Securities and markets regulatory news, 30 November 2020

Contents

• Download the full regulatory news bulletin
• UK EMIR: FCA statement on reporting and UK validation rules
• UK SFTR: FCA statement on reporting and UK SFTR validation rules
• UK STS notification templates: FCA update
• EURIBOR fallbacks: Working Group on Euro Risk-Free Rates' consultations
• CRAs and CISPs: FCA portfolio letter on supervisory strategy
• Brexit: Commission Implementing Decision on temporary equivalence of UK regulatory framework for CSDs
• Securitisation Regulation: Delegated Regulation on fees for securitisation repositories
• EMIR: ESAs' final report on RTS on amendments to bilateral margin requirements and novations from UK to EU counterparties
• EMIR: ESMA final report on RTS on clearing obligation regarding intragroup transactions and novations from UK to EU counterparties
• Brexit: ESMA statement on MiFIR derivatives trading obligation
• Data reporting services providers: ESMA consults on advice on criteria and fees
• IOSCO annual meeting summary
• MMF: IOSCO thematic review report on implementation of policy recommendations
• REMIT: ACER updates guidance

UK EMIR: FCA statement on reporting and UK validation rules

The UK Financial Conduct Authority (FCA) has published a statement on reporting derivatives under the retained EU law version of the European Market Infrastructure Regulation (UK EMIR) after the Brexit transition period. It has also published the UK EMIR validation rules which should be used by UK reporting counterparties and UK trade repositories (TRs) when submitting derivative transactions entered into from 11.00 pm on 31 December 2020 onwards. It points out that the rules include references to future amendments, which will apply from 8 March 2021.

Among other things, the statement also includes information relating to:

• the UK's approach to onshoring EMIR, and changes for UK counterparties and TRs;
• the temporary transitional power (TTP): exception for EMIR reporting and TR requirements;
• reporting new and outstanding trades under the UK EMIR reporting regime by UK counterparties;
• intragroup exemptions from the reporting obligation under UK EMIR;
• mandatory delegated reporting under UK EMIR;
• historic EMIR data;
• inter-TR reconciliation under UK EMIR; 
• publication of TR data and data access for authorities; and
• list of third country regulated markets under UK EMIR.

The FCA notes that the statement is not exhaustive in detailing the circumstances in which actions will be needed. It reminds firms that they are best placed to understand their own compliance with UK EMIR requirements and that they must consider the actions they need to take in the light of their specific business model.

The FCA has updated its dedicated webpage on the EMIR reporting obligation to link to the statement and validation rules.

UK SFTR: FCA statement on reporting and UK SFTR validation rules

The FCA has published a statement on reporting securities financing transactions (SFTs) under the retained EU law version of the Regulation on reporting and transparency of securities financing transactions (UK SFTR) at the end of the Brexit transition period. The FCA has also published the UK SFTR validation rules which should be used by UK reporting counterparties and UK TRs when submitting SFTs entered into, or amended, from the end of the transition period.

Among other things, the statement includes information relating to:

• the UK's approach to onshoring the SFTR.
• the temporary transitional power (TTP): exception for SFTR reporting and TR requirements;
• reporting new and outstanding trades under the SFTR reporting regime by UK counterparties;
• historic SFTR data;
• inter-TR reconciliation under the UK SFTR; and
• publication of TR data.

The FCA notes that the statement is not exhaustive in detailing the circumstances in which action will be needed. It reminds firms that they are best placed to understand their own compliance with UK STFR requirements and that they must consider the actions they need to take in the light of their specific business model.

The FCA has updated its dedicated webpage on the SFTR reporting obligation to link to the statement and validation rules.

UK STS notification templates: FCA update

The FCA has updated its webpage on reporting simple, transparent and standardised (STS) securitisations with UK STS notification templates and related instructions.

To qualify as UK STS, the originators and sponsor of a securitisation (or in the case of asset-backed commercial paper programmes and transactions, the sponsor) must be established in the UK and must notify the FCA, using the onshored UK STS notification templates. These are for either new securitisations that meet the UK STS criteria under the onshored regulation, or UK securitisations previously notified to the European Securities and Markets Authority (ESMA) as EU STS that meet the UK STS criteria and want to be considered as such. The FCA has now published the onshored UK STS notification templates and related instructions for:

• public securitisations;
• private full securitisations; and
• private anonymised securitisations.

All STS notifications must be submitted to the FCA via its Connect portal which is now open. The FCA has published a guide to assist firms.

UK securitisations previously notified to ESMA that meet the UK STS criteria and want to be considered as such must be notified to the FCA before 11 pm on 31 December 2020, when the UK STS framework comes into effect. Securitisations that have been duly notified to the FCA will be published on the STS list on its website on 31 December 2020.

EURIBOR fallbacks: Working Group on Euro Risk-Free Rates' consultations

The Working Group on Euro Risk-Free Rates has published two public consultations on fallback rates to EURIBOR. In one consultation, stakeholders are invited to provide their views on fallback rates based on the euro short-term rate (€STR) and spread adjustment methodologies in order to produce the most suitable EURIBOR fallback measures per asset class. In the other consultation, stakeholders are invited to give their views on potential events that could trigger such fallback measures.

The consultations close on 15 January 2021. The working group expects to issue final recommendations relating to the topics covered by the consultations in the first quarter of 2021.

CRAs and CISPs: FCA portfolio letter on supervisory strategy

The FCA has published a portfolio letter on its supervisory strategy addressed to the board of directors of firms within its credit reference agencies (CRAs) and credit information service providers (CISPs) portfolio. The FCA outlines its key areas of focus and expectations of these firms.

The FCA focuses on areas that it considers are the key drivers of potential harm. For CRAs and CISPs they include the loss or misuse of personal data, poorly designed CRA products, ineffective product governance and poor data quality, technology resilience, disorderly firm failure leading to disruption in access to credit, and complaints handling, and credit broking fee disclosure. The FCA also makes it clear that it expects firms to have in place contingency plans in place to deal with major events, such as the COVID-19 pandemic. The FCA draws attention to its March 2020 statement on COVID-19.

In the immediate term, the FCA will focus on large CRA firms to address the key risk of harms identified in the portfolio, having already engaged with some firms on several of these issues. It will also select a sample of firms to assess the steps they have taken as a result of this letter and the impact of these actions.

Where it sees CRAs and CISPs creating harm in the market, the FCA will use the Senior Managers and Certification Regime (SMCR) to hold appropriate individuals to account. Firms should consider what action they need to take to comply with the SMCR and review and improve their firm's organisational standards of conduct.

The strategy outlined in the letter covers the period to October 2021. However, the FCA intends to review its portfolio strategy to identify any revisions that may be appropriate when it publishes the interim findings of the credit information market study, which has been delayed to 2021 due to COVID. The FCA will write to firms again in 2021 with its updated view on the key risks posed by the firms in this sector and its updated supervisory plans.

Brexit: Commission Implementing Decision on temporary equivalence of UK regulatory framework for CSDs

Commission Implementing Decision (EU) 2020/1766 on the temporary equivalence of the UK's regulatory framework for central securities depositories (CSDs) under the Central Securities Depositories Regulation (CSDR) has been published in the Official Journal of the EU (OJ).

From 1 January 2021, UK CSDs will be considered third country CSDs within the meaning of the CSDR. EU CSDs are in the process of developing services in relation to Irish corporate securities and exchange traded funds (ETFs), while EU issuers are migrating their positions to EU CSDs. However, this work will not be fully finalised on 31 December 2020.  The Commission considers it is therefore necessary, and in the interest of the EU and its member states, that the legal and supervisory arrangements governing UK CSDs are determined as equivalent for a period of six months.

The Commission adds that potential future divergence regarding the legal and supervisory arrangements applicable to UK CSDs means that market participants should prepare for a situation where there is no  further equivalence decision in this area.

The Implementing Decision enters into force on 26 November 2020. It applies from 1 January 2021 and expires on 30 June 2021.

Securitisation Regulation: Delegated Regulation on fees for securitisation repositories

Commission Delegated Regulation (EU) 2020/1732, which supplements the Securitisation Regulation on fees charged by ESMA to securitisation repositories, has been published in the OJ. The Delegated Regulation, which was adopted on 18 September 2020, sets out provisions on:

• the level of the registration fees payable by applicants, including extension-of-registration fees payable by entities that are already registered as trade repositories;
• the definition of the applicable turnover on the basis of which annual supervisory fees are to be charged;
• the level of the annual supervisory fees; and
• the process for paying registration and annual supervisory fees.

The Delegated Regulation will enter into force on 10 December 2020.

EMIR: ESAs' final report on RTS on amendments to bilateral margin requirements and novations from UK to EU counterparties

The Joint Committee of the European Supervisory Authorities (ESAs) has published a third version of its final report on regulatory technical standards (RTS) under EMIR on various amendments to the bilateral margin requirements in view of the international framework and novations from UK to EU counterparties. The ESAs have developed the draft RTS under Article 11(15) of EMIR. They are set out in Annex 3.2 to the report, in the form of a draft Commission Delegated Regulation, which amends Commission Delegated Regulation (EU) 2016/2251, setting out the detailed bilateral margin requirements.

The draft RTS introduce several amendments in view of the changes and current level of implementation of the international framework agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO). The draft RTS extend the temporary exemption for single-stock equity options or index options for three years, to avoid undue costs and an unlevel playing field situation for EU counterparties.

In the context of the withdrawal of the UK from the EU, the ESAs and other EU authorities and institutions have highlighted the importance for market participants to be prepared for the end of the transition period. The draft RTS reintroduce a regulatory solution to support these preparations. They allow UK counterparties to be replaced with EU counterparties without triggering the bilateral margin requirements under certain conditions and within a 12-month timeframe. This ensures a level playing field between EU counterparties and the preservation of the regulatory and economic conditions under which the contracts were originally entered into. The ESAs advise that counterparties should start negotiating as soon as possible the novation of their transactions that are within the scope of the draft RTS.

The final report replaces the version the ESAs submitted to the European Commission in May 2020.

EMIR: ESMA final report on RTS on clearing obligation regarding intragroup transactions and novations from UK to EU counterparties

ESMA has published a final report on EMIR RTS on the clearing obligation regarding intragroup transactions as well as novations from UK to EU counterparties. ESMA developed the draft RTS under Article 5(2) of EMIR. They are set out in Annex 3.2 to the report, in the form of a draft Commission Delegated Regulation, which amends the three Commission Delegated Regulations on the EMIR clearing obligation ((EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178) (the Clearing Delegated Regulations).

The amendments included in the draft RTS extend the deferred application date of the clearing obligation for 18 months for intragroup transactions satisfying certain conditions and where one of the counterparties is established in a third country.

ESMA also considers it appropriate to preserve the characteristics of contracts for which clearing was not required, and which contracts are subsequently novated from one counterparty established in the UK to another counterparty established in a member state, to address the situation where the original UK counterparty may no longer be able to provide certain services across the EU after the end of the transition period. The draft RTS amend the Clearing Delegated Regulations to facilitate certain Brexit-related novations of OTC derivative contracts to EU counterparties during a 12-month timeframe.

In addition, ESMA is taking the opportunity to update the Clearing Delegated Regulations in line with the changes introduced by the EMIR Refit Regulation. Specifically, the draft RTS include amendments to remove the minimum remaining maturities' requirements from the Clearing Delegated Regulations.

ESMA has submitted the draft RTS to the European Commission. Following their endorsement, they are then subject to non-objection by the European Parliament and the Council of the EU.

ESMA expects competent authorities to apply the EU framework regarding the clearing obligation and the treatment of intragroup OTC derivative contracts and OTC derivative contracts novated from the UK to the EU in a risk-based and proportionate manner until the draft RTS are finalised and enter into force.

Brexit: ESMA statement on MiFIR derivatives trading obligation

ESMA has published a public statement on the impact of the end of the Brexit transition period on the derivatives trading obligation (DTO) under Article 28 of the Markets in Financial Instruments Regulation (MiFIR). In the statement, ESMA clarifies the application of the DTO following the end of the transition period on 31 December 2020. It explains that the DTO will continue applying without changes. ESMA considers that the continued application of the DTO after the transition period would not create risks to the stability of the financial system.

ESMA notes that most UK trading venues that offer trading in derivatives subject to the DTO have established new trading venues in the EU. While trading activity on these venues is currently limited, the venues have onboarded members and participants, including the major liquidity providers, which will allow EU investment firms to comply with the DTO by trading the relevant derivatives in those trading venues after the end of the transition period.

ESMA acknowledges that this approach creates challenges for some EU counterparties, particularly UK branches of EU investment firms who (without an equivalence decision from the European Commission) are likely to be subject to the DTO in both the EU and the UK. However, it considers that EU counterparties can meet their obligations under the DTO by trading on EU trading venues or eligible trading venues in third countries, and this situation is primarily a consequence of the way the UK has chosen to implement the DTO.

ESMA will continue to closely monitor the situation to assess whether markets would be sufficiently liquid to allow EU market participants to execute transactions in derivatives subject to the DTO on eligible trading venues after the end of the transition period.

Data reporting services providers: ESMA consults on advice on criteria and fees

ESMA is consulting on technical advice on criteria for identifying data reporting services providers (DRSPs) and on fees for DRSPs.

Regulation (EU) 2019/2175 amended MiFIR to transfer authorisation and supervisory powers relating to DRSPs from national competent authorities (NCAs) to ESMA from 1 January 2022, except for those DRSPs benefiting from a derogation. Article 2(3) of MiFIR gives the European Commission the power to adopt a delegated regulation specifying criteria to identify those authorised reporting mechanisms (ARMs) and approved publications arrangements (APAs) that should fall within this derogation on account of their limited relevance for the internal market and so be subject to authorisation and supervision by an NCA.

In the first consultation, ESMA seeks views on issues relating to these criteria. In the second consultation, ESMA (under its power in Article 38n of MiFIR) sets out a proposed framework for application fees and annual supervisory fees for DRSPs, drawing on its existing fee frameworks for trade repositories and securitisation repositories.

Both consultations close on 4 January 2021. ESMA intends to publish final reports and to submit the technical advice to the European Commission in Q1 2021.

IOSCO annual meeting summary

The International Organization of Securities Commissions (IOSCO) has published a press release summarising issues discussed at its 45th annual meeting. Matters considered include:

• two additional priority themes for 2021:  financial stability and systemic risks in non-bank financial intermediation; and remote working, misconduct risks, fraud and scams, and operational resilience, in the context of the COVID-19 pandemic;
• sustainable finance;
• the Financial Stability Engagement Group;
• the Retail Market Conduct Task Force; and
• the Board agreed to undertake further work on areas including the impact of COVID-19 on secondary trading market micro-structure mechanisms, the operations of trading venues and business continuity planning.

Annex I to the press release lists the new signatories to the IOSCO Multilateral Memorandum of Understanding on cooperation and exchange of information (MMoU) and the Enhanced MMoU.

MMF: IOSCO thematic review report on implementation of policy recommendations

IOSCO has published a final report setting out the findings of a thematic review on consistency in the implementation of money market funds (MMFs) reforms. IOSCO has also published a diagnostic report, which focuses on the effects of the market dislocations related to the impact of the COVID-19 pandemic on MMFs and seeks to characterise the behaviour of MMFs of varying types and of currencies across the main MMF jurisdictions.

REMIT: ACER updates guidance

The Agency for the Co-operation of Energy Regulators (ACER) has published the 5th edition of its guidance on the application of the Regulation on wholesale energy market integrity and transparency (REMIT).

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Authored by Yvonne Clapham