European Commission
EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities - published in OJ - 15 July 2022
Commission Delegated Regulation (EU) 2022/1214 has been published in the Official Journal of the European Union. This Delegated Regulation amends Commission Delegated Regulation (EU) 2021/2139 on economic activities in certain energy sectors and Commission Delegated Regulation (EU) 2021/2178 on specific public disclosures for those economic activities, and is referred to as the Complementary Climate Delegated Act (the Act).
The Act specifies the conditions for labelling nuclear and natural gas energy activities as environmentally sustainable for the purposes of the EU Taxonomy Regulation ((EU) 2020/852). The inclusion of gas and nuclear activities in this context has been controversial; in January 2022, the Platform on Sustainable Finance expressed significant concerns in its feedback on the Commission's early draft text of the Act.
The Act also introduces specific disclosure requirements for large listed non-financial and financial companies to disclose the proportion of their activities linked to natural gas and nuclear energy.
It will enter into force on 4 August 2022 and will apply from 1 January 2023.
Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities
UK Government
Artificial Intelligence - Government publishes National AI strategy - 20 July 2022
The UK Government has published a policy paper (the Paper) setting out proposals on future regulation of artificial intelligence (AI), proposing what it sees as a less centralised approach than the EU. The publication of the Paper coincides with the introduction of the Data Protection and Digital Information Bill.
The approach set out in the Paper is based on six core principles that regulators such as the FCA (as well as Ofcom and the Competition and Markets Authority) must apply, with the flexibility to implement these in ways that best meet the use of AI in their respective sectors. In this way, the government has emphasised that it is allowing different regulators to take a tailored approach to the use of AI in a range of settings.
The core principles require developers and users to:
- ensure that AI is used safely;
- ensure that AI is technically secure and functions as designed;
- make sure that AI is appropriately transparent and explainable;
- consider fairness;
- identify a legal person to be responsible for AI; and
- clarify routes to redress or contestability.
The government has invited industry experts, academics and civil society organisations focusing on this technology to share their views on putting this approach into practice through a call for evidence. The government will consider responses alongside further development of the framework in the forthcoming AI White Paper which will explore putting the principles into practice.
Alongside the Paper, the government published the first AI Action Plan to show how it is delivering against the National AI Strategy and identify new priorities for the year ahead.
Policy Paper - Establishing a pro-innovation approach to regulating AI
Webpage
National AI Strategy - AI Action Plan
Webpage
Press release
HM Treasury
Priorities for the financial services sector and scope of Financial Services and Markets Bill 2022-23 - Mansion House speech delivered by the Chancellor - 19 July 2022
HM Treasury has published a speech delivered by the Chancellor of the Exchequer, Nadim Zahawi, at the Mansion House. Among other things, Mr Zahawi considered the government’s vision for financial services and the introduction of the Financial Services and Markets Bill (the Bill), which he describes as a:
“landmark piece of legislation… that gives us the tools we need to seize the opportunities of Brexit and create a safer, better system for consumers.”
He noted that:
“[t]he Bill implements the outcomes of the Future Regulatory Framework Review. I can announce today that we will repeal hundreds of pieces of retained EU law. UK financial regulation will once again be decided in the United Kingdom, for the United Kingdom, by the UK’s expert, independent regulators. And, as the regulators take on new responsibilities, we will give the FCA and PRA a new, secondary objective: to facilitate growth and competitiveness.”
Mr Zahawi also referred to speculation about the government taking further powers to intervene in financial regulation, in the public interest. He stated that this is “something we're looking at” and that he is “keeping an open mind” but confirmed that no such powers are included in the Bill as introduced to Parliament because he wants “time to consider all the arguments before making such an important decision”.
See further our item on the Financial Services and Markets Bill 2022-23 in the Beyond Brexit section.
In the speech, Mr Zahawi mentioned that the government will publish a second Economic Crime Bill later in 2022, which will contain new powers to encourage better private sector information sharing. The government is also reforming regulations to attract green finance to the UK, including through the industry-led Transition Plan Taskforce, and is working to understand how distributed ledger technology could be applied to a UK sovereign debt instrument.
Mansion House speech delivered by Chancellor of the Exchequer, Nadhim Zahawi
Digitisation Taskforce - HM Treasury publishes terms of reference - 20 July 2022
HM Treasury has published the terms of reference for a Digitisation Taskforce (the Taskforce) to drive forward the full digitisation of shareholdings. The Taskforce was launched on 19 July 2022, following the publication of Mark Austin’s review of Secondary Capital Raising in the UK, in which he made a series of recommendations (including establishing the Taskforce). That review defined digitisation in this context as ‘encompassing the eradication of paper-based processes in the securities settlement infrastructure for capital markets’.
The Taskforce will be chaired by Sir Douglas Flint (the Chair). It has been asked to:
- identify immediate, and longer term, means of improving on the current intermediated system of share ownership;
- eliminate the use of paper share certificates for traded companies and mandate the use of additional options to cheques for cash remittances; and
- consider whether the arrangements for digitisation can be extended to newly formed private companies and as an optional route for existing UK companies.
The Chair has been asked to provide a public report on the Taskforce’s progress and initial findings by spring 2023, and to publish final recommendations and an implementation plan by spring 2024.
Digitisation Taskforce - Terms of Reference
Webpage
Bank of England and Financial Conduct Authority
Data Collection Transformation Plan - Bank of England and FCA publish phase one recommendations - 21 July 2021
The Bank of England (the Bank) and the FCA have published an initial set of recommendations emerging from their ‘joint transformation programme’ which was set up in July 2021 to deliver a vision for transforming data collection so ‘that they get the data they need to fulfil their mission, at the lowest possible cost to industry’.
The joint transformation programme uses the Government Digital Service’s industry-standard Service Design Approach (the SDA) and is run in ‘phases’ with each phase being made up of a number of use cases. To date, the joint transformation programme has made seven recommendations to the Bank of England and the FCA for Form DQ and the Financial Resilience Survey.
The Bank of England and FCA have responded to the recommendations, taking into account the views of a wide range of stakeholders in both organisations, at both senior and working levels. The stakeholders in both organisations were supportive of the recommendations, which they felt provided a balanced mix of shorter term wins and longer term transformational improvements.
The recommendations and the regulators' responses to them are summarised in a table in the associated press release.
BoE (PRA)/FCA: Transforming Data Collection – Joint Transformation Programme (21 July 2022)
Bank of England FCA Response to Phase One Recommendations from the Joint Transformation Programme
Press release
Prudential Regulation Authority and Financial Conduct Authority
Operational resilience - PRA and FCA publish joint paper on oversight of critical third parties to the UK financial sector - 21 July 2022
The FCA, PRA and the Bank of England have published a discussion paper on potential ways to manage systemic risks posed by critical third parties (CTPs) to the UK financial sector.
The discussion paper outlines potential measures for overseeing the systemic risks arising from the services CTPs provide to firms and financial market infrastructure firms (FMIs). These measures focus on material services that CTPs provide to the financial sector. The measures include:
- a framework for identifying potential CTPs, which would inform the supervisory authorities’ recommendations for formal designation by HM Treasury;
- minimum resilience standards, which would apply to the services that designated CTPs provide to firms and FMIs; and
- a framework for testing the resilience of material services that CTPs provide to firms and FMIs using a range of tools such as scenario testing, participation in sector-wide exercises, cyber resilience testing and skilled persons reviews of CTPs.
The proposed measures would complement, not replace, firms and FMIs’ existing responsibilities to manage risks from contracts with third parties. Whether or not firms and FMIs rely upon third parties to support the delivery of important business services, firms and FMIs are themselves responsible, and ultimately accountable for their operational resilience.
Responses to the discussion paper can be submitted on or before 23 December 2022.
Bank of England Webpage
FCA Webpage
Press release
Prudential Regulation Authority and Financial Services Compensation Scheme
PRA and FSCS - Updated MoU agreed - 15 July 2022
The PRA and the Financial Services Compensation Scheme (FSCS) have agreed a memorandum of understanding (MoU) setting out an updated framework for their cooperation. It replaces the previous version of the MoU, which was adopted in 2019.
Among other things, the MoU has been refreshed to include:
- a reference to the PRA’s secondary objective to facilitate effective competition in the markets for services provided by PRA-authorised firms;
- a commitment by the FSCS to establish a regular programme of stress tests to verify whether its operational and funding capabilities are sufficient to ensure protection in various complex scenarios and in times of increased pressure; and
- a commitment by the FSCS, where appropriate, to enter into cooperation agreements with depositor and policyholder schemes in other jurisdictions.
The revised version also deletes references to the European Banking Authority and to non-UK firms passporting into the UK.
Memorandum of Understanding between the Bank of England and the Financial Services Compensation Scheme Ltd.
Webpage
Financial Conduct Authority
Annual Report, Accounts and Perimeter - Reports published by FCA - 19 July 2022
The FCA has published its Annual Report and Accounts for 2021/22 (the Report). The Report demonstrates how the FCA has performed against the objectives and key priorities outlined in its 2021/22 Business Plan and includes data and statistics on a variety of topics, including on investigations and enforcement.
The Report is accompanied by a letter from Nikhil Rathi, Chief Executive, to Nadhim Zahawi, Chancellor of the Exchequer, detailing the FCA’s activities over the past year. Among other things, that letter notes that securing better outcomes for all consumers, including vulnerable customers, continues to be central to the FCA’s work, particularly given current pressures on household budgets.
Alongside the Report, the FCA has published its fourth annual report on the regulatory perimeter (the Perimeter Report), referring to a number of areas of concern, including:
- cryptoassets: the FCA expects firms to have robust anti-money laundering control frameworks to managed the increased financial crime risks associated with cryptoassets. HM Treasury is bringing forward legislation to implement the Financial Action Task Force Travel Rule, which will help ensure that the UK’s cryptoasset sector is a safe place to invest and make payments; and
- the overseas persons exclusion (OPE): the FCA is working closely with HM Treasury in preparation for a consultation to consider whether the current operation of the UK’s regime for overseas firms strikes an appropriate balance between openness and ensuring the resilience and safety of financial markets, the protection of consumers and market integrity, and the promotion of competition.
FCA Annual Report and Accounts 2021/22
Webpage
Letter from Nikhil Rathi, Chief Executive, to Nadhim Zahawi, Chancellor of the Exchequer
FCA Perimeter Report 2022
Financial Regulators Complaints Commissioner
Reviewing how the financial services regulators consider complaints - Commissioner publishes Annual Report - 19 July 2022
The Financial Regulators Complaints Commissioner has published an annual report on how the financial services regulators considered complaints during the period from 1st April 2021 to 31st March 2022 (the Report). The Commissioner dealt with 935 cases during the year, compared to 393 the previous year. This equates to an increase of approximately 137%, due in large part to 443 complaints about the FCA’s regulation of London Capital & Finance plc. The FCA Register also continues to be a significant area of concern reflected in the number and nature of complaints the Commissioner has continued to receive over the past year.
The FCA’s response to the Report notes that a number of themes identified in the Report are subject to ongoing conversations. The Bank of England’s response reiterates its commitment to the recommendation made by the Commissioner to put in place an indicative scale for ex gratia payments for distress and inconvenience caused by delays in complaints handling, as noted in the Consultation Paper CP8/20.
Annual report
FCA response
Bank of England response
Financial Markets Standards Board
ESG ratings - FMSB publishes spotlight review - 20 July 2022
The Financial Markets Standards Board (FMSB) has published a spotlight review on ESG ratings, which it defines as the ‘broad spectrum of external ratings products that are marketed as providing an opinion regarding an entity, a financial instrument or a product, a company’s ESG profile or characteristics or exposure to ESG, climatic or environmental risks or impact on society and the environment that are issued using a defined ranking system or rating categories’ (the Review).
The Review considers the transparency of external ESG rating methodologies produced by third party commercial providers and data collection processes and aims to enhance user understanding and promote comparability across rating providers in wholesale financial markets. Among other things, it notes that recent regulatory publications have highlighted numerous issues with the ESG ratings market, from both rated entities and rating providers, that may impact the uses of ESG ratings, or send unclear ESG signals to market participants.
FMSB Spotlight Review: ESG Ratings
Press release
See the Beyond Brexit section for an item on the Financial Services and Markets Bill 2022-23 and an item on HM Treasury’s response to the second consultation paper relating to Phase II of its Financial Services Future Regulatory Framework Review.
