Key Regulatory Topics: Weekly Update 21-27 July 2023

Published Date
Jul 28, 2023
This week in the UK, the PRA began consulting on its proposed rules to replace retained EU law requirements on PRA-authorised persons in provisions of the Securitisation Regulation for which it has supervisory responsibility and the related Technical Standards. In addition, HM Treasury published a policy statement on payment account contract termination and freedom of expression, while the PSR published a summary working paper and stakeholder responses in relation to UK-EEA cross border interchange fees increases. In Europe, the EBA began consulting on guidelines on the application of the group capital test for investment firm groups under the IFR, and the EBA and ESMA published a report assessing the implementation of the revised Shareholder Rights Directive.


Please see the Payment Services and Payment Systems section for HMT’s policy statement on payment account contract termination and freedom of expression.

FCA Financial Lives survey 2022

On 26 July, the FCA set out the key findings from its 2022 Financial Lives survey. The survey takes place approximately every 2 years and is designed to provide longer-term trend data. The survey was conducted largely in May 2022. It breaks down into detail how the rising cost of living has had a significant financial impact on the financial lives of many adults in the UK. In this context, the FCA explains the importance of the Consumer Duty, and explores some of the Financial Lives survey results that are relevant to the outcomes it seeks to achieve, including in relation to: (i) customer support services; (ii) creating products and services that meet consumers’ needs and offer fair value; and (iii) communications that consumers find helpful and can understand. The FCA also compares the results with those from the two previous surveys in 2020 and 2017, highlighting trends including: (a) an increase in adults, particularly younger, with investments, but a decline in those with cash savings; (b) a significant increase in consumers opting to use online and mobile banking; and (c) a slight increase in consumers’ confidence and trust in the financial services sector, though it remains low across all groups.

Press release

Executive summary

Survey results


BoE consults on fees regime for FMI supervision 2023/24

On 21 July, the BoE began consulting on its supervisory fees for FMIs for 2023/24. The total cost for the 2023/24 fee year of the Bank’s FMI supervisory activity and policy activity that supports this, and is within scope of the Bank’s fee-levying powers, is expected to be £13.8 million, representing an increase of 19% on the total fees levied in 2022/23 of £11.6 million, although these numbers are not directly comparable due to changes in the population of supervised firms. The deadline for comments is 21 September. The proposed implementation date for the proposals is Q3 of the 2023/24 fee year (that is, September to December 2023 inclusive), at which point invoices are expected to be issued for the 2023/24 fee year.


Financial Crime and Sanctions

Please see the Markets and Markets Infrastructure section for ESMA’s announcement that it has withdrawn the recognition decisions of three UAE CCPs following the addition of the UAE to the EC’s list of high-risk third countries presenting strategic deficiencies in their national AML/CFT regime.

Please see the Payment Services and Payment Systems section for HMT’s policy statement on payment account contract termination and freedom of expression.

OFSI financial sanctions: update to general guidance on refusal of licences

On 26 July 2023, HMT and OFSI updated the general guidance on financial sanctions, specifically the section on OFSI’s refusal to issue a licence. The amendment removes the right to an OFSI review against the refusal of a licence.

General guidance


The second bulletin in our '”MiCAR under the microscope”' series has been published this week. Our experts provide a more in-depth analysis of the scope of MiCAR and how it applies to different types of crypto-assets and activities. In future bulletins in this series, we will be looking at the licensing requirements of crypto-asset service providers, the issuance and marketing of crypto-assets, and the market abuse and AML regimes applicable to crypto-assets.

Markets and Markets Infrastructure

Please see the Regulatory Reform Post Brexit section for the PRA’s consultation on its proposed rules to replace retained EU law requirements on PRA-authorised persons in provisions of the Securitisation Regulation for which the PRA has supervisory responsibility and the related Technical Standards.

EBA and ESMA assess implementation of revised Shareholder Rights Directive

On 27 July, the EBA and ESMA published a report assessing the implementation of the second Shareholder Rights Directive (SRD2). In the report, the EBA analyses the implementation of certain provisions in the SRD2 in relation to the charges applied by intermediaries and the practices of third country intermediaries. In particular, the level of disclosure and comparability of costs charged by intermediaries remain limited across the EU, mainly due to a lack of harmonisation of the types of fees or services and of detailed disclosure requirements. The EBA notes that on these aspects there is room for improvement to increase competition among players and reduce the negative impact of costs on investors’ engagement. With regards to proxy advisors, the report’s recommendations include that: (i) the EC should consider clarifying the definition of the term “proxy advisor”; (ii) the EC should consider defining minimum standards for codes of conduct for proxy advisors; (iii) in relation to conflicts of interest, disclosure obligations by proxy advisors, especially vis-à-vis their clients, could be enhanced in cases where proxy advisors render consultancy services to issuers and advise investors on those same entities; and (iv) a basic registration mechanism for proxy advisors should be introduced at the EU level. In relation to the investment chain, the report’s recommendations include that the EC should: (i) consider the possibility of introducing a harmonised definition of the term “shareholder” throughout the EU. The report is aware that such a definition would have an impact on company, securities, and tax law across Member States and it points out various ways of addressing those issues; (ii) evaluate if a clearer indication can be given as to which securities fall under the scope of the SRD2; and (iii) consider if more flexibility could be given to issuers, so they could better customise shareholder identification requests in accordance with their individual needs. The report will serve as basis for the upcoming work of the EC in assessing the implementation and the potential review process of the SRD2.

Press release


FCA statement on temporary supervisory flexibility for certain UK MiFIR transaction reports

On 27 July, the FCA announced new temporary measures for the reporting of certain fields in MiFIR transaction reports, where it will not take action against firms which fail to populate the required fields in accordance with requirements, specifically: (i) waiver indicator (field 61); (ii) OTC post-trade indicator (field 63); (iii) commodity derivative indicator (field 64); and (iv) securities financing transaction indicator (field 65). The temporary measures for the reporting of the short selling indicator under UK RTS 22 continue to apply. The FCA will also update the UK MiFIR transaction reporting schema to enable reporting of all alphanumeric values in the waiver indicator and OTC post-trade indicator fields. This change will allow firms to report the new trade reporting flags introduced in PS23/4 in their UK MiFIR transaction reports. Following the temporary measures outlined above, the FCA will not take action against firms that choose not to do so. The FCA’s plans for introducing the new schema will be communicated to market data processor submitting entities in due course, prior to the implementation date for the new rules introduced in PS23/4.


ESMA withdraws recognition decisions of three UAE CCPs

On 25 July, ESMA announced that it has withdrawn, as required by EMIR, the recognition decisions of three CCPs established in the UAE, following the addition of the UAE to the EC’s list of high-risk third countries presenting strategic deficiencies in their national AML/CFT regime, on 16 March. In order to minimise potential market disruption, ESMA has provided for an adaptation period of three months. The withdrawal of recognition decisions will therefore enter into effect on 25 October. From that date, the three CCPs concerned will no longer be permitted to provide clearing services to clearing members or trading venues established in the EU.

Press release

Updated list of recognised third-country CCPs

FCA Market Watch issue 74

On 25 July, the FCA published issue 74 of its Market Watch newsletter. The FCA notes that firms are not paying sufficient attention to its warnings on the importance of reporting transactions to it in a complete, accurate and timely manner. The FCA describes some of its recent supervisory observations, covering MiFID RTS 22 transaction reporting and the submission of financial instrument reference data under MiFID RTS 23. It reminds firms of the requirements in relation to: (i) reconciliations and breach notifications; (ii) the identification of investment and execution decision makers; (iii) complex trades; (iv) transmission agreements; (v) inconsistent price and quantity notations; (vi) transactions executed under the rules of a trading venue; (vii) looking through the chain; and (viii) reporting instrument details. The FCA also identifies issues and sets out its expectations relating to late reporting, spot FX instruments and cancelled instrument reference data, with regard to the requirements in MiFID RTS 23 on instrument reference data. The FCA expects firms to continue to submit errors and omissions notifications for any issues of which they become aware.   

Market Watch 74

Payment Services and Payment Systems

HMT policy statement on payment account contract termination and freedom of expression

On 21 July, HMT published a policy statement on payment account contract termination and freedom of expression. The Government intends to make changes to the PSRs with the objective of: (i) improving transparency for users in receiving a clear understanding why their payment account contract has been terminated, by stating in regulation that a clear and tailored explanatory reason must be given, unless to do so would be unlawful; and (ii) requiring that payment account providers must provide at least 90 days’ notice when choosing to terminate a contract, unless for a serious and uncorrected breach (such as non-payment) or other serious occurrence and clarifying that clauses in user agreements purporting to allow termination for other matters (such as brand protection) cannot be used to circumvent this. Lesser termination periods would exceptionally continue to be allowed, for example, where a provider is obliged to terminate the contract to comply with the law, in particular, financial crime law. Parties would also continue to be allowed to terminate a contract without notice in line with existing general principles of contract law (such as where the contract was found to have been made with someone without capacity). It is anticipated that the new rules would apply to contracts concluded from the date the changes are brought into effect. The Government intends to enact these changes to the relevant regulations via secondary legislation through the powers granted in the Financial Services and Markets Act 2023. In addition, the Government has committed to clarifying in law the distinction between domestic and non-domestic politically exposed persons (PEPs), in order to make clear that, in the absence of other risk factors, firms must apply a lower level of enhanced due diligence to domestic PEPs. The FCA is undertaking a review of its guidance on PEPs and financial institutions’ adherence to this guidance, and will take action during the course of the review where it identifies serious non-compliance. HMT intends to formally respond to the call for evidence on the PSRs later in 2023.

Policy statement 

PSR summarises feedback on impact of UK-EEA cross-border interchange fees increases

On 21 July, the PSR published a summary working paper and stakeholder responses in relation to its December 2022 working paper on UK-EEA cross border interchange fees increases. The working paper forms part of the PSR market review into a significant increase in fees paid on consumer card transactions that acquirers pay to issuers every time consumers use a Mastercard or Visa debit or credit card for online transactions between the UK and the EEA. The working paper summarises the feedback received, including in relation to: (i) rationale behind increase – some respondents considered there to be no real rationale for the substantial increase in fees, also noting that fee increases provide greater incentives to attract issuers to Mastercard and Visa so that they can charge higher scheme and processing fees. However, others noted that the previous rates were not appropriate and did not take into account the higher levels of cross-border fraud; (ii) impact of the increases – some respondents considered there has been a negative impact on competition. Increases to the multilateral interchange fee act as major factors against the introduction of new and alternative payment solutions, such as account-to-account payments; and (iii) recommended interventions – some respondents considered the previous cap under the EU IFR should be reinstated. The PSR notes that its market review is ongoing. It will take into account the points raised by stakeholders in its analysis.

Summary of responses


Prudential Regulation

PRA consults on updating UK Technical Standards on identification of G-SIIs

On 27 July, the PRA began consulting on proposed updates to the UK methodology for the identification of, and setting of a capital buffer for, global systemically important institutions (G-SIIs), to bring it in line with the BCBS framework, which was updated in 2022. In line with changes introduced to the BCBS framework, the updates to the UKTS would entail: (i) adding ‘trading volume’ as a new indicator under the ‘substitutability/financial institution infrastructure’ category; (ii) updating indicator weights for the ‘substitutability/financial institution infrastructure’ category; (iii) adding insurance subsidiaries to data consolidation for several indicators; and (iv) deleting transitional provisions for initial implementation in 2015, which are no longer relevant. The deadline for comments is 29 August. The proposed implementation date is the date of publication of the final revised UK Technical Standards. 

Policy statement

Draft UK Technical Standards

PRA policy statement on changes to the regulatory regime for credit unions

On 26 July, the PRA published a policy statement on changes to the regulatory regime for credit unions. In its consultation CP7/22, the PRA proposed to: (i) provide more flexibility for credit unions when investing their surplus funds so long as they meet specified requirements and consider applicable guidance; (ii) set higher requirements and expectations for credit unions that pose greater risk to the PRA’s safety and soundness objective (either due to their size, or activities undertaken); and (iii) clarify the PRA’s existing expectations of credit unions in certain areas. The PRA does not consider the rule changes since the consultation to be significant. The most material changes to the draft policy include: (a) an amendment to the 75% counterparty concentration limits proposed so that they will not apply to certain investments, as well as making a number of other changes to the investment rules; (b) changes in presentation that make the new supervisory statement (SS) easier to read; (c) changes to the PRA’s expectations regarding the quality of credit unions’ capital base; (d) clarifications of the PRA’s expectations with respect to credit unions that provide mortgages; and (e) changes to the PRA’s expectations for large credit unions to carry out exit strategy planning. The new rules will be implemented by amendments to the Credit Unions Part of the PRA Rulebook, and a new SS2/23 – ‘Supervising credit unions’ which supersedes SS2/16 – ‘The prudential regulation of credit unions’, which has been deleted. The new rules will take effect on 29 August.

Policy statement

SS 2/23

Rulebook instrument

EBA consults on guidelines on application of group capital test for investment firm groups

On 25 July, the EBA began consulting on draft guidelines on the application of the group capital test for investment firm groups under the IFR. The criteria for allowing the use of the application of the group capital test appear to be subject to different interpretations by supervisory authorities and as a result, the inconsistent application of this provision can have a significant impact on the level playing field. The guidelines aim at setting harmonised criteria to address this diversity. In particular, the guidelines identify criteria to assist competent authorities in their assessment of the simplicity of the group structure and the significance of the risk posed to clients and the market. Given the wide variety of group structures and the significant diversity within the investment firm population, the guidelines allow for some deviations from the given thresholds. The deadline for comments is 25 October.

Press release


ECB consults on draft guide on effective risk data aggregation and risk reporting

On 24 July, the ECB began consulting on a draft guide on effective risk data aggregation and risk reporting (RDARR). The ECB considers that despite its importance, RDARR has not been given an appropriate level of focus, has not been properly steered and many structural deficiencies relating to it have not yet been tackled. As a result, adequate RDARR capabilities are still the exception and full adherence to the BCBS 239 principles has yet to be achieved. The purpose of the ECB guide on risk data aggregation and risk reporting is to specify, underscore and reinforce supervisory expectations for RDARR. The ECB strongly recommends that significant institutions make substantial progress in improving their data aggregation capabilities and internal risk reporting practices and has identified seven key areas of concern. The guide prioritises discussion of project management and the role of the management body, as these were identified as root causes of the insufficient progress made on RDARR. This guide includes a set of condensed prerequisites for effective RDARR that is intended to assist institutions in strengthening their capabilities, and also shares best practices. It summarises and re-states previous communications on RDARR. The deadline for comments is 6 October.

Press release

Draft guide

EBA report on interdependent assets and liabilities in NSFR

On 24 July, the EBA published a report on the treatment of interdependent assets and liabilities in the net stable funding ratio (NSFR). The treatment of interdependent assets and liabilities is limited to transactions where no funding risk exists for the institution, and as such, the activities are effectively exempted from stable funding requirements in the calculation of the NSFR. The report assesses the conditions under which assets and liabilities can be treated as interdependent in the NSFR and the description of the list of activities that are considered to meet those conditions. The EBA analysed if the conditions and definitions were met and whether they ensure the absence of funding risk or any amendment to them is necessary. The EBA has only limited recommendations for the EC at this stage, which concern: (i) extendable maturity triggers for covered bonds – the EBA considers that the trigger needs to be observable in markets as an objective indicator where the extension of the maturity of the covered bond will be automatic once the specific trigger/threshold is reached; and (ii) indirect derivatives client clearing activities – the EBA recommends adding the case of indirect derivatives client clearing activities to the established direct activities to make sure that the necessary safeguards envisaged here apply.

Press release


EBA updated report on monitoring of AT1, Tier 2 and TLAC/MREL instruments

On 21 July, the EBA updated its report on the monitoring of AT1, Tier 2 and total loss absorbing capacity (TLAC) and minimum requirement for own funds and eligible liabilities (MREL) instruments of EU institutions. The report merges the information of the two previous separate reports in these fields and adds new recommendations on certain contractual clauses of the corresponding documentation. By merging the contents of these two reports, the EBA aims to facilitate the reading and to highlight the commonalities in terms of eligibility criteria between own funds and eligible liabilities instruments. A few new recommendations have been added, which include: (i) TLAC/MREL disqualification events clauses in own funds issuances are deemed acceptable; (ii) risk-adjusted capital Tier 2 instruments are discouraged; (iii) alignment event clauses are allowed under certain conditions; (iv) institutions should be able to demonstrate that interest rate reset mechanisms do not entail incentives to redeem; and (v) a certain degree of supervisory flexibility has been introduced on tap issuances from small issuers, in particular in case of episodes of market volatility. Overall, the EBA has observed convergence and standardisation in terms of drafting of the terms and conditions of the instruments and issuance programmes, also as a result of the implementation of previous EBA recommendations. The EBA expects that forthcoming issuances will continue to retain a high level of standardisation in their terms and limit complexity.

Press release


Recovery and Resolution

FSB report on deployment of uTLAC: considerations for CMGs

On 27 July, the FSB published a report that sets out considerations for crisis management groups (CMGs) regarding the deployment of unallocated total loss-absorbing capacity (uTLAC). TLAC resources that are not distributed to material sub-groups in excess of those needed to cover risks on the resolution entity’s solo balance sheet are known as uTLAC. The goal of uTLAC is to recapitalise any direct or indirect subsidiary of the resolution entity as necessary to support the execution of the resolution strategy. The objective of the report is to be transparent in relation to a set of considerations that have been developed for CMGs and to assist home and host authorities in their discussions on the possible form, location and approaches to deployment of uTLAC resources in resolution planning and in the run-up to and during resolution. Challenges may vary depending on the form and location in which assets corresponding to the amount of uTLAC resources may be held, as well as the type of mechanisms used to deploy them. The considerations contained in this report are explicitly not guidance or guidelines for G-SIBs. Rather, the aim is to facilitate CMG discussions on uTLAC resources as part of resolution planning for G-SIBs, and provide home and host authorities with comfort that uTLAC resources are readily available and deployable in resolution.


FSB statement following survey on continuity of access to FMI services for firms in resolution

On 26 July, the FSB published a statement in relation to feedback to its survey on stakeholders' experiences with the framework for information from financial market infrastructure (FMI) intermediaries to support resolution planning and its questionnaire for FMIs. The survey responses demonstrated, among other points, that: (i) the FSB guidance is seen as a helpful reference for gathering relevant information to support resolution planning, but further uptake by FMIs and FMI intermediaries is needed; (ii) some FMI service providers noted that they would welcome feedback on their Questionnaire responses from the users of that information; and (iii) a respondent noted that not only banks, but also FMI service providers have information needs to support their own contingency planning. Based on this feedback, the FSB considers that its existing publications on the topic of firms’ continuity of access to FMI services in resolution do not currently need revision. However, this document provides a set of clarifications to further support the information exchange between FMI service providers and FMI service users for contingency planning. A significant number of internationally active FMIs have prepared a response to the FSB Questionnaire. The FSB strongly encourages all FMIs that have not done so already to prepare a response to the FSB Questionnaire and to review their response periodically to ensure continued accuracy and usefulness.


BoE Dear CFO letter on second Resolvability Assessment Framework assessment

On 24 July, the BoE published a Dear CFO letter, providing further information on the second Resolvability Assessment Framework (RAF) assessment, which is due to begin on 6 October, to support firms’ planning and ongoing work to maintain and enhance resolvability. Utilising firms’ RAF reports, the BoE will conduct activities to evaluate firms’ work to address issues identified as part of the first assessment, and will monitor progress in maintaining and enhancing their ability to achieve the three resolvability outcomes. The BoE reminds firms that it may update, modify or change its overall assessment depending on the information obtained and on individual firm circumstances. During the second RAF assessment, the BoE intends to undertake a more detailed assessment of firms’ preparations for resolution, with a focus in 2023-24 on the Adequate Financial Resources (AFR) outcome. This assessment will focus on firms’ capabilities to support a resolution transaction and remove the MREL, Valuations, and Funding in Resolution (FiR) barriers to resolution. The BoE’s activities will assess firms’ provision of timely data and the flexibility and readiness to execute their capabilities.


Regulatory Reform Post Brexit

PRA consults on securitisation general requirements

On 27 July, the PRA began consulting on its proposed rules to replace retained EU law requirements on PRA-authorised persons in provisions of: (i) the Securitisation Regulation for which the PRA has supervisory responsibility; (ii) th

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