European Commission
Corporate Sustainability Reporting Directive – Commission adopts proposal – 21 April 2021
The European Commission has adopted a proposal for a Corporate Sustainability Reporting Directive to alter and expand the current reporting requirements under the Non-Financial Reporting Directive (2014/95/EU) (NFRD). The Directive is designed to improve sustainability reporting at the lowest possible cost.
Following its February 2020 consultation on NFRD revision, the Commission found that there was very strong support for mandatory sustainability reporting standards but there are deficiencies in the current regime, including information being difficult to find and problems in the quality of reporting creating accountability gaps.
Under the proposed Directive, the scope of sustainability reporting requirements would be extended to include all large companies without the previous 500-employee threshold, and listed SMEs (except for listed micro-enterprises). This would catch nearly 50,000 companies compared to the current 11,000.
These companies would have to report information on a wide range of environmental, social and governance (ESG) issues. They would be required to report according to mandatory EU sustainability reporting standards, and the Commission would adopt delegated acts to provide for such standards. To limit the burden on listed SMEs, however, they would be permitted to report according to simpler standards than large companies.
The proposed Directive would introduce a general EU-wide audit requirement for reported sustainability information, starting with a ‘limited’ assurance requirement and potentially moving towards a ‘reasonable assurance’ requirement at a later stage.
The Commission, European Parliament and Council of the EU will now engage in discussions while the European Financial Reporting Advisory Group (EFRAG) starts work on a first set of draft sustainability reporting standards. It aims to have this ready by mid-2022.
Proposal for the Directive
Communication from the Commission
Webpage
Press release
Sustainable finance – European Commission adopts delegated legislation integrating sustainability into UCITS Directive, AIFMD, MiFID II, Solvency II and IDD – 21 April 2021
The European Commission has adopted the following six Commission Delegated Regulations and Directives as part of its work on sustainable finance:
- a Delegated Directive which supplements the UCITS Directive (2009/65/EC) by specifying, among other things, organisational requirements, how to identify the types of conflicts of interest and the contents of risk management policies for UCITS management companies.
- a Delegated Regulation which supplements the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and sets out operating conditions, including rules on due diligence and identification of types of conflicts of interest for alternative investment fund managers (AIFMs).
- a Delegated Directive which supplements the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and contains product governance obligations.
- a Delegated Regulation which also supplements MiFID II, and contains organisational requirements and operating conditions for investment firms.
- a Delegated Regulation which supplements the Solvency II Directive (2009/138/EC) by specifying requirements on governance, conflicts of interest and risk management for insurance and reinsurance undertakings.
- a Delegated Regulation amending Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 as regards the integration of sustainability factors and preferences into the product oversight and governance requirements for insurance undertakings and distributors and into the rules on conduct of business and investment advice for insurance-based investment products.
The delegated legislation has been published as part of the Commission’s communication on sustainability finance and is designed to reinforce obligations contained in Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector and Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable lending (Taxonomy Regulation).
The next step involves the Council of the EU and the European Parliament to consider the legislation. A set of Commission Q&As states the new requirements are expected to apply from October 2022.
Commission Delegated Directive amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for UCITS (C(2021) 2617 final)
Commission Delegated Regulation amending Delegated Regulation (EU) No 231/2013 as regards sustainability risks and sustainability factors to be taken into account by alternative investment fund managers (C(2021) 2615 final)
Commission Delegated Directive amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors and preferences into the product governance obligations (C(2021) 2612 final)
Commission Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms (C(2021) 2616 final)
Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings (C(2021) 2628 final)
Commission Delegated Regulation amending Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 as regards the integration of sustainability factors and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products (C(2021) 2614 final)
European Commission Q&As
Webpage
Press Release
Sustainable finance – European Commission publishes communication and legislation on sustainable finance and taxonomy – 21 April 2021
The European Commission has adopted a package of measures covering EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties, and directing finance towards the European Green Deal. Among other things, the package includes:
- political agreement being reached on the text of a Commission Delegated Regulation supplementing the Taxonomy Regulation (EU) 2020/852 relating to climate change mitigation and adaptation (known as the Taxonomy Climate Delegated Act);
- potential legislation focused on transition finance;
- a proposal for a Corporate Sustainability Reporting Directive, which will amend reporting requirements contained in the Non-Financial Reporting Directive (2014/95/EU). The Directive aims to extend EU sustainability reporting requirements to all large and listed companies; and
- the Commission adopting delegated legislation integrating sustainability issues into a number of key pieces of financial services legislation.
European Commission communication: Directing finance towards the European Green Deal
Press Release: Sustainable Finance and EU Taxonomy
Factsheet
Speech by Executive Vice-President Dombrovskis on the Sustainable Finance Package
Sustainable finance package
Q&A: Taxonomy Climate Delegated Act and Amendments to Delegated Acts on fiduciary duties, investment and insurance advice
Sustainable finance package: Commission Delegated Regulation supplementing Regulation (EU) 2020/852 (C(2021) 2800/3)
Annex I to Commission Delegated Regulation supplementing Regulation (EU) 2020/852
Annex II to Commission Delegated Regulation supplementing Regulation (EU) 2020/852
Factsheet
FAQs
Directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) 537/2014, as regards corporate sustainability reporting (COM(2021) 189)
Impact assessment
Executive summary of the impact assessment
FAQs
Corporate sustainability reporting
UK Parliament
Financial Services Bill – House of Lords completes report stage and proposes amendments – 21 April 2021
The House of Lords has completed the report stage of the Financial Services Bill 2019-21. Details of the proceedings are set out in Hansard.
Members discussed digital identification, supervision of the FCA, a new UK Finance Watch body and the response from the regulators to Parliamentary scrutiny. The third reading took place immediately afterwards with no debate.
Following completion of the third reading, the Bill will now pass to the House of Commons for consideration of the House of Lords amendments, which have been published alongside explanatory notes. Among other things, the amendments include new clauses that:
- amend the Financial Services and Markets Act 2000 (FSMA) to require the FCA to: (i) have regard to the principle that firms should not profit from exploiting consumer vulnerabilities, biases or constrained choices when considering the degree of consumer protection that it should secure; and (ii) make rules (by 6 April 2022) introducing a duty of care owed by FSMA authorised persons towards consumers when carrying on FSMA regulated activities;
- give HM Treasury the ability to bring interest-free buy-now-pay-later products within the scope of FCA regulation;
- amend the Payment Services Regulations 2017 (SI 2017/752) to provide that in certain circumstances the provision of cash, where there is no corresponding purchase of goods and services, is to be included in the list of activities that do not constitute a payment service;
- require the FCA to make rules imposing a cap on the standard variable rates charged to borrowers with inactive lenders or unregulated entities who cannot switch providers because of their financial circumstances (mortgage prisoners); and
- require the FCA and the PRA to consider the carbon target for net zero emissions as set out in the Climate Change Act 2008.
House of Lords: Hansard - Financial Services Bill
Press Release
House of Lords list of amendments to the Financial Services Bill 2019-21
Explanatory notes
-
Greensill Capital – Treasury Committee launches inquiry – 20 April 2021
The Treasury Committee has announced that it has launched an inquiry into the failure of Greensill Capital entitled “Lessons from Greensill Capital.”
The inquiry is expected to focus on the regulatory lessons from the failure of Greensill Capital, and the appropriateness of HM Treasury’s response to lobbying in relation to Greensill Capital. The Chair of the Treasury Committee has written to Rt Hon. David Cameron, HM Treasury, the Bank of England (BoE), the FCA and UK Government Investments to ask a series of questions to inform the inquiry. The Committee plans to hold a scene-setting oral evidence session with relevant experts on Wednesday 28 April.
Rt. Hon. Me Stride MP, Chair of the Treasury Committee, stated:
“There are questions to be answered in relation to Greensill Capital regarding the operation of the UK’s financial system and its regulation. Also, whether the Treasury responded appropriately to lobbying from Greensill during the pandemic.”
UK Parliament Press Release: Treasury Committee launches inquiry
Letter from Rt Hon. Mel Stride MP to UKGI regarding the failure of Greensill Capital
Letter from Rt Hon. Mel Stride MP to HM Treasury regarding the failure of Greensill Capital
Letter from Rt Hon. Mel Stride MP to FCA regarding the failure of Greensill Capital
Letter from Rt Hon. Mel Stride MP to David Cameron regarding the failure of Greensill Capital
Letter from Rt Hon. Mel Stride MP to Bank of England regarding the failure of Greensill Capital
HM Treasury
London Capital & Finance plc – Government announces details of compensation scheme – 19 April 2021
In a written ministerial statement, the Economic Secretary to HM Treasury set out details of the London Capital & Finance Compensation Scheme (LC&F), as well as the government’s approach and next steps for bondholders who suffered losses after investing in LC&F which entered administration in January 2019.
The government describes the situation as “unique and exceptional”, which is why the government-funded scheme is being established. It intends to provide 80% of LC&F bondholders’ initial investment up to a maximum of £68,000, with interest payments or distributions from the administrators to be deducted from the amount of compensation payable. The scheme will be available to all LC&F bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS).
In March 2021, following a judicial review application, the High Court held that securitised bonds purchased from LC&F were not transferable securities and consequently the claimants were not eligible for FSCS protection. The government expects to pay out around £120 million compensation to around 8,800 people in total, and to have paid all LC&F bondholders within six months of securing the necessary primary legislation, which it will bring forward as soon as parliamentary time allows.
At this stage, there is no action for LC&F bondholders to take. The government intends to provide further details on how the scheme will operate in due course.
HM Treasury Policy Paper: London Capital & Finance plc Compensation Scheme
Written Ministerial Statement
Press Release
FinTech and financial services – Ambitious plans to boost sector set out by Chancellor – 19 April 2021
HM Treasury has published a press release containing information about UK FinTech and financial services proposals aimed to boost trade, jobs and economic growth. Rishi Sunak, Chancellor of the Exchequer, set out information about the following strands of work:
A new ‘scale box’ to support fintech firms to scale up. This is a package of measures that aims to enhance the FCA’s regulatory sandbox and support growth stage firms.
The creation of an industry-led Centre for Finance, Innovation and Technology. This would work closely with regional hubs to identify and address sector challenges in support of fintech growth across the UK.
New initiatives in the UK focusing on digital finance. A new taskforce has been established to explore a possible UK central bank digital currency. The Bank of England has also launched an omnibus account to support delivery of faster wholesale payment and settlement using central bank money.
The Chancellor also confirmed how the Government has additional plans for capital markets reform and intends to take forward all of the recommendations directed towards it by the Listing Review. As part of this, the UK aims to consult on changes to the UK prospectus regime this summer, to ensure the rules are not overly burdensome but provide investors with the information they need, tailored to the type of transaction.
A separate press release from the Department for International Trade stated that a FinTech Export Academy and a FinTech Champions Scheme is expected to be created to provide sector-specific advice. The programme aims to take selected high potential firms and provide them with intensive support to reach international markets.
HM Treasury Press Release
Department for International Trade Press Release
Bank of England
Meeting varied people – BoE launches diversity initiative – 21 April 2021
The Bank of England (BoE) has published speeches by Andrea Rosen (Head of BoE Markets Intelligence and Analysis Division) and Andrew Bailey (BoE Governor) about its new ‘meeting varied people’ diversity initiative.
Among other things, the speeches explain that diversity includes both identity and cognitive diversity which both make for better decision making. Mr Bailey discusses how the BoE’s priority is to speak to a diverse group of people from a broad range of financial institutions, which he hopes will bring positive benefits for ‘financial system resiliency’ and help the BoE better understand what is driving markets, what people expect from future policy and the potential impacts of different decisions.
As part of the meeting varied people initiative, the BoE has updated its Market Intelligence Charter to reflect its diversity objectives clearly.
Speech by Andrea Rosen
Speech by Andrew Bailey
Prudential Regulation Authority
Publishing waivers and modifications – webpage updated – 20 April 2021
The PRA has updated its webpages on waivers and modifications of rules, permissions under the Capital Requirements Regulation (575/2013/EU) (CRR) and approvals under the Solvency II Directive (2009/138/EC) (Solvency II). The PRA announced that, as of 19 April 2021, the consolidated list of waivers, CRR and Solvency II Permissions granted by the PRA to PRA-authorised firms is no longer being provided.
Firms are reminded that they are not required to provide details of a precedent direction or written notice when applying for a waiver or modification of PRA rules, a CRR or Solvency II Permission.
Updated PRA webpage - Capital Requirements Regulation permissions
Updated PRA webpage - Solvency II approvals
Updated PRA webpage – Waivers and modifications of rules
-
Remuneration Benchmarking and Remuneration High Earners reporting templates – PRA publishes statement – 22 April 2021
The PRA has published a statement advising firms on the PRA’s approach to the Remuneration Benchmarking and Remuneration High Earners reporting templates after it became aware of an issue with them.
The PRA has become aware of issues with the EBA’s XBRL Remuneration reporting templates, for which the EBA released a patch in March 2021. According to the PRA, it and the FCA have worked together to assess the amount of change required and the impact that implementing the proposed patch would have on firms, and have decided not to implement it at this time in order to minimise the burden placed on firms. Instead, it has been decided that the best course of action is to revert back to the XML-based REP004 and REP005 reporting templates for submission of 2020 data via GABRIEL / RegData.
The PRA recognises that for firms with a 31 December year-end, they will be unable to meet the submission deadlines specified in rules 17.4 and 18.3 of the Remuneration Part of the PRA Rulebook. As a result, the PRA expects such firms to submit REP004 and REP005 reporting templates for 2020 data by 1 June 2021. The PRA expects firms with a non-31 December year-end to be able to comply with the submission date. If firms foresee a problem with meeting their usual submission date due to the issues outlined in the PRAs’ statement, they are advised to contact their usual supervisor.
The PRA intends to provide further detail on its expectations with regards to reporting of remuneration data for 2021 and beyond in due course.
PRA Statement on Remuneration Benchmarking and Remuneration High Earners reporting templates
Financial Conduct Authority
Sustainability and technology – FCA makes key new hires – 19 April 2021
The FCA has published a press release announcing the appointment of new sustainability and technology directors. Sacha Sadan has been appointed Director of Environment Social and Governance (ESG), a newly created role which is expected to develop the FCA’s approach to sustainable finance domestically and internationally. The appointment follows a March 2021 letter from the Chancellor of the Exchequer to the FCA Chief Executive, in which the FCA was asked to have regard to the government’s commitment to achieve a net zero economy by 2050.
Ian Phoenix has been appointed as Director of Intelligence and Digital, a role intended to lead the enhancement of the FCA’s intelligence and surveillance capabilities, and to lead digital work to disrupt harmful online activity.
FCA Press Release on key sustainability and technology hires
-
London Capital & Finance plc – FCA sets out broad approach to assessing complaints – 19 April 2021
The FCA has published a statement setting out its broad approach to assessing complaints made regarding London Capital & Finance plc (LC&F).
The FCA has conducted an initial review of LC&F investors’ direct communications with the FCA between 1 April 2014 and 10 December 2018, the date of the FCA’s first regulatory intervention. This process has identified investors who were given incorrect information that may have led them to conclude their investment would be safer than it was. While the FCA does not believe this was the primary cause of these investors’ losses, it accepts that such communications may have been a factor in their decision to invest, or remain invested.
The FCA intends to offer ex gratia payments to the small number of investors in this category who have not already been compensated by the Financial Services Compensation Scheme. Complaints by other investors will be considered individually in accordance with the complaints scheme. Although the FCA does not expect to make ex gratia compensatory payments to these investors, it intends to write to the majority of complainants, acknowledging the errors it made in relation to LC&F and ensuring they have full information about the government compensation scheme. The FCA anticipates being able to provide a response to complainants by the end of June 2021.
FCA Statement setting out its broad approach to assessing LC&F complaints
-
Fees and levies – FCA launches consultation – 20 April 2021
The FCA has published a consultation paper on regulated fees and levies rates for 2021/22 (CP21/8). The FCA is consulting on its periodic fees rates for 2021/22, further FCA fee policy proposals, the Financial Ombudsman Service general levy and Money and Pensions Service, Devolved Authorities and HM Treasury illegal money-lending levies for the next financial year.
The FCA recently consulted in CP20/22 on changes to how it will raise regulated fees and levies rates. In chapter 7 of CP21/8, the FCA provides feedback on its CP20/22 proposals relating to authorisation application fees and the introduction of new charges for notifications under the senior managers regime (SMR) and controlled functions for appointed representatives.
The consultation closes on 25 May 2021. The FCA intends to publish feedback and the final fees and levy rates in a policy statement in July 2021.
FCA Consultation Paper: FCA regulated fees and levies: rates proposals 2021/22 (CP21/8)
Webpage
Transformation programme – FCA updates HM Treasury – 20 April 2021
The FCA has published a letter from the FCA Chair, Charles Randell, to the Economic Secretary to HM Treasury, John Glen, providing an update on the progress the FCA has made with its transformation programme. Topics covered in the letter include:
- efforts to strengthen the FCA’s structure and make operational improvements to the FCA;
- action to implement various review recommendations which the FCA aims to complete by the end of 2021; and
- recommendations for government – among other things, Mr Randell states the FCA has been consistently of the view that financial harms should be included in the Online Safety Bill.
Mr Randell further advises that the FCA Chief Executive, Nikhil Rathi, intends to write to the Treasury Committee with a further update before the FCA’s next accountability hearing on 12 May 2021.
FCA Letter on the progress of the FCAs’ transformational programme
-
Business plan – FCA announces update – 20 April 2021
The FCA has published a statement announcing it will be publishing its Business Plan for 2021/22 in July 2021, rather than April 2021. The FCA advises that its Business Plan will be published alongside its 2020/21 Annual Report and Accounts and is expected to include an update on plans for transforming the FCA.
FCA Statement: Business Plan 2021/22
-
Diversity and inclusion – FCA publishes speech – 22 April 2021
The FCA has published a speech by FCA Executive Director for Consumers and Competition, Sheldon Mills, on why black inclusion matters to the regulator. Mr Mills was speaking at an event at which the FCA’s research report on accelerating black inclusion was launched. The report’s analysis focuses on the progression of black colleagues into leadership positions across the UK financial services industry.
Points of interest in Mr Mills’ speech include:
- while there is a lack of black people across senior roles in financial services, there is a strong business case for—and clear benefits to—improving diversity and inclusion (D&I) at senior levels;
- black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers and at greater risk of financial harm;
- firms operating in the capital markets or providing venture capital must consider whether they are sufficiently diverse and inclusive in order to be able to, for example, consider fully the challenges and opportunities in the market; and
- the FCA wants to see improvements within firms and is considering how best to use its powers, including looking at its supervisory toolbox, exploring the listings framework in the context of D&I and considering whether firms should comply or explain a lack of diversity at senior levels.
FCA Speech by Sheldon Mills: Why Black inclusion matters to us
Financial Ombudsman Service
Interim Chief Executive and Chief Ombudsman – FOS appoints Nausicaa Delfas – 19 April 2021
The Financial Ombudsman Service (FOS) has announced that Nausicaa Delfas has been appointed as Interim Chief Executive and Chief Ombudsman. Ms Delfas currently holds the position of Executive Director of International and Interim Chief Operating Officer (COO) at the FCA. The FCA published a press release noting that Stephanie Cohen will be joining the FCA as its new COO in early June 2021. Ms Delfas will take up her role on 17 May 2021 but until she does, Julia Cavanagh, FOS Chief Financial Officer, will be Acting Chief Executive and Garry Wilkinson will be Acting Chief Ombudsman.
Financial Ombudsman Service Press Release: Nausicaa Delfas appointment as Interim Chief Executive and Chief Ombudsman
