In our latest regulatory update, we delve into pivotal changes and consultations impacting the financial services sector globally. These developments signify a concerted effort by regulatory bodies worldwide to fortify transparency, bolster operational resilience, and safeguard consumer interests.
APAC
HKMA (Hong Kong Monetary Authority)
The Banking Policy Department issued a letter on 20 February 2024, addressed to the Chief Executive of all Authorized Institutions, regarding the release of Questions and Answers (Q&As) as supplementary guidance for the consistent application of the Banking (Capital) Rules (BCR) as amended by the Banking (Capital) (Amendment) Rules 2023 (BCAR). This guidance, encompassing capital treatments for IPO financing and exposures to qualifying central counterparties (QCCPs) in relation to Swap Connect, aims to clarify the updated regulatory framework. The document integrates previous explanatory notes and modifications to align with the revised BCR, specifically in calculating hypothetical capital requirements by QCCPs. This initiative, which will continue to evolve with further Q&As, particularly regarding the revised credit risk framework under Basel III, underscores the regulatory body’s commitment to ensuring clarity and uniformity in the application of capital requirements. The provided Q&As, along with future updates, will be accessible on the HKMA’s website, facilitating industry compliance and informed decision-making. 🔗
IRDAI (Insurance Regulatory and Development Authority of India)
The Insurance Regulatory and Development Authority of India (IRDAI) issued a communication on 20 February 2024, underlining the significance of capital management in the insurance sector and the pivotal role of reinsurance in risk management. This document highlights the consideration of introducing collateral requirements for reinsurance transactions with Cross Border Reinsurers (CBRs) to enhance the solvency of insurers and protect policyholders by mitigating counterparty default risk. The proposed guidelines aim to establish a framework that ensures the stability and confidence in the insurance market, promoting a healthy ecosystem by attracting more reinsurers through the assurance of collateral-backed transactions. An exposure draft of these guidelines is presented for public feedback, inviting comments from insurers, reinsurers, and other stakeholders within 15 days of its publication on the IRDAI website, signalling a move towards more secured reinsurance practices within the Indian insurance industry. 🔗
MAS (Monetary Authority of Singapore)
The “Guidelines on Licensing Registration and Conduct of Business for Fund Management Companies” issued by the Monetary Authority of Singapore (MAS) set forth the licensing, registration, and operational conduct requirements for various categories of fund management companies (FMCs), including Retail Licensed FMCs, Accredited/Institutional FMCs, Venture Capital Fund Managers, and Registered FMCs. These guidelines detail the criteria for licensing and registration, such as minimum capital requirements, staff competencies, and compliance arrangements, along with ongoing operational requirements like maintaining proper business conduct and risk management practices. This framework underscores the MAS’s commitment to upholding the integrity and stability of Singapore’s financial market, necessitating FMCs to align with stringent regulatory standards and practice. 🔗
EMEA
BaFin (Federal Financial Supervisory Authority), Germany
The Federal Financial Supervisory Authority (BaFin) has issued three circulars aimed at enhancing the resolvability of financial institutions and group entities under its jurisdiction. These include a new circular on structural resolution tools, outlining requirements for the operationalization of resolution tools for planned transfers, and updates to the existing circulars on resolvability and bail-in procedures. The revisions introduce a comprehensive introduction to improve understanding of the resolution planning process, especially for less significant institutions, and incorporate new requirements such as the preparation of a bail-in playbook and the expansion of data sets for external bail-in execution. These updates are part of BaFin’s ongoing efforts to ensure that institutions can be efficiently resolved without resorting to normal insolvency proceedings, thereby maintaining financial stability. 🔗
Banca D’Italia (The Bank of Italy)
The Bank of Italy and Consob, as the competent authorities overseeing Italian central counterparties (CCPs), have announced their compliance with several ESMA guidelines designed to enhance the regulatory framework for CCP recovery and resolution. These guidelines include measures for early intervention, criteria for determining when a CCP is failing or likely to fail, and procedures for temporary restrictions in response to significant non-default events. Additionally, the Bank of Italy, as the designated resolution authority, will adhere to guidelines for valuing contracts before termination, ensuring a consistent application of both the CCPRRR and EMIR regulations. These efforts, communicated in February 2024 and following ESMA’s publication of the guidelines in June 2023, aim to harmonize practices across the EU, ensuring financial stability and a unified approach to CCP recovery and resolution. 🔗
BOE (Bank of England)
The Prudential Regulation Authority’s (PRA) Policy Statement 4/24, published on 22 February 2024, provides a detailed overview and feedback on the consultation paper CP11/23, regarding the review of PRA rules as mandated by the Financial Services and Markets Act 2000 (FSMA), amended by the Financial Services and Markets Act 2023. This statement outlines the PRA’s finalized approach to its statutory obligation to review rules, incorporating feedback from stakeholders. Key areas of feedback included suggestions for enhancing stakeholder engagement, refining the prioritization and selection of rules for review, and improving communication regarding ongoing and completed reviews. In response, the PRA made several adjustments to its draft policy to clarify its process and objectives, such as redefining selection criteria to better reflect the goal of enhancing rulemaking effectiveness and specifying how stakeholder inputs are considered. The final statement, effective from 21 February 2024, aims to ensure that PRA rules remain effective and relevant, emphasizing a flexible approach to rule review that accommodates both quantitative and qualitative analysis. 🔗
CBN (Central Bank of Nigeria)
The Central Bank of Nigeria (CBN) has issued a revised Risk-Based Cybersecurity Framework and Guidelines for Deposit Money Banks (DMBs) and Payment Service Banks (PSBs) to address the evolving threat landscape in the financial sector, driven by increased reliance on Information Technology. This revision aims to guide the implementation of cybersecurity programs and bolster resilience within the sector by identifying and closing gaps that have emerged over time and establishing minimum cybersecurity controls. Stakeholders are invited to review the draft and submit their feedback via email or hard copy to the CBN within three weeks, facilitating the finalization and subsequent issuance of the document. This initiative underscores the CBN’s commitment to maintaining a secure and sound financial system amid the rapid technological advancements and increasing cyber threats. 🔗
EBA (European Banking Authority)
Consultation on Technical standards on the new Business Indicator framework for operational risk 🔗
The Consultation Paper on Business Indicator-related mandates for operational risk, issued by the European Banking Authority (EBA), outlines draft technical standards aimed at refining the operational risk framework under the revised Capital Requirements Regulation (CRR3). This initiative introduces the Business Indicator Component (BIC) as the sole basis for calculating regulatory capital for operational risk, replacing all previous approaches. It encompasses draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) to specify components and exclusions for the Business Indicator (BI), map BI components to supervisory reporting references, and adjust the BI for mergers, acquisitions, and disposals. This comprehensive framework seeks to enhance the accuracy and relevance of operational risk measurement, reflecting changes in accounting standards and providing clarity on the inclusion and exclusion of various financial elements. The consultation invites stakeholders to contribute feedback on these proposals, aiming to finalize the standards for adoption by the European Commission, thereby ensuring a robust and harmonized approach to managing operational risk across the EU’s banking sector. 🔗
Consultation on Implementing Technical Standards on public disclosures by institutions of the information on operational risk 🔗
The European Banking Authority (EBA) has released a Consultation Paper focusing on Draft Implementing Technical Standards (ITS) for amending the operational risk disclosure requirements under Article 446 of Regulation (EU) No 575/2013, as part of the broader regulatory effort to update and harmonize the Pillar 3 disclosure framework across the EU. This initiative seeks to enhance transparency and market discipline by ensuring consistent, comparable, and comprehensive public disclosures by financial institutions. The consultation addresses the implementation of a new operational risk framework based on the Business Indicator Component (BIC) approach, as mandated by the recently agreed banking package (CRR 3 and CRD VI), which aligns EU regulations with the latest Basel III reforms. The EBA encourages stakeholders to provide feedback on the proposals, particularly focusing on the operational risk disclosures, aiming to finalize and integrate these requirements into a comprehensive set of ITS for submission to the European Commission. This consultation represents a critical step towards implementing a more robust and efficient regulatory framework for operational risk, with the first disclosure reference date set for 31 March 2025, corresponding with the application of CRR 3. 🔗
EFAMA (European Fund and Asset Management Association)
On 22 February 2024, the European Parliament approved a new regulation for Environmental, Social, and Governance (ESG) ratings, marking a significant advancement in the push for sustainable finance. This regulation mandates clearer disclosures on ESG factors and prohibits ESG rating providers from offering credit rating, auditing, or consultancy services to prevent conflicts of interest. ESG ratings agencies within the EU will be regulated by the European Securities and Markets Authority (ESMA), while those outside the EU will need endorsement or recognition to operate within the EU. Despite this progress, the regulation does not cover other ESG data products, a gap highlighted by both the International Organization of Securities Commissions (IOSCO) and ESMA, emphasizing the ongoing need for comprehensive regulation in the ESG space to combat greenwashing and enhance transparency. 🔗
European Council (Council of the European Union)
The Council of the European Union has adopted amendments to the Markets in Financial Instruments Regulation (MiFIR) and the Markets in Financial Instruments Directive (MiFID II), aiming to enhance transparency and access to market data for investors. These changes will enable the creation of EU-level consolidated tapes, which aggregate trading data across multiple platforms, to provide investors with real-time transaction information. This initiative is expected to benefit both professional and retail investors by offering easier access to vital data such as prices, volumes, and transaction times. Additionally, the new rules introduce a general ban on the practice of payment for order flow (PFOF), with certain exemptions allowed until 30 June 2026. The amendments also cover new regulations on commodity derivatives. Following this final step in the adoption process, the updated regulations will be published in the EU’s Official Journal and will come into effect 20 days later, with member states given 18 months to implement the necessary national measures. These revisions stem from a review initiated by the Commission on 25 November 2021, aimed at improving market competitiveness and ensuring fairness across the EU’s financial markets. 🔗
European Union
The European Parliament and Council have proposed a regulation to enhance ESG (Environmental, Social, and Governance) rating activities’ integrity and transparency. This regulation aims to improve the comparability, responsibility, reliability, governance, and independence of ESG rating activities, thereby contributing to sustainable finance, and preventing misinformation, including greenwashing. It applies to ESG ratings issued within the EU and outlines specific exemptions. The regulation focuses on ensuring ESG ratings provide transparent, accurate information to support informed investment decisions, aligning with the EU’s sustainable finance goals. In the document, Regulation (EU) 2019/2088 is mentioned in relation to the disclosure obligations related to marketing communications. It states that this Regulation should complement the disclosure obligations established by Regulation (EU) 2019/2088 by ensuring sufficient and consistent transparency about ESG ratings issued by regulated financial undertakings and incorporated in their financial products or services. Additionally, it states that a similar disclosure should be required from any other regulated financial undertakings in the Union that discloses an ESG rating as part of its marketing communications without being covered by Regulation (EU) 2019/2088. 🔗
FCA (Financial Conduct Authority), UK
CP23/27: Reforming the commodity derivatives regulatory framework 🔗
The Financial Conduct Authority (FCA) has issued Consultation Paper CP23/27, detailing proposed reforms to the regulatory framework governing commodity derivatives markets in the UK. This initiative is part of the broader Wholesale Markets Review (WMR) conducted in collaboration with the Treasury, aiming to enhance the effectiveness, resilience, and international competitiveness of the UK’s wholesale financial markets. These reforms, stemming from the Wholesale Markets Review, aim to recalibrate position limits, streamline position reporting, and revise the ancillary activity exemption. By tailoring regulations to the unique characteristics of commodity derivatives markets, the FCA seeks to foster a more efficient, competitive, and resilient market environment, ultimately benefiting the broader UK financial market landscape. 🔗
CP23/33: Consultation on payments to data providers and DRSP forms including Policy Statement for the framework for UK consolidated tape (CP23/15) 🔗
The Financial Conduct Authority (FCA) has issued Consultation Paper CP23/33, advancing the establishment of a UK Consolidated Tape (CT) for bond market data, a concept initially discussed in CP23/15. This paper outlines the feedback received on CP23/15 and finalizes the rules and guidance for the bond CT within the FCA Handbook. The CT aims to consolidate and standardize market data from various sources, including over-the-counter (OTC) trades, to provide a comprehensive, accessible, and affordable data feed, enhancing market transparency, reducing trading costs, and improving liquidity. The FCA anticipates that this framework will incentivize the emergence of a Consolidated Tape Provider (CTP) by altering competitive dynamics among market data sellers, thereby benefiting users with lower cost, higher quality data. Additionally, the paper addresses the integration of existing provisions for Approved Reporting Mechanisms (ARMs) and Approved Publication Arrangements (APAs) into the FCA Handbook without substantive changes, aligning with the Data Reporting Services Regulations (DRSRs) 2023. This initiative reflects the FCA’s commitment to reinforcing the UK’s position in global wholesale markets and is set to take effect on April 5, 2024, pending Parliamentary approval. 🔗
Department of Business and Trade (DBT), Government of UK
The UK Government’s response to the “Smarter Regulation: Regulating for Growth” consultation, conducted from November 22, 2023, to January 17, 2024, emphasizes the extension of the Growth Duty to include key regulatory bodies like Ofwat, Ofgem, and Ofcom, aimed at promoting economic growth while ensuring regulatory actions are necessary and proportionate. With 54 responses from diverse stakeholders, the document highlights the government’s commitment to revising the statutory guidance for the Growth Duty, reflecting the evolving economic landscape and the need for transparency and accountability in regulation. This approach is geared towards fostering an environment where regulation supports economic development, innovation, and competitiveness, ensuring that regulatory practices contribute positively to the UK’s economic vitality and productivity without compromising environmental and consumer protections. 🔗
HM Revenue & Customs (HMRC), Government of UK
The amendments to the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) have progressively enhanced the UK’s regulatory framework to combat money laundering and terrorist financing. Key legislative updates, including the incorporation of Art Market Participants (AMPs) and Letting Agent Businesses (LABs) under the scope of MLR, the removal of EU references post-Brexit, and the introduction of stringent due diligence measures for high-risk countries, underscore the UK’s commitment to aligning its domestic regulations with evolving international standards. These amendments, particularly the enhancement of the High-Risk Countries list and the requirement for comprehensive checks for criminal convictions, significantly strengthen the oversight and enforcement capabilities of HMRC and other supervisory authorities, ensuring a more robust defense against financial crimes within the UK’s financial system. 🔗
LSB (Lending Standards Board), UK
The Lending Standards Board (LSB) is adapting to the Payment Systems Regulator’s (PSR) new mandatory reimbursement requirement for victims of Authorised Push Payment (APP) fraud, set to commence on October 7, 2024. This new framework mandates all UK Payment Service Providers to reimburse customers for APP fraud losses, introducing changes such as a potential £100 excess per claim and a maximum reimbursement level of £415,000. Unlike the current Contingent Reimbursement Model (CRM) Code, which covers around 90% of UK APP fraud and emphasizes both reimbursement and preventive measures against scams, the PSR’s framework places more responsibility on customers to avoid negligence and cooperate with banks to qualify for reimbursement. To ensure ongoing focus on scam prevention and detection, the LSB is developing a new Standard to complement the PSR’s framework, aiming to maintain the progress achieved in fraud prevention and customer protection under the CRM Code. 🔗
MFSA (Malta Financial Services Authority)
EFRAG Launches Two Public Consultations on the Draft XBRL Taxonomy for ESRS Set 1 and Draft XBRL Taxonomy for Article 8 Disclosures 🔗
The Malta Financial Services Authority (MFSA) has announced the launch of two public consultations by the European Financial Reporting Advisory Group (EFRAG) on the Draft XBRL Taxonomy for the European Sustainability Reporting Standards (ESRS) Set 1 and the Draft XBRL Taxonomy for Article 8 Disclosures. These consultations, opened on 8th February 2024, aim to facilitate digital reporting and enhance the transparency of sustainability disclosures. EFRAG’s development of these taxonomies comes in response to the ESRS Delegated Act published on 22nd December 2023 and is a critical step towards integrating sustainability reporting into the European Single Electronic Format (ESEF Regulation). Stakeholders, including issuers and financial institutions, are encouraged to participate in the consultations before the 8th April 2024 deadline. Additionally, a hybrid workshop is scheduled for 29th February 2024 to discuss the ESRS Set 1 Draft XBRL Taxonomy, with registration required by 23rd February 2024. 🔗
Consultation Document on the proposed establishment of a Framework for Collective Investment Schemes structured as Limited Partnerships without Legal Personality 🔗
The Malta Financial Services Authority (MFSA) proposes establishing a Limited Partnership Funds (LPF) framework, aiming to introduce Collective Investment Schemes (CISs) structured as Limited Partnerships (LPs) without legal personality. This initiative seeks to enhance Malta’s regulatory environment by offering a flexible and competitive option for fund structures, aligning with practices in other jurisdictions. The framework, governed under a new set of regulations within the Investment Services Act, emphasizes streamlined regulatory oversight by the MFSA, distinct partnership arrangements without legal personality, and clear delineation of roles and liabilities between general and limited partners. This approach is designed to bolster Malta’s attractiveness as a financial hub, providing a tailored solution that addresses the evolving needs of the global investment community. Stakeholders are encouraged to submit their responses through the Government Portal, ensuring their participation by the deadline of 21 March 2024. 🔗
Consultation Document on the Proposed Conduct of Business Rules for Enhanced Protection of Consumers 🔗
The Malta Financial Services Authority (MFSA) has released a Consultation Document titled “Proposed Conduct of Business Rules for Enhanced Protection of Consumers in the Provision of Banking Products and Services by Credit Institutions” with a closing date for feedback set for 16 April 2024. This document aims to introduce a comprehensive Conduct of Business Rulebook specifically for credit institutions, aiming to consolidate existing requirements and introduce new regulations to ensure consumer protection, pre-emptive supervisory measures, and fair treatment by credit institutions in Malta. The proposal seeks to address gaps in regulatory frameworks concerning the design and distribution of banking products, emphasizing the MFSA’s ongoing commitment to consumer protection, transparency, and the integrity of financial services. The consultation targets licensed banking entities, including European credit institutions operating in Malta, and seeks industry feedback on draft chapters covering disclosures, marketing, product oversight, conflicts of interest, and bank-client relationships. The initiative reflects the MFSA’s broader strategy to formalize its supervisory powers through Maltese subsidiary legislation, incorporating relevant EU directives such as the Mortgage Credit Directive (MCD) and the Consumer Credit Directive (CCD) into Maltese law, alongside guidelines and opinions from the European Banking Authority (EBA). 🔗
Feedback Statement to Queries Raised by Consulted Stakeholders on Regulation (EU) 2022/2554 on Digital Operational Resilience (the ‘DORA Regulation’) 🔗
The Malta Financial Services Authority (MFSA) has issued a Feedback Statement following its request for queries regarding Regulation (EU) 2022/2554 on Digital Operational Resilience (the ‘DORA Regulation’), initially communicated on 5 September 2023. This statement aggregates and responds to the inquiries received from Maltese financial institutions and associations, indicating the Authority’s commitment to clarifying the regulation’s implications and facilitating its national implementation. The MFSA has also updated stakeholders on the status of the DORA Regulation, including the submission of the first set of Technical Standards to the European Commission and the ongoing public consultation for the second set, due to close on 4 March 2024. Furthermore, the MFSA has made strides in national implementation efforts by releasing a Consultation Document for the DORA Regulation and a Feedback Statement on adopting the TIBER-EU Framework in Malta, showcasing its proactive approach in enhancing digital operational resilience within the financial sector. 🔗
RICS (Royal Institution of Chartered Surveyors), UK
On 20 February 2024, the Royal Institution of Chartered Surveyors (RICS) introduced new guidance titled ‘Developing an Inclusive Culture’ to augment its Rules of Conduct Rule 4, which mandates members and firms to foster respect, diversity, and inclusion. This initiative, crafted with insights from RICS members and DEI experts, outlines best practices across six key areas: inclusive spaces, recruitment, policies, culture, everyday workplace dynamics, and career progression. Aimed at promoting diversity, equity, and inclusion (DEI) within the profession, the guidance seeks to enhance creativity, innovation, and efficiency by reflecting the diverse communities served. While based on the UK Equality Act 2010, the guidance is globally applicable, recognizing the variance in legal frameworks across countries. Although not mandatory, it provides essential advice and resources, especially for SMEs and sole practitioners, to help all businesses attract and retain the best talent, thereby supporting RICS’s vision of an inclusive profession that delivers positive social impact. RICS also plans to offer training sessions and webinars to facilitate understanding and implementation of these practices. 🔗
UK Finance
The Financial Conduct Authority (FCA) has implemented temporary changes to complaint-handling rules specifically for the motor finance sector, considering its ongoing review under section 166 of the Financial Services and Markets Act 2000 (FSMA) regarding historic motor finance discretionary commission arrangements (DCAs). This measure suspends the obligation for firms to respond to complaints related to DCAs for nine months, a decision influenced by two significant Financial Ombudsman Service (FOS) rulings that highlighted the potential for consumer harm due to these commission structures. The FCA’s actions signal a broader regulatory scrutiny on practices that may conflict with consumer interests, emphasizing the agency’s commitment to ensuring fairness and transparency in financial arrangements. Affected firms are now faced with the challenge of adapting to these interim rules while preparing for potential outcomes that may necessitate comprehensive operational adjustments and possibly extensive customer redress. This development not only underscores the importance of aligning business practices with regulatory expectations to prevent consumer harm but also indicates a pivotal moment for the consumer finance sector to reassess and refine their commission-based models and complaint handling processes in alignment with the principles of fairness and transparency advocated by the FCA. 🔗
GLOBAL
IFRS (International Financial Reporting Standards Foundation)
The IFRS Taxonomy Consultative Group (ITCG) meeting on February 1, 2024, showcased critical discussions on updates to the IFRS Accounting Taxonomy, evaluation of the formula link base, enhancements to the regulator’s guide, insights from the XBRL usage survey, and feedback on the IFRS Sustainability Disclosure Taxonomy. These discussions underscore the ongoing evolution of financial reporting standards to incorporate technological advancements, enhance data quality, and address the complexities of risk management disclosures. The emphasis on clarity, comparability, and the potential for innovation in reporting processes, such as the consideration of text based XBRL Formulas, reflects the critical challenges and opportunities facing regulatory compliance experts and RegTech solutions developers. Moreover, the focus on sustainability disclosures aligns with global trends towards integrated financial and ESG reporting, highlighting the importance of support and guidance for stakeholders navigating these changes. The meeting’s outcomes highlight the need for flexible, reliable, and user-friendly regulatory compliance products that can adapt to evolving reporting standards and practices, ensuring transparency and efficiency in the financial reporting ecosystem. 🔗
UNEP FI (United Nations Environment Programme Finance Initiative)
The United Nations Environment Programme Finance Initiative (UNEP FI) recently introduced a groundbreaking guidance, “Driving Impact on Financial Health and Inclusion of Individuals and Businesses: From Setting Targets to Implementation,” aimed at enhancing the Principles for Responsible Banking (PRB). This initiative, developed in collaboration with 27 signatory banks and financial well-being experts, offers a comprehensive framework to support financial institutions in improving the financial well-being of their customers. It emphasizes the crucial role of these institutions in fostering financial health and inclusion, which not only benefits customer loyalty and product uptake but also aids in poverty alleviation and the establishment of more inclusive economies. By providing practical steps for strategy development, target setting, and impactful implementation, this guidance marks a significant milestone in the industry, pushing for a common understanding and concerted efforts towards financial well-being and inclusion, thereby underscoring the pivotal role of financial institutions in driving positive societal impact. 🔗
NORTH AMERICA
NYSE (New York Stock Exchange), US
On February 23, 2024, the Securities and Exchange Commission (SEC) released a notice regarding NYSE Arca, Inc.’s proposal to amend Rule 6.91P-O, which pertains to Electronic Complex Order Trading. The amendment seeks to specify additional trading interests that would trigger the early termination of a Complex Order Auction (COA). The proposed change aims to include instances where a Complex Qualified Contingent Cross (QCC) Order is submitted for the same complex strategy as the COA Order, necessitating the COA’s early conclusion. This modification aligns with recent adjustments to the complex order trading rules at NYSE Arca’s affiliated options exchange, NYSE American LLC, enhancing the consistency across platforms. The adjustment is designed to facilitate the incorporation of COA executions or any remaining balance of the COA Order in the Book, thus ensuring that later-arriving Complex QCC Orders are evaluated against the most up-to-date information. 🔗
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