Financial institutions general regulatory news, 9 November 2020

Contents

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• UK-Japan Comprehensive Economic Partnership Agreement
• UK-US Financial Regulatory Working Group update
• Financial services after Brexit: House of Lords EU Services Sub-Committee call for evidence
• Brexit: FCA list of EEA regulator resources
• COVID-19: FCA PS20/12 on extending SMCR implementation deadlines for solo-regulated firms
• FCA directory of certified and assessed persons
• FCA Handbook Notice 81
• Claims management companies: FCA Dear CEO letter
• GFIN cross-border testing of financial products and services: FCA participation
• DB transfer risks: FCA warns financial advisers
• Pensions Dashboards Programme: progress report
• Combatting financial crime: FCA letter on UK approach
• Economic crime inquiry launched by Treasury Committee
• UK sanctions legislation post-Brexit: analysis of new statutory instruments
• FOS Ombudsman News issue 154
• Corporate criminal liability: Law Commission review
• Cryptoassets promotions: FMLC response to HM Treasury consultation
• Eurosystem Collateral Management System: ECB announces new launch date
• COVID-19: European Commission extends deadline for draft RTS under SFDR
• ESG: EBA discussion paper on incorporating ESG risks into management and supervision for credit institutions and investment firms
• Taxonomy Regulation: ESMA consults on disclosure obligations for KPIs
• Forward-looking climate metrics for financial firms: TCFD publishes 2020 status report, further guidance and consultation
• AML and CTF standards: FATF update

UK-Japan Comprehensive Economic Partnership Agreement

The UK government has announced that the UK and Japan have signed the UK-Japan Comprehensive Economic Partnership Agreement (CEPA) as the UK's first major trade deal as an independent trading nation. The UK-Japan CEPA will replace the existing economic partnership agreement between the EU and Japan on 1 January 2021.

The CEPA is a comprehensive free trade agreement covering various areas of trade policy, including financial services.

UK-US Financial Regulatory Working Group update

HM Treasury has published a joint statement by members of the UK-US Financial Regulatory Working Group following their third meeting held on 20 October 2020.

The meeting focused on five key themes: the economic response to, and potential financial stability impacts of, the COVID-19 crisis; international cooperation and 2021 priorities; cross-border rules and overseas recognition, equivalence and substituted compliance regimes; sustainable finance; and financial innovation.

Financial services after Brexit: House of Lords EU Services Sub-Committee call for evidence

The House of Lords EU Services Sub-Committee has published a call for evidence relating to its ongoing inquiry into financial services after Brexit. The Committee is keen to hear evidence on the priorities for the future UK-EU relationship in the financial services sector and the potential consequences if no free trade agreement is reached.

The deadline for responses is 20 November 2020. Public hearings are expected to take place in November and the Committee intends to write to the government with its findings before the end of 2020.

Brexit: FCA list of EEA regulator resources

The Financial Conduct Authority (FCA) has published a webpage of links to dedicated Brexit websites hosted by financial regulators in EEA member states that it has been made aware of. The FCA cautions that it cannot guarantee the accuracy of the information on those websites. The FCA intends to update the list when it has further content.

COVID-19: FCA PS20/12 on extending SMCR implementation deadlines for solo-regulated firms

Following its consultation in CP20/10, the FCA has published a policy statement, PS20/12, on extending implementation deadlines for solo-regulated firms under the senior managers and certification regime (SMCR) relating to the certification regime and conduct rules. PS20/12 sets out the FCA's final rules and summarises the feedback it received to CP20/10 and its responses. Most respondents were supportive of the proposals.

PS20/12 confirms that the deadline for the following requirements is extended from 9 December 2020 to 31 March 2021:

• the date the conduct rules come into force for staff who are not senior managers, certification staff or board directors;
• the date by which relevant employees must have received training on the conduct rules;
• the deadline for submission of information about directory persons to the Financial Services Register; and
• references in the FCA's rules to the statutory deadline for assessing certified persons as fit and proper.

The FCA will also extend the implementation deadlines for claims management companies (CMC) by an equivalent period. This means that a CMC receiving full authorisation on or after 9 December 2019 will have just over 15 months after the date of its full authorisation to meet the same set of requirements as above.

The changes affect all FCA solo-regulated firms, aside benchmark administrators, and appointed representatives.

The FCA encourages all firms to meet the original deadline of 9 December 2020 wherever possible. Solo-regulated firms (except benchmark administrators) must have fully implemented the certification regime and conduct rules, and reported information on directory persons by 31 March 2021.

FCA directory of certified and assessed persons

The FCA has updated its webpage on its directory of certified and assessed persons to confirm the publication dates for directory person data submitted by firms under the SMCR.

Dual-regulated firms must submit their directory persons data via Connect by 13 November 2020. The FCA will begin to publish this data on the financial services register from 23 November 2020.

Solo-regulated firms must submit their directory persons data via Connect by 31 March 2021 using the single-entry submission form. Earlier dates apply if solo-regulated firms wish to use the multiple entry submission form, or if they wish their data to appear from earlier dates starting in December 2020.

The FCA will begin to incrementally display data from solo-regulated firms as it is submitted, starting from 14 December 2020. The last date for single entry submissions to appear from the outset is 9 December 2020.

FCA Handbook Notice 81

The FCA has published Handbook Notice 81, which sets out changes to the FCA Handbook made by the FCA board on 23 July, 30 September and 22 October 2020. The Handbook Notice reflects changes made to the Handbook by the following instruments:

• Conduct of Business (Cryptoasset Products) Instrument 2020 (FCA 2020/34), in force on 6 January 2021;
• Conduct of Business (Cryptoasset Products) (Amendment) and Associated Exiting the European Union Amendments Instrument 2020 (FCA 2020/46), partially in force since 6 October 2020, with the rest of the instrument coming into force on the later of IP completion day or 6 January 2021;
• Technical Standards (Securities Financing Transactions Regulation) (EU Exit) (No 1) Instrument 2020 (FCA 2020/51) and Technical Standards (Securities Financing Transactions Regulation) (EU Exit) (No 2) Instrument 2020 (FCA 2020/52), both coming into force on IP completion day;
• Technical Standards (Markets in Financial Instruments Regulation) (EU Exit) (No 3) Instrument 2020 (FCA 2020/56), coming into force on IP completion day;
• Handbook Administration (No 54) Instrument 2020 (FCA 2020/61), in  force on various dates;
• COVID-19 Mortgages Instrument (No. 2) 2020 (FCA 2020/62), which came into force on 23 October 2020;
• Mortgages (Intra-Group Switching) Instrument 2020 (FCA 2020/63), in force since 23 October 2020; and
• Fees (Credit Rating Agencies, Trade Repositories and Securitisation Repositories) Instrument 2020 (FCA 2020/67), partially in force from 23 October 2020, with the remainder coming into force on IP completion day.

Claims management companies: FCA Dear CEO letter

The FCA has published a Dear CEO letter that it has sent to CMCs in which it:

• sets out its view of the key areas that continue to pose a risk of harm to consumers in the markets in which CMCs operate;
• outlines its expectations of CMCs, including how firms should be mitigating these harms; and
• describes its supervisory strategy and programme of work.

GFIN cross-border testing of financial products and services: FCA participation

The FCA has announced that it will be participating in the cross-border testing initiative organised by the Global Financial Innovation Network (GFIN), which is now open for applications.

To support the application process, the GFIN has developed several tools and solutions to improve the cross-border testing framework for a new cohort of firms, which the FCA has also published. These include:

• a single-entry application form for firms;
• cross-border testing FAQs to help firms understand the process; and
• an evolved Regulatory Compendium that clarifies the remit and interests of participating regulators and the types of innovation services available.

Firms interested in applying to take part in cross-border testing should review the list of participating regulators and their respective Regulatory Compendiums and apply via the GFIN website before the 31 December 2020 deadline.

DB transfer risks: FCA warns financial advisers

The FCA, the Pensions Regulator (TPR) and the Money and Pensions Service (MaPS) have issued a joint statement indicating that the FCA has issued a data request to several financial advisers who have advised on pension transfers from the Rolls-Royce defined benefit (DB) scheme following recent redundancies.

The FCA, TPR and MaPS believe transferring out of a DB pension scheme is unlikely to be in the best interests of most consumers. Where the FCA sees unsuitable advice or bad practice, they warn that the FCA will take action.

Pensions Dashboards Programme: progress report

The Pensions Dashboards Programme (PDP) has published its second progress report, confirming developments since April 2020 and setting out the steps planned for the next six months. The report includes an indicative phase plan for the entire project, running to 2023 and beyond.

The report summarises the key steps the PDP has taken over the past six months in developing the dashboard project, including undertaking two market engagement exercises on its requirements for the digital architecture and identity verification.

Combatting financial crime: FCA letter on UK approach

The FCA has published a letter responding to questions from the House of Commons Treasury Committee on the release to the media of papers filed with the US Financial Crimes Enforcement Network (FinCen). Among other things, the FCA explains the action the FCA is taking in the face of information in the FinCen files, including potential enforcement action, and what needs to be done to further secure the financial system from economic crime considering the information in the FinCen files.

Economic crime inquiry launched by Treasury Committee

The Treasury Committee has launched a new economic crime inquiry, focusing on anti-money laundering and sanctions measures, and protecting consumers from fraud. The inquiry will review what progress has been made in combatting economic crime. It will have two strands:

• anti-money laundering systems and the sanctions regime, including the FinCEN papers and the work of the Office for Professional Body Anti-Money Laundering Supervision; and
• how consumers are affected by economic crime, including emerging trends as a result of COVID-19 and authorised push payment fraud.

The committee will continue to examine economic crime related to Bounce Back Loans as part of its ongoing inquiry into the economic impact of COVID-19.

The deadline for comments is 27 November 2020.

UK sanctions legislation post-Brexit: analysis of new statutory instruments

With only months to go until the end of the Brexit transition period, many of us are turning our attention to what UK sanctions legislation will look like post-Brexit. EU sanctions have previously been implemented in the UK through a patchwork of legislation under the European Communities Act 1972. However, from 11pm on 31 December 2020, sanctions previously introduced in this manner will be brought over into law under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). In preparation, the UK Government has published a range of sanctions-related statutory instruments under SAMLA covering the different country and activity-based sanctions programmes that derive from EU law. Access an analysis of these here.

FOS Ombudsman News issue 154

The Financial Ombudsman Service (FOS) has published the latest edition of its Ombudsman News. This edition includes blogs on (i) the impact of COVID-19 on complaints from small and medium enterprises and (ii) how the FOS has helped small businesses with life-changing financial disputes, and the latest half-yearly complaints data.

Corporate criminal liability: Law Commission review

The government has asked the Law Commission to review the law on corporate criminal liability and give it options for reform. Concerns have been raised over the effectiveness of current laws in criminalising corporate entities when they commit economic crime. Calls for reform have been revived following the mixed success of recent high-profile prosecutions.

The Law Commission has been asked to draft an Options Paper, in which the Commission will analyse how effective the law is and where it could be improved. The Commission will present various options for reforming the law so that corporate entities can be held appropriately to account. The Commission aims to publish the Options Paper in in late 2021 and will work with the government on next steps, including the potential for a full Law Commission project on corporate criminal liability.

Cryptoassets promotions: FMLC response to HM Treasury consultation

The Financial Markets Law Committee (FMLC) has published a response to HM Treasury's July 2020 consultation on cryptoasset promotions highlighting some of legal uncertainty relating to in HM Treasury's proposals.

Eurosystem Collateral Management System: ECB announces new launch date

The European Central Bank (ECB) has announced a delay to the launch date for the Eurosystem Collateral Management System (ECMS) from November 2022 to November 2023.

The delay is to address concerns raised by market participants about the current adverse environment and follows a July 2020 decision to extend the timeline for the T2-T2S consolidation project by one year. The ECB acknowledges that the timeline for the Single Collateral Management Rulebook for Europe (SCoRE) may also be adjusted and this is under discussion.

COVID-19: European Commission extends deadline for draft RTS under SFDR

The European Commission has written to the European Supervisory Authorities (ESAs) about the application of the Sustainable Finance Disclosure Regulation (SFDR) and related regulatory technical standards (RTS). Considering COVID-19, the Commission is extending the deadline for consulting on the RTS.

The Commission notes that the application of the SFDR is not conditional on the formal adoption and entry into force or application of the RTS. Therefore, financial market participants and financial advisers subject to the SFDR will still need to comply with its high level and principle-based requirements from 10 March 2021. However, to provide financial market participants and financial advisers adequate time for implementation, the RTS will apply at a later stage. This will also allow national competent authorities to prepare for the orderly and effective supervision of compliance by financial market participants and financial advisers with the requirements of the framework.

ESG: EBA discussion paper on incorporating ESG risks into management and supervision for credit institutions and investment firms

The European Banking Authority (EBA) has published a discussion paper on incorporating environmental, social and governance (ESG) risks into the governance, risk management and supervision of credit institutions and investment firms. The aim of the discussion paper is to set out the EBA's understanding on the relevance of ESG risks for a sound functioning of the financial sector.

The EBA identifies and explains ESG factors and ESG risks, giving particular consideration to risks stemming from environmental factors, especially climate change. This reflects ongoing initiatives and progress achieved by institutions and supervisors on this topic over recent years. Social and governance factors are included in the analysis and the EBA explores why and how these factors can also be sources of risk for institutions.

In its discussion paper, the EBA provides an overview of the approaches it has identified, divided into three different types: portfolio alignment method, risk framework method and exposure method.

The consultation period closes on 3 February 2021. The EBA intends to publish its final report on the management and supervision of ESG risks for credit institutions and investment firms in June 2021.

Taxonomy Regulation: ESMA consults on disclosure obligations for KPIs

The European Securities and Markets Authority (ESMA) has published a consultation paper on draft advice to the European Commission under Article 8 of the EU Taxonomy Regulation.

Article 8 of the Taxonomy Regulation requires non-financial undertakings under the Non-Financial Reporting Directive (NFRD) to disclose the proportion of their turnover, capital expenditures (CapEx) and operating expenditure (OpEx) associated with environmentally sustainable economic activities, consistent with the EU taxonomy. Under Article 8(4), the Commission is required to adopt, by 1 June 2021, a delegated act to specify the content, presentation and methodology of the information to be disclosed under those requirements. The European Commission issued a related call for advice addressed to all three European Supervisory Authorities (ESAs) on 15 September 2020.

ESMA's proposals are intended to ensure a consistent application of the disclosure obligations required under the Taxonomy Regulation by non-financial undertakings and asset managers that fall within scope of the NFRD. In developing the advice, ESMA has cooperated with the EBA and EIOPA to ensure consistent and coherent recommendations from the three authorities.

The consultation deadline is 4 December 2020. ESMA must deliver a final report, containing its final advice and a summary of responses to the consultation, to the Commission by 28 February 2021.

Forward-looking climate metrics for financial firms: TCFD publishes 2020 status report, further guidance and consultation

The Task Force on Climate-related Financial Disclosures (TCFD) has published its 2020 status report which is an annual report on TCFD-aligned disclosures by firms. The report shows a more than 85% increase in support by companies for TCFD since the 2019 status report. The report highlights a continuing need to improve TCFD-aligned disclosures given the urgent demand for consistency and comparability in reporting.

The TCFD has also published guidance on climate-related scenario analysis for non-financial firms and guidance on integrating climate-related risks into existing risk management processes. Additionally, the TCFD has launched a consultation on forward-looking climate metrics for financial firms, which closes on 27 January 2021.

AML and CTF standards: FATF update

The Financial Action Task Force (FATF) has published an updated version of its anti-money laundering (AML) and counter-terrorist financing (CTF) standards. The FATF has adopted amendments to recommendations 1 (Assessing risks and applying a risk-based approach) and 2 (National co-operation and co-ordination) and the related interpretative notes, with a view to strengthening counter-proliferation financing.

The FATF expects all countries and regions to take steps to ensure implementation of these new obligations at the national level.

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Authored by Yvonne Clapham