 of the 2013 EMIR implementing regulations to enable the FCA to specify what information should be included in an application or notification in areas where EMIR REFIT now requires a firm to notify its home competent authority. The FCA already has this power in areas where notification is already required under EMIR. The instrument also amends regulation 2 of the 2013 EMIR implementing regulations to update the definition of "EMIR" to reflect the fact that EMIR has now been updated by EMIR REFIT.
Statutory instrument
Explanatory memorandum
ESMA updates the CSDR Q&As
On 18 June, ESMA published an updated version of its Q&As on the implementation of the CSDR. The latest batch of CSDR Q&As clarify aspects regarding the process applicable to the provision of notary or central maintenance services in other Member States’ passporting procedure, in particular, they: (i) clarify the interaction between the main authorisation procedure (CSDR Art 17) and the passporting procedure (CSDR Art 23(2)), and the benefit of the grandfathering rule for notary and central maintenance services provided on a cross-border basis prior to the authorisation of the CSD; (ii) detail what should be considered as a change in the range of services provided on a cross-border basis (provision of new core service or provision of same service in respect of a new type of financial instrument); (iii) clarify how "where relevant" used in Article 23(3)(e) of CSDR should be understood: whenever there are requirements under the national law of the host Member State that the CSD has determined as being relevant for the users of each cross-border service it provides or intends to provide; and (iv) address the process to be followed in case a host Member State authority disapproves the assessment of the measures proposed by the CSD to comply with the law of that host Member State.
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Letter from Steven Maijoor, ESMA Chair, to Olivier Guersent, EC Director-General, DG FISMA
On 14 June, ESMA published a letter (dated 7 June) from Steven Maijoor, ESMA Chair, to Olivier Guersent, EC Director-General, DG FISMA. The letter addresses the implementation of the new EMIR Refit Regime with regards to the calculation of the month-end average positions of financial counterparties (FC) in non-financial groups, which is then used to determine whether these FCs are subject to the clearing obligation when they are above the clearing thresholds. EMIR takes into account that NFCs use OTC derivative contracts in order to cover themselves against commercial risks directly linked to their commercial or treasury financing activities (hedge transactions). ESMA understands that the hedging exemption is meant to avoid impediments for NFCs to appropriately mitigate their commercial risks. Therefore, from a policy point of view it would make sense that if an NFC can apply the hedging exemption for its positions, then the FCs in their group could also apply the same hedging exemption when taking into account the position of the NFCs at group level. However, ESMA cannot find a solid legal ground to interpret the EMIR Refit text in this way. ESMA asks the EC to clarify what is the correct interpretation of the applicable provision for FCs with NFCs in their group.
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Q&As on EMIR implementation updated by ESMA
On 14 June, ESMA published an updated version of its Q&As regarding the implementation of EMIR. The Q&As provide further clarity regarding the implementation of EMIR Refit with respect to: (i) Q&A OTC 3 on the calculation framework towards the clearing thresholds; and (ii) TR Q&A 51 regarding the notifications to be made by market participants to their competent authorities to apply an intragroup exemption from reporting.
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PAYMENT SERVICES AND PAYMENT SYSTEMS
ECB Decision on eligibility criteria for CSDs to access to TARGET2-Securities published in OJ
On 20 June, Decision (EU) 2019/1006 amending Decision ECB/2011/20 establishing detailed rules and procedures for implementing the eligibility criteria for CSDs to access TARGET2-Securities services was published in the OJ. Decision ECB/2011/20 has been amended to reflect certain changes that have been made to the rules and procedures for implementing the eligibility criteria for CSDs to access TARGET2-Securities services, particularly in relation to CSD access criterion 2. The ECB made the Decision on 7 June, and it enters into force on 10 July (20 days after publication in the OJ).
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BoE update on synchronisation engagement
On 19 June, the BoE published an update on its work to deliver synchronised settlement functionality as part of the real-time gross settlement (RTGS) renewal programme. The paper follows the BoE’s August 2018 call for interest on delivering the proposed synchronised settlement functionality. In general, the BoE found that there is strong demand for synchronisation functionality. Based on feedback received from firms, the BoE will: (i) continue with its policy and design work to explore the themes raised during this engagement. This includes work that clarifies the relationship between the synchronisation operator, the Bank and the settlement participant, what earmarking will look like and other functional considerations; and (ii) explore how it can continue to grow a community of interested organisations to discuss synchronisation functionality and understand the use cases. This will include considering the benefits of offering a test system to enable prospective participants to experiment with the functionality.
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PENSIONS
Please refer to the Fund Regulation section for an update regarding the Council of the EU adopting new rules to facilitate access to pension products and investment funds.
PRUDENTIAL REGULATION
Basel Committee discusses policy and supervisory initiatives and approves implementation reports
On 20 June, the BCBS published a press release following a meeting held on 19 – 20 June, to discuss policy and supervisory issues and post-implementation reports. The Committee approved: (i) a targeted and limited revision of the leverage ratio; (ii) a set of disclosure requirements to curb leverage ratio window dressing; (iii) a report on Pillar 2 supervisory practices and approaches, which will be published shortly; and (iv) reports that assessed the implementation of the Net Stable Funding Ratio and large exposures standards in Australia, Canada and India. Other topics of discussion included the assessment of post-crisis reforms and matters of technological developments and crypto-assets.
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Implementing the FSB principles for sound compensation practices
On 17 June, the FSB published its sixth progress report on the implementation of its principles for sound compensation practices and their implementing standards. Generally, the report’s findings include: (i) boards appear more active and engaged and compensation processes are now conducted with greater oversight; (ii) compensation arrangements now have longer time horizons, include mechanisms that better align them with effective risk management practices and include a wider range of financial and non-financial risk assessment criteria; (iii) while senior executives and all other material risk takers remain the main area of focus, with more granular risk identification processes and enhanced governance procedures, increasingly compensation and risk governance frameworks apply a baseline set of expectations and compensation-related risk management practices to all employees; (iv) in recent years, there has been an increased focus on compensation as a tool to address conduct risk; (v) there is now greater emphasis on how results are achieved. Where applied effectively, this is often considered more impactful than changes in compensation structures; (vi) the next challenge is developing frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward; and (vii) compensation policies and practices provide incentives that are relevant as banks seek to promote practices that support market integrity and fair treatment of customers. The key question now for firms and supervisors is whether the shift in the areas of focus and behaviour can be considered permanent
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Pillar 2 liquidity: Updates to the framework
On 17 June, the PRA published a policy statement (PS) on Pillar 2 liquidity and updates to the framework. The PS provides feedback to responses to the Consultation Paper 6/19 ‘Pillar 2 liquidity: Updates to the framework’. It also contains the PRA’s final policy, as follows: (i) updates to the Regulatory Reporting Part of the PRA Rulebook (Appendix 1); (ii) updates to Statement of Policy ‘Pillar 2 liquidity’ (Appendix 2); (iii) updates to Supervisory Statement (SS) 24/15 ‘The PRA’s approach to supervising liquidity and funding risks’ (Appendix 3); (iv) updates to SS34/15 ‘Guidelines for completing regulatory reports’ (Appendix 4); and (v) updates to PRA110 template and reporting instructions (appendices 5 and 6). The PS is relevant to UK banks, building societies, PRA-designated investment firms, and non-EU EEA banks, referred to collectively as ‘firms’ in this PS. Parts of the PRA Rulebook instrument come into force on 1 July, at the same time as the updated versions of the statement of policy, SS24/15 and SS34/15. The remainder of the instrument and the updated PRA110 template and reporting instructions will come into force on 1 January 2020.
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RECOVERY AND RESOLUTION
Preliminary agreement on revisions to ESM Treaty on common backstop to SRF
On 15 June, the Council of the EU published a letter sent by the Eurogroup President, Mario Centeno, to the Euro Summit President, Donald Tusk. In the letter, Mr. Centeno stipulated that Eurogroup reached a broad agreement on revising the ESM Treaty provisions to implement the agreement reached in December 2018 on the common backstop for bank resolution. Draft revisions have also been published. Eurogroup intends to conclude an agreement on the revised ESM Treaty in December and for the ratification procedures of the ESM Treaty to start as soon as the full package of documents related to the ESM reform is finalised. The common backstop will be established at the latest by the end of the transition period (1 January 2024). It will be introduced earlier should sufficient progress be made in risk reduction, which is to be assessed in 2020.
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SUSTAINABLE FINANCE
Technical expert group on sustainable finance
On 18 June, the EC published three reports produced by its technical expert group on sustainable finance (TEG): (i) a report on EU Taxonomy, which takes on board the feedback received on the first round of proposed activities and the input from additional experts. The report is accompanied by a short user guide, which provides a quick overview of what the taxonomy is, what it is not, how to use it in practice and a summary of the technical report. The TEG will organise a call for feedback over the summer on its final report and will advise the EC on how to take the feedback forward; (ii) a report on EU Green Bond Standard, to reflect both the feedback received from stakeholders and the latest analyses conducted by the TEG. No additional call for feedback is foreseen. The TEG will further work on its proposal for the accreditation of external verifiers, as well as monitor the latest developments in parallel on-going initiatives, both at EU level (taxonomy, EU ecolabel) and internationally (ISO work), so as to advise on consistency with the proposed EU Green Bond Standard; and (iii) an interim report on climate benchmarks and benchmarks’ ESG disclosures. In parallel, a 6-week call for feedback was launched. Taking into account the feedback received, the TEG is expected to publish the final version of the report by the end of September. Following the publication of the final report, the EC will develop a delegated act building on the TEG work. The EC will conduct a formal consultation on this delegated act.
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OTHER DEVELOPMENTS
BoE review on the outlook for the UK financial system
On 20 June, the BoE published a report of a nine month review of the UK financial system and what it means for the BoE chaired by Huw van Steenis. The report focuses on forces that are affecting the new economy and steps that the BoE has taken to shape markets. The report highlights recommendations for the BoE in the following key areas: (i) shaping tomorrow’s payment system; (ii) enabling innovation through modern financial infrastructure; (iii) supporting the data economy through standards and protocols; (iv) championing global standards for finance; (v) promoting the smooth transition to a low-carbon economy; (vi) adapting to the needs of a changing demographic; (vii) safeguarding the financial system from evolving risks; (viii) enhancing protection against cyber-risks; and (ix) embracing digital regulation. The BoE has issued a response paper entitled "New economy, new finance, new Bank". This report sets out the following five priorities where action by the Bank can have greatest positive impact for the end-users of the UK’s financial system — the businesses and people of the UK. The Bank intends to: (i) Support a more resilient, innovative and competitive payments system for UK households and businesses; (ii) Help create an open platform to boost access to finance for small businesses and choice for households; (iii) Support an orderly transition to a carbon-neutral economy; (iv) Deliver a world-class regtech and data strategy; and (v) Facilitate greater resilience and adoption of the cloud and other new technologies. Under each priority area, the Bank sets out specific proposed actions. The BoE has also published a summary table of the BoE’s response to the van Steenis recommendations listing action that is already underway and what the Bank will do.
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BoE speech - "Enable, Empower, Ensure: A New Finance for the New Economy"
On 20 June, the Bank of England published a speech given by Mark Carney, Governor of the Bank of England at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London entitled "Enable, Empower, Ensure: A New Finance for the New Economy". Of particular note, in the speech Mr Carney announced that the Bank of England: (i) plans to consult on opening access to its balance sheet to new payment providers; (ii) approaches Libra (a new payments infrastructure based on an international stablecoin proposed by a cooperative of technology companies) with an open mind but not an open door. The terms of engagement for innovations such as Libra must be adopted in advance of any launch. Libra, if it achieves its ambitions, would be systemically important. As such it would have to meet the highest standards of prudential regulation and consumer protection. It must address issues ranging from anti-money laundering to data protection to operational resilience. Libra must also be a pro-competitive, open platform that new users can join on equal terms. In addition, authorities will need to consider carefully the implications of Libra for monetary and financial stability; (iii) will submit a formal response on how to develop an open platform for competitive SME finance to the Smart Data Review; (iv) together with the FCA, will establish a forum to discuss the results of a survey that it has conducted on AI use in finance and determine an appropriate supervisory approach. To ensure that the benefits of cloud computing are realised and the associated risks are well managed, the PRA will issue a Supervisory Statement in the autumn that sets out its supervisory approach; (v) has launched a Review to explore a transformation of the hosting and use of regulatory data over the next decade. This review will be conducted in close consultation with banks, insurers and financial market infrastructures. The Bank is also embarking on proofs of concepts, in collaboration with firms and the tech sector, to test how it can automatically extract regulatory firm data and will identify and implement near term improvements in how it uses data, including greater use of AI and ML to interpret the information. Additionally Mr Carney reported that the FPC and the PRC will stress test the UK financial system for resilience against different climate pathways. The design of this stress test will start in the autumn, and the tests will be completed in 2021.
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FCA perimeter report 2018/19
On 19 June, the FCA published its first perimeter report 2018/19. This 2019 report sets out an overview of the perimeter and how the FCA manages issues on the edge of it. It highlights the issues the FCA sees facing consumers in the retail investment sector and ends by summarising steps to be taken. In particular to: (i) clarify understanding of consumers around the perimeter - this includes taking enforcement action regarding breaches of the perimeter and publishing details to foster understanding and act as a deterrent; (ii) monitor and address the impact of certain activities outside the perimeter - this includes extending the perimeter to capture pre-paid funeral plans; ensuring that the pensions cold calling ban is enforced; enabling active regulated mortgage lenders to make more proportionate affordability assessments for consumers whose payments are up to date and want to borrow the same amount or less; bringing investment consultancy services within the supervisory remit (HMT) and ensuring proxy advisors comply with new disclosure requirements under the Shareholder Rights Directive II; the FCA is also currently reviewing the Retail Distribution Review and Financial Advice Market Review (which includes measures to clarify the advice boundary). As part of this they will consider how well the current landscape is meeting consumer needs; and (iii) keep pace with change - this includes considering how the Fin Prom regime can become more effective in a digital age and developing and deploying automated tools for detecting online market developments. The report rehearses what we already know on cryptoassets – the January consultation and anticipated guidance and impending consultation on potential ban on the sale to retail of products referencing some crypto assets. The FCA also draws out the distinction between FinTechs and technology companies pushing into financial services and questions whether the regulators have the necessary tools and techniques to effectively oversee those organisations. The FCA will be publishing a call for input on Open Finance later this year which will look at how the principles of Open Banking can be applied across financial services. Going forward, the FCA will publish their perimeter report on an annual basis.
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