On 29 September 2020, the European Securities and Markets Authority (ESMA) published its final report containing new sets of draft regulatory technical standards (RTS) under the Benchmarks Regulation (BMR). These contain additional detailed rules to implement the European regulatory framework aimed at ensuring the accuracy and integrity of benchmarks across the European Union.

The draft RTS result from the ESAs Review, Article 5 of Regulation (EU) 2019/2175, that introduced changes to the BMR including a new mandate for ESMA to develop draft RTS. They set out the behaviours and standards expected of administrators and will further enhance the robustness and reliability of financial benchmarks. The draft standards include provisions ensuring:

• that the governance arrangements of administrators are sufficiently robust;
• the potential manipulation of benchmarks is minimised, through additional rules regarding the methodology of calculation and controls to ensure the integrity of the data; and
• common criteria are used across different Member States for the assessment of the mandatory administration of critical benchmarks and the compliance statement for non-significant benchmarks.

By 1 October 2020, ESMA will submit the final draft RTS to the European Commission, which will have three months in which to approve or reject them.

On 18 September 2020, the European Parliament published a briefing on Brexit: Towards the end-game.

This note offers links to recent commentaries, studies and reports from international think tanks on numerous challenges facing the UK, EU and their future ties after their divorce. 

BACKGROUND

On the basis of an analysis conducted with the European Central Bank, the Single Resolution Board and the European Supervisory Authorities, the Commission identified that financial stability risks could arise in the area of central clearing of derivatives through CCPs established in the United Kingdom (“UK CCPs”) should there be a sudden disruption in the services they offer to EU market participants. This was addressed in the Commission Communication of 9 July 2020, where market participants were recommended to prepare for all scenarios, including where there will be no further equivalence decision in this area.

WHAT'S NEW?

On 21 September 2020, the European Commission adopted time-limited decision giving market participants the time needed to reduce exposure to UK CCPs publishing Commission Implementing Decision (EU) 2020/1308 of 21 September 2020 determining, for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council in the Official Journal.

For the purposes of Article 25 of Regulation (EU) No 648/2012, the legal and supervisory arrangements of the United Kingdom of Great Britain and Northern Ireland applicable to central counterparties already established and authorised in the United Kingdom of Great Britain and Northern Ireland shall be considered to be equivalent to the requirements laid down in Regulation (EU) No 648/2012.

WHAT'S NEXT?

The industry is strongly encouraged to work together in developing strategies that will reduce their reliance on UK CCPs that are systemically important for the Union. On 1 January 2021, the UK will leave the Single Market. The current temporary equivalence decision aims to protect financial stability in the EU and give market participants the time needed to reduce their exposure to UK CCPs.

1. On 24 September 2020, the European Commission adopted the new Action Plan to boost the Capital Market Union.

The European Commission has published a new, ambitious Action Plan to boost the European Union's Capital Markets Union (CMU) over the coming years. The EU's top priority today is to ensure that Europe recovers from the unprecedented economic crisis caused by COVID-19. Developing the EU's capital markets, and ensuring access to market financing, will be essential in this task.

The Action Plan has three key objectives:

• Ensuring that the EU's economic recovery is green, digital, inclusive and resilient by making financing more accessible for European companies, in particular SMEs;
• Making the EU an even safer place for individuals to save and invest long-term;
• Integrating national capital markets into a genuine EU-wide single market for capital.

To do this, the Commission is putting forward today sixteen targeted measures to make real progress to complete the CMU. Among the measures announced, the EU will:

• Create a single access point to company data for investors;
• Support insurers and banks to invest more in EU businesses;
• Strengthen investment protection to support more cross-border investment in the EU.
• Facilitate monitoring of pension adequacy across Europe;
• Make insolvency rules more harmonised or convergent;
• Push for progress in supervisory convergence and consistent application of the single rulebook for financial markets in the EU.

2. On 11 September 2020, the European Parliament issued a press release stating that the Economic and Monetary Affairs Committee has adopted a report calling for the urgent completion of the Capital Markets Union (CMU).

In their report, MEPs call for the development of the CMU to be accelerated, arguing that this would be a viable way for fund deprived companies to tap into financial markets and reduce their reliance on bank lending.

MEPs have also proposed certain targeted amendments seeking to align and simplify existing provisions in areas such as capital requirements, reporting frameworks and listing requirements for SMEs regarding initial public offerings. MEPs are also calling for the acceleration of the development of EU venture capital and private equity markets to increase transparency and reduce fragmentation. MEPs are also suggesting that the Commission should come forward with several new legislative proposals, including a proposal on ‘European Secured Notes’, as a new dual-recourse funding instrument for banks.

Here is the new EU Digital Finance Package together with EU comments.

1. On 11 September 2020, the European Parliament announced that MEPs of the Economic and Monetary Affairs committee welcomed the Commission’s commitment to finalising an Action Plan on FinTech by the third quarter of 2020. They stress that any measures taken at the EU level should leave all market participants space to innovate, be proportional and technologically neutral, risk based and allow for high levels of consumer and investor protection. They call for a common European model with a crucial role for the European Supervisory Authorities (ESAs) and international cooperation for standards setting.

1) Crypto-Assets

In their recommendation, MEPs focused on crypto assets, calling for a comprehensive pan-European open-ended taxonomy for new products, as well as for a common monitoring and supervision framework. They point to regulatory gaps in the EU legislation such as that concerning anti-money laundering and advise targeted changes to the existing provisions.

2) Cyber resilience and data protection

In their report, MEPs highlight a need for a common approach to cyber resilience of the financial sector. They call for legislative changes in the area of ICT and cyber security requirements for the EU financial sector with a focus on modernisation, compliance with international standards and operational resilience testing.

Finally, MEPs stress that the free flow of data within the EU is necessary to scale up innovative finance but cross-border data flows, including to and from third countries, must be monitored and governed under the EU legislation on privacy and data protection.

Digital finance plays a key role in developing financial activities and will be integral to the success of the Capital Markets Union (CMU), says the text. It will increase financing and investment options for companies and citizens and has a potential to help close the SME financing gap.

The text was adopted with 44 votes to 5 and 8 abstentions.

2. On 24 September 2020, the European Commission adopted a new Digital Finance Package  including Digital Finance and Retail Payments Strategies, and legislative proposals on crypto-assets and digital resilience. 

The measures will be crucial in supporting the EU's economic recovery as it will unlock new ways of channelling funding to Europe's businesses, while also playing a key role in delivering the European Green Deal and the New Industrial Strategy for Europe. By making rules safer and more digital friendly for consumers, the Commission aims to boost responsible innovation in the EU's financial sector, especially for highly innovative digital start-ups, while mitigating any potential risks related to investor protection, money laundering and cyber-crime.

1) A Digital Finance Strategy

The aim of the Digital Finance Strategy is to make Europe's financial services more digital-friendly and to stimulate responsible innovation and competition among financial service providers in the EU. It will reduce fragmentation in the digital single market. It will ensure that EU financial services rules are fit for the digital age, for applications such as artificial intelligence and blockchain. The objective of the measures is to promote data sharing and open finance, while maintaining the EU's very high standards on privacy and data protection. Finally, the strategy aims to ensure a level playing field among providers of financial services.

2) A Retail Payments Strategy

The strategy aims to bring safe, fast and reliable payment services to European citizens and businesses. It seeks to achieve a fully integrated retail payments system in the EU, including instant cross-border payment solutions. This will facilitate payments in euro between the EU and other jurisdictions. It will promote the emergence of home-grown and pan–European payment solutions.

3) Legislative proposals on crypto-assets

The new legislation on crypto-assets (a digital representation of values or rights that can be stored and traded electronically will boost innovation while preserving financial stability and protecting investors from risks. This will provide legal clarity and certainty for crypto-asset issuers and providers. The new rules will allow operators authorised in one Member State to provide their services across the EU (“passporting”). 

4) Legislative proposals on digital operational resilience

The proposed ‘Digital Operational Resilience Act' (DORA) aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks. The proposed legislation will require all firms to ensure that they can withstand all types of Information and Communication Technology (ICT) - related disruptions and threats. The proposal also introduces an oversight framework for ICT providers, such as cloud computing service providers.

3. On 28 September 2020, the European Parliament highlighted its priorities for the Digital Services Act. 

Key demands of the EU Parliament addressed to the European Commission:

• The EU legal framework for digital services -should be updated. The committee recommends distinguishing between economic and non-economic activities, and between “different type of digital services hosted by platforms rather than focusing on the type of the platform”. All digital service providers established in third countries must adhere to the rules of the DSA when directing their services to consumers or users in the EU.
• Consumers should be equally safe when shopping online or in stores. Platforms and online intermediation services will need to improve their efforts to detect and take down false claims and tackle rogue traders.  
• An effective and legally enforceable notice-and-action mechanism must be set up so that users can notify online intermediaries about potentially illegal online content or activities and to help the latter to react quickly and be more transparent regarding the actions taken on potentially illegal content.
• MEPs call for a strict distinction to be made between illegal content, punishable acts and illegally shared content on the one hand, and harmful content on the other.
• The DSA should guarantee the consumer’s right to be informed if a service is enabled by AI, makes use of automated decision-making or machine learning tools or automated content recognition tools, as well as their right to redress. They should be able to opt out and be given more control of the way content is ranked.
• MEPs want the Commission to introduce additional rules on targeted advertising and micro-targeting based on the collection of personal data and to consider regulating micro- and behavioural targeted advertising more strictly in favour of less intrusive forms of advertising that do not require extensive tracking of user interaction with content.
• The DSA package should also include a separate proposal for an internal market instrument imposing ex-ante obligations on large platforms with a gatekeeper role (“systemic operators”). The aim would be to prevent (instead of merely remedy) market failures caused by them and open up markets to new entrants, including SMEs, entrepreneurs, and start-ups.

On 23 September 2020, the  European Commission published a report pursuant to Article 85 of the European Market Infrastructure Regulation (EMIR) that provides an analysis of the main issues identified by stakeholders around pension scheme arrangements’ (PSA) central clearing, as well as of the solutions explored so far. The PSA exemption from central clearing is in force until June 2021. In view of this deadline, the report seeks to update the European Parliament and the Council as to the progress made in this field and also identifies those aspects that need to be explored further in order to favor a feasible and sustainable central clearing solution.

On 28 September 2020, European Securities and Markets Authority (ESMA) announced that the three central counterparties (CCPs) established in the United Kingdom (UK) – ICE Clear Europe Limited, LCH Limited, and LME Clear Limited – will be recognised as third country CCPs (TC-CCPs) eligible to provide their services in the EU, after the end of the transition period following the withdrawal of the UK from the EU on 31 December 2020.

Here are several Commission Delegated Regulations on EMIR published in the Official Journal..

1. On 21 September 2020, the Commission Delegated Regulation (EU) 2020/1302 of 14 July 2020 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to fees charged by the European Securities and Markets Authority to central counterparties established in third countries was published in the Official Journal.

A CCP established in a third country that applies for recognition in accordance with Article 25 of Regulation (EU) No 648/2012 shall pay a basic recognition fee of EUR 50 000 with an additional recognition fee of EUR 360 000 where ESMA determines that, that CCP is systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States (‘Tier 2 CCP’).

A recognised CCP shall pay an annual fee at the latest on 31 March of the year. All fees shall be paid in euro.

Where ESMA recognises a CCP as a Tier 1 CCP, the annual fee shall be determined as the proportion of the basic recognition fee laid down in Article 1(1) of this Regulation calculated in accordance with the following ratio: number of calendar days from the date of recognition until 31 December / number of calendar days in year. The same calculation applies to CCP recognized by the ESMA as a Tier 2 CPP according to Article 1(2) of the Regulation.

Moreover, Tier 2 CCPs shall provide ESMA, on an annual basis, with audited figures confirming its worldwide revenues accrued from the provision of the clearing services referred to in the first subparagraph. The audited figures shall be submitted to ESMA no later than 30 September each year.

Where a third-country CCP has submitted an application for recognition before 22 September 2020, and ESMA has not yet adopted a decision to recognise or to refuse recognition of that CCP, the CCP shall pay the recognition fee provided for in Article 1(1) 22 October 2020.

Finally, a third-country CCP that is recognised by ESMA at the time this Regulation enters into force shall pay an interim annual fee of EUR 50 000 for 2020 and each subsequent year until the review of its systemic importance has been carried out and it has been recognized. The interim annual fee for 2020 shall be paid within 30 calendar days from the entry into force of this Regulation.

2. On 21 September 2020, the Commission Delegated Regulation (EU) 2020/1303 of 14 July 2020 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the criteria that ESMA should take into account to determine whether a central counterparty established in a third country is systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States was published in the Official Journal.

ESMA shall assess the following elements: 

(a) the countries where the CCP provides or intends to provide services;

(b) the extent to which the CCP provides other services in addition to clearing services;

(c) the type of financial instruments cleared or to be cleared by the CCP; 

(d) whether the financial instruments cleared or to be cleared by the CCP are subject to the clearing obligation under Article 4 of Regulation (EU) No 648/2012;

(e) the average values cleared by the CCP over one year

(f) whether the CCP has completed an assessment of its risk profile based on internationally agreed standards or otherwise, the methodology used and the result of the assessment.

Generally, the ESMA shall assess :

• The nature, size and complexity of the CCP’s business
• The effect of failure of or a disruption to a CCP
• The CCP’s clearing membership structure
• Alternative clearing services provided by other CCPs
• The CCP’s relationship, interdependencies, or other interactions
• Indicators of minimum exposure of clearing members and clients established in the Union to the CCP.

3. On 21 September 2020, the Commission Delegated Regulation (EU) 2020/1304 of 14 July 2020 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the minimum elements to be assessed by ESMA when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of that assessment was published in the Official Journal. 

ESMA shall grant comparable compliance with respect to Article 16(1) of Regulation (EU) No 648/2012 where a Tier 2 CCP’s capital, including retained earnings and reserves, has a permanent and available initial capital which corresponds to at least EUR 7,5 million and where a Tier 2 CCP’s capital, including retained earnings and reserves, is at all times higher than or equal to the sum of: 

(a) the CCP’s capital requirements for winding down or restructuring its activities; 

(b) the CCP’s capital requirements for operational and legal risks; 

(c) the CCP’s capital requirements for credit, counterparty and market risks that are not already covered by the specific financial resources referred to in Articles 41 to 44 of Regulation (EU) No 648/2012 or comparable specific financial resources required by the CCP’s home jurisdiction’s legal order; 

(d) the CCP’s capital requirements for business risk.

ESMA shall grant comparable compliance with respect to the requirements set out in Title IV of Regulation (EU) No 648/2012 where: (a) the Tier 2 CCP complies with the requirements referred to in the implementing act referred to in Article 25(6) of that Regulation, if any; (b) the Tier 2 CCP complies with all relevant elements set out in Annex I to this Regulation.

Where a Tier 2 CCP has entered into an interoperability arrangement with a CCP authorised under Article 14 of Regulation (EU) No 648/2012, ESMA shall grant comparable compliance with respect to the requirements set out in Title V of that Regulation where the Tier 2 CCP complies with all relevant elements set out in Annex II to this Regulation.

ESMA shall not refuse comparable compliance with respect to the requirements set out in Article 16 and Titles IV and V of Regulation (EU) No 648/2012 for the mere reason that the Tier 2 CCP applies an exemption under the applicable third-country framework which is comparable to any of those set out in paragraphs 4 and 5 of Article 1 of that Regulation. The Tier 2 CCP shall provide evidence that the Union and third-country exemption are comparable. 

A Tier 2 CCP that has been granted comparable compliance shall notify ESMA of any change to its applicable third-country framework and to its internal rules and procedures. ESMA shall inform the Commission of those notifications.

On 10 September 2020, the European Securities and Markets Authority (ESMA) updated EMIR Validation table for reporting under the revised technical standards.

The amendments are as followings:

• Reporting timestamp
  o The reporting timestamp should be equal or later than the execution timestamp reported in the field 2.25.
  o The reporting timestamp should be equal or later than 2014-02-12.
• Valuation timestamp
  o The valuation timestaamp should be equal or later than 2014-02-12.
• Initial margin posted
  o If field 1.21 is populated with  "OC" or "FC", this field shall be populated.
  o If field 1.21 is populated with  "U" or "PC", this field shall be left blank.
• Initial margin received
  o If field 1.21 is populated with  "FC", this field shall be populated.
  o If field 1.21 is populated with  "OC", this field shall be left blank.
• Variation margin received
  o If field 1.21 is populated with "PC", "OC" or "FC", one of the fields 1.26 or 1.30 shall be populated (with a positive value or zero) while the other field shall be left blank or populated with zero.
  o If field 1.21 is populated with "U", this field shall be left blank.
• Maturity date
  o The maturity date should be equal or later than 2014-02-12.
• Termination date
  o The termination date should be equal or later than 2014-02-12.
• Settlement date
  o The settlement date should be equal or later than 2014-02-12.
• Clearing obligation
  o 'If field 2.15 is not populated with a MIC code of a trading venue that was a regulated market or a third-country market considered as equivalent to a regulated market at the time of the conclusion of the derivative, this field shall be populated and shall contain one of the following values "Y" or "N".
  o 'X' is accepted when the actual value is not available.
  o 1 alphabetical characters.
• Intragroup
  o If field 2.15 is not populated with a MIC code of a trading venue that was a regulated market or a third-country market considered as equivalent to a regulated market at the time of the conclusion of the derivative, this field shall be populated and shall contain only one of the following values: "Y" or "N". 1 alphabetic character.
• Interconnection Point
  o An EIC code as specified in the EIC Area Codes (Z) or (Y) code list and pertaining to a interconnection point within the European Union

On 24 September 2020, the European Securities and Markets Authority (ESMA) published the outcomes of MAR review.

The Report, which follows a 2019 consultation concludes that, overall, MAR has worked well in practice and is fit for purpose. This conclusion was confirmed by the overall feedback received in the 97 responses to the consultation, including from the Securities Markets Stakeholder Group. Respondents focused on specific amendments and clarifications rather than a major overhaul of the legislative framework.

Recommendations 

The Report to the EC sets out proposals for targeted amendments in MAR, including on the following issues where ESMA makes recommendations on:

• Market soundings – clarify that the MAR requirements represent an obligation for disclosing market participants that, if complied with, will protect them from the allegation of having unlawfully disclosed inside information;
• Benchmark provisions and the interplay between MAR and collective investment undertakings – clarify the responsibility of management companies in relation to the disclosure of inside information; and
• Withholding tax reclaim schemes – removing the legal limitations for NCAs to exchange information with tax authorities.    

In relation to spot FX contracts, ESMA concludes that it is necessary to perform further analysis once the revision of the FX Global Code has been finalised.

Guidance

The areas for which ESMA suggests providing additional guidance include:  

• Inside Information and disclosure – ESMA will issue further guidance in relation to the application of the definition and for specific scenarios concerning delayed disclosure;
• Pre-hedging – the Report identifies factors which may be considered when assessing if a specific pre-hedging conduct poses risks of market abuse and of violation of conduct rules. ESMA may assess pre-hedging in the future, considering specific circumstances such as its importance for illiquid instruments or the consequences of pre-hedging activities on the markets.

Finally, the Report also addresses:

• Buy-back programmes;
• Insider lists;
• Managers’ transactions;
• Establishment of an EU framework for cross-market order book surveillance;
• Appropriateness of introducing common rules on the need for all Member States to provide administrative sanctions for insider dealing and market manipulation;
• Cross border enforcement of sanctions; and
• Retention period of personal data.

On 16 September 2020, the European Securities and Markets Authority (ESMA) published FIRDS instructions on access and download of full and delta reference data files. 

The purpose of this document is to provide details on the reference data files that ESMA will be publishing and how to access them. 

The intended audience are the EU market participants that need to make use of the instrument reference data for the purpose of MiFIR. 

On 24 September 2020, the published three opinions on position limits regarding commodity derivatives under the Markets in Financial Instruments Directive and Regulation (MiFID II/MIFIR).

ESMA’s opinions agree with the proposed position limits regarding:

• the EEX TTF Gas contract;
• the  Nasdaq Oslo Nordic Power contract; and
• the Fish Pool Farmed Salmon contract.

ESMA found that the proposed position limits are consistent with the objectives established in MiFID II and with the methodology developed for setting those limits. ESMA will continue to assess the notifications received and issue opinions in order to ensure that the position limits are set in accordance with the MiFID II framework.

On 28 September 2020, the European Securities and Markets Authority (ESMA) published its Final Report containing draft regulatory and implementing technical standards (RTS and ITS) on the provision of investment services and activities in the European Union (EU) by third-country firms under MiFIR and MiFID II.

These draft technical standards are published following the changes to MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by third-country firms, introduced by the Investment Firms Regulation (EU) No 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD).  

These changes include new reporting requirements for third-country firms to ESMA on an annual basis, and include the possibility for ESMA to ask third-country firms to provide data relating to all orders and transactions in the EU. New annual reporting requirements from branches of third-country firms to NCAs have also been introduced.

On 28 September 2020, the European Securities and Markets Authority (ESMA) updated its Questions and Answers document on data reporting under the Market in Financial Instruments Regulation (MiFIR). 

The updated Q&As document includes a new Q&A and two amendments to existing Q&As:

The first amended Q&A provides clarifications in relation to the reporting requirements under Art. 26 of MiFIR and RTS 22. The Q&A provides an additional reporting scenario to an existing Q&A where an Investment Firm executes a transaction through an execution algorithm using the membership of its client to execute the order in the market.

The second amended Q&A relates to the Q&A on national client identifiers for natural persons clarifying on how different national identifiers specified in Annex II of RTS 22 are represented. The amendments also provide clarification on the requirements for Swedish national client identifiers.

The newly added Q&A clarifies which LEI should be used to identify the “issuer” when reporting reference data on funds to FIRDS under MAR Article 4 and MiFIR Article 27.  ESMA has observed that the lack of a public Q&A on this matter created uncertainty and resulted in inconsistent reporting of the LEI in the “issuer” field of the reference data report. Due to higher operational complexities related to changed reporting practices in some jurisdictions, this Q&A should be implemented six months after its publication.

On 7 September 2020, the European Securities and Markets Authority (ESMA) updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).

The updates include DVC data and calculations for the period 1 August 2019 to 31 July 2020 as well as updates to already published DVC periods. ESMA highlights that none of the previously identified breaches of the caps proved to be incorrect thus no previously identified suspensions of trading under the waivers had to be lifted. As of 7 September 2020, there is a total of 288 instruments suspended. ESMA does not update DVC files older than 6 months.

On 7 September 2020, the European Securities and Markets Authority (ESMA) decided that trading venues and investment firms may postpone, for operational reasons, the application of the annual transparency calculations for non-equity instruments other than bonds to 21 September 2020. This decision also applies to the quarterly calculations for the purpose of the systematic internaliser (SI) regime for non-equity instruments other than bonds.

In order to avoid potential misalignments between the application of the non-equity transparency calculations and the start of the mandatory SI-regime for non-equity instruments other than bonds, investment firms, applying the non-equity transparency calculations on 21 September instead of 15 September 2020, may perform the SI-test for non-equity instruments other than bonds by 21 September 2020.

The transparency requirements based on the results of the annual transparency calculations for non-equity instruments will apply from 15 September 2020, with the option to delay application to 21 September 2020, until 31 May 2021. From 1 June 2021, the results of the next annual transparency calculations for non-equity instruments, to be published by 30 April 2021, will become applicable.

ESMA will publish the next quarterly publication of data for the purpose of the SI regime by 1 November 2020 with an application date of 15 November 2020 for equity and equity-like instrument, bonds and non-equity instruments. 

On 25 September 2020, the European Securities and Markets Authority (ESMA) published its Annual Report on prospectus activity. 

In 2019 the number of prospectus approvals across the European Economic Area (EEA) decreased to 3,113 from 3,390 a fall of 8% compared to 2018. This decrease continues the downward trend observed since the 2008 financial crisis. 

Regarding the type of prospectus approved around 44% (1,368 out of 3,113) were in the form of base prospectuses and 91% were drawn up as single documents as opposed to tripartite prospectuses. Almost 76% (2,365) of prospectuses approved in 2019 related to non-equity securities with the most frequent security type being debt securities with a denomination of at least €100,000.

The number of EEA prospectuses passported to one or more host countries decreased slightly to 810 in 2019 from 817 in 2018. As was the case in 2018, Germany and Luxembourg accounted for most prospectuses passported to other EEA countries in 2019.

On 30 September 2020, European Securities and Markets Authority (ESMA) released a public statement concerning the applicability of level 3 guidance published under the Prospectus Directive.

The public statement contains an update of the status of the Q&As and the CESR recommendations relating to specialist issuers.

The statement explains that the Q&A revision work has now been resumed. A status update is provided regarding the Q&As that will be revised or deleted. Furthermore, ESMA also provides a breakdown of Q&As which have been identified for revision by either the European Commission or ESMA subject to the new Q&A procedure.

The CESR recommendations on specialist issuers were not included in ESMA’s recent Guidelines on disclosure requirements under the Prospectus Regulation. To clarify their status and applicability, the statement explains that the CESR Recommendations have not been rescinded and recommends that issuers apply them.  

On 4 September 2020, the European fund and Asset Management Association (EFAMA) published its response to EBA consultation papers on the implementation measures of the new regulatory framework for investments firms.

EFAMA calls for the EBA to carefully consider COVID-19 circumstances and the already existing ambitious time table for the implementation and request the EC to postpone the date for the application of the IFD/IFR framework (26 June 2021) and the time table of the level 2 measures (such as the deadline of 26 December 2020 for providing drafted RTS and ITS).

The first set of Level 2 measures proposed by the EBA are very detailed and the new EBA proposals for a Draft RTS on prudential consolidation of an investment firm group would extend the scope of consolidation in a significant way by including group constellations which are not defined in the IFR. This would lead to the situation that entities which are currently not in scope of the IFD/IFR framework will be affected by the new prudential consolidation.

The EFAMA broadly supports the Draft RTS on calculation of fixed overhead requirements and the limited approach taken by the EBA in considering the requirements on the K-Factors in the IFR are clear and often do not require further specification.

In contrary, the EFAMA disagrees with the scope of group constellations in Articles 2 to 5 of the Draft RTS as the approach taken by EBA goes beyond the scope of delegation and in the implementation of a qualitative criterion which refers to staff members which have managerial responsibility for a business unit that contributes a percentage amount of the investment firm’s total own funds requirements.

On 21 September 2020, the European Securities and Markets Authority (ESMA) updated the list of market makers and authorised primary dealers who are using the exemption under the Regulation on short selling and credit default swaps.

On 15 September 2020, the European Securities and Markets Authority (ESMA) published the Securitisation Disclosure Templates Reporting Instructions-Dec 2019. 

Securitisations for which a prospectus is required to be drawn up are required to be reported to SRs.

14 disclosure templates have been set out in the Technical Standards that can be grouped as follows: 

• Underlying exposure information for Annexes 2 to 11 – these templates cover in detail information about the underlying exposures and collateral of an ABCP securitisation (Annex 11) or a non-ABCP securitisation (Annex 2-9). In case of the non-performing underlying exposures, additional information covered by the NPE template (annex 10) must be reported. These templates are required to be completed for both public and private securitisations. 
• Investor report information for Annexes 12 and 13 – these templates cover the information on each ABCP securitisation (Annex 13) and non-ABCP securitisation (Annex 12) including information on events which trigger changes in the priority of payments or the replacement of any counterparties. These templates are required to be completed for both public and private securitisations. 
• Inside information or significant events for Annexes 14 and 15 – these templates cover information on any significant event to be reported on each ABCP securitisation (Annex 15) and non-ABCP securitisation (Annex 14) including specific add-ons for synthetic securitisations and CLO securitisations. It also includes specific add-ons that the reporting entity has made public on insider dealing and market manipulation. These templates are required to be completed for public securitisations only. 

On 24 September 2020, the European Securities and Markets Authority (ESMA) published the Guidance on registering securitisation repositories.

The purpose of this note is to provide information on ESMA’s registration process to companies (the applicants) that intend to apply to become an SR under the Securitisation Regulation. In the case where an applicant is already registered under Regulation EU No 648/2012 (EMIR) or Regulation No 2015/2365 (SFTR) and intends to register under the Securitisation Regulation too, it needs to apply for an extension of registration. The information provided in this note applies to both cases. 

This note does not address issues relating to the substantive examination of the conditions for registration and does not provide guidance on how to meet the conditions for registration.

Here are several Commission Delegated Regulations on the Securitisation Regulation published in the Official Journal.

1. On 3 September 2020, the EU published Commission Delegated Regulation (EU) 2020/1224 of 16 October 2019 supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying the information and the details of a securitisation to be made available by the originator, sponsor and SSPE.

This Regulation is organised into separate sections specifying the information concerning all securitisations and the information concerning public securitisations only.

The disclosure of certain information relating to a securitisation is necessary for investors and potential investors so that they may effectively conduct due diligence and a proper risk-assessment of the credit risks of the underlying exposures, the model risk, the legal risk, the operational risk, the counterparty risk, the servicing risk, the liquidity risk, and the concentration risk. 

The information to be disclosed should be sufficiently detailed so as to enable the entities to effectively monitor the overall functioning of securitisation markets, trends in underlying asset pools, securitisation structures, interconnectedness among counterparties and the effects of securitisation in the broader macro-financial landscape of the Union. This Regulation is therefore organised into separate sections specifying the information to be disclosed concerning all securitisations and the information concerning public securitisations only.

2. On 3 September 2020, the EU published Commission Implementing Regulation (EU) 2020/1225 of 29 October 2019 laying down implementing technical standards with regard to the format and standardised templates for making available the information and details of a securitisation by the originator, sponsor and SSPE.

The provisions in this Regulation determine the format and templates whereby the originator, sponsor or SSPE of a securitisation are to make available information about that securitisation to various parties as required under Regulation (EU) 2017/2402.

3. On 3 September 2020, the EU published Commission Delegated Regulation (EU) 2020/1226 of 12 November 2019 supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council and laying down regulatory technical standards specifying the information to be provided in accordance with the STS notification requirements.

This Regulation specifies the information to be included in the STS notification. The information to be provided varies according to the different types of securitisations notified.

4. On 3 September 2020, the EU published Commission Implementing Regulation (EU) 2020/1227 of 12 November 2019 laying down implementing technical standards with regard to templates for the provision of information in accordance with the STS notification requirements.

To facilitate effective and harmonised notifications, information regarding securitisations meeting the requirements on simple, transparent and standardised criteria (STS) should be reported to the European Securities and Markets Authority (ESMA) in a consistent format and in accordance with uniform standards.

The provision of information in a harmonised format allows for efficient data collection by ESMA and facilitates consistency checks and assessment of completeness by investors and competent authorities. The format for each of the fields to be reported in a STS notification should therefore be specified and any information submitted to ESMA should be submitted electronically.

5. On 3 September 2020, the EU published Commission Implementing Regulation (EU) 2020/1228 of 29 November 2019 laying down implementing technical standards with regard to the format of applications for registration as a securitisation repository or for extension of a registration of a trade repository pursuant to Regulation (EU) 2017/2402 of the European Parliament and of the Council.

This Regulation introduces a uniform format for applications to the European Securities and Markets Authority (ESMA) for registration as a securitisation repository or for extension of a registration of a trade repository.

6. On 3 September 2020, the EU published Commission Delegated Regulation (EU) 2020/1229 of 29 November 2019 supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards on securitisation repository operational standards for data collection, aggregation, comparison, access and verification of completeness and consistency.

This Regulation specified the details of the procedures to be applied by securitisation repositories in order to verify the completeness and consistency of the information submitted.

7. On 3 September 2020, the EU published Commission Delegated Regulation (EU) 2020/1230 of 29 November 2019 supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the application for registration of a securitisation repository and the details of the simplified application for an extension of registration of a trade repository.

This Delegated Regulation specifies the information to be provided by prospective securitisation repositories in an application for registration.

8. On 4 September 2020, the European Securities and Markets Authority (ESMA) confirmed that the different elements of the new regime under the Securitisation Regulation (SR) will come into force on 23 September 2020.

This follows the publication of seven technical standards implementing the SR in the Official Journal of the European Union. The publication of the technical standards triggers  

• Opening of applications for entities to register as Securitisation Repository (SecRep); and
• Entry into force of new disclosure templates.

Here are several responses to the EC consultation on SFDR and ECB Guide on the management and disclosure of climate-related and environmental risks. 

1. On 1 September 2020, the European fund and Asset Management Association (EFAMA) published response to ESAs consultation on draft RTS under the Sustainable Finance Disclosures Regulation.

EFAMA key recommendations are the following:

• Strike the balance between comparability and meaningful disclosures 
• Take into account the gaps in ESG data 
• Adopt a more principle-based approach to entity-level disclosures 
• Ensure flexibility for pre-contractual, website and periodic product disclosures 
• Clarify the distinction between Article 8 and Article 9 products
• Ensure a realistic timeline for the implementation of the new rules.

2. On 1 September 2020, the International Capital Market Association (ICMA) published response to  ESAs' consultation on the Sustainable Finance Disclosure Regulation.

In its response AMIC, the buy-side voice of ICMA, highlighted several challenges with the implementation measures proposed by the three European authorities, including both firm and product disclosure requirements. For instance, the proposed quantitative disclosure of asset management companies' ESG footprints would not only be of little relevance to investors who invest in products, but it will give them an inaccurate picture of the principal adverse impacts of assets under management (AUM), as many asset classes (sovereign bonds, green bonds, money markets and cash equivalents, currency, some commodities) cannot be evaluated against the proposed KPIs and given that this approach does not consider the materiality concept. In light of the expected delay in adopting the implementation measures and the scale of the issues to be resolved, AMIC once again urges the EC and the ESAs to postpone the application date of SFDR. 

3. On 1 September 2020, the Dutch Banking Association (Nederlandse Vereniging van Banken, NVB) responded to European Commission's consultation on the Sustainable Finance Disclosure Regulation (‘SFDR’). The Dutch Banking Association reaction on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products.

The NVB is in favor of mandatory and uniform ESG disclosures at European level as this can lead to better mutual comparability of ESG information. The regulation offers banks (in their role as asset manager or investment adviser) the scope to take steps in providing information about sustainability to end investors.

In the consultation response, the NVB pays further attention to the short timelines that market parties are confronted with and the association looks for opportunities to better align SFDR with other European legislation and regulations (including NFRD, MiFID 2 and the European sustainability taxonomy). 

The Dutch industry also wonders whether the degree of detail presented is manageable and therefore of added value for end investors. According to Dutch banks, ESG data must be both relevant (or 'material') and available. Not all data is relevant in their opinion and not all data is available for every investment; this is contrary to the reporting of a large number of mandatory indicators.

4. On 2 September 2020, the Association of the Luxembourg Fund Industry (ALFI) published answer to ESA's consultation paper setting out the proposed Regulatory Technical Standards (“RTS”) on content, methodologies and presentation of ESG disclosures.

5. On 3 September 2002, the Irish Funds responded to the Joint Consultation Paper issued by the European Supervisory Authorities (“ESAs”) in relation to ESG disclosures. 

In responding, Irish Funds has proposed:

• A revised Principal Adverse Impact Statement, taking into account intended objectives of the disclosure at entity level, the need for an element of materiality to the disclosures, as well as various data challenges
• Striking an appropriate balance in disclosures between quantitative and qualitative information to facilitate more informative and meaningful disclosure for investors and ensuring that information is disclosed in the appropriate places for the nature of that information (at entity or product level, in the prospectus, on a website, or via periodic disclosure)
• Publication of the proposed pre-contractual disclosures templates as soon as possible to enable preparation
• Achieving greater consistency within the EU sustainable finance regime between similar concepts and requirements in the SFRD and Taxonomy Regulation (‘do no significant harm’ versus ‘principal adverse impact’) so that the overall regime does not become internally divergent and confusing for stakeholders
• Supporting the ESAs’ request for a delay to enable an orderly implementation, given sequencing and timing issues in the regulation. We support a delay in particular where compliance obligations are linked to the final RTS that are now delayed, under what was already a very tight timeframe (as things stand there is little over one month to make the relevant updates to thousands of fund prospectuses, which will challenge regulatory review processes). We support a delay to 1 January 2022 of certain requirements to align with the Taxonomy Regulation (which will also entail prospectus updates) in order to facilitate an orderly implementation of the EU sustainable finance regime.

6. On 25 September 2020, the Dutch Banking Association (Nederlandse Vereniging van Banken, NVB) responded to ECB consultation on its Guide on climate-related and environmental risks.

The NVB agrees with the European Central Bank that institutions should carefully manage climate and environmental risks within the current prudential framework. 

NVB notes that the proposed timeframe with regard to the expectations set is ambitious and invites the ECB to adopt a phased approach per expectation and to review this per bank. NVB asks the ECB to clarify the applicability of the proposals in the manual and also draws attention to the principle of proportionality. In addition, the NVB states that banks currently do not yet have adequate (historical) data to fully map climate and environmental risks. The definition of climate and other environmental risks are also insufficiently clearly delineated, which could lead to misunderstandings and double counting.

7. On 25 September 2020, the European Association of Co-operative Banks (EACB) published its answer to the ECB consultation on Guide on the management and disclosure of climate-related and environmental risks.

The EACB appreciates that the Guide does not impose mandatory standards but (broader) supervisory expectations. However, it should be clarified further to what degree and level of detail those expectations are binding and if so, to what degree they should be applied by different banks. In fact, the approaches to climate- and other environmental risk may differ considerably between banks due to differing size, business model and geographical situation. Banks should therefore have sufficient room to develop methods and procedure for the assessment and management of climate risk according to their needs. The ECB expectations should provide a general orientation in this respect. EACB believes it should be further clarified that the guide is not to be seen as imposing binding standards, but as an orientation for the supervisory dialogue. 

The members of the association also see that the proposed timeline is far too short and should rather be postponed, or at least a much more phased approach should be envisaged.

In addition, EACB would welcome clarification from the ECB on how a proportionate application of the SSM guide looks like and especially what simplifications can be applied to LSIs.

Furthermore, the association would appreciate a clearer specification that, as explicitly mentioned during the industry webinar and the hearing, the Guide would not be anticipating in any way additional capital measures across the board, but remain – as much as possible – capital neutral.

On 24 September 2020, the European Securities and Markets Authority (ESMA) published the Final Report on its inquiry into Cum/Ex, Cum/Cum and withholding tax (WHT) reclaim schemes.

ESMA’s key proposal is that national competent authorities (NCAs) for securities markets should be empowered to share information with the tax authorities, to assist in detecting WHT reclaim schemes.

ESMA’s inquiry has highlighted that WHT schemes are primarily a tax related issue and so a response should be mainly sought within the boundaries of the tax legislative and supervisory framework. As part of its inquiry, ESMA has identified a number of measures adopted by various Member States to limit the risk of WHT reclaims schemes being pursued.

In its Report, ESMA recommends legislative change to remove the legal limitations on NCAs exchanging information acquired from other NCAs with tax authorities. Additionally, a common legal basis should be developed to ensure a consistent and convergent approach on the exchange of information directly acquired by NCAs in their supervisory activity with tax authorities.

Moreover, ESMA has identified best practices extracted from the experience of those NCAs that, thanks to an extended remit under national legislation, carry out supervisory activity for WHT schemes.

The Report also considers the schemes from the perspective of regulated firms’ obligations under the MiFID II legal framework, with particular reference to the obligation for investment firms to ensure that they act honestly, fairly and professionally and in a manner which promotes the “integrity of the market”, but also to the requirements on the suitability of their management bodies, whose members are required to act with integrity.  

ESMA has also considered whether any potential solution to contribute to the detection and prosecution of WHT reclaim schemes could be achieved through an amendment to the Market Abuse Regulation (MAR), and included the outcome of such analysis in a dedicated section in its technical advice to the EU Commission on a potential review of MAR.

On 10 September 2020, the Financial Services and Markets Authority (FSMA) published periodic questionnaire on the prevention of money laundering and terrorist financing.

This circular informs obliged entities on the contents of the information, and the modalities for their transmission, intended to be used to assess the compliance and the efficiency of the system they have implemented for combating money laundering and the financing of terrorism. This information is collected by means of an annual questionnaire, which is an important tool in the exercise of the Financial Services and Markets Authority’s permanent legal supervisory powers in combating ML/TF.

The questionnaire must be submit to the FSMA by 12 October 2020.

On  30 September 2020, the Banque nationale de Belgique (BnB) announced that  the countercyclical buffer rate for credit risk exposures to the Belgian private non-financial sector remains at 0 % for the fourth quarter of 2020.

On 2 September 2020, Febelfin launched a consultation on a revision of the label: " Towards Sustainability".

In 2019, at the initiative of Febelfin, a Quality Standard and a label for socially responsible and sustainable financial products were developed, in consultation with a diverse group of financial stakeholders and civil society. The quality standard tends to raise qualitatively and quantitatively the level of socially responsible and sustainable financial products and to extend its principles to traditional financial products.

This Quality Standard is a normative framework that specifies the criteria that a product claiming to be sustainable must at least meet. The minimum criteria relate to ESG due diligence processes, sustainability policies and selection criteria, exclusion of harmful activities and transparency.

In November 2019, the first “Towards Sustainability” labels were awarded by the independent labelling agency CLA (Central Labeling Agency) to products complying with the Quality Standard.

The quality standard embodied by the Towards Sustainability label is a dynamic and evolving process. The aim is not to remain static but to follow consumer expectations, societal needs, scientific research, data availability and new regulatory initiatives such as the European Commission's sustainability taxonomy. 

This is why the Quality Standard is revised every two years. The consultation period is open until 1 November 2020.

On 22 September 2020, the Chambre des représentants de Belgique published amendments to a draft law amending the Companies Code, aiming at integrating a carbon footprint into the annual reports of companies. 

With this draft law, the authors propose a concrete tool so that all publicly traded companies and financial companies with more than 500 workers provide a carbon balance in their annual reports.

This amendment provides that the first financial year for which companies will have to integrate a carbon footprint into the annual reports a will be 2022, provided that the King has established the list of reference models at least three months before the start of this financial year. 

On 29 September 2020, the Autorité des marchés financiers (AMF) published the findings of its SPOT inspections on the valuation of complex financial instruments.

The main purpose of these targeted inspections was to (i) examine the conditions for using models for valuing or reviewing the valuation of CFIs, and (ii) verify that the risks specific to these instruments are taken into account in the valuation system. This note aims to provide a summary of the SPOT inspections on the valuation of CFIs and shed light on AMCs’ practices in this area, the difficulties they face and possible ways of providing support.

1) Policies and procedures

With one exception, their policies and procedures clearly define the obligations, roles and responsibilities of all those involved in the valuation process. However, none of the management companies had clearly separated what falls under the valuation policy from what falls under the procedures.

2) Valuation models

All entities did have valuation models used for valuation or review of valuation realised from other sources. The summary shows that the valuation models used by most asset management companies are not documented well enough and may include inappropriate modelling assumptions. Those used for review purposes have not always been formally validated by someone who is not involved in building them. In one case, those used for valuation purposes (and not just for review) were not approved by senior management prior to their implementation.

3) Actual process for valuing and reviewing the valuation

In most cases, the valuation process actually used is not totally consistent with the one described in the policies and procedures, either because the specified reference price sources were not used or because the actual process for reviewing the valuation are different from the one described. Regarding the review, the AMF noted that the frequency of use of the model was not always adapted to the nature of insufficiently liquid or unlisted securities. The AMF noted, within one institution, the good practice consisting in the systematic integration of transaction prices in the control of the appropriateness market prices and the model results.

4) Second-level control system

The internal control plans of the companies inspected clearly refer to audits of the processes for valuing and reviewing the valuation of complex financial instruments held by the funds they manage. However, the AMF noted the absence of such controls in 2018 at one institution and, in some cases, controls that covered only some of the instruments.

Version française

Le 29 septembre 2020, l'Autorité des marchés financiers (AMF) a publié les enseignements de ses contrôles SPOT sur l’évaluation des instruments financiers complexes.

L’objectif principal de ces contrôles ciblés a été (i) de contrôler les conditions du recours à des modèles pour l’évaluation ou le réexamen des valeurs d’IFC, et (ii) de vérifier la prise en compte des risques propres à ces instruments dans le dispositif d’évaluation. La présente note a pour objet de restituer une synthèse des contrôles SPOT sur l’évaluation des IFC et d’apporter un éclairage sur les pratiques des SGP en la matière, sur les difficultés qu’elles rencontrent et sur les voies possibles d’accompagnement.

1) Politiques et procédures

A une exception près, les politiques et procédures définissent bien les obligations, les rôles et les responsabilités de chacun dans le processus d’évaluation. Toutefois, aucune société de gestion n’a clairement distingué ce qui relève de la politique d’évaluation de ce qui relève des procédures.

2) Modèles d’évaluation

Toutes les sociétés disposent de modèles d’évaluation utilisés soit pour la valorisation elle-même soit pour le réexamen de l’évaluation effectuée à partir d’autres sources. La synthèse montre que les modèles utilisés pourraient être davantage documentés et appropriés dans leurs hypothèses de modélisation. Ceux utilisés à des fins de réexamen n’ont pas toujours été validés formellement par une personne n’ayant pas participé à leur construction. Dans un cas, les modèles utilisés à des fins d’évaluation (et non pas seulement de réexamen) n’ont pas été approuvés par les instances dirigeantes avant leur mise en œuvre.

3) Processus effectif d’évaluation et de réexamen de l’évaluation

Dans la plupart des cas, le processus effectif d’évaluation n’est pas en total accord avec celui décrit dans les politiques et procédures, soit parce que les sources de prix de référence prévues n’ont pas été respectées, soit parce que les modalités de réexamen de l’évaluation sont différentes de celles décrites. S’agissant du réexamen, l’AMF a observé que la fréquence d’utilisation du modèle n’était pas toujours adaptée à la nature de titres insuffisamment liquides ou non cotés. Elle a constaté, au sein d’un établissement, la bonne pratique consistant à intégrer systématiquement des prix de transaction dans le contrôle de la pertinence des prix de marché et des résultats du modèle.

4) Dispositif de contrôle de second niveau

Les plans de contrôle interne des sociétés examinées mentionnent bien des vérifications portant sur les processus d’évaluation et de réexamen de l’évaluation des instruments financiers complexes à l’actif des fonds. Néanmoins, l’AMF a constaté dans un établissement l’absence de contrôle effectué en 2018 et, dans certains cas, des contrôles n’ayant porté que sur une partie des instruments détenus.

Here is the new EU Capital Markets Union Action Plan together with comments from local authorities.

1. On 29 September 2020, the Autorité des marchés financiers (AMF) commented on the European Commission new action plan for CMU.

The European Commission announced on 24 September 2020 its new action plan for strengthening the Capital Markets Union. For the AMF, the European Commission's action plan comes at a key moment to advance the Capital Markets Union, to build a dynamic, integrated and competitive European market, to contribute to a more efficient supervision model and homogeneous for the benefit of investors and market players.

In the current period, it is essential to meet the financing needs of companies, which have taken on heavy debt to face the crisis. A better orientation of savings towards long-term investments should help. In addition, only deep and diversified capital markets will make it possible in the long term to finance the transition of economies towards a more sustainable model and fully integrating digital technologies.

Among the measures envisaged by the Commission, the AMF supports several of the Commission's proposals:

• measures aimed at offering greater transparency and efficiency, such as the construction of a single point of access to company information for investors or the establishment of a consolidated system for publishing transaction data ( consolidated tape );
• measures to support SME listing;
• measures in favor of more European harmonization, for example in terms of settlement delivery;
• measures likely to encourage long-term investment, in particular through employee shareholding.

The topics of harmonization of supervision, taxation and bankruptcy are key to removing obstacles to cross-border investments. The AMF particularly welcomes the inclusion by the Commission in its action plan of an approach towards more integration of European supervision. Integrated European supervision, which ensures uniform application of the rule in all Member States, is indeed a sine qua non for the construction of a true Capital Markets Union. On these subjects, the political will of the Member States to support the construction of the CMU will be essential.

2. On 30 September 2020, the Association Française des Marchés Financiers (Amafi) published its Letter of information No. 146 on the Capital Market Union.

Launched in 2015, the CMU project is experiencing a sudden acceleration under the double effect of the health crisis and Brexit. The letter brings clarification on the recent development concerning the CMU, MiFID 2 Quick fix, RTS, ESG, SFTR.

On 9 September 2020, the Autorité des marchés financiers (AMF) published the List of foreign markets recognized in France.

This list (updated as of 24 February 2020) is set by order of the Minister of the Economy and Finance pursuant to Articles L. 422-1 and L. 423-1 of the French Monetary and Financial Code (excluding regulated markets). The characteristics of recognized financial markets are specified in Articles D. 423-1 to D. 423-4 (regulatory section) of the Monetary and Financial Code.

Version française

Le 9 septembre 2020, l'Autorité des marchés financiers (AMF) a publié la liste des marchés étrangers reconnus en France.

Cette liste (mise à jour au 24 février 2020) est fixée par arrêté du ministre de l'Économie et des Finances en application des articles L. 422-1 et L. 423-1 du Code monétaire et financier (hors marchés réglementés). Les caractéristiques des marchés financiers reconnus sont précisées aux articles D. 423-1 à D. 423-4 (partie réglementaire) du code monétaire et financier.

On 1 September 2020, the Association Française de Gestion (AFG) announced the new “Technological Innovations Commission” strengthens AFG's involvement in the digital transformation of asset management.

For several years, AFG has supported its members in the dissemination of digital innovations in various forms. It is strengthening its involvement in these subjects by creating the Technological Innovations Commission. This brings together the managers and managers of SGP's digital transformation, illustrating the diversity of the SGP members both in size and in the variety of their management approaches.

This new Commission allows AFG to strengthen its role and its visibility on the challenges of technological innovations, not only vis-à-vis French and European public authorities, but also vis-à-vis the entire management ecosystem ( custodians, developers, distributors, fintech, etc.).

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Le 1 septembre 2020, l'Association Française de Gestion (AFG) a annoncé que la nouvelle "Commission Innovations Technologiques" renforce l'implication de l'AFG dans la transformation digitale de la gestion d’actifs.

Depuis plusieurs années, l’AFG accompagne ses membres dans la diffusion des innovations digitales sous diverses formes. Elle renforce son implication sur ces sujets en créant la Commission Innovations Technologiques. Celle-ci réunit les dirigeants et les responsables de la transformation digitale de SGP, illustrant la grande diversité de nos membres SGP tant par la taille que par la variété de leurs approches de gestion. 

Cette nouvelle Commission permet à l’AFG d’affermir son rôle et sa visibilité? sur les enjeux des innovations technologiques, non seulement vis avis des autorités publiques françaises et européennes, mais aussi auprès de l’ensemble de l’écosystème de la gestion (dépositaires, valorisateurs, distributeurs, fintech, etc.).

On 7 September 2020, the Autorité des marchés financiers (AMF) updated its thematic on the new Retirement Savings Plans (PER).

With the new Retirement Savings Plans (PER), savers have access to time-horizon management, the principle of which is to take advantage of the distant horizon of retirement by taking more risk at the start and less at the end of their retirement. investment.The thematic provides for clarifications on such products of insurance concerning:

• Options of the new retirement savings plan,
• Gradual securing of invested savings according to 2 criteria: retirement age and investor profile.

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Le 7 septembre 2020, l'Autorité des marchés financiers (AMF) a mis à jour sa thématique sur les nouveaux Plans d'épargne retraite (PER).

Avec les nouveaux Plans d'épargne retraite (PER), les épargnants ont accès à la gestion pilotée à horizon dont le principe est de profiter de l'horizon éloigné de la retraite en prenant plus de risques au début et moins à la fin de leur investissement.La thématique prévoit des précisions sur ces produits d'assurance concernant :

• les options du nouveau plan d'épargne-retraite;
• sécurisation progressive de l'épargne investie selon 2 critères : l'âge de la retraite et le profil de l'investisseur.

On 19 September 2020, the Decree No.2020-1148 of 17 September 2020 adapting the legal framework for asset management was published in the Official Journal.

The text makes several adaptations to the regulatory framework for asset management.Pursuant to Law No. 2019-486 of 22 May 2019 on the growth and transformation of companies, the text extends at the regulatory level the application of Directive 2011/61/EU of 8 June 2011 to the three Member States of the EEA (Iceland, Liechtenstein, Norway) and specifies the conditions for investment by professional private equity funds in digital assets.

The text also sets out various provisions designed to simplify applications for authorization of management companies, to open the assets of general purpose investment funds to specialized financing organizations, and to allow open-ended venture capital funds not to be stripped of their regime in the event that a breach of their 50% quota occurs beyond the control of the management company and does not result from the foreseeable maturity of an instrument, to clarify the debt ratios of real estate investment trusts and to set derogatory deadlines for the certification by the Autorité des marchés financiers of the organizations that organize examinations to verify the professional knowledge of investment service providers, portfolio management companies and financial investment advisors.

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Le 19 septembre 2020, le décret n°2020-1148 du 17 septembre 2020 adaptant le cadre juridique de la gestion d’actifs a été publié au Journal officiel.

Le texte procède à plusieurs adaptations du cadre réglementaire de la gestion d’actifs.En application de la loi n°2019-486 du 22 mai 2019 relative à la croissance et la transformation des entreprises, le texte étend au niveau réglementaire l’application de la directive 2011/61/UE du 8 juin 2011 aux trois Etats membres de l’Espace économique européen (Islande, Liechtenstein, Norvège) et précise les conditions d’investissement des fonds professionnels de capital investissement dans des actifs numériques.

Le texte prévoit par ailleurs diverses dispositions destinées à simplifier les demandes d’agrément des sociétés de gestion, à ouvrir l’actif des fonds d’investissement à vocation générale aux organismes de financement spécialisé, à permettre aux fonds communs de placement à risques de type ouvert de ne pas être déchus de leur régime dans le cas où un manquement à leur quota de 50 % intervient indépendamment de la volonté de la société de gestion et ne résulte pas de l’arrivée à échéance prévisible d’un instrument, à clarifier les ratios d’endettement des organismes de placement collectif immobilier et à fixer des délais dérogatoires de certification par l’Autorité des marchés financiers des organismes qui organisent les examens de vérification des connaissances professionnelles des prestataires de services d’investissement, des sociétés de gestion de portefeuille et des conseillers en investissements financiers.

On 24 September 2020, the Association Française de Gestion (AFG) published a Guide: Paris - a place of excellence for asset management in Europe.

The guide presents 10 key points making Paris an important place for asset management in Europe:

1. Largest asset management market 
2. Leader in collective asset management 
3. Largest domestic market for distribution 
4. Unrivalled know-how for innovation 
5. Leadership in sustainable finance
6. Competitive positioning confirmed by high marks 
7. Accessibility to foreign investors
8. Domicile of choice for the provision of services
9. At the cutting edge of Fintech and digital finance
10. A committed regulator

Version française

Le 24 septembre 2020, l'Association Française de Gestion (AFG) a publié un Guide : Paris - un lieu d'excellence pour la gestion d'actifs en Europe.

Le guide présente 10 points clés qui font de Paris un lieu important pour la gestion d'actifs en Europe :

1. le plus grand marché de la gestion d'actifs 
2. leader dans la gestion des actifs collectifs 
3. le plus grand marché intérieur de la distribution 
4. un savoir-faire inégalé pour l'innovation 
5. leadership en matière de finance durable
6. un positionnement concurrentiel confirmé par des notes élevées 
7. accessibilité aux investisseurs étrangers
8. domicile de choix pour la prestation de services
9. à la pointe de la finance Fintech et numérique
10. un régulateur engagé

On 25 September 2020, the Autorité des marchés financiers (AMF) confirmed its compliance with the ESMA’s guidelines on liquidity stress test scenarios for UCITS funds and AIFs and has published a new policy to this effect: DOC-2020-08.

Notification to the ESMA after the publication of official translations
Following the publication of its final report in September 2019, in July 2020, the ESMA published official translations of its guidelines on liquidity stress tests applicable to UCITS and AIFs. These guidelines will take effect on 30 September 2020. On 16 September, the AMF notified the ESMA that it complied with these guidelines through the publication of Position DOC-2020-08.

Clarification of the provisions presented in the collective management directives
These guidelines clarify the provisions set out in the UCITS and AIFM directives as well as their implementing provisions. Although money market funds therefore also fall under these provisions, in the event of conflict, their specific guidelines shall take precedence.

These guidelines are mainly applicable to managers of UCITS and AIFs. They specify in 16 sections how management companies must conduct liquidity stress testing. Provisions also apply to depositaries, who must ensure that these programmes are effectively implemented, as well as to the competent authorities, who may ask managers to send them their liquidity stress tests or any other related information.

Guides with a pedagogical focus
The AMF guide to "the use of stress-tests as part of risk management and the guide published by the Association Française de la Gestion Financière "on compliance with the liquidity risk management system” will help management companies to comply with guidelines. However, they must be considered as pedagogical tools.

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Le 25 septembre 2020, l'Autorité des marchés financiers (AMF) a confirmé se conformer avec les orientations de l’ESMA sur les scénarios de simulations de crise de liquidité pour les fonds OPCVM et FIA et publie une nouvelle doctrine à cet effet : DOC-2020-08.

Notification à l’ESMA à la suite des traductions officielles
A la suite de la publication de son rapport final en septembre 2019, l’ESMA a publié en juillet 2020 les traductions officielles de ses orientations sur les scénarios de simulations de crise de liquidité dans les OPCVM et les FIA. Ces orientations entrent en application le 30 septembre 2020. L’AMF a notifié à l’ESMA le 16 septembre qu’elle se conformait à ces orientations via la publication de la position DOC-2020-08.

Clarification des dispositions présentes dans les directives de gestion collective
Ces orientations viennent clarifier des dispositions présentes dans les directives OPCVM et AIFM ainsi que dans leurs textes d’application. Les fonds monétaires y sont donc également assujettis mais ce sont les orientations qui leur sont spécifiques qui prévalent en cas de conflit.

Ces orientations s’adressent essentiellement aux gestionnaires d’OPCVM et de FIA. Elles viennent préciser sur 16 sections la manière dont les programmes de simulation de crise de liquidité doivent être menés par les sociétés de gestion. Des dispositions s’appliquent également aux dépositaires, qui doivent s’assurer de la bonne mise en œuvre de ces programmes, ainsi qu’aux autorités compétentes, qui peuvent demander à un gestionnaire de lui communiquer ses simulations de crise de liquidité ou toute autre information afférente.

Guides à vocation pédagogique
Le guide AMF sur « l’utilisation des stress-tests dans le cadre de la gestion des risques » et celui de l’Association française de la gestion financière (AFG) « sur la mise en conformité du dispositif d’encadrement du risque de liquidité »  peuvent aider les sociétés de gestion à se conformer aux orientations, mais restent d’abord des outils à vocation pédagogique.

On 23 September 2020, the Association Française des Marchés Financiers (Amafi) published a Position Paper on MiFID II Quick Fix.

Overall, the associations very much welcome the European Commission (EC) “MiFID II quick fix” proposing targeted amendments to the Directive. Concerning Investor Protection issues in particular, the associations fully support the point that overall, many MiFID II requirements are unnecessary or overly burdensome and share the target to recalibrate specific requirements to strike a more appropriate balance between the protection of investors and the provision of high quality investment services, with the ultimate objective to facilitate the financing of the economy.
While most of the proposed amendments in the quick fix fully contribute to achieving this goal, the associations believe that two of them should be re-assessed and pushed further. In this paper, (i) they highlight the main reasons why product governance rules should be amended, and best execution reports suspended and (ii) propose specific amendments detailed in appendix 1.

Version française

Le 23 septembre 2020, l'Association Française des Marchés Financiers (Amafi) a publié une prise de position sur le Quick Fix de MiFID II.

Dans l'ensemble, les associations accueillent très favorablement le " MiFID II quick fix" de la Commission européenne (CE) pour MiFID II, qui propose des modifications ciblées de la directive. En ce qui concerne les questions de protection des investisseurs en particulier, les associations soutiennent pleinement le fait que, globalement, de nombreuses exigences de MiFID II sont inutiles ou trop lourdes et partagent l'objectif de recalibrer les exigences spécifiques afin de trouver un équilibre plus approprié entre la protection des investisseurs et la fourniture de services d'investissement de haute qualité, avec pour objectif ultime de faciliter le financement de l'économie. 

Si la plupart des amendements proposés dans MiFID II quick fix contribuent pleinement à la réalisation de cet objectif, les associations estiment que deux d'entre eux devraient être réévalués et poussés plus loin. Dans le présent document, (i) elles soulignent les principales raisons pour lesquelles les règles de gouvernance des produits devraient être modifiées et les rapports d'exécution au mieux suspendus et (ii) proposent des modifications spécifiques détaillées à l'annexe 1.

On 23 September 2020, the Association Française des Marchés Financiers (Amafi) published a Paper on Mitigating the impact of a hard Brexit: trading obligations under MiFIR.

With less than 4 months to go before the end of the transition period set for Brexit and given the growing likelihood of a hard Brexit, the scope of the share trading obligation (STO) and derivative trading obligation (DTO) is a major source of concern for EU-27 investment firms. From 1 January 2021, UK trading venues will become third-country trading venues and are unlikely to benefit from an equivalence recognition before 31 December 2020.

In such context, one can expect the UK STO and DTO to overlap with those foreseen in MiFIR. The cumulative application of UK and EU laws would have a detrimental impact on the ability of EU-27 investors and intermediaries to transact on instruments subject to both EU and UK rules, and hence would damage the competitiveness of EU-27 entities without contributing to the protection of investors or the integrity of EU markets. Clarifying the scope of the trading obligations is hence of the utmost importance to ensure a level-playing field between EU-27 investment firms and their international competitors, and ultimately to protect the EU’s sovereignty regarding the financing of its economy, in light of the EC and the co-legislators’ ambition to revamp the CMU project.

AMAFI consider the best way to achieve this objective would be to clarify the scope of the trading obligations through the MiFID II quick fix adopted on 24 July the European Commission (EC) as part of a global package bringing targeted amendments to capital market rules in an effort to boost the capital markets’ capacity to support Europe’s recovery.

Version française

Le 23 septembre 2020, l'Association française des marchés financiers (Amafi) a publié un document intitulé "Atténuer l'impact d'un Brexit dur : les obligations de négociation dans le cadre de MiFIR".

À moins de 4 mois de la fin de la période de transition prévue pour Brexit et compte tenu de la probabilité croissante d'un Brexit dur, la portée de l'obligation de négociation d'actions (STO) et de l'obligation de négociation de produits dérivés (DTO) est une source de préoccupation majeure pour les entreprises d'investissement de l'UE-27. À partir du 1er janvier 2021, les systèmes de négociation britanniques deviendront des systèmes de négociation de pays tiers et ne bénéficieront probablement pas d'une reconnaissance d'équivalence avant le 31 décembre 2020.

Dans ce contexte, on peut s'attendre à ce que le STO et le DTO britanniques se recoupent avec ceux prévus dans MiFIR. L'application cumulative des législations britannique et européenne aurait un impact négatif sur la capacité des investisseurs et des intermédiaires de l'UE-27 à effectuer des transactions sur des instruments soumis aux règles de l'UE et du Royaume-Uni, et porterait donc atteinte à la compétitivité des entités de l'UE-27 sans contribuer à la protection des investisseurs ou à l'intégrité des marchés de l'UE. Il est donc de la plus haute importance de clarifier le champ d'application des obligations commerciales afin de garantir des conditions de concurrence équitables entre les entreprises d'investissement de l'UE-27 et leurs concurrents internationaux et, en fin de compte, de protéger la souveraineté de l'UE en ce qui concerne le financement de son économie, compte tenu de l'ambition de la CE et des colégislateurs de revoir le projet de CMU.

L'AMAFI considère que la meilleure façon d'atteindre cet objectif serait de clarifier la portée des obligations de négociation par le biais du quick fix de MiFID II adopté le 24 juillet par la Commission européenne (CE) dans le cadre d'un dispositif global apportant des modifications ciblées aux règles du marché des capitaux dans le but de renforcer la capacité des marchés des capitaux à soutenir la reprise en Europe.

On 11 September 2020, the Autorité des marchés financiers (AMF) informed it complies with the ESMA guidelines on reporting to competent authorities on money market funds.

The AMF has decided to apply ESMA’s requirements for reporting to competent authorities under Article 37 of the Money Market Fund Regulation and has therefore updated position DOC-2018-05, which until now had covered guidance on stress-test scenarios for money market funds, whose results  must be included in the reporting to competent authorities. These guidelines are applicable to asset management companies managing a money market fund authorised in accordance with the Regulation.

The AMF draws the attention of asset management companies to the fact that, given the operational difficulties associated with COVID-19, and the time required to implement the IT infrastructure, the first submissions are currently expected to be made in December 2020. Once the IT infrastructure is in place, asset management companies will be able to submit the reports required since Q1 2020. The deadlines for activating the “test” and “production” platforms are specified in the reporting entity’s guide issued by the AMF.

At the end of this transition period, reporting will be due within 30 days of the end of the reporting period, in accordance with the provisions of Article 37(5) of the MMF Regulation.

Version française

Le 11 septembre 2020, l'Autorité des marchés financiers (AMF) a informé se conformer avec les orientations de l'ESMA sur la déclaration aux autorités compétentes des fonds du marché monétaire.

L'AMF a décidé d'appliquer les exigences de l'ESMA en matière de déclaration aux autorités compétentes en vertu de l'article 37 du règlement sur les OPCVM monétaires et a donc mis à jour la position DOC-2018-05, qui couvrait jusqu'à présent les lignes directrices sur les scénarios de stress pour les OPCVM monétaires, dont les résultats doivent être inclus dans la déclaration aux autorités compétentes. Ces lignes directrices sont applicables aux sociétés de gestion d'actifs gérant un fonds du marché monétaire agréé conformément au règlement.

L'AMF attire l'attention des sociétés de gestion sur le fait que, compte tenu des difficultés opérationnelles liées à la COVID-19, et des délais de mise en place de l'infrastructure informatique, les premières soumissions sont actuellement prévues pour décembre 2020. Une fois l'infrastructure informatique mise en place, les sociétés de gestion pourront soumettre les déclarations requises depuis le premier trimestre 2020. Les délais d'activation des plateformes de "test" et de "production" sont précisés dans le guide du déclarant publié par l'AMF.

A l'issue de cette période de transition, les déclarations devront être effectuées dans les 30 jours suivant la fin de la période de déclaration, conformément aux dispositions de l'article 37, paragraphe 5, du règlement OPCVM.

On 10 September 2020, the Banque de France published an article on Securitisation. 

Securitization is a mechanism for transforming illiquid assets into financial securities. In 2 pages and 2 infographics, the Banque de France presents the essentials about this financial technique: how it works, its role in triggering the 2008 crisis, its usefulness and its limits, as well as key figures.

Version française

Le 10 septembre 2020, la Banque de France a publié un article sur la titrisation. 

La titrisation est un mécanisme permettant de transformer des actifs illiquides en titres financiers. En 2 pages et 2 infographies, la Banque de France présente l'essentiel sur cette technique financière : son fonctionnement, son rôle dans le déclenchement de la crise de 2008, son utilité et ses limites, ainsi que des chiffres clés.

On 4 September 2020, the Association Française de Gestion (AFG) published its response to consultation of ESAs on the RTS of Disclosures.

AFG wishes to draw attention to the lack of availability of relevant ESG data on issuers. The association hopes that the changes to Directive (EU) 2014/95 (NFRD) will lead to an improvement in the availability and reliability of ESG data, and in the meantime a qualitative assessment of the main negative impacts should be allowed.

While consistency and comparability of ESG data is essential, it is also important to strike a balance between the level of comparability and the provision of requested information to end investors. The aggregation of the main negative impact indicators at the entity level does not seem to make sense to end investors and is in fact misleading because it does not take into account the variety of main negative impacts that issuers may face. The aggregation of this data would run counter to the principle of clear, accurate and non-misleading information.
AFG suggestion would therefore be to:

• Provide a qualitative presentation at the entity level on how asset managers assess the main negative impacts. Standards, such as the internationally adopted TCFD , for example comply with SFDR level 1 requirements on “content, methodologies and presentation of information”.
• Then assess the main negative impacts only at the product level from a qualitative or quantitative perspective, instead of communicating rigid and granular quantitative indicators at the entity level. AFG suggests establishing an optional list of indicators, of which asset managers would focus on a limited number, allowing them to use indicators outside of this list, based on their relative importance and relevance.

In this context, the extremely tight deadline for implementing these changes remains of great concern. Consistent deadlines should therefore be allowed for information dissemination requirements, including, inter alia, for the implementation of regulations (EU) 2020/852 (Taxonomy)  and NFRD.

Version française

Le 4 septembre 2020, l'Association Française de Gestion (AFG) a publié sa réponse à la consultation des ESAs sur le RTS Disclosures.

L'AFG souhaite attirer l'attention sur le manque de disponibilité des données ESG pertinentes sur les émetteurs. L'association espère que les modifications apportées à la directive (UE) 2014/95 (NFRD) permettront d'améliorer la disponibilité et la fiabilité des données ESG, et qu'en attendant, une évaluation qualitative des principaux impacts négatifs devrait être autorisée.

Si la cohérence et la comparabilité des données ESG sont essentielles, il est également important de trouver un équilibre entre le niveau de comparabilité et la fourniture des informations demandées aux investisseurs finaux. L'agrégation des principaux indicateurs d'impact négatif au niveau des entités ne semble pas avoir de sens pour les investisseurs finaux et est en effet trompeuse car elle ne tient pas compte de la variété des principaux impacts négatifs auxquels les émetteurs peuvent être confrontés. L'agrégation de ces données irait à l'encontre du principe d'information claire, précise et non trompeuse.

Les suggestions de l'AFG sont donc :

• Fournir une présentation qualitative au niveau de l'entité sur la manière dont les gestionnaires d'actifs évaluent les principaux impacts négatifs. Les normes, telles que le TCFD adopté au niveau international, par exemple, sont conformes aux exigences du niveau 1 du SFDR sur "le contenu, les méthodologies et la présentation des informations".
• Ensuite, évaluer les principaux impacts négatifs uniquement au niveau du produit d'un point de vue qualitatif ou quantitatif, au lieu de communiquer des indicateurs quantitatifs rigides et granulaires au niveau de l'entité. AFG suggère d'établir une liste optionnelle d'indicateurs, dont les gestionnaires d'actifs se concentreraient sur un nombre limité, leur permettant d'utiliser des indicateurs en dehors de cette liste, en fonction de leur importance et de leur pertinence relatives.

Dans ce contexte, le délai extrêmement serré pour la mise en œuvre de ces changements reste très préoccupant. Il convient donc de prévoir des délais cohérents pour les exigences en matière de diffusion de l'information, y compris, entre autres, pour la mise en œuvre des règlements (UE) 2020/852 (Taxonomie) et de la NFRD.

On 29 September 2020, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) published English translation of the Anti-Money Laundering Act (Geldwäschegesetz - GwG).

On 29 September 2020, the Hong Kong Monetary Authority (HKMA) published its Circulars to all authorized institutions (AIs) and all stored value facility (SVF) licensees to inform on the implementation of the “AML/CFT Surveillance Capability Enhancement Project” (AMLS Project), through which the HKMA is strengthening the use of data and Supervisory Technology (Suptech) in its risk-based AML/CFT supervision.

Adapting our AML/CFT supervision to be more proactive and agile will also mean changes for AIs / SVF licensees. The HKMA intends to increase our engagement and data collection, making better use of data to provide more forward-looking assessment of risks, in light of rapid changes in digital activities.  At the same time, the HKMA will be using various Suptech tools to help improve and streamline work processes, increase accuracy and enhance interface with the industry.  

AIs and SVF licensees are encouraged to review the project in the context of, and assess the implications for, their ML/TF risk management systems, particularly with respect to the adoption of Regtech solutions in their AML/CFT programs.  The HKMA will continue to engage AIs and SVF licensees individually and collectively on follow-up actions in accordance with the HKMA's risk-based supervisory approach, including practical guidance, thematic dialogues and sharing sessions as appropriate. 

On 1 September 2020, Securities and Futures Commission (SFC) published the 26th edition of the Code of Conduct for Persons Licensed by or Registered with the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

On 23 September 2020, the Securities and Futures Commission (SFC) Circular to licensed corporations on the Review of internet trading cybersecurity.

In conjunction with its Report on the 2019-20 thematic cybersecurity review of internet brokers, this circular elaborates on the regulatory expectations set out in the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading (Cybersecurity Guidelines) that came into effect in July 2018. 

In addition, given that some vulnerabilities which are unique to mobile trading applications have not been covered in the Cybersecurity Guidelines, this circular also provides guidance on specific system security controls which internet brokers should employ for mobile trading applications as required under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct).

On 11 September 2020, the Securities and Futures Commission (SFC) published Circular on implementation of changes to the open-ended fund companies regime, together with the final revised version of the Code on Open-ended Fund Companies (OFC Code).

To implement and provide further guidance in relation to the enhancements to the OFC regime, the following documents have been updated and published on the SFC website:
(a)  an updated Information Checklist for Application for Authorization of Unit Trusts and Mutual Funds under the Revamped Process;
(b)  an updated Information Checklist for (i) a Change of Director of a Public Open-ended Fund Company; or (ii) a Change of Name of a Public Open-ended Fund Company or a Publicly Offered Sub-fund of an Open-ended Fund Company;
(c)  an updated Information Checklist for Application for Registration of a Private Open-ended Fund Company or Establishment of a Privately offered Sub-fund of an Open-ended Fund Company;
(d)  an updated Information Checklist for Application for Approval of Appointment of Director, Custodian or Investment Manager of a Private Open-ended Fund Company;
(e)  an updated Template of Instrument of Incorporation for Umbrella Private Open-ended Fund Company; and
(f)  an updated Frequently Asked Questions relating to Open-ended Fund Companies (please refer to new Questions 3A, 7A and 16A and updated Questions 2, 4, 7, 12 and 22).

On 2 September 2020, the Securities and Futures Commission (SFC) concluded the consultation on changes to the open-ended fund companies regime and further consults on customer due diligence requirements.

On 2 September 2020, the Securities and Futures Commission (SFC) released consultation conclusions on enhancements to the open-ended fund companies (OFC) regime, including the removal of all investment restrictions for private OFCs. The SFC will also allow licensed or registered securities brokers to act as custodians for private OFCs and introduce a statutory mechanism for the re-domiciliation of overseas corporate funds to Hong Kong.

The removal of the investment restrictions and expansion of the custodian eligibility requirements will take immediate effect upon gazettal of the revised Code on Open-ended Fund Companies (OFC Code). A six-month transition period will be provided for existing private OFC custodians to make adjustments to comply with the new safekeeping requirements. The re-domiciliation mechanism will come into effect upon completion of the legislative process.

The SFC is further consulting on the customer due diligence requirements for OFCs to better align them with the practices adopted by other funds in Hong Kong. The public is invited to submit their comments to the SFC by 5 October 2020.

On 29 September 2020, the Securities and Futures Commission (SFC) published Circular on the electronic dissemination of investment product documents, which is provided to: 

(a) issuers of investment products authorized by the SFC under Part IV of the Securities and Futures Ordinance (SFC-authorized Products); and   

(b) intermediaries who hold investment products on behalf of their clients.  

Issuers of SFC-authorised Products are required under their constitutive documents3 and the applicable legal and regulatory requirements to issue and disseminate to investors product documents such as offering documents, notices, announcements and financial reports (Product Documents). 

In view of the increasing use of electronic media, issuers and intermediaries which disseminate paper Product Documents may wish to disseminate these documents electronically. Examples of electronic dissemination (e-dissemination) arrangements include: 

(a) providing electronic copies of documents to investors; or 

(b) notifying investors electronically 

   (i) that the documents are accessible online and  

   (ii) where the electronic documents can be accessed. 

Prior to adopting e-dissemination arrangements, issuers and intermediaries must ensure that they have in place proper transitional arrangements which comply with applicable laws and requirements.

On 24 September 2020, the updated version of article 4 of Limited Partnerships Ordinance (Cap. 37) was published on the Official Gazette of Hong Kong.

The update relates to the Registration of limited partnership required 

(1) Every limited partnership (other than a non-Hong Kong limited partnership as defined by section 2 of the Limited Partnership Fund Ordinance (Cap. 637)) must be registered as such in accordance with the provisions of this Ordinance, or in default thereof it shall be deemed to be a general partnership and every limited partner shall be deemed to be a general partner.

(2) Despite subsection (1), a limited partnership fund, as defined by section 2 of the Limited Partnership Fund Ordinance (Cap. 637), is not eligible to be registered under this Ordinance.

On 8 Sep 2020, the Houses of the Oireachtas (Ireland's national parliament) published Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2020.

The primary purpose of the Bill is to amend the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 in order to transpose, in part, Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLD 5), into national law, which:

• improves the safeguards for financial transactions to and from high-risk third countries and sets new limits on the use of anonymous pre-paid cards; 
• brings a number of new ‘designated bodies’ under the existing legislation; 
• enhances the customer due diligence requirements; 
• prohibits credit and financial institutions from creating anonymous safe-deposit boxes; 
• provides for the issuing of Ministerial guidance in relation to ‘prominent public functions’  in respect of politically exposed persons (PEPs) and 
• includes a number of technical amendments to other provisions of the Act. 

On 9 September 2020, the Houses of the Oireachtas (Ireland's national parliament) published Preparing for the end of the transition period : Brexit readiness action plan - September 2020 from Irish Government.

This Brexit Readiness Action Plan supports and promotes the necessary preparations for the substantial and enduring changes that will arise at the end of the transition period in less than four months’ time, on 31 December 2020. In many respects it draws on the Government’s Brexit Contingency Plans of December 2018 and July 2019. 

Regarding Financial Services, the government will:

• Continue to work closely with the CBI and NTMA through the Financial Stability Group as required, and through the Brexit Contact Group to limit the impact of key identified risks in the Irish financial system and review progress on readiness planning. 
• Review whether COVID-19 has any knock-on impacts on readiness of the financial system for the end of the transition period, or on progress by firms who have not yet completed readiness planning.  
• Continue to monitor any potential new risks that emerge as we get closer to the end of transition and work closely with financial services firms to ensure that they have contingency plans in place so as to minimize the impact on customers, investors and markets. 
• Continue to encourage timely assessments and/or decisions by the European Commission on matters such as equivalence, including in those areas where equivalence will not be granted, to allow clarity for firms planning for the end of the transition period.

Businesses should now: 

• Finalize your readiness and contingency planning and take preparatory actions in accordance with the European Commission guidance. 
• Assess current arrangements and develop plans to ensure compliance with GDPR and other relevant EU Directives and Regulations for data transfers to third countries in the event of no UK data adequacy decision being made.

On 1 September 2020, the Central Bank of Ireland published a Guidance Note on Money Market Fund Regulation (MMFR) Reporting.

The purpose of this Guidance Note is to provide information and direction on the completion of MMFR Reporting by UCITS Management companies and Alternative Investment Fund Managers regarding:

(i) The “Money Market Fund Returns” for authorised Money Market Funds (MMFs) under Article 37 of the MMFR including related provisions as per the “ESMA Guidelines on the reporting to competent authorities under Article 37 of the Money Market Fund Regulation”;

(ii) Ad-hoc stress test reporting under Article 28 of the MMFR;

(iii) Other ad-hoc reporting under MMFR outside of points (i) and (ii); and

(iv) Additional reporting required by the Central Bank.

On 22 September 2020, CONSOB published Resolution no. 21508 containing amendments to Regulation no. 11971/1999 (the “Issuers' Regulations”), on the admission to trading of reserved open AIFs, on distribution of AIFs and advertising activities.

The following changes were introduced in the Issuers' Regulation: 

• the introduction of a specific discipline for the prospectus needed for the admission to trading of reserved open-ended AIFs
• the coordination of the regulation on the prospectus with the one concerning marketing; the coordination was realised both on a domestic as well as cross-border basis, in line with Directive 2011/61 / EU (“AIFMD”) and related implementation provisions.

On 22 September 2020, CONSOB published Resolution no. 21507 about the determination for the year 2020 parameters that can pose risks for the correctness of financial information provided for by art. 89-quater of regulation no. 11971/1999 (the “Issuers Regulation”). 

This regulation and respective risk parameters specifically concern financial information disclosed to the public by listed issuers and by listed issuers having Italy as their home Member State.

Below the risk parameters indicated for each type of data.

(1) For the economic, equity and financial data, the following elements should be considered: trends in operating margins, information concerning the creditworthiness of the issuers, the relationship between market capitalization and book equity.

(2) for the reports received from the control body of the issuer and from the issuer's auditor, the following indicators should e considered: communications sent to CONSOB by the control body, reports of reprehensible facts, negative judgments contained in the reports of the auditing company,  reports relating to the functioning of the internal control system.

(3) for activities on securities, the following elements should be taken into account: the trend of the shares' price, the market capitalization, the volatility of the share prices.

(4)  for information received from administrations or interested parties, the following indicators should be considered: the information received from public administrations, by Banca d'Italia, by the national and foreign administrative authorities and by the judicial authority as well as other significant information provided by interested parties.

(5)  for further parameters not expressly identified, the following indicators should be considered: CONSOB's inspection activities that identified legally relevant aspects, or for which CONSOB has reported critical issues regarding completeness or correctness of information, the presence of significant extraordinary transactions, the time on which previous analyses were realized. 

In this resolution, CONSOB also indicated the criteria for the random selection of the issuers to be subjected to this control.

On 3 September 2020, CONSOB  declared to the European Authority for Financial Instruments and Markets (ESMA) its intention to comply with the guidelines on disclosure to the competent authorities applicable to common monetary funds, provided for by ESMA34-49-173, published on 22 June 2020. With this communication, Banca d'Italia implements the guidelines.

The guidelines provide instructions and technical specifications for compiling the reports that the managers of Monetary Funds must send to the National Competent Authority pursuant to:

• art. 37 of EU Regulation 2017/1131 of the European Parliament and of the Council of 14 June 2017,  and 
•  the implementing technical standards provided by the Commission, Implementing Regulation (EU) 2018/708 of 17 April 2018. 

Reports should be sent on a quarterly basis for monetary funds whose managed assets are equal to at least EUR 100,000,000. An annual frequency is instead foreseen for other monetary funds. 

The deadline for sending falls within 30 days following the expiry of the quarter (or year) of reference. Reports referring to the first two quarters of 2020 should be sent by 30 September with a note dated 31 March 2020.

On 11 September 2020, Banca d'Italia issued a document on the implementation of  EBA/GL/2020/11 and EBA/GL/2020/12. 

These guidelines provide clarifications and indications on supervisory reporting schemes and public disclosure of information, in light of changes introduced by EU regulation 873/2020 following COVID-19 pandemic (i.e. CRR Quick-fix).

The guidelines implemented, more specifically, concern the following points, introduced by the Quick-fix:

a) The leverage ratio calculation which involves:
i) the temporary exclusion of exposures towards central banks from the calculation of the total exposure of an institution (article 500 ter CRR);
ii) the early entry into force, with respect to the provisions of CRR2, of the regulatory treatment envisaged for the purchases and sales of "standardized contracts".

b) The calculation of capital requirements for credit risk:
Regarding the calculation of capital requirements for credit risk, a more favorable prudential treatment is envisaged for: SMEs; for infrastructure exposures on loans granted to pensioners and employees (with permanent contracts), if these loans are granted based on their pension or salary (i.e. their pensions or salary is the guarantee for the loan).

c) Reporting related to own funds
For the purpose of reporting related to own funds, the following elements are envisaged:
i) the introduction of a temporary prudential filter for unrealized gains and losses on financial assets valued at fair value, with an impact on the overall profitability towards the counterparties
ii) amendments to the transitional provisions for mitigating the impact of IFRS 9 on CET1 that provide for (1) an increase in the percentage of expected losses to be reintegrated into own funds and (2)  a two-year extension of the transitional period.

Lastly, based on these guidelines, the following information should be reported: a specific disclosure on the amount of exposure to central banks subject to exclusion and the related effect on the leverage ratio.

On 10 September 2020, the Italian government provided preliminary approval to dispositions aiming to align the national regulatory framework to IDD.

The legislative decree introducing supplementary and corrective provisions to the legislative decree of 21 May 2018 no. 68, implementing Directive (EU) 2016/97 of the European Parliament and of Council of 20 January 2016 on insurance distribution. 

The text adapts the provisions transposing the directive, mostly with the aim of improving coordination with current legislation,  while maintaining the same delegation rules and purposes.

On 6 September 2020, CONSOB shared transaction reporting guidelines based on MIFIR.

The guide targets investment firms, managers of trading entities and authorized reporting mechanisms (ARMs) and provides operational indications for the reports required by Regulation (EU) no. 600/2014 (MiFIR). 

The guide covers transaction reporting obligations due by investment firms and asset management companies that carry out transactions in financial instruments and is articulated over three sections, concerning respectively: 

1. 1the scope of the reporting obligations, and related timing; 
2. 2the procedure for obtaining authorization from the ARMs;
3. 3the technical / IT aspects of sending reports.

On 4 September 2020, the Commission de Surveillance du secteur financier (CSSF) published its Annual Report 2019.

In 2019, the sector has faced great challenges: low profitability, outdated information systems, training staff on the new environment and on expectations of customers and investors, new market entrants and new risks. The CSSF has embarked on a modernisation programme since 2018, called CSSF 4.0 with four goals: effectiveness, transparency, improved interaction with the market and risk management.

The five priority action areas of the CSSF:

1) Consumer and investor protection: the authority ensures, in particular, compliance with the obligations on transparency and under MiFID II. In 2019, the regulator prohibited the sale of binary options to uninformed customers and issued restrictions regarding contracts for differences and the CSSF pursued its efforts in financial education.

2) Financial innovation and digitalisation: the digitalisation and FinTech are topics of importance to the CSSF.  In 2019, a particular focus was given to ICOs, the new payment services under PSD2 and the KYC utilities. The regulator remains vigilant on risks associated with digitalisation and with the increasing dependence on information systems, as well as on the major risk of cybercrime.

3) Fight against money laundering and terrorist financing: the supervision in this area is carried out on a risk-based approach and will be extended to professionals dealing with virtual assets pursuant to AMLDV. The CSSF refined its risk-based approach by publishing sectoral analyses, in particular in the field of private banking, a sector which was identified as high risk.

4) The review of business models: the CSSF supervises the profitability risk associated with business models in the framework of the protection of depositors and investors.

5) Risks associated with virtual currencies: the work to gain insight on the banks’ situation with respect to the incorporation of climate-related and environmental risks in their business strategy, their risk management and their governance frameworks will continue in 2020 with the communication of supervisory expectations. A substantial effort to educate consumers, investors and financial sector players is needed and it is part of the CSSF’s financial education mission.

Most frequent on site supervision in 2019:

• IT and cybersecurity risks
• Conduct risk including money laundering and terrorist financing
• Compliance with the regulatory requirements provided by EMIR
• Circular 02/77 on the protection of investors in case of NAV calculation error and correction of the consequences resulting from non-compliance with the investment rules applicable to undertakings for collective investment
• Implementation of prudential processes (TRIM) surrounding the use of internal models by SI (risk management)
• Internal controls on AML/CTF topics (transfer agent)
• Depositary bank, central administration and MiFID regulation.

On 1 September 2020, the Association of the Luxembourg Fund Industry (ALFI) published response to ESMA consultation on Guidelines on Article 25 of Directive 2011/61/EU (“AIFMD”) .

The consultation aimed to promote supervisory convergence in the way National Competent Authorities assess how the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system, as well as how they design, calibrate and implement leverage limits.

On 14 September 2020, the Commission de Surveillance du secteur financier (CSSF) published the coordinated version of the Circular CSSF 17/650 concerning the predicate tax offense coordinated following the publication of Circular CSSF 20/744 providing new indicators to be taken into account in the context of collective investment activities.

Circular CSSF 20/744 brings amendments concerning only the Annex 1 of Circular CSSF 17/650 which provides new indicators to be taken into account in the context of collective investment activities.

Circular CSSF 20/744 has reminded the professionals under its AML/CFT supervision its expectation to take these new indicators, where relevant, into account in their risk assessment and when designing risk mitigation measures proportionate to their risk exposure within the specific context of collective investment activities.

On 23 September 2020, the Association of the Luxembourg Fund Industry (ALFI) published Guidelines on the valuation process for AIFMs. The document is only accessible to ALFI's members. 

On 29 September 2020, the Commission de Surveillance du secteur financier (CSSF) published CSSF 20/752 on the implementation of ESMA Guidelines on Liquidity Stress Testing in UCITS and AIFs.

The purpose of this Circular is to inform investment fund managers that the CSSF applies the Guidelines of the European Securities and Market Authority (ESMA) on Liquidity Stress Testing in UCITS and AIFs (Ref. ESMA/3439-897 EN)”, initially published on 2 September 2019, and integrates those Guidelines into its administrative practice and regulatory approach with a view to promote supervisory convergence in this field at the European level. 

The Guidelines aim in particular at increasing the standard, consistency and, in some cases, the frequency of Liquidity Stress Testing already undertaken and promote convergent supervision of LST by national competent authorities within the EU. 

On 9 September 2020, the Netherlands announced the Banking Data Referral Portal Act and Decree will enter into force on 10 September.

On 4 September 2020, the De Nederlandsche Bank (DNB) provided for an overview of Brexit readiness.

As of January 1, 2021, the transition period will end after Brexit. For the time being, no agreement has been reached between the EU and the UK on the design of the future relationship from 2021. Even with an agreement, however, it is expected that many British service providers will no longer be able to serve their EU customers cross-border in the way they are used to.

The current letter from the Parliament states that for the time being the government sees no need for a (temporary) exemption for services provided by investment firms established in the UK to take effect after 2020. The European Commission also recently announced the forthcoming period not to publish an equivalence decision in this area.

This means that British service providers - without taking additional measures - will no longer be able to provide many of their services to Dutch professional customers, including banks, after 2020. This applies, for example, to investment services related to ongoing non-cleared OTC derivative contracts. Data from DNB shows that the derivative exposures of Dutch professional parties to British counterparties are still high, despite a recent decrease. The vast majority of these Dutch parties consist of financial institutions, including banks.

In view of these developments, DNB is calling on banks - insofar as they have not yet been done - to enter into discussions with British investment service providers in good time to prevent bottlenecks in the service provision from 1 January 2021. It is important to verify that British investment service providers have the correct permits as of 2021 to be able to continue to provide services to Dutch professional clients, for example by transferring (derivative) contracts to the EU entities of British service providers. 

On 8 September 2020, the Netherlands published the amendments to the  Financial Supervision Act with the Capital Requirements Implementation Act 2020.

This legislative proposal provides for the amendments necessary to implement CRD V and CRR II. The amending directive entered into force on 27 June 2019 and the transposition into national law must be completed by 29 December 2020. The amending regulation will for the most part become applicable on 28 June 2021.  The changes include a review of the capital requirements for banks and investment firms. 

Parliamentary paper No. 3 of the file (35559) contains an explanatory note of the amendments (https://zoek.officielebekendmakingen.nl/kst-35559-3.html).

On 11 September 2020, the AFM informed on the new AFM portal available for financial institutions from 14 September.

The AFM will open its new portal from 14 September. The AFM Portal is the new meeting place for the services and forms of the AFM and thus replaces the Digital Counter. The new portal is more in line with the latest technological developments.

Registration necessary
Logging into the new portal will soon not be possible with an existing AFM ID. One need to create a new account on the portal. Take into account crowds and therefore a (long) waiting time.

Good to know
The Digital Counter will remain available until September 11, 2020. Forms / services already completed but not yet submitted will not be transferred to the new portal in the future. For the time being, the Digital Counter will only remain available for the DVD generator.

AFM therefore publishes Q&As on its AFM Portal.

On 25 September 2020, the Federal Data Protection and Information Commissioner (FDPIC) announced the Parliament voted for a total revision of the Federal Act on Data Protection (FADP). It was able to resolve the remaining differences standing in the way of more up-to-date protection of privacy.

The FDPIC welcomes the completion of the total revision of the Data Protection Act that the Federal Council submitted for parliamentary deliberation in a dispatch three years ago. This enhances the Swiss public’s right to privacy and to determine how their data are used, better reflecting today’s digital reality.

The FDPIC will offer a more detailed statement on the revised law once the ongoing referendum period has expired.

On 8 September 2020, the Federal Data Protection and Information Commissioner (FDPIC) considered the CH-US Privacy Shield does not provide adequate level of data protection.

Following his annual assessment of the Swiss-US Privacy Shield regime and recent rulings on data protection by the Court of Justice of the European Union (CJEU), the FDPIC has reassessed the data protection conformity of the Privacy Shield regime.

After closely analysing the regime, the FDPIC concludes in his position paper, although it guarantees special protection rights for persons in Switzerland, it does not provide an adequate level of protection for data transfer from Switzerland to the US pursuant to the Federal Act on Data Protection (FADP).

As a result of this assessment, which is based on Swiss law, the FDPIC has deleted the reference to "adequate data protection under certain conditions" for the US in the FDPIC’s list of countries. Since the FDPIC’s assessment has no influence on the continued existence of the Privacy Shield regime, and those concerned can invoke the regime as long as it is not revoked by the US, the comments on the Privacy Shield in the list of countries will be retained in an adapted form.

On 24 September 2020, the FINMA published the regulatory projects table and their status as of  24 September 2020.

The projects concern:

• Financial services and financial institutions
• Disclosure of climate-related financial risks
• Direct transmission
• Basel III
• Liquidity risks
• Supplementary health insurance.

On 28 September 2020, the FINMA published the Conduct rules for the provision of financial services (suitability) form according to the FinSA for :

• Portfolio management
• Investment advisory services (portfolio-based investment advisory services and investment advisory services for individual transactions)
• Pure execution of transactions (execution-only).

These rules are applicable to audit periods beginning on or after 1 January 2020, as long as the institution applies the behavioural rules of the LSFin before the expiry of the transitional period.

On 14 September 2020, the Swiss Funds & Asset Management Association (SFAMA) published its feedback on ESMA letter concerning the delegation of portfolio management functions in context of AIFMD review.

The ESMA published a letter addressed to the European Commission concerning the review of the Alternative Investment Fund Managers Directive (AIFMD) on 18 August 2020. The letter covers topics including the delegation of portfolio management functions to third parties and the question of substance. In particular, it states that delegation to third parties outside the EU is likely to increase following Brexit, which in ESMA’s view may increase operational and supervisory risks and raise questions as to whether AIFs and UCITS can still be effectively managed by the licensed AIFM or UCITS management companies.

ESMA’s statements have created debate among the SFAMA members. They should be assessed first and foremost in the context of the latest political developments, especially as regards Brexit. 

The association firmly believes that the existing delegation model functions well and that it is very important not only for asset managers from third countries, but also for the success of the AIFM/UCITS model itself as well as for markets and investors within the EU. It is therefore essential to retain it. The SFAMA will continue to keep a close eye on developments and play an active role in this discussion via the usual EFAMA channels.

The association will keep its members up to date on developments, in particular at our next information events in November.

On 1 September 2020, the FINMA published the list of authorized foreign collective investment schemes for offer to non-qualified investors.

Foreign collective investment schemes approved for offering in Switzerland are not subject to the supervision of the FINMA, but are supervised by the supervisory authority of their respective country of origin. The provisions applicable there with regard to supervision as well as organization and investment policy of the collective investment schemes are generally equivalent to those in Switzerland, but may differ in detail. 

BACKGROUND

Since Switzerland does not have access to the European Union (EU) market, the country is less well known as a market of products. Plus, the legislation that regulates AIF products it not as attractive in Switzerland than in other countries.In recent years, various EU Member States have introduced types of funds that no longer require the approval of the supervisory authority. This is the case of the reserved alternative investment fund (FIAR), available for example in Luxembourg. No longer subject to approval, these funds can be put on the market quickly and cheaply. Moreover, most of them offer a high degree of investment flexibility and are particularly suitable for alternative investments and innovative strategies. The FIAR, in particular, is popular in Switzerland among both fund distributors and investors.

Switzerland therefore proposed amendment to the Collective Investment Schemes Act to provide Switzerland with a type of fund that is exempt from the obligation to obtain authorization or approval.

WHAT'S NEW?

On 14 September 2020, the Federal Act on Collective Investment Schemes was published in the Official Journal. 

The aim of the draft law is to promote innovation and strengthen the competitiveness of the Swiss investment fund market. The draft law amends the Law of 23 June 2020 and establishes in Switzerland a type of investment fund exclusively reserved for qualified investors and exempt from the obligation to obtain authorization or approval (similar to the the FIAR in Luxembourg). Although L-QIF will not be subject to FINMA supervision, the institution responsible for its administration will be the FINMA.

1) The Named Limited Qualified Investor Fund (L-QIF):

• offers qualified investors a Swiss solution that can replace equivalent foreign products
• increases the volume of collective investments deposited in Switzerland 
• will maintain a greater share of value creation in Switzerland

2) Limited potential of the L-QIF:

• L-QIF will not be able to eliminate disadvantages that Swiss funds suffer today due to the restriction access to the EU market and withholding tax law
• L-QIF will not be a new form of collective investment in its own right, it can only take the form of an existing Swiss collective investment
• As the L-QIF will not be supervised, there will be particular requirements imposed on the administration of the L-QIF, which must be carried out by specific institutions subject to the supervision of FINMA.

The draft law guarantees investor protection, L-QIF will be exclusively reserved for qualified investors:

• Market participants who possess the required professional qualifications
• Market participants who receive professional advice 
• Market participants who, in view of their assets, do not require special protection.

WHAT'S NEXT?

In accordance with legal requirements, Swiss open-ended funds must maintain an appropriate relationship between investments, risk diversification, investor base and redemption frequency on the one hand, and liquidity on the other. Flexible investment regulations will encourage innovation and make qualified investors, as well as management, collective asset managers and custodian banks more responsible. At the same time, the reduction of barriers to market access will stimulate competition. Financial stability should not be endangered, since the permissible debt ratio for an L-QIF will be limited and Swiss investors are already offered equivalent foreign products, in particular FIARs.

On 1 September 2020, the FINMA published the list of authorized Swiss collective investment schemes.

On 25 September 2020, the Swiss Funds & Asset Management Association (SFAMA) and Asset Management Platform Switzerland announced they join forces.

Switzerland is an important centre for asset management, both within Europe and worldwide. With a view to strengthening its position further, the Asset Management Platform (AMP) Switzerland and the Swiss Funds and Asset Management Association SFAMA will merge in autumn 2020 to form the Asset Management Association Switzerland.

The merger is intended to strengthen the systematic focus on asset management even further and to underscore its economic importance. The aim of creating and maintaining a favourable political and regulatory environment for the industry in Switzerland remains unchanged.

On 25 September 2020, the Swiss Funds & Asset Management Association (SFAMA)  published a Study 2020 – An Overview of Swiss Asset Management.

The Institute of Financial Services Zug IFZ, part of Lucerne University of Applied Sciences and Arts, and the Asset Management Association Switzerland have produced the third edition of the Swiss Asset Management Study providing a comprehensive overview on asset management in Switzerland. It shows that the sector has assets under management totalling CHF 2’519 billion which corresponds to a year-on-year growth of 16.5 percent. Net new asset inflows in 2019 are estimated to be almost CHF 100 billion. The study shows that Switzerland continues to offer good conditions for the asset management industry and asset management has established itself as an important pillar of the Swiss financial sector. Relative to last year’s sentiment survey, Swiss-based asset managers no longer see regulation as the most pressing challenge while specialization and sustainable investments are still evaluated as the most promising opportunities.

On 11 September 2020, the Federal Council adopted an amendment to the Liquidity Ordinance (LiqO). The new provisions, which enter into force on 1 July 2021, introduce a net stable funding ratio (NSFR) aimed at ensuring the stability of banks' funding over the long term.

The Liquidity Ordinance transposes the requirements of the Basel Committee on Banking Supervision into Swiss law. The requirements concerning the liquidity coverage ratio (LCR) have already been implemented. The revised LiqO will now allow the Basel Committee's remaining requirements on banks' long-term funding to be implemented.

Owing to delays in implementing the NSFR in the European Union and the United States, the Federal Council had hitherto postponed the ratio's implementation in Switzerland. The EU has now scheduled its implementation of the NSFR for June 2021, meaning that the NSFR will now apply in most states. The Federal Council has therefore decided that it too will put the corresponding ordinance amendments into force with effect from mid-2021.

The integration of the NSFR into the LiqO is the result of cooperation between the Administration and the relevant industry sectors. It was already put out for consultation in 2017, when its content was welcomed. Since then, no material changes have been made other than minor adjustments to reflect international developments.

On 8 September 2020, Switzerland announced its fourth financial dialogue with United Kingdom.

The discussions between senior officials from the competent authorities focused on the joint statement signed by the finance ministers of the two states in June 2020, which aims to deepen bilateral cooperation in the area of financial services. 

The representatives of both sides took note of the technical progress made since the signing of the joint statement. They agreed that the technical work should continue and that the next steps in the cooperation would be decided during a meeting to be held before the end of 2020. Other topics such as sustainable finance, the mutual recognition of stock markets and cooperation in multilateral fora were also addressed during this dialogue.

Switzerland has been pursuing the so-called "mind the gap" strategy in relation to the UK since 2016. The aim of this strategy is to maintain the reciprocal rights and obligations that exist between the two states and, where possible and appropriate, to develop the relationship further after the end of the UK's transition period vis-à-vis the European Union.

On 15 September 2020, the UK Statutory Instrument S.I. 2020 No. 991 - The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 was published on the UK legislation.

The Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) to implement amendments made by EU Directive 2018/843 (AMLD 5).

The main changes are made in order to transpose provisions introduced by the AMLD 5 concerning the UK’s register of express trusts, in particular,

• Expanding the scope of the register, and 
• Requiring that information on the register is made available in certain circumstances to those with a legitimate interest. 

The other changes concern:

• Correspondent banking, 
• Reporting of discrepancies in beneficial ownership information, 
• Customer due diligence on publicly listed companies, 
• The use of confidential information, 
• Registration deadlines for some firms and directions to crypto-asset businesses. 

On 17 September 2020, the Financial Conduct Authority (FCA) published its explanation on what firms need to know about LIBOR transition.

The FCA expects Boards and senior managers to put necessary arrangements in place to identify their firms’ exposures to LIBOR and to ensure their transition away from LIBOR, before the end of 2021, does not harm their clients or how markets operate.

Where firms identify LIBOR transition will affect the finances and product choices available to their clients or require a contract amendment or renegotiation, the FCA expects firms to treat clients fairly and to communicate with them in a clear and timely manner. As part of this communication, firms should:

• take care in describing to the customer the risks associated with LIBOR ending and how it will affect them
• be aware that there is a risk that some customers may not fully understand the implications.

On 28 September 2020, the Bank of England (BoE) informed that the FCA and BoE support and encourage liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 27 October this year. 

The intention is to facilitate the further shift in market liquidity toward SONIA swaps, bringing benefits for a wide range of end users and other market participants as they move away from use of LIBOR.

The market for SONIA derivatives is already well-established. These changes are intended to support a further move of new sterling swaps trading to SONIA and reduce risk by limiting new LIBOR exposures. SONIA derivatives are likely to be the appropriate market convention for most contracts, particularly those maturing after 2021. The number of cases where LIBOR contracts are preferred by market participants is expected to reduce significantly as the end of 2021 approaches. Where new LIBOR transactions are entered into, market participants should be aware of the risks and take appropriate steps to establish that their clients are too.

On 4 September 2020, the Working Group on Sterling Risk-Free Reference Rates published a number of papers intended to support firms in the transition of their existing sterling LIBOR-linked contracts, including: 

• A paper on the active transition of legacy loan products; 
• A paper on how issuers might consider converting existing bonds and securitisations, including the process of consent solicitation; and 
• A recommendation on the appropriate ‘credit adjustment spread’ to be used in fallbacks for sterling cash market products referencing sterling LIBOR. 

The statement of recommendation follows a consultation launched in December 2019, which identified a strong consensus in favour of the historical five-year median spread adjustment methodology as the preferred methodology for credit adjustment spread calculations across both cessation and pre-cessation triggers for cash products maturing beyond end-2021.  This maintains consistency with ISDA’s approach for derivatives.

Here are several publications concerning the UK regime during the Brexit transitional period.

1. On 2 September 2020, the Prudential Regulation Authority (PRA) published Letter to chief executive officers of all PRA-regulated firms preparing for the end of the transition period and for entering the Temporary Permissions Regime.

This letter is a reminder in relation to firms’ operational preparations for the end of the transition period, which is due to end at 11pm on Thursday 31 December 2020. At this point the Temporary Permissions Regime (TPR) will take immediate effect. Firms that have submitted a valid Notification or submitted a Part 4A application (and not subsequently withdrawn it) will automatically enter the TPR. During the TPR firms will have a deemed Part 4A permission to carry on your existing activities for up to a maximum of three years from the end of the transition period.

If the firm is passporting and already has a top-up permission, the chief executive officer will obtain a deemed variation of that permission. Given this, it is important that the firm is operationally prepared to enter the TPR and is able to meet the regulatory requirements that will apply once in it.

2. On 22 September 2020, the Prudential Regulation Authority (PRA) published Consultation Paper CP 13/20 - UK withdrawal from the EU: Changes before the end of the transition period. This consultation closes on Tuesday 17 November 2020.

This Consultation Paper (CP) contains: 

• an update on the Bank’s and PRA’s intended use of the temporary transitional power provided for in the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019.
• Bank and PRA consultation with proposals to fix deficiencies arising from the UK’s withdrawal from the EU and make consequential changes before the end of the transition period. Section B is split into three parts:
  1. sets out Bank and PRA proposals in relation to consequential changes required to existing Bank and PRA EU Exit Instruments to update references to exit day and a small number of changes in light of adaptations to relevant EU legislation made by the European Economic Area (EEA) Agreement.
  2. sets out the PRA’s proposals in relation to the PRA Rulebook and BTS that will, or are expected to, be retained in UK law.
  3. sets out the Bank’s (as FMI competent authority) proposals in relation to BTS that will be retained in UK law.

This CP is relevant to all firms authorized and regulated by the PRA, including those that expect to have a deemed permission under the ‘temporary permissions regime’ (TPR) or Financial Services Contracts Regime (FSCR), or that seek to apply for PRA authorization in the future. It is also relevant to FMIs recognized and supervised by the Bank, including those central counterparties (CCPs) that expect to have a deemed recognition under the ‘temporary recognition regime’ (TRR). 

3. On 23 September 2020, the Financial Conduct Authority (FCA) launches consultation 20/20 on its approach to the authorization and supervision of international firms operating in the UK.

This is relevant to EEA firms that intend to seek authorization in the UK in the future, including those entering the Temporary Permissions Regime, as well as firms from non-EEA countries that have applied or intend to apply for authorization in the UK, or are already authorized in the UK. 

International firms serving UK customers through branches can sometimes create different risks of harm compared to UK firms because of the way their businesses are structured and operate. As part of this consultation, the FCA wants to hear views on how these risks can be mitigated, and when it would be appropriate for an international firm to seek authorization as a UK-incorporated firm for all or part of its business. 

When the FCA decides whether to authorize an international firm, it applies the same minimum standards as it does for UK firms. Before seeking authorization, any international firm needs to demonstrate it is ready, willing and organized and meets the relevant minimum standards. Once authorized, firms need to continue to meet those standards, which are designed to protect consumers and ensure the integrity of markets. 

The FCA expects a firm seeking authorization to have an active place of business in the UK to enable us to effectively supervise its UK activities. 

The deadline for consultation responses is 27 November 2020.

4. On 30 September 2020, the Financial Conduct Authority (FCA) published a statement for firms providing portfolio management services or holding retail client accounts that include positions in leveraged financial instruments or contingent liability transactions. It outlines a further 6-month extension and amendments to a temporary COVID-19 measure that the FCA issued in March.

The FCA extends the previous flexibility with some amendments. The FCA won’t take action for breach of COBS 16A.4.3 EU for services offered to retail investors from Thursday 1 October 2020 provided that the firm has:

• issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%
• informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period
• referred these clients to non-personalized communications, perhaps made available on public channels, that outline general updates on market conditions (these could contextualize potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments) and
• reminded clients how to check their portfolio value, and how to get in touch with the firm.

The FCA also amends its extension of the previous flexibility regarding professional investors. For services offered to professional investors, from Thursday 1 October 2020, the FCA will not take action for breach of COBS 16A.4.3 EU provided that firms have allowed professional clients to opt-in to receiving notifications. The FCA will adopt this approach for 6 months (to 30 March 2021). 

5. On 29 September 2020, the Statutory Instrument S.I. 2020 No. 1055 - The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 was published on the UK legislation, which:

• provides for the UK regulators (the Financial Conduct Authority and the Bank of England) to establish before IP completion day “cooperation arrangements” with EEA regulators
• allows the UK regulators to accept applications from EEA financial services providers for “regulatory decisions” before IP completion day.
• provides that an equivalence direction made under the 2019 Regulations has effect, on or after IP completion day, as if made on IP completion day under the corresponding provision of retained EU law.

6. On 30 September 2020, the Financial Conduct Authority (FCA) updated on Temporary permissions regime for firms and fund managers:

• EEA firms can notify the FCA if they wish to use the temporary permissions regime. Notifications should be submitted to the FCA before the end of 30 December 2020. Firms that have already submitted a notification need take no further action.
• Fund managers can also now notify the FCA if they wish to use the temporary permissions regime. Notifications should be submitted via our Connect system before the end of 30 December 2020.
• Fund managers that want to update their previously submitted notification should email recognisedcis@fca.org.uk by the end of 9 December 2020 at the very latest confirming this and including their FRN.
• Fund managers should expect to be able to submit their updated notification from 14 December 2020.
• Fund managers should continue to follow current processes via their home state regulator for marketing new funds in the UK and should allow sufficient time for notifications to be received and processed by us to ensure that any new funds are eligible for the TPR. 
• If new funds have been added to a fund manager’s population since an earlier notification was submitted, the new funds will not be included in the temporary marketing permission regime unless fund managers request to update their notification and include them in that updated notification.

On 4 September 2020, the Prudential Regulation Authority (PRA) published a Policy Statement 20/20 responding to CP3/20 ‘Occasional Consultation Paper’.

Policy Statement provides feedback to responses to Chapters 2 to 7 of Consultation Paper (CP) 3/20 ‘Occasional Consultation Paper’. It also includes the final rules, updated supervisory statements (SS), forms, relevant templates, and associated LOG files and instructions.

This PS is relevant to different firms, as follows:

• Chapters 2 and 7: PRA-authorised Capital Requirements Regulation (CRR) firms;
• Chapter 3: non-Solvency II insurance firms;
• Chapter 4: all Solvency II firms, including the Society of Lloyd’s;
• Chapter 5: all PRA-authorised firms; and
• Chapter 6: PRA-supervised firms that operate in the UK but are not UK-headquartered firms.

The appendices to this PS provide links to the final policy material.

The PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA).

The implementation dates for the policy changes set out in this PS are:

• Chapters 2, 3, 6, and 7, upon publication of the final policy on Friday 4 September 2020;
• Chapter 4, Monday 30 November 2020; and
• Chapter 5, Sunday 25 October 2020.

1. On 21 September 2020, the Bank of England (BoE) published its statement on the European Commission equivalence decision on the future UK legal and supervisory framework for central counterparties (CCPs).

The decision is an important step to mitigate financial stability risks around the end of the year when the implementation period following the UK’s exit from the EU comes to an end. However, this equivalence decision is time-limited and will expire in June 2022.

The decision will avoid EU financial firms having to exit UK clearing houses before the end of the year. This would have led to the transfer and replacement of a very large number of contracts in a short period.

In the UK, HM Treasury and the Bank of England have already put in place a temporary recognition regime for non-UK CCPs. From 1 January 2021 this will enable EU CCPs to continue to provide services in the UK.

2. On 28 September 2020, the Bank of England (BoE) published its statement on European Securities and Markets Authority’s (ESMA) recognition decisions with respect to central counterparties (CCPs) established in third countries. 

As part of the recognition process, the Bank of England and ESMA have agreed an updated Memoranda of Understanding regarding cooperation and information-sharing arrangements with respect to CCPs. The MoU takes effect from 1 January 2021.

On 16 September 2020, the Bank of England (BoE) published Policy Statement on Fees regime for financial market infrastructure supervision 2020/21.

This Policy Statement provides feedback to responses to the Consultation Paper (CP) ‘Fees regime for financial market infrastructure supervision 2020/21’. The PS also sets out:

• the final fee rates in relation to the Bank’s 2020/21 funding requirement for its financial market infrastructure (FMI) supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee?levying powers;
• how the Bank will apportion the surplus from the 2019/20 FMI fee year; and
• amendments to the Special Project Fee (SPF) invoicing process and the SPF hourly rate to be charged, where applicable. This section should be read in conjunction with the ‘Fees regime for the supervision of financial market infrastructure (FMI) Policy Statement June 2018’.

This PS is relevant to all FMIs that currently pay FMI supervisory fees to the Bank or are expecting to do so within the 2020/21 fee year.

On 23 September 2020, the Financial Conduct Authority (FCA) informed that the first firms will be moved from Gabriel to RegData over the weekend of 17 and 18 October. 

Those firms will then complete their regulatory reporting on RegData. Firms will continue to be moved to RegData from Gabriel in the coming months as the FCA movea users across in stages, based on their reporting requirements.

All 52,000 firms will receive direct emails from Gabriel advising them of their moving date. These 3 emails will be sent to firms 3 weeks, 5 days and 1 day before they move to RegData. Compliance consultants will receive reminders for every firm their user account is currently associated with in Gabriel.

Firms will not be able to access RegData until they and their users’ data have been moved across from Gabriel. Until then, they should continue to report via Gabriel, using their existing Gabriel login details. The FCA's moving to RegData page provides a checklist for firms before they move, and the process they’ll follow to join RegData.

On 29 September 2020, the Financial Conduct Authority (FCA) published its second annual perimeter report.

The FCA perimeter determines which activities require authorization and what level of protection consumers can expect for the financial services and products they purchase. The perimeter is decided by the Government and Parliament through legislation. 

This year’s repor:

• gives updates on the issues discussed in last year’s report. This includes the issuing of a temporary product intervention in January to ban the mass-marketing of speculative illiquid debt securities and preference shares to retail investors for 12 months. The FCA is currently consulting on proposals to make this ban permanent. 
• identifies where others, such as big tech firms like Google, can do more to protect consumers in areas on the edge of the perimeter.
• sets out other areas where progress has been made or where there is continued harm to consumers and market users around the perimeter, particularly in light of the COVID-19 pandemic. 

This report will form the basis of a formal discussion with the Economic Secretary to the Treasury (EST) later this year, the outputs of which will be published, to help improve transparency around the actions being taken on the perimeter.

On 10 September 2020, the Financial Conduct Authority (FCA) published Investment management data – Annual Report 2019/20.

The report provides a range of metrics to assess the impact of actions put in place such as:

• Asset manager profitability
• Ongoing fees for active funds 
• Ongoing fees for passive funds
• Performance after fees of UK-domiciled passive funds
• Price trends for active and passive funds in certain comparable asset sectors.

On 10 September 2020, the Financial Conduct Authority (FCA) published Trade transparency and market liquidity data.

This follows key reforms introduced through MiFID II including increased trade transparency which have changed the trading landscape. The data shows:

• The UK’s market structure offers different levels of trade transparency to meet the varying execution needs of market participants.
• The structure of the market was relatively stable during the year until markets were impacted by the COVID-19 crisis. While trading on auctions, systematic internalisers, and dark trading all picked up in March, lit venues saw the biggest increase, as participants sought certainty of execution.
• Turnover in UK equities and liquid, investment grade, sterling-denominated corporate bonds was relatively stable from the beginning of 2019 until the start of 2020.

On 4 September 2020, the Financial Conduct Authority (FCA) published the Consultation Paper CP20/18.

One aspect of the changes brought by the Prospectus Regulation (Regulation (EU) 2017/1129) was that ‘equivalent documents’ were replaced by ‘exempted documents’. 

The UK is proposing to amend the Listing Rules (LR) to align the reference of with those changes previously made. The UK also seeks to clarify two closely related rules. However, in general terms, the effect of the rules remains consistent with their current application, and so these are consequential changes.

The main proposed changes are:

• Consequential changes to the Listing Rules (Chapter 8) to align with provisions for ‘exempted documents’ under the Prospectus Regulation
• Changes to Article 34 of the UK-RTS
• Onshoring changes to the FCA Handbook for legislative provisions and/or relevant technical changes needed to our rules as a result of onshoring over the transition period for EU withdrawal.

On 18 September 2020, the Financial Conduct Authority (FCA) published Draft advance application for registration as a UK Securitisation Repository.

A Securitisation Repository (SR) is a legal entity which centrally collects and maintains the records of securitisations, as set out by the Securitisation Regulation.

Firms who wish to apply to be a UK SR may complete this draft SR application form from 23 September 2020 and email it to SRapplications@fca.org.uk. Any queries in advance of submitting a draft SR application should also be directed to this email address.

To be authorized as a UK SR, a firm must meet the conditions set out in article 10 of the on shored Securitisation Regulation. Firms should be able to evidence that they have the necessary competence to carry out the collecting and maintaining of securitisation records.

On 14 September 2020, the Financial Action Task Force (FATF) published Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing. 

The FATF has prepared this brief report on ML/TF red flag indicators associated with VAs to assist reporting entities, including financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and VASPs; however, they are categorised, in identifying and reporting potential ML and TF activity involving VAs. 

This report should also facilitate reporting entities’ application of a risk-based approach to their Customer Due Diligence (CDD) requirements, which require knowing who their clients and the beneficial owners are, understanding the nature and purpose of the business relationship, and understanding the source of funds.

On 15 September 2020, the Financial Action Task Force (FATF) updated the consolidated assessment ratings. 

Through its nine FATF-Style Regional Bodies (FSRBs), the FATF brings together a global network of 205 jurisdictions that have each committed at the highest political level, to implementing the FATF Recommendations.   

FATF and FSRBs conduct peer reviews on an ongoing basis to assess how effectively their respective members' AML/CFT measures work in practice, and how well they have implemented the technical requirements of the FATF Recommendations.    

The table provides an up-to-date overview of the ratings that assessed countries obtained for effectiveness and technical compliance (last updated on 15 September 2020). These should be read in conjunction with the detailed mutual evaluation reports.

On 15 September 2020, the International Swaps and Derivatives Association (ISDA) published a letter addressed to the European Commission on post-Brexit exemption for pension scheme arrangements under EMIR. 

ISDA and its members respectfully request that the Commission and ESMA consider taking action to mitigate the risks posed to EU banks, investment firms and pension funds, as well as UK pension funds, by the fact that UK pension funds will cease to benefit from the exemption under the EMIR clearing obligation for pension scheme arrangements following the end of the Brexit transition period on 31 December 2020. 

If, after the end of the Brexit transition period, EMIR no longer recognises UK pension schemes as EMIR Article 2(10) pension scheme arrangements, this change in regulatory treatment will have cost and other implications for the affected pension scheme arrangements, for their counterparties and for the citizens whose retirement income depends on these investments. This change in treatment will also have other connected impacts in regulation. 

ISDA believes that the wide-ranging impacts of this exemption falling away at the end of the transition period are such that mitigating action is warranted.

The solution proposed are the following:

• ESMA could re-examine its existing EMIR Q&A (OTC Q.13(c)), in light of current  circumstances to clarify that the EMIR clearing derogation is also available to UK pension scheme arrangements that qualified under Article 2(10) prior to 31 December 2020. 
• Alternatively, the European Commission could propose an amendment to the Level 1 text of EMIR (to Article 2(10)), to confirm that the transitional exemption will continue to be available to UK pension scheme arrangements that would have qualified under Article 2(10) prior to 31 December 2020. While it is unlikely that an amendment to EMIR could be achieved before the end of 2020, it may be possible for the Commission to start the process of amending the text and for ESMA to publish guidance to EU supervisory authorities recommending that they do not take action against EU counterparties who will be able to rely on the exemption when facing UK pension scheme arrangements that were qualified under Article 2(10) prior to 31 December 2020. This would be a similar approach to that taken in relation to the extension of the end date for this transitional exemption. 

On 7 September 2020, the International Capital Market Association (ICMA) published a briefing note on CSDR mandatory buy-ins and the requirement to appoint a buy-in agent.

The CSDR-SD regulatory technical standards require that in the case of failing non-cleared transactions, at the start of the mandatory buy-in process the purchasing party must appoint a buy-in agent. This may not be possible, particularly since a buy-in agent may not be available (noting that the ICMA Buy-in Rules currently do not require the appointment of a buy-in for this very reason).If a buy-in agent cannot be appointed, it would seem likely that the buy-in cannot be effected, resulting in mandatory cash settlement (“cash compensation”). 

As ICMA has highlighted in an earlier briefing note, it is not clear how, or even if, the cash compensation provisions can be applied in the case of bonds.

On 21 September 2020, the International Organization of Securities Commissions (IOSCO) published final guidance to help its members address potential conflicts of interest and associated conduct risks market intermediaries may face during the debt capital raising process. 

Conflicts of interest and associated conduct risks can weaken investor confidence and undermine debt capital markets as an effective vehicle for issuers to raise funding. To help regulators identify and address these risks, IOSCO published the final report on Conflicts of interest and associated conduct risks during the debt capital raising process.

The report also explores the potential benefits and risks of Blockchain technology in addressing conflicts of interest in the debt capital raising process. The report describes the key stages of the debt raising process and identifies where the role of intermediaries might give rise to conflicts of interest. The guidance comprises nine measures that address potential issues when issuers are preparing to raise debt finance, including such things as the use of risk management transactions, the quality of information available to investors, and the allocations process. 

The consultation report on the guidance comprised eight measures published in December 2019 prior to the start of the COVID 19 pandemic. The final report includes an additional ninth measure that addresses specific concerns that emerged from the crisis. It seeks to address the potentially problematic conduct of lenders that may opportunistically leverage their role during debt capital raising to pressure corporate clients into awarding them future mandates.

On 1 September 2020, the International Capital Market Association (ICMA) published response to ESMA consultation on guidelines for NCAs when they consider potential financial stability risk associated with leverage in AIFs.

In its response AMIC, the buy-side voice of ICMA, recommends focusing on funds with substantial leverage as a first screening phase and  conducting an analysis of  relevant parameters related to a given fund. AMIC strongly recommends analysing funds individually and not in groups: similar AIFs may have leverage tolerance according to clients' profiles, dealing cycles and recent performances. Finally the response suggests that the implementation of these guidelines should rely on data already reported under LST guidelines, AIFMD, EMIR, SFTR and should not lead to further reporting by asset managers.

On 16 September 2020, the International Swaps and Derivatives Association (ISDA) published the steps to take to get ready for initial margin. 

Each September until 2022, increasing numbers of entities will be required to meet initial margin regulations as the threshold level for compliance reduces. Preparation for meeting these requirements will take significant time, and will involve intensive work to ensure systems, processes and documentation are in place.

ISDA has published a fact sheet that sets out the steps firms should take when preparing to comply with regulatory initial margin requirements. These are not necessarily presented in chronological order – the precise order and timing will depend on a firm’s specific circumstances.

STEP 1: Identify in-scope entities early

STEP 2: Make early disclosures to counterparties

STEP 3: Exchange information on compliance

STEP 4: Identify special cases

STEP 5: Establish custodial relationships

STEP 6: Prepare for compliance

STEP 7: Negotiate/execute documentation

STEP 8: Finalize preparations

On 29 September 2020, the International Capital Market Association (ICMA) published discussion paper on Transparency and liquidity in the European bond markets.

The state of liquidity in the European bond markets has been hotly debated for a number of years, with the growing realization that due to a culmination of factors market liquidity has been in serial decline for more than a decade. There is an ongoing parallel discussion on the issue of transparency in the European bond markets. While it is broadly recognized that a degree of price transparency is fundamental for market efficiency and integrity, the intersection of transparency and liquidity is a far more complex consideration, yet an important one from the perspective of market development. 

ICMA has been at the forefront of industry work related to both bond market liquidity and the design and implementation of the European transparency framework for bonds. This paper attempts to pull those two workstreams together in order to explain how bond market structure and dynamics are very different to those of equity markets, that this is the basis for how liquidity is created in bond markets, and why this is central to any considerations around the framework for European bond market transparency, including any proposed future regulation related to the provision and design of a consolidated tape for bonds.

On 25 September 2020, the Financial Stability Board (FSB) confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System as the International Governance Body (IGB) for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions. 

In October 2019 the FSB, identified the ROC as best positioned to be the IGB for the UTI, UPI and CDE, provided that the ROC made appropriate adjustments to its existing governance to make it fit for the purpose of overseeing the harmonised derivatives identifiers and data elements. After taking note of the planned adjustments to the ROC’s Charter and Procedural Guidelines, the FSB confirms the ROC as IGB and transfers the governance of the harmonised derivatives identifiers and data elements to the ROC as of 1 October 2020.

On 24 September 2020, the International Capital Market Association (ICMA) updated its Guide to Best Practice in the European Repo Market.

The Guide provides recommended practices, conventions, and clarifications intended to support the orderly trading and settlement of repos.

The latest version of the Guide introduces a number of new guidelines intended to address issues that have arisen since the last publication (in December 2018) as the market continues to evolve and develop. These include best practices for the termination of open repos late in the day, the calculation of transaction exposure for forward dated trades, and defining stale prices.

The Guide sets out standards for the orderly trading and settlement of repos. Its purpose is to help foster a smooth and orderly market in repo in Europe by recommending practices which market experience suggests can help avoid uncertainties or disagreements about transactions, and consequent delays or disruption to repo trading and settlement. The Guide also codifies market conventions, where this has been thought to be helpful, usually in response to queries from market participants.

The practices set out in the Guide are general recommendations only. Parties to repos are free to agree other terms, where they see fit. It is not necessarily a problem if recommended best practice is not followed, provided parties recognise the risks to which they may expose themselves as a result. 

On 7 September 2020, the International Capital Market Association (ICMA) published its fourth edition of its SFTR recommendations.

The Guide applies to both repurchase transactions and buy/sell-backs, which are both types of repo. It does not explicitly provide guidance on the reporting of other types of SFT defined in the SFTR, such as securities lending transactions or margin lending transactions, although some overlap is inevitable as many of the issues are common across SFTs. On common topics, ICMA has attempted to coordinate closely with other relevant trade bodies, in particular, ISLA.

The ICMA Guide supports members in their SFTR implementation efforts. It offers help to interpret the regulatory reporting framework specified by ESMA and sets out best practice recommendations to provide additional clarity and address ambiguities in the official guidance. It is supplemented by a suite of sample reports and an overview of repo life-cycle event reporting, which have both been published alongside the Guide.

On 7 September 2020, the International Securities Lending Association (ISLA) published a new set of standards and best practice guidelines in respect of data aggregation and calibration of performance-related metrics for securities lending.

This will ultimately lead to greater transparency. It is unusual in the sense that it is not directly driven by regulation, rather by a self-identified weakness that impacts all industry participants in some way. It is important in that it begins to provide greater clarity on the level of returns generated and ultimately how constraints on how a lending program can impact performance. Transparency is driven by reliable and consistent data which, of course, enables us to see future opportunity.

On 3 September 2020, the International Securities Lending Association (ISLA) published further SRD II Industry Guidance for Securities Lending. They form part of the broader ‘Market Standards for Shareholder Identification’, whose objective is to harmonise and streamline shareholder identification related operational processes.

On 10 September 2020, the Network for Greening the Financial System published a technical document entitled "Overview of environmental risk analysis by Financial Institutions". 

This paper provides an extensive list of examples of how environmental risks are transmitted to financial risks, and a comprehensive review of the tools and methodologies for ERA used by financial institutions (FIs) including banks, asset managers and insurance companies. 

Three aspects of the ERA methodologies and their applications are reviewed.  First, the major steps for analyzing environmental risks are summarized; second, the methodologies for scenarios analysis and stress test are classified by the types of users including banks, asset managers and insurance companies, and by types of risks including physical and transition risks; third, alternative methodologies used by FIs in measuring environmental risks and opportunities are presented, including ESG ratings and the natural capital risk assessment approach.

This document also identifies several major barriers to wider adoptions of ERA by the financial services industry. 

It is concluded that collective efforts are needed from regulators, FIs, IOs, third party vendors, and academic institutions to promote the wider adoptions of ERA.

On 2 September 2020, the United Nations Environment Programme – Finance Initiative (UNEP FI) published a series of thought leadership papers that aims to inspire financial actors worldwide to move from risk to alignment, challenge current assumptions around climate alignment and develop ideas and concepts on how alignment can best be achieved.

The UNEP FI encourages stakeholders that a proactive climate response is not only about disclosing risks, but also about investing in green opportunities that can enable the low emissions societies of the future. This series convenes innovators and industry experts to provoke discussion, challenge the status quo and guide the transformation of business and finance towards a sustainable future.

The papers in this series will respond to a number of key questions :

• What economic system transformation is actually required to deliver the Paris Agreement?
• How do financial institutions achieve alignment with the Paris Agreement and how does it differ from transition risk transparency as captured in the TCFD?
• What is the future of financial institutions as a result of these changes?
• What are the various strategies and action tracks through which financial institutions can enhance and achieve full portfolio alignment?
• What are the pathways and choices needed for financial institutions and the financial system to drive an active transition to a net zero-carbon economy?

1. IRELAND
On 1 September 2020, the  S.I. No. 325/2020: COVID-19 Credit Guarantee Scheme 2020 was published in the Irish Statute Book. It then consists of two substantive parts:

1) Part one sets out an overview of the COVID-19 Credit Guarantee Scheme. This includes: 

• The policy objectives of the Scheme to facilitate additional lending to businesses in response to the economic difficulties caused by COVID-19. 
• The powers of minister to grant a guarantee subject to the conditions specified in section 4 and section 4A of the Credit Guarantee Act 2012 (as amended). 
• The facility and guarantee term applicable under the scheme. 
• The nominal values of financial products that are allowable under the Scheme. 
• The nature of finance agreements that are considered as Eligible Credit under the Scheme. 
• The requirement to charge a premium as part of a credit agreement under the Scheme to a beneficiary availing of the Scheme. 
• The application of a pricing discount, which participating finance providers are required to include on credit agreements under the Scheme in order to pass on the financial benefit of the State guarantee. 
• Support under this measure constitutes State aid within the meaning of Article 107(1) TFEU. The Commission considers that it is compatible pursuant to Article 107(3)(b) of the TFEU since it meets all the relevant conditions of the Temporary Framework. 
• Confirmation of compliance with Data Protection regulations.

2) Part two describes the process of approval of finance providers to this Scheme and refers to the participating finance provider’s legal agreement.

2. EUROPEAN UNION
On 2 September 2020, the European Securities and Markets Authority (ESMA) published Report on Trends, Risks and Vulnerabilities.

The COVID-19 pandemic, in combination with the valuation risks highlighted in ESMA’s previous risk assessments, led to massive equity market corrections in 1Q20. ESMA therefore provided an updated Risk Dashboard on 2 April to inform about the new risk landscape. Since this risk update, markets have seen a remarkable rebound, not least in the light of notable public policy interventions in the EU and elsewhere. However, as the market environment remains fragile, ESMA maintains its risk assessment: going forward, ESMA notices a prolonged period of risk to institutional and retail investors of further – possibly significant – market corrections and see very high risks across the whole of the ESMA remit. The extent to which these risks will further materialise will critically depend on two drivers: the economic impact of the pandemic, and any occurrence of additional external events in an already fragile global environment. The impact on EU corporates and their credit quality, and on credit institutions, are of particular concern, as are growing corporate and public indebtedness, and the sustainability of the recent market rebound. 

3. FRANCE
On 4 September 2020, the Ministère de l'Economie announced a COVID-19 recovery plan.

The government launched a historic 100 billion euro recovery plan to turn the economy around and create the "France of tomorrow". As a continuation of the support measures for companies and employees launched at the beginning of the COVID-19 crisis, this plan aims to transform the economy and create new jobs. 

It is based on three pillars: ecology, competitiveness and cohesion.

4. INTERNATIONAL
On 7 September 2020, the Financial Stability Board (FSB) announced extensions to the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs), to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.

SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and secondary market liquidity for a wide variety of securities. However, such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability.

The Group of Central Bank Governors and Heads of Supervision decided in March 2020 to defer the implementation of the Basel III framework by one year to January 2023.  Since the FSB framework for numerical haircut floors for bank-to-non-bank transactions is expected to be implemented through the Basel III framework in many jurisdictions, the FSB has therefore decided to also extend the implementation dates by one year for its policy recommendations related to minimum haircut standards for non-centrally cleared SFTs. Hence, the new implementation dates are: 

• For bank-to-non-bank transactions, January 2023 (instead of January 2022). 
• For non-bank-to-non-bank transactions,  January 2025 (instead of January 2024). 

This is in line with the re-prioritization of the FSB’s work in light of the COVID-19 pandemic and will give market participants (both banks and non-banks) more time to prepare for the implementation of the framework of numerical haircut floors set out in minimum haircut standards.

5. UNITED KINGDOM
On 9 September 2020, the Financial Conduct Authority (FCA) updated on the extension of deadlines to publish fund reports and accounts.

As businesses have had time to adjust to the changed environment, the FCA intends to end the temporary relief in stages over the coming months as follows:

• For funds with an annual or half-yearly accounting date on or before 31 August 2020 – the temporary relief will remain in place. For example, this means for an Authorised Fund Manager of a UK UCITS scheme, relevant annual reports would need to be published at the latest by 28 February 2021 instead of 31 December 2020. Relevant half-yearly reports would need to be published at the latest by 30 November 2020 instead of 31 October 2020.
• For funds with an annual or half-yearly accounting date on or before 30 September 2020 (but after 31 August 2020) – 1 month's relief will be permitted where necessary. For example, this means for an Authorised Fund Manager of a UK UCITS scheme, relevant annual reports would need to be published at the latest by 28 February 2021 instead of 31 January 2021. Relevant half-yearly reports would need to be published at the latest by 31 December 2020 instead of 30 November 2020.
• For funds with an annual or half-yearly accounting date after 30 September 2020 – the temporary relief will expire and no extra time will be provided. The FCA expects relevant reports to be published in line with the usual timelines.

6. BELGIUM
On 10 September 2020, the Banque nationale de Belgique (BnB) published updated Q&As on Moratorium and guarantee scheme. The different updates are in line with the most recent regulatory developments at national and European level. 

7. FRANCE
On 11 September 2020, the Banque de France published its Bulletin No. 231/2 on Macroeconomics of teleworking.

With the gradual lifting of measures to contain COVID-19, the generalization of the use of teleworking constitutes one of the main structural hysteresis effects of the current crisis. During this crisis, the massive and forced recourse to teleworking made it possible to ensure the continuity of certain activities, in particular in the service sector. While most countries have gradually put an end to containment measures and allowed workers to return to their companies, the year 2020 will certainly represent a major turning point in the development of long-term teleworking, with important consequences for the demand in real estate business.

8. FRANCE
On 17 September 2020, the Decree No. 2020-1140 of 15 September 2020 modifying the ad hoc aid system to support the cash flow of companies weakened by the COVID-19 crisis was published in the Official Journal.

In the context of the health crisis of COVID-19 and its repercussions on economic activity, this decree modifies the scope of application of the system of repayable advances and subsidized loans to small and medium-size enterprises, excluding microenterprises, and to medium-sized enterprises weakened by the crisis and that have not found financing solutions with their banking partners or private financiers. The limited company Bpifrance Financement SA is in charge of the operational management of this aid.

9. FRANCE
On 18 September 2020, the Autorité des marchés financiers (AMF) informed on financial communication to favor in a particular context like that of COVID-19.

The AMF publishes its findings and highlights its points of attention concerning the application of financial communication rules. The AMF monitored, during the first half of the year the communication of listed companies on issues that are sensitive for investors in light of the health crisis: outlook, cash position and more generally financial equilibrium, and dividends, in particular.

The AMF noted that as of 30 June 2020, nearly 3 out of 4 SBF 120 companies that usually give financial guidance to the market were no longer able to provide such information. This situation changed very positively after the publication of first-half 2020 results.

At the time of their half-yearly publication, around 30% of SBF 120 companies changed the indicators usually published on cash position or solvency. In more than half of the cases, this modification was aimed at meeting the market's expectations in terms of information by adding elements relating in the majority of cases to the presentation of the liquidity position, and to a lesser extent to the addition of a net debt-to-equity ratio (gearing). On the other hand, some companies have abandoned the publication of this net debt-to-equity ratio in their press releases, and the change in this ratio may have been significant in the first half of the year. The AMF reiterates the importance of maintaining at least the same level of information as before on the sensitive subject of liquidity.

The crisis has led to the modification (reduction or cancellation) of the amounts of dividends that were planned to be paid in the first half of 2020 for more than 2 out of 3 SBF120 companies.

10. EUROPEAN UNION
The discussions on the European Commission proposal on the so-called “MiFID Quick Fix”, which also includes proposed amendments to the Prospectus Regulation and the Securitisation Regulation and corresponding changes to the Capital Requirements Regulation (CRR) are progressing.

Following an initial Council Working Group meeting on 3 September, EU Member States’ representatives reconvened on 17 September to discuss draft compromise proposals put forward by the German Council Presidency. In the meantime, German MEP Markus Ferber, appointed as rapporteur of the legislative file by the European Parliament Economic and Monetary Affairs Committee (ECON), has circulated a draft report. It is expected that both co-legislators can find agreement on their respective positions by the end of October 2020 and commence trilogue negotiations shortly thereafter.

11. EUROPE
On 21  September 2020, the European Banking Authority (EBA) announced it will phase out its Guidelines on legislative and non-legislative payment moratoria in accordance with its end of September deadline.  These Guidelines, which were published in the early phases of the COVID-19 pandemic, have provided the necessary flexibility as well as certainty on the regulatory framework, in light of significant number of actions taken by banks to support their customers as exceptional lock-down measures were put in place. The continued ability for banks to provide lending is of key importance and the EBA will keep monitoring the situation as needed.

The EBA guidelines helped banks to effectively  manage the large amounts of requests from customers wishing to participate in such schemes. However, the EBA does not consider adequate at this state the further extension of such an exceptional measure. It is opportune to return to the practice that any rescheduling of loans should follow a case-by-case approach.

The regulatory treatment set out in the Guidelines will continue to apply to all payment holidays granted under eligible payment moratoria prior to 30 September 2020, thus avoiding cliff effects risks of having to reclassify existing loans abruptly at a later stage. Banks can continue supporting their customers with extended payment moratoria also after 30 September 2020, such loans should be classified on a case-by-case basis according to the usual prudential framework.

12. LUXEMBOURG
On 23 September 2020, the Law of 23 September 2020 on measures relating to the holding of meetings in companies and other legal persons was published in the Official Journal. 

A company may, even if the articles of association do not provide for it and regardless of the expected number of participants at its general meeting, hold any general meeting without a physical meeting and require its shareholders or partners and other meeting participants to participate. at the meeting and to exercise their rights according to one or more forms of participation below:

1. by remote voting in writing or in electronic form allowing them to be identified and provided that the full text of the resolutions or decisions to be taken has been published or communicated to them;
2. by videoconference or other means of telecommunication allowing their identification.

A shareholder, partner or other participant may also attend the general meeting and exercise their rights through a proxy appointed by the company.

In the event that a shareholder or a partner or another participant has appointed a proxy other than the one referred to in paragraph 2 in accordance with article 8 of the amended law of 24 May 2011 concerning the exercise of certain rights of shareholders at general meetings general of listed companies, this representative may only participate in the meeting in the manner provided for in points 1 ° and 2 °.

Shareholders or partners who participate by such means are deemed to be present for the calculation of the quorum and the majority at this meeting.

Notwithstanding any contrary provision in the articles of association and without the articles of association having to provide for the possibility of doing so, the other bodies of any company may hold their meetings without a physical meeting:

1. by written circular resolutions; or
2. by videoconference or other means of telecommunication allowing the identification of the members of the body participating in the meeting.

The Law extends the measures until 31 December 2020, repealing the Law of 20 June 2020. The Law comes into force on 1st October 2020 and is effective until 31 December 2020 inclusive.

13. HONG KONG
On 24 September 2020, the Hong Kong Monetary Authority (HKMA) published its Circular on Remote on-boarding of corporate customers.

The HKMA wrote to all authorized institutions to articulate key principles in relation to remote on-boarding of corporate customers based on use cases and proposals gathered through the HKMA's ongoing engagement with the industry.  

This circular reflects the regulatory expectations set out in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorized Institutions) (AML/CFT Guideline).

Unlike on-boarding of individual customers, a business relationship with a corporate is generally established through its representative(s) with appropriate authority to act on behalf of the corporate.  Customer due diligence (CDD) is more extensive compared with individuals and typically involves a number of steps.

When designing on-boarding processes for corporates, including those conducted remotely, AIs should continue to differentiate the ML/TF risks of corporate customers in order to apply CDD measures and ongoing monitoring which are proportionate to the assessed ML/TF risks. 

14. FRANCE
On 25 September 2020, the Association Française des Titres (AFTI) decided to undertake 5 strategic projects to further increase performance and resilience of the French market.

In a context marked by exceptional volumes and very high market volatility, a strong need to support customers to meet their specific expectations, intense mobilization to implement distance working (largely generalized in two weeks) and adaptations to the organization and certain market rules, the French market industry demonstrated exceptional service continuity throughout the critical period of March and April, thanks to the mobilization of the entire ecosystem.

The AFTI notes and welcomes in particular : 

• The great commitment of its employees, 
• The high efficiency of highly automated activities, 
• The high resilience of post-market infrastructures, 
• The constant support of the authorities and regulators who have been able to take effective measures. 

A few key figures of the post-trade industry in France illustrate this assessment: 

• Business volumes multiplied by 2 (in March) to 4 (at peak activity) 
• A 90% rate of teleworking by the end of March 2020 (95% in most establishments, 50% with rotating teams in some establishments).
• A 2.5 X normal suspense rate in March, back to normal by the end of April. 
• No critical incidents in market processes and market infrastructures.

15. FRANCE
On 30 September 2020, the Decree No. 2020-1200 of 30 September 2020 relating to the solidarity fund intended for companies particularly affected by the economic, financial and social consequences of the spread of the COVID-19 epidemic and the measures taken to limit this spread was published in the Official Journal.

The decree modifies the solidarity fund intended for companies particularly affected by the economic, financial and social consequences of the spread of the COVID-19 epidemic and the measures taken to limit this spread. It eases the conditions for access to funds for small businesses in difficulty, in application of the European Commission decision of 31 July 2020.

16. UNITED KINGDOM
On 30 September 2020, the Financial Conduct Authority (FCA) published its letter on Adequate Client Assets Arrangements.

This letter highlights those areas that are particularly important to maintaining adequate client assets arrangements in the current environment. It also reminds firms of their obligations to continue to oversee those arrangements and notify the FCA if they identify any material concerns.   

In particular, the FCA draws attention to the following areas:  

• governance and oversight  
• oversight of third parties, including due diligence  
• adequate records and reconciliations  
• acknowledgement letters for all client money accounts (when holding client money) 
• accurate and up to date CASS Resolution Pack.

Firms are reminded that (in accordance with SUP 15.3 and Principle 11) they are required to notify the FCA of any material issues or concerns that firms identify with their client assets arrangements.

17. UNITED KINGDOM
On 14 September 2020, the Financial Conduct Authority (FCA) confirmed the support mortgage borrowers will receive if they continue to face payment difficulties due to COVID-19.

Under the guidance, firms will prioritize support for borrowers who are at most risk of harm, or who face the greatest financial difficulties. The new guidance reinforces the need for firms to deliver outcomes that are right for individual borrowers rather than adopting “one size fits all” solutions. The FCA will be monitoring firms to ensure borrowers are treated fairly having regard to their individual circumstances.

Firms will also signpost borrowers to the support they need in managing their finances, including through self-help and money guidance, or refer borrowers to organisations that can provide free debt advice if this meets their needs and circumstances.

The FCA’s current guidance published in June will continue to provide support for those impacted by COVID-19 until 31 October 2020 – with consumers able to take a first or second three-month payment deferral until this date. The June guidance is due to expire on 31 October.

18. UNITED KINGDOM
On 16 September 2020, the Financial Conduct Authority (FCA) announced proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to COVID-19. Stakeholders can make comments on this draft guidance by 10am on 21 September 2020.

The proposals will cover users of credit cards and other revolving credit (store card and catalogue credit), personal loans, overdrafts, motor finance, buy-now pay-later (BNPL), rent-to-own (RTO), pawnbroking and high-cost short-term credit (HCSTC) products.

The draft guidance published applies both to consumers who have benefited from payment deferrals and support with the cost of their overdrafts under the current guidance who continue to face financial difficulties, as well as those whose financial situation may be newly affected by COVID-19 after the current guidance ends. It will ensure they get the support they need in these extraordinary times.

If these measures are confirmed, the FCA would expect that firms:

• Recognize the uncertainties and challenges that many customers will face in the coming months, and provide tailored support which reflects their individual circumstances.
• Work with customers approaching the end of a payment deferral to provide support before they miss payments.
• Be flexible and employ a full range of shorter and longer-term options to support their customers to minimize stress and anxiety experienced by customers in financial difficulty.
• Put in place sustainable repayment arrangements which are affordable and take account of their customers wider financial situation including their other debts and essential living expenses.
• Give customers time and opportunity to repay and do not pressurize them into repaying their debt within an unreasonably short period of time.
• Prevent customers’ balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen.
• Recognize and respond to the needs of vulnerable customers.