UK Parliament
Financial services regulatory reforms - House of Commons publishes written statement outlining the UK’s approach to implementation - 23 June 2020
The House of Commons has published a written statement, made by Rishi Sunak MP (Chancellor of the Exchequer) on the UK’s approach to implementing several financial services regulatory reforms. Mr Sunak MP said:
“In general, consistent with the UK’s position as a major international financial hub, the Government intends to implement immediate reforms in line with existing expectations of the industry and the approach of the EU and other international partners where relevant. Naturally there will be some defined areas where it is appropriate for the UK – as a large and complex financial services jurisdiction - to take an approach which better suits our market, while remaining consistent with international standards. Today’s announcements provide clarity to all stakeholders about the UK’s legislative plans for the near future in relation to these forthcoming reforms, in relation to updating prudential requirements; maintaining sound capital markets; and, managing future risks”.
Among other things, the statement confirms that:
- the government plans to review certain features of the Solvency II Directive (2009/138/EC) to ensure that it is properly tailored to take account of the structural features of the UK insurance sector. The features to be reviewed include the risk margin, the matching adjustment, internal models and reporting requirements for insurers. The government intends to publish a call for evidence on this in autumn 2020;
- the government does not intend to implement the EU’s new settlement discipline regime set out under the Central Securities Depositories Regulation (909/2014/EU) (CSDR), which is due to apply from February 2021. As such, UK firms should continue to apply the existing industry-led settlement discipline regime;
- the government will not be incorporating the reporting obligations for non-financial counterparties under the Securities Financing Transactions Regulation (EU) 2015/2365 (SFTR), which are due to apply from January 2021, into UK law;
- HM Treasury intends to publish legislation to finalise and complete the implementation of the EMIR Refit Regulation (EU) 2019/834 into UK law to improve trade repository data and to ensure that firms are able to access clearing services on fair and reasonable terms;
- HM Treasury plans to make amendments to the Benchmarks Regulation (EU) 2016/1011 (BMR) to ensure continued market access to third-country benchmarks until the end of 2025, with further details to be published in July 2020;
- HM Treasury intends to make certain amendments to the Market Abuse Regulation (596/2014/EU) in relation to the maintenance of insider lists and the timeline for disclosure of certain transactions undertaken by senior managers; and
- HM Treasury intends to publish legislation to improve the functioning of the UK’s packaged retail and insurance-based investment products (PRIIPs) regime and address potential consumer harm risks, with further details to be published in July 2020.
The statement also refers to HM Treasury’s updated policy statement on prudential standards in the Financial Services Bill and the transposition of the second Bank Recovery and Resolution Directive (EU) 2019/879 (BRRD II), which we cover in the Banking and Finance section.
Written Statement by Rishi Sunak MP (Chancellor of the Exchequer) on the UK’s approach to implementing financial services regulatory reforms
LIBOR transition - HM Treasury proposes amendments to, and FCA publishes statement on, the UK benchmarks framework - 23 June 2020
The House of Commons has published a written statement made by Rishi Sunak MP (Chancellor of the Exchequer) on proposed amendments to the retained EU version of the Benchmarks Regulation (EU) 2016/1011 (BMR), as amended by the Benchmarks (Amendment) (EU Exit) Regulations 2018 (UK BMR), to be included in the forthcoming Financial Services Bill. Mr Sunak MP notes that:
“Unlike many jurisdictions, the UK has an existing regulatory framework for critical benchmarks such as LIBOR. The Government therefore intends to legislate to amend and strengthen that existing regulatory framework, rather than directly impose legal changes on LIBOR-referencing contracts that are governed by UK law. The legislation will ensure that, by end-2021, the FCA has the appropriate regulatory powers to manage and direct any wind-down period prior to eventual LIBOR cessation in a way that protects consumers and/or ensures market integrity”.
He also states that: “The government agrees with the Working Group on Sterling Risk-Free Rates (RFRWG’s) Tough Legacy Taskforce that active transition of legacy contracts remains of key importance and provides the best route to certainty for parties to contracts referencing LIBOR.”
As such, the government intends to:
- amend the UK’s existing regulatory framework for benchmarks to ensure that it can be used to manage different scenarios prior to the eventual cessation of a critical benchmark. It will introduce amendments to the UK BMR to ensure that the FCA has sufficient powers to manage an orderly transition from the London Interbank Offered Rate (LIBOR);
- extend the circumstances in which the FCA may require a benchmark administrator to change the methodology of a critical benchmark. The introduction of new regulatory powers will enable the FCA to direct a methodological change for a critical benchmark where the regulator finds that the benchmark’s representativeness will not be restored and where action is necessary to protect consumers and ensure market integrity;
- strengthen the UK’s existing regulatory regime for benchmarks to prohibit the use of a permanently unrepresentative individual critical benchmark, whilst providing the regulator with the ability to specify its limited continued use in legacy contracts; and
- refine further ancillary areas of the UK’s regulatory framework for benchmarks to ensure its effectiveness in managing the orderly wind-down of a critical benchmark.
These measures will be taken forward in the forthcoming Financial Services Bill.
The FCA has separately published a statement on the government’s proposed amendments, setting out further details on its proposed new powers in this context. It will publish Statements of Policy on its approach to their potential use in due course. According to the FCA, reducing the stock of outstanding LIBOR-referencing contracts will increase the effectiveness of its proposed new powers to address tough legacy issues. Regulators and industry bodies should continue their work to substitute existing LIBOR references or adopt adequate fallback provisions.
The FCA will continue to work closely with other UK authorities, the Bank of England’s RFRWG, other market participants, and international counterparts to help manage the orderly cessation of LIBOR.
Written Statement by Rishi Sunak MP (Chancellor of the Exchequer) on proposed amendments to the UK’s retained version of the BMR in the Financial services Bill
FCA statement on its powers under proposed amendments to the UK BMR
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Financial Conduct Authority
UK SFTR - FCA publishes draft registration and conversion forms - 24 June 2020
The FCA has published draft registration and conversion forms for trade repositories under the retained EU law version of the Securities Financing Transactions Regulation (EU) 2015/2365 (UK SFTR).
The Registration form should be used by trade repositories intending to apply for registration by the FCA under the UK SFTR. The Conversion form should be used by trade repositories wishing to convert their current registration under the European Securities and Markets Authority (ESMA) to the FCA.
This follows HM Treasury’s announcement in April 2020 that it intended to introduce legislation to enable trade repositories to register with the FCA or apply in advance to operate in the UK immediately following the end of the Brexit transition period in relation to functions established by the UK SFTR. The legislation will be based on the registration regime for trade repositories in respect of functions under the retained EU law version of the European Market Infrastructure Regulation (648/2012/EU) (UK EMIR) and will be brought forward before the end of the Brexit transition period.
FCA draft registration form under the UK SFTR
FCA draft conversion form under the UK SFTR
Explanatory notes
Please see the Banking and Finance section for an item on HM Treasury’s updated policy statement on prudential standards in the Financial Services Bill, which includes the introduction of a new prudential regime for UK investment firms, the FCA’s Discussion Paper on that regime, and an item on HM Treasury’s consultation on the transposition of BRRD II.
