News

Securities and markets regulatory news, 5 July 2021

FIG Bulletin

05 July 2021

Recent UK and EU regulatory developments of interest to financial institutions and markets. Also check our supplementary Financial institutions general regulatory news of broader application in the Related Materials links.

Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021

The Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021 (SI 2021/774) have been published, together with an explanatory memorandum. The Regulations amend the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories) Regulations 2001 (SI 2001/995) and Commission Delegated Regulation (EU) 2017/565, which supplements the Markets in Financial Instruments Regulation (UK MiFIR).

The purpose of SI2021/774 is to alleviate regulatory burdens on certain financial services firms, notably by removing unnecessary reporting requirements. It is intended to work in conjunction with proposed Financial Conduct Authority (FCA) rule changes (CP21/9) to give effect to amendments including to:

remove an obligation on trading and execution venues to publish reports relating to the quality of execution of orders obtained on them;
remove a requirement for investment firms providing portfolio management services to inform their professional clients whenever the overall value of the portfolio depreciates by 10% and thereafter at multiples of 10%;
remove an obligation for firms to provide detailed contract notes for trades executed on behalf of wholesale clients, and quarterly reports on portfolio management services;
exempt investment firms providing portfolio management services to professional clients from the requirement to provide cost benefit analyses to those professional clients when they switch the instruments in which they invest; and
revoke the obligation for an investment firm to provide specified information relating to its services to clients before a service is carried out, where the services are provided to eligible counterparties.

The Regulations were made on 28 June 2021 and will mostly come into force on 26 July 2021.

Financial Markets and Insolvency (Transitional Provision) (EU Exit) (Amendment) Regulations 2021

The Financial Markets and Insolvency (Transitional Provision) (EU Exit) (Amendment) Regulations 2021 (SI 2021/782) have been published, together with an explanatory memorandum. They came into force on 1 July 2021.

SI 2021/782 extends the effect of the temporary designation regime established by the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019 (SI 2019/782) for EEA systems that failed to apply for designation by the end of June 2021.

The Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations (SI 2019/341) (2019 Regulations) established a temporary designation regime (TDR) to enable non-UK financial market infrastructures (FMIs) to continue to benefit from UK protections provided for under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (SI 1999/2979). EEA systems that did not apply to the Bank of England (BoE) for designation under the SFRs within six months following the end of the Brexit transition period (that is, 30 June 2021) would automatically lose their settlement finality protections at that time.

SI 2021/782 amends the 2019 Regulations to change the consequences for systems that fail to apply within six months of the end of the Brexit transition period. These systems will now retain settlement finality protections under the TDR for a period of 30 months following the end of the transition period (that is, until 30 June 2023), rather than immediately losing those protections. This ensures that UK firms which are using EEA systems that fail to apply for designation under the UK SFR, will have sufficient time to find alternative providers should those systems choose to stop providing services to UK firms.

UK prospectus regime: HM Treasury consultation

Along with its wholesale markets review consultation paper (reported in General regulatory news section), HM Treasury has published a consultation on the UK prospectus regime. HM Treasury states that the consultation on the prospectus regime first considers what the fundamental purpose of a prospectus is, suggesting that a prospectus should be a device to provide potential investors with the information that they need to make reliable investment decisions in a security. It proposes that the two regulatory issues which the Prospectus Regulation deals with, admissions of securities to stock markets and "public offer rules", are dealt with separately in the future. The consultation then proposes that the FCA is granted new powers to make rules, in place of the current Prospectus Regulation.

The consultation also considers companies on overseas markets and the extent to which they can extend offers into the UK, the interaction of future rules with issuers listed on multilateral trading facilities, and private companies and their existing right to offer securities to the public.

The consultation closes on 17 September 2021.

UK EMIR: PRA and FCA PS14/21 on amending BTS on margin requirements for non-centrally cleared derivatives

The Prudential Regulation Authority (PRA) and FCA have published a joint policy statement, PRA PS14/21, on margin requirements for non-centrally cleared derivatives. In PS14/21, the regulators give feedback to responses to their preceding consultation paper (PRA CP6/21, FCA CP21/7) and set out their final policy in the form of amendments to the binding technical standards (BTS) in the UK onshored version of Commission Delegated Regulation (EU) 2016/2251 (BTS 2016/2251). The legal instruments come into force on 30 June 2021.

PS14/21 is relevant to PRA-authorised firms that are financial counterparties for the purposes of Article 2 of the European Market Infrastructure Regulation (EMIR) and to all FCA solo-regulated entities and non-financial counterparties in scope of the margin requirements under EMIR.

The regulators have proceeded with the text largely as consulted on, apart from a minor change to specify that the temporary exemption for single-stock equity and index options will expire on 4 January 2024. They have also temporarily extended the continued use of EEA UCITS as collateral from March 2022 to the end of December 2022 in response to feedback that smaller market participants might be disproportionately affected by costs imposed by the removal of the use of EEA UCITS.

The FCA states that it will consider whether any further clarification is needed on the application of the clearing obligation and margin requirements for new contracts, where the new contract relates solely to benchmark reforms and the replacement of reference rates. It notes that it set out its approach on this issue in November 2019 at a meeting of the Working Group on Sterling Risk-Free Reference Rates.

FMI supervision: BoE consults on fees regime for 2021/22

The Bank of England (BoE) has published a consultation paper on the fees regime for the supervision of financial market infrastructure (FMI) that will apply for the 2021/22 fee year. The FMIs that are currently within scope of the annual FMI supervisory fee are recognised payment systems, specified service providers to recognised payment systems, UK central counterparties (CCPs) and UK central securities depositories (CSDs). The BoE is seeking views on:

the fee rates to meet the 2021/22 funding requirement for its FMI supervisory activity and the policy activity that supports this. The proposed fees for 2021/22 are expected to total £10.6 million. This represents an increase in the fees levied of £1.5 million on the 2020/21 actual fees. The 2020/21 CCP fee-block charge is expected to increase by 17%, the payment system and service provider fee-block charge by 15% and the CSD fee-block charge by 13%;
the recovery of approximately £0.39 million through a special project fee (SPF). The BoE states that the SPF is for supervisory work associated with "a significant activity" that is time limited and requires additional supervisory resource; and
the allocation of the surplus from the 2020/21 FMI fee year. The BoE does not intend to provide a rebate to FMIs on the fees paid in relation to the 2020/21 fee year. It states that this is because in the 2020/21 fee year the BoE smoothed the increase from prior budget years, which effectively capped fees at 50% of the budget increase.

The deadline for responses is 30 August 2021. The proposed implementation date for the proposals is Q3 2021.

EMIR: Official translations of ESMA revised guidelines on written agreements between members of CCP colleges

The European Securities and Markets Authority (ESMA) has published the official translations, including the English language version, of its updated guidelines on written agreements between members of CCP colleges under the European Markets Infrastructure Regulation (EMIR).

The guidelines apply to national competent authorities (NCAs). They aim to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision (ESFS) and to ensure the common, uniform and consistent application of Articles 18 and 19 of EMIR and of the Delegated Regulation on colleges. In particular, the guidelines aim to propose a standard written agreement to ensure the timely establishment and smooth functioning of a CCP college. The standard written agreement takes account of the amendments to EMIR (in particular, Articles 18 and 19) and the Delegated Regulation on colleges, including under EMIR 2.2.

The guidelines apply from 1 July 2021. NCAs must make every effort to comply with the guidelines by incorporating them into the written agreements for establishment and functioning of a CCP college. Within two months of the date of publication of the guidelines on ESMA's website in all EU official languages, NCAs must notify ESMA whether they comply or intend to comply with them. Reasons must be given for non-compliance.

CSDR review: European Commission adopts report

The European Commission has published a report to the European Parliament and the Council of the EU following the Commission's review of the EU rules on central securities depositories (CSDs) under the Central Securities Depositories Regulation (CSDR). The review and report are required under Article 75 of the CSDR and Article 81(2c) of the ESMA Regulation also requires the Commission to assess the potential supervision of third-country CSDs by ESMA.

The Commission concludes, in broad terms, that the CSDR is achieving its original objectives to enhance the efficiency of settlement in the EU and the soundness of CSDs. In most areas, significant changes to the CSDR would be premature given the relatively recent application of the requirements. Nevertheless, concerns regarding the implementation of specific CSDR rules have been raised. These concerns include on the cross-border provision of services, access to commercial bank money, settlement discipline or the framework for third-country CSDs.

The report identifies areas where further action may be required to achieve the CSDR's objectives in a more proportionate, effective and efficient manner. In view of the important issues raised, and as announced in the 2021 Commission work programme and the second Capital Markets Union action plan, the Commission is considering presenting a legislative proposal to amend the CSDR, subject to an impact assessment that will examine the most appropriate solutions in more depth. This proposal would aim to ensure an effective post-trading infrastructure, enhance competition among CSDs and strengthen cross-border investment, contributing to the development of a genuine single market for capital in the EU.

Sustainability-related issuer disclosures: IOSCO report

The International Organization of Securities Commissions (IOSCO) has published a report on sustainability-related issuer disclosures. The report, developed by IOSCO's Sustainable Finance Taskforce (STF), reiterates the urgent need to improve the consistency, comparability and reliability of sustainability reporting for investors.

IOSCO states that this report is a crucial part of IOSCO's engagement with the IFRS Foundation. It demonstrates: (i) investor demand for sustainability-related information and evidence that this demand is not being properly met; and (ii) the need for improvements in the current landscape of sustainability standard-setting.

Based on the STF's work, this report identifies core elements of standard-setting that could help meet investor needs and provides guidance to a Technical Readiness Working Group (TWG) established by the International Financial Reporting Standards (IFRS) Foundation to develop recommendations for the International Sustainability Standards Board (ISSB) as it develops an initial climate reporting standard, building on the Task Force on Climate-related Financial Disclosures' (TCFD) recommendations and other existing voluntary principles, frameworks and guidance. The report also provides input to the IFRS Foundation on governance features and mechanisms for stakeholder engagement, considered to be essential to making the ISSB initiative successful.

Following an indicative timeline, IOSCO states that, given the urgent need to improve the consistency, comparability and reliability of sustainability reporting, IOSCO will closely monitor any developments and will encourage timely delivery and implementation of the key elements to support its vision. IOSCO recognises that some jurisdictions' domestic efforts to adopt disclosure requirements may proceed on a more accelerated timeframe.