Global Regulator & Central Bank News Roundup
Volume 48/2023 (December 11 – December 18)
Your weekly summary of key regulatory updates in an objective bite-size format, drawing on official news and press releases from 700+ financial services regulators, central banks as well as global and regional standard setters. For more current updates, visit Regxplora, Regxelerator’s end-to-end automated and generative AI-powered financial regulatory intelligence platform. Sign up here to receive the roundup via email.
Themes covered in this edition
- Prudential & financial stability
- AML & CFT
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
- Leadership changes
Prudential and financial stability
FSB Publishes Detailed Assessment of 2023 Bank Failures and Outlines Priorities for 2024
The Financial Stability Board (FSB) has released its 2023 Resolution Report titled “Applying lessons learnt,” which reviews the progress made in implementing resolution reforms and enhancing the resolvability of banks, central counterparties (CCPs), and insurers and specifically evaluates the performance of the international resolution framework during recent bank failures. The report acknowledges the framework’s strengths and the proactive measures taken by banks and authorities to bolster resilience and crisis readiness. It also highlights the need for further enhancements, particularly in the operationalization and implementation of the resolution framework for globally systemically important banks (G-SIBs). The FSB’s 2024 workplan is set to focus on these improvements, including a review of public sector backstop funding mechanisms, global implementation of the bail-in tool, and addressing challenges posed by digital innovation in bank resolutions. For central counterparties (CCPs), the FSB will finalize and publish a report on a proposed toolbox approach for CCP resolution, following the analysis of feedback from a consultation report issued in September. Additionally, the FSB will evaluate members’ experiences with the 2020 guidance on financial resources for CCP resolution. In the insurance sector, the FSB has deferred the publication of the first list of insurers subject to resolution planning standards to 2024 due to incomplete reporting by some jurisdiction.
Basel Committee Seeks Feedback on Proposed Amendments to Cryptoassets Exposure Standard
The Basel Committee on Banking Supervision has released a consultative document proposing targeted adjustments to its standard on banks’ exposures to cryptoassets. These adjustments aim to refine the criteria for stablecoins to qualify for preferential regulatory treatment. The proposed updates focus on the composition of reserve assets backing stablecoins, emphasizing their credit quality, maturity, and liquidity. These factors are critical in determining whether stablecoins can be categorized under Group 1b cryptoassets, which are eligible for more favorable regulatory treatment. Additionally, the Committee is seeking to ensure that banks conduct thorough due diligence on the stabilization mechanisms of stablecoins, including statistical tests to verify their stability relative to the reference asset. The document also includes proposed technical amendments and a FAQ section to aid in the consistent interpretation of the cryptoasset standard. The Basel Committee is soliciting feedback on these proposed changes, with a deadline for comments set for 28 March 2024.
Financial Stability Institute Conducts Cross-Border Crisis Simulation Exercise in sub-Saharan Africa
The Financial Stability Institute has released a report detailing the outcomes of a cross-border crisis simulation exercise (CSE) involving financial authorities from eight sub-Saharan African countries. The exercise, which included 11 central banks and deposit insurers, aimed to evaluate the effectiveness of crisis management frameworks and cross-border cooperative arrangements through a fictional scenario of a regionally systemic cross-border banking group failure. Participants demonstrated effective coordination and developed robust strategies within their domestic frameworks. The report offers recommendations on various aspects such as crisis management tools, recovery and resolution planning, liquidity and resolution funding, domestic decision-making procedures, and cross-border cooperation and information-sharing. The findings are intended to help authorities identify areas for improvement in managing potential banking crises.
Committee on the Global Financial System Report Highlights Effectiveness of Macroprudential Policies in Managing Housing Market Risks
The Committee on the Global Financial System (CGFS), hosted by the Bank for International Settlements, has released a report emphasizing the effectiveness of macroprudential policies in mitigating financial stability risks associated with housing market boom-bust cycles. Drawing on experiences from 14 jurisdictions, the report outlines four key lessons for policymakers: the need for consistency across housing-related policies including tax, planning and land supply, the importance of governance arrangements for policy effectiveness, the benefits of prioritizing tools that meet objectives without frequent adjustment, and the value of transparency regarding cost-benefit trade-offs to garner long-term support. The report acknowledges that while macroprudential policy is not the sole solution, its implementation has enhanced the resilience of lenders and borrowers, particularly in the face of significant interest rate increases aimed at controlling inflation. The CGFS report also notes that macroprudential authorities have gained a clearer understanding of which tools are most effective for specific policy objectives, and that these policies have been largely accepted by the public and financial institutions as useful complements to other housing-related policies.
EU Council and Parliament Reach Agreement on Revised Solvency II Directive and IRRD Rules for Insurance Industry
The European Council has announced the attainment of political agreements on the proposals to enhance the Solvency II Directive, aimed at reinforcing the insurance regulatory framework. These revisions are designed to encourage the insurance and reinsurance sector to increase investments in long-term capital, aligning with the Capital Markets Union goals, while maintaining robustness during economic downturns and safeguarding consumer interests. The updated rules more accurately reflect certain risks, including those associated with climate change, and reduce the impact of short-term market volatility on insurers’ financial resilience. The introduction of a new macroprudential toolkit will address the accumulation of systemic risk within the insurance industry. Furthermore, the framework will implement simplified regulations for small and non-complex insurance companies and bolster supervisory cooperation to enhance policyholder protection across Member States. Additionally, the review establishes a new Insurance Recovery and Resolution Directive (IRRD), which mandates that larger and systemically important insurers develop preemptive recovery plans for crisis preparedness. The directive equips national authorities with the necessary tools to manage failing insurers effectively, ensuring orderly market exits and the continuity of insurance coverage.
EU Banking Sector Demonstrates Resilience Amid Changing Interest Rates, Reports EBA Transparency Exercise
The European Banking Authority (EBA) has released its annual risk assessment report for the European banking system, alongside the 2023 EU-wide transparency exercise, which includes data on 123 banks from 26 EU and EEA countries. The assessment indicates that the sector has shown resilience, with capitalization at a record high, as evidenced by an average CET1 ratio of 16%. Despite the banking turmoil experienced in March, profitability has been strong enough to support bank payouts, and while elevated interest rates have initially widened interest margins, this trend may be reversing. Asset quality remains strong, but the combination of slower economic growth and higher interest rates is introducing new risks. Liquidity, although still high, is normalizing from peak pandemic levels, and market funding costs have risen. The report also notes an increase in consumer and business borrowing costs, a halt in real estate price growth, and some price corrections in certain regions. The transparency exercise, part of the EBA’s commitment to market discipline, includes over 1.2 million data points which are sourced from the EUCLID platform and interactive tools for data comparison.
AML & CFT
Egmont Group Publishes Comprehensive Report on Abuse of Virtual Assets for Terrorist Financing
The Egmont Group has published a public summary of its report on the Abuse of Virtual Assets (VAs) for Terrorist Financing (TF) Purposes, emphasizing the identification of vulnerabilities and the dissemination of best practices among Financial Intelligence Units (FIUs) to counteract the misuse of VAs for TF. The report delves into the complexities of tracing virtual assets and the challenges faced by authorities in tracking the movement of funds for TF. It addresses several key objectives, including the examination of VA regulations across different countries, the definition and usage of VAs, and the development of a framework or standard for FIUs to utilize. Additionally, the report includes the sharing of case studies to enhance understanding and facilitate the identification of potential risks associated with new technologies in the financial sector.
South African Reserve Bank Issues AML/CFT Guidance Note
The South African Reserve Bank has issued a comprehensive Guidance Note to banks, controlling companies, branches of foreign institutions, eligible institutions, and auditors of banks or controlling companies, outlining the requirements for implementing adequate counter-financing of terrorism (CFT) controls. The guidance emphasizes the necessity for board-approved policies, comprehensive risk management processes, and robust know-your-customer standards to prevent the use of banking entities for terrorist financing or other unlawful activities. It references the updated FATF Standards from February 2023 and South African legislation supporting these standards, including the Financial Intelligence Centre Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act. The note details the obligations under FATF Recommendations, such as implementing targeted financial sanctions, ensuring accurate information on wire transfers, and establishing group-wide AML/CFT programs. It also discusses the importance of conducting comprehensive institution-wide TF risk assessments, the methodology for such assessments, and the need for regular updates to risk management and compliance programs (RMCP). The guidance covers various aspects of mitigating TF risks, including customer due diligence, transaction monitoring, payment screening, audit, training, resources, governance, and oversight. It also addresses the mitigation of targeted financial sanctions (TFS) risks and the importance of group-wide implementation of AML/CFT measures, particularly in foreign branches and subsidiaries. The note concludes with insights into the general concepts of terrorism financing, current trends, and typologies, and the risks associated with non-profit organizations. Banks are required to acknowledge receipt of the guidance note and ensure its distribution to their auditors.
EU Council and Parliament Agree to Establish European Authority for Anti-Money Laundering and Counter-Terrorism Financing
The European Council has announced a provisional agreement between the Council and the European Parliament to establish a new European authority for countering money laundering and the financing of terrorism (AMLA). This authority is set to be the centerpiece of the EU’s anti-money laundering package, designed to enhance the protection of EU citizens and the financial system from such illicit activities. AMLA will be endowed with both direct and indirect supervisory powers over high-risk financial entities, including the ability to impose sanctions for serious compliance breaches. Specifically, the agreement specifies that AMLA will directly supervise certain high-risk credit and financial institutions, including crypto asset service providers, with the first selection process covering up to 40 groups and entities while national supervisors will retain primary oversight for non-selected entities. Furthermore, AMLA will support the non-financial sector by reviewing and investigating potential framework breaches, issuing non-binding recommendations, and potentially establishing supervisory colleges. AMLA’s governance will include a general board with representatives from all member states and an executive board, with the latter’s budgetary powers no longer subject to a Commission veto. The authority will also have a reinforced whistle-blowing mechanism and the power to resolve disputes within the financial sector. The location of AMLA’s seat is still under negotiation. The provisional agreement’s text will undergo finalization and presentation for approval, with formal adoption required by the Council and Parliament. Concurrent negotiations on regulations and directives related to private sector anti-money laundering requirements and mechanisms are ongoing.
CFATF Reports Outcomes of 57th Plenary and Working Group Meetings
The Caribbean Financial Action Task Force (CFATF) has reported on the outcomes of its 57th Plenary and Working Group Meetings, which took place from November 26th to December 1st, 2023. The Plenary, chaired by the Honourable Samuel Bulgin of the Cayman Islands, approved the Mutual Evaluation Reports (MERs) for the Virgin Islands and St. Vincent and the Grenadines, which assessed their AML/CFT systems based on the FATF 4th Round Methodology. The reports are pending the Post-Plenary Quality and Consistency process before publication. The Heads of FIU Forum (HoFIU) received updates on environmental crime risks and FIU activities, while the CFATF Risk Trends and Methods Group (CRTMG) discussed de-risking and the impact of cannabis legislation on AML/CFT. The Working Group on FATF Issues (WGFI) presented key issues from the MERs and discussed amendments to the 4th Round Mutual Evaluation Procedures. The International Co-operation Review Group (ICRG) reviewed Follow-up Reports with technical compliance re-ratings for several countries, with St. Lucia’s report approved pending the Q&C process. Other updates included the completion of on-site Mutual Evaluation visits for Guyana and Belize, supported by the 11th European Development Fund (EDF), and various communication initiatives. The CFATF governance for December 2023 to December 2024 will see Aruba’s Milangelo Brete as Chair and Jamaica’s Honourable Dr. Nigel Clarke as Deputy Chair, with the Cayman Islands’ Honourable Samuel Bulgin as Immediate Past Chair. Following the meetings, the CFATF published two separate deep dive reports on its work on de-risking and cannabis legislation. The former details the findings of the CFATF Risk, Trends, and Methodology Group’s (CRTMG) updated stocktaking exercise on de-risking in the Caribbean, conducted between June and November 2023. The exercise aimed to provide a comprehensive understanding of the current de-risking landscape, identifying the root causes and the effects of correspondent banks’ decisions to reduce or terminate relationships with regional financial institutions and assessing how these actions impact various sectors and the accessibility of financial services in th region. the latter study examines the impact of various cannabis policy approaches such as decriminalization, legalization, or a hybrid model on AML/CFT.
Cyber & operational resilience
IOSCO Invites Feedback on Proposed Measures to Enhance Trading Venue Resilience in Times of Market Outages
The International Organization of Securities Commissions (IOSCO) has released a Consultation Report on Market Outages, seeking feedback on proposed good practices aimed at enhancing the resilience of trading venues during market outages. The report emphasizes the importance of operational resilience for the smooth functioning of global capital markets and builds upon previous IOSCO reports and a survey of its members. It identifies key findings from recent market outages and recommends five good practices. These include (1) establishing a clear outage plan, (2) implementing a communication plan for timely updates, (3) ensuring equal access to information for all market participants, (4) publishing procedures for closing auctions or alternative closing prices, and (5)conducting a lessons-learnt exercise post-outage with a remediation plan. While the focus is on equities listing trading venues, the findings are also relevant to other types of trading venues. Comments on the Consultation Report are invited until 1 March 2024.
Conduct & consumer protection
IAIS Publishes Comprehensive Issues Paper on Policyholder Protection Schemes
The International Association of Insurance Supervisors (IAIS) has published an Issues Paper on the roles and functioning of policyholder protection schemes (PPSs) following a consultation period from February to April 2023. The paper offers an updated global perspective on PPSs, detailing their involvement in insurance resolution and various related operations as well as serves as a resource for jurisdictions that are looking to establish or amend a PPS. It builds on the insights gained since the initial 2013 Issues Paper and incorporates the revised Insurance Core Principles and Common Framework for the Supervision of Internationally Active Insurance Groups adopted in November 2019. A public discussion on the paper in the form of a webinar has been scheduled for January 16, 2024.
EIOPA Initiates Public Consultation on Methodology for Setting Value-for-Money Benchmarks for Insurance Products
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a public consultation on its proposed methodology for establishing value-for-money benchmarks for unit-linked and hybrid insurance products. This initiative is a continuation of EIOPA’s efforts since 2020 to equip supervisors with risk-based tools for identifying products that may not provide fair value for money. The consultation paper presents a three-step approach: categorizing products into groups based on policyholder needs, developing value-for-money indicators, and calibrating benchmarks using existing data collection processes to reduce market reporting burdens. Stakeholders are invited to submit feedback via an online survey by the deadline of 15 March 2024. This methodology, which builds on a Supervisory Statement from November 2021 and a foundational methodology document from October 2022, is part of EIOPA’s toolkit for addressing value-for-money risks and is separate from the European Commission’s Retail Investment Strategy.
ESMA Publishes Discussion Paper on Digitalization of Retail Investment Services to Enhance Investor Protection
The European Securities and Markets Authority (ESMA) has released a discussion paper focusing on the digitalisation of retail investment services and the implications for investor protection. ESMA’s analysis delves into the increased use of digital platforms and social media by firms and retail investors, particularly in the wake of the Covid-19 pandemic, and examines the effects of technology on investor behavior and decision-making. Drawing from the supervisory insights of National Competent Authorities (NCAs) and academic research, the paper evaluates both the benefits and risks associated with digitalisation. Key areas of recommendation by ESMA include the layering and accessibility of information, digital marketing, the role of influencers, social features in investment apps, gamification, nudging techniques, and dark patterns. The feedback received will inform ESMA’s convergence efforts and prepare the authority for potential mandates for technical advice or standards in these domains. Feedback on the paper can be provided until 14 March 2024.
Fintech & ecosystem innovation
South Korea FSC Publishes Proposed Regulations to Safeguard Virtual Asset Users
The Financial Services Commission (FSC) of South Korea has proposed detailed rules to accompany the Act on the Protection of Virtual Asset Users, which will take effect on July 19, 2024. These rules aim to enhance user protection and establish orderly virtual asset transactions by defining the scope of virtual assets, excluding certain types such as electronic bonds and NFTs, and setting requirements for virtual asset service providers (VASPs) to manage and store customer assets securely. Key provisions include the designation of banks as custodian institutions for VASP customer funds, which must be invested only in safe assets, and the mandate for VASPs to store at least 80% of customer virtual assets in cold wallets. Additionally, VASPs must maintain liability insurance or reserves to cover at least 5% of the value of customer assets in hot wallets, with minimum criteria set for different types of VASPs. The proposal also clarifies when material nonpublic information is considered public for insider trading purposes, prohibits arbitrary blocking of user deposits and withdrawals with certain exceptions, and imposes duties on VASPs to monitor and report abnormal transactions. Public comments on the proposed rules are invited until January 22, 2024, before the rules are implemented in July 2024.
Central Bank of Brazil Initiates Public Consultation on Regulation of Virtual Asset Services Market
The Central Bank of Brazil has initiated a Public Consultation to gather input for the ongoing regulation of the virtual asset services market, including cryptoassets, within the country. The consultation is structured into eight thematic blocks, encompassing 38 questions that participants can address in whole or in part, specifying the theme and question of their feedback. The themes cover a range of topics such as Asset segregation and risk management, Activities developed and virtual assets traded, Contracting of essential services, Rules of governance and conduct, Cybersecurity, Provision of information and protection of customers, Transition Rules, and General Manifestations. Stakeholders are invited to submit their contributions through the Central Bank’s website by January 31, 2024.
Payments & currency
CBUAE Collaborates with Gulf Payments System “AFAQ” to Enhance Real-Time Financial Transactions
The Central Bank of the UAE (CBUAE) has announced its integration into the “AFAQ” Payments System, a real-time financial transaction platform operated by the Gulf Payments Company and owned by the GCC Central Banks. This move aligns with the CBUAE’s strategic goals to advance the UAE’s financial technology and digitization, emphasizing innovation and the enhancement of payment systems. The system facilitates transactions in local GCC currencies at reduced fees. Barclays Bank has also joined AFAQ, marking the first financial institution in the UAE to utilize the system. The Central Bank of Bahrain, the Saudi Central Bank, and the Central Bank of Kuwait, along with several commercial banks from these countries, are already participants. The accession of the remaining GCC Central Banks and commercial banks will follow according to a prearranged schedule.
COP28 Concludes with UAE Consensus Including Agreement to Transition Away from Fossil Fuels
COP28 concluded with a historic agreement, dubbed as The UAE Consensus, which was reached by 198 Parties. The consensus seeks to keep the 1.5°C target within reach by transitioning away from fossil fuels towards net zero, tripling renewables, and doubling energy efficiency by 2030. Specifically, the final text includes inter alia a reference to phasing out all fossil fuels, setting more ambitious NDCs including economy-wide emission reduction targets, and scaling up adaptation finance. The Consensus adds to other key achievements from the 2-week long Conference, including the completion of the first global stocktake of climate action under the Paris Agreement, the operationalization of the Loss and Damage Fund with early pledges of USD 792 million, and the launch of ALTÉRRA, a $30 billion catalytic private finance vehicle, which seeks to mobilize a total of $250 billion for global climate action as well as the COP28 UAE Declarations on Agriculture, Food & Climate and on Climate and Health. The former focuses on embedding sustainable agriculture and food systems in response to climate change while the latter aims to accelerate the development of climate-resilient, sustainable and equitable health systems.
NGFS Releases Technical Document with Recommendations for Nature-Related Scenarios in Central Banking and Financial Supervision
The Network for Greening the Financial System (NGFS) has published a Technical Document offering recommendations for the creation of scenarios to assess nature-related economic and financial risks. The document, which is informed by a comprehensive literature review and expert contributions, seeks to support the integration of nature-related risk considerations into the practices of central banks and financial supervisors. It builds upon the beta version of the Conceptual framework on nature-related financial risks by the NGFS Taskforce on Biodiversity Loss and Nature-related Risks. The Technical Document addresses the unique challenges of nature-related risks, such as their complex localised impacts and the potential inadequacy of existing climate scenario models to capture these risks fully. It proposes methods for developing consistent narratives and assessing economic and financial impacts, offering central banks and supervisors a range of short and long-term options for scenario development. The NGFS underscores the urgency of developing macroeconomic models and comprehensive scenarios to estimate nature-related risks’ plausible impacts on the financial system, with the ultimate goal of incorporating such risks into stress tests and other regulatory tools.
ESMA Launches Consultation on Draft Guidelines for Supervision of Corporate Sustainability Information and Collaborates with NCAs in Common Supervisory Action on ESG Disclosures for Benchmark Administrators
The European Securities and Markets Authority (ESMA) has initiated a public consultation on proposed Guidelines aimed at harmonizing the enforcement of sustainability reporting across the EU. These draft Guidelines are designed to ensure that national competent authorities supervise the sustainability information disclosed by listed companies in accordance with the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards, and Article 8 of the Taxonomy Regulation consistently. The objective is to foster a uniform and robust supervisory approach to both sustainability and financial information, thereby enhancing the integration of these reporting streams. Stakeholders are invited to submit their comments by mid-March 2024. The final Guidelines are expected to be released in the third quarter of 2024.
In a separate statement, the ESMA has furthermore announced the initiation of a Common Supervisory Action (CSA) in collaboration with National Competent Authorities (NCAs) to scrutinize ESG disclosures under the Benchmarks Regulation (BMR). This CSA marks ESMA’s inaugural effort as a direct supervisor of Benchmarks Administrators and will evaluate entities within the Union or third countries that are authorized, registered, recognized, or have received endorsement for their benchmarks under the BMR. The assessment will concentrate on the disclosure of ESG factors within the benchmarks statement and methodology and the specific disclosure requirements concerning climate benchmarks methodology. According to ESMA; the initiative aims to harmonize and enhance the supervision of ESG disclosures by Benchmarks Administrators, improve the comparability of benchmark information, and combat greenwashing. The CSA is scheduled to be conducted throughout 2024 and into the first quarter of 2025, during which ESMA and NCAs will exchange insights to promote supervisory convergence on ESG disclosure requirements for benchmark administrators.
EIOPA Unveils First Catastrophe Data Hub at 2023 Sustainable Finance Conference
The European Insurance and Occupational Pensions Authority (EIOPA) has announced the launch of its Catastrophe Data Hub during its Sustainable Finance Conference 2023. This open-source repository provides a centralized collection of European-level catastrophe risk data, including insured losses from specific events such as the 2017 wildfire in Portugal, the June 2013 floods, and the 2020 windstorm Ciara, alongside exposure data for natural catastrophes related to windstorms and floods. The initiative addresses the growing concern over the potential increase in losses due to climate change and the expanding insurance protection gap. The Catastrophe Data Hub is intended to serve multiple stakeholders: supervisors can leverage the data to evaluate insurance exposure, calibrate capital requirements, and quantify the insurance protection gap; the insurance sector gains access to loss data for a comprehensive market view, which can aid in the development of catastrophe models; policy and decision-makers, as well as academics, can utilize the data for prevention measures and independent research on climate-related losses.
EIOPA Launches Consultation on Incorporating Sustainability Risks into Prudential Framework and on Proposals to Combat Greenwashing in Insurance and Pension Sectors
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a consultation on the prudential treatment of sustainability risks, marking the second phase of its step-by-step approach in line with the expected mandate under the Solvency II Directive. This phase builds on the initial discussion paper published in 2022, which focused on methodologies and data sources for analyzing sustainability risks in investment and underwriting activities of insurers. EIOPA’s objective is to ensure that the prudential framework reflects the growing relevance of environmental and social risks, thereby protecting consumers and maintaining financial stability. The consultation paper explores the justification for a dedicated prudential treatment of assets or activities significantly related to environmental or social objectives, or the potential harm to such objectives, following a risk- and evidence-based approach. Stakeholders are invited to provide feedback through the EU Survey by 22 March 2024 and can participate in an online event scheduled for 7 February 2024 to discuss questions related to the consultation paper.
Separately, the EIOPA has also launched a consultation on its draft Opinion aimed at establishing a harmonized supervisory framework to prevent greenwashing in the insurance and occupational pensions sectors. The draft Opinion outlines four key principles for providers when making sustainability claims. These include the expectations that sustainability claims made by a provider should be accurate, precise, and consistent with the provider’s overall profile and business model, kept up to date, and be substantiated with clear reasoning and facts, which are accessible by the targeted stakeholders. The principles are supported by examples of good and bad practices to illustrate potential greenwashing scenarios. EIOPA also recommends that National Competent Authorities actively monitor and evaluate providers’ sustainability claims, ensuring they align with regulatory requirements and scrutinize sustainability-related product names. Stakeholders are invited to submit their feedback on the draft Opinion through an online survey by the deadline of 12 March 2024.
FCA Commends Launch of Voluntary Code of Conduct for ESG Ratings and Data Providers by ICMA and IRSG
The UK Financial Conduct Authority (FCA) has welcomed the launch of a voluntary code of conduct for providers of Environmental, Social and Governance (ESG) ratings and data products. This initiative, developed by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG), aims to establish a globally consistent standard for the industry. The FCA, which had appointed the ICMA and IRSG to create the code, observed its development alongside the Treasury and other financial regulators. The code aligns with the International Organization of Securities Commissions’ (IOSCO) recommendations and emphasizes transparency, governance, conflict of interest management, and robust systems and controls. Sacha Sadan, the FCA’s Director of ESG, endorsed the code for its potential to enhance transparency and trust in the ESG data and ratings market and urged all providers to adopt it. The code also serves as a benchmark for providers that may not be covered by future regulations, as the UK government is currently considering the extension of the FCA’s regulatory perimeter to include ESG ratings providers.
Other transversal themes
CSA Implements Amendments to National Instrument 24-101 Institutional Trade Matching and Settlement in Preparation for T+1 Settlement Cycle
The Canadian Securities Administrators (CSA) has announced final amendments to National Instrument 24-101 Institutional Trade Matching and Settlement, alongside changes to its Companion Policy, in preparation for the transition to a T+1 settlement cycle for equity and long-term debt market trades in Canada. This shift from the current T+2 cycle to T+1 will take effect on May 27, 2024, coinciding with similar regulatory changes in the United States. The amendments include the permanent repeal of the exception reporting requirement in Part 4 of the Instrument, specifically the elimination of Form 24-101F1 Registered Firm Exception Reporting for DAP/RAP Trade Reporting and Matching, which has been under a moratorium since July 2020. Additionally, the CSA has revised the institutional trade-matching (ITM) deadline to 3:59 a.m. Eastern Time on T+1, following industry feedback favoring this over the originally proposed 9 p.m. deadline on T.
U.S. SEC Implements Rules to Enhance Risk Management for U.S. Treasury Market Clearing and Enable Increased Central Clearing Paths
The Securities and Exchange Commission (SEC) has adopted new rules aimed at strengthening risk management in the clearance and settlement of U.S. Treasury securities and promoting additional central clearing in this market. The rule changes update membership standards for covered clearing agencies, mandating that members submit certain secondary market transactions for clearing. These transactions include all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities (with specific exemptions), transactions by interdealer brokers, and transactions between clearing agency members and registered broker-dealers or government securities brokers or dealers. The amendments also allow broker-dealers to count customer margin at clearing agencies as a debit in the customer reserve formula under certain conditions and require separate margin collection and calculation for house and customer transactions. Additionally, policies must be established to ensure that covered clearing agencies provide appropriate access to clearing, including for indirect participants, with exemptions for transactions involving central banks, sovereign entities, international financial institutions, or natural persons. The implementation of these amendments is phased, with the first set of requirements concerning house and customer margin separation, broker-dealer customer protection, and access to central clearing to be completed by March 31, 2025. The clearing of specific transactions will follow in two stages, with cash transactions preceding repurchase transactions, and compliance for direct participants of U.S. Treasury securities central clearing agencies is staggered, with deadlines of December 31, 2025, for cash transactions and June 30, 2026, for repurchase transactions.
Saudi Arabia Assumes Leadership of International Monetary and Financial Committee
The International Monetary Fund (IMF) has appointed the Kingdom of Saudi Arabia as the Chair of the International Monetary and Financial Committee (IMFC) for the term 2024-2027. The IMFC serves as an advisory body to the IMF’s Board of Governors, focusing on the oversight and guidance of the international monetary and financial system, and addressing issues that may impact its stability. It is composed of 24 finance ministers and central bank governors, operates on a consensus basis, including in the selection of its Chair, and convenes biannually in alignment with the IMF and World Bank Group Annual and Spring Meetings.