European Commission
Taxonomy Regulation for sustainable investment - European Commission accepts EU Council position - 23 April 2020
The European Commission has published a Communication to the European Parliament confirming that it accepts the position adopted by the Council of the European Union, at first reading on 15 April 2020, on the text of the proposed Regulation (EU) 2018/0178(COD) (Taxonomy Regulation) on the establishment of a framework to facilitate sustainable investment and identify green activities.
The Communication sets out the amendments made to the Commission’s initial proposals. The European Parliament is expected to formally adopt the text in plenary at second reading.
European Commission Communication to European Parliament on adopting the Council of EU’s position on the text of the proposed Taxonomy Regulation (EU) 2018/0178(COD)
European Securities and Markets Authority
ESG disclosure requirements under the BMR - ESMA publishes no action letter to NCAs and Opinion to the European Commission - 29 April 2020
The European Securities and Markets Authority (ESMA) has published a letter asking national competent authorities (NCAs) not to prioritise supervisory or enforcement action against benchmark administrators that fail to comply with the the new environmental, social and governance (ESG) disclosure requirements under the Benchmarks Regulation (EU) 2016/1011 (BMR). The new requirements are due to apply from 30 April 2020 and require benchmark administrators to include details of how ESG factors are reflected in their methodology documents and benchmark statements.
The reason for the request is the difficulties encountered by benchmark administrators in fulfilling these requirements prior to the adoption and application of related Delegated Regulations. These Regulations set out minimum standards on the reflection of ESG factors in benchmark methodologies and benchmark statements.
As reported in a previous edition of this Bulletin, these Delegated Regulations are currently subject to a one month consultation by the European Commission, due to close on 6 May 2020. Following this, the Delegated Regulations will also be subject to a scrutiny by the European Parliament and by the Council of the European Union before they enter into force. To this end, ESMA has also published an Opinion to the European Commission stating that delay in the adoption of the Delegated regulations should be avoided.
ESMA no action letter to NCAs regarding ESG disclosure requirements for benchmark administrators under the BMR
ESMA Opinion to the European Commission on the need to avoid delay in adopting Delegated Regulations regarding ESG disclosure requirements for benchmark administrators under the BMR
Press release
Various trade associations
COVID-19 - trade associations publish letter to ESMA on the application of OTC derivative contract reporting requirements for financial counterparties under EMIR Refit - 27 April 2020
The International Swaps and Derivatives Association (ISDA) has published a letter submitted to ESMA on behalf of ISDA, the Association for Financial Markets in Europe (AFME), the Asia Securities Industry and Financial Markets Association (ASIFMA), the Global Financial Markets Association (GFMA) and the Securities Industry and Financial Markets Association (SIFMA). The letter requests national competent authorities (NCAs) not to prioritise supervisory action in relation to the application of mandatory over-the-counter (OTC) derivative contract reporting requirements for financial counterparties (FCs) under the EMIR Refit Regulation (EU) 2019/834 (EMIR Refit).
The letter states that COVID-19 has impeded market participants’ preparations and ability to comply with the requirement on FCs to report OTC derivative contracts on behalf of both themselves and of their non-financial counterparty minus (NFC-) clients from 18 June 2020. The letter calls on ESMA to request that NCAs will not prioritise supervisory action and will generally apply their risk-based supervisory powers in relation to this requirement in a proportionate manner until 21 November 2020.
The letter confirms that where NFC- clients have fulfilled their obligations of providing all relevant data to FCs before 18 June 2020, they will no longer be responsible for reporting its trades. FCs will assume liability for reporting OTC derivative trades on behalf of NFC- firms from 18 June 2020, even if they are not yet in a position to report those trades.
Various trade associations publish letter to ESMA on the application of OTC derivative contract reporting requirements for financial counterparties under the EMIR Refit Regulation in light of COVID-19
Webpage
Financial Conduct Authority
COVID-19 - FCA publishes ‘Dear CEO’ letter on the fair treatment of corporate customers preparing to raise equity finance - 28 April 2020
The FCA has published a ‘Dear CEO’ letter from Jonathan Davidson (Executive Director of Supervision, Retail and Authorisations at the FCA) and Megan Butler (Executive Director of Supervision, Investment, Wholesale and Specialist at the FCA) to firms on the fair treatment of corporate customers preparing to raise equity finance in light of the ongoing COVID-19 pandemic.
There have been reports of some banks failing to treat corporate clients fairly, by using their lending relationships with clients to exert pressure and secure roles on equity mandates to which they might otherwise not have been appointed. That sort of conduct could breach several FCA rules and Principles for Businesses, including: (i) Principle 1 (integrity); Principle 5 (market conduct); (iii) COBS 2.1 (best interests of the client); (iv) COBS 11A.2 (prohibition of future service restrictions); and (v) SYSC 10.1 (conflicts of interest).
The FCA reminds firms to consider requirements of the Market Abuse Regulation (596/2014/EU) (MAR), including in relation to the identification, handling and disclosure of inside information received in connection with the renegotiation of a corporate client’s existing facilities, as well as the individual conduct rules of the Senior Managers and Certification Regime (SMCR).
Firms that are active in both equity and lending markets must review their current systems and controls to satisfy themselves that they are appropriate for ensuring the fair and proper treatment of clients, identification and mitigation of conflicts of interest and handling of inside information. The FCA intends to contact firms with a lending relationship and equity role with issuers that have recently raised significant equity capital in order to understand how those firms ensured clients were treated fairly and inside information was handled appropriately.
FCA ‘Dear CEO’ letter to firms on the fair treatment of corporate customers preparing to raise equity finance in light of COVID-19
LIBOR transition - FCA publishes further statement on the impact of COVID-19 - 29 April 2020
The FCA has published a second statement on the impact of COVID-19 on firms’ London interbank offered rate (LIBOR) transition plans. This follows the FCA’s previous statement made on 25 March 2020. Among other things, the FCA reiterates that firms should not rely on LIBOR being published after the end of 2021 and this should remain the target date for all firms to meet.
The FCA states that it is pleased to see continued progress on LIBOR transition, particularly within sterling cash markets and bond markets. However, the target of completely transitioning away from LIBOR in new sterling LIBOR-linked loans by end-Q3 2020 will not be achievable. Therefore, the Bank of England’s Working Group on Sterling Risk-Free Reference Rates recommends that:
- by end-Q3 2020, lenders should be able to offer non-LIBOR linked products to their customers;
- after end-Q3 2020, lenders should include clear contractual arrangements in all new and re-financed LIBOR-referencing loan products to facilitate conversion ahead of end-2021. These arrangements should include pre-agreed conversion terms, or an agreed process for renegotiation, to the Sterling Overnight Index Average (SONIA) or other alternative rates; and
- there should be no new issuances of sterling LIBOR-referencing loan products with maturities beyond the end of 2021 by the end of Q1 2021.
The FCA, the Bank of England and the Chair of the UK’s Working Group on Risk-Free Reference Rates (RFRWG) will continue to support the delivery of the RFRWG’s workplan, including the publication of guidance on ‘tough legacy’ contracts and the calculation of a fair credit spread adjustment in legacy cash products to assist LIBOR transition in cash markets. The FCA and the Bank of England will also continue to assess the evolving impact of COVID-19 on firms’ LIBOR transition plans.
FCA statement on the impact of COVID-19 on firm’s LIBOR transition plans
