On 9 October 2024, the European Banking Authority (EBA) published final guidelines on the content of the redemption plan to be developed by issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs). The Guidelines are addressed to Member State competent authorities (NCAs) and issuers of ARTs and EMTs. The guidelines are developed per Articles 47(5) and 55 of the Markets in Crypto-Assets Regulation (MiCAR). The Guidelines set out the: Content of the redemption plan. Periodicity for review and update of such a plan. Triggers for implementation of the redemption plan that issuers of ARTs and EMTS have to draw up and maintain operational. The Guidelines apply from two months after their publication in all EU official languages on the EBA’s website. The deadline for NCAs to report whether they comply with the Guidelines will be two months after the publication of the translations.

On 9 October 2024, the Securities and Futures Commission (SFC) issued a circular (the Circular) stating its intention to place greater emphasis on the supervision of asset management firms and reminding personnel of their regulatory obligations, after it identified various deficiencies and substandard conduct in respect of the management of private funds and discretionary accounts which had resulted in substantial losses for investors. The regulatory breaches noted in the Circular are wide-ranging, including failure to identify, document, manage and disclose – as appropriate – market, concentration, credit and liquidity risks. An appendix to the Circular has been published on a no-names basis highlighting examples of inadequate conduct in the handling of conflicts of interest, risk management, disclosure to investors and use of valuation methodologies. Examples highlighted include managers that have: Used fund assets to provide loans to affiliates on terms much more favourable than available in the market generally; Retrospectively allocated trades with unrealised profits in favour of connected parties; Acted contrary to their stated investment objective by making a singular investment while also acting as financial advisor to, and receiving an undisclosed monetary benefit from, the issuer of the notes purchased; Delayed redemption payments to certain investors due to liquidity concerns while giving priority to staff whose redemptions were settled in full first; Continued to invest in illiquid stocks and notes notwithstanding a significant amount of overdue redemption payables; Provided unsecured loans having made no assessment of the financial position of the borrower, and renewed the loans notwithstanding late interest payments; Relied on outdated credit rating reports while failing to consider negative news about an issuer’s financial position when investing a significant proportion of the fund’s assets into further notes; Failed to disclose significant exposures and subsequent defaults to investors with substantial adverse impacts on the fund’s net asset value (NAV) and its ability to meet its liquidity needs; and Failed to take reasonable steps to obtain from guarantors the difference between a bond’s par value and its market value, while continuing to book the full value of the receivables in the NAV computation. The number of SFC investigations into intermediary misconduct generally has been increasing steadily in recent quarters and, in light of the findings published in the Circular, the SFC has indicated that it will give “high priority” to combatting misconduct in the asset management industry over the “coming year”. This will involve “step[ping] up its disciplinary actions and impos[ing] harsher penalties against similar or persistent misconduct”. We therefore expect that the SFC will use the range of levers available to it to assess firms’ compliance (including offsite monitoring and on-site inspections) and will take enforcement action against both firms and individuals (including fines, reprimands and seeking disqualification orders) as appropriate. While the SFC does not mention how many individual asset management firms were involved in the examples it cites, it appears to be concerned about practices in the industry as a whole. The SFC says the breaches noted are “egregious” and suggest a lack of integrity on the part of the personnel involved. It noted that the breaches undermine the integrity of the market and damage investor confidence in Hong Kong as an international asset management centre, and that it is therefore ready to take “decisive action” to send a “strong deterrent message”. Directors and senior managers of firms have been put on notice to “critically review the areas of concern” and “give priority to strengthening their supervisory and compliance programmes”. They are advised to have an independent and objective audit conducted on their firms’ compliance. Firms may therefore wish to take the opportunity now to assess not only the robustness of the policies and procedures in place but the extent of compliance by staff, both with the spirit of the Overarching Principles and the letter of the Fund Manager Code of Conduct (the fifth edition of which was published this month), the Code of Conduct for Persons Licensed by or Registered with the SFC and the related Internal Control Guidelines as applicable. Norton Rose Fulbright can assist asset managers to assess compliance with their obligations, strengthen policies and controls, and – if necessary – mitigate and self-report breaches that may be identified, which the SFC is likely to view favourably when determining any disciplinary action.

On 9 October 2024, the European Commission (Commission) published a targeted consultation on the functioning of the EU securitization framework. The Commission writes that the size of the European securitisation market has decreased significantly since the 2008-2009 global financial crisis while the securitisation markets outside the EU have fully recovered and surpassed pre-crisis records. To revive the EU securitisation market, the Commission introduced a securitisation framework in 2019. The framework consists of the Securitisation Regulation ((EU) 2017/2402), which sets out a general framework for all securitisations in the EU and a specific framework for simple, transparent, and standardised (STS) securitisations, as well as prudential requirements for securitisation positions in the Capital Requirements Regulation ((EU) 575/2013) (CRR) and the Solvency II Delegated Regulation ((EU) 2015/35) (Solvency II), and liquidity requirements in the Liquidity Coverage Requirement Delegated Regulation ((EU) 2015/61) (LCR Delegated Regulation). Although the 2019 framework improved transparency and standardisation in the securitisation market, the Commission writes that it received feedback from the industry that issuance and investment barriers remain high. The Commission has therefore been looking at possible amendments to the framework, and this has given additional impetus by the March 2024 Eurogroup statement of the future of the Capital Markets Union. The consultation paper is looking for stakeholder feedback on a broad range of issues concerning the EU securitisation framework. These issues include: The effectiveness of the securitisation framework and the impact on small and medium-sized enterprises. The scope of application of the Securitisation Regulation. Here the Commission asks stakeholders whether the current jurisdictional scope of application of the Regulation should be made clearer, and whether the definition of a securitisation transaction should be expanded or narrowed. The Commission also asks for feedback on whether the Alternative Investment Fund Managers Directive (AIFMD) (2011/61/EU) should be amended, taking into account the originate-to distribute prohibition in the AIFMD, to enable Alternative Investment Fund Managers to fulfil the functions of a sponsor in a securitisation transaction. Due diligence requirements. The Commission asks for stakeholder views on the current due diligence requirements and the costs that they entail. Transparency requirements and definition of public securitisation. Stakeholders are asked to estimate the costs associated with the Securitisation Regulation’s transparency regime and to provide views on possible ways forward. The Commission also proposes an expanded definition of a public securitisation. Supervision. The Commission asks general questions on how compliance with the Securitisation Regulation is being supervised and how supervision should look in the future. The STS standard. The Commission asks stakeholders to provide their views on the current STS standard and how the use of this label could be increased in the EU. The Commission also asks for feedback on the STS criteria under the current framework. Securitisation Platform. The Commission asks whether the establishment of a pan-European securitisation platform would be useful to increase the use and attractiveness of securitisation in the EU, and what the scope and objectives of such a platform would be. Prudential framework. In the final sections of the consultation paper, the Commission asks stakeholders to indicate the impact of the prudential requirements under the CRR framework on the securitisation market, and how possible changes to these requirements could increase the issuance of securitisations. The consultation also discusses the risk weight floors for securitisation positions, as well as the liquidity risk treatment in the LCR Delegated Regulation. Finally, the consultation paper discusses the prudential requirements for securitisation positions by insurers under the Solvency II framework and the prudential framework for institutions for occupational retirement provision and other pension funds. Additional questions. The final section of the consultation paper poses a number of general questions on the functioning of the EU securitisation market and wider aspects that may affect the securitisation activity in the EU. Next steps The deadline for feedback to the consultation is 4 December 2024. Following this deadline, the Commission will consider the feedback received. A legislative proposal amending the EU securitisation framework is expected in Q2 2025.

On 9 October 2024, the International Organization of Securities Commissions (IOSCO) issued its final report on investor education surrounding crypto-assets. The report follows up on an earlier report published in 2020 and provides updated information on crypto-assets that will be useful to regulators when designing investor education initiatives for retail investors. The report also describes some changes in the regulatory landscape of certain IOSCO members, including investor protection measures and includes examples of educational materials. Section 4.2 of the report highlights specific messaging that IOSCO members may wish to consider along with examples of such messaging.

On 9 October 2024, the Investment Association (IA) updated its ‘Principles of Remuneration’. The Principles of Remuneration outlines IA member views on the commonly accepted approach to executive pay for the majority of companies.

On 9 October 2024, there was published on legislation.gov.uk, The Payment Services (Amendment) Regulations 2024 together with an explanatory memorandum. The Regulations come into force on 30 October 2024. The Regulations introduce the ability for payment service providers to slow down the sending of an in-scope payment where the payer’s payment service provider has established that there are reasonable grounds to suspect the payment order has been placed subject to fraud or dishonesty by someone other than the payer. This is permitted where the grounds have been established by the end of D+1, and where more time is needed for the payment service provider to conduct further enquires with the customer or a relevant third party. The delay to the payment must be no longer than necessary and, in any event, no longer than the end of D+4. This gives a payment service provider more time to intercept potentially fraudulent payments, interrogate them and “break the spell” of the fraudster, in individual cases. The conditionality for using this measure means it cannot be applied as a tool to ‘derisk’ whole categories of transactions where those grounds are not established. Payment service providers will be required to inform the payment service user of the fact of the delay, the reason for it and what information or actions are needed to help the payment service provider decide whether to execute or refuse the payment order (unless providing any of that information would be unlawful). This information must be provided as soon as possible and no later than the end of D+1. The Regulations apply only to outbound authorised push payments wholly executed in the UK in sterling. It does not apply to pull payments (i.e., those initiated by the payee such as card payments), payments as part of the Single Euro Payments Area, international payments or paper-initiated transactions.

On 9 October 2024, the Global Foreign Exchange Committee (GFXC) announced that it was seeking feedback proposals arising from its Three-Year Review of the FX Global Code (the Code). The proposals include amendments to five of the Code’s fifty-five principles which are intended to clarify market participants’ responsibility to mitigate FX settlement risk, and to enhance market transparency on FX transactions and the use of FX data. The GFXC is also proposing to amend the Disclosure Cover Sheets for Liquidity Providers and Platforms. These proposes focus on data disclosures. Next steps The deadline for comments on the proposals is 25 October 2024. The proposals will then be finalised and reviewed by the local FX committees for approval by the GFXC at its meeting in December 2024. The revised Code will be published at the end of the year, followed thereafter by the updated Disclosure Cover Sheets.

On 9 October 2024, the FCA published Market Watch 80. In this Market Watch the FCA makes certain observations about what firms can do to ensure compliance with SYSC 6.1.1R when dealing for overseas clients who operate aggregated accounts that provide no visibility of the ultimate beneficial owners.

On 9 October 2024, the Financial Conduct Authority (FCA) published its review into payment firms’ implementation of the Consumer Duty (Duty) and how they have considered the specific payments sector risks set out in the Dear CEO letter of 21 February 2023 on implementing the Duty in payments firms. The types of payment firms the FCA reviewed included payment service providers, e-money issuers, money remitters, merchant acquirers and open banking firms. For the review, the FCA contacted 23 payments firms and asked them how they had implemented the Duty. As part of this the regulator asked for documents evidencing the approach as well as raising specific questions. The FCA analysed the responses and sent feedback to the firms involved. Findings The FCA’s findings from the review include: Approach to implementation: The best firms tended to have strong governance and control frameworks which were used to scrutinise and challenge the firm’s implementation of the Duty and deliver any enhancements required. The firms who were best able to show compliance with the Duty tended to have a systematic implementation approach which started with clearly identifying the target market for their products and services and what good outcomes looked like for products and services, price and value, consumer understanding and consumer support. Many firms with a less effective approach to embedding the Duty applied their existing management information (MI) measures such as complaints and online product reviews, without building on them or linking them to the Duty outcomes. Products and services – establishing the target market: The FCA saw target markets that were generally set relatively widely. It accepts that wide target markets can be appropriate in some circumstances but warns that an inappropriately wide target market risks the firm not identifying the true risk of their product or service delivering poor outcomes to consumers. Products and services – agent oversight: The FCA has concerns that some firms have not adapted their monitoring processes to be able to demonstrate that their agents are complying with the Duty. A particular concern is ongoing monitoring and how it will confirm that principal firms and their agents have complied with the Duty’s requirements. Fair value assessments: The FCA found that many fair value assessments fell short of its expectations particularly in the nature of the supporting analysis provided. Consumer understanding: The FCA saw some good practice which included some firms testing their communications to make sure they were clear for consumers. In some firms, the FCA found it difficult to see how the approval process for customer communications had changed once the Duty came into force. It also found limited monitoring of consumer understanding after the communication was sent out. Consumer support: The FCA identified instances where firms’ signposting of some customer support services was unclear. It also notes that a common source of complaints from customers of e-money firms relates to the lack of communications from firms when their account had been frozen. In these cases, firms are often prevented from responding to some customer enquiries due to financial crime requirements. Some firms had reviewed their customer support in this area making sure that, where they were not bound by financial crime constraints, communications about the reasons for account freezing were improved. Governance: Generally, the FCA did not seemuch challenge to Duty implementation reflected in the board or senior governing committees’ minutes. It also did not see much evidence of firms’ Duty Champions bringing matters to the attention of boards or senior governing committees. Management information: The FCA notes thatcreating a robust and sustainable MI suite was the biggest challenge for many firms. The challenges included identifying metrics that were directly relevant to the Duty’s outcomes, and which could be collected regularly. Good and poor practices The FCA also describes in further detail some of the good and poor practices that it found. For instance, for consumer support good practice included: The best firms were able to demonstrate that they had considered the support needs of their customers, including those who were vulnerable. They provided support channels appropriate to the needs of their target consumers. They had clear internal service level agreements (SLAs) on delivering support and addressed any shortfalls in a timely manner. Their MI enabled likely issues with customer support to be identified using complaints and SLA data. Swift action was taken to investigate and fix issues. Next steps Payment firms should read the FCA’s review, consider how their firm compares and use it to address any shortfalls or gaps. The FCA also reminds firms that their boards must, at least annually, review and approve an assessment of whether the firm is delivering good customer outcomes which are consistent with the Duty. Firms should expect the FCA to ask for the results of their monitoring and board reports. The regulator will use this information, as well as the information that it already gathers from firms and other data sources, to assess firms against the Duty and identify then tackle harmful practices.

On 8 October 2024, the United Nations Environment Programme Finance Initiative (UNEP FI) published the Responsible Banking Blueprint – A roadmap for action on climate, nature and biodiversity, healthy and inclusive economies and human rights (the Blueprint).The Blueprint is designed to be read in conjunction with the UNEP FI’s strategy note, Leading the Way to a Sustainable Future – Priorities for a Global Responsible Banking Sector. The UNEP FI states that the Blueprint captures the ‘cutting edge of responsible banking ambition’ in seven key areas: Strategy: has a sustainability strategy covering climate, nature & biodiversity, healthy & inclusive economies and human rights; has a strategy that is based on the results of a holistic portfolio analysis; and demonstrates alignment of business strategy to be consistent with and contribute to relevant sustainable development goals (SDGs) and international frameworks. Internal processes and policies: has internal sustainability policies and processes (including transition considerations, risk management and due diligence) in place that incorporate sustainability aspects across all aspects of financing and investment processes; has a human rights approach incorporated across all aspects of the financing cycle, are gender sensitive, and enable banks to identify both opportunities for and risks of or associated with clients and their potentially affected stakeholders; established governance systems; has competence on climate, nature and social and development-related issues at board-level; and has developed and implemented relevant climate, nature, social and human rights policies for all identified sectors with a high impact. Portfolio composition and financial flows: has been mobilising significant amounts of capital to promote sustainable development, while ensuring do-no-harm and leave-no-one-behind principles; and has a sustainability and product and services framework. Client engagement: has raised awareness with its clients and customer base about the risks and opportunities associated with the relevant theme/s; has been engaging corporate clients on their targets, action and transition plans; and increasing the number of clients that have improved their own management of sustainability-related risks and impacts. Advocacy and partnerships: has been advocating for an enabling sustainable finance policy environment. Target-setting and implementation via action and transition plans: set targets in all areas of most significant impact; and has an action or transition plan in place. Transparency and disclosure: demonstrate target delivery by reporting on progress against pre-defined milestones and key performance indicators; and discloses the proportion of funding in its portfolio that is aligned with the Paris Climate Agreement, the Global Biodiversity Framework, the SDGs, the UN Guiding Principles, and/or other relevant international and national framework. For further updates on regulatory developments in the ESG space please visit our Financial Services Regulatory Developments in ESG hub.

On 8 October 2024, the Financial Conduct Authority (FCA) published two Dear CEO letters, sent to banks and building societies and to payment and e-money institutions, in which it sets out its expectations on authorised push payments (APP) fraud reimbursement. The Payment Systems Regulator’s (PSR) reimbursement requirement for APP fraud carried out through the Faster Payments System and CHAPS came into force on 7 October 2024 (the date of the Dear CEO letters). In the letters, the FCA sets out its expectations relating to the new measures, the role of the Consumer Duty and what firms can expect from the FCA through a data-led approach to monitoring progress. In-scope firms that have not already done so are asked to ensure they have appropriate oversight, systems and controls in place to comply with these requirements. The FCA’s expectations In relation to anti-fraud systems and controls, both letters highlight that payment service providers (PSPs) should be working to reduce APP fraud by improving their anti-fraud systems and controls, including at onboarding and through ongoing transaction monitoring. In particular, the FCA reminds firms that PSPs should: Have effective governance arrangements, controls and data to detect, manage and prevent fraud. Regularly review their fraud prevention systems and controls to ensure that these are effective. Maintain appropriate customer due diligence controls at onboarding stage and on an ongoing basis to identify and prevent accounts being used to receive proceeds of fraud or financial crime. On the Consumer Duty, the FCA reminds firms that they must: Avoid causing foreseeable harm – for example, a consumer becoming victim to a scam relating to a firm’s financial products due to the firm’s inadequate systems to detect and prevent scams, or inadequate processes to design, test, tailor and monitor the effectiveness of scam warning messages presented to customers. Where they identify that they have caused customers harm (either through action or inaction), act in good faith by taking appropriate action to rectify the situation, including considering whether remedial action such as redress is appropriate. In relation to information, PSPs are reminded that the Payment Services Regulations 2017 require them to provide information about the availability of alternative dispute resolution procedures for payment service users and how to access them as part of their pre-contractual information. This includes informing eligible customers about the availability of the Financial Ombudsman Service. The letter to CEOs of payment and e-money firms also flags the FCA’s expectations on capital and liquidity, noting that PSPs should recognise and manage their potential liability and the impact this may have on their capital and liquidity. The FCA expects PSPs to review and adjust their business models and transactions to mitigate against any risk of prudential impact that may result from potential APP fraud reimbursement liabilities. The FCA also flags that it expects firms to ensure their approach to “on us” APP fraud – also known as internal book transfers or intra-firm payments – meets their obligations under the Consumer Duty. If a firm is planning to provide a lower level of protection to “on us” APP fraud reimbursement compared to payments made through FPS and CHAPS, they should contact the FCA to provide an explanation of the steps they have taken to meet those obligations. What the FCA and PSR will do The letters explain that the FCA and PSR will work together to monitor firms’ compliance with the reimbursement regime. They plan to use data arising from the reimbursement regime to monitor for prudential issues, conduct breaches and inadequate systems and controls and ensure that it is effectively protecting consumers against APP fraud without adverse impacts on the broader payments system. As part of the process for monitoring PSPs’ implementation of the payment delays legislation, the FCA is also looking to gather data from PSPs on payment execution timings to assess the level of additional friction in the system, and values and volumes of delayed payments under the new statutory instrument. Next steps The FCA reminds CEOs of their ongoing obligations to notify it without undue delay of any material changes in their firms’ circumstances, including significant systems and controls and/ or prudential issues.

On 8 October 2024, the Financial Conduct Authority (FCA) published a speech by its chief executive Nikhil Rathi on “predictable volatility”, delivered at the FCA International Capital Markets Conference 2024. The speech flags that we are living in an era of predictable volatility but that we must now expect to face it as a constant. Mr Rathi notes that the UK has a chance to lead how capital markets can drive economic growth and development, and highlights the need to nurture liquidity, shift regulation and adopt a new mindset towards risk. He reminds the industry that no single entity has all the answers that “it will take action from us all”. Mr Rathi gives examples of events he has seen during his career that show just how volatile markets can be, including Brexit, the pandemic and conflict in the Middle East. Reasons discussed for the sharp rise in volatility and resulting risk include: Technology, including the use of algorithms (which accounted for up to 60% of trading in major US exchanges as early as 2009), and the potential for a single glitch to “run haywire through global infrastructure”. Market concentration, with just 10 firms representing nearly 50% of the FTSE 100’s value and similar trends in the US. Mr Rathi also notes that investment management is increasingly centralised in the largest firms, and that a few providers control most of the world’s data and increasingly partner with a handful of Big Tech names that dominate the cloud as well as AI services. Tougher liquidity conditions add to this fragility – today’s more fragmented system (exchanges, private markets, ETFs and derivatives) works in normal times but becomes harder to trade when volatility strikes. The increased interconnectedness of financial systems, which means events in one country can quickly have profound effects elsewhere. The speech notes that volatility per se is not the issue and should not be conflated with systemic risk, but warns that excessive moves, especially intraday, due to runaway volatility that dislocate prices from fundamentals are the central concern. Mr Rathi suggests ways in which the FCA and market participants can act to address the predictable volatility in the market, including: Nurturing liquidity – the FCA is exploring how adjustments could encourage wholesale trading and improve market liquidity, and may in turn reduce barriers to entry for specialised trading firms that don’t hold retail deposits.  Shifting from reactive to proactive regulation, and a system guided by good outcomes rather than having rules for the sake of it. Having a new mindset towards risk – Mr Rathi notes that UK markets stay relevant because they are always open to reform, and that the FCA has often been at the heart of progress. Investing in infrastructure and getting better at piloting and adopting tech, whilst noting that cybersecurity is critical. Deep market engagement – the FCA wants to hear from “all corners of the market”, including big and small, and public and private companies to understand the root causes of shocks and how they can be managed.

On 8 October 2024, the Prudential Regulation Authority (PRA) published Consultation Paper 12/24 ‘Resolution assessments: Amendments to reporting and disclosure dates’ (CP12/24). Existing rules The existing PRA rules provide that each firm to which the Resolution Assessment Part of the PRA Rulebook applies is required to carry out an assessment of its preparations for resolution and submit a report to the PRA every two years, by the first Friday in October. Each firm must then publish a summary of its report by the second Friday in June of the following year. Separately, the Bank of England carries out an assessment of these firms’ preparations for resolution and makes a public statement on each firm’s resolvability at the same time as the firms publish their disclosures. Proposals In CP12/24 the PRA sets out proposals to amend the Resolution Assessment Part of the PRA Rulebook and Supervisory Statement 4/19 (SS4/19). The proposals relate to amendments to reporting and disclosure dates, but not other aspects of the resolution assessment. The intention is to provide greater flexibility over the timing of the reporting and disclosure requirements, while ensuring that firms periodically continue to report and disclose their assessments of their preparations for resolution. More specifically, the proposals include: The removal of the prescribed dates currently set out in Resolution Assessment 3.1 and 4.1, to give more flexibility to the timing of future reporting and disclosures. That the PRA set out in SS4/19 that a firm would be expected to continue to report and disclose a summary of its assessment periodically, as communicated by the PRA, and no more frequently than every two years. The PRA will communicate on its website its expectations as to the dates for future resolution assessment reports and disclosures at least 12 months in advance of the expected submission and publication dates. Consequential amendments to SS4/19, including updates to the sections on waivers and modifications and transitional arrangements to reflect the removal of prescribed reporting and disclosure dates from the Resolution Assessment Part. The proposal does not change the current SS4/19 content about a firm that may seek to alter its own reporting or disclosure date in light of circumstances such as mergers or acquisitions. Next steps The deadline for comments on CP12/24 is 8 November 2024. The PRA has opted for a one-month consultation period in order to provide firms with certainty on the timing of the next resolution assessment. Subject to the outcome of the consultation, the PRA intends to communicate to firms that the third assessment will take place in 2026-27. This means that firms would be due to submit their reports in October 2026 and publish disclosures in June 2027.

On 7 October 2024, the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024 (the draft Regulations) were published on legislation.gov.uk, along with a draft explanatory memorandum. The draft Regulations make two changes: Regulations 2 and 3 make amendments to primary legislation in connection with the revocation by the Financial Services and Markets Act 2023 (FSMA 2023) of the UK Capital Requirements Regulation (CRR), which currently forms part of assimilated law on financial services. Regulation 2 amends the definition of “CRR rules” in the Financial Services and Markets Act 2000 (FSMA 2000) to include rules made by the Prudential Regulation Authority (PRA) as part of Basel 3.1 implementation to replace CRR provisions revoked under FSMA 2023. Regulation 3 makes a related amendment to section 5 of the Financial Services Act 2021 to ensure that certain requirements apply to those rules. Regulation 4 amends the definition of “recognised exchange” as contained in the CRR. This is intended to support an expansion of investment exchanges that fall within the definition of a “recognised exchange”. The draft Regulations do this by specifying that investment exchanges can qualify as a ‘recognised exchange’ if they are: a) UK-based investment exchanges that are considered to be regulated markets; b) in the register of Recognised Overseas Investment Exchanges, a regime owned by the Financial Conduct Authority; or c) an investment exchange, which meets certain conditions as set out in the PRA’s rulebook. For this purpose, the PRA expects to make rules on the proposed “conditions”, which will help firms identify a “recognised exchange”. The explanatory memorandum notes that the PRA plans to consult on its conditions shortly.

On 7 October 2024, the draft Securitisation (Amendment) (No. 2) Regulations 2024 (the draft Regulations) were published on legislation.gov.uk, along with a draft explanatory memorandum. The draft Regulations extend a temporary arrangement granting preferential prudential treatment for EU-origin Simple, Transparent, and Standardised (STS) securitisations. UK investors, where they are subject to prudential regulation, currently access lower capital requirements when investing in EU STS securitisations. This instrument extends the time by which such EU STS securitisations can enter the temporary arrangement, from its expiry date on 31 December 2024, to 30 June 2026. By making this change, the Government is aiming to provide continuity and certainty to investors, until a non-time-limited assessment is undertaken. The draft explanatory memorandum notes that without the change made by the draft Regulations, UK investors will face uncertainty and no longer qualify for preferential prudential treatment when investing in new EU-origin STS securitisations that have not accessed the temporary arrangement by 31 December 2024.

On 7 October 2024, the draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 (the draft Regulations) were published on legislation.gov.uk, along with a draft explanatory memorandum. The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation is part of assimilated law that was transferred into UK law in 2018. The Regulation was originally introduced in the EU to standardise disclosure across a wide range of financial instruments marketed to retail investors across the EU. It sets out detailed and prescriptive requirements for disclosing costs, risks and performance which have been criticised by industry for being misleading and burdensome. The UK Government has therefore committed to repeal and replace the PRIIPs Regulation. Investment trusts are currently subject to disclosure rules under the PRIIPs Regulation and other assimilated EU law such as the MiFID Org Regulation, including a requirement to disclose an aggregated cost to clients. The draft explanatory memorandum to the draft Regulations explains that it is broadly accepted by industry and the Government that the single aggregated figure that is being produced under current EU-inherited rules is not an accurate representation of the actual cost of investment in shares in an investment trust. To address this, the draft Regulations use powers under section 3 of the Financial Services and Markets Act 2023 to amend the PRIIPs Regulation and MiFID Org Regulation, to exclude investment trusts from the requirement to disclose an aggregated cost to clients. This change will be made immediately, meaning that investment trusts, and persons advising on or selling shares of investment trusts, will no longer be required to provide a standardised Key Information Document to retail investors, and will not have to provide a single aggregate figure of costs to clients. The PRIIPs Regulation is intended to be replaced by a new UK retail disclosure regime for consumer composite investments.

On 7 October 2024, the Financial Markets Standards Board (FMSB) issued a transparency draft of an updated version of its statement of good practice (SoGP) for front office supervision of wholesale traded markets. The SoGP is intended to help firms in their efforts to design and operate effective supervision frameworks for market and client-facing activity in wholesale markets. The SoGP is being updated following working group discussions within the FMSB’s Conduct and Ethics Committee to expand the document so that, among other things, it clarifies the concepts of supervision, responsibility and controls and addresses conflicts of interest including those that may arise from delegation. Next steps The deadline for comments on the transparency draft is 15 November 2024.

On 7 October 2024, the Joint Committee of the European Supervisory Authorities (ESAs) issued its work programme for 2025. Among other things the work programme notes that the ESAs will focus on: The EU Digital Finance Package. In particular, the ESAs will focus on the set-up and operationalisation of the EU-wide Oversight Framework for ICT Critical Third-Party Providers and will launch in 2025 new oversight activities in accordance with the Digital Operational Resilience Regulation. The Sustainable Finance Disclosure Regulation (SFDR). The ESAs will also continue to play a significant role under the SFDR and in 2025 they will contribute more guidance, including through Q&As on sustainability disclosures under the SFDR Delegated Regulation and a report on the reporting of principal adverse impacts under Article 18 of the SFDR. In addition, the ESAs may also start working on new technical standards concerning ESG rating disclosures which are introduced into Article 13 of the SFDR by the recent agreed Regulation on ESG Ratings.

On 7 October 2024, HM Treasury (HMT) issued a policy statement on the prudential treatment of overseas exchanges and the process by which they meet the definition of ‘recognised exchanges’ under the Capital Requirements Regulation (CRR). Earlier consultation The policy statement follows an earlier consultation in which HMT asked for views on changes that could be delivered, alongside the Basel 3.1 process, which would support the competitiveness of the prudential regime in the UK. One such miscellaneous change related to the prudential treatment of overseas exchanges and the process by which they are “recognised exchanges” under the CRR. HMT proposed linking the definition of ‘recognised exchanges’ in the CRR to the recognised overseas investment exchange (ROIE) regime. HMT also proposed that exchanges covered in the CRR definition of recognised exchanges are either those detailed in the Prudential Regulation Authority’s (PRA) technical standards (TS) which accompany the definition of recognised exchanges or are ROIEs per the Financial Conduct Authority’s regime. Final policy In light of feedback to the consultation HMT will add the link to the ROIE regime as proposed but rather than refer to the PRA’s TS, the CRR definition will refer to a set of conditions that will come to be specified in the PRA rulebook for the purpose of identifying recognised exchanges or assets traded on such exchanges. This means that the PRA will formulate new rules and it will consult on these as soon as is practicable. Until the PRA has made these rules, exchanges that fall within the definition will include those that are domestic UK investment exchanges and those on the ROIEs regime. Eligible collateral HMT states that by adding the link to the ROIE regime, firms will be able to recognise as eligible collateral, instruments traded on exchanges listed on the ROIE register automatically. This will provide some immediate benefits once the legislation is in place and while the PRA develops its rules. HMT encourages firms to engage with the PRA as it consults on its proposals.

On 7 October 2024, the European Securities and Markets Authority (ESMA) issued its first EU carbon markets report. The report provides details and insights into the functioning of the EU Emissions Trading System (EU ETS) market. It has four key sections covering prices and volatility, auctions, secondary markets trading and derivatives market positions. Key findings Key findings in the report include: Prices in the EU ETS have declined since the beginning of 2023. Emission allowance auctions remain significantly concentrated, with 10 participants buying 90% of auctioned volumes. The vast majority of emission allowance trading in secondary markets takes place through derivatives. Policy recommendations The report does not identify major new policy issues. It does, however, note that in the context of the MiFIR review, ESMA will consult on the revision of regulatory technical standard (RTS) 22 for improving the reporting of transaction data. The report notes that the identification of transaction chains remains problematic, and trading strategies were subject to price adjustments to perform more accurate analysis. The consultation will therefore also seek advice from the industry as to whether there is the need to further clarify the reporting of strategies and transaction chains. Following this revision, ESMA invites the European Commission to duly consider transaction chains when adopting the revised RTS 22, given the implication it will have also for carbon markets. Next steps The report will be produced annually as per ESMA’s mandate. ESMA will host a webinar to present the main findings of the report on 24 October, 10:00 – 10:45 CET. Registration for the webinar is here.