Regulatory update: August 2023

Keep informed about the latest regulatory changes affecting the banking industry that have happened in the UK & EU as of August 2023. Here is our summary of what you need to know:

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UK

• The Prudential Regulatory Authority (PRA) published version 3.6.0 of the Bank of England Banking Taxonomy to support the collection of data relating to the risks from contingent leverage and trading exposures. The reporting requirement will take effect on 1 January 2024, with a first reference date of 30 June 2024.
• The Financial Conduct Authority (FCA) revoked its transitional direction on the share trading obligation (STO) with effect from 29 August 2023. This means that UK investment firms are no longer required to ensure that shares admitted to trading in the UK are traded on a UK-regulated (or EU-regulated) market, multilateral trading facility, systematic internaliser or equivalent third-country venue.
• The FCA also published guidance on the repeal and replacement of retained EU law. This guidance provides information on the changes that firms will need to make to their regulatory reporting as a result of Brexit.
• The FCA and PRA issued consultation papers (23/17 and 15/23 respectively) on the UK Securitisation Regulation’s proposal to retain EU law on regulated securitisation markets. The CPs introduce new PRA rules to replace these requirements and covers adjustments to supervisory statements. The proposals aim to maintain current requirements, enhance safety and soundness, and promote competitiveness. They include adjustments to person scope, due diligence obligations, risk retention requirements, and timelines for information provision. Key highlights include:
  • Risk retention in non-performing exposure securitization now based on market valuation, typically lower than face value.
  • Regulation prevents firms from selectively choosing the weakest assets for securitization.
  • Assets with higher expected losses over a maximum four-year period compared to similar ones cannot be selected.
  • Clarification on “comparable” stipulates using similar methods, variables, and models to assess expected performance for both securitized and non-securitized exposures.
  • Reporting and disclosure requirement changes for securitization to be addressed in future consultations.

EU

• The European Central Bank (ECB) published a consultation paper on a draft guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions. This guide aims to provide consistency, coherence, effectiveness, and transparency regarding the approach the ECB will take where it has been appointed coordinator for a financial conglomerate.
• The European Securities and Markets Authority (ESMA) published a report on the implementation of the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). The report found that there has been significant progress in the implementation of MiFID II and MiFIR, but there are still some areas where further work is needed.

In addition to these specific updates, there were also a number of other regulatory developments in the UK and EU in August 2023. These included:

• The FCA published a market watch report on transaction reporting shortcomings. The report found that there are still a number of firms that are not complying with the transaction reporting requirements under MiFIR.
• The UK Treasury published the outcome of its Investment Research Review. The review found that there is a need for greater transparency and accountability in the investment research industry.
• The FCA issued a warning to asset managers to review their liquidity management. The warning follows concerns about the liquidity of some asset classes, such as European equities.
• The FCA has been granted new powers to ensure the reasonable provision of cash deposit and withdrawal services, as mandated by the Financial Services & Markets Act 2023. Despite the evolving landscape of digital payments, access to cash remains essential for some individuals and small businesses in the UK. While 85% of payments are now digital, 6% of adults rely on cash for most transactions. The FCA’s approach will balance the needs of consumers and businesses with the costs for firms. They plan to consult on rules for designated firms to maintain reasonable cash access, considering various factors and encouraging shared solutions. The government will designate which firms the regulation applies to, with new rules expected to take effect by summer 2024. 

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These are just some of the key regulatory reporting updates in the UK and EU in August 2023. Firms should stay up-to-date with the latest regulatory developments to ensure that they are compliant with their reporting obligations.