CRD VI and CRR III set out new rules aimed at making banks operating in the EU more resilient to possible economic shocks. The changes aim to increase the resilience of banks, strengthen their supervision and reinforce risk management, as well as strengthening supervision and sustainability in the banking sector.

For more information on the legislative package, see our previous blog.

Next steps

This was the final step of the adoption procedure. The texts will now be published in the Official Journal of the EU and enter into force 20 days later.

Member States will have 18 months to transpose CRD VI into national legislation, whilst CRR III will apply from 1 January 2025.

The package of legislation consists of:

• A Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AML Regulation).
• A Regulation establishing the new EU authority for AML and Countering the Financing of Terrorism (AMLA Regulation).
• A Directive on the mechanisms to be put in place by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLD6).

The European Commission first published the package of proposals in July 2021.

Next steps

This was the final step of the adoption procedure. The texts will now be published in the Official Journal of the EU and enter into force.

The AML Regulation will apply 3 years after it enters into force. Member States will have 2 years to transpose some parts of the AML Directive and 3 years for others. AMLA will be based in Frankfurt and will start operations in mid-2025.

The Delegated Regulations supplement MiCAR in relation to the following topics:

• Criteria for classifying asset-referenced tokens (ARTs) and e-money tokens (EMTs) as significant.
• The fees charged by the European Banking Authority (EBA) to issuers of significant ARTs and issuers of significant EMTs.
• The procedural rules for the exercise of the power to impose fines or periodic penalty payments by the EBA on issuers of significant ARTs and issuers of significant EMTs.
• The criteria and factors to be taken into account by the European Securities Markets Authority, the EBA and competent authorities in relation to their intervention powers.

For more information on each of the Delegated Regulations, see our previous blog.

ESMA states that, when using AI, it expects firms to comply with relevant MiFID II requirements, particularly in relation to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

It also warns that, while AI offers potential benefits to firms and clients, it also poses inherent risks including:

• Algorithmic biases and data quality issues.
• Opaque decision-making by a firm’s staff members.
• Over-reliance on AI by both firms and clients for decision-making. 
• Privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

Investment firms are reminded that potential uses of AI that would be covered by MiFID II requirements include customer support, fraud detection, risk management, compliance, and support to firms in the provision of investment advice and portfolio management. 

ESMA and the national competent authorities plan to continue monitoring the use of AI in investment services and the relevant EU legal framework to determine whether further action is needed in this area.

The SRB explains that there will be an increased focus on crisis management and readiness in the SRM, the operationalisation of all resolution tools, and the implementation of comprehensive testing to ensure the effective resolvability of banks. It notes that being crisis-ready and ensuring that resolution plans are fully actionable also requires the SRB to have lean and robust internal structures, as well as talented and diverse staff.

The Multi-Annual Plan includes the amended Annual Work Programme 2024, which supersedes the previous Annual Work Programme 2024 published in November 2023.

The Delegated Regulations supplement DORA in relation to the following topics:

• The criteria for the designation of ICT third-party services providers as critical for financial entities.
• The amount of the oversight fees to be charged by the Lead Overseer to critical ICT third-party service providers and the way in which those fees are to be paid.

For more information on each of the Delegated Regulations, see our previous blog.

The Delegated Regulations will enter into force on 19 June 2024.

Those Directions were issued in 2022 to the 14 most significant providers of card acquiring services, with the aim of improving services and choice for businesses receiving card payments. The PSR notes that issuing the Directions was a crucial step in giving greater transparency to businesses in what can be a difficult area to compare prices and switch services.

Following a consultation launched in January 2024, the PSR explains that it has decided to update to the list of directed firms (including to reflect name changes) and to introduce a new streamlined method of making changes going forward. The PSR also consulted on whether to add an additional firm to the list, but decided not to at this time on the basis of feedback received. The list of directed firms will be kept under review.

Background to the SI

HM Treasury (HMT) made changes in May 2023, through the Financial Services and Markets Act 2000 (Commodity Derivatives and Emissions Allowances) Order 2023, to legislation relating to the ancillary activities exemption (AAE), which gives firms trading commodity derivatives or emission allowances a possible exemption from needing to be authorised as an investment firm. HMT had consulted on this as part of the Wholesale Markets Review (WMR). Following on from those changes, the Financial Conduct Authority (FCA) published CP23/27 in December 2023, which set out its proposals concerning the commodity markets regime, including revoking Commission Delegated Regulation (EU) 2017/592 (known as RTS 20), and new guidance on the application of the AAE.

The FCA’s consultation closed in February 2024. Many responses to the consultation raised significant concerns with a principles-based approach to determining whether a firm requires authorisation for trading in commodity derivatives and emission allowances.

Changes made by the SI

To allow time to consider and address these concerns, HMT has decided to pause the implementation of legislative changes relating to the new ancillary activities regime. The SI provides that the planned changes will not come into force by omitting the relevant provisions from the 2023 Order, which were due to take effect on 1 January 2025. HMT plans to work with the FCA and engage further with the market to deliver a regime that reflects the conclusions of the WMR whilst also taking into consideration the concerns raised by industry, with the aim of implementing a new regime by 1 January 2027.

In the meantime, firms will be able to continue to rely on the existing Ancillary Activities Test to determine whether they are eligible to use the AAE. The SI does not omit provisions which remove the requirement for firms to notify the FCA annually of their ancillary activity status with regards to the trading of commodity derivatives or emission allowances. This requirement will still be removed from legislation by the 2023 Order on 1 January 2025.

Next steps

The SI comes into force on 31 December 2024.

The Bill, which was introduced in April 2023, is intended to create a regime to empower the Competition and Markets Authority (CMA) to regulate and increase competition in digital markets. It also updates powers to enforce competition law and resolve consumer disputes, and aims to protect consumers from unfair commercial, subscription, prepayment and saving schemes.

The text of the Act is yet to be published.

ESMA published the reminder after recent news in the media suggested a connection between episodes of high volatility in share prices and ‘pre-close calls’. Pre-close calls are communication sessions between an issuer and analysts who generate research, forecasts and recommendations related to the issuer’s financial instruments. These sessions occur just before the periods preceding an interim or year-end financial report, during which issuers avoid providing additional information or updates. The outcomes of pre-close calls can influence market expectations and instrument prices.

The statement reminds issuers that any disclosure of inside information should only take place in accordance with the Market Abuse Regulation (MAR), and consequently issuers should only share non-inside information during these pre-close calls.

In order to address potential concerns related to pre-close calls, ESMA recommends following a number of good practices, including:

• Prior to a pre-close call, carrying out an assessment of the information intended to disclose, making sure that it is not inside information.
• Informing the public about the upcoming pre-close calls on the issuer’s website, highlighting the relevant details (date, place, topics and participants).
• Making the material and documents used simultaneously available on the issuer’s website.

ESMA also notes that specific episodes and identification of potential breaches of MAR should be analysed by national competent authorities.

The observations and insights are split into the following key areas:

• Important business services.
• Impact tolerance.
• Mapping and third parties.
• Scenario testing.
• Vulnerabilities and remediation.
• Response and recovery plans.
• Governance and self-assessment.
• Embedding operational resilience.
• Horizon scanning (to establish an understanding of new and emerging risks and the proximity of impact).

The FCA also highlights the following points:

• All firms are expected to be resilient and provide services for their customers when needed.
• Ahead of the 31 March 2025 deadline, firms must ensure they can remain within impact tolerance in severe but plausible scenarios for any identified important business services, and have their plans approved by their Board in good time.
• Important business services, impact tolerances and mapping should be reviewed on at least an annual basis, or if there is a material change to the firm’s business or the market it operates in.
• Changes to important business services, impact tolerances and mapping should be clearly identified in each firm’s self-assessment, along with any rationale.
• Scenario testing underpins a firm’s evidence for how it will remain within impact tolerances for severe but plausible scenarios for its important business services. It should become part of business as usual and be reviewed on a regular basis as evidence of the firm’s operational resilience.

The firms that have been designated as relevant current account providers are Barclays Bank UK plc, the NatWest Group, Lloyds Banking Group, Santander UK plc, HSBC UK Bank plc, Nationwide Building Society, TSB Bank plc, Clydesdale Bank plc, The Co-operative Bank plc, Northern Bank Limited, Bank of Ireland (UK) plc, and AIB Group (UK) plc.

In addition, Link Scheme Limited and Link Scheme Holdings have been designated as an operator of cash access coordination arrangements.

For more information on HMT’s cash access policy, see our previous blog.

The findings set out in ESMA’s report include:

• Globally, marketing communications (including advertisements) comply with MiFID II requirements.
• Investment firms generally have procedures in place to ensure marketing materials comply with MiFID II, including during their development.
• National competent authorities (NCAs) raised some concerns regarding sustainability claims in marketing communications, including advertisements.

The report also identifies several areas for improvement, including:

• The need for marketing communications to be clearly identifiable as such, and to contain a clear and balanced presentation of risks and benefits. In cases where products and services are marketed as having ‘zero cost’, they should also include references to any additional fees. 
• The need for adequate approval and review processes for marketing communications, including advertisements, whether these are prepared by the firm or by third parties.
• Ensuring compliance with legal requirements on the part of distributors for all marketing communications.
• Implementation of adequate record-keeping measures for all marketing material including social media posts.
• Involvement of control functions and senior management in internal processes and procedures related to development, design, and oversight of marketing materials.

ESMA encourages NCAs to consider the use of sanctions in the case of breaches. It confirms that it will continue to work with NCAs on the topic, given the substantial role that marketing communications and advertisements can play in determining consumer behaviour and influencing investment decisions.

The main objective of the guidelines is to provide a single point of consistent interpretation of the STS criteria and ensure a common understanding of them by originators, original lenders, securitisation special purpose entities, investors, competent authorities and third-party verification agents verifying STS compliance in accordance with Article 28 of the Securitisation Regulation, throughout the EU.

While introducing these guidelines, the EBA also deemed it necessary to amend its guidelines on STS criteria for asset-backed commercial paper (ABCP) and non-ABCP. It is therefore making a limited set of targeted amendments to the existing EBA guidelines on non-ABCP and ABCP securitisation respectively, for a specific number of these requirements, to ensure that the interpretation provided by the EBA is consistent across all three sets of guidelines.

The EBA consulted on the guidelines in April 2023 – for more information, see our previous blog.

The Bill was introduced in December 2023 with the aim of helping building societies to access more funding from sources other than customer savings. The draft explanatory notes to the Bill explained that it was intended to put building societies on a more level playing field with other retail deposit-takers (i.e. banks) in relation to their capital raising and corporate governance requirements, so that they can compete more effectively in the financial services sector and better support their members.

Whilst this was introduced as a Private Members’ Bill, it reflects the outcome of HM Treasury’s December 2021 consultation on proposed changes to the Building Societies Act 1986.

The explanatory memorandum published alongside the Regulations explains that they make amendments to the UK’s securitisation regime, as part of HM Treasury’s programme to deliver a Smarter Regulatory Framework for financial services. The Securitisation Regulations 2024 establish the new legislative framework under which financial services regulators will make rules on general requirements for securitisation that apply to firms. The Regulations make textual amendments to the Securitisation Regulations 2024, so that the resulting law will be contained in a single statutory instrument. For more information, see our previous blog.

Most provisions of the Regulations will come into force on 1 November 2024.

In addition, the Treasury Sub-Committee on Financial Services Regulations has written to Nikhil Rathi, Chief Executive of the FCA, in advance of Parliament being dissolved on 30 May 2024. The letter highlights that the Committee took evidence from Mr Rathi and the Chair of the FCA, Ashley Alder, on 8 May. During that session different members of the Committee each raised the following concerns:

1. The approach the FCA has set out appears to be different to those of financial conduct regulators in other similar economies, such as the US, France or Switzerland.

2. If the bar is set too low when assessing the public interest of publicising an investigation, and large numbers of investigations are published, the consequences could be a loss of investor confidence in UK financial services markets.

3. Investigations undertaken by the FCA can take many years, and during this time companies who have been named will have an allegation hanging over them for long periods of time. The FCA must prioritise reducing the time it takes to conclude investigations.

4. Publicising enforcement investigations appeared to be an FCA priority, compared to other work that might have been undertaken to increase international competitiveness.

5. The FCA already has the power in exceptional circumstances to publicise an enforcement investigation.

In addition, the letter confirms that the Committee has been sent the views of organisations who do support the measures on the grounds of better protection for consumers, deterring poor conduct from firms, and increasing trust in enforcement against wrongdoing among the public. This matter may now be for a future Committee to consider.

The Outlook Report provides an update on compensation figures and the levy for 2024/25, following the ‘first look’ that was published in November 2023.

The Outlook Report highlights that the annual levy for 2024/25 is now £265 million. This is lower than the indicative levy announced in the November 2023 Outlook, and a small decrease from the final 2023/24 levy of £270 million.

The Outlook Report also outlines updates on figures for:

• Deposits.
• General Insurance Provision.
• Life and Pensions Provision.
• General Insurance Distribution.
• Life Distribution and Investment Intermediation.
• Investment provision.
• Home Finance Intermediation.
• Debt Management.
• Funeral Plans.

Listen to the podcast here.

Securitisation (Smarter Regulatory Framework and Consequential Amendments) Instrument 2024

In summary, following consultation in CP23/17, the FCA Board has made changes to the Handbook sections listed below:

• Glossary
• SYSC 25 Annex 1
• GEN Sch 4
• FEES 3.2, 3 Annex 14
• MIFIDPRU 7.7
• DEPP 2.5, 2 Annex 1, 2 Annex 2, 6.1, 6A.1, Sch 3, Sch 4
• COLL 5.2
• FUND 3.5

The FCA Board has also made changes to introduce a new specialist sourcebook – the Securitisation sourcebook. In summary, this instrument makes changes to the FCA Handbook to transfer the largely preserved firm facing requirements of the UK Securitisation Regulation (UK SR) to the FCA Handbook to bring clarity to a targeted number of provisions of the UK SR. At a later stage, the FCA intends that its second consultation will have a broader remit for policy change, including a review of the reporting regime.

The instrument comes into force on 1 November 2024.

Training and Competence Sourcebook (Amendment) Instrument 2024

Furthermore, following consultations in CP23/25 and CP24/3 the FCA Board has made changes to Training and Competence sourcebook (TC) App 4.1 2.5.

In summary, this instrument makes changes to the FCA Handbook to implement an annual consultation cycle on changes for updates to implement an annual consultation cycle on changes for updates to the qualification related elements of the TC from 2025. To account for any urgent changes, the FCA has included the option to consult outside of the annual schedule where there are exceptional circumstances.

This instrument came into force on 24 May 2024.

The EU’s Electricity Market Design (EMD) mandates ACER to assess the need to develop and issue voluntary templates for PPAs. The announcement states that as ACER assessment must reflect the needs of the different parties involved, it is key that this is done in close coordination with relevant institutions and stakeholders.

For this reason, ACER will run a public consultation to gather inputs from interested stakeholders and ensure an informed and inclusive decision-making process.

Next steps

The public consultation will run from 20 June to 18 July 2024.

As a follow up, ACER will evaluate the feedback received in the consultation and the conclusions reached by the consultative expert group established in May 2024. If the assessment (expected in Autumn 2024) highlights the need to develop templates for PPA contracts, ACER, together with all Nominated Electricity Market Operators, will start the process in Winter 2024.

IBANs are commonly used as payment account identifiers across the EU. More generally, IBANs are mandated in some 60 jurisdictions in the world, with over 20 jurisdictions recommending its use for cross-border payments. The new Regulation on the prevention of the use of the financial system for money laundering or terrorist financing (AMLR) includes a definition of vIBANs for the anti-money laundering / countering the financing of terrorism framework. In the AMLR, a vIBAN is defined as ‘an identifier causing payments to be redirected to a payment account identified by an IBAN different from that identifier’.

Recently, the EBA carried out a fact-finding exercise on the issuance and use by payment service providers of vIBANs. The report now published summarises the EBA’s observations and findings from this fact-finding exercise. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, Member State competent authorities (NCAs) and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. The report also includes recommendations on how EU law could be clarified and what actions NCAs could take to address these issues.

In the joint statement the UK and EU summarise their discussions which focused around six main areas: regulatory and market developments and financial stability outlook, (ii) banking and anti-money laundering, (iii) sustainable finance (iv) capital markets (v) asset management, and (vi) digital finance and artificial intelligence. The joint statement does not refer to equivalence other than the UK participants providing an update on enacting the UK’s equivalence decision for UCITS funds domiciled in the EEA, including in EU member states, under the Overseas Funds Regime.

The joint statement notes that participants had a useful exchange on the shortening of the settlement cycle (T+1). While the UK and EU are each making their own assessment on the way forward, both agreed to continue to discuss how the EU and the UK might coordinate on the timing of any move within the European continent, including discussing this at the next Forum.

For more information, please read our full update.

• N/A

EU

• 29 May 2024 – On 28 November 2023, the European Commission published a Delegated Regulation and an Annex which modifies Article 39 and 62 of Commission Delegated Regulation 153/2013 which supplements the European Markets Infrastructure Regulation with regard to regulatory technical standards on requirements for central counterparties. Article 39 is amended to extend the duration during which the use of public guarantees as specified in Annex I is temporarily allowed. Article 62 is amended to extend the duration during which the use of uncollateralised or partially collateralised bank guarantees is temporarily allowed. These modifications are temporary and will expire 6 months after the entry into application of the Delegated Regulation.

UK

• 28 May 2024 – On 17 April 2024, the Payment Systems Regulator (PSR) published Consultation Paper CP24/3 on the Faster Payments System authorised push payments (APP) scams reimbursement requirement: compliance and monitoring. The deadline for responses to the consultation is 28 May 2024.

• 29 May 2024 – On 3 April 2024, the Bank of England (BoE) and the Financial Conduct Authority (FCA) published a joint consultation on their proposed approach to implementing and operating the Digital Securities Sandbox, an initiative run by the regulators that is intended to help facilitate the adoption of innovative technology in digital assets in the UK. The consultation closes on 29 May 2024.

• 30 May 2024 – On 30 April 2024, the Prudential Regulation Authority (PRA) published an Occasional Consultation Paper, CP6/24, which sets out its proposals to make minor amendments to PRA rules and to add a new rule to the Policyholder Protection Part of the PRA Rulebook. CP6/24 also includes, at Chapter 5, joint PRA and FCA proposals to make changes to technical standards relating to risk mitigation techniques for over-the-counter derivative contracts not cleared by a central counterparty. The consultation closes on 30 May 2024.

• 30 May 2024 – On 7 May 2024, the PSR published a Consultation Paper, CP24/7, on APP scams publication guidance for the second reporting cycle (January to December 2023), known as cycle 2. CP24/7 accompanies the PSR’s draft guidance on the publication of APP scams data for cycle 2 and it discusses the changes that the PSR has made to the publication guidance following cycle 1. The consultation is open until 30 May 2024.

• 31 May 2024 – On 8 May 2024, the PSR published a Consultation Paper, CP24/8, on the CHAPS APP scam reimbursement requirement. The proposals are intended to support the BoE’s efforts to enhance fraud prevention in CHAPS. The consultation is open until 31 May 2024.

• 31 May 2024 – On 28 November 2023, the FCA published Policy Statement 23/16 which contained a package of measures setting out its final rules and guidance on Sustainability Disclosure Requirements and investment labels. The measures included an anti-greenwashing rule for all FCA-authorised firms.  On 23 April 2024, the FCA published its finalised non-handbook guidance (FG24/3) on the anti-greenwashing rule. The guidance is intended to help firms understand and comply with the anti-greenwashing rule, which comes into force on 31 May 2024.

• Commission Delegated Regulation (EU) 2022 on position management controls by trading venues (CDR 2022/1299): ESMA proposes to extend the obligation to set the accountability levels, as well as review and reporting requirements, to trading venues trading derivatives on emission allowances.

• Commission Delegated Regulation (EU) 2017/565 on organisational requirements and operating conditions for investment firms (CDR 2017/565): ESMA includes draft technical advice to the European Commission to reflect the change of position reporting, by replacing the term ““emission allowances and derivatives thereof” with “derivatives of emission allowances”.

• Commission Implementing Regulation (EU) 2017/1093 on format of position reports by investment firms and market operators (ITS 2017/1093): The revised MiFID II requires trading venues where options are traded to publish two weekly position reports in addition to the existing weekly report combining futures and options positions. They are also required to publish a weekly report excluding options positions. ESMA suggest that the content and format of the new weekly report (excluding options) is aligned with the content and format of the existing weekly report (futures and options combined). To this end, ESMA proposes amendments to the reporting fields. ESMA also proposes additional amendments to harmonise weekly position reports.

Stakeholders have until 23 August 2024 to submit comments to ESMA by using the response form provided.

This presents an interesting contrast to the US landscape, where a change of administration could mean a major shift in regulatory approach and personnel. There are of course political appointees at the Securities and Exchange Commission and other agencies, and we could be looking at a different landscape on areas such as ESG, consumer regulation and crypto to name a few examples. In the UK, although the CEO and most of the board of the FCA are appointed by the Chancellor, this is not ostensibly ‘big P’ political and the regulators will continue their agenda irrespective of politics.

With respect to continuity, there are areas where Labour’s policy does seem likely to align with current Conservative policy, particularly in relation to the ESG agenda and the competitiveness and innovation objectives, as well as the desire to reinvigorate the UK’s capital markets. This is also relevant to the current basic framework for the retail agenda, as Labour plans to continue with the Consumer Duty and other related initiatives. There is a further lack of any suggestion of major structural reform to financial services regulation, such as that seen following the 1997 election with the introduction of the Financial Services Authority.  In addition, the independence of the PRA and FCA and the extended delegated powers points to continuity.

However, as is so often the case, the picture becomes more complicated when looking at what is buried in Labour’s proposals and, in doing so, it becomes clear there is a lot that could lead to significant change.

Accordingly, four key points should be noted:

1.       Comparison to the EU regime

In the last 18 months, we have seen a growing gulf between the EU and the UK’s regulatory approaches in certain areas. Some of these are more technical and others more substantive. However, it seems that Labour would be much less likely to have a ‘hang up’ about following the EU approach where this makes sense for the UK market.

Labour seems realistic in acknowledging that the EU granting ‘equivalence’ remains unlikely but, if it is elected, we may see less resistance to following the EU model. For example, the current UK proposals in relation to operational resilience and critical infrastructure are somewhat similar to the approach under DORA but many of the technical tests and other details are different, at least in terminology. Whilst the PRA and the FCA are responsible for much of the detail and this particular train has left the station, it seems possible that a shift in tone from HMT on following the EU approach may lead to a change in policy outcome over time to greater conformity with EU proposals. Of course, any hint that even “soft” equivalence may be granted will encourage such a trend.

2.      Retail financial services

Whilst the language of retail protection and the Consumer Duty remains the same under Labour’s proposals, it is likely that there would be an even stronger emphasis on these. The proposals indicate a desire to give more weight to the agenda of financial inclusion and regional access, along with related concerns for consumers. In some areas, this has a competitive dimension, for example in relation to the considerable enthusiasm for open banking. In other areas, there are indications for added urgency to the agenda for increasing regulation, with particular attention to ‘Buy Now Pay Later’ and cryptocurrency. Interestingly, in relation to the latter, there seems to be considerable scepticism beyond what we currently see from the FCA and the Treasury.

3.      Active intervention in the market

This is perhaps the most significant element of potential change. It constitutes a mix of incentives to encourage regional growth in financial services and links to concerns about the real economy.

In relation to the latter, Labour is proposing to expand the British Business Bank, as well as encouraging investment by pension schemes and other institutional investors into UK assets. This reflects a certain train of thought which the current Chancellor has been sympathetic to as shown by the ISA changes but may presage much more active intervention as part of a broader industrial strategy. Industrial strategy has historically been thought of solely in terms of manufacturing but Labour appears to be thinking of this more broadly in the financial services sector. For example, tax and regulatory incentives might be used to encourage investment in UK assets by pension schemes and others. 

4.      A lesson from history

A final key point. Overall, it would be a mistake to think that ‘no change’ is likely with a change of Government. If Labour wins, it may be that we see evolution rather than revolution but change tends to create its own momentum with a shift in the political winds. The Financial Services and Markets Act 2000 illustrates this: it was intended as merely a consolidating piece of legislation, yet we know this is not how things played out. What started as technical tweaks to the existing regime turned into wholesale change.

When a new government comes to power, even with the presence of independent regulators, there is a natural temptation to search for new policy levers to enhance growth for the domestic economy and capital markets, and to avoid the scandals to which our industry has been prone. This temptation can sometimes be overwhelming. 

So, depending on the outcome, we may be looking at more change than meets the eye.

• Draft RTS on input and output of data of CTPs: the revised MiFIR mandates ESMA to develop draft RTS prescribing data quality requirements for prospective CTPs and data contributors, and covering specifically: (1) the minimum requirements for the quality of the transmission protocols utilised for the transmission of data to the CTP, (2) data quality measures and enforcement standards to be implemented by the CTP and (3) the quality and the substance of the data for the operation of the consolidated tapes. The draft RTS subject to consultation covers provisions applicable to the equity and bonds CTP; provisions relevant to the derivatives CTP will be delivered in a second stage in 2025. Accordingly, the draft RTS cover issues relating to:

• Quality of transmission protocols, including aspects relating to their performance, reliability, security and compatibility.
• Quality and substance of data, including the MiFIR requirement of transmission of data “as close to real time as technically possible”, standards and format of data to be transmitted to the CTP, input and output data for the bond CTP, substance of regulatory data, substance of core market data – post-trade.
• Data quality measures and enforcement standards, covering input and output data quality.

• Draft RTS on the revenue distribution scheme of CTPs: by way of background, the revenue distribution scheme of equity CTPs was one of the main issues considered in the course of MiFIR legislative review. Revised MiFIR sets out that part of the revenues generated by the CTP for shares and exchange traded funds must be redistributed to data contributors meeting one or more of the three criteria for the participation in the revenue distribution scheme for which ESMA has to specify the weighting and the methodology (these being small trading venues, young instruments and pre-trade transparent trading venue). ESMA also has to specify the criteria under which the CTP can suspend / resume the participation of a data contributor in the revenue redistribution scheme. In the draft RTS ESMA proposes the relevant weights to be applied to each criterion for the participation in revenue distribution scheme (from 4.5 to 1.5), and a methodology for converting the values into percentages. ESMA also proposes a methodology for calculating trading volumes. In respect of the frequency of the revenue distribution scheme, ESMA notes that this is beyond the scope of its mandate but highlights that this issue should be carefully considered by CTPs. Finally, ESMA also sets out a proposed procedure for the suspension and resumption of redistribution, including the relevant timeframes.  

• Draft RTS on the synchronisation of business clocks: the revised MiFIR mandates ESMA to specify the level of accuracy to which business clocks are to be synchronised. Accordingly, in the draft RTS ESMA considers the reference time, coordinated universal time (UTC), and traceability to UTC, the level of accuracy for operators of trading venues as well as for members, participants or users of a trading venue. Finally, ESMA also considers the application of clock synchronisation requirements to new entities, as the revised MiFIR extends this obligation to systematic internalisers (SIs), designated publishing entities (DPEs), approved publication arrangements (APAs) and CTPs. ESMA sets out the proposed accuracy levels per type of new in-scope entity.

• Draft RTS/ITS on the authorisation and requirements for DRSPs: the revised MiFIR mandates ESMA to specify information to be provided in an authorisation application by the Data Reporting Service Providers (DRSPs), these being APAs, approved reporting mechanism (ARMs) and CTPs. ESMA’s mandate reflects the amendments that were made to MiFIR which set out distinct frameworks for the operation of APAs/ARMs on one hand, and CTPs on the other. To this end, ESMA proposes to update Commission Delegated Regulation (EU) 2017/571 (RTS 13) and draft a new RTS on CTP authorisation, together with its related ITS.

• Criteria to assess CTP applicants: ESMA notes that the revised MiFIR requires that the CTP selection procedure must follow the financial rules as set out in Regulation (EU, Euratom) 2018/1046 (Financial Regulation). Accordingly, each selection procedure will be launched with the publication of a contract notice and procurement documents in an online platform, and the applicants’ offers will be assessed based on three types of criteria (exclusion / selection / award). As set out in the consultation document, ESMA is considering the choice of the competitive procedure with negotiations for the initial selection for each asset class. ESMA proposes to group the relevant assessment criteria into five thematic categories, and set out its expectations in respect of each of the individual criteria, which include:

• Resilience
• Cyber-risk and energy consumption
• Governance and organisational requirements
• Ability to process data and dissemination speed
• Data quality, modern interface and record keeping
• Costs, fees and revenue redistribution

Stakeholders have until 28 August to provide comments using the response form provided. EMA plans to submit the final draft RTS/ITS, covering the equities and bonds CTPs, to the European Commission by the end of December 2024.

Under the proposals, consumers would continue to be able to bring cases to the FOS free of charge, but cases brought by CMCs or professional representatives would qualify for the new fees. Businesses responding to a complaint currently pay £650 per case, irrespective of the outcome of the investigation. The changes seek to make the fee model fairer by recovering some of the FOS’s costs from CMCs and representatives as well as financial services firms.

As is the case for financial services firms, all professional representatives will be allowed three free cases a year, and beyond that they will be charged a £250 fee – reduced to £75 if the consumer’s complaint is upheld. Under the proposals the FOS will not benefit either way from decisions: if it does not uphold the complaint, the higher fee collected will be used to reduce the fee for the financial business against which the complaint was initially raised.

The consultation closes on 4 July 2024. The FOS confirms that all feedback and supporting evidence will be considered carefully before proposals are finalised in Autumn 2024.