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AI Public-Private Forum: BoE publishes minutes of second meeting
The Bank of England (BoE) has published minutes from the second meeting of the Artificial Intelligence Public-Private Forum (AIPPF), which was held on 26 February 2021. The AIPPF was launched by the BoE together with the Financial Conduct Authority (FCA) to help them better understand the impact of AI and machine learning on financial services.
Attendees of the meeting participated in a roundtable discussion in order to identify and discuss the key issues and challenges for each of four topic areas:
- data quality;
- data strategy and economics;
- data governance, ethics, and culture; and
- data standards and regulation.
LIBOR transition and UK BMR: FCA statement on future cessation and loss of representativeness of LIBOR benchmarks and statement of policy on designation of benchmarks under Article 23A
The FCA has published a statement announcing the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. This is an important step towards the end of LIBOR, and the BoE and FCA urge market participants to continue to take the necessary action to ensure they are ready.
All LIBOR settings will either cease to be provided by any administrator or will no longer be representative:
- immediately after 31 December 2021 for all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
- immediately after 30 June 2023 for the remaining USD settings.
Based on undertakings received from panel banks, the FCA does not expect that any LIBOR settings will become unrepresentative before the relevant dates. Publication of most of the LIBOR settings will cease immediately after these dates.
The FCA's announcement follows notification from the ICE Benchmark Administration Limited (IBA) of its intention, following consultation, to cease providing all LIBOR settings for all currencies.
The International Swaps and Derivatives Association (ISDA) has separately confirmed that, as a result of the FCA's announcement, the "spread adjustments" to be used in its IBOR fallbacks will be fixed from 5 March 2021, providing clarity on the future terms of the many derivative contracts that incorporate these fallbacks.
Regarding "tough legacy" contracts, the FCA states that it will consult in Q2 2021 on using proposed new powers that the government is legislating to grant under the UK Benchmarks Regulation (UK BMR) (through the Financial Services Bill 2019-21) to require continued publication on a "synthetic"’ basis for some sterling LIBOR settings and, for one additional year, some Japanese yen LIBOR settings. The FCA will also continue to consider the case for using these powers for some USD LIBOR settings. Any "synthetic" LIBOR will no longer be representative for the purposes of the UK BMR and is not for use in new contracts. It is intended for use in tough legacy contracts only. The FCA will also consult in Q2 2021 on which legacy contracts will be permitted to use any synthetic LIBOR rate.
The FCA has also published statements of policy on the designation of benchmarks under Article 23A of the UK BMR. These statements of policy confirm the FCA's policy approach, and explain its plans set out above and its intention to propose using, as a methodology for any "synthetic rate", a forward-looking term rate version of the relevant risk-free rate plus a fixed spread aligned with the spreads in ISDA’s IBOR fallbacks. The FCA has published a feedback statement summarising the changes it has made to the related proposals it initially consulted on.
The Working Group on Sterling Risk-Free Reference Rates has issued a statement welcoming the FCA, IBA and ISDA announcements.
UK BMR: FCA statement of policy on exercise of powers under Article 23D
Following its December 2020 consultation, the FCA has published a statement of policy setting out its approach to the exercise of its new powers under Article 23D of the UK BMR to impose certain requirements on the administrator of a critical benchmark designated under Article 23A. The FCA explains that it seeks in the statement of policy to identify all relevant factors to a proposed decision to use its Article 23D powers. However, it will need to take any decision in light of the relevant circumstances and market conditions at the time, so may consider that there is good reason to consider additional factors that are not listed in the statement of policy.
Currently, LIBOR is the only critical benchmark and so the only benchmark for which the Article 23D powers could presently be used. In that context the statement of policy has a focus on LIBOR. The FCA will revise the statement of policy in due course, if necessary, to ensure that should any other benchmarks become critical they are adequately addressed.
The FCA has published a feedback statement summarising the changes it has made to the statement of policy to reflect responses to its previous consultation.
In Q2 2021, the FCA will consult on whether and how to exercise its Article 23D powers in respect of certain LIBOR currency-tenor settings. If it decides to impose requirements under Article 23D(2) on a benchmark administrator of a critical benchmark designated under Article 23A, it will publish a notice in line with the requirements under Article 23D(7) of the UK BMR.
The FCA will also consult in Q2 2021 on its statement of policy for the powers under Article 21A and 23C of the UK BMR.
FCA quarterly consultation 31: CP21/5
The FCA has published its latest quarterly consultation paper, CP21/5. In the consultation paper, the FCA seeks feedback on proposals relating to:
- the Compensation sourcebook (COMP) concerning compensation made by the Financial Services Compensation Scheme (FSCS); and
- the Training and Competence sourcebook (TC) to amend TC to extend the scope of the notification requirements, update the appropriate qualifications table and to amend the relevant rules and guidance.
The deadlines for comments on these proposals are 2 April 2021 for the changes to TC, and 30 April 2021 for the changes to COMP.
Digital Regulatory Cooperation Forum 2021/22 workplan
The Digital Regulation Cooperation Forum (DRCF) has published its 2021-22 workplan, which outlines its priorities for the coming year, and marks a step-change in coordination of regulation across digital and online services.
The Competition and Markets Authority (CMA), the Information Commissioner’s Office (ICO) and the Office of Communications (Ofcom) formed the DRCF in July 2020. The DRCF was established to ensure a greater level of cooperation between these organisations, given the unique challenges posed by regulation of online platforms. The FCA has been an observer member of the DRCF since the outset and will also join as a full member from April 2021.
The CMA comments that online services are playing an ever-more central role in our lives, and the digital landscape is developing at pace. Therefore, the workplan for 2021/22 sets out a roadmap for how Ofcom, the CMA and the ICO will greatly increase the scope and scale of their cooperation. This will involve pooling expertise and resources, working more closely together on online regulatory matters of mutual importance, and reporting on results annually.
The workplan focuses on three priority areas:
- responding strategically to industry and technological developments;
- developing joined-up regulatory approaches; and
- building shared skills and capabilities.
The DRCF will update its workplan and report on progress in 12 months' time.
AML SARs: NCA updated guidance
The National Crime Agency (NCA) has published updated guidance to anti-money laundering (AML) supervisors, including those overseen by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), directed at improving the quality of suspicious activity reports (SARs). The guidance addresses the need for SARs to be clear and concise, and to contain the reason for the suspicion giving rise to it, as well as reminding submitters that all the SAR information fields need to be completed.
Financial sanctions: OFSI revises guidance on monetary penalties for breaches
The Office of Financial Sanctions Implementation (OFSI) has published a revised version of its guidance, Monetary penalties for breaches of financial sanctions, to include developments from the UK's exit from the EU and subsequent legislation.
The guidance describes OFSI's processes and considerations in relation to the issue of monetary penalties for breaches of financial sanctions, including:
- the case assessment process;
- penalty calculation process; and
- procedural rights.
Cyber-threat intelligence: FCO information sharing guide
The Foreign & Commonwealth Office (FCO) has published guidance on sharing cybercrime, cybersecurity and cyber threat intelligence information in the financial sector by providing an overview of core principles, objectives, benefits, and best practices. The paper's intended audience includes relevant leaders and practitioners in financial institutions, banking associations, national computer emergency response teams, government agencies, law enforcement, regulators, and other relevant private and public-sector organisations.
MiCA: ECON draft report
The European Parliament's Economic and Monetary Affairs Committee (ECON) has published a draft report setting out recommendations to the European Commission on the proposed Regulation on markets in cryptoassets and amending Directive (EU) 2019/1937 (MiCA).
The draft report, which was prepared by Rapporteur Stefan Berger, contains a draft European Parliament legislative resolution, the text of which sets out suggested amendments to the proposed Regulation. The report does not contain an explanatory statement on the Rapporteur's reasons for the amendments, although a justification is provided for each amendment.
IFR: EBA draft ITS on reporting and disclosure
Following an earlier consultation, the European Banking Authority (EBA) has published a final report on draft implementing technical standards (ITS) on reporting and disclosure requirements for investment firms under the EU Investment Firms Regulation (IFR). The annexes to the ITS are linked from the EBA's press release. Feedback to the consultation is included in the final report.
In the report, the EBA sets out the text of ITS specifying templates, reporting dates and definitions relating to the supervisory reporting and disclosure requirements for investment firms under IFR. The provisions on disclosures and reporting reflect mandates in Articles 49(2) and 54(3) respectively of the IFR.
The EBA will submit the draft ITS to the European Commission for endorsement. The EBA will also develop the data point model (DPM), XBRL taxonomy and validation rules based on the final draft ITS. The EBA intends for the provisions in the ITS on disclosure to apply from 26 June 2021 and for the provisions on supervisory reporting to apply from 30 September 2021. This means in practice that the first reference date for the application of the reporting ITS would be 31 December 2021 for small and non-interconnected investment firms and 30 September 2021 for all other firms.
DORA: ESAs letter
The European Supervisory Authorities (ESAs) have written to the chair of the European Parliament’s committee on economic and monetary affairs (ECON) Irene Tinagli, the President of the Council of the EU’s ECOFIN Council Joao Leão, and European Commissioner Mairead McGuinness regarding the proposal for a Digital Operational Resilience Act (DORA) for the financial sector.
The ESAs state that they are in firm agreement with the main principles of DORA. However, in the letter, the ESAs express their views on how to most efficiently take forward important aspects of the governance and operational processes of the oversight framework for critical third-party providers (CTPPs) and the application of the proportionality principle in DORA.
AML/CTF: FATF guidance on risk-based supervision
The Financial Action Task Force (FATF) has published guidance on applying a risk-based approach to AML/counter terrorist financing (CFT) supervision. In publishing this guidance, the FATF encourages countries to move beyond a tick-box approach in monitoring the private sector's efforts to curb money laundering and terrorist financing.
The FATF states that this guidance should be read alongside forthcoming guidance on proliferation financing which explains new requirements introduced in October 2020 for countries and regulated entities to assess proliferation financing risks and implement risk-based measures.
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Authored by Yvonne Clapham
