Recent regulatory developments of interest to financial institutions and markets. Includes reports relating to Brexit, EMIR and the Benchmarks Regulation, among others. Also check our General regulatory news in the related materials links.
Contents
- Brexit: FCA opens registration applications for UK securitisation repositories
- EMIR: Delegated Regulations on tiering, comparable compliance and fees for third-country CCPs
- BMR: ECB opinion on draft Regulation amending BMR regarding exemption of certain third-country FX benchmarks and designating replacement benchmarks
- BMR: ESMA consults on fees for benchmarks administrators
- Debt capital raising: IOSCO guidance on conflicts of interest
- IBOR Fallbacks Protocol and Supplement: ISDA updates FSB on timing
Brexit: FCA opens registration applications for UK securitisation repositories
The UK Financial Conduct Authority (FCA) has published a new webpage for securitisation repositories under the Securitisation Regulation that wish to register with the FCA in order to become operational after the end of the Brexit transition period.
The FCA explains that firms that wish to apply to be a UK securities repository can complete a draft SR application form from 23 September 2020 and send it to the FCA. This is to ensure a smooth transition in the reporting of public securitisations before the end of the transition period.
A firm must meet the conditions set out in Article 10 of the onshored Securitisation Regulation to be authorised as a UK securities repository. Firms should be able to evidence that they have the necessary competence to carry out the collecting and maintaining of securitisation records.
The FCA notes that HM Treasury will soon bring forward legislation to assist the FCA when considering draft applications.
The FCA has also updated its webpage on securitisation to confirm that remaining technical standards, which supplement the Securitisation Regulation and become operative during the course of 2020, will be retained in UK law at the end of the transition period.
Brexit: Commission Implementing Decision determining temporary equivalence of UK regulatory framework for CCPs
Commission Implementing Decision (EU) 2020/1308 determining, for a limited period of time, that the regulatory framework applicable to central counterparties (CCPs) in the UK is equivalent to the European Market Infrastructure Regulation (EMIR) has been published in the Official Journal of the EU (OJ). The Decision entered into force on 22 September 2020, applies from 1 January 2021, and expires on 30 June 2022.
The Commission explained that it has adopted the time-limited Decision to give financial market participants 18 months to reduce their exposure to UK CCPs. It notes that the heavy reliance of the EU financial system on UK CCPs raises financial stability issues and requires the scaling down of EU exposures to such infrastructures. The Commission encourages the financial industry to develop strategies that will reduce reliance on UK CCPs.
The Band of England welcomed the equivalence Decision as it avoids EU firms having to exit UK clearing houses before the end of the year. It also highlights how the Decision allows EU authorities to finalise the remaining steps for recognition of UK CCPs.
EMIR: Delegated Regulations on tiering, comparable compliance and fees for third-country CCPs
The following Delegated Regulations supplementing EMIR concerning CCPs established in third countries (TC-CCPs) have been published in the OJ:
The Delegated Regulations reflect amendments made to EMIR by EMIR 2.2 which entered into force on 22 September 2020.
BMR: ECB opinion on draft Regulation amending BMR regarding exemption of certain third-country FX benchmarks and designating replacement benchmarks
The European Central Bank (ECB) has published an opinion on the proposed Regulation amending the Benchmarks Regulation (BMR) as regards the exemption of certain third-country foreign exchange (FX) benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. The ECB received a request for the opinion from the Council of the EU on 8 September 2020.
In the opinion, the ECB sets out some general, and specific, observations on the proposed Regulation. In general, the ECB welcomes the main objective of the proposed Regulation, which would empower the European Commission to adopt an implementing act to designate a statutory replacement rate. Such rate would replace, by operation of law, certain benchmarks, which, if no longer published, would cause significant disruption to the functioning of financial markets in the EU, and which are undergoing a supervised process of orderly cessation. The ECB also supports the proposed exemption from the BMR of benchmarks administered from third countries that refer to a spot exchange rate of a third-country currency that is not freely convertible and that fulfil the other criteria set out in the proposed Regulation.
The ECB's specific comments relate to the following areas: the ECB's interest and role in supporting the market's transition to near risk-free rates, the designation of a statutory replacement rate to replace a benchmark other than LIBOR, contingency planning by EU supervised entities, the recommendations of the Working Group on Euro Risk-Free Rates, governing law of affected contracts, scope of contracts affected and determining the unsuitability of fallback provisions.
Appended to the opinion is a technical working document setting out the amendments the ECB recommends making to the proposed Regulation, with accompanying explanatory text.
BMR: ESMA consults on fees for benchmarks administrators
ESMA is consulting on fees for benchmarks administrators that will be supervised by ESMA in January 2022 under the BMR.
The consultation contains ESMA's first proposal for BMR fees to be paid by third country administrators under the recognition regime and by administrators of a critical benchmark.
The consultation closes on 6 November 2020. ESMA will consider the responses to this consultation with a view to providing technical advice to the European Commission. It aims to publish its final report in January 2021.
Debt capital raising: IOSCO guidance on conflicts of interest
The International Organization of Securities Commissions (IOSCO) has published a final report which includes guidance to help its members address the risk of conflicts of interest and associated conduct risks in the debt capital raising process.
Among other things, the report explores the potential benefits and risks of blockchain technology in addressing conflicts of interest in the debt capital raising process. It also seeks to address some specific concerns observed by certain regulators during the COVID-19 pandemic that may affect the integrity of the 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 the use of risk management transactions, the quality of information available to investors, and the allocations process.
While the guidance focuses on traditional corporate bonds, IOSCO notes that it may be useful to IOSCO members considering raising capital through other types of debt securities.
The guidance is the second part of a two-stage project on conflicts of interest in capital raising. The first stage focused on the equity capital raising process with the final report, "Conflicts of interest and associated conduct risks during the equity capital raising process", published in September 2018.
IBOR Fallbacks Protocol and Supplement: ISDA updates FSB on timing
The International Securities and Derivatives Association (ISDA) has published a letter sent to the Co-Chairs of the Financial Stability Board (FSB) Official Sector Steering Group (OSSG) regarding the timing of the IBOR Fallbacks Protocol and IBOR Fallbacks Supplement.
From a documentation and infrastructure perspective, ISDA is ready to launch the IBOR Fallbacks Protocol and Fallbacks Supplement to implement the new fallbacks for legacy and new derivative contracts, respectively. However, the launch remains subject to, and now contingent on, completion of ISDA's submissions to relevant competition authorities (notably, the US Department of Justice).
ISDA will give market participants approximately two weeks' notice of the official launch date and its later effective date. During this period, as previously announced, ISDA expects to facilitate a process where regulated entities and other key market participants can adhere to the IBOR Fallback Protocol "in escrow".
Following industry feedback, ISDA will avoid an effective date in December and provide a three-month period between the launch date and the effective date. This means that the IBOR Fallbacks Supplement and Fallbacks Protocol will not take effect before the second half of January 2021.
When the IBOR Fallbacks Supplement takes effect, all cleared OTC and non-cleared derivatives transactions entered after the effective date that incorporate the 2006 ISDA Definitions and reference a covered IBOR will contain the new fallbacks without further action by the counterparties. ISDA also understands that major CCPs intend to apply the new fallbacks to all new and existing cleared OTC derivatives transactions from this date.
Firms can continue to adhere to the IBOR Fallbacks Protocol after the effective date. Later adherence will not have a practical impact if firms and their counterparties adhere before an actual cessation of a covered IBOR (or non-representative publication, in the case of LIBOR). However, the objective of the three-month period is to allow most of the market to agree to include the new fallbacks in their existing non-cleared derivatives transactions before the effective date.
ISDA would welcome the opportunity to discuss the timing set out in the letter.
[View source.]
