Securities and markets regulatory news, October 2020 # 4

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Recent regulatory developments of interest to financial institutions and markets. Also check our General regulatory news in the Related Materials links.

Contents

  • BoE and CFTC MoU for supervision of cross-border clearing organisations
  • Benchmarks Regulation: HM Treasury policy statement on amendments to support LIBOR transition
  • Brexit: FCA update on STS notifications for end of Brexit transition period
  • CSDR: ESMA interactive single rulebook
  • EMIR 2.2: ESMA consults on draft RTS relating to CCPs

Following a short break, the next update will be published on 9 November 2020.

BoE and CFTC MoU for supervision of cross-border clearing organisations

The Bank of England (BoE) and the US Commodity Futures Trading Commission (CFTC) have signed an updated memorandum of understanding (MoU) regarding cooperation and the exchange of information in the supervision and oversight of clearing organisations that operate on a cross-border basis in both the UK and the US.

The MoU supersedes a 2009 agreement and follows a 2019 joint statement by the CFTC, the BoE, and other UK authorities on the continuity of derivatives trading and clearing post-Brexit.

Benchmarks Regulation: HM Treasury policy statement on amendments to support LIBOR transition

Alongside the Financial Services Bill (FS Bill – see our briefing: Financial Services Bill introduced in UK Parliament), HM Treasury has published a policy statement on making amendments to the Benchmarks Regulation (BMR) to support LIBOR transition.

In the policy statement, HM Treasury explains that the FS Bill includes amendments to the BMR, which provide the Financial Conduct Authority (FCA) with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR.

The Bill provides powers for the FCA where it has determined that a critical benchmark is at risk of becoming unrepresentative, or has become unrepresentative, and that its representativeness cannot reasonably be maintained or restored. In particular, to provide for the orderly wind-down of the benchmark, the FCA will be able to direct a change in the methodology of a critical benchmark and extend its publication for a limited time period for the benefit of "tough legacy" contracts.

In such a scenario, use of that benchmark by UK supervised entities will be prohibited. However, to ensure an orderly wind-down of the benchmark for "tough legacy" contracts, the FCA will have discretion to determine specific categories of contracts that will be exempt from this prohibition on use. HM Treasury and the FCA are of the view that this exemption is intended for those contracts that genuinely have no realistic ability to be renegotiated or amended to transition to an alternative benchmark.

Before exercising certain new powers, the FCA will be required to issue statements of policy to inform the market about how it intends operationalise the legal framework set out under the BMR. The FCA will be able to engage with industry stakeholders and international counterparts as appropriate through this process.

Brexit: FCA update on STS notifications for end of Brexit transition period

The FCA has updated its webpage on reporting simple, transparent and standardised (STS) securitisations by adding information to the section on STS notifications.

The FCA explains that the UK onshored Securitisation Regulation transfers the responsibility for maintaining a list of STS securitisations from the European Securities and Markets Authority (ESMA) to the FCA. From the end of the Brexit transition period, the FCA will maintain a list of securitisations that have been notified to it as meeting UK STS criteria.

The FCA informs firms that they must notify it, using the onshored UK STS notification templates, for:

  • securitisations that meet the UK STS criteria under the onshored Securitisation Regulation; and
  • UK securitisations previously notified to the European Securities and Markets Authority (ESMA) as EU STS and that meet the UK STS criteria.

The FCA will soon open a portal where firms can access the notification templates and submit an STS notification before 11pm on 31 December 2020, when the UK STS framework comes into effect. The FCA will notify firms ahead of the portal opening. Firms will need to be enrolled on Connect to be able access the portal. The FCA will shortly publish registration instructions for firms that are not already enrolled.

The FCA also confirms that to maintain an accessible pool of STS product for UK institutional investors, EU securitisations notified to ESMA as meeting EU STS criteria before and up to two years after the end of the transition period, and which remain on ESMA’s list, will also qualify as UK STS for the life of the transaction.

European crowdfunding service providers: EU Regulation and Directive

The following EU legislation, which aims to provide a single set of rules on crowdfunding services, have been published in the Official Journal of the EU:

  • Regulation (EU) 2020/1503 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937; and
  • Directive (EU) 2020/1504 amending the MiFID II Directive (2014/65/EU) relating to crowdfunding.

Both the Regulation and Directive enter into force on 9 November 2020 and apply from 10 November 2021.

CSDR: ESMA interactive single rulebook

ESMA has updated its interactive single rulebook to include all level 2 and level 3 measures adopted in relation to the Central Securities Depositories Regulation (909/2014) (CSDR).

EMIR 2.2: ESMA consults on draft RTS relating to CCPs

ESMA has published a consultation paper on draft regulatory technical standards (RTS) relating to central counterparties (CCPs) required under amendments to the European Market Infrastructure Regulations (EMIR) in EMIR 2.2.

EMIR 2.2 requires ESMA to develop RTS specifying the:

  • conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation under Article 15 of EMIR;
  • procedure for consulting the college established in accordance with Article 18 of EMIR on whether those conditions are met; and
  • the conditions under which changes to a CCP's models and parameters are significant and therefore require validation by the national competent authority (NCA) and ESMA under Article 49 of EMIR.

In the draft RTS, ESMA proposes a flexible and pragmatic approach that divides the conditions into criteria for an extension of authorisation and criteria for significant changes to the models and parameters, and indicators for an extension of authorisation and indicators for significant changes to the models and parameters.

As the criteria are objective and clear-cut, ESMA proposes that they are subject to a simplified college consultation procedure whereby when the CCP's NCA assesses that one or more of the criteria have been fulfilled by the CCP's proposed change, the college is simply consulted on whether it also considers that the criteria have been fulfilled.

As the indicators are less straightforward, ESMA proposes that they are subject to a more extensive college consultation procedure whereby when the CCP's NCA assesses that one or more of the indicators have been fulfilled by the CCP's proposed change, the NCA will carry out an initial analysis of whether an extension of authorisation or a validation should be required. The college would then be consulted on whether it agrees with the NCA's initial analysis, but the final decision would remain with the NCA.

The deadline for comments is 15 November 2020. ESMA will consider the consultation feedback in Q4 2020 and expects to publish the final report and submit the draft RTS to the European Commission for endorsement in Q1 2021.

ESMA will amend its November 2016 opinion on common indicators for new products and services and significant changes to risk models to reflect the final RTS.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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