Financial Services Regulation and Compliance - Investment Firms August 2022

Domestic

CBI publish outsourcing register template

On 9 August 2022, the CBI published guidance notes on the outsourcing register template for markets firms or regulated financial service providers (RFSPs).

The guidance notes set out the CBI's expectations for firm's recording of relevant outsourcing arrangements and reporting of outsourcing to the CBI. All RFSPs are requested to submit their completed recording template to the CBI via the online reporting system by close of business on 7 October 2022. RFSPs should submit their register with all outsourcing arrangements in place as of 31 December 2021 and only include contracts/ written agreements with a start date before that date. The proposed submission deadline from 2023 onwards will be end-February of each year, with the reference date of 31 December of the previous year.

European

ESMA proposes improvements to the EU regime of third country benchmarks

On 19 August 2022, ESMA published its response to the European Commission's consultation on the regime applicable to the use of benchmarks administered in a third country (TC). ESMA commented on the functioning of the current regime and proposes improvements to the regulatory and supervisory framework as well as the European Union (EU) benchmark labels. The key recommendations include:

• removal of the restrictions on the use of TC benchmarks following a risk-based approach while ensuring a level playing field between EU and TC administrators;
• introduction of an EU ESG benchmark label as an extra supporting tool against greenwashing; and
• support for the proposal to create a new category of 'strategic' benchmarks.

ESMA emphasised that while the Benchmarks Regulation (BMR) covers a wide range of benchmarks used in the EU, so far very few jurisdictions have followed a similar regulatory approach regarding the provision and use of benchmarks. Therefore, the wide scope of the BMR would lead to the undesirable outcome of limited availability of TC benchmarks to EU investor as opposed to their non-EU peers.

European Commission report on the treatment of central counterparty (CCP) equity in the write-down and conversion tool under Regulation on CCP recovery and resolution

On 10 August 2022, the European Commission published a report on the treatment of central counterparty (CCP) equity in the write-down and conversion tool under Regulation (EU) 2021/123. The report assesses whether there was a need for any further amendments on the application of the write-down and conversion tool in a CCP resolution, in combination with other resolution tools that result in financial losses being borne by clearing members. The report concluded that since technical work is still ongoing and practical experience is limited, the European Commission can make no recommendation to amend Article 27(7) of Regulation (EU) 2021/123 at this time. The European Commission noted there is a need to clarify these issues to ensure the legal robustness of the EU CCP recovery and resolution regime. The European Commission will carry out further work on this issue and share the conclusions with the European Parliament and the Council no later than 12 February 2026. 

ESMA call for evidence on pre-hedging

On 29 July 2022, ESMA published a call for evidence on pre-hedging. The call for evidence illustrates the arguments in favour and against such practice, and it requests contributions from stakeholders in order to properly delineate its admissibility in the context of Market Abuse Regulation and Markets in Financial Instruments Directive/ Markets in Financial Instruments Regulation. The call for evidence is open until 30 September 2022.

EBA guidelines on the criteria for the exemption of investment firms from liquidity requirements under the IFR  

On 29 July 2022, the EBA published its final guidelines on the criteria for the exemption of investment firms from liquidity requirements in accordance with Article 43(4) of Regulation (EU) 2019/2033 (the Investment Firms Regulation). The guidelines ensure a harmonised approach for the granting of exemption by competent authorities and addresses three main elements:

1. the set of investment services and activities which make an investment firm eligible for the exemption
2. the set of criteria a competent authority should assess before granting the exemption, and
3. guidance for competent authorities when granting and withdrawing the exemption.

Sanctions imposed in response to the crisis in the Ukraine