EU/UK regulatory roundup

United Kingdom Publication April 2020

A round up of recent regulatory developments in the EU and UK.

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 Title Date Comment
ESMA decides on wide-ranging short selling disclosure requirement as COVID-19 continues to impact markets March 16, 2020 The European Securities and Markets Authority (ESMA) has published its decision of March 16, 2020, which requires natural or legal persons who have net short positions in relation to a share admitted to trading on a regulated market to notify to a competent authority details of any such position if the position reaches or exceeds 0.1 percent of the issued share capital. The requirement will last for three months from the date of its entry into force (March 16, 2020).
Prudential standards in the Financial Services Bill: Policy Statement March 12, 2020

HM Treasury has published a Policy Statement confirming the Government’s intention to implement the internationally agreed Basel III banking standards in the UK. The statement also announces that the Government will take powers to enable the implementation of updated prudential rules for UK banks and investment firms.

Public consultations will be launched on the implementation of the Basel standards, on the Capital Requirements Regulation II provisions, and on the prudential regime for investment firms in due course.

ESMA statement on COVID-19 March 12, 2020 ESMA has issued a public statement which makes certain recommendations to market participants as regards the impact of COVID-19. The statement touches on: (i) Business continuity planning; (ii) Market disclosure; (iii) Financial reporting; and (iv) Fund management.
Market access arrangements for financial services between the UK and Gibraltar: a consultation  March 11, 2020

 HM Treasury has published a consultation paper setting out proposals to introduce new market access arrangements for financial services between the UK and Gibraltar.

Gibraltar was not a Member State of the EU in its own right. In EU law, Gibraltar was classified as a European territory for whose external relations a Member State (the UK) was responsible. It is through the UK’s responsibility for its external relations that the EU treaties applied to Gibraltar, and in turn the European Economic Area (EEA) agreement. Gibraltar was not in its own right a party to the EEA agreement, but was treated for the purposes of the EU and the EEA as part of the UK. EU law applied to Gibraltar by virtue of Gibraltar’s own European Communities Act 1972 and, under the Withdrawal Agreement, EU law will continue to apply during the transition period.

In the consultation paper HM Treasury:

  • sets out the background to the UK-Gibraltar financial services relationship, and the institutional framework that underpins the existing market access arrangements; and
  • invites views on key features of the proposed Gibraltar Authorisation Regime (GAR), such as the arrangements to access and exit the GAR regime, and the consumer protection obligations on firms operating in the UK market.
The deadline for comments on the consultation paper is May 11, 2020.
HM Treasury consults on marketing and overseas funds regime March 11, 2020 HM Treasury has published a consultation paper setting out the Government’s proposal for a new process for allowing investment funds domiciled overseas to be sold to UK investors, to replace the existing regime, which is not viable over the long-term. The proposed ‘overseas funds regime’ will introduce two new regimes based on the principle of equivalence: one for retail investment funds; and one for money market funds. The regime for retail funds will be similar in many respects to its precursor under section 270 of the Financial Services and Markets Act 2000 but with some important differences, including the possibility to apply additional requirements to funds from equivalent countries. The deadline for comments on the consultation paper is May 11, 2020.
BoE measures to respond to COVID-19 March 11, 2020

The Bank of England’s (BoE) Financial Policy Committee (FPC) has made a decision to set the UK countercyclical capital buffer rate at 0 percent with immediate effect. The FPC expects to maintain the 0 percent rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest.

Following the FPC decision, the PRA has made a statement covering both:

  • distributions; and
transitional measures on technical provisions relief for insurers.
FCA consults on new climate-related disclosure requirements for premium listed issuers March 10, 2020  The FCA has published Consultation Paper 20/3: Proposals to enhance climate-related disclosures by listed issuers, and clarification of existing disclosure obligations (CP20/3). In CP20/3 the FCA is proposing to introduce a new rule for commercial companies with a UK premium listing, requiring them to state whether they comply with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures and to explain any non-compliance. The FCA is also consulting on guidance on the existing obligations set out in EU legislation and in its Handbook that may already require issuers to disclose information on climate-related and wider environmental, social and governance matters under certain circumstances. The deadline for comments on CP20/3 is June 5, 2020. Subject to the feedback received on CP20/3, the FCA aims to publish a Policy Statement, along with the finalised rules and Technical Note, later in 2020.
ESMA guidelines on stress test scenarios under MMF Regulation March 5, 2020  ESMA has issued the official translations of its guidelines on stress test scenarios under the Money Markets Fund Regulation. Member State national competent authorities to which the guidelines apply have to notify ESMA whether they comply or intend to comply with the guidelines within two months of the translations.
FCA Policy Statement: final rules and feedback on the amendment of the permitted links rules March 5, 2020  The FCA has published Policy Statement 20/4: Amendment of COBS 21.3 permitted link rules – final rules and feedback to CP18/40 (PS20/4), which amends the permitted links framework that previously applied to insurers, providing linked long-term contracts of insurance and impacts on those who have an interest in investing in illiquid or higher-risk assets via unit-linked funds. Firms seeking to make use of the new conditional permitted links needed to ensure compliance with the rules with effect from March 4, 2020. However, insurers can continue to use the existing ‘permitted links’ rules. FCA statement on COVID-19
 FCA statement on COVID-19 March 4, 2020 

The FCA has issued a statement on Covid-19.

Key points in the FCA statement include:

  • the FCA expects all firms to have contingency plans in place to deal with major events;
  • alongside the BoE, the FCA is actively reviewing the contingency plans of a wide range of firms. This includes assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers;
  • the FCA expects firms to take all reasonable steps to meet their regulatory obligations. For example, the FCA expects firms to be able to enter orders and transactions promptly into the relevant systems, use recorded lines when trading, and give staff access to the compliance support they need. If firms are able to meet these standards and undertake these activities from backup sites or with staff working from home, the FCA has no objection to this; and
the FCA is discussing with firms and trade associations any particular issues they may have and are working with them to resolve these. The FCA wants to understand the pressures they are facing and will be continuing its active dialogue with firms, institutions and industry bodies in the coming days and weeks. The FCA will keep its guidance under review, as necessary.
FCA Dear CEO letter: Asset management firms – prepare now for the end of LIBOR February 28, 2020 The FCA has published a Dear CEO letter to asset management firms concerning their preparations for the end of LIBOR.
Patient Capital and Authorised Funds February 27, 2020  The FCA has published Feedback Statement 20/2: Patient Capital and Authorised Funds – Feedback on DP18/10 (FS20/2).

In FS20/2 the FCA reports that it has found no inappropriate barriers to investing in long-term assets within its authorised funds regime. Broadly, respondents found the current authorised funds regime fit for purpose for long-term investments by professional and sophisticated retail investors. For broad retail distribution funds, the FCA accepts that barriers do exist which limit the range of available investment options. However, the FCA feels that it is not clear that these barriers are inappropriate or how they might be relaxed without introducing a degree of risk that is not appropriate for retail investors. The FCA also notes that other investment products, such as investment trusts, already provide alternative ways for retail investors to access long-term investments.

Among other things, the FCA is working with the FPC to assess how authorised funds’ redemption terms can be better aligned to the liquidity of the underlying assets. Further information on the work on liquidity risks in open-ended funds can be found in the BoE’s July and December 2019 editions of the Bank’s Financial Stability Report. The FCA will also be considering any rule changes that may be recommended upon completion of the FPC work later this year.
FCA sector views: February 2020 February 18, 2020 

The FCA has published a report on its sector views. These sector views set out the FCA’s annual analysis of the way in which the financial environment is changing and the impact of these changes on consumers and market effectiveness.

For the investment management sector the FCA has identified six areas of harm. The regulator has stated it is “most concerned” about two: the pricing and quality of investment management products; and operational resilience. The remaining four are: disorderly markets; market abuse; and pricing and quality of firstly, institutional intermediary services and secondly, custody and investment administration services.

Commission launches consultation on MiFID II / MiFIR review February 17, 2020  The European Commission (Commission) has launched its long-awaited public consultation on the review of MiFID II and MiFIR. The consultation paper is divided into two main sections: Section 1 covering general questions on the overall functioning of the MiFID II and MiFIR regulatory framework (Qs 1 – 6.1); and Section 2 covering specific questions on the existing regulatory framework (Qs 7 – 93). Section 3 includes one ‘catch-all’ question where the Commission asks stakeholders to identify any additional issues not addressed in other sections of the consultation and which would “merit further consideration in the context of the review of MiFID II/MiFIR framework”. The consultation runs until April 20, 2020.
ESMA sets out strategy on sustainable finance February 6, 2020  ESMA has announced its strategy on sustainable finance, setting out how the European Supervisory Authority will place sustainability at the core of its activities by embedding environmental, social and governance (ESG) factors at the forefront of its work.
ESMA launches a common supervisory action with NCAs on UCITS liquidity risk management January 31, 2020 

ESMA has announced that it is launching a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of UCITS’ managers’ liquidity risk management across the EU. The CSA will be carried out during 2020.

To support this aim, NCAs have agreed to simultaneously assess whether market participants in their jurisdictions adhere to the rules in their day-to-day business. This will be conducted using a common methodology developed together with ESMA.

The first stage of the CSA will involve NCAs requesting quantitative data from a majority of UCITS managers based in their respective Member States, to provide an overview of the supervisory risks they face. In the second stage, NCAs will focus on a sample of UCITS managers and UCITS to carry out more in-depth supervisory analyses.


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