Recent regulatory developments of interest to all financial institutions. Updates include the latest publications relating to Brexit, COVID-19 and more.

Contents

• COVID-19: FCA and PRA update information on key workers and working from home
• Brexit: PRA and BoE CP13/20 on changes required before end of transition period
• FCA approach to international firms: CP20/20
• Financial Services Regulatory Initiatives Grid update
• FCA data collection: phased move from Gabriel to RegData
• UK financial regulation: FCA speech on evolution of a new model
• Smart contracts and digital assets: Law Commission projects
• FinCEN files leak: House of Commons Treasury Committee raises questions
• SFDR: ESA survey on environmental and social financial product templates
• Global interest rates reform: ESMA speech
• CMU: ECON publishes report on further development
• Digital Finance: ECON report on emerging risks in cryptoassets

COVID-19: FCA and PRA update information on key workers and working from home

On 24 September 2020, the UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published updated information about COVID-19, key workers, and working from home.

The FCA confirmed in a statement that firms should follow government advice on working from home until notified otherwise. It has updated its statement about work-related travel and responsibilities of senior managers under the Senior Managers and Certification Regime, explaining that:

• firms should continue to discuss working arrangements with staff and support their employees in facilitating appropriate working arrangements; and
• senior managers are expected to take account of local and national lockdown restrictions and to review and update employee working arrangements on a continuing basis.

The FCA also updated its webpage on key workers. It explains that a key financial worker fulfils a role that is necessary for a firm to continue to provide essential daily financial services to consumers, or to ensure the continued functioning of markets. To help firms identify their key workers, they should first identify the activities, services or operations which, if interrupted, are likely to lead to the disruption of essential services to the real economy or financial stability. Firms should then identify the individuals that are essential to support these functions. Firms should also identify any critical outsource partners that are essential to continued provision of services, even where these are not financial services firms.

Firms should consider issuing a letter to all individuals they identify as key workers, including any new joiners, should it be necessary for these individuals to provide evidence of this in the future. The FCA recommends that the letter includes the sentence "the individual has been designated as a key worker in relation to their employment by [firm name]" and is signed by someone with appropriate authority.

The PRA's statement also urges firms to follow advice on working from home. It also reminds firms that the use of face coverings in close contact services (which includes branch staff) is mandatory.

Brexit: PRA and BoE CP13/20 on changes required before end of transition period

The PRA and the Bank of England (BoE) have published a joint consultation paper, CP13/20, on changes to their rules and binding technical standards (BTS), and the use of temporary transitional powers, required before the end of the Brexit transition period. A number of appendices are listed separately on the consultation webpage.

The consultation paper includes:

• an update on the BoE 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;
• proposals in relation to consequential changes required to existing BoE 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;
• PRA proposals in relation to the PRA Rulebook and BTS that will, or are expected to, be retained in UK law; and
• BoE (as FMI competent authority) proposals in relation to BTS that will be retained in UK law.

The deadline for responses is 17 November 2020. The PRA and the BoE intend for the changes to take effect on IP completion day.

FCA approach to international firms: CP20/20

The FCA has published a consultation paper, CP20/20, on its proposed approach to international firms providing or seeking to provide financial services that require authorisation in the UK. These firms include:

• EEA firms that have applied, or intend to apply, for authorisation in the UK (including those entering the temporary permissions regime (TPR)); and
• international firms from non-EEA countries that have applied, or intend to apply, for authorisation in the UK, or are already authorised in the UK.

The FCA states that it is not proposing to change existing rules or other provisions in the FCA Handbook. Rather, the FCA wants international firms to understand its approach and expectations.

In its consultation paper, the FCA explains the factors it will consider when it assesses them against minimum standards on authorisation and ongoing supervision. It also sets out the circumstances where international firms could present higher risks of harm, and how those risks can be mitigated.

The consultation closes on 27 November 2020.

Financial Services Regulatory Initiatives Grid update

The Financial Services Regulatory Initiatives Forum has published an updated version two of its Financial Services Regulatory Initiatives Grid which details current regulatory initiatives relevant to the financial services sector. The updated Grid has been expanded to cover initiatives relating to the Information Commissioner's Office (ICO) and the Pensions Regulator. In addition, the time period considered in the Grid has been extended to 24 months.

The Grid is a one-year pilot exercise, concluding in spring 2021. Contact details for feedback on the Grid are on the related FCA's webpage.

FCA data collection: phased move from Gabriel to RegData

The FCA has announced that the first firms will be moved from Gabriel to RegData, the FCA's new data collection platform for gathering regulatory data from firms, over the weekend of 17 and 18 October 2020.

The FCA will continue to move firms to RegData from Gabriel in stages over the coming months, based on their reporting requirements. As previously advised, all firms will receive three direct email reminders from Gabriel advising them of their moving date.

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 through Gabriel, using their existing Gabriel login details. The FCA's dedicated webpage on moving firms to RegData provides a checklist for firms before they move, and sets out the process they will follow to join RegData.

In addition, the FCA has published a series of explainer videos and step-by-step user guides on its RegData resources webpage, to take firms through each aspect of RegData. As with Gabriel, RegData will be accessible from the FCA website.

UK financial regulation: FCA speech on evolution of a new model

The FCA has published a speech by Christopher Woolard, FCA Interim Chief Executive, on the evolution of a new model for financial regulation in the UK. In his speech, Mr Woolard considers:

• lessons to be learned from COVID-19, in terms of society, technology and the manner in which we regulate;
• how the FCA might change to meet some of these challenges, and what constants may remain; and
• given the backdrop of the UK's exit from the EU, what kind of regulation does the UK need.

Smart contracts and digital assets: Law Commission projects

The Law Commission has announced that it has begun work on two new projects relating to analysing English law on smart contracts and digital assets. It is aiming to publish a call for evidence on smart contracts in late 2020 and a consultation paper on digital assets in early 2021.

FinCEN files leak: House of Commons Treasury Committee raises questions

The House of Commons Treasury Committee has published a press release announcing it has written to government ministers, HMRC and the FCA relating to the recent release to the media of papers filed with the US Financial Crimes Enforcement Network (FinCEN). The Committee seeks answers to a series of questions, including:

• What needs to be done to further secure the financial system from economic crime?
• Are UK law enforcement agencies following up on the information in the FinCEN papers?
• Will the release of the FinCEN papers impact on the submission of Suspicious Activity Reports (SARs)?
• Is the UK system robust to potential leaks?
• Are reports that the UK is a "higher-risk" jurisdiction a cause for concern?
• Is HMRC an effective money laundering supervisor for those within its jurisdiction?
• Will the release of the FinCEN papers impact any ongoing HMRC investigations?
• Will the FCA take enforcement action?

SFDR: ESA survey on environmental and social financial product templates

The European Supervisory Authorities (ESAs) have published a survey on presentational aspects of product templates under Article 8(3), Article 9(5) and Article 11(4) of the Sustainable Finance Disclosure Regulation (SFDR or Disclosure Regulation).

The survey focuses on pre-contractual and periodic disclosures by financial market participants, including alternative investment fund managers (AIFMs), UCITS management companies, insurance undertakings, institutions for occupational retirement provision (IORPs), and pan-European personal pension product (PEPP) providers.

The ESAs propose to standardise ESG disclosures by requiring the use of specific templates. Three preliminary and illustrative mock-ups of templates for a fictitious exchange traded fund have been created for the survey. While the ESAs note that the final content of the templates is subject to the outcome of a concurrent consumer testing exercise and the final report of the ESAs on draft regulatory technical standards (RTS) under the SFDR, they particularly invite comments on "presentational aspects of the mock-ups as the content of the mock-ups already reflects the current text of the draft RTS" which have been consulted on.

The survey closes to comments on 16 October 2020.

Global interest rates reform: ESMA speech

The European Securities and Markets Authority (ESMA) published a speech by Steven Maijoor, ESMA Chair, outlining recent and expected developments in the reform of global interest rates.

Points of interest in Mr Maijoor's speech include:

• the most relevant European central counterparties switched at the end of July 2020 from the EONIA discounting curve to the €STR discounting curve. ESMA expects the high liquidity of EONIA derivative markets to gradually move to €STR derivative markets in the coming months, before the EONIA end-date in January 2022. The widespread use of €STR derivative contracts should, therefore, be a matter of time, following a pattern already seen in the UK and the US with reference to their overnight risk-free rates (that is, SONIA and SOFR);
• in the coming days, the European Central Bank is expected to publish the outcome of its consultation on the publication of compounded €STR. This would represent an important step forward, strengthening the interest rate landscape in the euro area, which ESMA would fully support;
• the hybrid methodology used to calculate EURIBOR allowed for a smooth navigation in recent months during the COVID-19 pandemic. ESMA considers this methodology to be robust, resilient and transparent, as well as compliant with the Benchmarks Regulation. ESMA will become EURIBOR's supervisor in January 2022 and, at present, the discontinuation of EURIBOR is not part of its plans. However, the robustness of contracts for financial products that reference EURIBOR will be a supervisory priority for ESMA. This can be achieved with the inclusion of effective fallback provisions in all EURIBOR contracts. These provisions ensure the continuity of contracts in the unlikely scenario of EURIBOR discontinuation, increasing legal certainty and minimising frustration risks. The Working Group on Euro Risk Free Rates will shortly finalise key recommendations on EURIBOR fallback provisions; and
• the global use of US dollar LIBOR represents arguably the most challenging element of the LIBOR transition. US dollar LIBOR exposures are particularly relevant among EU market participants. The transition from LIBOR therefore represents a significant priority from an EU, as well as UK and US, perspective. The EU institutions are following this situation very closely.

CMU: ECON publishes report on further development

The European Parliament's Economic and Monetary Affairs Committee (ECON) has published a report on the capital markets union (CMU), which focuses on improving access to capital market finance and further enabling retail investor participation.

ECON voted to adopt the report on 11 September 2020. It is scheduled to be considered by the European Parliament in its plenary session between 5 October and 8 October 2020.

Digital Finance: ECON report on emerging risks in cryptoassets

ECON has published its report setting out recommendations to the European Commission on digital finance. The report addresses emerging risks in cryptoassets: specifically, regulatory and supervisory challenges in the area of financial services, institutions and markets.

ECON voted to adopt the report on 11 September 2020 and it will be considered by the European Parliament in its plenary session between 5 October and 8 October 2020.

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