European Systemic Risk Board
COVID-19 - ESRB recommendation on restriction of distributions to lapse - 24 September 2021
The European Systemic Risk Board (ESRB) has published a press release confirming that its recommendation on the restriction of distributions during the COVID-19 pandemic, which targets financial institutions, should lapse at the end of September 2021.
In May 2020 the ERSB adopted a recommendation that relevant authorities request that financial institutions under their supervisory remit refrain from (i) making a dividend distribution (or giving an irrevocable commitment to make a dividend distribution), (ii) buying back ordinary shares or (iii) creating an obligation to pay variable remuneration to a material risk taker, where such actions would have the effect of reducing the quantity or quality of own funds at the EU group level.
Explaining why this recommendation should lapse, the ERSB observed that the improved economic outlook has reduced the probability of severe scenarios and that the risk of the COVID-19 crisis causing severe instability in the financial system has decreased. The ESRB did, however, reconfirm the need for financial institutions to remain prudent when deciding on their distributions.
Press release: The General Board of the European Systemic Risk Board held its 43rd regular meeting on 23 September 2021
Council of the European Union
Joint Committee of ESAs publish work programme for 2022 - 30 September 2021
The Council of the EU has published the 2022 work programme of the Joint Committee of the European Supervisory Authorities (ESAs) (that is the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority). In 2022, the Joint Committee will, among other things:
- closely monitor and assess emerging cross-sector risks and vulnerabilities for financial stability arising from COVID-19 and its economic impact;
- develop a number of draft technical standards under the Sustainable Finance Disclosure Regulation ((EU) 2019/2088); and
- increase its efforts on the Digital Finance Package, including the proposed Regulation on Digital Operational Resilience (also known as DORA).
2022 Work programme of the Joint Committee of the European Supervisory Authorities (12406/21)
European Securities and Markets Authority
ESMA publishes work programme for 2022 - 28 September 2021
The European Securities and Markets Authority (ESMA) has published its work programme for 2022, setting out its priority work areas to deliver on its mission to enhance investor protection and promote stable and orderly financial markets.
ESMA’s key priorities in 2022 include:
- developing rules on environmental, social and governance (ESG) disclosures and risk identification methodology for ESG factors;
- contributing to the implementation of the Regulation on Digital Operational Resilience (DORA), the Markets in Crypto Assets Regulation (MiCA) and the regulation on a pilot regime for market infrastructures based on distributed ledger technology; and
- continuing to strengthen its role as the supervisor of credit rating agencies, trade repositories and securitisation repositories.
2022 Annual Work Programme (ESMA20-95-1430)
Press release
Treasury Committee
Greensill Capital inquiry - HM Treasury, FCA and PRA respond to Treasury Committee report - 24 September 2021
The House of Commons Treasury Committee has published the responses of HM Treasury, the FCA and the PRA to its report, ‘Lessons from Greensill Capital’. In the report, published in July 2021, the Committee concluded that there was a need for reforms to the definition of securitisation, the appointed representatives regime and the change of control regime, as well as a need for more data on non-bank lending.
In their responses, among other things:
- both HM Treasury and the FCA reject the Committee’s recommendation that the definition of ‘securitisation’ in the onshored Securitisation Regulation ((EU) 2017/2402) should be broadened, as this could potentially bring a wide range of new types of lending within scope of the definition (including a large part of the well-established commercial lending market);
- HM Treasury notes that it has started work on a review of the appointed representatives regime and is considering legislative reforms that may be necessary to strengthen the oversight of appointed representatives. It intends to issue a call for evidence to gather views from stakeholders on the overall aim, scope, benefits and risks of the current regime. In addition, the FCA intends to publish a consultation paper in autumn 2021 on changes to its rules on the regime; and
- HM Treasury states that it is working with the PRA and the FCA to consider how change of control applications are dealt with and what revisions might need to be considered. These could include changes intended to ensure that the regulators receive sufficient relevant information from an applicant for a change of control, enabling them to fully assess the risks of the proposal in a timely manner.
Report: Lessons from Greensill Capital: Responses to the Committee’s Sixth Report on Session 2021-22
Press release
Bank of England, Prudential Regulation Authority and Financial Conduct Authority
2021 CBEST assessments - Bank of England, PRA and FCA publish joint Dear Senior Management Function letter on findings - 30 September 2021
The Bank of England (the Bank), the PRA and the FCA have published a joint Dear Senior Management Function letter, addressed to the Senior Management Function with responsibility for cyber, on thematic findings from the 2021 annual cycle of CBEST assessments conducted on participating banks, insurers and financial market infrastructure (FMI).
CBEST is part of the Bank and the PRA’s supervisory toolkit to assess the cyber resilience of firms’ important business services. It promotes an intelligence-led penetration testing approach that mimics the actions of cyber attackers intent on compromising an organisation’s important business services.
The themes identified are based on over 400 findings from intelligence-led penetration tests conducted on 20 firms and have been presented together with examples of the most common control weaknesses within those areas. The themes may be used by the regulators to structure future supervisory interaction and understand the level of engagement firms and FMIs have achieved on the issues identified as in need of remediation.
Dear Senior Management Function letter: 2021 CBEST thematic findings
Webpage
Bank of England
Public cloud material outsourcing - Bank of England publishes Dear CEO letters on supervisory expectations - 29 September 2021
The Bank of England (the Bank) has published three Dear CEO letters setting out its supervisory expectations in relation to material outsourcing arrangements, including the use of the public cloud.
The letters have been sent to central counterparties (CCPs), recognised payment system operators (RPSOs), specified service providers (SSPs) and central securities depositories (CSDs). The Bank is concerned about the potential risk to financial stability of increasing reliance on third parties, in particular through outsourcing arrangements, by CCPs, RPSOs, SSPs and CSDs (collectively, financial market infrastructure (FMI)).
Among other things, the letters remind FMIs to have regard to existing regulatory requirements relating to outsourcing. They should also have regard to the Bank’s policy on operational resilience, and consider any relevant international standards.
The Bank intends to consult on its proposed expectations and policies for FMIs on outsourcing in due course, with specific reference to use of the cloud.
Dear CEO Letter to CCPs: Supervisory expectations in relation to material outsourcing to the public cloud
Letter to CCPs webpage
Dear CEO Letter to RPSOs and SSPs: Supervisory expectations in relation to material outsourcing to the public cloud
Letter to RPSOs and SSPs webpage
Dear CEO Letter to CSDs: Supervisory expectations in relation to material outsourcing to the public cloud
Letter to CSDs webpage
Prudential Regulation Authority
2020/21 written auditor reporting - PRA publishes Dear CFO letter on feedback - 30 September 2021
The PRA has published a Dear Chief Financial Officer letter addressed to selected deposit-takers providing thematic feedback from its review of written auditor reports received in 2021. The letter sets out the PRA’s expectations for future action by firms and auditors on IFRS 9 expected credit loss (ECL) accounting, global benchmark reform and climate change.
Dear Chief Financial Officer Letter: Thematic feedback from the 2020/2021 round of written auditor reporting
Webpage
Financial Conduct Authority
Diversity and inclusion - FCA publishes speech - 24 September 2021
The FCA has published a speech by Sheldon Mills, Executive Director, Consumers and Competition, on measuring and assessing culture, the role of purpose and the importance of diversity and inclusion (D&I). Speaking to the Investment Association, Mr Mills made four points of interest:
- Culture is critical to the FCA’s supervision: the regulator sees poor conduct as almost always being rooted in deeper cultural issues.
- Hybrid working: the FCA sees “huge” wellbeing and productivity benefits to hybrid working, but also expects firms to strike a balance to ensure working from home does not lead to a lack of oversight.
- Diversity and inclusion: D&I is critical to the FCA, with firms that are diverse and inclusive likely to deliver better outcomes for shareholders, consumers and markets.
- Climate change: Mr Mills encouraged his audience to drive the transition towards a net-zero emission economy.
Speech by Sheldon Mills on culture, purpose and diversity and inclusion
