Greg Kilminster
Head of Product - Content
CP24/17: FCA proposes changes to the NSM
The Financial Conduct Authority (FCA) has issued consultation paper (CP) 24/17, proposing changes to the submission requirements for regulated information to the National Storage Mechanism (NSM).
Some context
The NSM stores regulated information shared by or about regulated market issuers in line with the Listing Rules, the Disclosure Requirements and Transparency Rules (DTRs), and Articles 17 to 19 of the Market Abuse Regulation (MAR).
Most NSM data is sourced from Primary Information Providers (PIPs), which represent regulated market issuers and other entities subject to the filing requirements. PIPs are FCA-approved and regulated entities responsible for disseminating regulatory announcements to media operators and filing them for permanent storage in the NSM.
Key takeaways
The FCA proposals under consultation include:
- Expanding requirements for the filing of legal entity identifiers (LEIs).
- Updating some headline information used for categorising regulated information.
- Introducing a requirement for all PIPs to use a standardised schema and Application Programming Interface (API) for submitting information to the NSM.
This consultation is part of broader efforts to enhance the NSM’s functionality, aligning with other primary market changes, such as the recent overhaul of Listing Rules and the proposed Public Offers and Admissions to Trading Regulations regime (CP24/12 and CP24/13).
Next steps
The deadline for feedback is 27 September 2024. The FCA expects to publish the final rules by the end of 2024, with the rules coming into force in the second half of 2025.
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FRC makes minor amendments to FRS 101 Reduced Disclosure Framework
The Financial Reporting Council (FRC) has made minor amendments to the FRS 101 Reduced Disclosure Framework following the 2023/24 annual review cycle.
Some context
The FRS 101 Reduced Disclosure Framework is an optional standard designed to facilitate cost-effective financial reporting within groups, especially those applying IFRS Accounting Standards in their consolidated financial statements.
Therefore, it is only used by qualifying entities that view it as a cost-effective option for preparing their individual financial statements. On 5 December 2023, the FRC issued Financial Reporting Exposure Draft (FRED) 85, presenting draft amendments to the FRS 101 Reduced Disclosure Framework for the 2023/24 cycle. The comment period closed on 4 March 2024.
Key takeaways
Key changes include:
- Amendments to provide a disclosure exemption from presenting certain comparative information about right-of-use assets and to accommodate a conditional exemption for qualifying entities in respect of certain disclosures about supplier finance arrangements required by IAS 7 Statement of Cash Flows.
- Amendments to Appendix II Note on Legal Requirements for consistency with IAS 1.
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EBA amends ITS for the 2025 benchmarking exercise
The European Banking Authority (EBA) has published its final draft Implementing Technical Standards (ITS), which amend the Implementing Regulation on the benchmarking of credit risk, market risk, and IFRS9 models for the 2025 exercise.
Some context
In January 2024, the EBA released a consultation paper proposing amendments to the Implementing Regulation for the 2025 exercise. These updates include new templates and instructions for market risk benchmarking collection, as well as minor changes to credit risk benchmarking. Specifically:
- For market risk benchmarking, the EBA proposed to introduce new templates and instructions for the collection of IMA FRTB risk measures. The EBA also suggested reshaping the market portfolio and expanding the validation portfolios for the Alternative Standardised Approach.
- The proposed changes to credit risk benchmarking were minor. They focus on clarifying the mandatory nature of reporting specific risk parameters and the use of internal model IDs with competent authorities.
Key takeaways
For the 2025 benchmarking exercise, changes to the final ITS are:
- Removal of templates and instructions for the new Alternative Internal Model Approach (AIMA) framework for market risk, reverting to previous templates due to a one-year implementation postponement announced by the European Commission.
- An extension of the existing set of instruments and portfolios to benchmark banks’ implementations of the regulatory SBM aggregation logic.
- Postponement of the 2025 exercise timeline by a few months to give banks more preparation time.
- For credit risk, minor changes to specific columns of the templates C.102, C.103, and C.105 instructions.
The Annexes presented in the draft ITS replace or add to the existing set of templates to create a consolidated version of the updated draft ITS package.
Next steps
These draft ITS will be submitted to the Commission for endorsement before being published in the Official Journal of the European Union. The technical standards will apply 20 days after publication.
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FINRA updates FINRA Rule 4210 interpretations
The Financial Industry Regulatory Authority (FINRA) has released updated interpretations of FINRA Rule 4210 (Margin Requirements), along with a guide detailing the changes. The prior set of interpretations, dated 27 October 2021, will be retired and archived on the FINRA website for future reference.
Some context
FINRA Rule 4210 (Margin Requirements) describes the margin requirements that determine the amount of collateral customers are expected to maintain in their margin accounts, including strategy-based and portfolio margin accounts. The interpretations of Rule 4210 contain both the interpretation of the rule and the actual rule text.
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Australian government responds to continuous disclosure scheme review
The Australian Government has issued its formal response to Dr Kevin Lewis' independent review of the 2021 Amendments to Australia's continuous disclosure laws. The Government has broadly endorsed the recommendations made by Dr Lewis, setting the stage for potential legislative changes aimed at bolstering market integrity and ensuring effective enforcement of disclosure obligations.
Some context
Australia's continuous disclosure regime, enshrined in Chapter 6CA of the Corporations Act 2001, is designed to maintain market transparency by mandating the timely release of price-sensitive information. These laws are critical for investor confidence and market integrity, ensuring that investors have access to the information needed to make informed decisions.
In 2021, amid the economic uncertainty of the COVID-19 pandemic, the Treasury Laws Amendment (2021 Measures No.1) Act introduced significant changes to the continuous disclosure regime. These amendments added a 'fault element', requiring proof that a company or its officers acted with knowledge, recklessness, or negligence when breaching disclosure obligations, ostensibly to reduce the incidence of opportunistic class actions.
The amendments were subjected to a mandatory review, led by Dr Kevin Lewis, to assess their impact. The review considered the effect of these changes on the enforcement of disclosure obligations, the nature of market disclosures, and the broader implications for Australia’s capital markets.
Key takeaways
Dr Lewis’ review concluded that the two-year period since the amendments were enacted was insufficient to derive definitive evidence-based conclusions on many of the key issues. However, the review did yield some significant insights:
Impact on ASIC's enforcement capability: The review found that the fault requirement has hindered the Australian Securities and Investments Commission (ASIC) in enforcing continuous disclosure obligations. This has potentially undermined the regulator's ability to promote transparent market behaviour. Consequently, the Government has accepted Dr Lewis' recommendation to repeal the 2021 Amendments insofar as they apply to enforcement actions by ASIC. This change aims to enhance the regulator's effectiveness in maintaining market integrity.
Impact on private litigation: The review observed that the amendments have had little effect on reducing the number or nature of continuous disclosure class actions brought by private litigants. Meritorious claims have continued to proceed, suggesting that the fault element has not provided the intended shield against opportunistic litigation. Despite this, the Government has decided to retain the fault requirement for private litigants for now, with a view to reconsider this position if evidence emerges that it is adversely affecting disclosure practices.
Consideration of climate-related financial disclosures: The Government agreed with the recommendation to consider the implications of the fault element in the context of its forthcoming climate-related financial disclosure legislation. This ensures that any adjustments to the continuous disclosure regime align with broader regulatory developments.
The review also made several other recommendations related to the attribution of fault to disclosing entities and potential amendments to Sections 674 and 675 of the Corporations Act. The Government has noted these recommendations and may revisit them in the context of future reforms.
Next steps
With the Government’s response now public, the 2021 Amendments to Australia’s continuous disclosure laws remain in force, albeit with significant revisions likely on the horizon. The Government's acceptance of the review's key recommendations signals a commitment to enhancing ASIC's enforcement powers while maintaining a cautious approach towards private litigation. Market participants should prepare for potential legislative changes, particularly regarding the removal of the fault element for ASIC enforcement actions, which could restore a stricter standard of compliance.
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