On 30 July 2024, the Prudential Regulation Authority (PRA) and Bank of England (BoE) announced that they have established a new cost benefit analysis panel (CBA Panel). The CBA Panel will provide advice on the preparation of cost benefit analysis (CBA) when the PRA and BoE propose new rules or amend existing rules for firms and financial market infrastructures. It may also provide recommendations on how the PRA and the BoE can improve their overall methodology and approach to CBA. The PRA is required to establish and maintain a CBA Panel under the Financial Services and Markets Act 2000 (section 138JA). The CBA Panel will begin reviewing the CBA of proposed new PRA policies from 1 August 2024, and will also discuss the BoE’s approach to CBA in early autumn 2024.

On 30 July 2024, the Bank of England (BoE) published a discussion paper (DP) on its approach to innovation in money and payments. The DP asks for responses on “the next step in a wide-ranging conversation on how to deliver an ambitious agenda for the UK payments landscape”. In the DP, the BoE explains how rapid innovations in payments can impact on its monetary and financial stability objectives, bringing both opportunities and risks. It sets out the BoE’s response to these innovations to date (including renewal of its Real Time Gross Settlement (RTGS) service), as well as how its response will evolve going forward, to enable innovation to take place in a safe way. The BoE outlines its proposed approach in relation to: Wholesale settlement in central bank money – the BoE flags the financial stability risks of financial markets moving away from using central bank money and explains that its approach is to preserve the role of central bank money as an anchor for confidence in the financial system. Exploring innovations in wholesale central bank money – to preserve the role of central bank money, the BoE proposes to explore technological innovations to the systems it operates, including enhanced functionality for the renewed RTGS system, and a programme of experiments which would also cover wholesale central bank digital currency (CBDC). The retail payments landscape – the BoE flags the importance of ensuring UK households and businesses can make payments with ease, speed and confidence. It warns that meeting these retail payments objectives will require clear and renewed leadership by the UK authorities in this space, and it plans to work closely with HM Treasury, the Financial Conduct Authority and the Payment Systems Regulator to achieve this. The deadline for responses to the DP is 31 October 2024.

On 30 July 2024, the Financial Conduct Authority (FCA) 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. Background In January 2024, the FCA announced that it was carrying out a review of the historical use of discretionary commission arrangements (DCAs) in the motor finance sector. At the same time, it published Policy Statement PS24/1 setting out temporary changes to the complaints handling rules for motor finance firms, including pausing (for 37 weeks) the requirement on firms to provide a final response to a complaint about motor finance agreements with DCAs within 8 weeks of receiving the complaint, and extending the time consumers have to refer DCA complaints to the Financial Ombudsman Service (FOS) from 6 to 15 months, if the firm sent its final response to the complaint within the period specified in the rules. The FCA also said at that time that it would communicate a decision on its next steps by 24 September 2024 at the latest, including whether to extend the pause or make other changes. Update on motor finance work In its update, the FCA explains that it now intends to set out its next steps regarding its review into the past use of DCAs in May 2025. It also notes that its next steps could involve consulting on a redress scheme, and for this reason the FCA intends (subject to CP24/15) to take the precautionary step of pausing complaint handling until later in 2024, as it says it may take until then to confirm how firms would implement the scheme. The FCA does also flag, however, that its next steps could involve asking firms to start dealing with complaints again as usual, in which case it would consult on ending the pause earlier. The FCA’s proposals In CP24/15, the FCA sets out its proposals to extend its temporary complaint handling rules for DCA complaints in the motor finance industry, on the basis that it has taken longer to collect and review the data than planned, and that there is also ongoing litigation. The proposals are to: Extend the complaint handling pause until 4 December 2024. Give complainants who are sent a final response to a DCA complaint until at least 29 July 2026 to decide whether to refer their complaint to the FOS. The FCA recognises that while it considers it necessary to continue to pause complaint handling, this will mean that many consumers who have complained to firms about DCAs have now been waiting a long time. It is therefore consulting on the change. The deadline for responding to CP24/15 is 28 August 2024. The FCA intends to consider comments received and to publish its feedback, along with final rules, in a policy statement by 24 September 2024.

The UAE Central Bank (the CBUAE) has issued its Payment Token Services Regulation (the PTSR) for regulating stablecoins-related services in the UAE. The PTSR applies across the UAE except in the Dubai International Financial Centre (the DIFC) and the Abu Dhabi Global Market (the ADGM). We note that the PTSR also applies to entities licensed by the Virtual Asset Regulatory Authority (the VARA). Under the new PTSR a “Payment Token” is defined to include stablecoins whose value references a fiat currency or other stablecoins that are denominated in the same fiat currency. New prohibitions and regulated activities The PTSR contains (among others) the following prohibitions from: carrying out “Payment Token Services” in the UAE, or directed to persons in the UAE, without a license or registration from the CBUAE. The new regulated services consist of providing issuance, custody and transfer, and the conversion of Payment Tokens; and making payments in Virtual Assets (i.e. any cryptocurrency), unless that Virtual Asset is either: a “Dirham Payment Token” (i.e. a UAE Dirham-denominated stablecoin) issued by a CBUAE-licensed issuer; or a “Foreign Payment Token” (i.e. a non-Dirham denominated token) issued by a CBUAE-registered issuer. New licensing, registration and no-objection regime Only entities incorporated in the UAE can apply for a license for Payment Token Services. However, non-UAE entities (including those established in the DIFC or the ADGM) may offer to UAE investors Payment Tokens that are not UAE-Dirham denominated provided the issuer is registered with the CBUAE as a “Registered Foreign Payment Token Issuer”. It is not clear whether the process for obtaining a license or registration under the PTSR will be the same as the CBUAE’s current licensing process, and it is too early to know what the process and application forms look like, what the CBUAE licensing fees and processing time are. Entities holding a license from the VARA or the Emirates Securities Commodities Authority (the SCA) need to apply for a Non-Objection Registration (NOR) in order to continue providing custody, transfer and conversion services in relation to stablecoins under their current license. In applying for a NOR, these entities will need to demonstrate compliance with certain rules within the PTSR. Transitional period There is a one-year transitional period which ends on 14 June 2025, during which the PTSR and the prohibitions it contains (including on using Virtual Assets as payment) will not apply.

The aim of allowing smaller companies to raise money in London by moving away from the old prospectus and listing regime is surely laudable. To remind everyone, the essential features of the proposals are to: remove the current requirement for an FCA approved prospectus for offers of over £5 million provided the offer is made on a POP; make operating a POP a new regulated activity; create a due diligence and disclosure framework for POP operators so that they act as a “gateway”; information and disclosures designed to inform investors of the key features and risks associated with offers of ‘off market’ securities, typically by smaller companies; application of various parts of the rules to POP operators, including those relating to approval of financial promotions and the Consumer Duty; and   what the FCA says should be a proportionate regime for liability for POP operators. The basic problem the FCA is grappling with is well known: how to get adequate capital into the London market for smaller companies and one should read the thinking here in conjunction with the secondary market proposals to come in the shape of PISCES. It is also the case that the historic prospectus regime has involved considerable costs which have been argued to disincentivise smaller companies from doing a public offering. In an even broader context, you might view the plans as an attempt to level the playing field with the smaller end of the private equity market. To my mind, the big question here is how the costs and the mechanics of obligations and liability are going to interact with each other. From one perspective, a POP operator will be a form of quasi regulator with a general duty to consider the appropriateness of potential issuers to the market. This raises a number of questions. The first is whether there will be a cost-effective way of complying with all of the obligations in a market targeted at smaller issuers. Reading the proposals, the role of the POP operator is far from “tick box” and will require real judgment. How that is going to be compatible with a low-cost service is not clear. Part of the answer might be that when compared to the costs of the full prospectus regime the proposed POP regime will be manageable. The FCA implicitly runs a version of this argument in its cost benefit analysis but whether this will be the reality remains to be seen. There is an additional point here related to the liability standard. The FCA has sought to distinguish factual from non-factual information and set different duties in relation to each of these. There is a verification test for the former and a plausibility test for the latter which comes with certain due diligence and other conditions. The main point to be made here is that this whole approach of placing all of the onus of such verification and plausibility on the market operator rather than on specialist players who are acting for the issuer (such as under the sponsor or NOMAD regimes) is a major departure from historic market practice. There is a significant difference between a firm acting for an issuer but within the rules framework doing the due diligence on that issuer and the market operator taking the full burden of this due diligence. In some ways, this is in reality more akin to the role of exchanges in the US when they act as self-regulatory organisations, and it raises a number of questions about how POPs will be structured. For example, how their commercial and regulatory objectives will be matched? To underpin the issues raised above, there is the whole question of approving the financial promotions of the issuer. The POP operator will have this obligation and it will be a qualitatively different one to the more traditional exchange role of assessing compliance with the Listing Rules. This is a holistic fair, clear and not misleading assessment. This leads to an additional pitfall. To what extent will issuers under the new structure end up using the fuller form prospectus contents requirements as a base for their approach to disclosure? If we were to end up in that position, then the legitimate question is whether anything has actually been gained from this regime. This is clearly not the intention, but it is a point that will need to be watched. Underlying the above is a significant shift towards a more disclosure-based regime. Generally, this is welcome by many. The question is going to be how to inject that element of judgment in this case mainly at the level of the POP operator whilst making it economic to run given the risks and duties involved.   So, overall, the POP market concept is to be welcomed but a lot to think about here in terms of how it is going to work in practice.  

On 30 July 2024, the European Banking Authority (EBA) published a consultation paper setting out proposals to update the current implementing technical standards (ITS) on reporting for resolution planning and execution purposes that supplement the Bank Recovery and Resolution Directive. The proposed changes are intended to foster further harmonisation and enhance usability of data. The main changes introduced in this regard are to bring forward the submission deadlines in order to align them across the different resolution authorities. There are also proposals to: Amend the Relevant Legal Entity thresholds. Introduce the notion of liquidation entities. Add information on ownership structure. Introduce granular reporting of liabilities data. Extend data reported for the criticality assessment of economic functions, financial market infrastructures and on relevant services for operational continuity. Next steps The deadline for comments on the consultation paper is 30 October 2024. A public hearing on the draft ITS will take place via an online meeting on 12 September 2024 from 10:00 to 11:30 CET. The deadline for registration is 9 September 16:00 CET. After the consultation, the draft ITS will be submitted to the European Commission for endorsement before being published in the Official Journal of the European Union. The EBA will also develop the data point model (DPM), XBRL taxonomy and validation rules based on the final draft ITS. The draft ITS provide for the new framework to be operational in 2026 with first reporting reference date of 31 December 2025.

On 30 July 2024, the Climate Resilience Dialogue published its final report. The Climate Resilience Dialogue is a temporary group of stakeholders set up at the initiative of the European Commission (Commission) to discuss ways to narrow the climate protection gap and increase the resilience of the economies and societies to the effects of climate change. The final report provides: A brief overview of the main climate-related perils and hazards to which people, businesses, and assets are exposed and vulnerable to today in Europe (chapter 1). An analysis of the key contributing factors of the climate protection gap, encompassing risk awareness, risk assessment and other supply and demand factors such as affordability of the premiums, mistrust vis-à-vis insurance and limits to the insurability of risks (chapter 2). An analysis into the solution space by focusing on risk reduction, risk sharing and risk transfer approaches, such as public-private partnerships and other insurance-based solutions, including evolving insurance-based approaches that have the potential to overcome some of the barriers of the climate protection gap (chapters 3 and 4). A deep-dive into the main climate-related perils in Europe, covering floods, wildfire, heatwave, drought and storms, including lessons, good practices, and potential solutions stemming from past events that could be implemented to increase climate resilience (chapter 6).

On 29 July 2024, the Financial Conduct Authority (FCA) published its Secondary International Competitiveness and Growth Objective (SICGO) report 2023/24, in fulfilment of its obligation under the Financial Services and Markets Act 2023, section 26. The FCA also published a set of SICGO metrics to show the impact of its work. In the SICGO report, the FCA reflects on the first year of its new secondary objective, and outlines the work it has done to: Put competitiveness and growth at the heart of the FCA. Help financial services firms to succeed. Enable financial services to facilitate the competitiveness and growth of the UK economy. Support and drive innovation. Enhance trust and reduce the costs of harm and market instability. Pursue a proportionate approach to minimise the impact on growth. Following HM Treasury’s call for proposals on measuring the success of the FCA’s secondary objective, it agreed to publish a set of metrics. The FCA explains that it has supplemented these with further metrics from its existing framework, where they can contribute to a more complete picture of its impact on growth and competitiveness. On its new SICGO metrics webpage, the FCA sets out metrics under 4 themes: Authorisations and operational efficiency. Policy and regulatory impact. Data collection. Digital and innovation.

On 29 July 2024, the Financial Conduct Authority (FCA) launched a call for input on its review of FCA requirements following the introduction of the Consumer Duty. Through the call for input, the FCA is seeking views on whether, where and how it can refine its retail conduct rules, while ensuring it continues to support and protect consumers. The FCA explains that it particularly wants to address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit. It also aims to include appropriate flexibility in its rules to be responsive to future changes and innovation. While the call for input is primarily focused on the FCA’s retail conduct rules and guidance, views are also invited on the FCA’s wider rules and guidance. Comments are invited from firms and industry bodies (as the main users of the FCA’s rules and guidance) as well as from consumers, consumer groups and other groups affected by the rules, on issues including: Which detailed rules or guidance could be simplified to rely on high-level rules, or have interactions with other rules which could be clarified. How any steps to simplify FCA rules and guidance affect its statutory objectives. The appropriate balance between high-level and more detailed rules. The potential benefits and costs from simplifying FCA rules. The FCA notes that, as it has committed to a post-implementation review of the Consumer Duty, it is not seeking responses to this call for input with suggestions for changes to the Duty. Next steps The deadline for responses to the call for input is 31 October 2024. The FCA then intends to outline its approach in early 2025.

On 29 July 2024, the Payment Systems Regulator (PSR) published its second Annual Review of Specific Direction 12 (SD12), which was designed to ensure LINK continues to maintain a broad geographic spread of free-to-use ATMs. SD12 was issued to LINK in March 2022, replacing previous Specific Directions that had been in place since October 2018. The PSR’s second review of SD12 was assessed in the context of how SD12 would work alongside changes to the cash access regulatory landscape introduced in the Financial Services and Markets Act (FSMA) 2023, and the Financial Conduct Authority’s (FCA) new cash access rules. The PSR has concluded that, as the FCA’s regulations are more comprehensive in protecting access to cash across all channels, SD12 should be retired when it expires in January 2025. Although SD12 was found to be working well, the PSR considers that the decision not to renew it will reduce regulatory burden and ensure the cash access regulatory framework is clearer and more streamlined.

On 29 July 2024, the Prudential Regulation Authority (PRA) published a Policy Statement, PS14/24, on the leverage ratio treatment of omnibus account reserves and minor amendments to the leverage ratio framework. PS14/24 includes feedback to responses the PRA received to its Consultation Paper, CP28/23, and sets out its final policy. Background Under PRA rules, firms must exclude from the leverage ratio any claims on central banks matched by liabilities in the same currency and of identical or longer maturity. The exclusion is a measure to respond to extraordinary circumstances that have led to a significant increase in central bank claims in the financial system. A new model of reserves holding has emerged where the reserves of several firms are co-mingled in a single account held at the central bank, known as an ‘omnibus’ account. This has raised the question of whether the reserves held on such accounts (omnibus account reserves) should be excluded from the leverage ratio as traditional individually-held reserves currently are. To address this, the PRA proposed in CP28/23 to: Introduce new rules to apply the exclusion consistently across omnibus accounts reserves as well as traditionally-held reserves, with the exclusion of the former subject to specific additional conditions, and to add related material to Supervisory Statement 45/15 – The UK leverage ratio framework (SS45/15). Make minor amendments to SS45/15 and the leverage ratio disclosure and reporting instructions, to provide clarification about the PRA’s expectations and ensure consistency with PRA rules. The final rules The PRA has made only minor changes to the proposals it consulted on in CP28/23. The final policy set out in PS14/24 includes: Amendments to the Glossary, Leverage Ratio (CRR), Disclosure (CRR) and Reporting (CRR) Parts of the PRA Rulebook. Updates to SS45/15. Amendments to the ‘Instructions for leverage ratio disclosures’. Amendments to the ‘Instructions for leverage ratio reporting’. Next steps All the proposed changes in PS14/24 will take effect on 5 August 2024. The PRA reminds firms that, as noted in the updated version of SS45/15, the PRA expects firms in scope of the leverage ratio minimum requirement to notify the PRA of existing or planned participation in an omnibus account. Firms should also tell the PRA whether, in respect of reserves held on the account, they meet or expect to meet the conditions in Article 429a(A2).

On 29 July 2024, the Financial Conduct Authority (FCA) published a statement of policy on cost benefit analyses (CBAs). The statement of policy, which has been published following the establishment of an independent CBA Panel, sets out how the FCA carries out its CBA. The FCA is required under the Financial Services and Markets Act 2000 to publish a statement of policy on its approach to CBA. Earlier in 2024, the FCA outlined its approach to analysing the costs and benefits of its policies and explained that it would establish the CBA Panel and publish a statement of policy later in the year. The statement of policy includes information on: The methodology used in preparing CBAs. Matters to which the FCA has regard in determining whether certain legislative requirements apply or not. How the FCA makes sure it considers timely representations made in connection with its CBAs. Instances where the requirement to consult the CBA Panel in relation to the preparation of a CBA does not apply. The FCA’s arrangements to make sure the CBA Panel may review FCA’s performance against relevant legislative requirements and provide recommendations.

We have published a new online briefing note on the European Union’s new AML/CFT regime. Our online briefing note is here.  

The US Supreme Court’s ruling on the Chevron doctrine in Loper Bright Enterprises v. Raimondo (Loper), will profoundly impact multiple industries regulated by federal agencies that have grown accustomed to being the ultimate arbiter of ambiguous language in their applicable laws, rules and regulations. Those days are over—courts no longer have to defer to federal agencies when resolving such ambiguities. Our client alert is here.

On 25 July 2024, the European Supervisory Authorities issued an updated version of its consolidated questions and answers on the SFDR and the SFDR Delegated Regulation. The ESAs have added answers to a number of new questions including: For financial products falling under Article 8 or 9 SFDR, where the financial market participant making available those products is a registered AIFM which has not set up a website, must that registered AIFM establish a website in order to comply with Article 10 of SFDR and Chapter IV of the SFDR Delegated Regulation for those financial products Can a financial market participant rely on disclosures under Article 6(1) second sub-paragraph of the SFDR (which allow financial market participants to disclose in pre-contractual disclosures that it “deems sustainability risks not to be relevant” for its investment decisions) in order to disapply other obligations on taking into account sustainability risks in EU law, such as Article 18(5) of Commission Delegated Regulation (EU) No 231/2013 which requires Alternative Investment Fund Managers to take into account sustainability risks when complying with their due diligence obligations? As regards Article 4(4) of Regulation 2019/2088, must the calculation of the 500-employee threshold to the parent undertaking of a large group be applied to both EU and non-EU entities of the group without distinction as to the place of establishment of the group and/or subsidiary and does the due diligence statement include impacts of the parent only or must it include the impacts of the group at a consolidated level? Should PAI indicator 4 in Table 1, Annex I of the SFDR Delegated Regulation (“Exposure to companies active in the fossil fuel sector”) be calculated on a look-through (i.e., share of fossil fuel activities) or pass/fail (i.e., whole company active within the fossil fuel sector) basis? I.e., is there a threshold level of fossil fuel related economic activity required before a company becomes “active in the fossil fuel sector” or is any activity sufficient to make a company “active in the fossil fuel sector”? How should values in currencies other than EUR be converted to EUR? E.g., at the point of reporting, the point of the impact or an average value in EUR of values in currencies converted to EUR at different reference points over the entire reference period. Can a sustainable investment pursuant to Article 2(17) SFDR also be made by investing in another financial product, e.g., a UCITS fund?

On 26 July 2024, the European Central Bank (ECB) issued a press release stating that it had concluded its cyber resilience stress test which found that overall supervised banks have response and recovery frameworks in place, but areas for improvement remain. The outcome of the test will feed into the 2024 Supervisory Review and Evaluation Process, which assesses banks’ individual risk profiles. Supervisors have provided individual feedback to each bank and will follow up with them accordingly.

On 26 July 2024, the FCA published Handbook Notice 121. In this Handbook Notice the FCA briefly covers the following instruments that the FCA Board has approved: Periodic Fees (2024/2025) and Other Fees (No 2) Instrument 2024. UK Listing Rules Instrument 2024 UK Listing Rules (Consequential Amendments) Instrument 2024. Collective Investment Schemes (Schemes Authorised in Approved Countries) Instrument 2024. Access to Cash Sourcebook Instrument 2024 (as amended by the Access to Cash Sourcebook (Amendment) Instrument 2024). Access to Cash Sourcebook (Amendment) Instrument 2024. Decision Procedure and Penalties Manual (Digital Securities Sandbox) Instrument 2024. Payment Optionality (Investment Research) Instrument 2024.

On 26 July 2024, the Financial Conduct Authority (FCA) published several Policy Papers designed to strengthen the UK’s capital markets. Three Consultation Papers (CPs) set out proposed rules for the new Public Offers and Admissions to Trading Regime (POATR), which will replace the existing UK Prospectus Regulation. A Policy Statement (PS) sets out final rules on payment optionality for investment research. POATR The three Consultation Papers are: CP24/13: New regime for public offer platforms (CP24/13). CP24/12: Consultation on the new POATRs (CP24/12). CP24/14: Consultation on the derivatives trading obligation and post-trade risk reduction services (CP24/14). CP24/13 The POATR gives the FCA power to set rules around a new regulated activity of operating as a Public Offer Platform (POP). The Government has proposed to remove the current requirement for an FCA approved prospectus to be published for offers of transferable securities with a total consideration of more than €8 million. Instead, it will be possible for securities to be offered to the public in reliance upon a number of exemptions, including an exemption for public offers where the total value of the offer exceeds £5 million, subject to that offer being made on a POP. POPs will therefore be used by issuers who seek to make public offers of unlisted securities where the value of the offer exceeds £5 million. There are currently 27 crowdfunding platforms and 462 corporate finance firms operating in the UK, which may consider taking up the permission to operate a POP. The proposed new rules and guidance in CP24/13 will create a due diligence and disclosure framework for POP operators and issuers. As set out in CP24/13 the FCA is proposing rules regarding: Due diligence to be performed by platforms when onboarding companies and assessing the securities to be offered. Information and disclosures designed to inform investors of the key features and risks associated with offers of ‘off market’ securities, typically by smaller companies. Liability on POP operators. The FCA is also applying the Consumer Duty and appropriate authorisation requirements from the Handbook. As for more bespoke rules specific to operating a POP, the FCA’s proposals focus on three key areas: Information gathering and due diligence carried out by POPs on prospective issuers and the securities being offered. The specific disclosures provided to investors on an issuer and the security being offered. The application of liability and redress in relation to the content of offers facilitated by POPs. Therefore, POP operators will have a key gatekeeping role in deciding if a public offer should be made to investors. CP24/12 In CP24/12 the FCA is seeking to address what is calls ‘regulatory failure’ in the form of suboptimal regulatory requirements for admissions to trading on a regulated market, multilateral trading facilities (MTFs) and public offers of securities. The harms caused by this failure were previously set out in HM Treasury’s review of the prospectus regime and in the Secondary Capital Raising Review. The POATR require that a prospectus provide investors with the necessary information about the securities. Moreover, the liability threshold for admissions to trading and further issuances of securities on regulated markets remains the same as under the prospectus regime, with the exception of Protected Looking Forward Statements (PLFS). In CP24/12, with regards to when a prospectus may be required, the FCA is proposing: Increasing the threshold for triggering a prospectus for further issuances from 20% of existing share capital to 75% for further issuances. To require an MTF admission prospectus for all initial admissions to trading, and reverse takeovers (with exceptions for existing simplified routes to admission), to encourage offers to retail investors. The FCA has also set out a proposed approach to certain rights and responsibilities attaching to the production of the prospectuses. In relation to what regulated market prospectuses should contain the FCA proposes: Defining PFLS, to give issuers legal certainty on what information can be deemed PFLS and to ensure investors can identify and assess such content. To supplement existing minimum content requirements for issuers seeking admission of equity securities to a regulated market to include certain specific sustainability disclosures, where these are financially material and relevant. This may be complemented by further guidance. For non-equity securities, to retain the approach of using non-Handbook Technical Note guidance to clarify expectations. To require issuers to disclose whether their debt instruments have been marketed as ‘green’, ‘social’ or ‘sustainable’ or issued under a bond framework or a similar document. Where that is the case, issuers would be prompted to disclose further information on their securities, depending on the type of bond being listed. CP24/14 In summary, in CP24/14 the FCA is proposing the following changes: Bringing swaps on the US risk-free rate SOFR (Secured Overnight Financing Rate) OIS (overnight index swap) into the scope of the derivatives trading obligation (DTO). Defining the types of post-trade risk reduction (PTRR) services that can be exempted from the DTO. The FCA also sets out how it intends to use its new power to modify or suspend the DTO to certain transactions under current transitional powers which expire in December 2024. The FCA notes that the SOFR OIS market is the largest interest rate swap market globally and that trading in SOFR OIS is already subject to the swap trading mandate in the US. The FCA has found that there are significant volumes within the UK nexus that would support increased transparency from requiring SOFR OIS to be traded in trading venues and has identified the harm that arises from this lack of pre-trade transparency in SOFR OIS. For example, there are higher costs for trading SOFR OIS. Also, the lack of liquidity and transparency of pre-trade information also impacts negatively on investors’ ability to make informed decisions about the optimal portfolio and ability to manage interest rate risks effectively. The FCA proposes to add OIS derivatives referencing SOFR to the DTO. It proposes to impose the DTO for SOFR OIS to trade start types spot-starting and IMM (next 2 IMM dates) with tenors of 1, 2, 3, 4, 5, 6, 7, 10, 12, 15, 20 and 30 years. According to the FCA’s analysis, these are sufficiently liquid. The FCA is currently consulting in CP23/32 on changes to the transparency regime for bonds and derivatives. It is proposing to include SOFR OIS as a category 1 instrument under the new transparency regime and this would mean pre and post trade transparency of trades, unless the trade is above the Large-In-Scale threshold. The FCA states that this would mean that transparency in affected contracts, including SOFR OIS, are likely to benefit from its transparency proposals. PTRR services (PTRRS) are provided by third party service providers to market participants to assist them in reducing risks. There are three types of PTRRS commonly used in the market: portfolio compression, portfolio rebalancing and basis risk optimisation. The Financial Services and Markets Act 2023 (FSMA) gives the FCA the power to disapply obligations to activities, persons and transactions executed in connection with a risk reduction service. It proposes to exercise its power to disapply the DTO to a wider range of post-trade risk reduction services. A “risk reduction service” is defined in FSMA 2023 as a service provided to two or more counterparties in derivatives transactions to reduce non-market risks. FSMA 2023 also restricts PTRRS to those that result in transactions that do not contribute to the price discovery process. In CP24/14, FCA proposes to maintain the existing exemptions for trades conducted as part of portfolio compression and proposes to expand the exemptions to trades conducted as part of portfolio rebalancing and basis risk optimisation. The FCA sets out the characteristics that risk reduction services would need to satisfy for trades used to conduct them to be eligible for exemption. It also proposes to require providers of PTRRS to comply with disclosure and notifications obligations. Following the UK’s departure from the EU, the FCA has been using its temporary transitional powers (TTP) to modify the application of the DTO. In CP24/14 it sets out how it intends to use the power inserted into Article 28a UK MiFIR by FSMA 2023 to suspend or modify the DTO. The FCA proposes to exercise this power in a similar way to the TTP, as it feels that the conditions that supported the use of the TTP continue to be relevant. Next steps The deadline for comments on CP24/14 is 30 September 2024. The deadline for comments on CP24/13 and CP24/12 is 18 October 2024. Payment optionality for investment research In PS24/9: Payment optionality for investment research the FCA sets out final rules for a new option to pay for investment research and sets out its feedback to its earlier consultation in CP24/7. The new option will exist alongside those already available, i.e. payments for research from a firm’s own resources and payment for research from a research payment account for specific clients. The FCA is not seeking changing the existing rules on these other payment options. The FCA notes that whilst there was strong support for the new joint payment option there were concerns regarding the precise specification of certain of the guardrails which has prompted the regulator to make certain changes to its original proposals. A summary of these changes is found in para 1.23. A summary list of the key requirements introduced by the new rules are found in paras 1.19 to 1.22. Next steps The changes to the research rules will come into force on 1 August 2024. The FCA notes that it is aware that the changes it is making in PS24/9 should also apply to fund managers, including UCITS managers and alternative investment fund managers under COBS 18. The changes it is introducing to the list of acceptable minor non-monetary benefits in COBS 2.3A and the addition of payment optionality in COBS 2.3B are not at this stage mirrored in changes to COBS 18 Annex 1 relevant to: UCITS management companies. Full-scope UK Alternative Investment Fund Managers (AIFMs). Small authorised UK AIFMs and residual Collective Investment Scheme operators. The FCA plans to set out the necessary rule changes to achieve this alignment in a future consultation in the autumn. The regulator’s intention is to make the same option available in substance, and it will over the coming period consider technical aspects of how best to achieve this in practice.

Global N/A EU 1 August 2024 –EU Artificial Intelligence Act comes into force on 1 August 2024. UK 31 July 2024 – The Consumer Duty comes into effect for closed products and services on 31 July 2024.The first annual governing body report is also due by this date. 31 July 2024 – On 28 November 2023, the FCA published a package of measures setting out its final rules and guidance on Sustainability Disclosure Requirements and investment labels. Firms may start using investment labels with accompanying disclosures from 31 July 2024. 31 July 2024 – The final FCA rules and guidance to support the implementation of the Overseas Funds Regime will come into force on 31 July 2024. 1 August 2024 – On 29 February 2024, the Financial Services and Markets Act 2023 (Commencement No. 5) Regulations 2024 were made and published on legislation.gov.uk. This statutory instrument contains the fifth set of commencement regulations made under the Financial Services and Markets Act 2023 (FSMA 2023). Regulation 3 of the Regulations bring into force parts of section 51 and paragraph 1 of Schedule 7, on 1 August 2024. Section 51 of, and paragraph 1 of Schedule 7 to, FSMA 2023 amend the Financial Services (Banking Reform) Act 2013 to impose accountability requirements on the Payment Systems Regulator that are equivalent to some of those imposed on the FCA and the PRA.

On 26 July 2024, the European Supervisory Authorities (ESAs) published a Final Report on draft regulatory technical standards (RTS) to specify the elements which a financial entity needs to determine and assess when subcontracting ICT services supporting critical or important functions as mandated by Article 30(5) of the Digital Operational Resilience Act (DORA). Article 30(2)(a) DORA requires from financial entities that: “…the contractual arrangements on the use of ICT services shall include at least the following elements […] a clear and complete description of all functions and ICT services to be provided by the ICT third-party service provider, indicating whether subcontracting of an ICT service supporting a critical or important function, or material parts thereof, is permitted and, when that is the case, the conditions applying to such subcontracting.” Article 30(5) of DORA provides: “the ESAs shall, through the Joint Committee, develop draft regulatory technical standards to specify further the elements referred to in paragraph 2, point (a), which a financial entity needs to determine and assess when subcontracting ICT services supporting critical or important functions.” The draft RTS: Sets out requirements when the use of subcontracted ICT services supporting critical or important functions or material parts thereof by ICT third-party service providers is permitted by financial entities and set out the conditions applying to such subcontracting. Requires financial entities to assess the risks associated with subcontracting during the precontractual phase including the due diligence process. Sets out the requirements regarding the implementation, monitoring and management of contractual arrangements regarding the subcontracting conditions for the use of ICT services supporting critical or important functions or material parts thereof ensuring that financial entities are able to monitor the entire ICT subcontracting chain of ICT services supporting critical or important functions. Next steps The ESAs will submit the draft RTS to the European Commission for adoption.