News

Financial institutions general regulatory news, 15 January 2021

FIG Bulletin

18 January 2021

Recent regulatory developments of interest to all financial institutions. Among other things, includes many updates published for the end of the Brexit transition period. See also our sector specific updates in the Related Materials links.

UK-EU trade and cooperation agreement

After extensive negotiations, and within a week of the Brexit transition period ending on 31 December 2020, the UK and the EU finally announced on 24 December 2020 that they had agreed an EU-UK Trade and Cooperation Agreement (TCA). The UK ratified the TCA on 30 December and the TCA now applies provisionally until 28 February 2021, by which time it is hoped that the necessary EU ratification steps are completed, including the consent of the European Parliament and adoption by Council Decision. The TCA was brought into effect in UK law by the swift passing of the European Union (Future Relationship) Act 2020. The UK government has published a summary explainer.

In relation to financial services, the TCA confirms that UK and EU firms may benefit from third country access to each other's markets and non-discriminatory treatment. However, there are some carve-outs and "reservations". These include a typical "prudential carve-out" which allows both parties to take any measure it deems necessary for prudential reasons, such as protecting investors, depositors or policyholders, or ensuring the integrity and stability of their financial systems, so long as it is not used to avoid commitments under the TCA.

In addition, both the UK and the EU have exempted financial services from the most favoured nation (MFN) provision, which means that preferential terms granted to another party in the future need not be extended to the UK or the EU. They have also retained the right to impose a specific legal form on a financial services subsidiary (on a non-discriminatory basis).

The UK has some specific reservations in the TCA, for example, only firms having their registered office in the UK can act as depositaries of the assets of investment funds. This reservation also states that the establishment of a specialised management company, having its head office and registered office in the UK, is required to perform the management of common funds, including unit trusts, and where allowed under national law, investment companies.

The TCA includes provision confirming that it covers any new service that could be supplied under existing regulation. It also guarantees access by foreign firms to any self-regulatory bodies required for the conduct of their business, and to public clearing and payments systems.

In the TCA, the UK and EU also agree to make best endeavours to ensure that internationally agreed standards in the financial services sector for regulation and supervision, for the fight against money laundering and terrorist financing, and for the fight against tax evasion and avoidance, are implemented and applied in their territory. These include standards adopted by the G20, the FSB, the BCBS, the IAIS, IOSCO and the FATF.

Accompanying the TCA is a Joint Declaration on financial services regulatory cooperation in which the UK and the EU agree to enter into a memorandum of understanding by March 2021 establishing a framework for regulatory cooperation on financial services. This framework will be based on a shared commitment to preserve financial stability, market integrity, and the protection of investors and consumers. It will facilitate:

bilateral exchanges of views and analysis relating to regulatory initiatives and other issues of interest;
transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions; and
enhanced cooperation and coordination including in international bodies as appropriate.

In addition, the UK and EU commit to "discuss" how to move forward with equivalence decisions.

The TCA does not include any provision for equivalence in financial services. In its Q&A on the TCA, the Commission explains that these are unilateral decisions for each party and are not subject to negotiation. The Commission notes that it has assessed the UK's replies to the Commission's equivalence questionnaires in 28 areas. However, the Commission requires further clarifications from the UK, particularly in relation to how the UK will diverge from EU frameworks, how it will use its supervisory discretion regarding EU firms, and how the UK's temporary regimes will affect EU firms. The Commission reiterates that it will consider granting equivalence when it is in the EU's interest.

Key dates to watch are the 28 February 2021 deadline for the end of the provisional application of the TCA and March 2021 for the deadline for the regulatory cooperation MoU.

If you would like to discuss the impact of the TCA on your business, please get in touch with your usual Hogan Lovells contact or a member of our Brexit Taskforce. For an overview of the impact of the TCA on data protection, read our separate briefing here.

Cryptoassets and stablecoins: HM Treasury consultation and call for evidence

HM Treasury has published a consultation and call for evidence on the UK regulatory approach to stablecoins and cryptoassets. The consultation paper represents the first stage in HM Treasury's consultative process on the broader regulatory approach to cryptoassets and stablecoins. It wants to ensure the UK regulatory framework is equipped to harness the benefits of new technologies, supporting innovation and competition, while mitigating risks to consumers and financial stability.

HM Treasury proposes an incremental, phased approach to regulatory adjustments, and a proportionate approach to regulation that is sensitive to risks posed and responsive to new market developments. The approach would be rooted in the principle of "same risk, same regulatory outcome". The objectives and principles would be set by the government and HM Treasury, with detailed rules set by the regulators. HM Treasury plans to maintain the current division of UK regulator responsibilities as far as possible.

The consultation paper focuses on establishing a sound regulatory environment for stablecoins, where HM Treasury judges that risks and opportunities are most urgent. If appropriate standards and regulation can be met, HM Treasury considers that certain stablecoins have the potential to play an important role in retail and cross-border payments, including in settlement. It proposes to introduce a regulatory regime for "stable tokens" used as a means of payment, covering firms issuing stable tokens and firms providing services relating to them, either directly or indirectly, to consumers.

The use of currently unregulated tokens and associated activities primarily for speculative investment purposes, such as Bitcoin, could initially remain outside the regulatory perimeter for conduct and prudential purposes. Utility tokens (those used to access a service) could also remain outside the perimeter. To a longer timetable, HM Treasury will consider the case for bringing a broader set of cryptoasset market actors or tokens within the scope of regulation.

The paper also includes a call for evidence on cryptoassets used for investment and the broader use of distributed ledger technology in financial markets.

The deadline for comments on the paper is 21 March 2021.

If the proposals are adopted, further consultations and guidance will be issued by HM Treasury and relevant regulators on implementation, including specific firm requirements.

Separately, the House of Commons European Scrutiny Committee considered, in section 4 of its 33rd report of the 2019-21 session, the EU's proposed Regulation on markets in cryptoassets (MiCA), proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) and proposed Directive amending MiFID to clarify the legal position of certain cryptoassets under existing EU financial services legislation. The Committee explains that the new EU rules will not apply directly to or in the UK under the post-Brexit transition period. Nevertheless, it is concerned that the EU proposals raise several concerns which it discusses in its report.

The Committee will continue to scrutinise developments in the EU legislative process.

Expanding dormant assets scheme: HM Treasury response to consultation

HM Treasury has published a response to its joint consultation paper with the Department for Digital, Culture, Media and Sport (DCMS) on expanding the dormant assets scheme established under the Dormant Bank and Building Society Accounts Act 2008.

The UK dormant accounts scheme is currently narrower in scope than other international schemes, with only bank and building society accounts included. HM Treasury and DCMS consulted on expanding the scheme between February and July 2020.

Having considered all responses, which showed widespread support, the government intends to legislate to include additional assets from the insurance and pensions, investment and wealth management, and securities sectors in the scheme. Assets proposed to be within the scope of the expansion include:

proceeds of dormant life insurance and retirement income policies;
proceeds of dormant shares or units in collective investments;
dormant investment asset distributions and proceeds;
proceeds of, or distributions from, dormant shares; and
unclaimed proceeds from corporate actions.

Once the scheme is expanded, participants must continue to first make efforts, based on industry best practice, to reunite assets with their owners. Where that is not possible, more businesses will be allowed to participate in voluntarily transferring dormant assets into the scheme. People will still be able to reclaim their assets in full at any time.

Funding raised through expanding the scheme will enable continued support of good causes, social investments and environmental initiatives.

The government intends to legislate to expand the scheme when parliamentary time allows. It recognises and welcomes the strong interest in how future dormant assets funding could be spent and is considering whether this is an area that should be reviewed.

Post-Brexit Gibraltar passporting arrangements: FCA and PRA statements

The Financial Conduct Authority (FCA) has published a new webpage on passporting in and out of Gibraltar and the Prudential Regulation Authority (PRA) has published a new webpage on Gibraltar passporting arrangements.

The PRA explains that the transitional arrangements preserving deemed passporting for Gibraltarian firms after the end of the transition period have been extended until 31 December 2021 and can be further extended until such time as the permanent arrangements of the Gibraltar Authorisation Regime are in place. The PRA provides an overview of outward passporting to Gibraltar and inward passporting from Gibraltar. It also covers how the PRA assesses outward passporting firms and changes to the original passport notification. Until further notice, the PRA requests that all passport notifications in accordance with the Capital Requirements Directive (CRD) and Solvency II Directive are submitted by email only, not sent by post.

The FCA webpage covers how to apply for, change or cancel a passport, the passporting fees payable and the time it takes for the FCA to process passport notifications. It also includes information on passporting rights for UK appointed representatives, UK tied agents in Gibraltar, and UK-authorised payment institutions and registered account information service providers with several agents.

PRA changes required before end of Brexit transition period: PS30/20 & PS27/20

The PRA has published a policy statement, PS30/20, on changes to its rules and onshored binding technical standards, as well as the use of temporary transitional directions, required before the end of the Brexit transition period. In particular, PS30/20 contains the final versions of the PRA Rulebook: (EU Exit) Instrument 2020 (PRA 2020/29) (set out in Appendix 1), the PRA transitional direction (set out in Appendix 2) and related guidance (set out in Appendices 4 to 7).

The PRA published these initially as near-final drafts as part of a joint Bank of England (BoE) and PRA policy statement, PS27/20, on 18 December 2020. However, following the making of the PRA's rules implementing CRD V, the PRA Rulebook: (EU Exit) Instrument 2020 and the PRA transitional direction have now been made and published as final versions, together with related guidance. The PRA has not made any changes to these materials from the near-final versions previously published.

Most provisions of the Instrument commenced at 11pm on 31 December 2020 (IP completion day). However, a small number of provisions will take effect at different times. The transitional direction came into force on IP completion day. In general terms, it delays onshoring changes that fall within the PRA's remit. It will apply until 31 March 2022, unless otherwise stated in the direction or if it is varied or revoked before then.

End of Brexit transition period: FCA cooperation and information-exchange MoUs

The FCA has published a webpage linking to memoranda of understanding (MoUs) it has entered into with European authorities in the areas of securities, insurance and pensions, and banking:

a multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information sharing relating to, among others, market surveillance, investment services and asset management activities;
an MoU with the European Securities and Markets Authority (ESMA) covering supervision of credit rating agencies and trade repositories;
a multilateral MoU with EU and EEA NCAs covering supervisory cooperation, enforcement and information exchange between UK and EU/EEA national supervisors in the field of insurance regulation and supervision;
an MoU with the European Insurance and Occupational Pensions Authority (EIOPA) covering information exchange and mutual assistance between the UK authorities and EIOPA in the field of insurance regulation and supervision;
an MoU with the European Banking Authority (EBA) covering information exchange and mutual assistance between the UK authorities and the EBA in the field of banking; and
individual MoUs with EU and EEA NCAs covering supervisory cooperation and information-sharing arrangements in the field of banking. These can be found on the PRA website.

End of Brexit transition period: FCA update on regulatory change

The FCA has published a press release about regulatory changes for firms as the Brexit transition period ends. The press release refers to several changes to existing systems and services, including:

temporary permissions regime (TPR): the TPR has now come into effect for the firms and funds that notified the FCA that they wanted to enter the regime. Passporting between the UK and EEA states has ended;
financial services contracts regime (FSCR): the FSCR allows, for a limited period, EEA passporting firms not in the TPR to continue to service UK contracts entered into prior to the end of the transition period (or prior to when they enter FSCR) to conduct an orderly exit from the UK market now that the transition period has ended. The extent to which UK firms can continue to provide services to customers in the EEA depends on local law and local regulators' expectations. The FCA expects UK firms to take the steps available to them to make sure they act consistently with these local laws and expectations. The FCA states firms' decisions need to be guided by obtaining appropriate outcomes for their customers, wherever they are based;
temporary transitional power (TTP): while the TTP has been applied on a broad basis, there are some key exceptions where firms need to comply with the changed requirements now. Firms should check the implications of these for their business; and
credit rating agencies (CRAs) and trade repositories (TRs): the FCA is the UK regulator of UK-registered and certified CRAs. This means that any UK legal entity that wishes to issue credit ratings publicly or by subscription will now need to be registered or certified as a CRA with the FCA. Any TR wishing to offer its services in the UK after 31 December 2020 will need to be registered with or recognised by the FCA. UK reporting counterparties and UK TRs should use the validation rules contained in the retained EU law version of the European Market Infrastructure Regulation (UK EMIR) when submitting derivative transactions entered into from 11pm on 31 December 2020 onwards.

Final FCA Brexit instruments and TTP directions

To prepare for the end of the transition period, the FCA made further EU exit-related changes to its Handbook and Binding Technical Standards for which, in some cases, it shares responsibility with the PRA or the BofE. These changes ensure that a functioning regulatory and legal framework for financial services continues to be in place after the transition period.

The updates follow the publication in September of the FCA's CP20/18 containing draft onshoring-related instruments. The final instruments are largely unchanged from the versions consulted on in CP20/18, and these changes are outlined in the FCA's Handbook Notice 83.

The FCA's Temporary Transition Power (TTP) directions have also been made and published. The TTP applies transitional provisions to financial services legislation for a temporary period. The TTP will be applied on a broad basis from the end of the transition period until 31 March 2022, although there are some areas where the TTP will not apply which are detailed on an FCA webpage.

Post-Brexit UK regulatory regime: FCA directions, notifications and forms

The FCA has published a series of new directions, notifications and forms, which it and firms will need to use now the Brexit transition period has ended.

Forms relating to benchmarks

Benchmarks administrator notification form: this equivalence notification form can be used to give the FCA the information it requires to publish the relevant firm's details and benchmarks on the UK benchmarks register; and
Benchmarks schedule form equivalence: this equivalence form requires details on those benchmarks or families of benchmarks that the relevant benchmark administrator already administers or intends to administer. This includes all benchmarks administered in the UK or the EU (or both).

Forms relating to credit rating agencies (CRAs)

CRAs' application for certification form and notes: this application for certification form relates to an application for certification under article 5 of the UK CRA Regulation. Applicants must submit the information required by the onshored version of Commission Delegated Regulation (EU) 449/2012, which sets out the information to be provided by a CRA applying for certification; and
CRAs' application for registration form and notes: this application for registration form relates to an application for registration under the UK CRA Regulation. Applicants must comply with articles 2 to 6 of the UK CRA Regulation regarding the format of the application, the attestation of its accuracy, the class of credit ratings, the number of employees, and the policies and procedures provided to the FCA. They must submit the information required by the onshored version of Commission Delegated Regulation (EU) 449/2012.

Notification forms

Supervised run-off (SRO) notification form: this notification form is for EEA-authorised payment institutions (PIs), EEA-registered account information service providers (RAISPs) and EEA-authorised electronic money institutions (EMIs), to notify the FCA of entry into SRO, which forms part of the UK's financial services contracts regime (FSCR). Under SRO, these firms can provide the payment and e-money services they were providing in the UK in the exercise of a passport right to the extent necessary to continue to service pre-existing contracts with UK customers;
Contractual run-off (CRO) notification form: this notification form is for passporting firms under schedule 3 of the Financial Services and Markets Act 2000 (FSMA) (that is, credit institutions, Solvency II insurers, investment firms, alternative investment fund (AIF) managers, UCITS management companies, insurance distribution firms and mortgage intermediaries). CRO forms part of the FSCR. It allows EEA or Treaty firms that, immediately before the end of the Brexit transition period, qualified for authorisation to undertake regulated activities in the UK in line with Schedule 3 or 4 of FSMA on a freedom to provide services basis, to continue to perform regulated activities within the scope of their previous passport in the UK mainly to the extent necessary to continue to perform pre-existing contracts with UK customers; and
Notification form: EEA E-Commerce Directive (ECD) firms: this form relates to notifications under regulation 13 of the Electronic Commerce and Solvency 2 (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/1361) (ECD EU Exit Regulations). It allows an EEA ECD firm to notify the FCA that it is using the ECD run-off, which is set out in Part 4 of the ECD EU Exit Regulations, to run-off its existing contracts that it entered into under the ECD exclusion in article 72 of the FSMA (Regulated Activities) Order 2001 (SI 2001/544) (RAO).

Directions

Direction: ECD run-off: this direction is given by the FCA under regulation 13 of the ECD EU Exit Regulations. It applies to notifications under that regulation;
Direction: FSMA applications: this direction is given by the FCA under section 55U(4) and (4A) of FSMA, as modified by regulation 6(6) of the EEA Passport Rights (Amendment etc. and Transitional Provisions) (EU Exit) Regulations 2018 (SI 2018/1149) (Passport Rights Regulations). It is addressed to temporary permission (TP) firms and directs them not to apply for authorisation or variation in the UK until specifically directed to do so by the FCA;
Direction: no section 272 applications: this direction is given by the FCA under regulation 68(2) of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/325). It directs that fund managers should not submit an application for the full recognition of a fund in the UK's temporary marketing permission regime (TMPR) under section 272 of FSMA until specifically directed by the FCA to do so;
Direction: notification following entry into CRO (FSMA): this direction is given by the FCA under regulation 53(2) of the Passport Rights Regulations. It directs that a notification made under regulation 53(1) of the Passport Rights Regulations must be made by submitting the CRO notification form;
Direction: notification following entry into CRO (EEA authorised EMIs): the FCA has given this direction under paragraph 12C(3) of Part 1A of Schedule 3 to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 (SI 2018/1201) (as amended) (E-Money and Payments EU Exit Regulations). It directs that a notification made under paragraph 12C(1) of Part 1A of Schedule 3 to those Regulations must be made by submitting the CRO notification form, contain the information required in that form, and be made as soon as practicable after entry into CRO;
Direction: notification following entry into SRO (EEA authorised EMIs): the FCA has given this direction under paragraph 12C(3) of Part 1A of Schedule 3 to the E-Money and Payments EU Exit Regulations. It directs that a notification made under paragraph 12C(3) of Part 1A of Schedule 3 to those Regulations must be made by submitting the SRO notification form, contain the information required in that form, and be made as soon as practicable after entry into SRO;
Direction: notification following entry into CRO (payments): the FCA has given this direction under paragraph 27(3) of Part 3 of Schedule 3 to the E-Money and Payments EU Exit Regulations. It directs that a notification made under paragraph 27(1) of Part 3 of Schedule 3 to those Regulations must be made by submitting the CRO notification form, contain the information required in that form, and be made as soon as practicable after entry into CRO; and
Direction: notification following entry into SRO (payments): the FCA has given this direction under paragraph 27(3) of Part 3 of Schedule 3 to the E-Money and Payments EU Exit Regulations. It directs that a notification made under paragraph 27(3) of Part 3 of Schedule 3 to those Regulations must be made by submitting the SRO notification form, contain the information required in that form, and be made as soon as practicable after entry into SRO.

Sterling LIBOR transition: FCA, BoE and RFRWG updates

The FCA and the BoE have published press releases highlighting the need for firms to complete the transition from sterling LIBOR by the end of 2021, alongside an updated version of the priorities and roadmap document produced by the Working Group on Sterling Risk-Free Reference Rates.

Financial services sector competition investigation: CMA update

The Competition and Markets Authority (CMA) has published an update on the progress of its ongoing investigation, launched in November 2018, into alleged anti-competitive arrangements in the financial services sector. The CMA confirms that, following the end of the UK-EU transition period, the CMA’s investigation will continue into suspected anti-competitive arrangements which may infringe the Chapter I prohibition of the Competition Act.

The CMA had stated that its initial investigation would continue until December 2020. It now states that the investigation will continue from January 2021 to September 2021, including further information gathering and analysis.

COVID-19: PRA and FCA statement for dual-regulated firms on SMCR

The PRA and FCA have jointly published an updated statement on the impact of COVID-19 on the Senior Managers and Certification Regime (SMCR), setting out their expectations of dual-regulated firms. The statement provides an update to the flexibility they previously offered in their April 2020 statement.

The regulators state that, as firms have adapted to the impact of the pandemic over the past months, their current expectation is that firms' application of the SMCR rules returns to normal. They have therefore ended the provisions that were previously available. Their explanation of what this means for firms includes:

the relaxation of the requirement for a firm that needed to make temporary arrangements in direct response to the pandemic to submit updated Statements of Responsibilities (SoRs) ended on 7 January 2021. The regulators now expect firms to submit revised SoRs as normal. They should use Form J for this;
the regulators' rules allow individuals to perform senior management functions (SMFs) without approval for up to 12 weeks in a consecutive one-year period if their firm experiences an SMF vacancy that is temporary and/or reasonably unforeseen (the 12-week rule). The regulators' statement said that if the FCA and PRA conclude that the 12-week rule is insufficient to allow firms to respond to temporary SMF absences linked to coronavirus, they will consider additional measures. The regulators have found no evidence that the 12-week rule does not provide enough flexibility for dual-regulated firms due to coronavirus, and therefore do not intend to introduce measures; and
in normal circumstances, if an SMF becomes temporarily vacant, firms should reallocate those SMFs' prescribed responsibilities (PRs) among their remaining SMFs until a permanent replacement is approved. However, if this is not possible due to coronavirus, the regulators previously allowed firms to temporarily allocate the SMFs to the individual who is acting as interim SMF under the 12-week rule, even if they are, at the time, unapproved as an SMF. This provision ended on 7 January 2021, and firms should now apply these rules as normal. If a PR has been allocated to someone who is not approved as an SMF, the firm should reallocate it to an SMF before that date.

COVID-19: FCA statement for solo-regulated firms on SMCR

The FCA has published an updated statement on the impact of COVID-19 on the SMCR, setting out its expectations of solo-regulated firms. The statement provides an update to the additional flexibility the FCA communicated in its April 2020 statement.

In this latest statement, the FCA also explains that, as firms have adapted to the impact of the pandemic over the past few months, it expects that firms' application of the SMCR rules will return to normal. Some of the previously available provisions ended on 7 January 2021 and the relevant modifications by consent will end after 30 April 2021. The FCA provides more detail below on what this means, which includes:

the relaxation of the requirement for a firm that needed to make temporary arrangements in direct response to the pandemic to submit updated Statements of Responsibilities (SoRs) (provided certain conditions were met) ended on 7 January 2021. The FCA now expects firms to apply the notification requirements as normal and submit a Form J when significant changes are made to SoRs. However, it does not expect firms to submit updated SoRs relating to changes made before 7 January 2021; and
the FCA previously issued a modification by consent to the 12-week rule to support firms using temporary arrangements during the crisis. If temporary arrangements made as a result of the pandemic lasted longer than 12 weeks, firms could notify it that they consented to an extension of the 12-week rule. The modification by consent is still available. However, a firm cannot consent to the modification after 30 April 2021 and all modifications consented to before then will come to an end on that date. The end date means that the maximum period of extension available to firms reduces closer to 30 April 2021.

The FCA has made little change from its previous statement relating to furloughed staff.

COVID-19: FCA updated expectations for approved persons regime

The FCA has published an updated statement setting out its expectations to help firms using appointed representative arrangements apply the approved persons regime during the COVID-19 pandemic. The statement provides an update to its June 2020 statement.

The FCA explains that, as firms have adapted to the impact of the pandemic over the past few months, it expects that firms' application of the SMCR rules will return to normal. Some of the previously available provisions ended on 7 January 2021 and the relevant modifications by consent will end after 30 April 2021. The FCA provides more detail below on what this means, which includes:

the FCA previously issued a modification by consent to the 12-week rule to support firms using temporary arrangements during the crisis. If temporary arrangements made as a result of the pandemic lasted longer than 12 weeks, firms could notify the FCA that they consented to an extension of the 12-week rule. The FCA explains that the modification by consent is still available. However, a firm cannot consent to the modification after 30 April 2021 and all modifications consented to before then will come to an end on that date. This means that the maximum period of extension available to firms reduces closer to 30 April 2021; and
from 7 January 2021, firms are again be expected to notify the FCA under Form D of the temporary arrangements set out in the FCA's statement. However, the FCA does not expect firms to submit their Form D relating to changes made before 7 January 2021.

COVID-19: FCA statement on financial crime systems and controls

On 8 January 2021, the FCA updated its webpage on firms' financial crime systems and controls during the COVID-19 pandemic which allowed some flexibility, on a risk-assessed basis, to firms' financial crime systems and controls. The FCA's update informs firms that its statement will expire on 7 February 2021.

COVID-19: FCA financial resilience survey

On 7 January 2021, the FCA published a new webpage setting out the data it has obtained as a result of carrying out its COVID-19 financial resilience survey during 2020. It also announced, on 8 January 2021, that it will carry out a further survey of firms to help it understand the change in their financial resilience as a result of COVID-19. The FCA intends to email the survey to the relevant firms during the period of 13 January to 19 January 2021. Completion of the survey is mandatory.

COVID-19: ESRB revises recommendation on restrictions of distributions

On 18 December 2020, the European Systemic Risk Board (ESRB) published a press release summarising discussions at the 40th regular meeting of its General Board, which was held on 15 December 2020. Among other things, it decided to revise and extend its initial recommendation on restrictions of distributions during the COVID-19 pandemic by way of a further recommendation (dated 15 December 2020).

The revised Recommendation aims to ensure that firms maintain a sufficiently high level of capital to mitigate systemic risk and contribute to economic recovery in case of further economic disruptions. It recommends that relevant authorities ask banks, investment firms, insurers and reinsurers to refrain from distributions that have the effect of reducing the quantity or quality of own funds, unless firms apply extreme caution in carrying out distributions and the resulting reduction does not exceed the conservative threshold set by their competent authority.

Previously the General Board included central counterparties (CCPs) within the scope of its recommendation. However, ESMA's CCP stress test exercise confirmed the overall operational resilience of EU CCPs to common shocks and multiple defaults for credit, liquidity and concentration stress risks. Considering the effectiveness of the measures deployed by CCPs to mitigate operational risk, the General Board decided that it is no longer necessary to include CCPs within the scope of the recommendation.

The revised recommendation will apply until 30 September 2021. The ESRB will continue to monitor the recommendation's implications on firms and will decide if it needs to be further amended.

COVID-19: EBA requests extension for submission of technical standards

On 17 December 2020, the EBA published a letter (dated 9 December 2020) asking the European Commission to revise the deadlines for the submission of certain draft RTS and implementing technical standards (ITS) required under the Capital Requirements Regulation, the Capital Requirements Directive and the Investment Firms Regulation that were due to be delivered by the end of December 2020 or 1 January 2021.

The EBA requests new time limits for the submission of these RTS and ITS because of the lengthened consultation periods due to COVID-19 and needing to put on hold data collections normally used for ad-hoc impact or cost-benefit analyses.

The EBA is also requesting a delay to a report required under Article 44 of the Securitisation Regulation which it now expects to complete by the end of March 2021.

Outsourcing to cloud service providers: ESMA guidelines

ESMA has published a final report containing guidelines on outsourcing to cloud service providers (CSPs). The guidelines aim to help firms and competent authorities identify, address and monitor the risks and challenges arising from cloud outsourcing arrangements, from making the decision to outsource, selecting a cloud service provider, monitoring outsourced activities to providing for exit strategies.

ESMA consulted on the guidelines in June 2020. In general, respondents agreed with ESMA's approach towards outsourcing to CSPs. The final report provides an overview of the feedback it received and explains how ESMA took this feedback into account.

The guidelines apply from 31 July 2021 to all cloud outsourcing arrangements entered, renewed or amended on or after that date. ESMA states that firms should review and amend accordingly existing cloud outsourcing arrangements with a view to ensuring that they take into account the guidelines by 31 December 2022. Where the review of cloud outsourcing arrangements of critical or important functions is not finalised by 31 December 2022, firms should inform their competent authority, including the measures they plan to take to complete the review or their possible exit strategy.

The guidelines will be translated into the official EU languages and published on ESMA's website. The publication of the translations in all official languages of the EU will trigger a two-month period during which competent authorities must notify ESMA whether they comply or intend to comply with the guidelines.

PEPP Regulation: European Commission adopts Delegated Regulation

The European Commission has adopted a Delegated Regulation supplementing the Pan-European Personal Pension Product (PEPP) Regulation with regard to regulatory technical standards (RTS) specifying the requirements on information documents, on the costs and fees included in the cost cap, and on risk mitigation techniques for the PEPP.

The Council of the EU and the European Parliament will now consider the Delegated Regulation. If neither object, the Delegated Regulation will be published in the Official Journal of the EU (OJ) and enter into force on the twentieth day following its publication in the OJ.

Cryptoassets: IOSCO report on investor education

The International Organization of Securities Commissions (IOSCO) has published a report to help regulators and retail investors address the risks associated with cryptoassets. As well as identifying the specific risks of cryptoassets to investors, the report describes methods that regulators can use to provide educational material to retail investors on the risks of investing in cryptoassets.

IOSCO recommends that members adopt the material and educational approaches in the report best suited to their respective jurisdictions. It acknowledges that not all the report's material or educational approaches may be appropriate for all member jurisdictions or consistent with all members' legal and regulatory frameworks.