In its newsletter of 30 August 2024, the Dutch Authority on the Financial Markets (Autoriteit Financiële Markten, AFM) reminds Dutch market parties that the European Securities and Markets Authority (ESMA) has published consultation packages regarding the review of the Markets in Financial Instruments Regulation (MIFIR) and the second Markets in Financial Instruments Directive (MiFID II). In 2022, the European Commission adopted two legislative proposals to review MIFIR and MiFID II. This review focuses on making amendments to improve the transparency and the availability of market data and the level-playing field between execution venues. Moreover, the review also aims to ensure that EU market infrastructures remain competitive at an international level. ESMA published three consultation packages regarding a range of technical standards connected to this review of MIFIR and MiFID II. The first and second consultation have recently ended but the third consultation is currently ongoing: The first consultation: 21 May 2024 until 28 August 2024. The first consultation focused on the following aspects: Transparency requirements for trading venues, investment firms and Approved Publication Arrangements (APAs), and for transactions in non-equity instruments, such as bonds and derivatives. The costs that trading venues, consolidated tape providers (CTP), APAs and investment firms are allowed to charge for the provision of trading data, such as buy and sell prices. The requirements for trading venues and designated publishing entities to enable the use of reference data for transparency purposes. The second consultation: 23 May 2024 until 28 August 2024. The second consultation focused on the following aspects: Data that trading venues and APAs will be required to submit to the CTP for bonds and the consolidated data that the CTP for bonds will be required to publish. The methods for calculating the amount or revenue that CTPs will need to redistribute to trading venues. The criteria against which applicant CTPs will be assessed in the procedure for the selection of a single CTP per instrument. The third consultation: 10 July 2024 until 30 September or 15 October 2024. The third consultation is ongoing and focuses on the following aspects: Rules on the liquidity assessment for equity instruments, equity transparency and on the volume cap. New Implementing Technical Standards on systematic internalisers. The equity CTP in relation to the input/output data, to ensure full alignment between the transparency requirements and the CTP specifications. Flags to be used in the post-trade transparency reports for non-equity instruments which were missing in the previous consultation. New rules specifying organisational requirements of trading venues, adding new provisions on circuit breakers and with targeted amendments to adapt to the Digital Operational Resilience Act framework. See the AFM’s update on the consultation here: link

The UK failure to prevent fraud offence has been long awaited. We are receiving a number of queries from clients about when the UK government’s “reasonable procedures” guidance is due to be published, when the offence will come into force and what they should be doing now to prepare. In short: we expect the “reasonable procedures” guidance to be published in September or October 2024 (it was originally due to be published early this year). UK Finance is also due to publish guidance for financial institutions in respect of the same; the offence will then likely come into force after a six-month implementation period i.e. March or April 2025; and it is important that organisations take steps now to conduct a risk assessment in relation to the new offence, assess what relevant policies and procedures they already have in place and consider what enhancements need to be made. We have published a series of articles summarising the offence, how to approach risk assessments, putting in place policies and procedures, and considerations in relation to tone from the top and training.  Many organisations have already started their preparation for the new offence, recognising that the reasonable procedures guidance will be high level, and that the procedures need to be tailored to the risks faced by each organisation. We have summarised below some key considerations based on our experience of advising clients. Let us know if you would like help with understanding the new offence, how it might apply to your organisation or how to approach programme enhancement and training. Ownership and the scope of risk assessments and procedures enhancement needs to be determined: many of our international clients have put in place a cross-functional working group and global anti-fraud procedures (given that the new offence has broad jurisdictional scope). Senior management sign-off is likely to be expected: we expect the reasonable procedures guidance to set an expectation that senior management, the board or a designated individual sign off on the risk assessment and the procedures – it is important to involve them from the outset. Organisations need to understand the details of how the offences operate in practice and conduct a detailed risk assessment: assessing how the underlying offences could arise in your organisation is crucial in order to put in place effective anti-fraud procedures. This is a detailed process which is likely to require a detailed summary of the offences and input from Finance, Sales, Legal etc. (a UK government factsheet estimates this will take between 100 and 130 hours). See further our article on conducting risk assessments. Most organisations do not have comprehensive anti-fraud policies and controls which address fraud for the organisation’s benefit: many clients have in place anti-fraud policies and procedures however in most cases, these focus on protecting the organisation from becoming a victim of fraud rather than preventing fraud for the organisation’s benefit. As a starting point, it is worth checking fraud policies, financial crime contractual provisions and third party due diligence and monitoring processes.   Fraud training is complicated: the underlying offences are complex and to a large extent turn on whether there has been dishonesty. This means there are a lot of grey areas (particularly compared to bribery, where the principles are generally easier to understand). In our experience scenario-based training which helps employees spot and escalate issues is crucial. Messaging from senior and middle management is also very important. See further our article on training and tone from the top (and middle).

On 28 August 2024, the Hong Kong Monetary Authority (HKMA) launched the Project Ensemble Sandbox (Sandbox) to explore asset tokenisation use cases and the settlement of tokenised asset transactions. The Sandbox is a crucial component of Project Ensemble, which launched in March 2024, to explore new financial market infrastructure (FMI) to facilitate seamless interbank settlement of tokenised money using wholesale central bank digital currency (wCBDC). The Sandbox The Sandbox has been designed as a new FMI that facilitates the full lifecycle of a tokenised asset transaction, starting from the creation and trading of tokenised assets, through payment and settlement using tokenised commercial-bank deposits, to final interbank settlement using wCBDC issued by the HKMA. The initial round of experimentation under the Sandbox will explore tokenisation of both traditional financial assets and real-world assets under the following themes and use case categories: fixed income and investment funds – bond and fund; liquidity management – repo and treasury management; green and sustainable finance – carbon credits and EV charging stations; and trade and supply chain finance – supply chain finance and trade finance and payments. Cross-border payment functionalities will also be an element of the Sandbox. As noted in our previous update, the Banque de France (BdF) and the HKMA announced in June 2024 that they had entered into a Memorandum of Understanding to promote innovation in the wCBDC and tokenisation market. At the Sandbox launch, the HKMA’s Chief Executive Eddie Yue highlighted that the Sandbox and the BdF’s equivalent system (i.e. the Distributed Ledger for Securities Settlement System (also known as DL3S)) have been successfully connected and pilots have demonstrated that atomic cross-border settlement can be performed through the linked systems. The Securities and Futures Commission (SFC) has announced that it will co-lead the tokenisation initiatives for the asset management industry under the category of fixed income and investment funds to promote wider adoption of tokenisation. The SFC will work with the HKMA to provide regulatory guidance and address industry’s concerns that arise from these use cases. The launch of the Sandbox follows the establishment of the Project Ensemble Architecture Community (the Community) in May 2024. The Community comprise a diverse spectrum of industry representatives from banks, technology companies, regulators (including the SFC) to academics. Its aim is to develop a set of industry standards to support interoperability among wCBDC, tokenised money and tokenised assets. Banks that are part of the Community have connected their tokenised deposit platforms to the Sandbox, which allows participants of the Sandbox to experiment with both interbank payment-versus-payment and delivery-versus-payment settlement. The HKMA also noted that it will be seeking to collaborate with the Bank of International Settlements Innovation Hub Hong Kong Centre, which the HKMA has previously worked with on other tokenisation projects, such as Project mBridge and Project Genesis, as well as the CBDC Expert Group (a group of academics with expertise relevant to HKMA’s research work on CBDC and a Community member), to further advance the Sandbox. Looking to the future The Sandbox has been designed in a way that will enable it to support various forms of digital money and digital assets beyond those explored in the initial round of experimentation under the Sandbox. Through the Sandbox, industry participants will be able to experiment with new tokenisation ideas and bring those to the market in the future. At this early stage, the HKMA is already actively working to evolve the Sandbox into a production-ready FMI that will support real-money tokenised transactions in Hong Kong in the future. The cooperation between the HKMA and the SFC on Project Ensemble signals the efforts by the regulators to promote tokenisation and the development of a common standard for tokenised asset settlement in Hong Kong.

On 29 August 2024, the Bank of England announced that the Prudential Regulation Authority (PRA) would publish its second and last set of near-final Basel 3.1 rules on 12 September 2024. The PRA will also publish a consultation paper covering the capital-related aspects of its Strong and Simple regime for smaller firms on the same date.

We have updated our briefing note on ESMA guidelines on funds’ names using ESG or sustainability-related terms. The updated briefing note is here.

The British Steel Pension Scheme (BSPS) saga continues to generate headlines with the redress scheme still in progress, enforcement action ongoing against advisers and complaints against the Financial Conduct Authority (FCA) currently under review. Most recently, as set out in more detail below: the FCA has provided an update on efforts to ensure former members that were given unsuitable advice receive appropriate compensation and those who caused harm are held to account; and the Financial Regulators Complaints Commissioner (FRCC) has provided an update extending the deadline for making complaints about the FCA and its review of those complaints. Recap By way of brief recap, in the wake of the restructuring of the BSPS in 2017, approximately 7,700 BSPS members transferred out of the scheme, in some cases relying on unsuitable evidence. In 2018, the FCA commenced its outreach efforts to former BSPS members, encouraging them to complain to their advisers if they thought they may have received unsuitable advice, and engage with the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS) as appropriate. In 2022, the FCA announced plans to introduce a BSPS redress scheme, on the basis that many former members had yet to complain, and the FCA wanted to ensure those affected were provided with the opportunity for the advice they received to be reviewed. Introduced in April 2023, the redress scheme required firms to: (i) review the suitability of their advice, and (ii) pay redress to former BSPS members to whom they had provided unsuitable advice. To date, 6,500 former BSPS members have availed of the scheme, with over £100m in redress having been offered to at least 1,870. Complaints about the FCA In spite of its efforts and the introduction of the redress scheme, the FCA has received a number of complaints in relation to its handling of BSPS issues, including that it has: (i) been ‘behind the curve’ in its response, (ii) failed to take steps to protect consumers, (iii) not been sufficiently proactive in using its enforcement powers, and (iv) produced inconsistent outcomes for consumers. On 22 April 2024, the FCA announced it had concluded its investigation into these complaints, publishing a redacted letter dated 19 April 2024 setting out its decision not to uphold these complaints (the April Letter). The April Letter stated that the scale of enforcement investigations has been unprecedented, involving around 30 investigations into firms or individuals, resulting in 15 prohibitions for individuals and fines or payments to the FSCS amounting to £8.87 million, with further investigations ongoing (as well as some appeals). The April Letter also confirmed that the FCA had learned lessons from its intervention and engagement on BSPS, including operating in a more joined-up way with the Pensions Regulator and collecting data more regularly from firms providing pension and retirement income products, including the number of defined benefit transfers conducted. In recognition of the length of time it had taken for the FCA to respond to complaints, each complainant was offered an ex gratia payment of £150. Update on the redress scheme In respect of the redress scheme, on 24 July 2024, the FCA, the FOS and the FSCS published a BSPS update, reporting that firms had assessed 49% of advice to be unsuitable and 360 former BSPS members had been offered redress of £8.7m, with further claims being processed and expected. The FCA explained that this is lower than expected due to changing economic conditions and the cost of funding a guaranteed retirement income through an annuity has fallen. The FCA has also been updating the information it has published on completed enforcement action which indicates that the two main types of misconduct seen in BSPS cases are: breach of Principle 2 requiring firms or individuals to conduct their business with due skill, care and diligence (i.e. firms/advisers had demonstrated a significant lack of competence in their advice); and breach of Principle 1 requiring firms or advisers to conduct their business with integrity (i.e. they were reckless or dishonest in their dealings with consumers and/or the FCA). See also our previous blog on enforcement action taken against Lighthouse Advisory Services Limited for its breach of Principle 9, which requires a firm to take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment. Update on the FRCC review of complaints about the FCA In the meantime, following the  April Letter to complainants, the FRCC has been progressing its review of the FCA’s investigation into complaints. An FRCC update at the start of July indicated that all complaints about the FCA should be received by 19 July 2024, being three months after the FCA issued the April Letter. The FRCC indicated that it aimed to issue its report within three months of 19 July 2024 (although this would depend on the complexity of cases). On 31 July 2024, the FRCC issued a further update confirming that it has continued to make information requests to the FCA and has extended the window for making complaints about the FCA to 29 August 2024. No update was provided on the timing of the FRCC report beyond stating that “The issuance of the report in a timely fashion is a priority for this office which it will endeavour to do as quickly as it can whilst ensuring a thorough and careful investigation is completed”. A further update from the FRCC is expected on 2 September 2024. No doubt BSPS members will be watching to see whether the FRCC agrees with the FCA’s conclusions on its own handling of the matter, including that steps it took demonstrated a “tenacious approach” to supervision of relevant firms, that it was not behind the curve in responding and did not fail to take steps to secure an appropriate degree of protection for consumers. Those who have not complained still have a short time to do so.

Global 28 August 2024 – On 30 April 2024, the Basel Committee on Banking Supervision (Basel Committee) published a consultation on guidelines for counterparty credit risk management. The Basel Committee invites comments on the draft guidelines by 28 August 2024. EU 28 August 2024 -On 21 May 2024, the European Securities and Markets Authority (ESMA) published a consultation paper on the review and development of a package of regulatory technical standards (RTS) under the revised Markets in Financial Instruments Regulation (revised MiFIR). The deadline for comments on the consultation paper is 28 August 2024. 28 August 2024 – On 23 May 2023, ESMA published for consultation its second package of Level 2 measures under the revised MiFIR. Stakeholders have until 28 August 2024 to provide comments. 30 August 2024 -On 8 July 2024, the European Banking Authority issued a consultation on draft RTS specifying the conditions and the criteria to assess whether the credit valuation adjustment risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment. A public hearing on the draft RTS will take place via conference call on 4 September 2024 from 15:00 to 16:00 CET. The EBA invites interested stakeholders to register by 30 August 2024, 16:00 CET. UK 28 August 2024 – On 30 July 2024, the Financial Conduct Authority published an update on its motor finance work and a consultation paper (CP24/15) on extending its temporary changes to handling rules for motor finance complaints. The deadline for responding to CP24/15 is 28 August 2024. 29 August 2024 -The Office of the Complaints Commissioner is extending the window for complaint referrals about the FCA in relation to the British Steel Pension Scheme to 29 August 2024 and welcomes input from complainants or their representatives until that time.

On 22 August 2024, the Financial Conduct Authority (FCA) updated its webpage on the Overseas Funds Regime (OFR). The updated webpage confirms that the OFR gateway will be opened to new schemes (not currently in the Temporary Marketing Permissions Regime (TMPR)) on 30 September 2024, while landing slots for schemes in the TMPR will start in October 2024. The table of OFR landing slots on the webpage has been amended to reflect these dates.

On 22 August 2024, the Dutch Central Bank (De Nederlandsche Bank, DNB) published guidelines on the information register required under the EU’s Digital Operational Resilience Act (Regulation (EU) 2022/2554, DORA). According to DORA, financial entities must maintain a register of all contractual agreements with ICT third-party service providers. This register is essential for managing ICT third-party risks and will be used by Member State competent authorities and the European Supervisory Authorities (ESAs) to ensure compliance with DORA and to identify critical ICT third-party service providers subject to DORA’s oversight regime. DNB emphasizes that financial entities must have their registers ready to report by early 2025 and so far the ESAs have provided a draft template (the draft template is available via this link). Although the exact reporting format is yet to be confirmed, DNB anticipates the xBRL-CSV standard with a table-oriented layout for the data (also called ‘plain CSV’) will be chosen for steady-state by 2025. To make the reporting process as effective and efficient as possible, DNB intends to follow the reporting standard that the ESAs will adopt. To support those financial entities that are unable to implement the reporting standard on time, DNB intends to make available an alternative delivery method in 2025 in addition to the steady-state delivery method. Financial entities wishing to use this method will need to deliver the information register in a predetermined Excel template. DNB will then convert the Excel file to the reporting standard as drawn up by the ESAs. DNB expects the Excel file to be used for this purpose later this year. DNB intends to communicate final decisions on the reporting standard for the information register as soon as possible. The DNB’s guidelines are available only in Dutch via this link.

On 21 August 2024, the European Securities and Markets Authority (ESMA) announced that it had published the translations in all official EU languages of its guidelines on funds’ names using ESG or sustainability-related terms. Following the publication of the translations: Member State competent authorities must notify ESMA by 21 October 2024 whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the guidelines. The guidelines start applying from 21 November 2024. The transitional period for funds existing before the application date will be six months after that date (i.e., 21 May 2025). Any new funds created on or after the application date should apply the guidelines immediately.

On 19 August 2024, the Financial Conduct Authority (FCA) updated its webpage on the sustainability disclosure requirements (SDR) and investment labelling regime, to include a new section on downloadable labels. The new section is intended for distributors who are subject to the new requirements in ESG 4.1.16R to 4.1.19R, which were introduced into the Handbook as part of the SDR and investment labelling regime. It provides distributors with access to each of the investment labels – ‘sustainability mixed goals’, ‘sustainability improvers’, ‘sustainability impact’ and ‘sustainability focus’ – as well as information on their terms of use. On the updated webpage, the FCA also flags its exclusive rights to the trademarked investment label logos under UK law, noting that it prohibits any unauthorised use, reproduction, or modification without its prior written consent. Anyone downloading an investment label is agreeing to those trademark terms of use.

This is the third article in our series breaking down the steps that organisations will need to take to put in place “reasonable procedures” to prevent fraud. Our previous posts, focusing on how to conduct effective fraud risk assessments and enhance polices and procedures, can be found here and here.  The new UK failure to prevent fraud offence is anticipated to come into force in early 2025. The offence will apply both to UK and to non-UK organisations, where there is some nexus to the UK. The only defence for an organisation will be to have in place “reasonable procedures” to prevent fraud (and the UK government is set to publish guidance for companies on “reasonable procedures” later this year). More details on the new offence, including the underlying fraud offences covered, are set out here. As we discussed in our previous blog posts, a core element of “reasonable procedures” will be the completion of a risk assessment to better understand the risks faced by the organisation, and a review of  the extent to which the identified risks are mitigated by existing policies and procedures  – and what enhancements are needed. In our experience, while many organisations have certain elements of anti-fraud programmes in place, these require significant development as they are not invariably designed to prevent fraud by associated persons where the company or its clients stand to gain. Two key areas for enhancement are training and tone from the top. As with other areas of compliance, both are important in terms of embedding a strong organisational culture. Most anti-fraud training and senior level messaging currently in place focuses on preventing the company from being a victim – rather than a beneficiary – of fraud (e.g. email interception and phishing). We set out in this blog some key points when considering how best to approach communication and training.  If you have any questions or would like to discuss failure to prevent fraud in more detail, please get in touch. Tone from the top (and middle) What leadership (and middle management) says and does to reinforce the organisation’s commitment to fraud prevention is crucial in establishing effective procedures. An organisation that has good policies “on paper” but is not demonstrably committed to applying them in practice is unlikely to be deemed to have reasonable procedures. Communication (for example through internal newsletters, townhalls, videos, participation in “ethics days” etc.) is very important, but in assessing compliance programmes authorities tend to focus on  what the organisation “does” to ensure effectiveness. For example: what resources are deployed; the visible involvement of senior individuals in overseeing the implementation of reasonable procedures; how the policies and procedures are followed in practice by management; what behaviours are rewarded or penalised; and how breaches are investigated and dealt with. As with any policy, many employees will look to how the organisation’s management acts, as much (if not more than) what is contained in the policy wording or CEO statements etc. Consistency of messaging is vital, both in terms of how the organisation’s anti-fraud programme aligns with its values and broader ethics and compliance programme, but also on an ongoing basis after the initial policy updates and training have been delivered. Ideally, there will be sustained awareness raising as part of the company’s broader ethics communication campaign. This could take the form, for example, of disseminating frequently asked questions which have arisen following implementation of policies and procedures.  In assessing top level commitment, authorities are also likely to look at what role senior management played in overseeing the fraud risk assessment and consequential enhancements to anti-fraud procedures. The reasonable procedures guidance is likely to suggest that a senior individual or the Board signs off on the risk assessment, as well as the procedures to be put in place. The steps taken to assess the sufficiency of the risk assessment and procedures should be carefully documented given that it is likely to be scrutinised in the event of a significant fraud investigation by authorities. Communication and training Training on fraud will be a fundamental part of an organisation’s reasonable procedures. The various underlying fraud offences covered by the failure to prevent fraud offence can be committed in many different ways and by different types of employees and third parties. The offences are varied and more complex than, for example, bribery offences under the UK Bribery Act, and there are a lot of grey areas, particularly in terms of when conduct is dishonest such that a criminal offence may arise. Given these complexities it is vital that employees – particularly those in higher risk roles – can spot potential fraud issues and raise them promptly. Employees should be trained as part of their financial crime onboarding training, and periodically thereafter (or in the event of a change in the company’s risk profile, or a significant fraud issue). In our experience, industry specific scenario training is crucial for fraud: employees do not need to learn the details of the legal tests for the underlying offences, but they do need to understand the types of scenarios in which fraud may arise within their organisation and when to escalate an issue and ask for help. Ideally, the training will be based on real-life scenarios (or near-misses) identified by the organisation in its risk assessment, or previously encountered by the organisation or its peers. Generic “off the shelf” training is unlikely to be as successful in enabling employees to spot high risk issues.  Training should also cover the various mechanisms by which participants can raise queries or concerns about fraud. The training (ideally involving senior and middle management) should clearly communicate the organisation’s zero tolerance approach to fraud (and how this aligns with its values) and its encouragement for employees to speak up about fraud. More detailed (and tailored) training will be needed for those in higher risk positions (for example, Sales and Marketing, Finance) and those who will be dealing with any potential fraud queries raised (for example Legal, Compliance and (if different) the recipients of speak up reports). Ideally, the more detailed training will be a two-way process such that those in higher risk positions can identify realistic scenarios which are then used to reinforce existing policies and procedures (and enhance future training).  Whether or not to train third party service providers should also be considered: at least, a clear explanation of the organisation’s expectations and approach to fraud should be provided, with third parties confirming their agreement to comply with those expectations and that they have in place appropriate fraud controls (including training). This may be standalone or part of a supplier code or the services agreement. For higher risk third parties, some level of training is likely to be appropriate (which will have the added benefit of allowing the organisation to understand better the fraud scenarios third parties may encounter as well as their approach and attitude to fraud risk). Organisations should build into their training mechanisms for assessing its  effectiveness, for example employee surveys or measuring whether there is any uptick in fraud-related speak up as a result of the training. Training should evolve as the organisation encounters issues and as its business (and risks) changes.

In our latest Global Regulation Tomorrow Plus podcast, Jonathan Herbst, Hannah Meakin and Anita Edwards discuss PRA Consultation Paper 11/24, which sets out proposals updating the regulator’s approach to international banks. Listen to the episode here.

In our latest Global Regulation Tomorrow Plus podcast, Jonathan Herbst, Hannah Meakin and Anita Edwards discuss PRA Consultation Paper 11/24, which sets out proposals updating the regulator’s approach to international banks. Listen to the episode here.

Global 19 August 2024 – On 5 July 2024, the Basel Committee on Banking Supervision issued a consultation on two technical amendments to the Basel Framework and seven new FAQs and one updated FAQ. The deadline for comments on the consultation is 19 August 2024. EU 19 August 2024 –On 17 May 2024, the European Banking Authority issued a consultation paper containing draft guidelines on acquisition, development and construction exposures to residential property. The deadline for comments on the consultation paper is 19 August 2024. 23 August 2024 – On 23 May 2024, the European Securities and Markets Authority published a consultation paper setting out proposed amendments to certain technical rules concerning commodity derivatives, as mandated by the revised MiFID II. The deadline for comments was 23 August 2024. UK 20 August 2024 – The Payment Systems Regulator requires directed payment service providers to register with Pay.UK by 20 August 2024.

On 15 August 2024, the Payment Systems Regulator (PSR) published the response to its December 2023 call for views which set out initial proposals on how to expand variable recurring payments (VRPs) into new use cases, through a Phase 1 roll-out. The PSR sees real potential for open banking-enabled account-to-account payments to provide an alternative to card payments, both online and in person. As a first step towards this long-term goal, the PSR has been working closely with the open banking sector to expand and improve VRPs, which it believes can provide some of the functionality needed. Call for views In the call for views the PSR proposed: A multilateral agreement (MLA) specifying the required functionality along with arrangements for pricing, dispute resolution and liability. Using its powers to set the parameters for a central price for VRPs. This would be based on a cost recovery model for the sending firm that would apply the PSR’s previously published pricing principles and enable sending firms to cover relevant marginal costs. The PSR provisionally identified the Faster Payments charge as the only relevant cost for the initial rollout, which it proposed to remove for sending firms. Setting at zero the price sending firms can charge payment initiation service providers (PISPs) for access to customer accounts and payment initiation if the PSR determines the Faster Payments charge to be the only relevant marginal cost for sending firms for the initial rollout, and if the PSR subsequently takes action to remove that charge for sending firms. Mandating the participation of the nine largest banks in the UK in the MLA. The call for views on these proposals ran from 18 December 2023 to 2 February 2024. Response In total, the PSR received 39 responses to its call for views. In summary: The PSR still thinks that the MLA could be an efficient way of managing relationships between sending firms and PISPs and in light of the concerns it will work closely with participants of the VRP implementation group to look at what specific rules and provisions an MLA should include and who might be best placed to operate it. The PSR remains concerned that offering sufficiently strong financial incentives to motivate enough sending firms to offer access to VRP Application Programming Interfaces (APIs) could hinder or discourage wider adoption. It will continue to develop its thinking on whether mandated participation is necessary and how to identify firms it might mandate and will set out updated proposals in the autumn. There was a wide diversity of views on how best to price API access for VRPs in Phase 1 and no single approach garnered wide support. The PSR will evaluate the suitability of alternative access prices or approaches, including those alternatives suggested by respondents. This includes price setting based on pricing models in other payment systems, pricing based on a cost-recovery approach, including an economic return for sending firms, a ‘black box’ approach and some form of arbitrated price. The PSR will also consider the potential effectiveness of interventions that do not establish a VRP API access price, such as price transparency or reporting requirements. The PSR will update stakeholders on its analysis when it publishes updated proposals for consultation in autumn. When the PSR publishes updated proposals, they will include the: Specific rules and provisions an MLA should include – if the PSR continues to believe that one is required. Organisation the PSR thinks may be best placed to operate any such MLA. PSR’s view on whether mandated participation may be required and whom it may mandate to participate in Phase 1. PSR’s plans for determining a VRP API access price – if it decides this would be required. Costs and benefits the PSR expects from any proposed intervention – if it decides that this would be required.

In Episode 4 of our podcast series ‘Let’s talk asset management’ Jonathan Herbst, Hannah Meakin and Anita Edwards discuss the UK Financial Conduct Authority’s final rules for a new option to pay for investment research. Listen to the episode here.

In Episode 4 of our podcast series ‘Let’s talk asset management’ Jonathan Herbst, Hannah Meakin and Anita Edwards discuss the UK Financial Conduct Authority’s final rules for a new option to pay for investment research. Listen to the episode here.

In Episode 3 of our podcast series ‘Let’s talk asset management’ Frank Herring and Simon Lovegrove discuss the EU Retail Investment Strategy. Listen to the episode here.

On 13 August 2024, the European Banking Authority (EBA) published a final report containing draft regulatory technical standards (RTS) amending delegated regulations on profit and loss attribution requirements, risk factor modellability assessment, and the treatment of FX and commodity risk in the banking book. Legal basis The Capital Requirements Regulation 2 (CRR2) implemented the Fundamental Review of the Trading Book into the EU and required the EBA to develop a series of mandates, including the RTS on back-testing and profit and loss attribution (PLA) requirements, RTS on risk factor modellability and the RTS on the treatment of non-trading book positions subject to foreign risk or commodity risk. The EBA has delivered on these mandates, which have been subsequently adopted by the European Commission (Commission) and published on the Official Journal of the EU (OJ). However, the CRR3 amended some provisions related to these RTS, requiring the EBA to review them as these were previously developed based on the CRR2. Article 325bg of the CRR3 requires the EBA to develop draft RTS to implement in the EU the PLA requirement. In addition, under article 325be of the CRR3, the EBA is mandated to develop draft RTS to specify the criteria for assessing the modellability of risk factors, including where market data are used. Finally, under article 325 of the CRR3, the EBA is required to develop draft RTS to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign exchange risk or commodity risk. Earlier consultation The draft RTS set out in the final report are based on an earlier consultation that the EBA conducted which closed on 14 March 2024. The EBA notes that a respondent to the consultation only raised one concern on the applicability of some requirements included in the draft RTS to standardised approach, noting that trading desks requirements in the CRR only apply to institutions using an internal model. The draft RTS have been amended to reflect the point raised. Next steps The EBA will submit the draft RTS to the Commission for endorsement, after which they will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the OJ.SimonLovegrove | Global Director of Financial Services Knowledge, Innovation and ProductSolicitor, qualified in England & Wales