European Commission
EU Taxonomy Regulation - ClientEarth files internal review request to European Commission - 4 February 2022
ClientEarth, an environmental law organisation, has filed an internal review request to the European Commission (the Commission) for “unlawfully labelling bioenergy, bio-based plastics and chemicals used to make plastics as ‘sustainable’” in the EU Taxonomy. An internal review request is the first step that non-governmental organisations (NGOs) must take before being able to bring a court challenge.
The Taxonomy Climate Delegated Act ((EU) 2021/2178) (the Act) was adopted in June 2021 and has been applicable since January 2022. It classifies bioenergy, bio-based products and chemicals used to make plastics as activities that “contribute substantially to climate change mitigation or adaption” and do no significant harm to the environment.
ClientEarth claims that the Commission has infringed the EU Taxonomy Regulation ((EU) 2020/852) by relying on flawed standards for biomass already provided under the Renewable Energy Directive (2009/28/EC), instead of assessing whether the available scientific evidence on biomass production is conclusive. ClientEarth is also challenging the labelling of bio-based plastics and bio-based chemicals, such as ethylene and propylene, used to make plastics, which are also classified as ‘sustainable’ under the Act.
The Commission has 16 weeks to reply, after which the campaigners are permitted to take their challenges to the European Court of Justice.
ClientEarth press release
European Parliament
DLT - European Parliament updates procedure file on pilot regime - 8 February 2022
The European Parliament has updated the procedure file on the proposed Regulation covering a pilot regime for market infrastructures based on distributed ledger technology (DLT) (2020/0267(COD)) to show an indicative plenary sitting date of 23 March 2022.
The pilot regime aims to test the development of European infrastructure for the trading, clearing and settlement of DLT-based financial instruments, and, among other things, lays down the conditions for acquiring permission to operate DLT market infrastructure and defines which DLT financial instruments can be traded. The pilot regime will be in place for three years, after which the European Commission, based on advice from the European Securities and Markets Authority, will report on the costs and benefits of extending, modifying or ending it.
Procedure file: Digital finance: Pilot regime on distributed ledger technology market infrastructures (DLT) (2020/0267(COD))
European Supervisory Authorities
Digital finance - ESAs respond to European Commission’s call for advice - 7 February 2022
The European Supervisory Authorities (ESAs), comprising the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), have published a report (ESA 2022 01), dated 31 January 2022, containing their response to the European Commission’s (the Commission’s) February 2022 call for evidence on digital finance and related issues.
In response to the Commission’s call for evidence, ESMA also issued a survey to national competent authorities (NCAs) in February 2021 and a general call for evidence on digital finance in May 2021. ESMA has published reports (ESMA50-164-5410 and ESMA50-164-5410, respectively) summarising the responses that it received covering a number of issues, including fragmented value chains, digital platforms and ‘mixed-activity groups’ (MAGs). These responses have informed the ESAs’s report and recommendations. Links to ESMA’s reports can be found in the ESAs’s press release.
In the report, the ESAs note that the use of innovative technologies is facilitating changes to value chains in the EU financial sector, that dependencies on digital platforms are increasing rapidly and that new MAGs are emerging. In light of this, the ESAs recommend rapid action to ensure that the EU’s financial services regulatory and supervisory framework remains ‘fit for purpose’, through:
- a holistic approach to the regulation and supervision of the financial services value chain;
- strengthened consumer protection in a digital context, including through enhanced disclosures, complaints handling mechanisms, measures aimed at preventing the mis-selling of tied or bundled products, and improved digital and financial literacy;
- further convergence in the classification of cross-border services;
- further convergence in addressing money laundering and the financing of terrorism risks in a digital context;
- effective regulation and supervision of MAGs, including a review of prudential consolidation requirements;
- strengthened supervisory resources and cooperation between financial and other relevant authorities, including on a cross-border and multi-disciplinary basis; and
- active monitoring of the use of social media in financial services.
Joint European Supervisory Authority response: to the European Commission’s February 2021 Call for Advice on digital finance and related issues: regulation and supervision of more fragmented or non-integrated value chains, platforms and bundling of various financial services, and risks of groups combining different activities (ESA 2022 01)
Factsheet
Press release
HM Treasury
FCA and Payment Systems Regulator - HM Treasury announces interim Chair appointments - 4 February 2022
HM Treasury has announced that Richard Lloyd, FCA Senior Independent Director, will become the interim Chair of the FCA from 1 June 2022 until the next permanent Chair takes up the post. Mr Lloyd was recently reappointed for a second three-year term on the FCA board, taking effect from 1 April 2022. The Treasury has also announced that the FCA has appointed Aidene Walsh as interim Chair of the Payment Systems Regulator (PSR) from 1 April 2022 until the next permanent PSR Chair takes up the post. Ms Walsh has been a non-executive director on the PSR board since June 2020.
HM Treasury has launched a recruitment campaign to appoint the next Chair of the FCA and will do so in respect of the next PSR Chair in due course.
Press release
Bank of England
Climate Biennial Exploratory Scenario - Bank of England launches second round - 9 February 2022
The Bank of England (the Bank) has launched the second round of its Climate Biennial Exploratory Scenario (CBES) for the largest UK banks, building societies, life insurers and general insurers. The CBES’s three main objectives are to:
- size the financial exposures of participants and the financial system more broadly to climate-related risks;
- understand the challenges to participants’ business models from these risks and gauge their likely responses and the related implications for the provision of financial services; and
- assist participants in enhancing their management of climate-related financial risks, including engaging counterparties to understand their vulnerability to climate change.
The Bank highlights that the second round will focus on the second objective above, in particular in respect of participants’ proposed management actions in response to climate scenarios. Participants will be asked a small number of questions, which will further explore their strategic responses to the three scenarios of early, late and no action, published as part of the first round, as well as the associated implications for their business models. The Bank highlights that participants will not be required to update the quantitative loss projections they provided as part of the first round and that all first round CBES participants are taking part.
The deadline for participants’ submissions is 31 March 2022. The Bank expects to publish the CBES results in May 2022.
Webpage: Stress testing
Press release
Transforming data collection - Bank of England publishes communication to firms - 10 February 2022
The Bank of England (the Bank) has published a communication to firms providing an update on the progress of its joint programme with the FCA to transform how data is collected from the UK financial sector. The joint transformation plan was published in February 2021 and the FCA published a new webpage on the joint programme on 26 January 2022.
As previously reported in this Bulletin, the joint programme will focus on: (i) integrating reporting to increase consistency in respect of the design and delivery of data collection; (ii) modernising reporting instructions to improve how data is interpreted and implemented by firms; and (iii) defining and adopting common data standards that identify and describe data in a consistent way.
The update covers the steps that have been made, which include planned activities up to the start of the next phase of the programme at the end of June 2022 and the skills and capabilities that the Bank is looking for to help progress the programme. In the update, the Bank highlights the following key points:
- subject to resourcing constraints and approval by the Reporting Transformation Committee, the Bank plans to extend the phase one Commercial Real Estate reporting use case from the end of March, to the end of May 2022;
- the Bank would like industry participants that are part of the core delivery team to remain with the programme until March 2023. During April and May 2022, the Bank will work with them to capture lessons learnt from the first iteration of the use cases; and
- the Bank is requesting firms to provide additional resource for phase two of the programme. It is looking for approximately 20 full-time equivalent personnel from firms to be part of the core delivery team.
The Bank highlights that it will be working alongside the FCA to develop the use case roadmap during Q1 and Q2 2022. It expects to publish the roadmap in Q2 2022 following engagement with industry.
Transforming data collection: communication to firms
Financial Conduct Authority
Enhancing the UK’s financial services sector - FCA publishes speech by Sarah Pritchard - 8 February 2022
Sarah Pritchard, Executive Director of Markets at the FCA, has given a speech at the City and Financial Global’s Future of UK Financial Regulation Summit on the FCA’s role and priorities in enhancing the UK’s financial services sector. In the speech, Ms Pritchard reiterates the FCA’s commitment to setting high regulatory standards that support and encourage innovation but which are grounded in the FCA’s statutory objectives: to protect consumers, enhance market integrity, and promote competition in the interests of those who use UK markets.
Ms Pritchard notes that, since the FCA’s CEO, Nikhil Rathi, set out the FCA’s vision for change and the future in July 2021, the FCA has taken steps towards delivering the outcomes that are needed to protect consumers and ensure a well-functioning market, through “being innovative, assertive and adaptive”. These steps include making the FCA’s regulatory sandbox permanent, proposing to introduce new rules to embed diversity and inclusion across financial services and in listed markets, and taking a tough approach to cryptoasset firms which are required to register under the anti-money laundering regime. Ms Pritchard welcomes feedback on whether the FCA “looks and feels different” in the months ahead.
Looking to the longer term, Ms Pritchard welcomes the government’s vision for the Future Regulatory Framework (FRF) as “an opportunity to create a rulebook which meets the specific needs of the UK market, while still remaining anchored by the high international standards which the UK has done so much to shape.” The FRF proposals would give the FCA and the PRA a secondary objective to operate in a way that facilitates the long-term growth and international competitiveness of the UK economy and would amend the existing regulatory principle to take into account ‘sustainable growth in the UK economy’ and to ensure such growth is consistent with the government’s commitment to achieve a net zero economy by 2050. Ms Pritchard welcomes this, highlighting that a “secondary competitiveness objective for UK financial regulators strikes an appropriate balance that recognises the important role the FCA plays in supporting the long-term growth of the UK economy, as we continue to deliver on our existing core strategic objectives”.
On ESG, Ms Pritchard highlights that the FCA expects ESG and sustainable finance to grow as an area of interest, noting that the FCA will “need to redouble work on [its] innovation agenda, to support the data and technology solutions which underly [sic] ESG integration”. She also refers to the FCA’s discussion paper on sustainability disclosure requirements (SDR) (DP21/4), which closed on 7 January 2022 and on which the FCA intends to publish its proposals by mid-2022.
Finally, Ms Pritchard turns to future developments in 2022. She highlights that the FCA will publish its overarching consumer and market strategies, detailing its future priorities. She explains that the strategies should provide “a continued focus on the elements [she has] covered above, but with a focus also on the outcomes [the FCA is] seeking, and how progress will be measured.” Ms Pritchard also touches on the FCA’s current recruitment drive, highlighting the arrival of new senior leaders as well as senior leader vacancies.
Speech by Sarah Pritchard, Executive Director, Markets, to City and Financial Global - The Future of UK Financial Regulation Summit
