FIG Bulletin

Recent developments

6 April 2020

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General 5

COVID-19: PRA and FCA statement on SMCR expectations of dual-regulated firms 5

COVID-19: FCA statement on work-related travel – responsibilities of senior managers 6

COVID-19: FCA Dear CEO letter to firms providing services to retail investors 6

COVID-19: FOS case fees instrument 7

COVID-19: FSB update on addressing financial stability risks 7

Brexit: Committee queries government's position on equivalence 8

Banking and Finance 9

COVID-19: EBA and PRA approach to regulatory reporting and Pillar 3 disclosures 9

COVID-19: Coronavirus Business Interruption Loan Scheme and new Large Business

Interruption Loan Scheme 9

COVID-19: HM Treasury and PRA welcome delay to implementation Basel III 10

COVID-19: PRA statement on deposit takers' approach to dividend payments, share

buybacks and cash bonuses 10

COVID-19: EBA statement on dividend distributions, share buybacks and variable

remuneration 11

COVID-19: ECB recommendation to delay dividends and share buy-backs until

October 2020 11

COVID-19: PRA statements on approach to VAR back-testing exceptions and exposure

value for internal models method CCR 11

COVID-19: EBA final guidelines on legislative and non-legislative moratoria on loan

repayments 12

COVID-19: SRB operational relief measures for resolution planning and MREL 12

CRR: Commission Implementing Regulation amending ITS on supervisory reporting 13

CRR II: EBA final draft RTS on key areas for implementing Fundamental Review of the

Trading Book 14

Bank resolution: SRB "Expectations for Banks" policy 14

Principles for Responsible Banking: impact analysis tool for banks 15

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Consumer Finance 16

COVID-19: FCA consumer credit temporary relief measures 16

Payment Services 17

COVID-19: FCA update on strong customer authentication under PSRs 2017 17

PSR annual plan and budget for 2020/21 17

Securities and Markets 18

COVID-19: FCA updates statement on short selling bans and reporting 18

COVID-19: ESMA clarifies best execution reports under MiFID II RTS 27 and RTS 28 18

Credit rating information and data: ESMA call for evidence 19

MiFID II review: ESMA report on position limits and position management 19

MiFID II: ESMA confirms application date of equity transparency calculations 19

MiFID II: ESMA technical advice on impact of inducements and costs and charges

disclosure requirements 19

MiFID II: ESMA final report on weekly position reports 20

EMIR: ESMA final report on procedural rules for penalties imposed on third-country CCPs,

TRs and CRAs 20

EMIR 2.2: ESMA final draft RTS for CCP colleges 20

EMIR: ESMA consults on clearing solutions for pension scheme arrangements 20

ESMA updates public statement of consultation practices 21

Insurance 22

COVID-19: PRA Dear CEO letter to UK insurers about distribution of profits 22

COVID-19: EIOPA statement on dividend distribution and variable remuneration policies 22

Solvency II: PRA PS9/20 on income producing real estate loans and internal credit

assessments for illiquid, unrated assets 23

Solvency II Effective Value Test parameters: PRA statement 23

COVID-19: FCA expectations of general insurance firms on renewals 24

COVID-19: FCA updates pensions information for firms 24

COVID-19: EIOPA call for insurers and intermediaries to mitigate impact on consumers 24

COVID-19: EIOPA update on delays to consultations and other projects 25

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Funds and Asset Management 26

ESMA publishes guidance on performance fees in UCITS and certain AIFs 26

MMF Regulation: ESMA postpones deadline for Article 37 reporting 26

Regulation on cross-border distribution of collective investment undertakings: ESMA

consults on draft ITS 26

Financial Crime 28

COVID-19: EBA statement on actions to mitigate financial crime risks 28

COVID-19: FATF statement on measures to combat illicit financing 28

5

General

COVID-19: PRA and FCA statement on SMCR expectations of dual-regulated firms

On 3 April 2020, the Prudential Regulation Authority (PRA) and the Financial Conduct

Authority (FCA) published a joint statement on their expectations of dual-regulated firms as

regards the senior managers and certification regime (SMCR). In particular, the regulators

recognise that firms will need to keep their governance arrangements under review and, in this

context, there may be regulatory obligations firms are unable to meet. The regulators want to be

flexible to assist firms and make the following statements:

Where firms are required to update and resubmit Statements of Responsibilities

(SoRs) due to "significant changes" to Senior Management Functions (SMFs)

responsibilities, the regulators:

o expect firms to resubmit relevant SoRs as soon as reasonably practicable taking

into account the current circumstances; and

o understand that firms may take longer than usual to submit revised SoRs in the

present environment.

The FCA and PRA are currently gathering evidence on whether the 12-week rule is

likely to give dual-regulated firms enough flexibility to deal with temporary absences of

SMF as a result of COVID-19. If the FCA and PRA conclude that the 12-week rule is

insufficient to allow firms to respond to temporary SMF absences linked to COVID-19,

they will consider additional measures.

If firms cannot reallocate an absent SMF's Prescribed Responsibilities (PRs)

among their remaining SMFs due to reasons relating to COVID-19, they can temporarily

allocate them to the individual who is acting as interim SMF under the 12-week rule, even

if they are, at the time, unapproved as an SMF. An unapproved individual acting as an

SMF under the 12-week rule will not have a SoR (unless the firm applies for them to be

permanently approved as that SMF). So it is essential that firms ensure their records

(Responsibilities Maps, role profiles, etc.) keep a clear "running commentary" of any

temporary allocation of PRs to unapproved individuals during this period. Firms should

also update their PRA and/or FCA supervisors of any temporary allocation of PRs to

unapproved individuals acting as SMFs under the 12-week rule.

The FCA and PRA do not require or expect firms to designate a single SMF to be

responsible for all aspects of their response to the coronavirus. While it is important

for firms to have a clear framework for allocating responsibilities to various SMFs for

different aspects of their response, the FCA and PRA do not generally prescribe a "one-

size-fits-all" approach. An exception is the identification of "key workers" which firms

should allocate to the CEO (SMF1). Where firms have an SMF24, aspects of the firm's

response to COVID-19 may naturally sit with this SMF. Other aspects of firms' responses

may, however, sit naturally with other SMFs. For instance, managing liquidity in the

current market would naturally fall to the CFO. Moreover, given the likelihood of SMFs

becoming suddenly, temporarily absent, the PRA encourages firms to consider how they

may respond to unexpected changes to current contingency plans (contingencies upon

contingencies).

Individuals performing mandatory and required SMF roles should only be furloughed

as a measure of last resort. Firms have greater flexibility to furlough the individuals

performing non-mandatory SMFs. For instance, if a firm temporarily suspends a

business service or function due to the disruption it could, in principle furlough the SMF

responsible for it. However, the regulators warn that firms should think carefully about

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the risks and who is key to their business continuity during this period. Firms must also

clearly document the reallocation of responsibilities.

Unless a furloughed SMF is permanently leaving their post, they will retain their approval

during their absence and will not need to be re-approved when they return. A Form J is

not necessary, but the regulators should be notified of furloughing of SMFs.

Firms should continue to take reasonable steps to complete any annual certifications

of employees that are due to expire while the coronavirus restrictions are in place. What

constitutes reasonable steps may be altered by the current circumstances. However, the

FCA stresses that, even in these circumstances, certified staff who are not fit and proper

should not be re-certified.

COVID-19: FCA statement on work-related travel – responsibilities of senior managers

On 27 March 2020, the Financial Conduct Authority (FCA) published a statement setting out

how firms should prioritise who needs to travel to the office in light of COVID-19, and the

responsibilities of senior managers in doing so. The guidance applies to all FCA-regulated firms.

Each firm's designated senior manager or equivalent person is responsible for identifying which

of their employees are unable to perform their jobs from home and have to travel to the office or

business continuity site.

The FCA expects the total number of roles requiring an ongoing physical presence in the office or

business continuity site to be far smaller than the number of workers needed to ensure all of a

firm's business activities continue to function on a business as usual basis.

The FCA would not expect the following to go into work or meet face to face:

financial advisers, as they can offer their services online or by phone;

staff who can safely and securely trade shares and financial instruments from home;

business support staff, such as those in IT where they can triage issues from home, unless

they are looking after specific equipment or technology; and

claims management companies and those selling non-essential goods and credit.

The FCA expects the number of exceptions to this to be low.

The FCA notes that the government guidance is that employers should take every possible step to

facilitate their employees working from home, including providing suitable IT and equipment to

enable remote working.

COVID-19: FCA Dear CEO letter to firms providing services to retail investors

The FCA has published a Dear CEO letter it sent on 31 March 2020, in light of COVID-19, to the

CEOs of firms providing services to retail investors.

The FCA reiterates its continuing message that it expects firms to provide strong support and

service to customers during this period. Firms should be clear and transparent and provide

support as consumers and small businesses face challenges at this time. It also expects firms to

manage their financial resilience and actively manage their liquidity. Firms should contact the

FCA immediately if they believe they will be in difficulty.

To help support firms in this sector, the FCA sets out its approach to the following issues:

client identity verification;

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supervisory flexibility over best execution (including in relation to RTS 27, RTS 28 and

Article 65(6) reports) until the end of June 2020;

supervisory flexibility for six months over 10% depreciation notifications;

the implementation of investment pathways and other measures (which the FCA is

pausing); and

financial resilience.

The FCA will continue working with firms and consumer organisations to understand how the

impact of COVID-19 is affecting markets and the harms that consumers may face. It will keep the

measures outlined in the letter under review, especially as new issues arise.

COVID-19: FOS case fees instrument

The FCA has published the FEES Manual (Financial Ombudsman Service Case Fees 2020/2021)

Instrument 2020 (No 2) (FOS 2020/3). It takes immediate effect and revokes and replaces the

FEES Manual (Financial Ombudsman Service Case Fees 2020/2021) Instrument 2020.

An accompanying press release, published by the Financial Ombudsman Service (FOS), states

that the FCA has approved the FOS' 2020/21 budget. It goes on to state that, recognising the

unprecedented impact of COVID-19 on firms, the FOS has revised its funding arrangements for

2020/21. The revisions represent a combination of targeted interventions to benefit smaller

firms, and broader steps to benefit other firms that contribute to its funding.

In summary, in 2020/21:

The FOS will maintain the number of "free" cases at 25 for firms outside the group

account fee arrangement. This means that nine out of ten firms will not pay any case fees

(set at £650). In line with the FOS' consultation, the number of free cases will be 50 for

each group in the group account fee arrangement;

the FOS is asking the FCA to freeze all minimum levies at 2019/20 levels; and

the overall income the FOS takes from its levy will be reduced, with a case fee to levy

income split of around 70:30, compared with the 60:40 split it consulted on.

The FOS will absorb the cost of the above changes, which amount to £25.4 million in total, by

reducing its reserves.

The FOS will publish its wider funding plans in the week commencing 6 April 2020. This will

include an explanation of the differences between its final and consultation budgets, as well as a

summary of the feedback received to its consultation.

COVID-19: FSB update on addressing financial stability risks

On 2 April 2020, the Financial Stability Board (FSB) published a new webpage outlining its work

to address the financial stability risks of COVID-19.

The FSB's overall COVID-19 work includes:

regularly sharing information on evolving financial stability threats and on the policy

measures that financial authorities are taking;

assessing financial risks and vulnerabilities in the current environment; and

coordinating policy responses to maintain global financial stability, keep markets open

and functioning, and preserve the financial system's capacity to finance growth.

The FSB is also re-prioritising its work programme for 2020. The main elements of this relate to:

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assessment of vulnerabilities – the FSB will focus on monitoring current risks to

global financial stability, and in particular the impact of COVID-19 on the resilience of

the financial system;

non-bank financial intermediation (NBFI) – prioritisation will support timely

discussion of policy issues arising from vulnerabilities in NBFI that are surfacing in the

COVID-19 crisis, and decisions on how to organise such work in the FSB going forward;

financial innovation – prioritisation will ensure that key deliverables to the Saudi G20

Presidency will be provided, and that the FSB completes initiatives on topics that are

likely to remain of policy relevance in the near term;

cross-border payments – the three-stage work to develop a roadmap on cross-border

payments, in coordination with the Committee on Payments and Market Infrastructures

(CPMI), will continue as scheduled, given the importance of efficient cross-border

payments systems;

resolution – technical work on central counterparty resolution and the implementation

of the Total Loss-Absorbing Capacity standard remains a priority, given the importance

as part of effective crisis management;

OTC derivatives – finalising the oversight arrangements for Unique Product Identifier

(UPI) and Unique Transactions Identifier will continue as the UPI service provider awaits

clarity on the oversight arrangements;

Benchmark transition – the transition from LIBOR remains a priority as firms cannot

rely on LIBOR being produced after end 2021;

other work on supervisory and regulatory policies – the FSB will prioritise work

to focus on policy responses to the COVID-19 crisis, including forward-looking issues

concerning crisis management; and

implementation monitoring – this will track regulatory relief measures taken by

international standard-setting bodies. Other work will be reduced to the completion of

near-final projects and the production of a streamlined annual report to the G20.

Brexit: Committee queries government's position on equivalence

The House of Commons European Scrutiny Committee has published its third report of session

2019/21, which includes, at section 10, consideration of the UK's access to the EU financial

services markets after Brexit and the text of a letter (dated 18 March 2020) the Committee Chair

sent to John Glen, Economic Secretary to the Treasury. In the letter, the Committee asks Mr

Glen to clarify the government's position on:

the possible implications of seeking equivalence for the UK's regulatory autonomy;

the proposed UK-EU institutional framework for financial services;

the concept of "structured" withdrawal of equivalence; and

any relevant provisions of the upcoming Financial Services Bill.

The Committee asked Mr Glen to respond by 3 April 2020.

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Banking and Finance

COVID-19: EBA and PRA approach to regulatory reporting and Pillar 3 disclosures

On 2 April 2020, the PRA published a statement on amendments made to regulatory reporting

and Pillar 3 disclosure requirements as a result of COVID-19. The statement is relevant to UK

banks, building societies, designated investment firms and credit unions.

The statement follows a statement published on 31 March 2020 by the European Banking

Authority (EBA) in which the EBA recommends that national competent authorities (NCAs) and

national resolution authorities (NRAs) should allow firms up to one additional month for

submitting the required data for supervisory reporting. The EBA advises that this additional

period should not apply to information on the liquidity coverage ratio (LCR) or the additional

monitoring metrics (ALMM), or for reporting for resolution planning purposes. The EBA also

suggests that NCAs and NRAs should not prioritise their supervisory actions towards ad hoc data

collections that are not specifically needed to monitor firms in the context of COVID-19.

In response to the EBA statement, the PRA:

will accept delayed submissions (of up to one month) for certain specified aspects of

harmonised regulatory reporting, where the original remittance deadlines fall on or

before 31 May 2020. However, remittance dates for information on the LCR and the

ALMM, as well as reporting for resolution planning purpose, will not be delayed;

will accept delayed submission (of up to one or two months) for certain specified aspects

of PRA-own regulatory reporting where the remittance deadlines in the PRA Rulebook

fall on or before 31 May 2020;

strongly encourages firms to submit branch return data for the first half of 2020 using

the old version of the branch return template instead of the new template. Firms

considering submitting the new branch return are advised to discuss this with their

supervisors;

may ask for more frequent submissions of particular reports, and additional ad hoc

reporting on key prudential metrics, to maintain the safety and soundness of firms;

will take a flexible approach to assessing the reasonableness of any delay to the

publication of firms' Pillar 3 disclosures. Where firms reasonably anticipate that

publication of their Pillar 3 reports will be delayed, the PRA expects them to inform their

supervisors and market participants of the delay, the reasons for the delay and, to the

extent possible, the estimated publication date; and

clarifies that where firms follow the EBA's recommendation to assess the need for

additional disclosures on the impact of COVID-19 and, in that context, choose to make

additional disclosures relating to the LCR, these should be calculated using the average of

12-monthly end points as specified in the EBA guidelines on the LCR disclosure.

In due course, the PRA will consider whether the actions in the statement will be extended to

reporting beyond 31 May 2020.

COVID-19: Coronavirus Business Interruption Loan Scheme and new Large Business Interruption Loan Scheme

On 3 April 2020 the UK government announced changes to the Coronavirus Business

Interruption Loan Scheme (CBILS), under which SMEs may obtain loans of up to £5 million, to

help them deal with the impact of COVID-19. Details of the scheme, as expanded, are available

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on the British Business Bank website. In response to pressure from businesses, the government

has made the following changes to CBILS, which will apply from 6 April 2020:

lenders will no longer be permitted to refuse applications for a CBILS loan on the basis

that the applicant business is eligible for regular commercial financing; insufficient

security is no longer a condition to access the scheme. Businesses that have previously

been refused CBILS loans may re-apply;

lenders will no longer be able to request personal guarantees for loans under £250,000.

For facilities of more than £250,000, personal guarantees may still be required, at a

lender’s discretion, but recoveries under these will be capped at a maximum of 20% of

the outstanding balance after the proceeds of business assets have been applied and a

Principal Private Residence may not be taken as security. The new rules will also apply to

existing borrowers under the scheme; and

operational changes will be made to speed up lending approvals.

As before, the government will cover the first twelve months of interest and fees and will

guarantee 80% of any CBILS loan. The maximum loan value is £5 million and an applicant must

have an annual turnover of not more than £45 million.

The government has also announced a new Coronavirus Large Business Interruption Loan

Scheme (CLBILS) under which the government will guarantee 80% of loans of up to £25 million

to firms with an annual turnover of between £45 million and £500 million. Loans backed by a

guarantee under CLBILS will be offered at commercial rates of interest. Further details of the

scheme will be announced later this month.

COVID-19: HM Treasury and PRA welcome delay to implementation Basel III

On 2 April 2020, HM Treasury and the PRA issued a joint statement welcoming the

announcement made on 27 March 2020 by the Group of Central Bank Governors and Heads of

Supervision, delaying the implementation of the Basel 3.1 standards by one year. They state that

this will provide operational capacity for banks and supervisors to respond to the immediate

financial stability priorities from the impact of COVID-19.

The Treasury and the PRA remain committed to the full, timely and consistent implementation

of the Basel 3.1 standards and will work together towards a UK implementation timetable that is

consistent with the one year delay.

COVID-19: PRA statement on deposit takers' approach to dividend payments, share buybacks and cash bonuses

On 31 March 2020, the PRA published a statement on deposit takers' approach to dividend

payments, share buybacks and cash bonuses. The PRA welcomes the decisions by the boards of

the large UK banks to suspend dividends and buybacks on ordinary shares until the end of 2020,

and to cancel payments of any outstanding 2019 dividends, in response to a request from the

PRA.

The PRA states that it also expects banks not to pay any cash bonuses to senior staff, including

all material risk takers. It comments that it is confident that bank boards are already considering

this, and will take any appropriate further actions with regard to the accrual, payment and

vesting of variable remuneration over coming months.

The PRA also published letters it sent on 31 March 2020 to HSBC, Nationwide, Santander,

Standard Chartered Bank, Barclays, RBS and Lloyds Banking Group setting out its expectations

relating to bonuses and asking the banks to confirm whether or not they are prepared to agree to

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its requests. The PRA states that it stands ready to consider use of its supervisory powers should

any bank not agree to take the requested action.

COVID-19: EBA statement on dividend distributions, share buybacks and variable remuneration

On 31 March 2020, the EBA published a statement on dividend distributions, share buybacks

and variable remuneration in the light of the COVID-19 pandemic.

The EBA acknowledges that some banks have already communicated a postponement of their

decisions on dividends and share buybacks. It urges all banks to refrain from dividends

distribution or share buybacks which result in a capital distribution outside the banking system,

in order to maintain its robust capitalisation. The EBA states that banks should discuss with

their competent authorities if they consider themselves legally required to pay out dividends or

make share buybacks. The EBA also considers that ensuring the efficient and prudent allocation

of capital within banking groups is crucial and should be monitored by competent authorities.

The EBA also asks that competent authorities request banks to review their remuneration

policies, practices and awards to ensure that they are consistent with and promote sound and

effective risk management and reflect the current economic situation. Remuneration and, in

particular, its variable portion should be set at a conservative level. The EBA states that, to

achieve an appropriate alignment with risks stemming from COVID-19, a larger part of the

variable remuneration could be deferred for a longer period and a larger proportion could be

paid out in equity instruments.

COVID-19: ECB recommendation to delay dividends and share buy-backs until October 2020

On 27 March 2020, the European Central Bank (ECB) updated its recommendation to banks on

dividend distributions to state that, in the light of the COVID-19 pandemic, they should not pay

dividends for the financial years 2019 and 2020 until at least 1 October 2020. The ECB states

that banks should also refrain from share buy-backs aimed at remunerating shareholders.

The new recommendation does not retroactively cancel the dividends already paid out by some

credit institutions for the financial year 2019. However, credit institutions that have asked their

shareholders to vote on a dividend distribution proposal in their upcoming general shareholders

meeting will be expected to amend such proposals in line with the updated recommendation.

The ECB will further evaluate the economic situation and consider whether further suspension of

dividends is advisable after 1 October 2020.

COVID-19: PRA statements on approach to VAR back-testing exceptions and exposure value for internal models method CCR

On 30 March 2020, the PRA published the following statements on its approach to value-at-risk

(VAR) back-testing exceptions and calculating exposure under the internal models method

counterparty credit risk (CCR) in the light of the COVID-19 pandemic:

a statement on its approach to value-at-risk (VAR) back-testing exceptions to mitigate the

possibility of excessively pro-cyclical market risk capital requirements. Firms are allowed,

on a temporary basis, to offset increases due to an elevated level of VAR back-testing

exceptions through a commensurate reduction in risks-not-in-VAR (RNIV) capital

requirements. The baseline number of back-testing exceptions to be used, which will

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determine the point at which the RNIV reduction starts, should be agreed with the PRA

before firms apply the temporary approach. This approach will be reviewed by the PRA

after six months; and

a statement on calculating exposure under the internal models method (IMM)

counterparty credit risk (CCR). The PRA is aware that some firms have recently

experienced significant moves in CCR risk-weighted assets, and it understands that these

moves are partially attributable to large margin calls following significant intraday

market price movements. The PRA clarifies that, among other things, the Capital

Requirements Regulation (CRR) does not preclude firms using the IMM to measure the

exposure value including collateral which has not yet settled at the time of calculation.

If firms have any questions, they are advised to contact their normal PRA supervisory contact.

COVID-19: EBA final guidelines on legislative and non-legislative moratoria on loan repayments

On 3 April 2020, the EBA published a final report containing guidelines on legislative and non-

legislative moratoria on loan repayments applied in the light of COVID-19.

The EBA refers to its March 2020 statement on the application of the prudential framework

regarding default, forbearance and IFRS9 in the light of COVID-19 measures, in which it clarified

a number of aspects relating to the use of public and private moratoria. However, it also noted

that further detailed guidance was needed to ensure consistent application. These guidelines

therefore aim to provide clarity on the treatment of legislative and non-legislative moratoria

applied before 30 June 2020. The EBA may extend this time limit if necessary.

The guidelines clarify that payment moratoria do not trigger classification as forbearance or

distressed restructuring if the measures taken are based on the applicable national law or on an

industry or sector-wide private initiative agreed and applied broadly by the relevant credit

institutions.

The EBA also states that it is aware of the need to ensure that the risk presented by the economic

consequences of the COVID-19 pandemic is identified and measured in a true and accurate

manner. Therefore, institutions must continue to adequately identify those situations where

obligors may face longer term financial difficulties and classify them in accordance with the

existing regulation. The requirements for identification of forborne exposures and defaulted

obligors remain in place.

It adds that, in order to allow effective monitoring of the effects of the COVID-19 pandemic,

institutions must collect information about the scope and effects of the use of the moratoria. The

EBA expects institutions to use the general payment moratoria in a transparent manner,

providing relevant information to their competent authorities, while specific disclosure

requirements to the public will be published at a later point in time.

Due to the urgency of the matter and the specific focus of these guidelines on measures related to

COVID-19, the EBA has not carried out public consultations or a cost-benefit analysis.

The guidelines will apply from the date of translation into all EU languages.

COVID-19: SRB operational relief measures for resolution planning and MREL

On 1 April 2020, the SRB published a letter it has sent to banks under its remit, outlining

potential operational relief measures in light of COVID-19, relating to resolution planning and

minimum requirements for own funds and eligible liabilities (MREL).

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The SRB states that it is committed to working on 2020 resolution plans and issuing 2020

decisions on MREL according to the planned deadlines in early 2021. However, it will apply a

pragmatic and flexible approach to consider, where necessary, postponing less urgent

information or data requests related to the 2020 resolution planning cycle.

The SRB regards the liability data report, the additional liability report and the MREL quarterly

template as essential and it expects banks to make every effort to deliver these documents on

time. It will assess possible leeway in submission dates for other reports, such as those related to

critical functions and access to financial market infrastructures (FMIs).

Its internal resolution teams will assess difficulties in achieving work programme updates and in

submitting other deliverables on an individual basis. However, all banks are expected to

substantiate their requests and identify mitigating actions to continue progress towards

resolvability.

The SRB will monitor the market conditions in the next few months and analyse the potential

impact on transition periods needed for the build-up of MREL. The SRB states that it is ready to

use its discretion and the flexibility given by the regulatory framework to adapt transition

periods and interim targets applied to banking groups, as well as to adjust MREL targets in line

with capital requirements, with particular reference to capital buffers.

CRR: Commission Implementing Regulation amending ITS on supervisory reporting

Commission Implementing Regulation (EU) 2020/429 amending Implementing Regulation

(EU) 680/2014 laying down implementing technical standards (ITS) on supervisory reporting of

institutions under Article 99(5) of the Capital Requirements Regulation (CRR) has been

published in the Official Journal of the EU (OJ).

The new Implementing Regulation amends the supervisory reporting requirements relating to:

common reporting (COREP) to reflect the new securitisation framework and changes

relating to the reporting of the liquidity coverage requirement (LCR) in response to

Delegated Regulation (EU) 2018/1620, which amends Delegated Regulation (EU)

2015/61; and

financial information reporting (FINREP) on non-performing exposures (NPE) and

forbearance to allow the monitoring of reporting institutions' NPE strategies, the

reporting requirements on profit and loss (P&L) items and the implementation of the

new International Financial Reporting Standard on leases (IFRS 16).

The new Implementing Regulation entered into force on 31 March 2020. The amendments to the

reporting framework will apply with different reference dates due to different application dates

of the underlying regulatory requirements. The revised reporting requirements on own fund and

own funds requirements (in points (1), (4) and (5) of Article 1) apply from 30 March 2020. The

provisions related to liquidity reporting (points (9) to (12) of Article 1) apply from 1 April 2020

and the revised reporting requirements on NPEs, debt obligations subject to forbearance

measures, the operating and administrative expenses and financial information (points (2), (3)

and (6) to (8) of Article 1) apply from 1 June 2020.

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CRR II: EBA final draft RTS on key areas for implementing Fundamental Review of the Trading Book

The EBA has published the following three reports containing final draft regulatory technical

standards (RTS) under the CRR II Regulation on the new internal model approach under the

Fundamental Review of the Trading Book (FRTB):

final draft RTS on liquidity horizons for the IMA , which clarify how institutions are to

map the risk factors to the relevant category and sub-category. They also provide a

definition of large and small capitalisation reflecting the specificities of the EU equity

market;

final draft RTS on back-testing and profit and loss attribution (PLA) requirements, which

specify the elements to be included for the purpose of those tests in the hypothetical,

actual, and risk-theoretical profit and loss. They also identify all key elements

characterising the PLA requirements and set the aggregation formula that institutions are

to use for aggregating the own funds requirements; and

final draft RTS on criteria for assessing the modellability of risk factors under the IMA,

which set out the criteria for identifying the risk factors that are modellable and that

institutions are, therefore, allowed to include in their expected shortfall calculations. The

technical standards also set the frequency under which the modellability assessment

should be performed by institutions.

The EBA will submit the final draft RTS to the European Commission for adoption. Their

adoption is expected to trigger the three-year period after which institutions with permission to

use the FRTB internal models are required, for reporting purposes only, to calculate their own

funds requirements for market risk with those internal models.

Bank resolution: SRB "Expectations for Banks" policy

Following consultation, the Single Resolution Board (SRB) has published its Expectations for

Banks policy (Expectations) and an overview of the consultation responses.

The Expectations have been updated to reflect industry feedback. Among other things, they:

set out the capabilities the SRB expects banks to demonstrate in order to show that they

are resolvable;

describe best practice and set benchmarks for assessing resolvability; and

provide clarity to the market on the actions that the SRB expects banks to take in order to

demonstrate resolvability.

The Expectations will be subject to a gradual phase-in. The SRB expects banks to have built up

their capabilities on all aspects by the end of 2023, except where indicated otherwise. Where

needed and on a bilateral basis, the SRB and banks may agree alternative phase-in dates. The

Expectations are tailored to each individual bank and its resolution strategy, allowing for

flexibility and proportionality.

The SRB acknowledges the COVID-19 related challenges that banks face. The SRB, in close

cooperation with other authorities and the banks under its remit, is carefully monitoring the

situation. It is prepared to give banks the flexibility they may need to implement the

Expectations on an individual basis.

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Principles for Responsible Banking: impact analysis tool for banks

The United Nations (UN) Environment Programme Finance Initiative (UNEP FI) has announced

that signatories to the Principles for Responsible Banking and UNEP FI member banks have

developed a portfolio impact analysis tool for banks and a guidance document on impact

analysis. These will support banks as they conduct their impact analysis for implementing the

Principles for Responsible Banking.

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Consumer Finance

COVID-19: FCA consumer credit temporary relief measures

On 2 April 2020, the UK Financial Conduct Authority (FCA) launched consultations on a range

of targeted temporary relief proposals to help credit card, store card, catalogue credit, personal

loan and overdraft customers impacted by COVID-19. The consultations close on 6 April 2020.

Read more in our briefing: COVID-19: FCA consumer credit temporary relief proposals.

If confirmed, the measures will come into force by 9 April 2020.

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Payment Services

COVID-19: FCA update on strong customer authentication under PSRs 2017

On 31 March 2020, the FCA updated its webpage on strong customer authentication (SCA)

under the Payment Services Regulations 2017. The FCA explains that, during the COVID-19

outbreak, it expects firms to protect consumers from risks, including the risk of unauthorised

transactions and fraud. More specifically, firms are expected to monitor their fraud rates and

take swift action if they see their fraud rates rising or new patterns of fraud.

The FCA understands that firms are likely to be under significant pressure during this period, so

it is bringing in some changes to help in relation to:

contactless payments – the FCA is very unlikely to take enforcement action if a firm does

not apply SCA when the cumulative amount of transaction values has exceeded EUR 150

or there are five contactless transactions in a row. However, this is only as long as the

firm sufficiently mitigates the risk of unauthorised transactions and fraud by having the

necessary fraud monitoring tools and systems in place, and taking swift action where

appropriate;

e-commerce – the FCA recognises that COVID-19 challenges are likely to affect the

planned implementation of SCA for e-commerce. It welcomes the progress so far and the

industry's continuing effort to meet milestones ahead of 14 March 2021. The FCA will

work closely with the industry to agree any changes to the milestones and timelines that

may be needed;

online banking – the SCA requirements for online banking have applied since 14

September 2019 (with an adjustment period until 14 March 2020). For firms that have

not met the requirements, and are facing further delays due to COVID-19, the FCA will

consider the appropriate further measures on a case-by-case basis. In doing so, it will

consider:

o firms' security around authentication to access online banking and when making

payments;

o their controls and processes to reduce fraud; and

o whether that impact is likely to be exacerbated given the current circumstances.

The FCA will continue to monitor the situation and is keeping its decisions under review.

PSR annual plan and budget for 2020/21

The Payment Systems Regulator (PSR) has published its annual plan and budget, setting out its

key aims and activities for the year 2020/21 alongside its expected costs. It has also published a

related factsheet.

The PSR's annual plan was drafted before the uncertainty caused by COVID-19. It sets out the

regulator's prior expectations about its priorities and planned work. Much of the work described

will continue, perhaps in different ways and to a revised timetable. The PSR will continuously

review its work to ensure that it is focusing on the right things and adapting its approach to meet

the challenges presented by COVID-19.

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Securities and Markets COVID-19: FCA updates statement on short selling bans and reporting

On 31 March 2020, the UK Financial Conduct Authority (FCA) updated its webpage on short

selling bans and reporting to confirm that the required changes have now been made to its

systems to facilitate the change to the notification threshold for notifying net short positions

under the Short Selling Regulation from 0.2% of issued share capital to 0.1%.

The FCA will be ready to receive notifications at the lower threshold from 6 April 2020. Firms

are not required to amend and resubmit notifications submitted to it between 16 March 2020

and 3 April 2020.

Firms should make best efforts to report at the lower threshold from 6 April 2020. However, the

FCA appreciates that it may not be possible for some firms to amend their systems by this date.

If this is the case, they should contact PMU@fca.org.uk to discuss the issue further with the FCA.

COVID-19: ESMA clarifies best execution reports under MiFID II RTS 27 and RTS 28

On 31 March 2020, the European Securities and Markets Agency (ESMA) published a public

statement clarifying issues relating to the rules under the MiFID II Directive on publication of

general best execution reports by execution venues and firms. The statement specifically relates

to the requirements under Delegated Regulation (EU) 2017/575 (RTS 27) and Delegated

Regulation (EU) 2017/576 (RTS 28).

ESMA and competent authorities are aware of difficulties encountered by execution venues and

firms in preparing best execution reports due to COVID-19. ESMA is issuing this public

statement to promote coordinated action by national competent authorities (NCAs) and to

provide clarity to execution venues and firms.

It explains that execution venues are due to publish their next general best execution reports on

31 March 2020 in respect of RTS 27 reports on the quarterly information for the reporting period

from 1 October to 31 December 2019. For firms, the next deadline is 30 April 2020 for RTS 28

reports on the annual information for the reporting period of 2019.

ESMA recognises that execution venues and firms may need to deprioritise efforts for the

publication of these general reports concerning 2019 and recommends that NCAs take into

account these circumstances by considering the possibility that:

execution venues unable to publish RTS 27 reports due by 31 March 2020 may only be

able to publish them as soon as reasonably practicable after that date and by no later than

the following reporting deadline (i.e. 30 June 2020); and

firms may only be able to publish the RTS 28 reports due by 30 April 2020 on or before

30 June 2020.

Considering the exceptional circumstances, ESMA encourages NCAs not to prioritise supervisory

action against execution venues and firms in respect of the deadlines of the general best

execution reports for the periods referred to above. Furthermore, ESMA encourages NCAs to

generally apply a risk-based approach in the exercise of supervisory powers in their day-to-day

enforcement of RTS 27 and 28 concerning these deadlines.

ESMA recommends that firms and execution venues keep records of the internal decisions taken

in relation to the expected delay.

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ESMA reminds firms of their core obligations to achieve best execution for clients and to ensure

fair order handling and allocations during current market volatility.

Credit rating information and data: ESMA call for evidence

ESMA has published a call for evidence on the availability and use of credit rating information

and data. In particular, ESMA seeks the views of users (and potential users) and distributors of

credit ratings, and credit rating agencies (CRAs).

ESMA aims to map the principal activities (regulatory and otherwise) undertaken by various

types of users in which credit ratings are required as an input. For each activity (e.g. risk

management, market research, regulatory reporting), ESMA aims to identify users' specific

rating data needs (e.g. format, frequency, scope, downloadability, etc.) and how these needs

correspond with the information currently provided on the European Rating Platform (ERP) and

on CRAs' public websites. ESMA aims to assess whether there may be scope to improve the

usability of information published on the ERP and CRAs' websites and what the likely costs and

benefits might be to users and CRAs of implementing such improvements.

Comments can be made on the call for evidence until 3 August 2020.

MiFID II review: ESMA report on position limits and position management

ESMA has published a review report on the impact of the application of position limits and

position management provisions on commodity derivatives markets.

ESMA gives a summary of the position limit regime under MiFID II and assesses the application

of position limits on market abuse, orderly pricing and settlement conditions. It also provides an

assessment of the impact of position limits on the liquidity of commodity derivatives markets.

ESMA provides proposals for amending the MiFID II Directive to improve the efficiency of the

position limit regime.

MiFID II: ESMA confirms application date of equity transparency calculations

ESMA has confirmed that, despite COVID-19, its 1 April 2020 date for the application of

transparency calculations for equity instruments is unchanged.

The calculations are required under the MiFID II Directive and the Markets in Financial

Instruments Regulation. ESMA has recently been asked by some stakeholders to postpone the

date of application in the light of the COVID-19 pandemic.

ESMA states that, in this specific instance, adapting to new transparency results for equity

instruments is a process that market participants have performed several times in the past and

should not require new IT releases. Having consulted with various market participants, ESMA

considers that delaying the application of the new transparency results would in itself entail

some risks, and might even create additional operational burdens to all the market participants

that have already planned for them.

MiFID II: ESMA technical advice on impact of inducements and costs and charges disclosure requirements

ESMA has published a final report to the European Commission setting out its technical advice

on the impact of inducements and costs and charges disclosure requirements under the MiFID II

Directive.

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In the advice, ESMA encourages the Commission to conduct further analysis on the topic of

inducements and proposes some changes to the regime mainly aimed at improving the clients'

understanding of inducements.

In relation to costs and charges disclosure, ESMA finds that the MiFID II disclosure regime

generally works well and that it helps investors make informed investment decisions. However,

ESMA advises that some disclosure obligations vis-à-vis eligible counterparties and professional

investors are scaled back.

Other elements of the report relate to trading by telephone, the provision of information to

clients in a durable medium and to the possibility to create new categories of clients.

MiFID II: ESMA final report on weekly position reports

Following consultation, ESMA has submitted a final report giving revised technical advice to the

Commission on weekly position reports required under Article 58 of the MiFID II Directive.

ESMA consulted on its proposals to introduce a new threshold for the size of open positions

triggering the publication of weekly position reports in its November 2019 consultation. The final

report summarises the feedback received and ESMA's response to it, as well as the final technical

advice.

EMIR: ESMA final report on procedural rules for penalties imposed on third-country CCPs, TRs and CRAs

ESMA has published a final report setting out technical advice to the European Commission on

draft procedural rules to impose penalties on third-country central counterparties (TC-CCPs),

trade repositories (TRs) and credit rating agencies (CRAs) under the European Markets

Infrastructure Regulation (EMIR). In the final report, ESMA also assesses the feedback received

to its December 2019 consultation paper and responds to it.

ESMA includes proposals to amend the current procedural rules applicable to imposing penalties

on CRAs, to align them and make them consistent with the proposed procedural rules applicable

to TC-CCPs and TRs.

ESMA has advised only on the procedural aspects, and has not carried out a cost-benefit

analysis. It understands that, as part of the approval of EMIR (as amended), impact assessments

of the different policy choices have already been carried out.

EMIR 2.2: ESMA final draft RTS for CCP colleges

ESMA has published a final report containing draft regulatory technical standards (RTS) for CCP

colleges under EMIR 2.2. The draft RTS proposals amend Commission Delegated Regulation

(EU) No 876/2013 (RTS on colleges for CCPs) and reflect the changes to Article 18(6) of EMIR

introduced by EMIR 2.2, which entered into force on 1 January 2020.

ESMA will submit the final draft RTS to the European Commission for endorsement in the form

of a Commission Delegated Regulation. Following endorsement, they will then be subject to non-

objection by the European Parliament and the Council of the EU.

EMIR: ESMA consults on clearing solutions for pension scheme arrangements

ESMA has published its first report for consultation on clearing solutions for pension scheme

arrangements (PSAs) under EMIR.

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One of the amendments to EMIR under the EMIR Refit Regulation was a further extension of

the exemption from the clearing obligation for PSAs. The extension was introduced because of

the challenges that PSAs would face to provide cash for the variation margin calls related to their

cleared derivative contracts.

This consultation report is the first step in ESMA fulfilling its obligation under the EMIR Refit

Regulation to provide a report to the European Commission (in cooperation with the EBA,

EIOPA and the European Systemic Risk Board (ESRB)), documenting the progress made

towards clearing solutions for PSAs. This will assist the Commission in its obligation to prepare a

report assessing whether viable technical solutions have been developed for the transfer by PSAs

of cash and non-cash collateral as variation margins and the need for any measures to facilitate

those viable technical solutions.

ESMA notes that the document only constitutes a preliminary report on which it is publicly

consulting, in order to provide for its second more comprehensive report to the Commission,

which is due by December 2020. The paper sets out the issues PSAs face in clearing their

contracts, considers the rationale for PSAs' use of derivatives and explores the different solutions

already under consideration to help PSAs to centrally clear their OTC trades.

ESMA seeks feedback on:

the structure of PSAs' portfolios and the potential reduction of investment returns from

increasing their cash holdings; and

the solutions being explored, such as relying on the ancillary services of collateral

transformation of clearing members, a market-based repo solution or the access to

alternative emergency liquidity arrangements.

The consultation closes on 15 June 2020.

ESMA updates public statement of consultation practices

ESMA has published an updated version of its public statement of consultation practices to take

into account the amendments to the ESMA Regulation as a result of the review by the European

Supervisory Authorities.

The statement summarises ESMA's consultation practices, most of which were already in place

before the amendment of the ESMA Regulation.

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Insurance COVID-19: PRA Dear CEO letter to UK insurers about distribution of profits

On 31 March 2020, the Prudential Regulation Authority (PRA) published a Dear CEO letter from

Sam Woods, Bank of England (BoE) Deputy Governor Prudential Regulation and PRA CEO, to

UK insurers about distribution of profits.

The PRA states that, when UK insurers' boards are considering any distributions to shareholders

or making decisions on variable remuneration, it expects them to pay close attention to the need

to protect policyholders and maintain safety and soundness, and in so doing to ensure that their

firm can play its full part in supporting the real economy throughout the economic disruption

arising from COVID-19. It is critical that insurers manage their financial resources prudently in

order both to ensure that they are able to meet the commitments they have made to

policyholders in a way that is consistent with the expectations of the Financial Conduct Authority

(FCA), and to enable them to continue to invest in the economy.

Firms are also reminded, in light of COVID-19, of the PRA's existing expectation (set out in

Supervisory Statement, SS 4/18) that when deciding on distributions boards should satisfy

themselves that each distribution is prudent and consistent with their risk appetite.

COVID-19: EIOPA statement on dividend distribution and variable remuneration policies

On 2 April 2020, the European Insurance and Occupational Pensions Authority (EIOPA)

published a statement on dividend distribution and variable remuneration policies in the context

of COVID-19. EIOPA emphasises that, as mentioned in its statement of 17 March 2020, in the

context of the current crisis all insurers should take measures to preserve their capital position.

This means following prudent dividend and other distribution policies, including variable

remuneration.

In exercising this prudence, EIOPA explains that insurers' assessment of their overall solvency

needs must be forward-looking, taking due account of the current level of uncertainty on the

depth, magnitude and duration of the impact of COVID-19 in financial markets and on the

economy, and the repercussions of that uncertainty in their solvency and financial positions.

Against this background, EIOPA urges insurers to temporarily suspend all discretionary

dividend distributions and share buy backs aimed at remunerating shareholders. This

suspension should be reviewed as the financial and economic impact of COVID-19 starts to

become clearer.

In addition, EIOPA urges that this prudent approach is applied by all insurance groups at the

consolidated level, and also regarding significant intra-group dividend distributions or similar

transactions whenever these may materially influence the solvency or liquidity position of the

group or of one of the undertakings involved. The materiality of this impact should be monitored

jointly by the group and solo supervisors.

This prudent approach should also be applied to variable remuneration policies. EIOPA expects

insurers to review their current remuneration policies, practices and rewards to ensure they

reflect prudent capital planning and are consistent with, and reflect, the current economic

situation. In this context, the variable part of remuneration policies should be set at a

conservative level and should be considered for postponement.

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Any insurer that considers themselves legally required to pay-out dividends or large amounts of

variable remuneration should explain the underlying reasons to their national competent

authority (NCA).

Solvency II: PRA PS9/20 on income producing real estate loans and internal credit assessments for illiquid, unrated assets

The PRA has published a policy statement, PS9/20, on income producing real estate (IPRE)

loans and internal credit assessment for illiquid, unrated assets under the Solvency II Directive.

PS9/20 provides feedback to responses to CP23/19 and, in the Appendix, contains the PRA's

updated SS3/17: Solvency II: Illiquid unrated assets.

PS9/29 is relevant to UK insurance and reinsurance companies holding or intending to hold

IPRE loans. It is also relevant to firms investing in illiquid, unrated assets within their Solvency

II matching adjustment portfolios.

In CP23/19 the PRA consulted on proposed expectations of firms in respect of their modelling of

IPRE loans within their Solvency II internal models. It also proposed amendments to its

expectations in respect of the use of internal credit assessments for assigning fundamental

spreads for illiquid, unrated assets. Respondents generally welcomed the PRA's proposals but

made a number of observations and requests for clarification. Having considered the feedback

received, the PRA has maintained the expectations set out in CP23/19, but has revised the

wording of SS3/17 to clarify some of these expectations.

The changes came into effect on 2 April 2020.

The PRA also reminds firms of its document outlining its approach to insurance supervision, and

also refers them to the published measures aimed at alleviating operational burdens on PRA-

regulated insurers during the COVID-19 outbreak.

Solvency II Effective Value Test parameters: PRA statement

The PRA has published a statement explaining that the minimum deferment rate parameter to

be used in the Solvency II Effective Value Test (EVT), as set out in SS3/17, has been reviewed

and updated.

The minimum deferment rate parameter set out in the December 2018 policy statement

(PS31/12) was 1% per annum. This was reduced to 0.5% per annum in September 2019 following

a review of movements in long-term real interest rates. For the March 2020 review, the PRA has

again examined long-term real interest rates, measured using a range of swaps-based data

sources, at a range of long-term tenors from 10 to 30 years. Taking into account current market

conditions, the PRA has decided to retain the minimum deferment rate used in the EVT at 0.5%

per annum. The PRA will keep the minimum deferment rate under review.

To avoid any doubt, the PRA advises that the volatility parameter to be used in the EVT has not

been reviewed. It remains unchanged at 13% per annum.

The new deferment rate applies from 31 March 2020. However, firms that have elected to use a

minimum deferment rate of 0% to conduct the EVT prior to 31 December 2021 may continue to

do so.

When conducting the EVT, all firms should use the published volatility parameter set out in the

statement, regardless of the minimum deferment rate they are using.

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COVID-19: FCA expectations of general insurance firms on renewals

On 31 March 2020, the FCA updated the section on renewals on its webpage which sets out the

FCA's expectations of general insurance firms in light of COVID-19.

The FCA recognises that firms may experience challenges in contacting consumers, for example

if they are unwell. This may make it harder to meet key conduct requirements such as assessing

consumers' demands and needs at renewal.

If this is the case, the FCA expects firms to continue to seek to meet these requirements,

including the obligation to act honestly, fairly and professionally in accordance with the best

interests of the customer. However, the FCA does not prescribe how firms should go about

meeting these requirements.

It states that it may be reasonable for firms to rely on existing information that they already hold,

for example if this information is recent, is still expected to be accurate, and there have not been

significant changes to the product.

It might also be reasonable for a firm to decide that providing continuity of cover meets a

customer's best interests, where there is no evidence to show the contract is inconsistent with the

customer's demands and needs or wouldn't otherwise be unsuitable.

Firms will obviously also need to ensure that they comply with all relevant legal requirements in

relation to their contracts. If, once the customer is better, they contact the firm to say that the

policy did not meet their needs, the FCA expects firms to treat the customer fairly.

COVID-19: FCA updates pensions information for firms

On 3 April 2020, the FCA updated its webpage on pensions information for firms on their

COVID-19 response to include a section on communicating certain pension information.

The FCA notes that a number of firms are facing difficulties in implementing the rules that

change both the information that firms give consumers entering pension drawdown or taking an

income for the first time (including uncrystallised fund pension lump sum) and the annual

information given to these customers. Since these rules were finalised in January 2019, and

come into effect on 6 April 2020, the FCA expects firms to have implemented them or be in the

final phases of implementation.

However, the FCA understands that firms may experience operational challenges in testing and

finalising processes, particularly where they rely on third parties to complete this work. It

acknowledges that some firms may not be able to avoid a short delay in implementation of the

rules, although it expects firms to implement as soon as reasonably practicable. If this is later

than 31 May 2020, the FCA expects to be notified according to the requirements in chapter 15 of

the Supervision manual (SUP).

COVID-19: EIOPA call for insurers and intermediaries to mitigate impact on consumers

On 1 April 2020, EIOPA published a statement urging insurers and intermediaries to continue to

take action to mitigate the impact of COVID-19 on consumers.

EIOPA welcomes the initiatives already taken by insurers and intermediaries to support and

assist consumers, and the consideration being shown towards consumers affected by COVID-19,

including those who are particularly vulnerable. It states that access to and continuity of

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insurance services should be considered essential in the context of the outbreak. To maintain

trust in the sector, it is critical that insurers and intermediaries continue focusing on ensuring

business continuity and the fair treatment of consumers.

EIOPA strongly encourages insurers and intermediaries to take into consideration various

practical implications of COVID-19 on consumers. For example, they may not be able to submit

timely claims and may be working from home in breach of a household insurance policy.

In particular, EIOPA asks the following of insurers and intermediaries:

provide clear and timely information to consumers on contractual rights;

treat consumers fairly and be explicit in all communications;

inform consumers about contingency measures that insurers and intermediaries are

taking;

continue applying product oversight and governance requirements, taking into account

the impact of COVID-19 outbreak and, where necessary, carry out a product review; and

consider the interests of consumers and exercise flexibility in how they are treated, where

reasonable and practicable.

COVID-19: EIOPA update on delays to consultations and other projects

On 2 April 2020, EIOPA published a press release providing an update that the following

measures are delayed by the impact by COVID-19:

its consultation on reviewing technical implementation means for the package on

supervisory reporting and public disclosure under the Solvency II Directive

(2009/138/EC) is extended by six weeks from 20 April to 1 June 2020;

the consultation on implementing technical standards (ITS) under the Regulation on a

pan-European personal pension product (PEPP Regulation) is extended by four weeks

from 20 May to 17 June 2020;

the period for commenting on its discussion paper on IBOR transitions is extended by

nine weeks from 30 April to 30 June 2020;

the information request deadline for its market and credit risk comparative study is

extended by 5 weeks from 31 May to 3 July;

publication of a discussion note on value-chain/InsurTech and the second discussion

paper on methodological principles of insurance stress testing are both delayed to dates

to be determined;

the information request to NCAs relating to the long-term guarantees (LTG) review under

the Solvency II Directive will be postponed from the second quarter of 2020 probably to

the third quarter;

data collection for work on the impact of ultra-low yields on insurers to complement

Solvency II data (planned for the first and second quarters of 2020) will be delayed. This

will incorporate COVID-19 reflections if necessary; and

the planned data request relating to the 2020 climate risk sensitivity analysis is cancelled.

EIOPA will produce the report with the available information.

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Funds and Asset Management

ESMA publishes guidance on performance fees in UCITS and certain AIFs

Following consultation, the European Securities and Markets Authority (ESMA) has published

its final report on performance fees in investment funds, applicable to Undertakings for the

Collective Investment in Transferable Securities (UCITS) and certain types of alternative

investment funds (AIFs). The report gives an overview of the feedback ESMA received to its

consultation, ESMA's response, and the final guidelines. In general, respondents agreed with

ESMA's approach of introducing minimum standards for performance fee models.

The guidelines provide comprehensive guidance to fund managers when designing performance

fee models for the funds they manage, including the assessment of the consistency between the

performance fee model and the fund's investment objective, policy and strategy, particularly

when the fund is managed in reference to a benchmark.

ESMA aims to harmonise the way fund managers charge performance fees to retail investors, as

well as the circumstances in which performance fees can be paid.

The guidelines will now be translated into the official EU languages and subsequently published

on ESMA's website. The publication of the translations will trigger a two-month period during

which national competent authorities must notify ESMA whether they comply or intend to

comply with the guidelines. The guidelines will apply from the end of this two-month period.

MMF Regulation: ESMA postpones deadline for Article 37 reporting

ESMA has announced that the first reports by money market funds (MMF) managers under

Article 37 of the MMF Regulation (MMFR) should be submitted in September 2020 rather than

April 2020.

Following feedback received by market participants after the publication of this first version of

the XML schema (v.1.0) that should be used for reporting, and upon assessment of the technical

committee on 25 February 2020, ESMA has decided to implement amendments on the XML

schema and reporting instructions in a new version, v1.1. Therefore, MMF managers will need

additional time to comply with the reporting obligation.

The amended XML schema and reporting instructions will be published shortly on ESMA's

website.

The reference period for the first reporting is still envisaged for Q1 2020. That means that the

MMF Managers will have to report in September 2020 quarterly reports for both the Q1 and Q2

reporting periods.

Regulation on cross-border distribution of collective investment undertakings: ESMA consults on draft ITS

ESMA has published a consultation paper on draft implementing technical standards (ITS)

under the Regulation on the cross-border distribution of collective investment undertakings.

The consultation represents the first stage in the development of the draft ITS under the

following provisions in the Regulation:

Article 5(3), which requires ESMA to draft ITS to determine standard forms, templates

and procedures for the publication and notifications that NCAs are required to make in

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relation to national provisions concerning marketing requirements applicable within

their jurisdiction;

Article 10(3), which requires ESMA to draft ITS to determine standard forms, templates

and procedures for the publication and notification that national competent authorities

(NCAs) are required to make in relation to national provisions concerning fees and

charges levied by them in relation to activities of alternative investment fund managers

(AIFMs), European venture capital fund (EuVECA) managers, European social

entrepreneurship fund (EuSEF) managers and UCITS management companies; and

Article 13(3), which requires ESMA to draft ITS to specify the information to be

communicated by NCAs, and the standard forms, templates and procedures for

communication of the information, that is necessary for the creation and maintenance of

the central database on cross-border marketing of AIFs and UCITS (referred to in Article

12), and the technical arrangements necessary for the functioning of the notification

portal into which each NCA must upload all documents necessary for the creation and

maintenance of this central database.

In the consultation, ESMA sets out its proposals for these ITS. Annex IV contains the text of the

draft ITS on which ESMA is seeking feedback in the form of a draft Commission Implementing

Regulation laying down ITS for the application of the Regulation with regard to publication by

competent authorities of marketing requirements as well as fees and charges.

The consultation ends on 30 June 2020. ESMA aims to finalise the ITS for submission to the

European Commission by 2 February 2021.

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Financial Crime COVID-19: EBA statement on actions to mitigate financial crime risks

On 31 March 2020, the European Banking Authority (EBA) published a statement on actions to

mitigate financial crime risks in light of COVID-19.

The EBA reminds credit and financial institutions that it remains important to continue to put in

place and maintain effective systems and controls to ensure that the EU's financial system is not

abused for money laundering (ML) or terrorist financing (TF) purposes and asks competent

authorities to support them in this regard.

Among other things, the EBA calls on competent authorities that are responsible for the anti-

money laundering (AML) and counter-terrorist financing (CTF) supervision of credit and

financial institutions under the Fourth Money Laundering Directive to support credit and

financial institutions’ ongoing AML/CFT efforts by:

making clear that financial crime remains unacceptable, even in times of crisis such as

the COVID-19 outbreak;

continuing to share information on emerging ML/TF risks and setting clear expectations

of the steps credit and financial institutions should take to mitigate those risks; and

considering how to adapt the use of their supervisory tools temporarily to ensure ongoing

compliance by credit and financial institutions with their AML/CFT obligations.

COVID-19: FATF statement on measures to combat illicit financing

On 1 April 2020, the Financial Action Task Force (FATF) published a statement by the FATF

President on measures to combat illicit financing in light of COVID-19.

In his statement, the President addresses:

COVID-19-related financial crime risks;

digital onboarding and simplified due diligence; and

ongoing outreach and advice.

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