On April 24 2024, the European Parliament adopted texts on new EU rules to combat money-laundering.

The new laws ensure that people with a legitimate interest, including journalists, media professionals, civil society organisations, competent authorities, and supervisory bodies, will have immediate, unfiltered, direct and free access to beneficial ownership information held in national registries and interconnected at EU level. In addition to current information, the registries will also include data going back at least five years.

The laws also give Financial Intelligence Units (FIUs) more powers to analyse and detect money laundering and terrorist financing cases as well as to suspend suspicious transactions.

The new laws include enhanced due diligence measures and checks on customers’ identity, after which so-called obliged entities (e.g. banks, assets and crypto assets managers or real and virtual estate agents) have to report suspicious activities to FIUs and other competent authorities. From 2029, top-tier professional football clubs involved in high-value financial transactions with investors or sponsors, including advertisers and the transfer of players will also have to verify their customers’ identities, monitor transactions, and report any suspicious transaction to FIUs.

The legislation also contains enhanced vigilance provisions regarding ultra-rich individuals (total wealth worth at least EUR 50 000 000, excluding their main residence), an EU-wide limit of EUR 10 000 on cash payments, except between private individuals in a non-professional context, and measures to ensure compliance with targeted financial sanctions and avoid sanctions being circumvented.

To supervise the new rules on combatting money laundering, a new authority - the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) - will be established in Frankfurt. AMLA will be charged with directly supervising the riskiest financial entities, intervening in case of supervisory failures, acting as a central hub for supervisors and mediating disputes between them. AMLA will also supervise the implementation of targeted financial sanctions. The laws still need to be formally adopted by the Council, too, before publication in the EU’s Official Journal.

BACKGROUND

Union citizens and residents in the Union should have the right to a digital identity that is under their sole control and that enables them to exercise their rights in the digital environment and to participate in the digital economy. To achieve that aim, a European digital identity framework should be established allowing Union citizens and residents in the Union to access public and private online and offline services throughout the Union.

A harmonised digital identity framework should contribute to the creation of a more digitally integrated Union by reducing digital barriers between Member States and by empowering Union citizens and residents in the Union to enjoy the benefits of digitalisation, while increasing transparency and the protection of their rights.

European Digital Identity Wallets should facilitate the application of the ‘once only’ principle, thus reducing the administrative burden on and supporting cross-border mobility of Union citizens and residents in the Union and businesses across the Union and fostering the development of interoperable e-government services across the Union.

WHAT'S NEW?

On April 30 2024, the European Union published the European Digital Identity Framework (eIDAS 2.0 Regulation).

The objective of this Regulation is to provide the user with a fully mobile, secure and user-friendly European Digital Identity Wallet. As a transitional measure until the availability of certified tamper-proof solutions, such as secure elements within the users’ devices, European Digital Identity Wallets should be able to rely upon certified external secure elements for the protection of the cryptographic material and other sensitive data or upon notified electronic identification means at assurance level high in order to demonstrate compliance with the relevant requirements of this Regulation as regards the assurance level of the European Digital Identity Wallet.

The European Digital Identity Wallet should provide natural and legal persons across the Union with a harmonised electronic identification means enabling authentication and the sharing of data linked to their identity. Everyone should be able to access public and private services securely, relying on an improved ecosystem for trust services and on verified proofs of identity and electronic attestations of attributes, such as academic qualifications, including university degrees, or other educational or professional entitlements. The European Digital Identity Framework is intended to achieve a shift from the reliance on national digital identity solutions only, to the provision of electronic attestations of attributes valid and legally recognised across the Union. Providers of electronic attestations of attributes should benefit from a clear and uniform set of rules, while public administrations should be able to rely on electronic documents in a given format.

WHAT'S NEXT?

The Regulation will enter into force on May 20 2024. Secure signature creation devices of which the conformity has been determined in accordance with Article 3(4) of Directive 1999/93/EC shall continue to be considered to be qualified electronic signature creation devices under this Regulation until May 21 2027.

Qualified certificates issued to natural persons under Directive 1999/93/EC shall continue to be considered as qualified certificates for electronic signatures under this Regulation until May 21 2026.

The management of remote qualified electronic signature and seal creation devices by qualified trust service providers other than qualified trust service providers providing qualified trust services for the management of remote qualified electronic signature and seal creation devices in accordance with Articles 29a and 39a may be carried out without the need to obtain the qualified status for the provision of these management services until May 21 2026.
Qualified trust service providers that have been granted their qualified status under this Regulation before May 20 2024 shall submit a conformity assessment report to the supervisory body proving compliance with Article 24(1), (1a) and (1b) as soon as possible and in any event by May 21 2026.

On April 18 2024, the European Parliament's Committee on Economic and Monetary Affairs (ECON) adopted a text on Financial Data Access Regulation (FIDA) proposal.

The framework would be established for the access of customer data processed by financial institutions across the financial sector beyond payment account data. Based on owner’s permission, their data (including holdings of savings and investments in financial instruments and insurance-based investment products as well as data collected for the purposes of carrying out a suitability and appropriateness assessment) would be made available in order to develop and provide tailor-made and data-driven financial products and services.

For smaller companies the access to data would be useful when attracting new customers, lowering costs and barriers of entry thus increasing competition and innovation for financial products and services.

Customers would decide how and by whom their financial data is used. The access should be based on customers’ explicit permission and data users would have to specify what they intend to make with them. The data could not be transferred to a third-party without permission. Moreover a consent could be withdrawn at any time and free of charge.

Financial data access scheme members, including data holders and data users, should therefore be required to agree on the contractual liability for potential data breaches, which foresees customer compensation in case data was misused, for instance if data was to be transferred to a third-party without the customer’s explicit permission.

Processing of personal data in the context of the new rules should be carried out in accordance with the exiting EU legislation.

Data related to sickness and health cover would be excluded from the scope, as well as confidential business data and undisclosed know-how. MEPs also decided that the large digital platforms designated as Gatekeepers pursuant to the Digital Markets Act should not be eligible to become financial information service providers.

MEPs proposed the data access by way of high-quality technical interfaces, they also agreed that data holders and data users should be allowed to use existing market standards and infrastructures for technical interfaces like application programming interfaces when developing common standards for mandatory data access. Data holders should be able to request reasonable compensation from data users for costs incurred in providing access and those related to putting in place and maintaining application programming interfaces.

The European Banking Authority (EBA) should establish a register of authorised financial information service providers, as well as financial data access schemes agreed between data holders and data users. Finally, MEPs want to give 12 more months to small firms to apply the rules, to ensure their proportional involvement.

The file will be followed up by the new Parliament after the June European elections.

On April 2 2024, the European Association for Investors in Non-Listed Real Estate (INREV) published the updated Debt and Derivatives Disclosure Notes.

The INREV Debt and Derivatives Disclosure Notes provide investors with detailed information about an investment vehicle’s financing and hedging arrangements in a standardised disclosure format. 

The Notes were updated in response to investor expectations, the evolution of the financing and investment markets, and the increasing demand for ESG-related information such as risk assessments and covenants.

Compared to the previous 2017 version, the Notes include additional templates for several sections such as Loans and Borrowings (e.g. ESG-related covenants), Derivative Financial Instruments and Other information.

The new 2024 version of the Notes is divided into two parts:

• Background and summary:
  Describes the main topics, content and rationale, along with a mapping to the relevant INREV Reporting Guidelines. Additionally, a checklist is included to assist users verify the debt and derivatives-related information when reporting to investors.
• Practical Templates:
  Contains detailed tables and examples (in MS Excel format) illustrating how debt and derivative information can be effectively presented to investors.

While this information is expected to adhere to widely recognised GAAP standards, other disclosures may be required based on the vehicle's specific financing structure and regulatory obligations.

To avoid double counting, an initial assessment should be performed to determine whether the information provided in the Notes has already been included in the vehicle’s financial statements. The information could be disclosed both in the year-end accounts and quarterly reporting to investors.

This document does not cover all mandatory IFRS requirements as they can vary based on factors such as the vehicle's domicile and regulatory restrictions, accounting standards, and materiality, which can also change over time.

BACKGROUND

The revised European long-term investment fund (ELTIF) Regulation provides that the European Securities and Markets Authority (ESMA) shall develop draft Regulatory Technical Standards (RTS) to determine the following:

• the circumstances in which the life of an ELTIF is considered compatible with the life-cycles of each of the individual assets, as well as different features of the redemption policy of the ELTIF;
• the costs disclosure.

On December 19 2023, ESMA published its final report on the draft RTS under the revised ELTIF Regulation and submitted it to the European Commission (EC) for adoption.

On March 8 2024, ESMA received a letter from the EC explaining that the EC’s analysis of the draft RTS is that “ESMA’s draft RTS do not sufficiently cater for the individual characteristics of different ELTIFs” and that “… it is necessary to take a more proportionate approach to the drafting of the RTS, in particular with regard to the calibration of the requirements relating to redemptions and liquidity management tools”. The EC informed ESMA that it intends to adopt the proposed RTS with amendments, which were submitted to ESMA as an Annex to the letter, and invited ESMA to submit new draft RTS to the EC reflecting the amendments provided in the Annex.

Pursuant to the ESMA Regulation, within a period of six weeks from the receipt of the letter, ESMA may amend its draft RTS and resubmit them to the EC in the form of a formal opinion.

WHAT'S NEW?

On April 22 2024, the ESMA published another opinion on the ELTIF RTS under the revised ELTIF Regulation.

In this opinion, ESMA suggests a limited number of changes to the amendments proposed by the EC, as set out in the Appendix. ESMA acknowledges that an appropriate balance should be found between, on the one hand, the protection of retail investors and financial stability related objectives, and on the other hand, the fact that ELTIFs should make an important contribution to the capital market union objectives. However, in view of the EC’s comments, ESMA proposes striking that balance slightly differently from the EC. More particularly:

• Material changes to the redemption policy: The ELTIF manager should give a written notice to the NCA of the ELTIF as soon as possible and at least one month before implementing the change. If the material change is not planned by the manager and goes beyond its control, the manager should inform the NCA, as soon as he becomes aware of such change.
• Minimum notice period for redemptions: The percentages of liquid and redeemable assets based on which length of notice period should be determined are amended and are now in line with market standards for these type of funds. If the notice period is less than 6 months, the ELTIF manager has to provide the NCA with a justification how that notice period is consistent with the individual features of the ELTIF and the interest of investors.
• Choice of Liquidity Management Tools (LMTs): The requirement for the ELTIF manager to select and implement at least one anti-dilution mechanism (anti-dilution levies, swing pricing or redemption fees) is removed. It will be the ELTIF manager`s choice to select and implement LMTs, in line with the general requirements on LMTs included in the revised AIFMD.
• Redemption gates: Implementation and activation of redemption gates is no longer limited to “exceptional” circumstances or exclusively contingent on the notice period. The ELTIF manager therefore may implement redemption gates, in particular if the amount of liquid assets is not sufficient to cover a reasonable expected redemption at the redemption dates.
• Cost disclosures: The ELTIF requirements on cost disclosures (both methodology and presentation) are now aligned with existing frameworks such as PRIIPs and MiFID. The overall cost indicator will be calculated as a percentage of the “NAV of the ELTIF per annum”.
• Minimum holding period: ESMA suggests to require from ELTIF managers to determine the minimum holding period. In addition, ELTIF managers must be able to demonstrate to the NCA the appropriateness of the duration of the minimum holding period.

WHAT'S NEXT?

ESMA has adopted this opinion, which is being communicated to the EC, with copies to the European Parliament (EP) and the Council (EU Council). The EC may adopt the RTS with the amendments it considers relevant or reject it. The EP and the EU Council may object to an RTS adopted by the EC within a period of three months.

On April 22 2024, the Financial Data Exchange Templates (FinDatEx) published the European MiFID Template (EMT) V4.2.

FinDatEx published the final version of the EMT V4.2 Template. The current template integrates the previous one (EMT V4.1) with a supplementary UK-specific section linked to detailed on-going costs.

EMT V4.2 can be used before June 30 2024. From June 30 2024, EMT V4.2 will be mandatory within the UK market and V4.1 will be retired. Both V4.2 and V4.1 will remain valid from June 30 2024.

On April 30 2024, the European Securities and Markets Authority (ESMA) published the annual transparency calculations for non-equity instruments, bond liquidity data and quarterly systematic internaliser (SI) calculations.

The results of the annual transparency calculations for non-equity instruments will apply from June 3 2024. The calculations include the liquidity assessment and the determination of the pre- and post-trade size specific to the instruments and large in scale thresholds.? 

The results for the liquid and illiquid sub-classes will be published in XML format from April 30 2024 and related instructions on their download can be found in the Transparency System downloading instructions. The results at ISIN level will be available through the Financial Instruments Transparency System (FITRS) in the XML files also from April 30 2024 and through the Register web interface.?? 

The transparency requirements based on the results of the annual transparency calculations for non-equity instruments apply from June 3 2024 until June 1 2025. 

ESMA has published the latest quarterly liquidity assessment for bonds available for trading on EU trading venues. For this period, there are currently 1,371 liquid bonds subject to MiFID II transparency requirements.?The transparency requirements for bonds deemed liquid will apply from May 20 2024 to August 18 2024.? 

The results at ISIN level are available through the Financial Instruments Transparency System (FITRS) in the XML files from April 30 2024 and through the Register web interface.? 

ESMA is also publishing two completeness indicators related to bond liquidity data.?? 

ESMA updates the bond market liquidity assessments quarterly. However, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in the FITRS, which shall be applicable the day following publication.? 

The data covers the total number of trades and total volume over the period October 1 2023 to March 31 2024 and includes:? 

• 25,244 equity and equity-like instruments.? 
• 137,480 bonds; and? 
• 6,530 sub-classes of derivatives (including equity derivatives, interest rate derivatives, commodity derivatives, emission allowance).? 

Investment firms are required to perform the SI test by May 15 2024.? 

The data is made available through FITRS in the XML files from April 30 2024.?? 

The results for equity and equity-like instruments are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the 6-month observation period. The data publications also incorporate OTC trading to the extent it has been reported to ESMA. The publication includes data for instruments traded or available for trading during the reference period considered.

BACKGROUND

Under the Digital Operation Resilience Act (DORA) and starting from 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party providers.

WHAT'S NEW?

On April 11 2024, the European Supervisory Authorities (ESAs) announced a voluntary dry run exercise to prepare the industry for the next stage of the DORA implementation.

The ESAs and the national competent authorities (NCAs) are introducing a voluntary exercise to help financial entities prepare for establishing their registers of information, gathering the relevant information specified in the ESAs’ final draft Implementing Standards on the registers of information and reporting their registers of information to their respective NCAs, who will, in turn, provide those to the ESAs.

The exercise will be launched in May as a voluntary collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities. This information will be collected from financial entities through their NCAs and will serve as preparation for the implementation and reporting of registers of information under DORA.

Financial entities participating in the dry run will receive support from the ESAs to:

• build their register of information in the format as close as possible to the steady-state reporting from 2025
• test the reporting process
• address data quality issues 
• improve internal processes and quality of their registers of information.

WHAT'S NEXT?

As part of the exercise, the ESAs will provide feedback on data quality to financial entities participating, return cleaned files with their register of information, organise workshops and respond to frequently asked questions (FAQs).The ad-hoc data collection is expected to be launched in May 2024 with the financial entities expecting to submit their registers of information to the ESAs through their NCAs between July 1 and August 30.

On April 17 2024, the European Union published a Regulation (EU) 2024/1106 amending Regulations (EU) No 1227/2011 and (EU) 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market.

Open and fair competition in the internal markets for electricity and for gas and ensuring a level playing field for market participants requires integrity and transparency of wholesale energy markets. Regulation (EU) No 1227/2011 establishes a comprehensive framework to achieve that objective. To enhance the public’s trust in functioning wholesale energy markets and to protect the Union effectively against market abuse, Regulation (EU) No 1227/2011 should be amended to ensure further transparency and increase monitoring capacities, thereby contributing to the stabilisation of energy prices and consumer protection, as well as to ensure more effective investigation and enforcement of cases of potential cross-border market abuse addressing the shortcomings identified in the current framework.

Financial instruments, including energy derivatives, traded on wholesale energy markets are of increasing importance. Due to the increasingly close interrelation between financial markets and wholesale energy markets, Regulation (EU) No 1227/2011 should be better aligned with the financial market legislation of the Union, such as Regulation (EU) No 596/2014 (MAR), including with respect to the definitions of market manipulation and inside information. The definition of market manipulation in Regulation (EU) No 1227/2011 should therefore be amended to align it with Article 12 of Regulation (EU) No 596/2014. To that end, the definition of market manipulation under Regulation (EU) No 1227/2011 should be amended to capture the entering into any transaction, or issuing, modifying or withdrawing any order to trade, but also any other behaviour relating to wholesale energy products which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products; secures, or is likely to secure, by a person, or persons acting in collaboration, the price of one or more wholesale energy products at an artificial level; or employs a fictitious device or any other form of deception or contrivance which gives, or is likely to give, false or misleading signals regarding the supply of, demand for, or price of wholesale energy products.

The definition of inside information should also be amended to align it with Regulation (EU) No 596/2014. In particular, where inside information concerns a process which occurs in stages, each stage of the process as well as the overall process could constitute inside information. An intermediate step in a protracted process could in itself constitute a set of particular circumstances or a particular event which exists or where there is a realistic prospect that they will come into existence or occur, on the basis of an overall assessment of the factors existing at the relevant time. However, that should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the wholesale energy products concerned is to be taken into consideration. An intermediate step in a protracted process should be considered to be inside information if it, by itself, meets the criteria laid down in this Regulation for inside information.

The sharing of information between national regulatory authorities and the competent financial authorities of the Member States is a central aspect of the cooperation with regard to, and detection of, potential breaches of this Regulation concerning both the wholesale energy markets and the financial markets. In light of the exchange of information between competent authorities pursuant to Regulation (EU) No 596/2014 at national level, national regulatory authorities should share relevant information that they receive with the competent financial authorities of the Member States and the national competition authorities.

The Regulation entered into force on May 7 2024.

Article 1, points (6) and (13), as regards Article 4a (1) to (7) and Article 9a (1) to (5) of Regulation (EU) No 1227/2011, shall apply from the date on which the delegated acts adopted pursuant to those points enter into force.

Article 1, point (10), as regards Articles 7a to 7e of Regulation (EU) No 1227/2011, shall apply from January 1 2025.

Article 1, point (18), as regards Article 15(2) of Regulation (EU) No 1227/2011, shall apply from November 8 2024.

On April 10 2024, the European Parliament adopted a text on amending the Directive 2013/34/EU (Accounting Directive) as regards the postponement of the adoption of sustainability reporting standards for companies falling into the scope of the Directive, including the financial sector, for two years.

Sustainability reporting requirements play a key role in ensuring market transparency and in ensuring that companies are accountable for their impacts on people and on the environment. However, it is important to streamline those requirements, in order to ensure that they fulfil the purpose for which they were intended, and to limit the administrative burden. Directive 2013/34/EU requires the Commission to provide for sustainability reporting standards by means of delegated acts, by June 30 2024, specifying the information that companies are to report with regard to sustainability matters and the reporting areas specific to the sector in which a company operates, in addition to the information that companies are already required to provide under the Commission Delegated Regulation (EU) 2023/2772.

To reduce the reporting burden, as stated in the Commission Communication of March 16 2023 entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, companies should be allowed to focus first on the implementation of sustainability reporting requirements laid down in Regulation (EU) 2023/2772. For that reason, the time limit for the adoption of the delegated acts containing the sustainability reporting standards should be postponed by two years. However, that postponement should not prevent the Commission from publishing the delegated acts containing the sector-specific sustainability reporting standards before that two-year period has elapsed.

The economic sectors in question relate to Regulation (EC) No 1893/2006 (NACE Rev. 2 - common statistical classification of economic activities) and include: Agriculture, Forestry and Fishing, Mining and Quarrying, Manufacturing, Electricity, Gas, Steam and Air Conditioning Supply, Water Supply, Sewerage, Waste Management and Remediation, Construction, Transportation and Storage, Financial, Insurance and Real Estate activities.

Companies in the same sector are often exposed to similar sustainability-related risks, and they often have similar impacts on society and on the environment. Comparisons between companies in the same sector are especially valuable to investors and to other users of sustainability information. Sustainability reporting standards should therefore specify both information that companies in all sectors should disclose, and information that companies should disclose depending on their sector of activity.  For companies that operate in sectors particularly reliant on natural resources, sector-specific sustainability reporting standards would require the disclosure of nature-related impacts on and risks for biodiversity and ecosystems.

Directive 2013/34/EU also requires the Commission to adopt, by June 30 2024, a delegated act to provide for sustainability reporting standards to be used for the disclosure of sustainability information concerning third-country undertakings with a net turnover above EUR 150 million in the Union and with either subsidiaries in the Union that are large undertakings or small and medium-sized undertakings with securities admitted to trading in the Union regulated markets, or with branches in the Union with a net turnover above EUR 40 million. This reporting requirement for certain third-country undertakings applies only as of the financial year 2028. Since the time limit for the adoption of the delegated acts containing the sustainability reporting standards that specify the information that undertakings are to report with regard to sustainability matters and the reporting areas specific to the sector in which an undertaking operates is to be postponed by two years, the time limit for the adoption of the sustainability reporting standards for certain third-country undertakings should also be postponed by two years.

On April 24 2024, the European Parliament adopted the text on the Corporate Sustainability Due Diligence Directive (CSDDD).

The Parliament approved the new “due diligence” directive, agreed on with the Council, requiring firms and their upstream and downstream partners, including supply, production and distribution to prevent, end or mitigate their adverse impact on human rights and the environment. Such impact will include slavery, child labour, labour exploitation, biodiversity loss, pollution or destruction of natural heritage.

The rules will apply to EU companies and parent companies with over 1000 employees and a worldwide turnover higher than 450 million euro. It will also apply to companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than 80 million euro if at least 22.5 million euro was generated by royalties. Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be covered. These firms will have to integrate due diligence into their policies, make related investments, seek contractual assurances from their partners, improve their business plan or provide support to small and medium-sized business partners to ensure they comply with new obligations. Companies will also have to adopt a transition plan to make their business model compatible with the Paris Agreement global warming limit of 1.5°C.

Member states will be required to provide companies with detailed online information on their due diligence obligations via practical portals containing the Commission’s guidance. They will also create or designate a supervisory authority to investigate and impose penalties on non-complying firms. These will include “naming and shaming” and fines of up to 5% of companies’ net worldwide turnover. The Commission will establish the European Network of Supervisory Authorities to support cooperation and enable exchange of best practices. Companies will be liable for damages caused by breaching their due diligence obligations and will have to fully compensate their victims.

The directive now also needs to be formally endorsed by the Council, signed and published in the EU Official Journal. It will enter into force twenty days later. Member states will have two years to transpose the new rules into their national laws.

The new rules (except for the communication obligations) will apply gradually to EU companies (and non-EU companies reaching the same turnover thresholds in the EU):

• From 2027 to companies with over 5000 employees and worldwide turnover higher than 1500 million euro;
• From 2028 to firms with over 3000 employees and a 900 million euro worldwide turnover;
• From 2029 to all the remaining companies within the scope of the directive (including those over 1000 employees and worldwide turnover higher than 450 million euro).

On April 24 2024, the European Parliament adopted the text on environmental, social and governance (ESG) ratings.

The new rules will regulate the ecosystem of ESG rating activities to allow investors to make more considered investments and fight greenwashing. 

As a rule, separate E, S and G ratings shall be provided rather than a single ESG metric that aggregates E, S and G factors. Also, if an ESG rating covers the E factor, information will also need to be provided on whether that rating takes into account the alignment with the Paris Agreement and any other relevant international agreements. If an ESG rating covers the S and G factors, information must be given on whether that rating takes into account any relevant international agreements. This breakdown should allow investors to better target their investment into one of the three areas, and have a clearer idea of the rated entity's credentials.

The agreed rules add provisions to ensure that the rating agency should explicitly disclose whether the delivered rating assesses how the rated entity affects and is affected by E, S and G factors, i.e. whether the delivered rating addresses both material financial risk to the rated entity and the material impact of the rated entity on the environment, social and governance factors, or whether it takes into account only one of these.

In this way, ESG raters are encouraged to address the material impact of the rated entity on the environment and society (double materiality) more than is currently the case.

An ESG rating provider established in the Union categorized as a small undertaking or as a small group will only be subject to some of the provisions for the first three years of its existence. This temporary light-touch approach should help start-up rating agencies and establish a more diverse ecosystem.

On April 16 2024, the Financial Services and Markets Authority (FSMA) published a newsletter to anti-money laundering (AML) compliance officers.

In this new issue of the AMLCO Newsletter, the FSMA draws attention to the Belgian Financial Intelligence Processing Unit’s (CTIF's) communication on its new portal for suspicious transaction reports. The FSMA also informs on the revision by the European Banking Authority (EBA) of its guidelines on risk-based supervision and its guidance on risk factors to take into account emerging risks in the virtual asset sector. The FSMA takes these guidelines into account in its risk-based supervisory approach. The guidance on risk factors is also applicable to institutions and they must make every effort to comply with them. Finally, the FSMA announces the launch of its 2024 questionnaire on the prevention of ML/CFT.

The contents of the newsletter are as follows:

• New "goAML" portal for suspicious transaction reports to CTIF;
• Amendments to two EBA guidelines to take into account risks specific to the virtual asset sector;
• Periodic Questionnaire 2024 on the Prevention of ML/TF;
• Miscellaneous: access to the UBO register as a obliged entity, about AML/CFT colleges, FATF assessment of Belgium.

On April 23 2024, the Financial Services and Markets Authority (FSMA) published a periodic questionnaire on the prevention of money laundering/terrorist financing (ML/TF).

This circular informs obliged entities on the content and methods of transmitting information aimed at assessing the compliance and effectiveness of the system to combat money laundering and the financing of terrorism (ML/FT) that they have implemented. This collection is carried out by means of an annual questionnaire, which constitutes an important tool in the exercise of the legal powers of permanent control of the FSMA in matters of AML/CFT.

The “International AML/CFT Standards” (also known as the Financial Action Task Force (FATF) Recommendations), adopted in February 2012, place strong emphasis on implementing an approach based on risks. This risk-based approach was reinforced as part of the transposition of the 4th “Anti-money laundering” directive into national law, both for the obliged entities and for the supervisory authorities who must also have access to an AML/CFT control model allowing them to exercise their control skills on the basis of the risks to which the obliged entities subject to their control are exposed.

The obligation for supervisory authorities to organize supervision in a risk-based manner is explicitly enshrined in the European AML/CFT regulations as well as in Article 87 of the AML4law. The European supervisory authorities (ESAs) have also established common guidelines which must be respected by national AML/CFT supervisory authorities in the design, implementation, review and improvement of their own risk-based AML/CFT supervision model. 

According to these guidelines, supervisory authorities must follow a four-step process to develop an effective risk-based control model: 

• Step 1: identification of the different ML/FT risk factors;
• Step 2: carrying out a risk assessment for each obliged entity subject to control;
• Step 3: the exercise of control as such; and 
• Step 4: evaluation, adjustment and monitoring of the risk-based control model. 

In order to enable the FSMA to carry out a risk assessment for each of the different obliged entities subject to its control  and to set its control priorities based on this, it should have information concerning, on the one hand, the inherent ML/TF risks to which the obliged entities are exposed and, on the other hand, the quality of the risk control measures taken by the obliged entities. 

The conjunction of these two assessments makes it possible to define the residual ML/TF risk incurred by each obliged entity as well as the control priorities. Therefore, the periodic questionnaire which is the subject of this circular aims to collect the information referred to above from each of the obliged entities subject to the control of the FSMA, so that the latter can establish the risk profile of these entities and define its control priorities on the basis of this profile. 

The FSMA informs the obliged entities that, to determine their ML/TF risk profile, it may base itself, in addition to the information transmitted by means of the periodic questionnaire, on other sources of information to which it has access or that she can obtain. These sources include, among others, findings arising from on-site inspections, contacts between the supervisory authority and obliged entities, customer complaints, contacts with (approved) company auditors and the reports established by them, the information exchanged with the Belgian Financial Intelligence Processing Unit (CTIF-CFI), the prudential and AML/CFT supervisory authorities of other Member States and third countries, the information communicated by the judicial authorities, etc.

On April 8 2024, the Financial Services and Markets Authority (FSMA) published a Guidance on stress testing scenarios under Money Market Funds (MMF) Regulation.

The guidance referred to in this document is addressed to MMFs and MMF managers as defined in Regulation (EU) 2017/1131 of the European Parliament and of the Council on MMFs.

This document concerns the guidance issued by the European Securities and Markets Authority (ESMA) on stress testing scenarios under the MMF Regulation, and their implementation by the FSMA.

According to Article 16(3) of the abovementioned Regulation, "competent authorities and financial market participants shall make every effort to comply with those guidelines and recommendations" and "within two months of the issuance of a guideline or recommendation, each competent authority shall indicate whether it complies or intends to comply with that guideline or recommendation. If a competent authority fails to comply with it or does not intend to comply with it, it shall inform the Authority accordingly and give reasons for its decision."

It is in this context that ESMA issued, on March 6 2024, a new version of the "Guidance on stress testing scenarios under the MMF Regulation".

As a reminder, the MMF Regulation stipulates that MMF stress test scenarios take into account the following factors:

• changes in the degree of liquidity of the assets held in the MMF's portfolio;
• changes in the level of credit risk of the assets held in the MMF's portfolio, including credit and rating events;
• interest rate and exchange rate fluctuations;
• redemption levels;
• widening or narrowing spreads between indices to which the interest rates of the securities in the portfolio are linked;
• economy-wide macro-systemic shocks.

The new version of the Guidance concerns the updating of the specifications on the types of stress tests referred to in Section 5 and their benchmarking, as well as the updating of the methodology to be used for the scenario relating to the liquidity of assets held in the portfolio (section 4.8.1 of the Guidelines).

The objective of these guidelines is to ensure the common, uniform and consistent application of the provisions referred to in Article 28 of the MMF Regulation. The guidelines issued by ESMA are addressed to MMFs and MMF managers. The FSMA will incorporate these guidelines into its supervisory system as soon as they enter into force.

On April 16 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) launched a code of ethical conduct for financial market professionals.

Material has an educational focus and consolidates the main ethical concepts expected by those who wish to work in the segment.

The Code of Ethical Conduct is for professionals who have or wish to achieve one of ANBIMA's certifications. The rules will come into effect from January 2026.

The document is part of ANBIMAs ongoing commitment to boost the qualification of those who work in the financial and capital markets. The material was constructed in a simple way and is divided into nine ethical principles.

The text deals with professional conduct, management of conflicts of interest, protection of confidential information and promotion of fair and transparent market practices.

Thus, the Code is a reference for ethical decision-making in the day-to-day work. It helps to ensure that all certified persons and those who apply for an ANBIMA exam maintain a high standard of ethics and professionalism, which is essential for maintaining the credibility of the financial sector and for protecting the interests of investors.

Accession will be gradual. As of April 16 2024, it will be mandatory for those who are going to register for ANBIMA's exams. In the second half of 2024, all people with valid certification will be called upon to digitally sign the document. Soon ANBIMA will release an annex with the obligations and punishments that will be applied from January 2026.

BACKGROUND

The Ministry of Management and Innovation in Public Services (MGI) and the Federal Regional Court of the 4th Region (TRF-4), developer of the Electronic Information System (SEI), considered the full migration from the Unified System of Electronic Process in Network (Super.GOV.BR) to another system.

WHAT'S NEW?

On April 24 2024, the Comissão de Valores Mobiliários (CVM) announced that it will migrate from Super.GOV.BR to Electronic Information System (SEI).

CVM informs that the use of the SEI, the single channel for the administration of the federal government's electronic processes, will be resumed.

WHAT'S NEXT?

The migration process from the Super.GOV.BR to the SEI started on April 26 2024, and the system was unavailable from 8 pm.

The CVM advised users not to use the system until April 28 2024, in order to avoid possible losses of operations carried out in the process.

As of April 29 2024, the CVM successfully completed the migration to SEI and all administrative processes of the Autarchy will be generated in the SEI.

On April 9 2024, the Comissão de Valores Mobiliários (CVM) disclosed clarifications on the holding of shareholders' meetings and income distribution.

The Superintendencies of Securitization and Agribusiness (SSE) and Accounting and Auditing Standards (SNC) of the Brazilian Securities and CVM published the Joint Circular Letter CVM/SSE/SNC 1/2024.

The objective is to guide the administrators and managers of Real Estate Investment Funds (FII) on the proper disclosure of the information regime provided for in Normative Annex III of CVM Resolution 175, specifically, on the management of shareholders' meetings and income distribution.

The guidelines of the Circular Letter were based on the joint supervision activities carried out by SSE and B3 S.A. – Brasil, Bolsa e Balcão within the scope of the Work Plan provided for in the agreement signed between CVM and B3 in April 2017.

The document also provides guidance on the minimum content of the explanatory notes to the financial statements that deal with the distribution of income, including:

• Calculation Memory of Profits Earned on a Cash Basis
• Declared income
• Income actually paid
• Income to be distributed and
• Calculation of the percentage of distributed income.

BACKGROUND

The Integra-CNPJ System was launched in 2022 to streamline the process of granting CNPJ to non-residents and funds, integrated with the online registration service Redesim.

WHAT'S NEW?

On April 22 2024, the Comissão de Valores Mobiliários (CVM) published a Joint Circular Letter with the objective to clarify to the market the improvements available to fund managers in the Integra-CNPJ System.

The Superintendencies of Supervision of Institutional Investors (SIN) and Securitization and Agribusiness (SSE) of the CVM published the Joint Circular Letter CVM/SIN/SSE 1/2024.

The document complements the information disclosed in Joint Circular Letters CVM SIN/SSE 3 and 5/2022.

The system now has an automatic notification routine to investment fund administrators, which will warn them whenever the Brazilian Federal Revenue Service (RFB) system returns an error message in the request made through the CVM.

The measure aims to improve transparency in the granting of CNPJ to investment funds and the respective registration updates with the RFB under the responsibility of the CVM.

WHAT'S NEXT?

The optimization of the system will enable a more effective and timely follow-up of any pending updates and the necessary measures for their solution.

On April 24 2024, the Comissão de Valores Mobiliários (CVM) published a Response to BCB's Public Consultation 98/2024.

The response to the Public Consultation 98/2024 of the Central Bank aims to improve the regulation of the recovery and resolution of financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

ANBIMA brings together the main institutions that operate in the most different segments of the financial and capital markets, such as coordination of public offerings, fiduciary administration, management of third-party resources, distribution of investment products, custody and control of assets and trading of securities.

Considering the impact of the proposals for the capital market, comments and suggestions are presented within the scope of the Notice, which, to facilitate analysis, are divided between: (I) Conceptual Points; and (II) Formal Points.

BACKGROUND

A Consultation carried out by ANBIMA on January 15 2021 proposed the standardization of the completion of fields 13 to 16 of the monthly profile, which relate to the sensitivity analysis of investment funds.

WHAT'S NEW?

On April 16 2024, the Comissão de Valores Mobiliários (CVM) published a letter on the ANBIMA Consultation on filling out the monthly profile.

The Letter contains shared information of the Official Letter sent by CVM in response to the Consultation.

It is emphasized that the explosion of quotas is the normal procedure to be carried out when filling out fields 13 to 16 of the monthly profile and is not applicable only in the cases listed in article 46, paragraph 4, items I to III, of Normative Annex I of CVM Resolution No. 175/2022.

It should be mentioned that, according to paragraph 5 of the aforementioned article 46, in order to avail itself of the exemption referred to in paragraph 4, the regulation of the investor class must provide for an express prohibition on the application in quotas of classes and subclasses intended exclusively for professional investors.

With regard to the suggestions presented in items 1 to 3 of the Consultation, it is understood that, in relation to item 1, the trustees should send the monthly profile of investment funds in shares of investment funds managed by it, with fields 13 to 16 filled in, as established in article 24 of Normative Annex I of CVM Resolution No. 175/2022.

It is clarified that the prerogative contained in paragraph 4 of article 122 of CVM Instruction No. 555/2014, in the sense that questions 5, 6 and 11 to 16 of the monthly profile do not need to be answered by the managers of investment funds in quotas that comply with the provisions of the caput, is no longer valid, considering the revocation of ICVM 555 by RCVM 175, which does not provide for the aforementioned prerogative.

Finally, with regard to the completion of fields 13 to 16 in the case of funds that invest exclusively in external quotas, in line with Anbima's opinion, that fields 13 to 15 should be reported as "0" (zero) and field 16 as "-1%".

WHAT'S NEXT?

The CVM is calling ANBIMA and the industry to make themselves aware of their opinion with regards to the correct completion of fields 13 to 16 of the monthly profile related to investment funds.

On April 15 2024, France published a decree modifying the general rules of the AMF in the Legifrance (France's Official Journal).

This decree:

• Amends Book III of the AMF's General Regulation: Article 315-6 of the General Regulation is amended to make the retail tranche optional in IPOs carried out on the regulated market of Euronext Paris.
• Amends Book IV of the AMF General Regulation: the amendments aim, on the one hand, to update the AMF's General Regulation made necessary by the launch of the "ROSA" extranet, a new tool designed to digitise the process of processing cases concerning collective investment schemes and to facilitate exchanges between the AMF and management companies managing a French UCITS or AIF. On the other hand, the amendments to Book IV aim to allow the creation in France of UCITS or AIFs admitted to trading on a regulated market and whose portfolio is actively managed, called in practice "active ETFs", which exist in other countries. These amendments are coordinated with those made to Articles D. 214-22-1 and D. 214-32-31 of the Monetary and Financial Code by Decree No. 2024-151 of February 27 2024.
• Amends Book IV of the AMF General Regulation: the amendments aim to relax the conditions of use of the reimbursement fund for real estate investment trusts (SCPI) by providing for the possibility for the management company of the SCPI to decide on the use of the redemption fund and the transfer of the sums available on this fund, within the limits and according to the criteria set by the general meeting of the SCPI's partners.

Version française

Le 15 avril 2024, la France a publié au Légifrance (Journal Officiel) un décret modifiant le règlement général de l'AMF.

Ce décret :

• modifie le Livre III du Règlement Général de l'AMF : L'article 315-6 du Règlement Général est modifié pour rendre facultative la tranche retail dans les introductions en bourse réalisées sur le marché réglementé d'Euronext Paris.
• modifie le Livre IV du règlement général de l'AMF : les modifications visent, d'une part, à mettre à jour le règlement général de l'AMF rendue nécessaire par le lancement de l'extranet « ROSA », un nouvel outil destiné à numériser le processus de traitement des dossiers concernant les affaires collectives. d'investissement et de faciliter les échanges entre l'AMF et les sociétés de gestion gérant un OPCVM ou un FIA français. En revanche, les modifications du livre IV visent à permettre la création en France d'OPCVM ou de FIA admis aux négociations sur un marché réglementé et dont le portefeuille est géré activement, appelés en pratique « ETF actifs », qui existent dans d'autres pays. Ces modifications sont coordonnées avec celles apportées aux articles D. 214-22-1 et D. 214-32-31 du Code monétaire et financier par le décret n° 2024-151 du 27 février 2024.
• modifie le livre IV du règlement général de l'AMF : les modifications visent à assouplir les conditions d'utilisation du fonds de remboursement des sicaf immobilières (SCPI) en prévoyant la possibilité pour la société de gestion de la SCPI de décider de l'utilisation du fonds de rachat et le transfert des sommes disponibles sur ce fonds, dans les limites et selon les critères fixés par l'assemblée générale des associés de la SCPI.

On April 15 2024, the Autorité des marchés financiers (AMF) published a joint press release with Austrian FMA, Spanish CNMV and Italian CONSOB regarding macroprudential priorities in asset management.

The risks from non-bank financial intermediation have received more attention from regulators around the world in recent years, especially as its weight in the global financial system has increased. In addition, concerns have been raised about the potential negative effects that shocks arising from, or propagating through, this intermediation are likely to have on the real economy.

The specificities of asset management must be taken into account when developing regulations aimed at combating the risks associated with this activity. The asset management ecosystem is different from that of banks and as diverse as the vulnerabilities seen so far. Therefore, the nature of the risks that regulators want to address must be well defined: regulators should prioritize the features of asset management that generate excessive price volatility and liquidity strains. Capital requirements and liquidity reserves are not the best solutions to mitigate these risks in terms of financial stability.

The Austrian, Italian, Spanish and French authorities have identified five main priorities. The first three concern short and medium term measures, while the other two should be studied in the longer term:

• Ensure the availability and greater use of liquidity management tools within all types of open-ended funds: the recent revision of the directive on alternative investment fund managers (AIFM) will make it possible significant progress in the adoption of these liquidity management tools by managers. Application standards which will clarify the text are currently being developed.
• Prohibit amortized cost accounting in money market funds: by nature, amortized cost accounting harms financial stability because it generates an advantage for first movers (in an unfavorable market context) and can be misleading for investors in leading them to believe that they benefit from a constant net asset value.
• Financial system-wide stress tests should also be considered to better understand the vulnerabilities of each asset manager, at the consolidated level, and their interconnections with other players in the financial system.
• Introduce a truly consolidated supervisory approach for large cross-border asset management groups: to the extent that the teams and funds of these large groups are supervised by different national authorities in different countries, the creation of a supervisory college for These groups would have significant advantages, in normal or stressed market conditions.
• Create a centralized database of data shared by market authorities and central banks meeting their respective needs, both for daily supervision but also during stress tests.

Version française

Le 15 avril 2024, l'Autorité des marchés financiers (AMF) a publié un communiqué conjoint avec la FMA autrichienne, la CNMV espagnole et la CONSOB italienne concernant les priorités macroprudentielles en matière de gestion d'actifs.

Les risques liés à l’intermédiation financière non bancaire ont reçu davantage d’attention de la part des régulateurs du monde entier ces dernières années, d’autant plus que son poids dans le système financier mondial a augmenté. En outre, des inquiétudes ont été exprimées quant aux effets négatifs potentiels que les chocs résultant de cette intermédiation ou se propageant via cette intermédiation sont susceptibles d’avoir sur l’économie réelle.

Les spécificités de la gestion d’actifs doivent être prises en compte lors de l’élaboration d’une réglementation visant à lutter contre les risques liés à cette activité. L’écosystème de la gestion d’actifs est différent de celui des banques et aussi diversifié que les vulnérabilités observées jusqu’à présent. Par conséquent, la nature des risques que les régulateurs souhaitent gérer doit être bien définie : les régulateurs doivent donner la priorité aux caractéristiques de la gestion d’actifs qui génèrent une volatilité excessive des prix et des tensions sur la liquidité. Les exigences de capital et les réserves de liquidité ne constituent pas la meilleure solution pour atténuer ces risques en termes de stabilité financière.

Les autorités autrichiennes, italiennes, espagnoles et françaises ont identifié cinq grandes priorités. Les trois premiers concernent des mesures à court et moyen termes, tandis que les deux autres devraient être étudiés à plus long terme :

• assurer la disponibilité et une plus grande utilisation des outils de gestion de la liquidité au sein de tous les types de fonds ouverts : la récente révision de la directive sur les gestionnaires de fonds d'investissement alternatifs (AIFM) permettra des progrès significatifs dans l'adoption de ces outils de gestion de la liquidité par les gestionnaires. . Des normes d'application qui clarifieront le texte sont actuellement en cours d'élaboration.
• interdire la comptabilité analytique dans les fonds monétaires : par nature, la comptabilité analytique nuit à la stabilité financière car elle génère un avantage pour les premiers arrivés (dans un contexte de marché défavorable) et peut induire en erreur les investisseurs en leur faisant croire qu'ils bénéficient d'un valeur liquidative constante.
• des stress tests à l'échelle du système financier devraient également être envisagés pour mieux comprendre les vulnérabilités de chaque gestionnaire d'actifs, au niveau consolidé, et leurs interconnexions avec les autres acteurs du système financier.
• introduire une véritable approche de surveillance consolidée pour les grands groupes de gestion d'actifs transfrontaliers : dans la mesure où les équipes et les fonds de ces grands groupes sont supervisés par différentes autorités nationales dans différents pays, la création d'un collège de surveillance de ces groupes aurait un impact significatif avantages, dans des conditions de marché normales ou tendues.
• créer une base de données centralisée des données partagées par les autorités de marché et les banques centrales répondant à leurs besoins respectifs, à la fois pour la supervision quotidienne mais également lors des stress tests.

On April 22 2024, the Autorité des marchés financiers (AMF) completed its doctrine concerning gates in master-feeder structures.

Following the modifications made to the articles governing gates in the AMF general regulations, the AMF updates its instruction DOC-2017-05 relating the terms of introduction of liquidity management mechanisms to establish a mechanism allowing, when a master collective investment undertaking (UCI) triggers its gates, that its feeder can also trigger its gates at its own level. This option allows the feeder UCI to avoid having to completely suspend redemptions.

The application of this mechanism is subject to the following conditions:

• the feeder UCI executes at least the proportion of redemptions executed by the master UCI;
• the prospectus and the regulations or statutes of the feeder UCI specify the terms and conditions for capping redemptions of units or shares when the management company of the master UCI decides to cap the redemptions of units or shares of the latter, as well as the terms of capping redemptions of units or shares by the master UCI;
• the information exchange agreement concluded between the feeder UCI and the master UCI (or, where applicable, the internal rules of good conduct when the 2 UCIs are managed by the same management company), provides for the terms and conditions of information of the feeder UCI by the master UCI in the event of triggering of the capping of redemptions.

The AMF is also updating the doctrine documents to extend the transitional period for incentive measures on gates. Thus, existing feeder UCIs can introduce these gates without prior approval from the AMF and with information by any means to the holders until 31 December 2024. Failing to provide them before this date, they must inform the AMF. and declare the reasons, as well as insert a warning in the OPC documentation.

Additionally, a clarification is added within the standard regulations for corporate mutual funds (FCPE): in the event of triggering of gates, the period of one month maximum after the establishment of the net asset value to execute a request redemption may be exceeded.

Version française

Le 22 avril 2024, l'Autorité des marchés financiers (AMF) a finalisé sa doctrine concernant les gates dans les structures maître-nourricier.

Suite aux modifications apportées aux articles régissant les guichets du règlement général de l'AMF, l'AMF met à jour son instruction DOC-2017-05 relative aux modalités de mise en place des mécanismes de gestion de la liquidité pour établir un mécanisme permettant, lorsqu'un organisme de placement collectif (OPC) maître déclenche ses portes, que son feeder peut également déclencher ses portes à son propre niveau. Cette option permet à l'OPC nourricier d'éviter de devoir suspendre complètement les rachats.

L’application de ce mécanisme est soumise aux conditions suivantes :

• l'OPC nourricier exécute au moins la proportion des rachats exécutés par l'OPC maître ;
• le prospectus et le règlement ou les statuts de l'OPC nourricier précisent les modalités de plafonnement des rachats de parts ou d'actions lorsque la société de gestion de l'OPC maître décide de plafonner les rachats de parts ou d'actions de ce dernier, ainsi que les modalités de plafonner les rachats de parts ou d'actions par l'OPC maître ;
• la convention d'échange d'informations conclue entre l'OPC nourricier et l'OPC maître (ou, le cas échéant, le règlement intérieur de bonne conduite lorsque les 2 OPC sont gérés par la même société de gestion), prévoit les modalités d'information de l'OPC nourricier. OPC par l'OPC maître en cas de déclenchement du plafonnement des rachats.

L'AMF met également à jour les documents de doctrine pour prolonger la période transitoire des mesures incitatives sur les gates. Ainsi, les OPC nourriciers existants peuvent introduire ces gates sans accord préalable de l'AMF et en informant par tout moyen les porteurs jusqu'au 31 décembre 2024. A défaut de les communiquer avant cette date, ils doivent en informer l'AMF. et déclarez les raisons, ainsi qu'insérez un avertissement dans la documentation OPC.

Par ailleurs, une précision est ajoutée au sein de la réglementation type des FCPE : en cas de déclenchement de gates, le délai d'un mois maximum après l'établissement de la valeur liquidative pour exécuter une demande de rachat pourra être dépassé.

On April 23 2024, the Bundesfinanzministerium (Federal Ministry of Finance) published a draft Act on the protection of the economic and financial system against the concealment and contribution of significant incriminated assets.

The Asset Investigation Act (VErmiG) is intended to introduce a new procedure with regard to suspicious assets of high value. For cases with particular money laundering or sanctions risks (risk-based approach), in which it is unclear who exercises de facto control over the assets, it should be possible to determine the origin of the funds used to acquire such assets or the beneficial ownership on such assets.

Corresponding to this procedure, the criminal confiscation regulations should be able to apply. High-value assets that are suspicious within the meaning of the Ver-miG should therefore be included in the extended independent confiscation procedure in accordance with the provisions of the Criminal Code and the Code of Criminal Procedure, regardless of criminal proceedings. The transition to the independent confiscation procedure according to the Criminal Code and the Code of Criminal Procedure is consistent, as the approach of non-conviction-based confiscation, which is now established in criminal law, is used and which was recently also used in the context of the FATF Germany audit (FATF Germany Mutual Evaluation Report, August 2022, p. 199) was rated as very effective. In principle, the independent confiscation procedure is left unchanged and only selectively but consistently developed further, so that a genuine in-rem procedure, i.e. a procedure directed solely against suspicious assets, is now possible. This offers particularly in relation to suspicious assets that are held by legal entities, partnerships or other legal entities, or that cannot be assigned to any person at all and which, against this background, cannot be linked to a specific crime or suspected crime, decisive advantages over the in-person procedure, which has so far only been standardized.

New investigative powers are to be created for investigations into suspicious assets. However, it should not be possible to inspect all high-value assets without cause. The items must have special risk characteristics, i.e. there must be evidence that they result from illegal acts. The law therefore ties suspicion to circumstances that are recognized as special risk factors for money laundering under both European and German law, and for the first time enables investigations based on the object of such risky items. If there is such a suspicion, various investigative powers can be exercised and information can be requested from the owner of the asset, but there is no obligation to cooperate.

The responsible authority within the meaning of this law is the Asset Concealment Investigation Center in the Federal Office for Combating Financial Crime.

The draft provides the following options for terminating the procedure:

• If the responsible authority comes to the conclusion that the item does not arise from an illegal act, it will stop the proceedings (Section 10 Paragraph 1 VERmiG-E).
• If an initial suspicion of a crime arises during the proceedings, the responsible authority hands the proceedings over to the responsible public prosecutor's office (Section 14 Paragraph 1 VErmiG-E). The proceedings under the Asset Investigation Act are suspended until the criminal proceedings are completed and can be resumed if the case is discontinued.
• If there is no initial suspicion, but the competent authority has indications that the object originates from an illegal act, it will hand the case over to the public prosecutor's office to conduct an independent confiscation procedure. This handover option is also regulated in Section 14 Paragraph 1 of the draft VERmiG, which thus covers all types of handover to the competent public prosecutor's office. The requirements of the criminal confiscation provisions as in rem proceedings should be adapted accordingly for this case (Section 14 Paragraph 3 VERmiG).
• Only if the respondent admits that the item is the result of an unlawful act can the competent authority submit an application to the responsible administrative court for the confiscation of the asset (§§ 11 and 12 VErmiG-E).

This law comes into force on January 1, 2025, except from Article 3 (Further changes to the BBF Establishment Act), which enters into force on June 1, 2025.

On April 2 2024, the Federal Financial Supervisory Authority (BaFin) published a press release on applying five new ESMA Guidelines on Central Counterparty Recovery and Resolution Regulation (CCPRRR), European Market Infrastructure (EMIR) and Securities Financing Transactions Regulation (SFTR).

Four guidelines concern resolution measures in their supervisory practices for central counterparties (CCPs). Another guideline is the transfer of data between trade repositories (TRs).

ESMA's Guidelines on CCP resolution measures aim to promote convergent supervisory and resolution practices within the European Supervisory System. ESMA published these guidelines in February 2024.

The guidelines are as follows:

• Guidelines on the nature and content of the provisions of the cooperation agreements (Article 79 CCPRRR);
  The aim of these guidelines is to provide guidance to the respective national resolution authorities on the nature and content of cooperation agreements with third country authorities, as well as an English-language model cooperation agreement.
  The supervisory and resolution authorities of a CCP must cooperate with third country authorities. This is emphasized by Title VI of the Central Counterparty Recovery and Resolution Regulation (CCPRRR), in particular Articles 76 to 80 of the CCPRRR. Article 79 of the CPPRRR requires national supervisory and resolution authorities to set out in writing cooperation agreements on cooperation with third country authorities, unless there are overarching or other arrangements already in place with those third country authorities. In the annex to the guidelines, the supervisory and resolution authorities will find a detailed model of a cooperation agreement.
• Guidelines on the summary presentation of resolution plans;
  The aim of these guidelines is to provide clarity on the main elements of the resolution plan that should be included in the summary presentation referred to in Article 12(7)(a) of the CCPRRR and that must be disclosed to the CCP in accordance with Article 12(8) of the CCPRRR. Article 12(7) of the CCPRRR requires the resolution authority to include different scenarios in the resolution plan based on either default events, non-default events or a combination of both. Annex 1 of the Guidelines provides guidance on the factors to be taken into account by the resolution authority when preparing the different scenarios. Annex 2 to the Guidelines makes it easier for the resolution authority to prepare a legally compliant and coherent summary of the resolution plan.
• Guidelines on written modalities and procedures for the functioning of resolution colleges;
  The aim of these guidelines is to provide guidance and a template to the relevant national resolution authorities on the standard modalities of a CCP resolution college. Article 4 of the CCPRRR requires the resolution authority to establish a resolution college for each CCP that falls within its remit. The various further tasks are listed in Delegated Regulation (EU) 2023/1192 on the resolution college. In the Annex, the Guidelines provide the resolution authority with a detailed model agreement on the operation and modalities of a resolution college.
• Guidance on the assessment of resolvability (Article 15(5) CCPRRR);
  The aim of the guidelines is to ensure a uniform European application of the aspects set out in Section C of the CCPRRR for assessing the resolvability of CCPs. The guidelines specify to the resolution authority which aspects and procedures it must take into account when assessing resolvability.
• Guidelines for the transfer of data between trade repositories.
  BaFin applies the ESMA Guidelines for the transfer of data between trade repositories under the EMIR and the SFTR, specifically the transfer of data from one trade repository to another. They are to be applied by trade repositories, national competent authorities and for reporting counterparties or the reporting entities on their behalf. ESMA published the amended guidelines in January 2024. The aim of the amended guidelines is to remove obstacles to the portability of data from one trade repository to another. Data needs to be transferred between trade repositories if a person reporting under EMIR and/or SFTR wishes to switch trade repositories, for example in the hope of better services. It also aims to ensure the quality of the data available to public authorities, including the aggregations to be carried out by trade repositories.

On April 8 2024, the Federal Financial Supervisory Authority (BaFin) published a press release on number of consumer complaints to BaFin.

Consumers complained to the financial supervisory authority BaFin significantly more often in 2023 than in the previous year.

The main reason for the increase are the errors and failures in customer service at banks, insurers and investment service institutions.

Last year, customers of banks, insurers and investment service providers complained to BaFin a total of more than 38,000 (38,233) times. This corresponds to an increase of around 62 (61.8) percent compared to 2022 (23,630 complaints). In the same period, more than 28,000 (28,261) callers sought help on the authority's consumer hotline, an increase of more than 26 percent compared to 2022 (22,395).

The customer service provided by investment service providers was frequently criticised: clients complained about long response times, inadequate replies or difficulties in connection with custody account transfers. For this area of the financial market, the number of BaFin complaints rose by almost 18 (17.9) percent – from 2,404 in 2022 to 2,835 in 2023. Investors complained about asset management companies in 182 cases, compared to 96 complaints in 2022.

On April 18 2024, the Federal Financial Supervisory Authority (BaFin) published a press release on applying the updated European Securities and Markets Authority (ESMA) Guidelines on Money Markets Funds (MMFs).

The BaFin uses the German translation of the Guidelines on stress test scenarios for money market funds, which was published on March 6 2024.

The purpose of the guidelines is to ensure that the provisions of Article 28 of the Money Market Fund Regulation are applied in a common, uniform and consistent manner. They establish common reference parameters for the scenarios underlying the stress tests.

In accordance with Article 28(7) of the Money Market Fund Regulation, ESMA shall update the Guidelines at least once a year, taking into account recent market developments. This provides money market fund managers with the necessary information to fill in the relevant fields in the report template referred to in Article 37 of the Money Market Fund Regulation in accordance with Commission Implementing Regulation (EU) 2018/708. This information provides guidance on the types of stress tests mentioned and their calibration.

On April 26 2024, the Bundesfinanzministerium (Federal Ministry of Finance) published a draft of the 9th Ordinance amending the Compensation Scheme for Investment Firms (EdW) Contribution Ordinance.

With the 4th Ordinance amending the EdW Contribution Ordinance issued in 2009, on the one hand, there were new legal requirements regarding the contribution procedure and the amount of the contribution implemented and specified and, on the other hand, the contribution rates were increased in order to achieve this Performance of the securities trading firms' compensation scheme (EdW).

The aim of the amending regulation is to adapt the regulations so that the EdW reserves sufficient funds for future compensation cases, but at the same time avoids unnecessary burdens on the institutions liable to pay contributions.

It is appropriate to structure the accumulation of assets at the EdW in a more moderate manner. By reducing the percentage contribution rates by 50 percent, the institutions assigned to the EdW can, on the one hand, be burdened more appropriately and, on the other hand, the EdW's resources can be further built up in an appropriate manner so that larger compensation cases can continue to be covered from the existing fund volume in the future.

In addition to the funds accumulated ex-ante, the EdW also has additional instruments at its disposal to secure its liquidity if the accumulated funds are not sufficient for future compensation cases, because in accordance with Section 8 Paragraph 3 and Paragraph 5 of the Investor Compensation Act, the EdW has special contributions if funds are required to collect and take out loans and can demand special payments from the institutions subject to contributions. In addition, the annual contributions can - if necessary - be increased again in the future by changing the EdW contribution regulation.

The remaining provisions for the collection of contributions, such as in particular the annual minimum contributions in accordance with Section 1 Paragraph 1a of the EdW Contribution Ordinance, which cover the administrative costs of the EdW, and the load limit in accordance with Section 1 Paragraph 1, Sentence 1 of the EdW Contribution Ordinance remain unaffected, so that the reduction in the percentage contribution rates by 50 percent will not lead to a reduction of the individually determined annual contribution by 50 percent for each of the institutes assigned to EdW.

Based on the annual contributions from 2018 to 2022, a reduction in the percentage contribution rate by 50 percent results in an average reduction in annual contributions to 57.17 percent (arithmetic mean). Assuming that the annual contribution income amounts to 16.5 million euros with unchanged contribution rates, the annual contribution income will be around 9.4 million euros in the future.

There is an opportunity to review and comment on the draft regulation until May 24 2024.

On April 5 2024, the Bundesfinanzministerium (Federal Ministry of Finance) published a draft bill accompanying the Regulation transposing the existing legal framework with regard to crypto-assets - Markets in Crypto-asset Regulation (MiCA).

Regulation (EU) 2023/1114 of May 31 2023 on markets in crypto-assets and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937, as amended by Regulation (EU) 2023/2869 establishes a comprehensive framework for both primary and secondary markets for crypto-assets. A key aspect of this framework is the creation of a licensing requirement for the provision of crypto-asset services. Regulation (EU) 2023/1114 entered into force on June 29 2023; the regulations on crypto-valued services will apply from December 30 2024.

In Germany, the conduct of banking business or the provision of financial services with regard to crypto-assets within the meaning of Section 1 (11) sentence 4 of the German Banking Act (KWG) (KWG-Kryptowerte) was a regulated activity prior to the application of Regulation (EU) 2023/1114. These already supervised entities are now to be transferred to the legal framework under Regulation (EU) 2023/1114. The aim is to transfer existing companies– subject to complete documents– by December 30 2024. In addition, new entrants to the market will also be able to offer crypto-asset services on the domestic market as of December 30 2024, if the conditions are met. This is intended to further expand Germany as a location for reputable crypto asset services.

Article 143(6) of Regulation (EU) 2023/1114 allows Member States to create a so-called "simplified procedure" for applications for authorisation from institutions that already have a licence under national law to carry out activities related to crypto-assets. The German legislator has made use of this option in Section 50 (3) of the Crypto Market Supervision Act (KMAG), which was created by the Financial Market Digitalisation Act. The "Ordinance on the Implementation of the Simplified Procedure pursuant to Article 143 (6) of Regulation (EU) 2023/1114 (MiCAR-TransitV)" structures the simplified procedure on the basis of Section 50 (5) KMAG.

In addition, the authorisation provided for in § 50 (6) KMAG is to be used. The "Regulation on the submission of applications pursuant to Regulation (EU) 2023/1114 before December 30 2024 (MiCAR Application Ordinance)" takes into account the interest of industry in the effective use of the remaining time until Regulation (EU) 2023/1114 becomes applicable. The regulation allows applications under Regulation (EU) 2023/1114 to be submitted before its entry into force on December 30 2024. This will enable existing companies and new entrants to the market to provide crypto-asset services under Regulation (EU) 2023/1114 in the internal market from December 30 2024.

On April 16 2024, the Hong Kong Monetary Authority (HKMA) published a circular on risk management considerations related to the use of distributed ledger technology (DLT).

Since the Government published its "Policy Statement on Development of Virtual Assets (VAs) in Hong Kong" in 2022, the HKMA has noted growing interest from authorized institutions (AIs) to explore how they can apply the DLT that underlies the VA ecosystem to traditional financial market operations. As these explorations have gathered pace, an increasing number of AIs have - consistent with the HKMA’s supervisory expectations set out in its circular letter of January 28 2022 - reached out to seek the HKMA’s views on their planned initiatives.

The HKMA is supportive of AIs adopting DLT-based solutions so long as they can adequately manage the associated risks. Specifically, it has been encouraging banks to study the potential of taking “tokenised” deposits. To lend further support to these explorations, the HKMA considers it useful to provide more clarity on the key risk management considerations that it has regard to when reviewing the DLT related proposals of AIs.

In line with its risk-based and technology-neutral approach to supervision, the HKMA’s focus when reviewing these proposals is on ascertaining whether an AI has put in place adequate systems and controls to manage those additional risks that may arise due to DLT adoption. Although the HKMA’s exact considerations will vary based on the specific solution under review, there are some common risk areas that are generally relevant to DLT adoption. Noting AIs may wish to take these into account when designing and developing their DLT solutions, the HKMA has prepared a note setting out these key supervisory considerations. AIs are encouraged to take into account these considerations when preparing their DLT-related submissions.

In leveraging the guidance, AIs should note that the considerations are non-binding, non-exhaustive and will continue to evolve as the market and related technologies develop.

Key considerations are as follows:

• Board and senior management assume full responsibility for an AI’s adoption of DLT and for adequately managing related risks - Given its focus on decentralisation, DLT adoption involves not only the novel application of technology but also untraditional governance philosophies. When implementing DLT solutions, AIs may encounter a range of new DLT-specific risks, including those related to governance. Accordingly, the HKMA would expect an AI’s board and senior management to put in place adequate systems and controls to mitigate these risks.
• Right DLT network selected for a given application – The way that a DLT network is structured and governed (e.g. permissionless, private-permissioned or public-permissioned) has a direct bearing on the security, stability, scalability and resilience of the network. The HKMA would therefore expect an AI to fully understand the different types of DLT networks available and make an appropriate choice based on the nature and risks of the application in question, and with consideration for its own legal and regulatory responsibilities.
• Smart contracts are “fit for purpose” – While smart contracts can offer efficiency benefits through automation, they may not be appropriate for all business scenarios or should only be deployed with customised controls. For instance, unchecked automation may not be preferred in situations that usually involve some degree of human judgement (e.g. complex loan assessments), and a smart contract may only be appropriate if manual intervention options can be built in.
• Understand and mitigate potential legal risks – The legal basis for applying DLT to traditional financial market activities is still evolving. For example, with respect to the issuing and trading of tokenised products, while “settlement finality” under traditional financial systems is a clear and well defined point in time that is underpinned by a strong legal foundation, the point at which settlement finality is reached under DLT arrangements may be less clear-cut given the use of consensus-based validation mechanisms.
• Effectively manage third party-related risks – The HKMA would expect an AI, in the process of evaluating whether to adopt a DLT solution, to have reviewed and satisfied itself that it can manage the risks that third parties involved in the DLT arrangement may present.
• Safely enable interoperability and connectivity – The HKMA would expect AIs to, as far as practicable, design their DLT-based systems to be compatible and able to “communicate” with both traditional and other DLT-based solutions.
• Establish level of cybersecurity commensurate with traditional technology applications - DLT-based applications should enjoy commensurate levels of cybersecurity as those with traditional underlying technology.
• Securely manage private keys – An AI’s access to and responsibility for safeguarding private keys will vary based on the purposes for which it adopts DLT applications and whether it offers certain services.
• Ensure compliance with data privacy and protection requirements – Prevailing data privacy and protection requirements continue to apply regardless of whether the data is stored on centralised or DLT-based ledgers.
• Tailor contingency planning and testing arrangements – Where an AI adopts DLT for critical functions, the HKMA would expect it to include testing scenarios (e.g. common DLT cyberattacks, loss/theft of private keys, and possibility of “forking”) and contingency arrangements that are specific to DLT in its BCP. 

On April 19 2024, the Securities and Futures Commission (SFC) published a press release welcoming the five measures announced by the China Securities Regulatory Commission (CSRC) to further enhance the Stock Connect and to support Hong Kong’s strengthening of its status as an international financial centre.

Specifically, the measures include: 

• expanding the scope of eligible exchange-traded funds (ETFs) under the Stock Connect; 
• incorporating real estate investment trusts (REITs) into the Stock Connect; 
• supporting the inclusion of RMB-denominated stocks into southbound Stock Connect; 
• enhancing the scheme of mutual recognition of funds; and 
• supporting the listing of leading Mainland companies in Hong Kong.

The announcement came following the recent issuance of the State Council’s guideline in promoting the high-quality development of the capital markets, strengthening regulation and forestalling risks. The consensus on these initiatives also came after rounds of discussions between the CSRC and the SFC. The Mainland and Hong Kong stock exchanges and clearing houses, under the guidance of the two securities regulators, have also had extensive communications and are actively working on the implementation details.

The SFC will continue to work with the CSRC to provide guidance to the industry, the stock exchanges and clearing houses on the early implementation of these measures. Further details will be announced in due course.

On April 18 2024, the Hong Kong Monetary Authority (HKMA) published findings of concurrent Securities and Futures Commission (SFC)-HKMA thematic review of the distribution of non-exchange traded investment products.

During a concurrent thematic review of the distribution of non-exchange traded investment products by intermediaries, the SFC and HKMA identified some issues on intermediaries’ practices in performing product due diligence (PDD) and suitability assessment, providing information to clients and ensuring investment products are in the best interests of the clients. The intermediaries concerned were required to undertake remedial action to address the issues identified.

Many intermediaries would assign risk rating to investment products as part of PDD for matching with client’s risk tolerance level, either calculated using their internal risk-scoring mechanisms or based on the nature of underlying investments. The regulators noted that some intermediaries had overlooked certain key features and risk factors in their PDD assessment methodologies which could directly or indirectly impact the risk return profiles and growth prospect of the investment products. In some cases, intermediaries did not consider during the assessments the pay-out and characteristics of a leveraged structured forward contract, credit events relating to the product issuers, heightened market and industry risks, or adverse economic and political environments.

These intermediaries could run the risk of making inappropriate recommendations to clients if the risk return profiles of the products were not adequately assessed and accurately reflected in the product risk ratings used for the suitability assessment. Under such circumstances, the ability of intermediaries to fully inform clients the nature and extent of risks of the products would also be adversely affected. The risk would be further aggravated if the investment products, such as structured products, have leverage features which could amplify potential losses.

Structured products were the most prevalent type of non-exchange traded investment products sold by intermediaries. Among the structured products, accumulators and decumulators were the most popular products sold. Accumulators and decumulators are derivative products associated with significant investment risks. Investors typically risk a loss up to the notional amount of the contracts, and could only achieve positive returns if the price of the underlying asset moves within the defined range between the strike price and the knock-out price that was set to limit the maximum amount of profit. The loss could be unlimited in some cases, for example, where the investors of decumulators have to bear the loss when the price of the underlying asset goes up.

Clients would not be able to understand the characteristics of accumulators and decumulators should the intermediaries merely hand over the product literature to the client, ask the client to read them, or read them to the client without any explanation. In one case, a salesperson was unable to explain why investors could buy shares at a price lower than the market price with an accumulator contract. He could only read out the value of its “discount” compared to market price, its knock-out clauses and potential losses from the relevant term sheet. It is therefore imperative for intermediaries to develop thorough understanding of structured products during PDD and provide adequate training to staff to ensure that they are fully conversant with the characteristics, nature and extent of risks of the products recommended to clients.

Intermediaries are reminded to exercise due skill, care and diligence in selecting investment products for different risk categories of clients and arrive at an assessment of the products taking into account information that is appropriate and reasonably available for a fair and balanced assessment. Failure to do so could severely inhibit intermediaries’ ability in helping clients to make an informed investment decision.

The regulators also wish to remind all intermediaries of their obligations to, among other things:

• give due consideration to all the relevant circumstances specific to a client when assessing the suitability of a product to the client; and
• disclose all relevant transaction related information, and ensure that information provided and any representations made are accurate and not misleading.

On April 26 2024, the Securities and Futures Commission (SFC) published a press release on three-year extension of grant scheme for open-ended fund companies (OFCs) and real estate investment trusts (REITs).

For OFCs incorporated in or re-domiciled to Hong Kong and SFC-authorised REITs listed on the Stock Exchange of Hong Kong Limited, the extended scheme covers 70% of eligible expenses paid to Hong Kong-based service providers, subject to a cap of $1 million per publicly offered OFC, $500,000 per privately offered OFC and $8 million per REIT.

The extended scheme will open for applications starting from May 10 2024 to May 9 2027 on a first-come-first-served basis.

The SFC will update the frequently asked questions and the grant application form in light of the extension.

On April 19 2024, the Hong Kong Exchanges and Clearing Limited (HKEX) published implementation guidance and conclusions on climate disclosure requirements.

The HKEX received 115 responses from a wide range of respondents, and received broad-based support for its proposals to introduce the new requirements. In view of this market feedback, the HKEX will adopt its consultation proposals. 

In reaching its conclusions, the HKEX took into account the Hong Kong Government’s vision and approach towards developing a comprehensive ecosystem for sustainability disclosure in Hong Kong and the International Sustainability Standards Board’s (ISSB) jurisdictional guide preview. The HKEX will modify its proposals to reflect IFRS S2 Climate-related Disclosures (IFRS S2) more closely, as set out in the Consultation Conclusions (New Climate Requirements).

The key features of the New Climate Requirements are as follows:

• The New Climate Requirements are developed based on IFRS S2. Implementation reliefs including proportionality and scaling-in measures are introduced to address concerns over the reporting challenges that some issuers may face.
• The amended Listing Rules will come into effect on January 1 2025.A phased approach is adopted for the implementation of the New Climate Requirements

The HKEX has also published guidance (Implementation Guidance) to assist issuers’ compliance with the New Climate Requirements. The Implementation Guidance contains references to the relevant principles in IFRS S1, and issuers are encouraged to refer to and apply the Implementation Guidance when preparing disclosures under the New Climate Requirements.

On April 29 2024, the Central Bank of Ireland (CBI) introduced macroprudential measures for Irish-authorised GBP-denominated LDI funds.

Building on the recent Consultation Paper - Macroprudential measures for GBP Liability Driven Investment funds - the measures require that GBP-denominated LDI funds authorised in Ireland maintain sufficient resilience to be able to withstand a sudden and adverse shocks to UK interest rates.

The macroprudential framework for Irish authorised GBP-denominated LDI funds specifies that Irish authorised GBP-denominated LDI funds must maintain resilience to a minimum of 300 bps increase in UK yields. The yield buffer is codified under Article 25 of the AIFMD, as transposed to Irish law by way of Regulation 26 of the Irish AIFM Regulations.

The Central Bank’s objective to codify the yield buffer is to safeguard the resilience of GBP-denominated LDI funds such that they do not amplify stress in the UK gilt market as they did over September-October 2022. LDI funds contributed to the disruption in the UK gilt market due to their excessive use of leverage. 

LDI funds posed a systemic risk to financial stability owing to their excessive use of leverage that forced them to sell gilts following the increase in yields created by UK government’s ‘mini-budget’ announcement. The volume of gilts that GBP denominated LDI funds were forced to sell drove gilt prices down further, creating a downward spiral for the gilt market. The yield buffer aims to prevent such a situation reoccurring by restricting the amount of leverage that GBP-denominated LDI funds can employ.

Reflecting the macroprudential objective of the measures, the measures will apply to AIFMs of AIFs that are domiciled in Ireland, authorised under domestic legislation. The Central Bank will also apply the measures to Irish authorised AIFs with non-Irish AIFMs under the relevant domestic funds legislation.

The Central Bank will provide a three-month implementation period for existing funds as of April 29 2029. It is expected that GBP-denominated LDI funds authorised after April 29 2024 will adhere to the yield buffer limit from inception. AIFMs should ensure that funds are in compliance by July 29 2024.

Given the cross-border nature of GBP-denominated LDI funds, the Central Bank of Ireland have sought to ensure international coordination in codifying these measures by working closely with the CSSF, UK authorities, the ESMA and relevant stakeholders since the beginning of the UK gilt market crisis. As a result of this ongoing coordination, the CSSF is also announcing an aligned framework of measures for GBP-denominated LDI funds managed by IFMs in Luxembourg.

This is the second time the CBI has introduced policy measures under the non-bank pillar of its macroprudential policy framework. It follows previous policy measures for Irish-authorised property funds. The measures also align with the principles and key objectives outlined in the CBI's Discussion Paper - An approach to macroprudential policy for investment funds (DP11). These measures are consistent with the CBI’s broader priority to develop and operationalise the macroprudential framework for investment funds, working with international counterparts. 

On April 15 2024, the Central Bank of Ireland (CBI) published the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Senior Executive Accountability Regime)) Regulations 2024 (S.I. No. 147 of 2024).

These Regulations give effect to section 48(1) of the Central Bank (Supervision and Enforcement) Act 2013, by specifying the arrangements for the Central Bank of Ireland’s Senior Executive Accountability Regime by:

• specifying the aspects of a regulated financial service provider's affairs for which a pre-approval controlled function (PCF) holder has inherent responsibility for the purposes of section 53B of the Central Bank Reform Act 2010;
• specifying the aspects of a regulated financial service provider's affairs for which responsibility is to be allocated by the regulated financial service provider to a PCF holder for the purposes of section 53B of the Central Bank Reform Act 2010;
• specifying arrangements that a regulated financial service provider is to adopt.

The Regulations, will apply to all pre-approval controlled functions (PCFs) of in-scope firms from July 1 2024, except for non-executive directors and independent non-executive directors (I/NEDs), in whose case the Regulations will apply from July 1 2025.

On April 19 2024, the Luxembourg Tax Authority - Portail de la fiscalité indirecte (PFI) updated and released its RAIF AML/CFT Questionnaire 2023.

Section 2, question 5 "Customers" was amended, and two questions were grouped together: "higher-risk countries" and "higher-risk jurisdictions".

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Le 19 avril 2024, l'Autorité Fiscale luxembourgeoise - Portail de la fiscalité indirecte (PFI) a mis à jour et publié son Questionnaire RAIF AML/CFT 2023.

La section 2, question 5 « Clients » a été modifiée et deux questions ont été regroupées : « pays à plus haut risque » et « juridictions à plus haut risque ».

On April 29 2024, the Commission de Surveillance du secteur financier (CSSF) informed of New SFTR & EMIR procedures available for notification forms and intra-group exemption requests.

Following the entry into force of the EMIR Refit regulation on April 29, 2024, the CSSF enables financial and non-financial counterparties to complete and submit the “EMIR – notification form and request for intragroup exemption” and “SFTR – notification form” procedures either through eDesk or by using an API solution based on the submission of a structured exchange file via the S3 protocol.

The “EMIR – notification form and request for intragroup exemption” procedure includes the following notifications and exemption requests:

• Notification by FC and NFC exceeding or ceasing to exceed the clearing threshold (Articles 4a and 10 of EMIR)
• Notification by FC for outstanding disputes
• Information by NFC and RAIFs
• Notification on Data Quality issues and other errors or omissions (Article 9 of the ITS on reporting)
• Notification for intragroup exemption from the central clearing (Article 4(2) of EMIR)
• Notification for intragroup exemption from collateral exchange (Articles 11(6) to 11(10) of EMIR)
• Notification for intragroup exemption from reporting (Article 9(1) of EMIR)

The “SFTR – notification form” procedure includes the following notification:

• Notification on Data Quality issues and other errors or omissions

A user guide, available in the EMIR and SFTR procedures, details the submission modalities for eDesk and API.

The webforms and Excel files previously available for this data collection are no longer accessible and have been replaced by these new eDesk procedures.

Please contact edesk@cssf.lu for any technical questions regarding eDesk/S3 or emir@cssf.lu/sftr@cssf.lu for any other questions related to the forms.

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Le 29 avril 2024, la Commission de Surveillance du secteur financier (CSSF) a informé des nouvelles procédures SFTR & EMIR disponibles pour les formulaires de notification et les demandes d'exemption intra-groupe.

Suite à l’entrée en vigueur du règlement EMIR Refit le 29 avril 2024, la CSSF permet aux contreparties financières et non financières de remplir et soumettre les procédures « EMIR – formulaire de notification et demande d’exemption intragroupe » et « SFTR – formulaire de notification » soit via eDesk ou en utilisant une solution API basée sur la soumission d'un fichier d'échange structuré via le protocole S3.

La procédure « EMIR – Formulaire de notification et demande d’exemption intragroupe » comprend les notifications et demandes d’exemption suivantes :

• Notification par FC et NFC du dépassement ou de la cessation du dépassement du seuil de compensation (articles 4bis et 10 d'EMIR)
• Notification par FC pour les litiges en suspens
• Informations par NFC et RAIF
• Notification sur les problèmes de qualité des données et autres erreurs ou omissions (article 9 de l'ITS sur le reporting)
• Notification d'exemption intragroupe de la compensation centrale (article 4(2) d'EMIR)
• Notification d'exemption intragroupe d'échange de collatéral (Articles 11(6) à 11(10) d'EMIR)
• Notification de dispense de reporting intragroupe (Article 9(1) d’EMIR)

La procédure « SFTR – formulaire de notification » comprend la notification suivante :

• Notification sur les problèmes de qualité des données et autres erreurs ou omissions

Un guide utilisateur, disponible dans les procédures EMIR et SFTR, détaille les modalités de soumission pour eDesk et API.

Les formulaires Web et fichiers Excel précédemment disponibles pour cette collecte de données ne sont plus accessibles et ont été remplacés par ces nouvelles procédures eDesk.

Veuillez contacter edesk@cssf.lu pour toute question technique concernant eDesk/S3 ou emir@cssf.lu/sftr@cssf.lu pour toute autre question relative aux formulaires.

On April 5 2024, the Commission de surveillance du secteur financier (CSSF) published guidelines on the direct transmission of procedures.

In 2023, the CSSF introduced new ways of communication in order to ease the completion and submission of procedures. Professionals in the financial sector can use:

• the eDesk portal 
• the API solution (S3)

These solutions are free of charge and help avoid the use of an intermediary. The CSSF provides tables highlighting every procedure covered by these new means and the ones that will be covered in the future.

Lastly, more information will follow on the following procedures:

• U1.1 – Financial reporting
• Portfolio Management Delegation questionnaire
• Cross-border management of IFMs
• DORA – Incident reporting
• DORA – Register

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Le 5 avril 2024, la Commission de surveillance du secteur financier (CSSF) a publié des lignes directrices sur la transmission directe des procédures.

En 2023, la CSSF a mis en place de nouveaux moyens de communication afin de faciliter la réalisation et la soumission des procédures. Les professionnels du secteur financier peuvent utiliser :

• le portail eDesk
• la solution API (S3)

Ces solutions sont gratuites et permettent d’éviter le recours à un intermédiaire. La CSSF met à disposition des tableaux mettant en avant chaque procédure couverte par ces nouveaux moyens et celles qui le seront à l’avenir.

Enfin, plus d’informations suivront sur les procédures suivantes :

• U1.1 – Reporting financier
• Questionnaire de délégation de gestion de portefeuille
• Gestion transfrontalière des GFI
• DORA – Rapport d'incidents
• DORA – S'inscrire

On April 17 2024, the Commission de Surveillance du secteur financier (CSSF) announced the ESA voluntary dry run exercise for the collection of the registers of information required by DORA.

Under DORA and starting from 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party service providers. In this context, the CSSF would like to draw the attention to the announcement by the ESAs of the voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities serving as preparation for the implementation and reporting of registers of information under DORA.

In this dry run exercise, the registers of information will be collected from participating financial entities through their NCAs who will, in turn, provide those to the ESAs.

The ad-hoc data collection is expected to be launched in May 2024 with the financial entities expecting to submit their registers of information to the ESAs through their NCAs between July 1 and August 30 2024.

Financial entities participating in the dry run will receive support from the ESAs to:

1. build their register of information in the format as close as possible to the steady-state reporting from 2025,
2. test the reporting process,
3. address data quality issues, and
4. improve internal processes and quality of the registers of information.

The ESAs will provide feedback on data quality to financial entities participating, return cleaned files with their register of information, organise workshops and respond to FAQs.

The CSSF invites the supervised entities to consider their participation to this exercise, being a good opportunity to test their readiness concerning the implementation and reporting of registers of information under DORA. The CSSF encourages the supervised entities that are considering to participate, to inform the CSSF by sending an email to ictrisksupervision@cssf.lu by May 17 2024. The email must specify the exact name of the entity and its CSSF code.

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Le 17 avril 2024, la Commission de Surveillance du secteur financier (CSSF) a annoncé l'exercice volontaire des AES pour la collecte des registres d'informations requis par DORA.

Dans le cadre de DORA et à partir de 2025, les entités financières devront tenir des registres d'informations concernant leur utilisation de prestataires de services TIC tiers. Dans ce contexte, la CSSF attire l'attention sur l'annonce par les AES de l'exercice volontaire de collecte des registres d'informations sur les arrangements contractuels sur le recours à des prestataires de services TIC tiers par les entités financières servant de préparation pour la mise en œuvre et la déclaration des registres d'informations dans le cadre de DORA.

Dans cet exercice d’essai, les registres d’informations seront collectés auprès des entités financières participantes par l’intermédiaire de leurs ANC qui, à leur tour, les fourniront aux AES.

La collecte de données ad hoc devrait être lancée en mai 2024, les entités financières doivent prévoir de soumettre leurs registres d'informations aux AES par l'intermédiaire de leurs ANC entre le 1er juillet et le 30 août 2024.

Les entités financières participant au test recevront le soutien des AES pour :

1. construire leur registre d’informations dans un format le plus proche possible du reporting en régime permanent à partir de 2025,
2. tester le processus de reporting,
3. résoudre les problèmes de qualité des données, et
4. améliorer les processus internes et la qualité des registres d'information.

Les AES fourniront des commentaires sur la qualité des données aux entités financières participantes, renverront les fichiers nettoyés avec leur registre d'informations, organiseront des ateliers et répondront aux FAQ.

La CSSF invite les entités surveillées à envisager leur participation à cet exercice, qui constitue une bonne occasion de tester leur préparation concernant la mise en œuvre et le reporting des registres d'informations sous DORA. La CSSF encourage les entités surveillées qui envisagent de participer, à en informer la CSSF en envoyant un email à ictrisksupervision@cssf.lu avant le 17 mai 2024. L'e-mail doit préciser le nom exact de l'entité et son code CSSF.

On April 3 2024, the Commission de surveillance du secteur financier (CSSF) published the FAQ concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment - version 18.

These questions focus on the key aspects of the laws and regulations governing UCITS from a Luxembourg perspective and should be read in conjunction with the questions and answers ESMA has published on the topic.

The version 18  introduces modifications to question 10.5 : Do MiFID rules apply to the marketing of funds?

An IFM can perform marketing for the fund if their authorisation includes the marketing function. If the fund doesn't perform the marketing themselves, MiFID rules could apply to the entity performing these functions depending on the type and localisation of the activities. Should the entity be an IFM established in Luxembourg, they could require an additional authorisation. They will be exempt if they do not provide the investment service of reception and transmission of orders.

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Le 3 avril 2024, la Commission de surveillance du secteur financier (CSSF) a publié la FAQ concernant la loi luxembourgeoise du 17 décembre 2010 relative aux organismes de placement collectif - version 18.

Ces questions se concentrent sur les aspects clés des lois et réglementations régissant les OPCVM d'un point de vue luxembourgeois et doivent être lues en conjonction avec les questions et réponses publiées par l'ESMA sur le sujet.

La version 18 introduit des modifications à la question 10.5 : Les règles MiFID s'appliquent-elles à la commercialisation des fonds ?

Un GFI peut assurer la commercialisation du fonds si son agrément inclut la fonction de commercialisation. Si le fonds n'effectue pas lui-même la commercialisation, les règles MiFID pourraient s'appliquer à l'entité exerçant ces fonctions en fonction du type et de la localisation des activités. Si l'entité est un GFI établi au Luxembourg, elle pourrait nécessiter un agrément supplémentaire. Ils seront exonérés s’ils ne fournissent pas le service d’investissement de réception et de transmission des ordres.

On April 3 2024, the Commission de surveillance du secteur financier (CSSF) published the FAQ concerning the Luxembourg Law of 12 July 2013 on alternative investment fund managers – version 22.

The version 22 modifies question 26.E: Do MiFID rules apply to the marketing of funds?

An IFM can perform marketing for the fund if their authorisation includes the marketing function. If the fund doesn't perform the marketing themselves, MiFID rules could apply to the entity performing these functions depending on the type and localisation of the activities. Should the entity be an IFM established in Luxembourg, they could require an additional authorisation. They will be exempt if they do not provide the investment service of reception and transmission of orders.

Version française

Le 3 avril 2024, la Commission de surveillance du secteur financier (CSSF) a publié la FAQ concernant la loi luxembourgeoise du 12 juillet 2013 relative aux gestionnaires de fonds d'investissement alternatifs – version 22.

La version 22 modifie la question 26.E : Les règles MiFID s'appliquent-elles à la commercialisation des fonds ?

Un GFI peut assurer la commercialisation du fonds si son agrément inclut la fonction de commercialisation. Si le fonds n'effectue pas lui-même la commercialisation, les règles MiFID pourraient s'appliquer à l'entité exerçant ces fonctions en fonction du type et de la localisation des activités. Si l'entité est un GFI établi au Luxembourg, elle pourrait nécessiter un agrément supplémentaire. Ils seront exonérés s’ils ne fournissent pas le service d’investissement de réception et de transmission des ordres.

On April 29 2024, the Commission de Surveillance du secteur financier (CSSF) published the Circular CSSF 24/857 applying the latest ESMA Guidelines on stress test scenarios under Article 28 of the Money Market Fund Regulation (EU) 2017/1131 (MMFR) – 2023 update (ESMA50-43599798-9011).

In accordance with Article 28 of the MMF Regulation, the Guidelines issued by ESMA are to be updated at least every year in relation to the common reference parameters of the stress test scenarios considering the latest market developments. In addition, ESMA published, on January 31 2023, a CP on the review of the methodology set out in section 4.8 of the Guidelines. The 2023 Guidelines, when compared to the 2022 version, notably combine an update of the methodology to implement the scenario related to the hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF following the ESMA consultation, with the annual update of the common reference parameters for the stress test scenarios.

The Circular is addressed to all MMFs under the supervision of the CSSF and Luxembourg IFMs of MMFs as well as to those that take part in the functioning and control of these undertakings.

The updated calibration, done in collaboration with the ESRB and the ECB, was motivated by a recalibration of the risk parameters. The scenarios hence reflect the assessment of prevailing sources of systemic risks identified for the EU financial system by ESMA, the ESRB and the ECB as of November 2023. 

The shocks have been calibrated to be severe, while the prevailing sources of systemic risk include a prolonged period of low growth, elevated inflation and higher interest rates, combined with deteriorating asset quality, debt sustainability concerns (households, corporates and sovereigns), disorderly asset price corrections, as well as accumulated risks in real estate. The severity of the parameters of the stress test scenarios in relation to hypothetical movements of the interest rates materially increased compared to the 2022 Guidelines, while other scenarios have been updated with a degree of severity similar to the previous exercise.

The 2023 Guidelines have the following key characteristics:

• Corporate sector profitability expectations would reflect the above-mentioned degraded economic prospects, driving credit risk premia upwards, resulting in a widening of credit spreads and rating downgrades worldwide.
• The sustained high risk-free rates, together with the prevailing pandemic-induced elevated level of government debt, would foster concerns about sovereign debt sustainability, putting further pressure on bond rates.
• Such market reaction would also trigger a sudden revaluation of other financial assets and real estate prices, in an uncertain environment characterised by high volatility. The rapid repricing of financial instruments held at fair value would amplify the liquidity stress in the economy, which would be reflected in the widening of bid-ask spreads.
• The calibration of hypothetical levels of redemptions was modified in 2020 in light of the COVID-19 crisis and these calibrated parameters are still considered appropriate and remain unchanged. Especially, they are consistent with the weekly outflows observed for MMFs during recent stress events.

The revised methodology aims at improving the common reference stress test scenario on the level of changes of liquidity in section 4.8.1 of the Guidelines by taking into account the interaction between liquidity and redemption pressures. This takes the form of a price impact representing the additional cost incurred by selling a large amount of securities in a market with few buyers. It is also seeking to improve the use of the stress-testing results to monitor the risk of contagion stemming from a shock affecting the EU MMF sector.

The 2023 Guidelines, while remaining unchanged in relation to the provisions on stress testing which the MMF or the manager of an MMF shall regularly conduct in accordance with sections 4.1 to 4.7 of the Guidelines, they still specify that the factors set out therein are minimum requirements. On that basis, MMFs or managers of MMFs have to tailor the approach to the specificities of the MMFs and add any factors or requirements that are deemed useful to the stress test exercise.

Circular CSSF 23/831 implementing the 2022 version of the Guidelines is repealed and replaced by this Circular with effect as of May 6 2024.

This Circular, with the updated Guidelines, entered into force on May 6 2024. The CSSF expects all entities falling under the scope of this Circular to apply the 2023 Guidelines for the preparation of the required MMF reporting as from the reporting date June 30 2024 onwards.

Version française

Le 29 avril 2024, la Commission de Surveillance du secteur financier (CSSF) a publié la Circulaire CSSF 24/857 appliquant les dernières orientations de l'ESMA sur les scénarios de stress tests en vertu de l'article 28 du Règlement sur les fonds monétaires (UE) 2017/1131 (MMFR) – Mise à jour 2023 (ESMA50-43599798-9011).

Les premières lignes directrices de l'ESMA ont été intégrées par la CSSF dans ses pratiques administratives et introduites par le biais de la circulaire CSSF 18/696 en vue de promouvoir la convergence en matière de surveillance au niveau européen, devenant ainsi applicables dans le cadre juridique et réglementaire luxembourgeois.

La version 2022 des Orientations (ESMA/34-49-495), introduite par la circulaire CSSF 23/831, qui comprenait des scénarios de stress tests de référence communs ainsi que des paramètres de référence communs pour ces scénarios. Sur cette base, les fonds monétaires et leurs gestionnaires ont reçu les informations nécessaires pour calculer et remplir les champs correspondants sur les résultats des tests de résistance du fonds monétaire dans le modèle de déclaration tel que prévu à l'annexe du règlement (UE) 2018/708. fixant les STI concernant le modèle que doivent utiliser les gestionnaires de fonds monétaires lors de leurs déclarations aux ANC, comme le prévoit l'article 37 du règlement sur les fonds monétaires.

Les lignes directrices de l'ESMA sur le reporting aux ANC en vertu de l'article 37 (ESMA34-49-168), publiées le 19 juillet 2019 par l'ESMA, telles qu'introduites au moyen de la circulaire CSSF 20/736, fournissent des indications sur le contenu des champs du modèle de reporting. prévues à l'annexe du règlement ITS, y compris pour les domaines relatifs aux tests de résistance.

Conformément à l'article 28 du règlement MMF, les orientations émises par l'ESMA doivent être mises à jour au moins chaque année en fonction des paramètres de référence communs des scénarios de tests de résistance en tenant compte des dernières évolutions du marché. Par ailleurs, l’ESMA a publié, le 31 janvier 2023, une CP relative à la révision de la méthodologie exposée à la section 4.8 des Orientations. Les Orientations 2023, par rapport à la version 2022, combinent notamment une mise à jour de la méthodologie pour mettre en œuvre le scénario lié aux évolutions hypothétiques du niveau de liquidité des actifs détenus dans le portefeuille du fonds monétaire suite à la consultation de l'ESMA, avec l'évaluation annuelle mise à jour des paramètres de référence communs aux scénarios de stress tests.

La Circulaire s’adresse à tous les fonds monétaires sous la surveillance de la CSSF et aux GFI luxembourgeois de fonds monétaires ainsi qu’à ceux qui participent au fonctionnement et au contrôle de ces organismes.

Le calibrage actualisé, réalisé en collaboration avec le CERS et la BCE, a été motivé par un recalibrage des paramètres de risque. Les scénarios reflètent donc l’évaluation des principales sources de risques systémiques identifiées pour le système financier de l’UE par l’ESMA, le CERS et la BCE en novembre 2023.

Les chocs ont été calibrés pour être sévères, alors que les principales sources de risque systémique incluent une période prolongée de faible croissance, d'inflation élevée et de taux d'intérêt plus élevés, combinée à une détérioration de la qualité des actifs, des problèmes de viabilité de la dette (ménages, entreprises et États), un déséquilibre des actifs. corrections de prix, ainsi que les risques accumulés dans l'immobilier. La sévérité des paramètres des scénarios de stress tests par rapport aux mouvements hypothétiques des taux d’intérêt a sensiblement augmenté par rapport aux orientations 2022, tandis que d’autres scénarios ont été mis à jour avec un degré de sévérité similaire à celui de l’exercice précédent.

Les lignes directrices 2023 présentent les caractéristiques clés suivantes :

• les attentes en matière de rentabilité du secteur des entreprises refléteraient la dégradation des perspectives économiques mentionnée ci-dessus, entraînant une hausse des primes de risque de crédit, ce qui entraînerait un élargissement des spreads de crédit et des dégradations de notations dans le monde entier.
• le maintien de taux sans risque élevés, conjugué au niveau élevé de la dette publique induit par la pandémie, susciterait des inquiétudes quant à la viabilité de la dette souveraine, exerçant ainsi une pression supplémentaire sur les taux obligataires.
• une telle réaction des marchés déclencherait également une réévaluation soudaine des autres actifs financiers et des prix de l'immobilier, dans un environnement incertain caractérisé par une forte volatilité. La réévaluation rapide des instruments financiers détenus à la juste valeur amplifierait le stress de liquidité dans l’économie, ce qui se traduirait par un élargissement des écarts acheteur-vendeur.
• le calibrage des niveaux hypothétiques de rachats a été modifié en 2020 compte tenu de la crise du COVID-19 et ces paramètres calibrés sont toujours considérés comme appropriés et restent inchangés. En particulier, ils sont cohérents avec les sorties hebdomadaires observées pour les fonds monétaires lors des récents événements de tensions.

La méthodologie révisée vise à améliorer le scénario de stress test de référence commun sur le niveau de variation de la liquidité figurant à la section 4.8.1 des Orientations en prenant en compte l'interaction entre les pressions sur la liquidité et les rachats. Cela prend la forme d’un impact sur les prix représentant le coût supplémentaire encouru par la vente d’un grand nombre de titres sur un marché avec peu d’acheteurs. Elle cherche également à améliorer l’utilisation des résultats des tests de résistance pour surveiller le risque de contagion résultant d’un choc affectant le secteur des fonds monétaires de l’UE.

Les Orientations 2023, tout en restant inchangées par rapport aux dispositions relatives aux tests de résistance que le fonds monétaire ou le gestionnaire d'un fonds monétaire doit régulièrement réaliser conformément aux sections 4.1 à 4.7 des Orientations, précisent néanmoins que les facteurs qui y sont énoncés constituent des exigences minimales. Sur cette base, les fonds monétaires ou les gestionnaires de fonds monétaires doivent adapter leur approche aux spécificités des fonds monétaires et ajouter tous les facteurs ou exigences jugés utiles à l’exercice de tests de résistance.

La circulaire CSSF 23/831 mettant en œuvre la version 2022 des Orientations est abrogée et remplacée par la présente Circulaire avec effet au 6 mai 2024.

Cette circulaire, accompagnée des lignes directrices mises à jour, est entrée en vigueur le 6 mai 2024. La CSSF attend de toutes les entités entrant dans le champ d’application de la Circulaire qu’elles appliquent les Orientations 2023 pour la préparation du reporting requis sur les fonds monétaires à compter de la date de reporting du 30 juin 2024.

On April 29 2024, the Commission de Surveillance du secteur financier (CSSF) announed macroprudential measures for GBP denominated LDI funds.

The CSSF published the final set of macroprudential measures whose objective is to ensure the continuing resilience of GBP LDI funds managed by LU AIFMs by codifying the existing yield buffer and, on that basis, reducing the probability that such funds will contribute to future crises.

The main aspects of the final rules include:

• GBP LDI funds must maintain resilience to a minimum of 300 bps increase in UK yields before their NAV turns negative
• The yield buffer applies to all GBP LDI funds managed by LU AIFMs
• All exposures of the funds are to be considered in the yield buffer’s calculation, subject to the buffer composition and liquidity criteria set out in the final rules
• GBP LDI funds are required to calculate their monthly average yield buffer at the end of each month. The monthly average yield buffer must be reported as a single observation to the CSSF following each month-end and should be greater than or equal to 300 bps
• To provide limited flexibility, one of the last four monthly reporting observations can be below 300 bps in exceptional circumstances. The use of this flexibility will be monitored, with the expectation that it will not be used on a regular basis.

Following the end of the three-month implementation period on July 29 2024, the CSSF industry letter of November 2022 will no longer be applicable. In this letter, the CSSF outlined its expectation that GBP LDI funds were expected generally to maintain the enhanced level of resilience observed at that time, which was resilience to a 300-400 basis point increase in yields.

LU AIFMs must ensure that existing GBP LDI funds they manage comply with the proposed measures by July 29 2024 at the latest. New GBP LDI funds managed by LU AIFMs are expected to be compliant from inception. The CSSF will contact the relevant LU AIFMs bilaterally to provide more detailed information on the reporting changes.

All relevant documentation, such as the final CSSF policy framework for GBP LDI funds managed by LU AIFMs which also includes the CSSF feedback statement on the public consultation, the consultation paper as well as the feedback received from stakeholders, is available to the public on www.cssf.lu/en/macroprudential-measures-applicable-to-aifms/

Version française

Le 29 avril 2024, la Commission de Surveillance du secteur financier (CSSF) a annoncé des mesures macroprudentielles pour les fonds LDI libellés en GBP.

La CSSF a publié le dernier ensemble de mesures macroprudentielles dont l’objectif est d’assurer la résilience continue des fonds GBP LDI gérés par les AIFM LU en codifiant le coussin de rendement existant et, sur cette base, en réduisant la probabilité que ces fonds contribuent à de futures crises.

Les principaux aspects des règles finales comprennent :

• les fonds GBP LDI doivent maintenir une résilience à une augmentation minimale de 300 points de base des rendements britanniques avant que leur valeur liquidative ne devienne négative.
• le coussin de rendement s'applique à tous les fonds GBP LDI gérés par les AIFM LU
• toutes les expositions des fonds doivent être prises en compte dans le calcul du coussin de rendement, sous réserve de la composition du coussin et des critères de liquidité énoncés dans les règles finales.
• les fonds GBP LDI doivent calculer leur coussin de rendement mensuel moyen à la fin de chaque mois. Le coussin de rendement moyen mensuel doit être déclaré sous la forme d'une seule observation à la CSSF après chaque fin de mois et doit être supérieur ou égal à 300 points de base.
• pour offrir une flexibilité limitée, l'une des quatre dernières observations de reporting mensuel peut être inférieure à 300 points de base dans des circonstances exceptionnelles. L’utilisation de cette flexibilité fera l’objet d’un suivi, en espérant qu’elle ne sera pas utilisée de manière régulière.

Après la fin de la période de mise en œuvre de trois mois, le 29 juillet 2024, la lettre à l'industrie de la CSSF de novembre 2022 ne sera plus applicable. Dans cette lettre, la CSSF a indiqué qu’elle s’attendait à ce que les fonds GBP LDI maintiennent généralement le niveau accru de résilience observé à l’époque, à savoir la résilience à une augmentation des rendements de 300 à 400 points de base.

Les AIFM LU doivent s’assurer que les fonds GBP LDI existants qu’ils gèrent sont conformes aux mesures proposées au plus tard le 29 juillet 2024. Les nouveaux fonds GBP LDI gérés par les AIFM LU devraient être conformes dès leur création. La CSSF contactera bilatéralement les gestionnaires LU concernés pour fournir des informations plus détaillées sur les modifications apportées au reporting.

Toute la documentation pertinente, telle que le cadre politique final de la CSSF pour les fonds GBP LDI gérés par les AIFM LU, qui comprend également la déclaration de retour de la CSSF sur la consultation publique, le document de consultation ainsi que les commentaires reçus des parties prenantes, est accessible au public sur https ://www.cssf.lu/fr/macroprudential-measures-applicable-to-aifms/

On April 15 2024, the Bank Negara Malaysia (BNM) published an Electronic Know-Your-Customer (e-KYC) Document and Frequently Asked Questions (FAQs) and Answers.

Growing adoption and understanding of e-KYC solutions in the financial sector call for enhancements to existing requirements to ensure e-KYC solutions continue to remain relevant, robust and reliable. This includes expanding the scope of e-KYC applications to cover both individuals and legal persons, providing guidance on e-KYC solutions that can cater to the unbanked, while ensuring uncompromised accuracy in customer identification and verification.

This document sets out the minimum requirements and standards that a financial institution, as defined in paragraph 5.2, must observe in implementing e-KYC for the on-boarding of individuals and legal persons. The requirements outlined in this policy document are aimed at:

• Enabling safe and secure application of e-KYC technology in the financial sector;
• Facilitating Bank Negara Malaysia’s (the Bank’s) continued ability to carry out effective supervisory oversight of financial institutions; 
• Ensuring effective anti-money laundering, countering financing of terrorism and countering proliferation financing (AML/CFT/CPF) control measures.

This document is applicable to all financial institutions and any other institution that may be specified by the Bank.

This policy document shall not apply to agent banking channels governed under the Agent Banking Policy Document dated June 30 2022.

The FAQs are intended to provide clarification to financial institutions on common queries in relation to the enhanced policy document on e-KYC dated April 15 2024.

Following questions were addressed:

• Would procuring e-KYC services from a 3rd party technology vendor be deemed a material outsourcing arrangement?
• In complying with the Risk Management in Technology (RMiT) policy document, would 3rd Party Attestation be required when financial institutions adopt e-KYC services offered by a technology provider?
• For e-KYC implementation, under which circumstances should the notification system prescribed under the e-KYC policy document be pursued? Subsequently, in which circumstances should the notification system prescribed under the Introduction of New Products policy document be pursued instead?
• Can customers be dismissed due to a false negative result which is due to limitations of financial institution’s e-KYC system?
• With MyDigital ID implemented as the National Digital ID recently, can MyDigital ID fulfil some e-KYC requirements in this policy document?
• How do financial institutions ensure that accounts opened without the credit transfer safeguard would not have fund transfer capabilities to accounts of the same name, as required under Appendix 4 of the e KYC PD for customers without an existing bank account?
• Can the use of a National Digital ID such as MyDigital ID waive ringfencing parameters and fund transfer limitations imposed on accounts opened by the unbanked segment?
• - What are the definitions of the terms used in relation to the enhanced sampling requirements?
• How is the sample size computed?
• What if the total number of customers onboarded via e-KYC is less than (<) 400 per month?
• Can financial institutions leverage on the technology provider (TP) to conduct this validation?
• Can TPs obtain certifications other than ISO standards specified in the e-KYC policy document?
• Can a TP rely on a single assessment by an assessor, despite having multiple financial institutions subscribe to their solution?
• Should the independent assessment of financial institution’s own processes, procedures and controls be conducted by internal or external assessors?
• What are some examples of mitigating controls financial institutions can take where potential vulnerabilities in the e-KYC solution is detected?
• Are requirements on the technology provider and financial institutions referenced in paragraphs 8.22 to 8.25 of the e-KYC PD applicable to e-KYC solutions for both individuals and legal persons?

On April 18 2024, the Secretaría de Hacienda y Crédito Público (SHCP) published the press release No. 24 on the letter of intent signed by the Ministry of Finance and the French Agency for Development on the strengthening of sustainable financing.

The Undersecretary of Finance and Public Credit and the Regional Director of the French Development Agency signed a letter of intent that solidifies the binational commitment to sustainable development.

The signing of this agreement takes another step forward in the implementation of Mexico's Sustainable Finance Mobilization Strategy, which is designed to mobilize financial resources of up to 15 trillion pesos in the coming years, with the purpose of financing the transition to a sustainable economy.

This strategic alliance reflects the willingness of both countries to implement the Sustainable Development Goals (SDGs) and comply with the Paris Agreement. In addition, it recognizes the fundamental role played by financial actors, in particular development banks, in the mobilization and redirection of financial resources towards sustainable and responsible practices.

Both nations have agreed to work together to establish a platform for collaboration, knowledge exchange and learning, which will strengthen the current dynamics with development banks and other Mexican financial actors.

This platform will provide a space for medium- and long-term dialogue and exchange on sustainable finance, with the following objectives:

• Share models and best practices around sustainable finance;
• Facilitate the exchange of experiences in sustainable financing among actors in the Mexican financial system; and
• Reflect on the role and particularities of development banks in the implementation of the Sustainable Finance Mobilization Strategy.

This agreement was signed in the context of cooperation and mutual understanding that promotes economic development and social equity within the framework of environmental sustainability.

On April 22 2024, the Autoriteit Financiële Markten (AFM) issued recommendations for ICT security measures in the capital markets sector.

Capital market institutions must pay sufficient attention to the set-up of the ICT risk register, service level management in the case of outsourcing within the group and the inclusion of scenarios for cyber attacks when testing the business continuity plan. The AFM makes these recommendations on the basis of an in-depth investigation into the maturity of ICT security measures, which stems from the 2022 self-assessment of capital market institutions.

The in-depth investigation was carried out at a selection of institutions on a subset of the security measures. Although the in-depth study does not reveal any significant shortcomings in the selected measures, it does highlight a number of points of attention. The three main recommendations with regard to improving ICT security measures are:

• Establish a comprehensive ICT risk register
  An ICT risk register contains an overview of all risk analyses carried out, including inherent risks and residual risks, and the associated improvement plans. The design and depth of the risk registers that have been examined differ. As a result, it is difficult to determine whether all risks are sufficiently mitigated and whether residual risks fit within an institution's risk tolerance.
• Include cyberattack scenarios in business continuity testing
  Testing cyberattack scenarios is an important approach to ensuring that an institution can recover from cyber-attacks, such as a ransomware attack. These scenarios are not always part of the business continuity testing.
• Establish adequate service level management in case of outsourcing within the group
  A number of the selected institutions are part of an international group and outsource significant parts of their ICT services within this group. Service level management must also be set up for the purchase of intra-group services. In some cases, service level management in the case of intra-group outsourcing was less formalised than external outsourcing arrangements.

In line with the recommendations, the financial sector must prepare for the entry into force of the Digital Operational Resilience Act (DORA) in the coming period. This new set of rules ensures uniform requirements for the security of network and information systems of companies and organisations active in the financial sector. The aim is to increase the digital operational resilience of the sector. Institutions have until January 17 2025 to comply with all the requirements of the regulation.

On April 15 2024, the Autoriteit Financiële Markten (AFM) announced that the EMIR Refit reporting obligation will officially enter into force on April 29 2024. From that moment on, market participants will have to report derivative transactions in line with the new rules. In addition, a new form has been drawn up for reporting incorrect reports. The amended rules increase transparency and stability in capital markets.

EMIR REFIT is a revision of the European Market Infrastructure Regulation (EMIR), which entered into force in 2012. EMIR aims to increase the transparency and stability of the derivatives market and reduce risks for the financial sector. EMIR Refit, which will become applicable on April 29 2024, introduces a number of changes to ensure that supervisors have a better understanding of derivative transactions.

The main changes:

1. The introduction of a unique product identifier (UPI) to unambiguously identify derivative products.
2. More fields to be able to report all the important characteristics of the derivative.
3. More identification fields to track the derivative transaction throughout its lifecycle.
4. The introduction of an obligation to report to the relevant competent authority in case of incorrect reporting.

On April 22 2024, the Autoriteit Financiële Markten (AFM) annonuced that CASPs will be able to submit an application for a licence or notification.

The Markets in Crypto-Assets Regulation (MiCAR) will come into effect on December 30, 2024. From that date, parties with a CASP licence or notification will be able to offer crypto-asset services on the European market. Parties that already have a license for equivalent services or activities can submit a CASP notification. In the Netherlands, the AFM is the primary supervisor of these services. A person or institution may not provide crypto-asset services within the European Union without a CASP licence.

CASPs, which were already active under the national regime before December 30, 2024, are subject to a transition period. If they want to continue offering crypto-asset services, they are expected to be required to have a MiCAR license or notification by June 30, 2025. Until then, the national regime applies, which in the Netherlands is based on the Implementation Act amending the Fourth Anti-Money Laundering Directive, which stipulates that providers of crypto services must apply for registration with DNB. The transition period will no longer apply to parties that do not have a DNB registration before December 30, 2024. The CASP licence or notification can be requested by e-mail, in accordance with the instructions on the AFM website.

The AFM offers parties that are in the process of preparing an application for a CASP licence the opportunity to apply for a pre-scan procedure. On the one hand, this helps to make the permit application process more efficient and, on the other hand, to build up mutual knowledge on important topics.

On April 24 2024, the Overheid (Government Documents in the Netherlands) set the date of entry into force for the Temporary Climate Fund Act.

The Act of December 20 2023, laying down temporary rules on the establishment of a Climate Fund (Temporary Climate Fund Act) enters into force on July 1 2024.

On April 23 2024, the Comisión Nacional del Mercado de Valores (CNMV) published frequently asked questions (FAQs) on the application of Resolution of July 11 2023 on product intervention measures related to financial contracts for differences and other leveraged products.

On July 14 2023, the Resolution of July 11 2023, of the CNMV, on product intervention measures related to financial contracts for differences and other leveraged products in order to intensify the intervention measures adopted in 2019 in the Resolution of June 27, on product intervention measures related to binary options and financial contracts for differences.

The questions contained in the document are as follows:

• Regarding the scope, is a potential retail investor resident in Spain prohibited from investing in CFDs through the platform of a registered intermediary?
• With respect to an entity's website, is free access to CFDs on the website allowed without any limitation or restriction? Is it allowed to maintain a demo account on the website that hosts several tradable assets in addition to CFDs? What if the entity is contacted by the client or keeps evidence in its records that its clients or potential clients, on their sole initiative, have requested to open a demo account for CFD trading?
• More specifically, with regard to training restrictions, is it permitted to offer training content to registered clients, such as seminars, webinars, manuals, etc., as long as this content is not aimed at encouraging or promoting CFDs? Does it also affect customers who opened an account before the entry into force of the Resolution?
• Regarding the prohibition of sponsorship and brand advertising, what is meant by "a very small part of the entity's offerings"? If the entity is prohibited from advertising its brand, can it advertise specific products other than CFDs? Can you submit or publish market analysis? Is it permissible to maintain sponsorship in communications and content to retail investors outside Spain?
• Regarding the trading network, is it allowed to report CFDs? Is any commercial incentive that the commercial or business development network may receive prohibited?
• With regard to affiliates and external partners, is the use of external partners or collaborators allowed to inform interested customers?
• Regarding the prohibition of deposits from retail clients paid by credit card, can customers make deposits into their account by debit card?
• Should the second part of the Resolution be understood to apply to both listed derivatives and OTC derivatives? Does it also apply to derivatives for hedging purposes? Does the Resolution apply to residents and to both domestic and foreign products?
• In relation to derivatives subject to this Resolution which, in turn, are also subject to the application of the EMIR regulations, should the requirement for collateral also be reported in EMIR? And, if they need to be communicated, how should that communication be done?
• How is the initial warranty determined? Is it possible to consider the client's overall position to determine when to close the position?
• What are the requirements in order to be able to take into account the client's overall position both for the calculation of the initial collateral and for the purposes of position closing protection?
• Regarding the protection of position closure, is it possible for a client to waive the closing of a position? Can the client's position be closed before reaching the threshold set out in the Circular?
• How does the Resolution apply to derivatives for hedging purposes?

On April 5 2024, the Congreso de los Diputados published a draft Law creating the Independent Administrative Authority for the Protection of Financial Customers for the out-of-court resolution of conflicts between financial institutions and their customers.

This Law facilitates the resolution of disputes between customers and entities operating in the field of the provision of financial services, based on the all-encompassing nature of the types of financial services covered, from banking and payment services to the marketing of insurance, pension funds and other savings instruments, through the activity of investment funds and other capital market players, regardless of whether the institutions are subject to the supervision of sector-specific supervisory authorities or administrative authorities with competence in consumer matters.

The basic scheme for the protection of customers in the financial field operates on two levels of guarantees. The first is general compliance with the rules governing relations between customers and financial institutions. The second is that of out-of-court channels for the individual resolution of conflicts that may arise between them.

The Law also establishes the obligation to promote financial education through collaboration between supervisors and between them and the Authority, with special emphasis on the people to whom the principle of personalized provision is directed. Improvements in their financial education, through the actions promoted in this area, will be an additional element in the fight against financial exclusion and vulnerability of these people. It also provides for the collaboration of the Authority, the Ministry of Economy, Trade and Enterprise and the supervisory authorities with the Ministry of Education, Vocational Training and Sports in the establishment of the contents of the subjects related to the financial education of citizens.

The new Authority enjoys special autonomy and functional independence in its actions, replaces the sectoral complaints services, to be able to deal jointly with complaints raised by financial customers. This unification of the skills and resources used by each of the complaints services will have a positive effect on the resolution of complaints, since financial products are more often a combination of savings, investment and insurance.

In addition, the resolution of complaints by the Authority has significant advantages for financial customers. It is free of charge for the client, who will be able to submit their claim without the need to be defended by a lawyer or represented by a solicitor. It presents other advantageous elements for the client, such as the short time frame for its resolution. In addition, it alleviates the accessibility difficulties that people over 65 years of age, persons with disabilities, the status of foreign person and their administrative situation may have, the difficulties arising from a lack of knowledge of the language or administrative procedures and, in general, those of any citizen who has difficulty using telematic channels for the submission of documents.

These elements reinforce the development of the principle of personalized service.

On April 15 2024, the Comisión Nacional del Mercado de Valores (CNMV) published a release on key priorities for macro-prudential approach to asset management.

The press release was published alongside the Austrian Finanzmarktaufsicht (FMA), Italian Commissione Nazionale per le Società e la Borsa (CONSOB) and French Autorité des marchés financiers (AMF).

The risks stemming from non-bank financial intermediation (NBFI) have been subject to scrutiny from regulators worldwide over the past years, especially as its share in the global financial system has been increasing since. In addition, concerns have been raised about potential significant negative effects that shocks, either spreading through or originating from NBFI, may have on the real economy.

When designing regulations to address asset management risks, its specific features should be considered. The asset management ecosystem is different from that of banks and as diverse as the vulnerabilities evidenced so far. Therefore, the nature of the risks that regulators aim to address needs to be precisely defined: regulators should target as a matter of priority those features of asset management generating excessive price volatility and liquidity stress. Capital requirements and liquidity buffers are not the best suited solutions to mitigate those risks in terms of financial stability.

Focusing on the asset management industry the Austrian, French, Italian and Spanish authorities have identified five priorities that stand out. The first three relate to short- and medium-term measures while the others should be explored in the longer term;

• Ensure a wide availability and greater use of liquidity management tools (LMTs) in all kinds of open-ended funds (OEFs): The recent Alternative Investment Fund Manager Directive review will allow for a significant progress in this adoption of LMTs, although level two measures are still in the making;
• Ban amortised cost accounting for Money Market Funds: Amortised cost accounting is intrinsically detrimental to financial stability, amounts to making false claims to investors, making them believe that they enjoy a stable net asset value (NAV), and generates incentives for first movers;
• System-wide stress tests should also be envisaged to better understand the vulnerabilities of each asset management group and its interconnections with other participants in the financial system;
• Introduce a truly consolidated supervisory approach for large cross-border asset management groups: as their teams and funds are currently supervised by different NCAs in different countries, creating a supervisory college for these groups would bring strong benefits both in times of stress and in normal market conditions;
• Create an integrated data hub shared by market supervisors and central banks, serving their respective needs, both for day-to-day supervision and stress-testing exercises.

On April 23 2024, the Comisión Nacional del Mercado de Valores (CNMV) updated its frequently asked questions (FAQs) on Collective Investments Schemes (CIS), private equity and other closed collective investment vehicles.

One of the most relevant recent regulatory developments in the field of collective investment was the approval of Directive 2011/61/EU, of the European Parliament and of the Council, of June 8 2011, relating to managers of alternative investment funds (AIFMD) whose objective is to subject these managers to authorization, regulation, supervision and reporting to the regulator, provided that they exceed certain thresholds of managed assets, all with the objective of monitoring and controlling the systemic risk that they may pose in the financial markets.

The update relates to the following question: Can UCITS and Quasi-UCITS invest in cryptocurrencies through financial instruments whose performance is linked to such currencies, but do not include an implicit derivative?  And what about the AIFs regulated under Article 72 of the AIFM Directive?

The CNMV emphasizes the high risks associated with exposure and investment in cryptocurrency-related products, irrespective of the potential suitability of delta one instruments linked to cryptocurrencies for UCITS (Undertakings for Collective Investment in Transferable Securities) and quasi-UCITS:

• Such products entail significant risks that retail investors often fail to assess properly.
• The CNMV has not yet approved any funds with cryptocurrency exposure targeting retail investors.
• Given the current circumstances, it deems it highly unlikely to approve the inclusion of exposure to such instruments in the prospectuses of UCITS and quasi-UCITS.

Regarding hedge funds, while the CNMV considers them unsuitable for retail investors, they may be suitable exclusively for professional investors when cryptocurrency exposure is achieved through delta one investments or derivatives.

On April 23 2024, the Comisión Nacional del Mercado de Valores (CNMV) updated its FAQs on Markets in Financial Instruments Directive (MiFID II).

The CNMV has been maintaining contacts with the main associations in the sector related to the provision of investment services in recent years in order to identify and compile MiFID II issues that may raise doubts or concerns about its interpretation prior to its entry into force of this Directive.

This document sets out the interpretative criteria that are considered appropriate in relation to the issues raised, although they could be affected depending on the final text of the transposition of the MiFID II regulations into the national legal system. It should also be taken into account that within ESMA, issues related to the interpretation of the MiFID II regulations continue to be debated in order to achieve adequate supervisory convergence.

The questions contained in the update are as follows:

• Are placement or underwriting commissions considered incentives?
  The CNMV defines incentives regarding placement or underwriting fees as applicable when the entity involved also provides investment services on the placed product. It notes that incentives aimed at enhancing service quality include those enabling investor access to the primary market. However, incentives are not recognized if the institution does not offer investment services to its clients on the instrument placed, or when the underwriter applies an implicit margin to the instrument's price without receiving explicit payments from the issuer. In such cases, the implicit margin must be disclosed as part of the customer's costs.
• Can an entity that provides discretionary portfolio management services to its clients apply explicit or implicit commissions in the placement or intermediation of instruments for the managed portfolios?
  
  The CNMV examines various scenarios common in service provision by entities and provides guidance for each:

• Regarding placements in the primary market: For third-party issues, entities cannot withhold any explicit or implicit amount via price differential; For own issues, it's acceptable for entities to apply an implicit margin solely for product design and issuance, provided this margin doesn't include other distribution costs.
• In secondary market intermediation: Charging explicit brokerage fees for choosing which intermediary receives orders is deemed unacceptable. However, if orders are directed to the entity's own trading desk, the entity can apply and retain a fee for directing those orders to other intermediaries participating in instrument trading venues, if the entity is not a member of those venues.
• How should fair value be calculated for the purpose of calculating implicit costs?
  The CNMV mandates additional client disclosure requirements for PRIIPs (Packaged and Insurance-Based Retail Investment Products), stipulating that entities must inform clients about any costs or expenses not included in the Key Investor Information Document (KIID), as well as the portion of costs charged by the service provider as an incentive.

Clients must be informed of all costs, including the difference between fair value and the client's trading price.

• Fair value should reflect the price at which the instrument could be exchanged between knowledgeable parties on a mutually independent basis in the main market.
• Fair value must be consistent for both purchases and sales, follow generally accepted methodologies, and exclude operational or distribution costs.
• Using the lowest price from various counterparties as fair value is inappropriate, as these prices may contain costs.
• Institutions must inform customers of all implicit costs in the price, calculated using fair value estimation criteria.
• Banks are required to identify all costs included in the price and report them to customers.

On April 4 2024, the Comisión Nacional del Mercado de Valores (CNMV) published a press release on the review of application of the obligations on customers' sustainability preferences.

CNMV has carried out a first horizontal action to supervise compliance with the regulations on sustainability preferences by entities that provide investment services.

This recent European regulation establishes first of all that entities must ask their clients if they have preferences about sustainability (environmental, social, etc.) in their investments. Next, the regulation requires them to integrate these preferences when evaluating the suitability of the financial products on which they advise the client or that they include in the portfolio they manage for the client. In other words, these obligations affect advice and portfolio management; But they don't apply when selling a product to a customer without advice. In addition, institutions should consider sustainability factors when defining the target audience of the financial instruments they design or market. The review was carried out to check the procedures applied by banks on a representative sample of institutions providing portfolio management or advisory services in mid-2023.

Regarding the collection of customer information, it has been observed that in general banks are asking about customers' sustainability preferences. However, the level of detail of the questions varies considerably between entities. For example, some entities are only asking if the customer has an interest in sustainability, without requesting additional information, and several entities do not collect information on all aspects of the regulations or ask in a confusing way. All of them have been urged to adjust their procedures.

The following good practices in this area have been observed:

• provide illustrative examples in each of the questions to make it easier for the retail investor to understand, or 
• prepare an annex to the pre-contractual documentation with explanations of concepts related to sustainability.

On April 26 2024, the Eidgenössische Finanzmarktaufsicht (FINMA) announced its review of existing climate-related disclosure requirements.

FINMA is obliged to periodically review its existing regulations as part of ex-post evaluations. The aim of every ex-post evaluation is to decide whether a regulation should remain unaltered, be amended or repealed. The results and findings of the expost evaluation are then incorporated into the final ex-post evaluation report, which is published.

In 2021, FINMA brought its disclosure requirements for climate-related financial risks for banks and insurers in supervisory categories 1 and 2 into force through the partially revised FINMA Circulars 2016/1 “Disclosure – banks” and 2016/2 “Disclosure – insurers (public disclosure)”. Now that three disclosure cycles have been completed,  it is time to evaluate the applicable requirements. In addition, there are numerous national and international developments for FINMA to consider in the area of disclosure of climate-related financial risks.

This survey will run until May 13 2024.

Version française

Le 26 avril 2024, l'Eidgenössische Finanzmarktaufsicht (FINMA) a annoncé sa révision des exigences de publication existantes liées au climat.

La FINMA est tenue de réexaminer périodiquement ses réglementations existantes dans le cadre d'évaluations ex post. L’objectif de toute évaluation ex post est de décider si un règlement doit rester inchangé, être modifié ou abrogé. Les résultats et constatations de l’évaluation ex post sont ensuite intégrés dans le rapport final d’évaluation ex post, qui est publié.

En 2021, la FINMA a mis en vigueur ses obligations de publicité concernant les risques financiers liés au climat pour les banques et les assureurs des catégories de surveillance 1 et 2 par le biais des Circulaires FINMA 2016/1 partiellement révisées « Publication – banques » et 2016/2 « Publication – assureurs (publicité). divulgation)". Maintenant que trois cycles de divulgation sont terminés, il est temps d’évaluer les exigences applicables. En outre, la FINMA doit tenir compte de nombreuses évolutions nationales et internationales en matière de publication des risques financiers liés au climat.

Cette enquête se poursuivra jusqu'au 13 mai 2024.

On April 22 2024, the United Kingdom published 3 pieces of legislation.

- UK publishes Proceeds of Crime Act 2002 and Terrorism Act 2000 (Certain Information Orders: Code of Practice) Regulations 2024. 

These Regulations bring into operation a new joint code of practice issued under the Proceeds of Crime Act 2002 (c. 29) (the 2002 Act) and the Terrorism Act 2000 (c. 11) (the 2000 Act).

This new code of practice is prepared by the Secretary of State in relation to powers exercisable by the Director General of the National Crime Agency or an authorised officer of the National Crime Agency in connection with the exercise of their functions under section 339ZH of the 2002 Act or section 22B(1A) of the 2000 Act, when making applications for certain information orders.

- UK publishes Proceeds of Crime Act 2002 (Search, Recovery of Cryptoassets and Investigations: Codes of Practice) Regulations 2024.

These Regulations bring into operation two revised codes of practice and one new code of practice issued by the Secretary of State under the Proceeds of Crime Act 2002 (c. 29) (the 2002 Act).

They are necessitated by certain amendments made to the 2002 Act by the Economic Crime (Transparency and Enforcement) Act 2022 (c. 10) (the 2022 Act) and by the Economic Crime and Corporate Transparency Act 2023 (c. 56) (the 2023 Act). The amendments made by the 2022 Act concern unexplained wealth orders and the amendments made by the 2023 Act concern cryptoassets.

Regulations 2 and 3 bring into operation, on April 26 2024:

• a revised code of practice relating to the powers of certain officers under Part 2 of the 2002 Act to search for, seize and detain property, including cryptoassets and related items, in England and Wales;
• a revised code of practice relating to the investigation powers of certain officers under Chapter 2 of Part 8 of the 2002 Act, including updated provision about unexplained wealth orders, in England and Wales and Northern Ireland;
• a new code of practice relating to the powers of certain officers under Part 5 of the 2002 Act to search for, seize and detain cryptoassets and related items, in England and Wales, Scotland and Northern Ireland.

Regulation 4 revokes previous instruments which brought into force previous codes of practice.

• UK publishes Proceeds of Crime Act 2002 (Investigative Powers of Prosecutors: Code of Practice) Order 2024" 

This Order brings into operation on April 26 2024 a revised code of practice prepared by the Attorney General and the Advocate General for Northern Ireland under section 377A of the Proceeds of Crime Act 2002 in relation to England and Wales and Northern Ireland.

Revisions to the code of practice are necessitated by amendments made to Chapter 2 of Part 8 of the Act by the Economic Crime (Transparency and Enforcement) Act 2022 (c. 10) and the Economic Crime and Corporate Transparency Act 2023 (c. 56). The revised code of practice relates to the exercise of functions under Chapter 2 of Part 8 of the Act by the Director of Public Prosecutions, the Director of the Serious Fraud Office and the Director of Public Prosecutions for Northern Ireland as well as officers of the Serious Fraud Office.

The code of practice brought into operation by this Order replaces the code of practice that was brought into operation by the Proceeds of Crime Act 2002 (Investigative Powers of Prosecutors: Code of Practice) Order 2021 (S.I. 2021/747). This Order revokes S.I. 2021/747.

The Regulations came into force on April 26 2024.

On April 22 2024, the Financial Conduct Authority (FCA) published an artificial intelligence (AI) update.

The FCA welcomes the Government’s publication of A Pro-Innovation Approach to AI Regulation: Government Response and Implementing the UK’s AI Regulatory Principles: Initial Guidance for Regulators.

The FCA wants to promote the safe and responsible use of AI in UK financial markets and leverage AI in a way that drives beneficial innovation. The FCA sees beneficial innovation as a vital component of effective competition.

The FCA is focused on how firms can safely and responsibly adopt the technology as well as understanding what impact AI innovations are having on consumers and markets.

This includes close scrutiny of the systems and processes firms have in place to ensure the FCA's regulatory expectations are met.?And the FCA believes an evidence-based view, one that balances both the benefits and risks of AI, will ensure a proportionate, effective and pro-innovation approach to the use of AI in financial services.

In this AI Update the FCA outlines its:

• Role and objectives
  As a financial services regulator, the FCA has an important role in the continued success and competitiveness of the UK financial services markets and their contribution to the UK economy. This extends to the role of technology, including AI, in UK financial markets.
• Work so far
  The FCA welcomes the Government’s publication of A Pro-Innovation Approach to AI Regulation: Government Response and Implementing the UK’s AI Regulatory Principles: Initial Guidance for Regulators, including the five principles to guide the regulation of AI. The FCA has published a number of documents in relation to its approach to AI. Jointly with the Bank of England the FCA has published: the AI Discussion Paper (AI DP) (2022), the Feedback Statement (2023), the AI Public-Private Forum (AIPPF) Final Report (2022), and the 2019 & 2022 machine learning surveys. This is in addition to the close collaboration with the ICO, CMA and Ofcom through the DRCF. The FCA will continue to closely monitor the adoption of AI across UK financial markets to identify material changes that impact on consumers and markets. This includes keeping under review if amendments to the existing regulatory regime are needed. In addition, the FCA will continue to monitor the potential macro effects that AI can have on financial markets, such as, for example, cybersecurity, financial stability, interconnectedness, data concerns or market integrity.
• Existing approach
  The FCA wants to promote the safe and responsible use of AI in UK financial markets and leverage AI in a way that drives beneficial innovation. The FCA sees beneficial innovation as a vital component of effective competition. When competition works well, consumers benefit from lower costs and prices, higher service standards and quality, and increased access to financial services. As well as providing novel and inventive solutions to meet consumers’ needs, innovation can enable start-ups to enter the market and challenge incumbents, while driving incumbents to compete harder to retain customers. Technological innovation can also reduce operating costs, improve efficiency, and more effectively manage risk. The FCA actively supports beneficial innovation, through the Regulatory Sandbox, Digital Sandbox, the FCA's TechSprints and other innovation advisory services.
• Plans for the next 12 months.
  The FCA wants to make sure that any potential future regulatory adaptations are proportionate to the risks, whilst creating a framework for beneficial innovation. This requires the FCA to work from a strong empirical basis. The FCA's first priority therefore is to continue to build an in-depth understanding of how AI is deployed in UK financial markets. This approach ensures that any potential future regulatory interventions are not only effective but also proportionate and pro-innovation. It also ensures that the FCA can respond promptly from a supervisory perspective to any emerging issues at specific firms. The FCA is currently involved in diagnostic work on the deployment of AI across UK financial markets. The FCA is also re-running a third edition of the machine learning survey, jointly with the Bank of England, as well as collaborating with the Payment Services Regulator (PSR) to consider AI across systems areas. Being proactive in gaining insights and intelligence on the impact AI is having on UK financial markets allows the FCA to respond to developments with speed and agility.

On April 2 2024, the Financial Conduct Authority (FCA) updates its page on the London Interbank Offered Rate (LIBOR).

The interest rate benchmark LIBOR is being wound down. 

Before end-2021, LIBOR was produced in 7 tenors (overnight/spot next, 1 week, 1-month, 2-month, 3-month, 6-month and 12-month) across 5 currencies. Each of these LIBOR settings was based on submissions provided by a panel of banks.

These submissions were intended to reflect the interest rate at which banks could borrow money on unsecured terms in wholesale markets. All LIBOR panels have now ended and the majority of their settings ceased or become permanently unrepresentative.

Following the final publication of the 3-month synthetic sterling LIBOR setting on March 28 2024, all sterling LIBOR settings have now permanently ceased. 

The overnight and 12-month US dollar LIBOR settings ceased permanently at the end of June 2023. The 1-month, 3-month and 6-month synthetic US dollar LIBOR settings are the final remaining LIBOR settings.

The FCA continues to require LIBOR’s administrator, ICE Benchmark Administration, to publish the 1-month, 3-month and 6-month US dollar LIBOR settings using a synthetic methodology. FCA expects these settings to cease permanently at the end of September 2024.

On April 2 2024, the Financial Conduct Authority (FCA) published its Handbook Notice 117.

This Handbook Notice describes the changes to the FCA Handbook and other material made by the FCA’s Executive Regulation and Policy Committee and the FCA Board under their legislative and other statutory powers on March 4 2024 and March 28 2024, respectively.

The changes are as follows:

Handbook Administration (Supervision Manual) Instrument 2024

In summary, the instrument removes SUP 1A, relating to the FCA’s approach to supervision. This removal was made on 19 March 2024, in alignment with the FCA's publication of a refreshed ‘Approach to Supervision’ document. The ‘Approach to Supervision’ document was refreshed as part of the FCA's work to retire the Mission that the FCA launched in 2016, which has since been superseded by the FCA’s 3-year strategy launched in 2022. The refreshed ‘Approach to Supervision’ document was updated to make reference to the FCA’s current strategic priorities and objectives, the FCA's intended changes to the supervision model and more recent changes to the FCA's regulatory context (e.g., Consumer Duty and the FCA's secondary international competitiveness and growth objective). SUP 1A committed the FCA to activities which the organisation no longer undertakes as access to new data and regulatory responsibilities has evolved. The removal of SUP 1A gives the FCA the ability to update its regulatory approach documents in a flexible manner moving forwards and allows us to progress towards more integrated ways of working. This, in turn, will help the FCA to reach impactful outcomes as quickly and efficiently as possible by proactively identifying harm and choosing the appropriate action to take across the range of tools at the FCA's disposal.

Data Reporting Services Forms (Amendment) Instrument 2024

Following consultation in CP23/33, the FCA Board has made changes to the following Handbook sections: Glossary of definitions, MAR 9.2B, 9 Annex 1, 9 Annex 2, 9 Annex 3, 9 Annex 4, 9 Annex 5, 9 Annex 6, 9 Annex 7, 9 Annex 8 and 9 Annex 9 DEPP 2 Annex 1 REC 2.16B EG 19.35. In summary, this instrument makes changes to the FCA Handbook to amend MAR 9.2 in relation to cost recovery for connecting to the consolidated tape provider for bonds and amend MAR 9 Annexes 1 to 9 to update Data Reporting Services Provider authorisation and supervisory forms. This instrument came into force on April 5 2024.

The following instruments, which make changes following consultation in CP23/22 and CP24/3, are effective from April 1 2024:

• Periodic Fees 2024/2025 and Other Fees Instrument 2024.
• Fees (Special Project Fee for Restructuring) (Amendment) Instrument 2024.

The following instruments are effective from April 2 2024:

• Collective Investment Schemes Sourcebook (Miscellaneous Amendments) Instrument 2024, which makes changes following consultation in CP23/25.
• Credit Unions Sourcebook Instrument 2024, which makes changes following consultation in CP23/25.
• Conduct of Business Sourcebook (Amendment) Instrument 2024, which makes changes following consultation in CP23/25.
• Financial Services Compensation Scheme (Management Expenses Levy Limit 2024/2025) Instrument 2024, which makes changes following consultation in CP24/1. 
• Financial Promotions and High-Risk Investments (Incentives) Instrument 2024, which makes changes following consultation in CP23/14.
• Investment Firms Prudential Regime (Amendment) Instrument 2024, which makes changes following consultation in CP23/25.

The following instrument is effective from April 5 2024:

• Data Reporting Services Forms (Amendment) Instrument 2024, which sets out changes made following consultation in CP23/33.

Handbook Notice No 117 also describes changes made by Handbook Administration (No 69) Instrument 2023; the relevant changes are effective from March 29 2024, April 2 2024, 4 April 2024, April 5 2024 and April 11 2024.

On April 4 2024, the Financial Conduct Authority (FCA) updated its webpage on the Perimeter Report.

The UK financial services industry carries out a wide range of activities for UK and international clients. Some of this activity is regulated by the FCA and some is not. The Government and Parliament set the limits of the FCA’s remit, or ‘perimeter’, through legislation.

Whether an activity is within the FCA’s perimeter can be complex. It is made more complex when new products and services are developed, or there are other changes in the way they are used or provided, which were not envisioned when a piece of legislation was written. 

The update has made amendments to the sections on Counter-Party Credit Risk, Contract for Differences, Finfluencers, the Advertising Standards Agency, the Financial Services and Markets Act (FSMA) 2023 and Unregulated Collective Investment Schemes. No new areas of focus or concern have been added to the webpage by the FCA, although it has amended the sections to reflect developments since the report was last updated in July 2023.

Importantly, the FCA confirms that it plans to consult on proposals to amend the Senior Managers and Certification Regime in Q2 2024 and highlights that HM Treasury has, in parallel, launched a Call for Evidence to look at the legislative aspects of the regime. The webpage outlines that the reviews aim to identify ways to improve the regime to help it work better for firms and regulators, while preserving its underlying aims. It also invites views on the regime’s scope.

On April 9 2024, the Financial Conduct Authority (FCA) published Market Watch 78.

In this Market Watch, the FCA describes some of the FCA’s recent supervisory observations, covering the completeness and accuracy of instrument reference data (IRD) under RTS 23. This will interest UK: 

• Recognised Investment Exchanges (RIEs);
• Multilateral Trading Facilities (MTFs);
• Organised Trading Facilities (OTFs);
• Systematic internalisers (SIs).

The observations may also interest investment firms, credit institutions, approved publication arrangements (APAs) and approved reporting mechanisms (ARMs). 

UK trading venue operators and systematic internalisers are required to provide the FCA with details of the financial instruments traded on their platforms. IRD is key to the FCA's ability to conduct effective market oversight. It enables the FCA to understand the nature and characteristics of products traded by market participants. The FCA uses the data to validate and supplement the transaction data the FCA receives under RTS 22.

Issues with IRD impact the FCA's ability to monitor markets effectively. They also affect the completeness and accuracy of transaction reports, transparency data submitted under RTS 1, RTS 2, RTS 3, and the FCA's enrichment of UK EMIR trade reports for monitoring systemic risk.

IRD submitting entities must have methods and arrangements to identify incomplete or inaccurate data and report data in a timely manner, consistent with RTS 23 Articles 2 and 6. These processes should not be limited to rejections and warnings received.

INS-128 warnings are generated by the Market Data Processor (MDP) when IRD submitted by an entity under RTS 23, for a given instrument, differs from the values provided by the Relevant Trading Venue for that same instrument. These warning messages are not rejections. But to identify potential data quality issues, IRD submitting entities should include a review of these warnings in their processes.

On April 16 2024, the Financial Conduct Authority (FCA) published a  new webpage on asset management on common errors when applying for authorisation.

The FCA also notes that how quickly it determines applications for new authorisation or variations of permission is largely based on an application’s completeness and clarity. 

The common errors set out on the webpage, which firms should avoid in applications, are:

• Senior management lacking experience or qualifications.
  The FCA states that where firms failed to meet its expectations in relation to their senior management arrangements, this was typically because proposed senior managers either lacked the competence and expertise to undertake the functions for which they had applied, or did not hold an appropriate level of seniority in the firm.
• Office locations outside the UK.
  The FCA expects the ‘mind and management’ of a firm to be in the UK, taking business decisions about portfolios and distribution, and overseeing outsourced activities, in the UK on a day-to-day basis. It flags that is not enough for a firm to do just its compliance or administration in the UK, or to have the people who make business decisions fly in from time to time.
• Business models which expose clients to risk.
  Whilst the FCA accepts that all business models pose risk, it notes that often applicants do not identify the risks that their business model poses, or adequately consider and evidence how they might remove or mitigate those risks. Firms are also reminded that, when engaging with retail clients, the FCA would expect them to demonstrate how they apply the Consumer Duty, and applicants that cannot do so adequately are unlikely to be successful in their application. The FCA also highlights that it has seen applicants that seem to have structured their business model in a way that is intended to avoid rules that would give clients the expected level of protection.
• Outsourcing: underestimating the firm’s accountability.
  In some applications, the FCA has seen firms not considering the relevant rules, the applicant’s responsibilities, and the impact on their business when outsourcing. It warns that, while it understands firms will outsource certain activities to third parties, applicants should be aware that despite those activities being outsourced, responsibility and oversight for those activities will still sit with the applicant, and they will also be accountable for ensuring compliance with the relevant rules.
• Conflicts of interest: failing to identify concerns.
  Firms should ensure they consider potential conflicts of interest (which for asset managers can typically arise between the interests of the client, the firm and related parties) adequately in their applications. The FCA notes that it is not its role to identify potential conflicts or the risks of such conflicts to the business, but that if it does, that would raise concerns as to whether the applicant is aware of the risks posed by its business and how to mitigate them.
• Redress: avoiding appropriate schemes that protect consumers.
  The webpage flags that some asset managers seek exemption from the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) when this is not appropriate. This can increase how long it takes the FCA to conclude its assessment. For example, firms sometimes assume that if they don’t have retail clients, they will not be in scope of FOS or FSCS; however, this is not necessarily the case. To avoid delay, before applying, a firm should consider the Handbook rules in DISP and COMP to identify whether it is likely to do business with an ‘eligible complainant’ (in the case of FOS) or an ‘eligible claimant’ (in the case of FSCS).
• Unready, unwilling or unorganised applicants.
  The FCA expects applicants to be ready, willing and organised to carry out the activities they plan to undertake. The FCA has observed examples of firms that have submitted applications but were not ready, willing and organised; for instance, they had not recruited the relevant SMF holders or arranged for sufficient capital to be in place. While the FCA says it understands that circumstances can change during the lifecycle of an application, it emphasises it is not willing to put applications on hold for extended periods or to accept significant changes to the proposed model (for example, changes in target market).

On April 23 2024, the Prudential Regulation Authority (PRA) published a letter to Chief Risk Officers (CROs) on thematic review of private equity (PE) related financing activities.

The PRA as been closely monitoring changes in the nature and scale of regulated banks’ PE related financing activities. Due to the size and importance of these activities to the banking sector as a whole, and their potential impact on its safety and soundness, the PRA has carried out a thematic review of banks’ risk management practices in this area. 

Most recently, the PRA has seen an increase in exposures to various ‘non-traditional’ forms of financing linked to financial sponsors and the PE fund sector in general, such as Net Asset Value (‘NAV’) based loans secured against PE fund assets and facilities backed by Limited Partner (‘LP’) interests. This emerging trend in newer forms of financing has taken place alongside notable structural changes within markets that support banks’ existing and longstanding base of PE related financing businesses. These structural changes include the growth of private credit markets and a degree of consolidation in banks that provide subscription financing credit facilities to PE funds globally.

In consideration of these market developments, ongoing geopolitical tensions, and global economic uncertainties, the PRA’s thematic review focussed on the adequacy of banks’ risk management frameworks that govern their PE linked financing businesses and related derivatives exposures.

The PRA’s thematic review objectives are as follows:

• Banks are typically exposed to multiple forms of counterparty and credit risks linked to the PE sector. On a combined basis, these exposures are often significant and have complex interlinkages.
• Whilst the growth in ‘non-traditional’ forms of PE related financing is in its early stages, the PRA has noted the illiquid nature of collateral underpinning these lending structures, and the continuing growth in PE linked exposures. As a result, the PRA has conducted a review to assess the adequacy of banks’ risk management practices in this area. The PRA has focussed on the independent credit and counterparty credit risk management (‘CCRM’) processes that support the overall expansion in PE related financing and hedging activities.

The PRA’s thematic review findings are as follows:

• Data aggregation and a holistic approach to risk management.
  A number of banks were unable to uniquely identify and systematically measure their combined credit and counterparty exposures linked to the PE sector within their overall risk data.
  Banks typically enter into different forms of PE linked exposures across many distinct business lines, often located within separate parts of their group. As a consequence, individual client relationships for these activities, ranging from subscription line financing to derivatives hedging, are separately held by multiple business units. Independent credit and CCRM functions are usually aligned to product lines or organised by industry sector, counterparty type, or underlying collateral class. These typical organisational arrangements enable the development of business and risk management expertise in each respective specialism. However, despite the benefits of specialisation, a siloed approach to business, independent credit and CCRM oversight does not readily support the effective risk management of combined PE linked credit exposures generated across separate business units. While a small number of banks had made good progress, at a high level, in identifying and measuring their overall portfolio of PE linked credit exposures across business lines, many banks did not calculate comprehensive consolidated exposure data to measure and control combined PE credit and counterparty risks that are directly and indirectly linked to individual financial sponsors. These banks did not have a risk appetite framework that constrained the size of combined PE exposures linked to individual financial sponsors.
• Credit and counterparty risk interlinkages.
  Most banks did not have independent credit and CCRM procedures in place to comprehensively identify, measure, combine, and record risks that arise from all overlapping financial claims, liens and security interests that have direct or indirect linkages to the same underlying PE fund or related portfolio company obligor. For example, where a bank has a derivatives receivable from a portfolio company and also provides NAV financing to the PE fund that owns the portfolio company, the credit risks of both contracts are indirectly linked. The NAV financing facility is secured against a component of collateral that is effectively subordinated to the banks’ own derivatives receivable claim. Where banks also provide LP interest financing to investors in the same PE fund, the value of the collateral backing this facility would, in turn, be affected, adding a further layer of complexity to credit risk analysis. Many banks do not comprehensively record these risk interlinkages in their credit analysis systems. Without full credit analysis and internal transparency, banks may underestimate their risk of loss due to overlapping and linked credit exposures should multiple PE portfolio companies suffer distress. A small number of firms had constructed stress testing frameworks that enabled a modular approach to calculating a group-wide tail event loss scenario for PE sector linked exposures on a routine basis. These modular stress tests probed the idiosyncratic risk profile of each category of PE linked exposure. The results of such stress tests were aggregated, and relevant stress loss outcomes allocated to individual financial sponsors. Other firms had not developed such comprehensive frameworks or had performed stress tests solely in the context of individual business unit portfolios or product silos and did not consider the results of these scenarios in aggregate. Comprehensive, combined stress tests, that consider potential correlations between the performance of different forms of PE related exposures and compute stress loss exposures linked to individual financial sponsors, enable firms to manage their credit and counterparty risk most effectively.
• Board level reporting.
  A number of banks’ boards were not specifically informed of the overall scale of combined exposures linked to the PE sector or to individual financial sponsors and as a consequence, had not conducted a holistic assessment of the risks of these aggregate exposures.

On April 4 2024, the United Kingdom published the Pension Schemes Act 2021 (Commencement No. 8 and Transitional Provisions) Regulations 2024.

These Regulations bring into force provisions of the Pension Schemes Act 2021 (c. 1). They are the eighth commencement regulations to be made under the 2021 Act.

Regulation 2 appointed April 6 2024 as the day for the coming into force of section 123 (funding of defined benefit schemes) of, and Schedule 10 (funding of defined benefit schemes) to, the 2021 Act, insofar as they are not already in force.

Section 123 introduces Schedule 10, which amends the Pensions Act 2004 (c. 35) by inserting new sections 221A (funding and investment strategy) and 221B (statement of strategy) into the 2004 Act. Section 221A requires defined benefit pension scheme trustees or managers to have a funding and investment strategy for ensuring that pensions and other scheme benefits can be provided over the long term. The strategy must specify the funding level and the investments that trustees or managers intend the scheme to have at a relevant date or dates. Section 221B requires trustees or managers to prepare a statement of strategy that sets out their funding and investment strategy. Trustees or managers must also include their assessment of how successfully the strategy is being implemented and the key risks faced by the scheme along with any mitigations. The statement of strategy must be signed by the chair of the trustee board and where a scheme does not have a chair, they must appoint one.

Schedule 10 also amends sections 222 (the statutory funding objective), 224 (actuarial valuations and reports), 226 (recovery plan), 229 (matters requiring agreement of employer) and 231 (powers of the Pensions Regulator) of the 2004 Act. The amendment to section 222 adds a new subsection (2A) which requires the scheme’s technical provisions to be calculated in a way that is consistent with the scheme’s funding and investment strategy, as set out in the scheme’s statement of strategy. The amendment to section 224 adds a new subsection (7A) requiring trustees or managers to send a copy of an actuarial valuation to the Pensions Regulator, together with such other information as may be prescribed. The amendment to section 226 adds a new subsection (3A) which provides regulation making powers to prescribe the matters that should be considered or the principles to be followed in determining whether a recovery plan is appropriate having regard to the nature and circumstances of the scheme. The amendment to section 229 adds the funding and investment strategy to the matters requiring the agreement of the employer. The amendments to section 231 extend the Pensions Regulator’s powers to oversee the new funding and investment strategy.

Schedule 10 also makes minor and consequential amendments to sections 60 (registrable information), 80 (offences of providing false or misleading information) and 316 (Parliamentary control of subordinate legislation) of the 2004 Act.

Regulation 3 is a transitional provision in relation to the commencement of paragraph 3 of Schedule 10 to the 2021 Act. Regulation 3 provides that section 222 of the 2004 Act remains in effect in relation to a particular pension scheme, without the new subsection (2A), until that scheme?is required to have a funding and investment strategy.

Regulation 4 is a transitional provision in relation to the commencement of paragraph 4 of Schedule 10 to the 2021 Act. Regulation 4 provides that section 224 of the 2004 Act remains in effect in relation to a particular pension scheme, without the new subsection (7A), until that scheme obtains an actuarial valuation with an effective date on or after September 22 2024.

On April 5 2024, the United Kingdom published the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024.

These Regulations make provision relating to the funding of occupational pension schemes to which Part 3 of the Pensions Act 2004 (c. 35) (scheme funding) applies. They implement the amendments to that Part made by Schedule 10 to the Pension Schemes Act 2021 (c. 1) (funding of defined benefit schemes).

Part 1 of these Regulations contains preliminary matters. In particular, it sets out (in regulation 2) where some of the key concepts used in the Regulations are defined and (in regulation 3) makes provision for review of regulations 4 to 19, pursuant to the requirement in section 28(2)(a) of the Small Business, Enterprise and Employment Act 2015 (c. 26) (duty to review regulatory provisions in secondary legislation).

Part 2 of these Regulations makes provision relating to the new requirement, in section 221A of the Pensions Act 2004 (“the 2004 Act”) (funding and investment strategy), for schemes to have a funding and investment strategy.

Regulations 4 to 7 define the key concepts underlying how schemes must give effect to this requirement. In particular, regulation 4 sets out how the maturity of a scheme is to be measured and the meaning of “significant maturity” in relation to a scheme; regulation 5 sets out the meaning of “low dependency investment allocation” in relation to the assets of a scheme; regulation 6 sets out the meaning of “low dependency funding basis” in relation to the calculation of the liabilities of a scheme; and regulation 7 sets out the meaning of “strength of the employer covenant” and how it is assessed.

Regulation 8 sets out how the “relevant date” is to be determined.

Regulation 9 sets out the actuarial methods and assumptions to be used for the purposes of specifying the funding level the trustees and managers intend the scheme to have achieved as at the relevant date. In particular, the liabilities of the scheme for this purpose must be calculated on a low dependency funding basis.

Regulation 10 ensures that when, in determining or revising a scheme’s funding and investment strategy, the trustees or managers of a scheme are required to use actuarial assumptions in the calculation of the liabilities of a scheme on a low dependency funding basis and the duration of liabilities measure, the trustees or managers must choose either the same set of assumptions or, in relation to the economic assumptions in a calculation of the duration of liabilities measure, the same methodology as is used for calculating the other assumptions.

Regulation 11 introduces Schedule 1 which sets out matters the trustees or managers must take into account, and principles they must follow, in determining or revising the scheme’s funding and investment strategy. The matters in Schedule 1 relate to estimates in relation to scheme maturity by the actuary appointed by the trustees or managers, and investment risk on and after the relevant date. The principles in Schedule 1 make provision regarding the minimum requirements that a scheme is subject to on and after the relevant date; the level of risk that can be taken in relation to the calculation of the liabilities of the scheme as it moves towards that date; and the liquidity of the assets of the scheme.

Regulation 12 makes provision regarding the level of detail required in a funding and investment strategy.

Regulation 13 sets out the period within which a funding and investment strategy must be determined and subsequently reviewed and revised.

Part 3 of these Regulations makes provision regarding the statement of strategy. The statement of strategy is prepared by the trustees or managers of a scheme under section 221B of the 2004 Act (statement of strategy). It consists of two parts: Part 1 is a written statement of the funding and investment strategy, and Part 2 is a written statement of supplementary matters.

Regulation 14 introduces Schedule 2 which sets out supplementary matters to be included in Part 2 of the statement of strategy, in addition to those required by section 221B of the 2004 Act.

Regulation 15 sets out the period within which Part 2 of a statement of strategy must be reviewed and revised.

Regulation 16 sets out requirements to be met by the person who is the chair of the trustees who is required by section 221B(6) of the 2004 Act to sign the statement of strategy.

Regulation 17 makes provision regarding the level of detail required in Part 2 of a statement of strategy.

Regulation 18 makes provision regarding the form of the statement of strategy. Regulation 19 makes provision for when the trustees or managers shall send the statement of strategy to the Regulator.

Part 4 of these Regulations amends the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (S.I. 2005/3377). The amendments made by regulation 20(2), (3) and (5) are to take account of the new requirements relating to funding and investment strategies. In particular, they make provision for additional matters to be included in an actuarial valuation. The amendments made by regulation 20(4) make provision for determining whether a recovery plan is appropriate having regard to the nature and circumstances of the scheme.

These Regulations came into force on April 6 2024.

On April 22 2024, the United Kingdom published the draft Securitisation (Amendment) Regulations 2024.

These Regulations amend the Securitisation Regulations 2024 (S.I. 2024/102) and make amendments of other legislation in connection with those Regulations. It:

• Restates due diligence requirements for Occupational Pension Schemes, currently managed under the Securitisation Regulation due to The Pensions Regulator lacking rule-making authority.
• Affirms the prohibition on establishing Securitisation Special Purpose Entities in high-risk jurisdictions, with a modification extending its scope to include institutional investors alongside originators or sponsors.
• Introduces consequential amendments to other enactments, stemming from either the implementation of the Securitisation Regulations 2024 or the repeal of the Securitisation Regulation.

On April 30 2024, the Financial Conduct Authority (FCA) published a policy statement on rules relating to securitisation.

As part of the repeal and replacement of assimilated law (i.e., retained European Union (EU) law) under the Smarter Regulatory Framework (SRF), most firm-facing provisions of the UK Securitisation Regulation (UK SR) will be set out in the FCA and the Prudential Regulation Authority (PRA) rulebooks, while other provisions are restated in domestic legislation by His Majesty’s Treasury.

In CP23/17: Rules Relating to Securitisation (CP23/17), the FCA sets out the FCA's proposed rules for the securitisation market in the United Kingdom. The FCA's approach was to largely preserve the relevant requirements of the UK SR. However, the FCA also proposed targeted policy changes that had been identified following feedback received from the FCA's engagement with market participants and the outcomes of HM Treasury’s 2021 Review of the Securitisation Regulation: Report and call for evidence response (Treasury Review).

In this policy statement, the FCA summarises the feedback received on the FCA's proposals and set out the FCA's response to it. The FCA outline the final approach to the FCA's rules and highlight where the FCA has made corrections and technical adjustments brought to the FCA's attention by respondents. Where appropriate, the FCA sets out the rationale for these amendments in the relevant chapters below. This policy statement also contains the final Securitisation Sourcebook (SECN). As was the case in the draft rules, all previous Technical Standards and annexes related to UK SR are also set out, to the extent retained, in SECN as rule requirements.

Retail clients may be exposed to securitisations directly or indirectly through their pension funds or investment funds. The FCA has made rules to replicate the UK SR position for selling securitisation positions to retail clients.

In Chapter 2, the FCA sets out the wider context behind the FCA's changes and outline how the FCA's changes link to the FCA's primary objectives and the FCA's new secondary international competitiveness and growth objective (SICGO). The FCA also highlights the FCA's proposal for an extension of the implementation period.

In Chapter 3, the FCA addresses the FCA's general approach to rules. The FCA considers responses and explain the changes the FCA has made to the FCA's rule drafting, how the FCA has incorporated certain recitals from the EU Securitisation Regulation (EU SR) and address the FCA's broader approach to EU non-legislative materials, recitals, and waivers.

In Chapter 4, the FCA explained the changes the FCA has made in relation to the due diligence requirements for institutional investors and summarise feedback received. In particular, the FCA focuses on changes regarding the concept of ‘pricing’, but the FCA also clarifies the FCA's approaches to due diligence regarding Simple, Transparent and Standardised (STS) securitisations, delegation of due diligence requirements, due diligence requirements in relation to Asset-Backed Commercial Paper (ABCP), along with a clarificatory point in relation to waivers and modifications.

Chapter 5 deals with the FCA's changes regarding risk retention provisions. In this chapter, the FCA considers responses relating to the FCA's key proposals on risk retention and outline further points of feedback the FCA received.

Chapter 6 outlines changes in a number of areas including, but not limited to, geographical scope, the criteria for homogeneity in STS securitisations and credit granting criteria. The FCA also summarise additional areas of feedback not addressed in the FCA's consultation.

Finally, in Chapter 7, the FCA considers responses and any further potential implications relating to the FCA's cost benefit analysis (CBA) from CP23/17.

BACKGROUND

The anti greenwashing rule is one part of a package of measures the Financial Conduct Authority (FCA) finalised in November 2023 through the FCA's Policy Statement (PS) on Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16). When the FCA published PS23/16 the FCA consulted on general guidance to support the implementation of the anti greenwashing rule.

There is significant consumer interest in sustainable products and services. The FCA's Financial Lives Survey (2022) shows that 74% of adults surveyed agreed that environmental issues are really important to them and 79% agreed businesses have a wider social responsibility than simply making a profit. As the demand for sustainable products and services grows, so does the risk of ‘greenwashing’. As firms increasingly make sustainability related claims about their products and services, there are concerns that some of these may be exaggerated, misleading, and unsubstantiated.

Tackling greenwashing is a priority for the FCA. The FCA wants to protect consumers against greenwashing so they can make informed decisions that are aligned with their sustainability preferences. But the FCA also wants to create a level playing field for firms in an evolving market, whose products and services genuinely represent a more sustainable choice and who are making genuine claims about their products’ and services’ sustainability characteristics. If stakeholders trust the sustainability related claims firms are making about their products and services, this may increase confidence in markets and the flow of capital into these products.

The FCA introduced the anti greenwashing rule to clarify to firms that sustainability related claims about their products and services must be fair, clear and not misleading. It gives the FCA an explicit rule on which to challenge firms if the FCA considers they are making misleading sustainability related claims about their products or services and, if appropriate, take further action.

WHAT'S NEW?

On April 23 2024, the FCA published the finalised non-handbook guidance on the anti-greenwashing rule.

This Guidance is designed to help firms understand and implement the FCA's anti greenwashing rule, following feedback from some respondents to the FCA's consultation paper (CP) on SDR and investment labels (CP22/20) asking for guidance. This Guidance is compatible with the FCA's strategic objective to make markets function well, by increasing transparency on the sustainability features of products and services and reducing the risk of harm arising from greenwashing.

It is intended to advance the FCA's operational objectives by helping firms ensure that, as product and service offerings evolve, sustainability related claims stand up to scrutiny and consumers are protected from potentially misleading or inaccurate information. Increasing the transparency and accuracy of sustainability related claims which are made about products and services should also help enhance the integrity and credibility of the market for sustainable finance and ensure that competition remains effective.

The Guidance is also consistent with the FCA's secondary international competitiveness and growth objective. It should enable both consumers and firms to have better confidence in identifying sustainable products and making informed purchases. Better industry standards should help to improve market integrity and build on the UK’s reputation and leading international position in the sustainable finance market, helping to attract sustainable investments to support a thriving economy.

The anti greenwashing rule applies when a firm: 

• communicates with clients in the UK in relation to a product or service, or 
• communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK.

The rule applies with respect to references to sustainability characteristics (environmental and/or social characteristics) of a product or service.

The rule applies in relation to financial products and services which FCA-authorised firms make available for clients in the UK. This includes financial promotions that authorised firms communicate or approve for unauthorised persons (including for overseas products and services where the promotion is approved in the UK).

The rule applies to all authorised firms irrespective of whether they are subject to the Consumer Duty. Any reference to the Consumer Duty in this Guidance is designed to help firms interpret how the rule and the Duty interact, where relevant.

WHAT'S NEXT?

As the anti?greenwashing rule will come into force on May 31 2024, the Guidance comes into force at the same time to provide firms with clarity on the FCA's expectations when complying with the new rule. For most firms, the rule does not introduce a new requirement as they should already be ensuring their claims are ‘fair, clear and not misleading’ under existing FCA requirements.All authorised firms need to meet the anti?greenwashing rule on May 31 2024. Asset managers who are not using labels but are using sustainability?related terms in their naming and marketing will not need to comply with the additional naming and marketing rules or produce the associated disclosures under the SDR and labelling regime until December 2 2024. However, they must still comply with the anti?greenwashing rule from May 31 2024 and ensure their sustainability claims are fair, clear and not misleading and consistent with the sustainability characteristics of the product and service.

On April 23 2024, the Financial Conduct Authority (FCA) published a consultation paper on extending Sustainability Disclosure Requirements (SDR) regime to Portfolio Management.

This consultation paper contains the FCA's proposals to extend the SDR and investment labels regime to portfolio management services. It follows the FCA's Consultation Paper (CP22/20) and corresponding Policy Statement (PS23/16) on SDR and investment labels, which introduced a package of measures for fund managers

The package of measures the FCA published aimed to inform and protect consumers, improve trust in the market for sustainable investments, and underpin the UK’s position as a competitive centre for sustainable investments.

The package included an anti-greenwashing rule for all FCA-authorised firms and, for asset management firms, 4 voluntary investment labels, new rules for firms marketing investment funds based on their sustainability characteristics, and associated disclosure requirements

The FCA is proposing to extend these measures to portfolio management services. The FCA consulted on including portfolio management in the FCA's earlier consultation, CP22/20. The FCA received detailed, supportive feedback from the consultation and the FCA's recent engagement, which has helped us refine the FCA's  proposals for this sector.

The FCA wants to help consumers to navigate the sustainable investment market by extending the SDR and labelling package to portfolio management services. This would mean applying the labelling regime, naming and marketing rules, and disclosure requirements to portfolio managers. This package of measures should help to ensure that portfolio management offerings that claim to be sustainable investments meet high standards and enhance trust in the market.

This consultation closes on June 14 2024.

On April 11 2024, the United Kingdom published a Statutory Instrument (SI) Correction Slip regarding Financial Services and Markets Act (FSMA) 2023.

The Correction Slip states that with regards to Schedule 2, paragraph 33, in the inserted Chapter 4A, after the italic heading “STS equivalent non-UK securitisations”, on a new line, the heading “Article 28A” should be inserted and appear centrally aligned.

On April 16 2024, the International Swaps and Derivatives Association (ISDA) published the European Market Infrastructure Regulation (EMIR) Refit reporting Suggested Operational Practices (SOP).

In preparation for the commencement of the EMIR Refit regulatory reporting rules on April 29 2024, SOP for over-the-counter derivative (OTC) reporting have been established and agreed by market participants through a series of discussions held within the ISDA Data and Reporting EMEA Working Group. These SOPs have been developed to help deliver accuracy and efficiency of EMIR reporting, and to adhere to the regulatory requirements.

The SOP matrix has been established based on the EMIR Refit validation table, (as published by ESMA), which contains the Regulatory Technical Standards (RTS), the Implementation Technical Standards (ITS) and validation rules. Additional tabs have been added to supplement to SOPs, including product-level SOPs for several of the underlier fields, and listing names of floating rate options. There are also tabs to reflect updates made to the matrix (Updates) and a tab to track questions raised by the ISDA Data and Reporting EMEA Working Group (WG Questions).

This document will continue to be reviewed and updated as and when required. While the intention of these SOPs is to provide an agreed and standardised market guide for firms to utilize, no firm is legally bound or compelled in any way to follow any determinations made within these EMIR SOPs.

On April 9 2024, the International Accounting Standards Board (IASB) published a press release on new International Financial Reporting Standards (IFRS) accounting standard aimed at aiding investor analysis of companies’ financial performance.

The IASB completed its work to improve the usefulness of information presented and disclosed in financial statements. The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, will give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards.

IFRS 18 introduces three sets of new requirements to improve companies’ reporting of financial performance and give investors a better basis for analysing and comparing companies:

• Improved comparability in the statement of profit or loss (income statement): IFRS 18 introduces three defined categories for income and expenses—operating, investing and financing—to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.
• Enhanced transparency of management-defined performance measures: IFRS 18 requires companies to disclose explanations of those company-specific measures that are related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures, and make them subject to audit.
• More useful grouping of information in the financial statements: Investor analysis of companies’ performance is hampered if the information provided by companies is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

IFRS 18 is effective for annual reporting periods beginning on or after January 1 2027, but companies can apply it earlier. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems. IFRS 18 replaces IAS 1 Presentation of Financial Statements. It carries forward many requirements from IAS 1 unchanged. IFRS 18 is the culmination of the IASB’s Primary Financial Statements project. 

On April 30 2024, the International Swaps and Derivatives Association (ISDA) published a T+1 settlement cycle booklet.

The booklet is published alongside with the Securities Industry and Financial Markets Association (SIFMA) and the Canadian Capital Markets Association (CCMA).

On February 9 2022, the Securities and Exchange Commission (SEC) issued a proposal to shorten the securities settlement cycle from trade date plus two business days (T+2) to trade date plus one business day (T+1). On February 15 2023, the SEC voted to adopt the proposed rule. As a result, the US securities markets will transition to T+1 on May 28 2024. Subsequently, Canada and Mexico announced they will transition to T+1 settlement on May 27 2024.

The booklet aims to address queries from market participants on the settlement cycle changes taking place in North America on May 27-28 2024, and the possible impact to relevant securities and over-the-counter (OTC) derivatives transactions. This booklet may be updated from time to time.