Greg Kilminster
Head of Product - Content
ESMA seeks feedback on penalty mechanisms under CSDR
The European Securities and Markets Authority (ESMA) has published a consultation Paper (CP) regarding penalty mechanisms under the Central Securities Depositories Regulation (CSDR). The CSDR aims to prevent and address failures in securities transaction settlements, known as settlement fails, through a set of measures called settlement discipline measures. These measures include reporting requirements, cash penalties for participants in the central securities depository (CSD) in case of settlement failure, and mandatory buy-ins when a CSD participant fails to deliver the security within a fixed extension period.
The CP aims to gather opinions, comments, and evidence from stakeholders and market participants on the effectiveness of the current penalty mechanism, especially regarding cash penalties. Specifically, ESMA seeks feedback on:
- Alternative parameters when the official interest rate for overnight credit charged by the central bank issuing the settlement currency is not available.
- The treatment of historical reference data for the calculation of late matching fail penalties.
- Alternative methods for calculating cash penalties, including progressive penalty rates.
The deadline for feedback is 29 February 2024. Technical advice on the three topics should be submitted by ESMA to the European Commission by 30 September 2024.
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Bank of Ireland UK reprimanded for infringing UK GDPR
The Bank of Ireland (UK) PLC (BOI) has been found to have infringed the UK General Data Protection Regulation (UK GDPR) by the UK Information Commissioner’s Office (ICO) due to inaccurate data being sent to credit reference agencies (CRA) which could have lead to unfair credit granting or refusal for data subjects.
During the investigation, the ICO found that BOI had failed to implement reasonable measures to ensure that accurate personal data was recorded with the CRA, missed opportunities to rectify the error, and lacked appropriate risk management measures and oversight of the process.
Taking into account the circumstances of the case, including mitigating factors and remedial steps, the ICO decided to issue a reprimand to BOI.
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Australian Government proposes regulatory reforms for financial market infrastructure
The Australian government has released a set of proposed financial market infrastructure (FMI) regulatory reforms for consultation. The package includes new powers for the Reserve Bank of Australia (RBA) to intervene and resolve any crisis that may arise at a domestic clearing and settlement facility, ensuring the continuity of critical clearing functions and safeguarding Australia’s financial stability. The RBA will also have the authority to assist a foreign regulator in resolving any issues that may arise at an overseas clearing and settlement facility licensed in Australia.
The proposed legislation will strengthen and streamline the Australian Securities and Investments Commission (ASIC) and the RBA’s regulatory powers over FMIs and reallocate powers between the minister and regulators to better align with their respective mandates. The draft legislation also enhances regulatory oversight over foreign entities operating FMIs with a significant Australian nexus.
The government has requested feedback and comments from stakeholders on the proposed legislation and accompanying explanatory materials by 9 February 2024.
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PS23/18: FCA releases final rules post IDD repeal
The Financial Conduct Authority (FCA) has released Policy Statement (PS) 23/18, which contains final regulations for insurance companies that transfer and replace retained EU law provisions from the Insurance Distribution Directive (IDD). Since the IDD is being revoked under the Treasury’s Smarter Regulatory Framework (SRF), the FCA had to decide whether to repeal or include the requirements in the Handbook. The PS follows consultation paper (CP)23/19, which was published in September 2023.
Fortunately, the changes are minimal and do not impose any new regulatory requirements on firms. The affected sourcebooks include the Handbook glossary, the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), the Conduct of Business sourcebook (COBS), the Insurance: Conduct of Business sourcebook (ICOBS), and the Product Intervention and Product Governance Sourcebook (PROD).
The changes are expected to take effect on 5 April 2024, aligning with the Treasury’s repeal timetable.
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ESMA clarifies disclosure requirements for all-in fees under MiFID II
The European Securities and Market Authority (ESMA) has recently updated the Q&A on MiFID II and MiFIR investor protection and intermediaries topics. This update relates to cost and charges disclosures, specifically the ‘all-in fee’. In particular:
- Where firms use an all-in fee, the all-in fee should be disclosed under the relevant cost item.
- The firm should indicate a ‘zero’ for all other cost items covered by the all-in fee (or not charged at all).
- For costs not covered by the all-in fee, the costs incurred shall be disclosed in the relevant category.
- In case of all-in fees, per Article 50(2) of the MiFID II Delegated Regulation, firms must disclose separately any third-party payments received in their aggregated disclosure of costs and charges.
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FCA Handbook Notice 114
The Financial Conduct Authority (FCA) has published its latest Handbook Notice No. 114 which summarises the latest and on-going changes being made to the regulator’s Handbook.
As a result of the consultation paper (CP) 22/20: Sustainability Labelling and Disclosure of Sustainability-Related Financial Information Instrument 2023, a number of changes are outlined which came into effect early in December 2023. The Notice also outlines changes coming into effect later in December 2023 or in 2024 as a result of other consultations including CP23/19 Insurance Distribution Directive Delegated Acts: Smarter Regulatory Framework Instrument 2023 and CP23/18 Insurance: Conduct of Business Sourcebook (Employers’ Liability Insurance Amendments) Instrument 2023.
The Notice also includes dates of all the planned FCA board meetings through 2024.
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Australian regulator brings further greenwashing charge
The Australian Securities & Investments Commission (ASIC) has launched proceedings for ‘greenwashing’ against Vanguard Investments.
The claims centre on Vanguard’s representation that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) were screened against specific Environmental, Social, and Governance (ESG) criteria.
The Fund, marketed to investors seeking ethically conscious investment options, purportedly based its investments on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard claimed that this index excluded issuers involved in various industries, including those related to fossil fuels.
However, ASIC contends that a significant proportion of issuers within the index and, consequently, the Fund, did not undergo proper ESG research.
ASIC has already brought greenwashing cases against Mercer Superannuation, and infringement notices to Future Super Investment Services Pty Ltd and has made it clear that greenwashing remains a significant priority for them.
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US crypto enforcement against KuCoin
New York Attorney General Letitia James has successfully obtained more than $22 million from KuCoin, a major cryptocurrency trading platform, for multiple regulatory breaches. The consent order resolves the legal action initiated by Attorney General James against KuCoin and confirms the reimbursement of more than $16.7 million to 150,000, with an additional $5.3 million payable to the state. KuCoin also has to cease operations in the state of New York.
The primary charges against KuCoin include the failure to register as a securities and commodities broker-dealer and the false representation of itself as a cryptocurrency exchange. As part of the settlement, KuCoin is now prohibited from trading securities and commodities in New York, and its platform is no longer accessible to residents of the state.
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ESMA clarifies impact of Brexit on UK benchmark administrators
The European Securities and Markets Authority (ESMA) has released a public statement regarding the impact of Brexit on the Benchmark Regulation (BMR), specifically concerning the ESMA register for benchmark administrators and third-country benchmarks.
Key takeaways:
- UK-based administrators previously included in the ESMA register have been removed as the BMR no longer applies to UK-based benchmark administrators.
- UK-based administrators have until the end of the BMR transitional period, which is 31 December 2025, to reapply for recognition or endorsement in the EU to be included in the ESMA register again.
- Supervised entities in the EU can still use third-country benchmarks if the benchmark is already used in the Union as a reference for financial instruments, financial contracts, or measuring the performance of an investment fund.
- EU-supervised entities can use third-country UK-based benchmarks until 31 December 2025, even if they are not included in the ESMA register.
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