FIG Bulletin
Recent developments 27 July 2020 General 4
Brexit: House of Lords EU Services Sub-Committee seeks clarity on future relationship in financial services 4
Brexit: Cooperation and information-exchange MoUs between FCA and ESMA 4
Brexit: FCA information on Electronic Commerce Directive exclusion 4
UK cross-border trade in services with Australia: City of London Corporation report 5
UK financial promotion approvals: HM Treasury consultation 5
Cryproasset financial promotions: HM Treasury consultation 5
FCA's cancellation of authorisation process: HM Treasury policy statement 6
Complaints against financial services regulators: BoE, FCA and PRA consultation 6
UK-Singapore financial dialogue: Joint communiqué 6
HM Treasury launches independent FinTech Strategic Review 7
COVID-19: FCA proposes extending guidance for insurance and premium finance firms on customers in temporary financial difficulty 7
Remuneration: FCA review of firms' policies and practices 8
Intergenerational differences: FCA feedback statement 8
FCA warns of fake Financial Services Register website 8
Regulatory sandbox: FCA announces successful applicants to sixth cohort 8
BoE's Enforcement Decision Making Committee: first annual report 8
Economic crime levy: HM treasury consultation 9
PRIIPs Delegated Regulation: Joint Committee of ESAs review 9
Financial stability monitoring: FSB stocktake on including climate risks 9
BigTech: International Banking Federation report 9
Banking and Finance 10
COVID-19: HM Treasury statement on applicability in UK of CRR Amending Regulation 10
Securitisation significant risk transfer: PRA PS17/20 10
Recovery planning: PRA CP10/20 on simplified obligations 10 2 New and growing non-systemic banks: PRA CP9/20 on approach to supervision 11
Interest rate transition: ECB good practices for banks 11
COVID-19: EBA guidelines on pragmatic 2020 SREP 12
BRRD: EBA consults on RTS on estimating Pillar 2 and combined buffer requirements for setting MREL 12
BRRD: EBA consults on RTS and ITS on impracticability of contractual recognition of bail-in 12
Benchmarking of remuneration practices at EU level: EBA report 12
CRR: EBA consults on draft RTS for determination of indirect exposures to underlying clients of derivatives and credit default derivatives 13
CRR: EBA consults on draft guidelines on application of alternative treatment of institutions' exposures related to tri-party repurchase agreements 13
CRR: EBA consults on draft RTS on estimating default probabilities and losses give defaults for internal default risk model 13
Reporting requirements: EBA questionnaire and call for case studies on cost of compliance 13
Payments 15
Hogan Lovells Global Payments Newsletter, July 2020 15
EU Regulation on cross-border payments: European Commission adopts legislative proposal 15
Securities and Markets 16
UK BMR: HM Treasury policy statement on extending transitional period for third-country benchmarks 16
BMR: Commission Delegated Regulations on sustainable finance issues 16
MiFIR: ESMA opinion on assessment of pre-trade transparency waivers 17
MiFIR: ESMA final report on MiFIR transparency requirements for non-equity instruments 17
Brexit: ISDA updates FAQs 18
Insurance 19
COVID-19: FCA updates on business interruption insurance test case 19
Brexit: Lloyd's delays scheme effective date of Part VII transfer of EU business 19
COVID-19: EIOPA supervisory statement on Solvency II recognition of schemes based on reinsurance 19
3 General Brexit: House of Lords EU Services Sub-Committee seeks clarity on future relationship in financial services
The House of Lords EU Services Sub-Committee has published the letter it has sent to John Glen, Economic Secretary and City Minister, on the UK-EU negotiations in financial services and UK financial services after Brexit.
Mr Glen appeared before the committee on 2 July 2020 to give evidence relating to its inquiry on financial services after Brexit. The purpose of the letter is to enable the committee to follow up on some of the points that were raised during the discussion.
Brexit: Cooperation and information-exchange MoUs between FCA and ESMA
The UK Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) have confirmed that the memoranda of understanding (MoUs) on cooperation and exchange of information agreed in 2019 between the FCA and ESMA and EU securities regulators will come into effect at the end of the Brexit transition period, currently set to expire on 31 December 2020.
Brexit: FCA information on Electronic Commerce Directive exclusion
The FCA has published a new webpage on changes relating to the Electronic Commerce Directive (ECD) at the end of the Brexit transition period. The ECD provides an exclusion from host state regulation for e-commerce activities provided from one European Economic Area (EEA) state to a person in another EEA state. The exclusion is on the basis that the host state regulator can rely on the regulation of the firm's home state because both are within the same EEA regulatory framework.
In the UK, the relevant provisions that transpose this exclusion are in article 72A of the Regulated Activites Order 2001 (RAO), article 20B of the Financial Promotion Order 2005 (FPO), and certain provisions of the ECD (Financial Services and Markets) Regulations 2002. Following the end of the transition period, the ECD exclusion will fall away.
The FCA advises that UK firms will need to contact local regulators in EEA states to check if other ways to provide their services are available, and then decide on their approach to servicing existing customers in accordance with local law and local regulators' expectations. In all circumstances, the FCA expects firms to provide timely, fair, clear and not-misleading information to their customers.
The FCA advises EEA-based firms to consider whether they are affected by this change. If they are, they should address any impacts to their business models, their marketing, or both, before the end of the transition period. EEA-based firms wishing to continue their regulated e- commerce business in the UK need to consider whether they require UK authorisation and, if so, should consider the timing and other implications of this.
EEA-based firms wishing to wind down their e-commerce business that falls within the exclusion (and that was entered into before the end of the transition period), will be able to do so under the provisions in Part 4 of the Electronic Commerce and Solvency 2 (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/1361).
4 UK cross-border trade in services with Australia: City of London Corporation report
The City of London Corporation has published a report on UK cross-border trade in services with Australia. The report identifies policy areas where joint focus, either through free trade agreement (FTA) negotiations or other trade tools such as mutual recognition agreements and regulatory dialogue, could address some common goals.
UK financial promotion approvals: HM Treasury consultation
HM Treasury has published a consultation paper on proposed reforms to the regulatory framework for the approval of financial promotions under the Financial Services and Markets Act 2000 (FSMA).
The government proposes to establish a regulatory gateway that authorised firms must pass through before they are able to approve the financial promotions of unauthorised firms. Any firm wishing to approve unauthorised firms' financial promotions would first need to obtain the FCA's consent.
It is seeking stakeholders' views on two policy options. The first would restrict the approval of unauthorised firms' financial promotions by imposing requirements on authorised firms. The second would specify the approval of financial promotions communicated by unauthorised persons as a regulated activity under FSMA. Both options would result in amendments needing to be made to section 21 and other sections of FSMA.
The deadline for responses to the consultation is 25 October 2020.
Cryproasset financial promotions: HM Treasury consultation
HM Treasury has published a consultation paper on cryptoasset promotions. It proposes to expand the perimeter of the financial promotion regime to enhance consumer protection while the government continues to consider its approach to the broader challenges of cryptoasset regulation. To bring the relevant activities into scope, the government proposes to amend the FPO to include certain unregulated cryptoassets in the list of controlled investments and amend a number of the current controlled activities.
The government considers that applying the financial promotion regime to too wide a range of cryptoasset activity could stifle innovation without a proportionate benefit to consumer protection. Accordingly, the proposed definition of "qualifying cryptoassets" (that is, the unregulated cryptoassets to be covered by the FPO as controlled investments) includes only those cryptoassets that are both fungible and transferable.
The government has identified the most relevant controlled activities and intends to amend them to incorporate activities in relation to the buying, selling, subscribing for or underwriting of qualifying cryptoassets. In the government's view, the financial promotion restriction exemptions for qualifying cryptoassets should generally be consistent with the approach taken to exemptions for other controlled investments. However, the government proposes to add a new FPO exemption to ensure that vendors merely offering to accept cryptoassets in exchange for goods or services, and buyers merely offering cryptoassets to pay for goods or services, in the same manner as they would accept pound sterling payments, are not captured.
The consultation closes on 25 October 2020. The government does not propose to introduce a transitional period before the proposed FPO amendments come into force.
5 FCA's cancellation of authorisation process: HM Treasury policy statement
HM Treasury has published a policy statement about changes it intends to make to the FCA's process for cancelling firms' authorisations. It explains that the current process set out in FSMA is no longer sufficient to allow the FCA to quickly remove a firm's authorisation where it suspects the firm is no longer carrying out authorised activity and reflect that in the Financial Services Register. This poses significant risks to consumers who rely on the Register being up to date and accurate when making decisions about financial products and services.
In view of this, the government intends to provide an additional process through which the FCA can cancel the authorisation of firms it suspects may no longer be carrying out FCA-regulated activities. This new process will sit alongside the existing cancellation process. The FCA will be entitled to start the new process in a range of situations, including when the firm has failed to pay its fees or file returns. Further details are in the paper.
The new process will allow the FCA to cancel an authorisation it has given. It will apply only to FCA solo-regulated firms; dual regulated firms are not in scope.
The government states that it intends to take forward the measure "when Parliamentary time allows". It expects that the FCA will set out its detailed proposals on how it will implement the changes following Royal Assent.
A related webpage notes that, while this is not a formal consultation, the government would welcome views on the proposed changes.
Complaints against financial services regulators: BoE, FCA and PRA consultation
The Bank of England (BoE), FCA and UK Prudential Regulation Authority (PRA) have published a joint consultation paper on complaints against the regulators (FCA CP20/11 / PRA CP8/20).
The regulators set out their proposals for:
• a revised scheme that is more user-friendly, using plain language to make it more accessible to consumers and small businesses (as well as others); and • a more detailed description of the regulators' approach to ex-gratia compensatory payments, to help complainants understand what they can and cannot expect from the scheme.
The consultation closes on 14 September 2020. The regulators aim to bring the revised scheme into force as soon as reasonably practicable. They propose that all complaints received after the revised scheme comes into force will be handled by the regulators under the revised scheme.
UK-Singapore financial dialogue: Joint communiqué
HM Treasury has published a joint communiqué following the fifth UK-Singapore financial dialogue held virtually and attended by senior officials from HM Treasury, the BoE, the FCA and the Monetary Authority of Singapore (MAS). At the dialogue, the parties exchanged views on domestic and international financial market developments and discussed a broad range of issues, including green finance, cyber security, cross-border data flows, pandemic risk financing and insurance, and regulatory cooperation.
The next financial dialogue is expected to take place in London in 2021.
6 HM Treasury launches independent FinTech Strategic Review
HM Treasury has launched an independent FinTech Strategic Review, which will establish priority areas for industry, policy makers, and regulators to explore to support the ongoing success of the UK FinTech sector. It has also published the terms of reference for the Review, which will be led by Ron Kalifa OBE. These explain that its objectives are to ensure UK FinTech has the resources to grow and succeed, to create the conditions for the continued widespread adoption of FinTech solutions to benefit business and individuals, and to maintain and advance the UK's global reputation for innovation.
The Review will aim to complete and report back to HM Treasury at the start of 2021. HM Treasury will then publish a response.
COVID-19: FCA proposes extending guidance for insurance and premium finance firms on customers in temporary financial difficulty
On 24 July 2020, the FCA published a statement announcing its proposals to extend a series of temporary measures to help customers who hold insurance and premium finance products that may be in temporary financial difficulties in light of COVID-19.
In the draft updated guidance, the FCA proposes to extend the guidance for a further three months, until 31 October 2020, although certain parts of the guidance will continue beyond this date. The FCA is also proposing to set out more clearly its expectations on how firms should treat customers still in financial difficulty at the end of a payment deferral.
In particular, the FCA is seeking views on:
• whether aspects of the guidance could be retained to apply on a permanent basis; and • the FCA's product value and COVID-19 guidance for insurance firms, which was published in June 2020. This is to help inform the review the FCA proposes to undertake later on in 2020.
The FCA has also published the draft COVID-19 Premium Finance (No 2) Instrument 2020, which proposes consequential amendments to the Consumer Credit sourcebook (CONC) to reflect the draft guidance.
Firms are reminded to continue to consider what options they can offer customers. Where payment deferral is not in the best interest, measures that could be taken may include premium reductions due to changes in risk profile or offering an alternative product that would better meet the customer's needs. Another option is waiving fees associated with altering cover. Where amendments to the insurance cover do not help alleviate the customer's temporary payment difficulties, firms will be expected to grant a payment deferral of between one and three months, unless it is obviously not in the customer's interest to do so.
Comments can be made on the draft guidance until 28 July 2020. If confirmed, the updated guidance will come into force by 18 August 2020.
The original measures came into force in May 2020 and the FCA committed to reviewing them after three months.
7 Remuneration: FCA review of firms' policies and practices
The FCA has published a letter, sent to firms' remuneration committee chairs, setting out its findings and observations from the 2019/20 remuneration round, and explaining how it plans to assess firms' remuneration policies and practices throughout 2020/21.
Intergenerational differences: FCA feedback statement
The FCA has published a feedback statement, FS20/12, on intergenerational differences. FS20/12 summarises the responses the FCA received to its May 2019 discussion paper on intergenerational differences, DP19/2.
The FCA will apply its findings in two ways. First, it recently set four external priorities for its work over the next one to three years in its 2020/21 business plan. It will respond to its intergenerational project findings in the course of delivering these priorities. Second, it will use future consumer and economic research to re-evaluate the financial circumstances and needs of different generations over time.
The FCA does not believe it would be appropriate or proportionate to pursue bespoke remedies, including rule changes, in response to its findings.
FCA warns of fake Financial Services Register website
The FCA has published a statement announcing that it is aware that there has been an attempt to reproduce its Financial Services Register on a non-FCA website. The FCA states that it is working to get the page taken down and it has alerted members of the public through its website and social media channels. The unofficial domain is www.thefca.net.
Regulatory sandbox: FCA announces successful applicants to sixth cohort
The FCA has published a press release providing details of the 22 firms that were successful in applying to begin testing in the sixth cohort of the regulatory sandbox.
BoE's Enforcement Decision Making Committee: first annual report
The BoE has published the first annual report of its Enforcement Decision Making Committee (EDMC). It covers the period from the EDMC's establishment in August 2018 to the end of February 2020.
The EDMC's role is to decide contested enforcement cases and it functions across all regulatory areas where the BoE has enforcement powers, including prudential regulation (by the PRA), financial market infrastructure and resolution. The report gives details of the cases dealt with by the EDMC so far.
In addition, the report explains that the EDMC's remit was expanded in October 2019 to include reviewing the PRA's process for settled enforcement cases. It states that the EDMC is currently considering options for delivering this review, which will assess the fairness and effectiveness of the PRA's settlement processes. It notes that this will not be a mechanism to re-open settled cases. It intends the review to take place at appropriate intervals, once there are enough cases to enable representative thematic conclusions to be drawn and to enable the anonymisation of those providing comments.
8 Economic crime levy: HM treasury consultation
HM Treasury is consulting on the economic crime levy that will fund government action to tackle money laundering and help deliver reforms committed to by the government in the 2019 economic crime plan. The levy aims to raise approximately £100 million per year from entities regulated for anti-money laundering (AML) purposes and support reforms geared towards the sustainable resourcing of economic crime as outlined in the 2019 economic crime plan. The consultation invites views on the design principles of the levy, and how it could operate in practice to ensure that is proportionate and effective.
In particular, the consultation seeks views on what the levy will pay for, how it should be calculated and distributed across the AML regulated sector and how the levy should be collected. The consultation also includes a call for evidence on current levels of private sector investment on counter-fraud measures as well as gauging private sector views on contributions towards funding the fraud response.
The consultation closes on 14 October 2020.
PRIIPs Delegated Regulation: Joint Committee of ESAs review
The Joint Committee of the European Supervisory Authorities (ESAs) has published a letter to the European Commission setting out the outcome of its review of proposed amendments to Commission Delegated Regulation 2017/653 on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (PRIIPs Delegated Regulation).
Financial stability monitoring: FSB stocktake on including climate risks
The Financial Stability Board (FSB) has published a stocktake of financial authorities' experience in including physical and transition climate risks as part of their financial stability monitoring.
The stocktake draws on information provided by FSB member national authorities, international bodies and a workshop with the private sector. The FSB found that around two-thirds of survey respondents consider, or are planning to consider, climate-related risks as part of their financial stability monitoring. Most focus on the implications of changes in asset prices and credit quality. A minority of authorities also consider the implications for underwriting, legal, liability and operational risks.
Authorities also consider the implications of these risks for financial institutions. Consideration of climate-related credit and market risks faced by banks and insurers appears more advanced than that of other risks, or of risks faced by other types of financial institutions.
In some jurisdictions, climate-related risks are being integrated into micro-prudential supervision of banks and insurance firms, although this work is generally at an early stage.
The FSB will carry out further work by October 2020 to assess the channels through which physical and transition risks could impact the financial system and how they might interact.
BigTech: International Banking Federation report
The International Banking Federation (IBFed) has published a report, "Big banks, bigger techs?", which identifies actions for policy makers to regulate the next evolution of the financial markets.
9 Banking and Finance COVID-19: HM Treasury statement on applicability in UK of CRR Amending Regulation
HM Treasury has published a statement on the applicability of COVID-19 related amendments to the Capital Requirements Regulation (CRR) made by Regulation (EU) 2020/873 (Amending Regulation).
HM Treasury confirms that any directly applicable provision in the Amending Regulation will automatically form part of retained EU law under the EU (Withdrawal) Act 2018 (EUWA). It will use its powers under the EUWA to legislate to ensure that these provisions operate effectively in the UK at the end of the Brexit transition period. The statement contains a list of those provisions in the Amending Regulation that became applicable on 27 June 2020 and will form part of retained EU law at the end of the transition period.
HM Treasury also sets out those provisions in the Amending Regulation that will not apply in the UK as they apply after the end of the transition period.
HM Treasury states that matters relating to the leverage ratio and G-SII requirements are for the Financial Policy Committee (FPC) and the UK Prudential Regulation Authority (PRA) to consider as part of the UK's leverage ratio framework.
The statement follows the approach outlined in a letter sent by John Glen, Economic Secretary to the Treasury, to the House of Lords European Union Committee in June 2020.
Securitisation significant risk transfer: PRA PS17/20
The PRA has published a policy statement, PS17/20, setting out its response to feedback received on some of the proposals in its March 2020 occasional paper, CP3/20. In PS17/20, the PRA confirms its final policy relating to chapter 8 (Securitisation: updates to significant risk transfer) of CP3/20. It received no responses to this chapter and has made no changes to the draft policy. However, it has updated a footnote reference to include the date that supervisory statement, Securitisation: significant risk transfer (SS9/33), was updated.
The changes will take immediate effect.
The PRA will publish feedback and final policy for chapters 2 to 7 of CP3/20 at a later date, as responses are still being considered.
Recovery planning: PRA CP10/20 on simplified obligations
The PRA has published a consultation paper, CP10/20, on simplified obligations for recovery planning in light of the discretion it has under Article 4(1) of the Bank Recovery and Resolution Directive (BRRD) as to whether to apply simplified obligations. Simplified obligations enable the PRA (as UK competent authority) and the Bank of England (BoE) (as the UK resolution authority) to decide on the level of detail of firms' recovery and resolution planning respectively.
The PRA is proposing changes to its supervisory statement "Recovery planning" (SS9/17), which would reduce expectations for certain firms' recovery planning. The firms concerned would be notified by the PRA that they are eligible for simplified obligations. The proposed changes are set out in Appendix 1 to CP10/20.
10 Comments can be made on CP10/20 until 23 October 2020. The PRA intends to publish a final policy statement and to notify firms that are eligible for simplified obligations in the second half of 2020. Pending consideration of responses to CP10/20, the amendments to SS9/17 would apply with immediate effect once the final policy statement is published.
New and growing non-systemic banks: PRA CP9/20 on approach to supervision
The PRA has published a consultation paper, CP9/20, setting out its proposed approach to supervising new and growing non-systemic UK banks.
The PRA proposes to:
• create a new supervisory statement (SS): Non-systemic UK Banks: The Prudential Regulation Authority's approach to new and growing banks. The PRA includes a draft version of the new SS; • reference the new SS in paragraph 5.25 of Pillar 2 capital policy in SS31/15: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP); and • reference the new SS in paragraph 9.45 of the statement of policy (SoP): The PRA's methodologies for setting Pillar 2 capital.
The PRA states that its proposals are clarifications of its current supervisory approach, except for proposed changes to the calculation of the PRA buffer for new banks and expectations relating to solvent wind-down plans. It adds that its proposed approach follows up on the March 2013 joint BoE and Financial Services Authority review into barriers to new entrants to the banking sector.
The proposals are intended to:
• help banks understand how and why PRA expectations increase as they grow; • clarify the expectations of new and growing banks as they mature; • clarify that in a competitive environment it is normal to see both the entry and exit of banks (the PRA does not seek to operate a zero-failure regime); and • communicate the PRA's aim for banks to have positive regulatory relationships through open, constructive, and forward-looking communication.
The PRA categorises new banks as firms that are in the "mobilisation stage" (authorisation with restrictions) and those that have received authorisation without restrictions within the past 12 months. Growing banks are banks that are typically between one and five years post- authorisation without restrictions.
The PRA proposes that the amendments set out in this consultation paper would take effect in the first half of 2021.
The consultation closes on 14 October 2020.
Interest rate transition: ECB good practices for banks
The European Central Bank (ECB) has published:
• the results of its industry-wide assessment of the preparedness of banks supervised under the Single Supervisory Mechanism in relation to interest rate reform, including a list of risks and challenges for banks; and • good practices for banks in relation to interest rate transition.
11 COVID-19: EBA guidelines on pragmatic 2020 SREP
On 23 July 2020, the European Banking Authority (EBA) published a final report which provides guidelines for competent authorities on the special procedure for the 2020SREP. The guidelines build on the existing requirements of the Capital Requirements Directive (CRD) and the SREP guidelines, and adapts them to the exceptional circumstances of the COVID-19 pandemic. They are addressed to competent authorities and elaborate on the key aspects of SREP for 2020.
Competent authorities may continue to apply the SREP guidelines as they currently stand if they wish to do so. However, they also have the option of applying the alternative specific process for 2020, which may be necessary in response to the pandemic.
Due to the urgency of the matter and the limited focus of the guidelines on COVID‐19 pandemic‐ related features, the EBA did not consult on the guidelines.
BRRD: EBA consults on RTS on estimating Pillar 2 and combined buffer requirements for setting MREL
The EBA has published a consultation paper on its draft regulatory technical standards (RTS) specifying the methodology to be used by resolution authorities to estimate the Pillar 2 (P2R) and combined buffer requirements (CBR) at resolution group level. This is for the purpose of setting the minimum requirement for own funds and eligible liabilities requirement (MREL) under the BRRD.
Comments can be made on the consultation until 24 October 2020. The EBA intends to send the final draft RTS, by December 2020, to the European Commission for endorsement.
BRRD: EBA consults on RTS and ITS on impracticability of contractual recognition of bail-in
The EBA has published a consultation paper on draft RTS and draft implementing technical standards (ITS) on the impracticability of contractual recognition of write-down and conversion powers and related notifications under Articles 55(4) and 55(8) of the BRRD.
The draft ITS specify uniform formats and templates for the notification to resolution authorities of contracts meeting the conditions of impracticability defined in the draft RTS. The EBA has also published Annex I and Annex II to accompany the draft ITS.
Comments can be made until 24 October 2020. Once finalised, the EBA will send the draft RTS and ITS to the European Commission for endorsement.
Benchmarking of remuneration practices at EU level: EBA report
The EBA has published a report on benchmarking remuneration practices in EU banks for the financial years 2017 and 2018, together with high earners data for 2018.
The EBA found that banks' remuneration practices were not sufficiently harmonised, either at a member state and an institutional level. For example, the application of deferral and pay out in instruments. The EBA explains that this was mainly due to differences in the national implementation of CRD IV and that this situation should improve when amendments to that Directive come into effect at the end of 2020.
The EBA will continue to benchmark remuneration trends every two years and to publish data on high earners annually to monitor developments in this area. 12 CRR: EBA consults on draft RTS for determination of indirect exposures to underlying clients of derivatives and credit default derivatives
The EBA has published a consultation paper on draft RTS for the determination of indirect exposures to underlying clients of derivatives and credit default derivatives under Article 390(9) of the CRR, as amended by CRR II.
The deadline for comments on the paper is 23 October 2020. The EBA will submit the final draft RTS to the European Commission for endorsement before they are published in the Official Journal of the European Union (OJ).
CRR: EBA consults on draft guidelines on application of alternative treatment of institutions' exposures related to tri-party repurchase agreements
The EBA has published a consultation paper on draft guidelines specifying the conditions for the application of the alternative treatment of institutions' exposures related to "tri-party repurchase agreements" set out in Article 403(3) of the CRR for large exposure purposes.
Comments can be made on the consultation paper until 22 October 2020. The deadline for competent authorities to report whether they comply with the guidelines will be two months after publication of the official EU language translations of the final guidelines on the EBA website. The guidelines will apply from June 2021.
CRR: EBA consults on draft RTS on estimating default probabilities and losses give defaults for internal default risk model
The EBA has published a consultation paper on draft RTS on requirements that an internal methodology or external sources used under the internal default risk model are to fulfil for estimating default probabilities (DPs) and losses given default (LGDs) under Article 325bp(12) of the CRR, as amended by CRR II.
Comments can be made on the consultation paper until 22 October 2020. The draft Delegated Regulation states that it enters into force twenty days after publication in the OJ.
Reporting requirements: EBA questionnaire and call for case studies on cost of compliance
The EBA has published a questionnaire for all EU credit institutions on the cost of compliance with reporting requirements, together with an introduction to the questionnaire.
As part of its drive for more proportionate regulatory and supervisory framework, the EBA is looking for ways to optimise supervisory reporting requirements and reduce reporting costs for institutions, especially smaller ones. In addition to the questionnaire, the EBA has also launched a call for case studies to collect evidence on reporting costs as well as industry views on ways to reduce these costs and make supervisory reporting more efficient. To this end, alongside the questionnaire, the EBA has published an Introduction to its study on cost of compliance with supervisory reporting requirements, which is complemented by an explanatory note and a study of credit institutions' reporting costs (focusing on the specification of fact-finding case studies).
The EBA has split the questionnaire into two parts with different deadlines for responses, in order to take account of the challenges posed by COVID-19. Responses to the qualitative
13 questions are expected by 1 October 2020, and responses to the quantitative questions as well as the submission of case studies are expected by 31 October 2020.
The EBA is required under Article 430(8) of the CRR to measure the costs institutions incur when complying with supervisory reporting requirements.
14 Payments Hogan Lovells Global Payments Newsletter, July 2020
Our latest Global Payments Newsletter considers a number of recent developments of interest to the payments sector, including:
• Australia: Open banking launches with the initiation of the Consumer Data Right. Customers of Australia's four major banks can choose to share certain types of data with accredited data recipients. More banks will join the Consumer Data Right in due course; • Singapore: Monetary Authority of Singapore (MAS) completes testing of blockchain- based multi-currency payments network prototype (Project Ubin); and • UK: FCA publishes final guidance for payment and e-money firms on prudential risk management and arrangements for safeguarding customers' funds during COVID-19. The FCA hopes to conduct a full consultation later in 2020/21 on changes to its Payment Services and E-Money Approach Document, which are likely to include incorporation of this additional guidance.
Read the newsletter on Hogan Lovells Engage here.
EU Regulation on cross-border payments: European Commission adopts legislative proposal
The European Commission has adopted a legislative proposal for a new Regulation on cross- border payments in the EU. It has published the Annexes to the proposed Regulation separately.
The purpose of the proposed Regulation is to codify the existing Regulation on cross-border payments (924/2009), as it is the Commission's policy to codify legislative acts after they have been amended at least ten times. The new Regulation will repeal and replace the existing Regulation. It is intended to preserve the content of the existing Regulation as amended. A correlation table in Annex II to the new Regulation sets out the relationship between the Articles in the new Regulation and the existing Regulation.
The proposed Regulation will now be considered by the Council of the EU and the European Parliament, who will operate under the accelerated legislative process that applies to codification proposals. The Commission intends for the new Regulation to enter into force on 20 April 2021.
15 Securities and Markets UK BMR: HM Treasury policy statement on extending transitional period for third-country benchmarks
HM Treasury has published a policy statement explaining the government's reasons for extending the transitional period for third-country benchmarks under the retained EU law version of the Benchmarks Regulation (UK BMR) to 31 December 2025. The transitional period currently ends on 31 December 2022.
The UK BMR requires that only third-country benchmarks approved for use via one of the prescribed routes set out in the EU Benchmarks Regulation (EU BMR) may continue to be used within the UK. This means that third-country administrators must become approved via equivalence, recognition or endorsement for continued access to UK markets after the end of a transitional period. In September 2019, the UK extended the transitional period for third- country benchmarks from end-2019 to end-2022 through the Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/1212) to provide additional time for third-country benchmark administrators to apply to the UK Financial Conduct Authority (FCA).
This means that by end-2022, third country benchmarks will need to have applied for endorsement of a specific benchmark(s), for recognition as an administrator or benefit from an equivalence determination made by HM Treasury for their benchmark(s) to continue to be used in the UK.
However, HM Treasury explains that as of June 2020, only a limited number of third-country benchmarks or administrators have come through the current EU BMR access routes, and provides reasons (including a lack of clarity around the legal framework for endorsement and recognition prescribed in the EU BMR).
HM Treasury will bring this measure forward at the next legislative opportunity. It believes the proposed extension will provide economic and legal certainty for UK markets for longer. The government will also consider and operationalise potential changes to ensure an appropriate third country benchmarks regime for the UK.
BMR: Commission Delegated Regulations on sustainable finance issues
The European Commission has published the adopted text of the following Delegated Regulations supplementing the EU BMR on sustainable finance issues:
• Delegated Regulation supplementing the BMR as regards minimum standards for EU climate transition benchmarks and EU Paris-aligned benchmarks; • Delegated Regulation supplementing the BMR as regards the minimum content of the explanation on how environmental, social and governance (ESG) factors are reflected in the benchmark methodology and Annex; and • Delegated Regulation supplementing the BMR as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and published and Annexes 1 and 2.
If neither the Council nor the Parliament object to the Delegated Regulations, they will be published in the Official Journal of the EU and apply 20 days thereafter.
16 The Commission was mandated to produce these Regulations following amendments to the EU BMR made by the Low Carbon Benchmarks Regulation.
MiFIR: ESMA opinion on assessment of pre-trade transparency waivers
The European Securities and Markets Authority (ESMA) has published an opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under the Markets in Financial Instruments Regulation (MiFIR).
Before granting a waiver of the MiFIR pre-trade transparency obligations, national competent authorities (NCAs) must notify ESMA of the intended use of each individual waiver and provide an explanation regarding its functioning. ESMA is required to issue an opinion to the NCA assessing the compatibility of the waiver with the MiFIR requirements.
In the opinion, ESMA sets out guidance on recurring issues that it has identified in assessing the compliance of notified waivers.
The document replaces previous guidance by the Committee of European Securities Regulators, ESMA's predecessor, and ESMA's opinions on waivers from pre-trade transparency under the Markets in Financial Instruments Directive (MiFID).
MiFIR: ESMA final report on MiFIR transparency requirements for non-equity instruments
ESMA has published its final report on the transparency regime for non-equity instruments under the MiFIR. ESMA is required to produce a report under Article 17 of Commission Delegated Regulation (EU) 2017/583 (RTS 2), which analyses whether it is appropriate to move to the following stage in terms of transparency. This is with regard to the average daily number of trades (ADNT) threshold used for the quarterly liquidity assessment of bonds, and the trade percentile used for determining the pre-trade size specific to the financial instrument (SSTI) thresholds. To help make its decision, ESMA consulted on the issue in March 2020. ESMA's analysis of feedback to the consultation is in sections 3 and 4 of the report.
In light of its consultation, ESMA is suggesting to the European Commission to move to the next stage for both the:
• criterion ADNT threshold used for the quarterly liquidity assessment of bonds; and • trade percentiles that determine the pre-trade SSTI thresholds for bonds.
The above measures are designed to increase the transparency available to market participants in the bond market.
ESMA does not recommend moving to the next stage for the trade percentiles that determine the pre-trade SSTI thresholds for other non-equity financial instruments. It considers such a move premature as the first annual transparency calculation for these non-equity instruments will only be published later on in 2020.
In light of its assessment and the conclusions reached, ESMA has drafted an amended version of the applicable regulatory technical standards (RTS) as foreseen in RTS 2.
The next stage is for the Commission to endorse the amended RTS. Once endorsed, the RTS will be subject to a non-objection procedure by the European Parliament and the Council of the EU.
17 Brexit: ISDA updates FAQs
The International Swaps and Derivatives Association (ISDA) has updated its Brexit FAQs which address possible outcomes for the derivatives market post-Brexit.
18 Insurance COVID-19: FCA updates on business interruption insurance test case
The UK Financial Conduct Authority (FCA) has published a number of updates to its webpage on the High Court test case concerning business interruption (BI) insurance. Among other things, it has published:
• the agreed list of issues and common ground, which summarises what is and is not in dispute between the parties. This supersedes the questions for determination published previously; • ten sets of agreed facts, which relate to a range of topics including Agreed Facts 1 - Chronology of Government Response to COVID-19 in the UK, Agreed Facts 4 - Restrictions, guidance, advice and other information provided to the public and Agreed Facts 9 - Distribution Channels; • the new assumed facts, which contains factual scenarios that some parties will use in the trial to illustrate their views as to how coverage is triggered; and • the draft transcript of the first and second days of the trial, which took place on 20 and 21 July 2020.
The eight-day court hearing is due to end on 30 July 2020. The FCA advises that a final transcript will be published when it is available.
Brexit: Lloyd's delays scheme effective date of Part VII transfer of EU business
Lloyd's has announced that it has decided to delay the scheme effective date of its Part VII transfer of its EU business from Lloyd's members to its Belgium subsidiary, Lloyd's Insurance Company S.A. (LIC). The court hearing to sanction the transfer is now scheduled for 18 November 2020 and, therefore, the scheme effective date will move from 29 October 2020 to 30 December 2020.
Lloyd's explains that it has taken this decision to enable itself, LIC and market participants to be ready and to give the maximum amount of time available for the successful implementation of the Part VII transfer, which is both complex and substantial. It also confirms that the delay will not affect LIC's ongoing ability to continue writing new European Economic Area (EEA) business.
The Part VII transfer is taking place in the context of the loss of passporting rights arising due to the UK's withdrawal from the EU. It will allow all existing policies of Lloyd's customers across the EEA to be serviced by LIC and will ensure contract continuity.
COVID-19: EIOPA supervisory statement on Solvency II recognition of schemes based on reinsurance
The European Insurance and Occupational Pensions Authority (EIOPA) has published a supervisory statement on the recognition of schemes based on reinsurance with regard to COVID-19 and credit insurance under the Solvency II Directive. The supervisory statement sets out EIOPA's view on the treatment, for Solvency II purposes, of schemes based on reinsurance implemented by member states within the temporary framework for state aid measures, which were introduced to support the economy in light of COVID-19.
EIOPA has identified significant differences in the way that national schemes in the area of credit insurance are implemented through the temporary framework. To ensure a level playing field 19 and consistent treatment of schemes with the same economic consequences as reinsurance, in the statement, EIOPA outlines several supervisory recommendations for national competent authorities.
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