EU/UK regulatory roundup

HM Treasury has published a Policy Statement confirming the Government’s intention to implement the internationally agreed Basel III banking standards in the UK. The statement also announces that the Government will take powers to enable the implementation of updated prudential rules for UK banks and investment firms.

Public consultations will be launched on the implementation of the Basel standards, on the Capital Requirements Regulation II provisions, and on the prudential regime for investment firms in due course.

 HM Treasury has published a consultation paper setting out proposals to introduce new market access arrangements for financial services between the UK and Gibraltar.

Gibraltar was not a Member State of the EU in its own right. In EU law, Gibraltar was classified as a European territory for whose external relations a Member State (the UK) was responsible. It is through the UK’s responsibility for its external relations that the EU treaties applied to Gibraltar, and in turn the European Economic Area (EEA) agreement. Gibraltar was not in its own right a party to the EEA agreement, but was treated for the purposes of the EU and the EEA as part of the UK. EU law applied to Gibraltar by virtue of Gibraltar’s own European Communities Act 1972 and, under the Withdrawal Agreement, EU law will continue to apply during the transition period.

In the consultation paper HM Treasury:

• sets out the background to the UK-Gibraltar financial services relationship, and the institutional framework that underpins the existing market access arrangements; and
• invites views on key features of the proposed Gibraltar Authorisation Regime (GAR), such as the arrangements to access and exit the GAR regime, and the consumer protection obligations on firms operating in the UK market.

The Bank of England’s (BoE) Financial Policy Committee (FPC) has made a decision to set the UK countercyclical capital buffer rate at 0 percent with immediate effect. The FPC expects to maintain the 0 percent rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest.

Following the FPC decision, the PRA has made a statement covering both:

• distributions; and

The FCA has issued a statement on Covid-19.

Key points in the FCA statement include:

• the FCA expects all firms to have contingency plans in place to deal with major events;
• alongside the BoE, the FCA is actively reviewing the contingency plans of a wide range of firms. This includes assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers;
• the FCA expects firms to take all reasonable steps to meet their regulatory obligations. For example, the FCA expects firms to be able to enter orders and transactions promptly into the relevant systems, use recorded lines when trading, and give staff access to the compliance support they need. If firms are able to meet these standards and undertake these activities from backup sites or with staff working from home, the FCA has no objection to this; and

In FS20/2 the FCA reports that it has found no inappropriate barriers to investing in long-term assets within its authorised funds regime. Broadly, respondents found the current authorised funds regime fit for purpose for long-term investments by professional and sophisticated retail investors. For broad retail distribution funds, the FCA accepts that barriers do exist which limit the range of available investment options. However, the FCA feels that it is not clear that these barriers are inappropriate or how they might be relaxed without introducing a degree of risk that is not appropriate for retail investors. The FCA also notes that other investment products, such as investment trusts, already provide alternative ways for retail investors to access long-term investments.

The FCA has published a report on its sector views. These sector views set out the FCA’s annual analysis of the way in which the financial environment is changing and the impact of these changes on consumers and market effectiveness.

For the investment management sector the FCA has identified six areas of harm. The regulator has stated it is “most concerned” about two: the pricing and quality of investment management products; and operational resilience. The remaining four are: disorderly markets; market abuse; and pricing and quality of firstly, institutional intermediary services and secondly, custody and investment administration services.

ESMA has announced that it is launching a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of UCITS’ managers’ liquidity risk management across the EU. The CSA will be carried out during 2020.

To support this aim, NCAs have agreed to simultaneously assess whether market participants in their jurisdictions adhere to the rules in their day-to-day business. This will be conducted using a common methodology developed together with ESMA.