Greg Kilminster
Head of Product - Content
FCA speech on sustainable finance
In a speech at the UK Sustainable Investment and Finance Association (UKSIF) Leadership Summit at IET London, FCA chief operating officer Emily Shepperd discussed the critical role of regulatory frameworks in advancing sustainable finance, encouraging both industry innovation and adherence to high standards. Shepperd likened the current regulatory landscape to the foundational infrastructure of London's Underground system in the 1920s and 1930s, which enabled urban expansion and growth. "Regulation must play a similar role to provide the underpinning, or regulatory infrastructure, that will support the growth of the economy," she said, framing the FCA’s approach as integral to driving forward both national and global sustainability ambitions.
Scaling sustainable finance through measured regulation
Shepperd outlined the scale of investment required to achieve the UK’s net-zero target, citing an estimated £60 billion in annual funding needed by 2030, with global requirements surpassing US$4.5 trillion. While acknowledging that financial services alone cannot bridge this funding gap, she noted the UK’s significant position in green finance, with asset managers overseeing £11 trillion and London ranking as the world’s top green financial centre.
Addressing the FCA’s role, Shepperd highlighted recent regulatory measures aimed at fostering sustainable finance, including the introduction of the Sustainability Disclosure Requirements (SDR), an investment labelling regime, and anti-greenwashing guidance. These initiatives, she explained, are designed to strike a balance between setting rigorous standards and allowing for market flexibility, to avoid "cumbersome regulatory divergence" while also supporting the transition to net zero.
Shepperd noted that the SDR regime includes the "Improvers" label, aimed at funds investing in assets transitioning toward net-zero goals. This label reflects the FCA’s recognition that sustainable investment includes not only green assets but also those committed to improvement. Furthermore, the FCA’s anti-greenwashing guidance offers examples of both poor and best practices, providing firms with a clear framework for alignment with regulatory expectations.
Global alignment and the role of international standards
Shepperd emphasised the FCA’s commitment to global standards, pointing to its collaboration with the International Sustainability Standards Board (ISSB) and the International Organization of Securities Commissions (IOSCO). The FCA supports the adoption of ISSB standards, which are expected to provide an internationally recognised framework for sustainability reporting. Additionally, Shepperd noted the inclusion of biodiversity-related financial disclosure, known as BEES (Biodiversity, Ecosystems, and Ecosystem Services), in the ISSB’s upcoming two-year work plan, following FCA recommendations.
The regulatory direction is intended to build "industry trust, reduce greenwashing, promote competition, and strengthen wider market integrity," Shepperd stated. By harmonising standards internationally, the FCA aims to create a regulatory environment that promotes the scalability and integrity of sustainable finance.
Balancing risk and competitiveness
In discussing the FCA’s approach to managing risk and fostering market competitiveness, Shepperd pointed to recent reforms to the UK’s public markets. Changes include modifications to listing rules and proposals for a public offer and admissions regime that would replace the existing prospectus structure. This aligns with the FCA's new secondary objective of advancing international competitiveness and growth, which Shepperd described as "useful framing" to balance regulatory standards with the need to maintain the UK’s market appeal.
The regulator’s flexibility also extends to the Consumer Duty, introduced in 2022, which emphasises outcomes-focused regulation rather than granular rules. Shepperd mentioned that the FCA is reviewing industry feedback to address areas of "duplication, confusion, or over-prescription," with the goal of reducing unnecessary costs for firms while supporting market growth.
Cultivating talent and regional diversity
Recognising that talent underpins the financial services sector’s growth, Shepperd stressed the importance of building an attractive corporate culture that draws on the best talent both within and outside London. Employment in the UK financial sector rose by 12.5% from 2010 to 2020, with approximately two-thirds of roles located outside London. The FCA has expanded its own regional footprint, establishing a presence in Leeds and Edinburgh, which helps to tap into the talent pool across the UK and better reflect the demographic of the firms it regulates.
Shepperd also highlighted the FCA’s commitment to fostering an inclusive culture that values diversity of thought, and she pointed to the Financial Services Skills Commission’s Future Skills Framework as a model for prioritising behaviours like empathy to better serve consumer needs.
Supporting growth through innovation
In her closing remarks, Shepperd highlighted the FCA’s dedication to innovation, noting the recent establishment of an AI Lab to aid firms in developing artificial intelligence solutions safely and responsibly. This follows ten years of the FCA’s Innovation Services, which has supported nearly 1,000 firms through initiatives like regulatory sandboxes. She also mentioned the Early and High Growth Oversight function, which helps guide young firms toward best practices from the outset, reducing the risk of regulatory challenges as they scale.
Reflecting on the future, Shepperd framed the FCA’s role as creating the "infrastructure built" for financial services to be "a growth-powering force which also sees us achieve net zero." She concluded by referencing Michael Faraday’s scientific legacy, urging her audience to recognise the UK's role in both financial and scientific progress, with sustainable finance seen as a key component of this legacy.
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ASIC unveils draft guidance on mandatory sustainability reporting for Australian businesses
In a move towards transparency in environmental accountability, the Australian Securities and Investments Commission (ASIC) has issued a consultation paper (CP380) outlining a draft regulatory guide - Regulatory Guide 000 Sustainability reporting (Draft RG 000) - for those entities required to prepare sustainability reports. The consultation offers detailed guidance on the mandatory climate-related financial disclosures that many large Australian businesses and financial institutions will need to produce from 1 January 2025.
Some context
The new sustainability reporting obligations are part of Australia’s Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024, which mandates climate-related financial disclosures across certain business groups. The law amends the Corporations Act 2001 and ASIC Act 2001 to ensure large entities disclose their sustainability practices, with phased implementation deadlines between 2025 and 2027.
Key takeaways
- Regulatory Guide 000 (Draft RG 000), clarifies which organisations are subject to these new requirements and provides insights into ASIC's plans for administration and oversight. The guidance includes ASIC’s approach to granting compliance relief where necessary and details its powers to issue directions for non-compliance.
- Consultation Paper 380 seeks industry feedback on how this framework might align with existing financial reporting relief mechanisms and whether additional support measures are needed for organisations adjusting to the regime.
- Commissioner Kate O’Rourke stated that ASIC’s aim is to “assist preparers of sustainability reports to comply with their obligations so that users are provided with high-quality, decision-useful, climate-related financial disclosures that comply with the law and the sustainability standards.”
- ASIC acknowledges that companies will face a learning curve during the transition. O’Rourke emphasised that, during the initial phases, ASIC will adopt a "proportionate and pragmatic approach to supervision and enforcement," reflecting modified liability provisions and phased requirements for compliance.
Next steps
ASIC has called on all entities affected by the reporting requirements to begin preparations for compliance. The feedback period for stakeholders ends on 19 December 2024, and ASIC aims to finalise the guidelines thereafter to ensure a smooth rollout starting in 2025. Interested parties can access detailed information on sustainability reporting on ASIC’s website.
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Central Bank of Ireland’s speech on DORA implementation
In a speech at the Central Bank of Ireland’s DORA Industry Briefing, Gerry Cross, Director of Financial Regulation, Policy and Risk, highlighted key priorities and principles guiding the implementation of the Digital Operational Resilience Act (DORA) in the EU financial sector. DORA is set to take effect on 17 January 2025, and Cross emphasised that the regulation will establish a unified, cross-sectoral framework, affecting financial firms across sizes and complexities.
Momentum and pragmatism key to effective implementation
Cross noted the urgency and complexity involved in developing the technical standards for DORA. While the initial DORA framework was adopted in November 2022, more than 40 regulatory authorities and other stakeholders have since collaborated intensively, aiming for a robust framework that will enhance operational resilience across the sector. “We have sought, despite the complexity and challenge of the work, to do it with strong momentum,” Cross stated, emphasising the need for financial institutions and regulators to be well-prepared for the January implementation.
Acknowledging the intricate requirements, Cross highlighted a pragmatic approach, designed to avoid overwhelming firms with unnecessary technical detail. “There is enormous potential to get deeply ensnared in technical detail beyond the capacity of the system to manage given the tight timelines,” he explained. A focus on pragmatism, he suggested, has helped maintain progress and balance the challenges inherent to the regulation.
Quality and proportionality at the heart of DORA
Quality has been central to the regulatory drafting process, with Cross pointing out that the standards aim to deliver a high-quality framework for resilience and risk management. He said, “momentum and pragmatism will not come at the expense of quality,” adding that the framework is based on “well-negotiated Level 1 text which will strongly deliver enhanced resilience.”
To account for the diverse range of entities affected by DORA, proportionality has been a guiding principle. Cross explained that: The DORA framework has to be fit for application to firms of all types, sizes, shapes, and levels of complexity.”
Engagement and collaboration as a foundation
Engagement with stakeholders has been another cornerstone of DORA’s regulatory development, Cross noted, as it remains critical to the successful implementation of the framework. “High quality and effective engagement has been key for the successful development of an ecosystem resilience framework,” he stated. The Central Bank, along with other EU regulators, has conducted extensive outreach to ensure alignment with stakeholders and to facilitate a smooth transition into compliance.
Challenges and ambitions of DORA’s implementation
Cross outlined the substantial ambitions behind DORA, describing it as a “smart ecosystem regulation” that extends beyond a single sector, covering critical third-party providers and encouraging fast information flows. The framework aims to ensure that all regulated firms, from small banks to large investment firms, follow a consistent set of resilience standards.
The forthcoming implementation is likely to be challenging for both financial institutions and regulators, especially given DORA’s extensive requirements in areas such as ICT risk management and incident reporting. Cross announced that the Central Bank would offer additional guidance, including dedicated workshops for entities subject to DORA’s advanced threat-led penetration testing.
Implementation expectations and regulatory oversight
Discussing the implementation expectations, Cross emphasised that DORA is designed to be a legally binding framework, requiring firms to close any gaps in compliance. He advocated for a “high quality implementation” approach, which balances compliance with an understanding that quality adherence may evolve over time. “While legal requirements remain legal requirements, there is merit in seeing the value in a committed journey by firms and supervisors from initial implementation and compliance to a richer, more fully achieved implementation over time,” he explained.
Cross added that the Central Bank will work to ensure “timely closing of any gaps,” with a focus on incident identification and reporting. He also pointed to the broader goal of aligning supervisory practices across the EU, helping to promote a consistent approach to digital operational resilience.
Oversight of third-party ICT providers
Cross highlighted a key element of DORA: its oversight regime for critical third-party ICT service providers, such as cloud service providers. For the first time, financial regulators, led by the European Supervisory Authorities, will have oversight capabilities for these providers, which play a growing role in the financial system. “This is both ground-breaking and sophisticated,” Cross remarked, adding that while these providers will not become regulated firms themselves, regulators will have the right of inspection and oversight over them.
The initial designation of critical third-party providers will be urgent, he noted, and financial firms will be required to provide information for these assessments early in the new year.
Looking ahead: an integrated supervisory approach
The Central Bank of Ireland is preparing for the new regulatory environment by enhancing its supervisory approach, aiming for a more integrated framework that will unify oversight across banking, insurance, and capital markets. Cross explained that the Central Bank will adopt a risk-based, cross-sectoral supervisory approach to operational resilience. He stated that from January 2025, the Central Bank’s ICT supervision will align with DORA’s standards, further emphasising the importance of operational resilience.
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FCA introduces streamlined transparency regime for UK bond and derivative markets
In a move towards improving transparency in bond and derivative markets, the Financial Conduct Authority (FCA) has released a revised policy statement outlining a new post-trade transparency regime. The updated framework aims to balance the need for market transparency with the protection of liquidity providers, with a strong emphasis on simplifying processes and reducing compliance costs for industry participants.
Some context
The revised transparency regime, which takes effect from 1 December 2025, is part of the UK’s broader Wholesale Markets Review. It follows the FCA’s Consultation Paper (CP) 23/32, published in December 2023, which proposed recalibrating existing requirements. This came in response to industry concerns that the former regime imposed high costs without delivering significant benefits to price formation. The new rules specifically apply to bonds traded on trading venues and to certain derivatives subject to clearing obligations, while excluding non-specified instruments traded over the counter (OTC) from mandatory public reporting.
Key takeaways
The updated transparency framework introduces several key adjustments:
- Deferrals for bonds and swaps: The regime includes three deferral periods for bonds, offering flexibility to liquidity providers. Additional deferrals are available for swaps with non-standard tenors, while thresholds have been lowered for SONIA (Sterling Overnight Index Average) swaps.
- Liquidity classifications: The requirement to perform detailed liquidity calculations has been removed, replaced with reliable proxies that simplify determining whether an instrument is classified as liquid.
- Post-trade report content: Firms are now required to report the Unique Product Identifier (UPI) for OTC derivatives and the International Securities Identification Number (ISIN) for other instruments, reducing redundancy in post-trade reporting.
- Systematic internaliser (SI) definition: The SI designation has shifted to a qualitative definition. While existing SIs will retain their status, the FCA has solicited industry input on how this framework can better support market integrity and competition.
- The revised approach also discontinues the use of the Financial Instruments Transparency System (FITRS), allowing more adaptable transparency standards, particularly for exchange-traded derivatives. The FCA’s framework outlines specific guidance for trading venues to set appropriate standards and ensure a balanced approach to transparency for liquidity providers.
Next steps
The FCA has set out a transition period ahead of the new rules taking effect in December 2025. Trading venues and investment firms are encouraged to familiarise themselves with the revised framework, with key changes like deferred pre-trade transparency requirements coming into force from 31 March 2025. Additionally, the FCA will conduct further discussions on the future of the SI regime, inviting responses by 10 January 2025.
Following this period, the FCA will monitor the implementation of the new rules and ensure that UK bond and derivative markets remain competitive, transparent, and liquid. The regulator also plans to launch a consultation on the SI regime in Q2 2025, aligning the final updates with the broader changes to the transparency regime by 1 December 2025.
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ECB speech celebrates ten years of the Single Supervisory Mechanism
In a speech at the tenth anniversary celebration of the Single Supervisory Mechanism (SSM), Claudia Buch, Chair of the ECB’s Supervisory Board, praised the achievements of European banking supervision while stressing the need for continued integration to face future challenges.
The SSM was established in 2014, following the global financial crisis and European sovereign debt crisis, to unify European banking oversight, and it remains one of the European Union’s most significant projects in financial stability. “Today, we all have good reasons to celebrate the tenth anniversary of the Single Supervisory Mechanism,” Buch stated. “European banking supervision has a clear mandate – to keep European banks safe and sound,” she added, noting that this institution-building has not only fostered financial resilience but serves as a broader lesson in European integration.
A response to crises and vision for Europe
Buch began by reflecting on the role of crises in shaping European policy, recalling how, since the early stages of the European project, financial stability efforts have been advanced during periods of upheaval.
Buch noted that financial integration has been a slow process that accelerated with crises exposing weaknesses in the system. Early events such as the 1974 collapse of Germany’s Herstatt Bank catalysed the creation of the Basel Committee on Banking Supervision. Decades later, the financial and sovereign debt crises revealed the need for a cohesive European supervisory body, and the SSM was established under the ECB. “The banking union started with a vision,” Buch remarked, with goals of supervising banks from a European perspective, managing failing banks, and protecting taxpayer money across the EU.
The successes of the Single Supervisory Mechanism
Buch noted that over its first decade, the SSM met its objectives, strengthening the resilience of the European banking sector. “Ten years on, the vision has become reality,” she stated. By adopting harmonised standards across the euro area, the SSM has improved the soundness of banks and significantly reduced non-performing loans (NPLs), with Buch highlighting a decline from 7% to 2% in NPLs across eurozone banks. Through measures like stress testing, internal model reviews, and preparations necessitated by Brexit, Buch asserted that European banking supervision has become “an internationally recognised supervisor.”
The SSM’s ability to operate across borders has brought consistency to bank supervision, enhanced transparency, and promoted collaboration among member states. Buch acknowledged the work of the ECB and national supervisors, who together oversee 113 significant banks, accounting for more than 200% of Europe’s GDP and employing over two million people. “Every day, 1,600 colleagues from ECB Banking Supervision and approximately 5,200 supervisors from across Europe work to ensure the banking system remains stable and resilient,” she noted.
Buch also praised the harmonisation of standards across the EU, describing it as a “unique model” that allows European banks to be supervised on the same footing, ensuring “our supervisory practices are consistent and sound.” By benchmarking banks across member countries, the ECB can spot trends, flag risks, and share best practices across borders.
Lessons and priorities for the future
Although the SSM has reduced risks and improved consistency, Buch cautioned against complacency, noting that the banking union remains incomplete without a common deposit insurance scheme. Such an insurance scheme would, she argued, strengthen public trust in European banks by providing equal protection for depositors across all EU member states. “European citizens need to have full confidence that their deposits will be protected in times of crisis, irrespective of the Member State they live in,” she stated.
Looking to the future, Buch highlighted key priorities for European banking regulators. Climate risks, demographic changes, and technological advancements, particularly the rise of non-bank financial intermediaries and tech firms offering financial services, have changed the environment in which banks operate. As Buch put it, these structural shifts require banks to “find strategic responses” and build “sustainable business models to maintain resilience and invest in their future.”
The changing landscape has required the ECB to adapt supervisory approaches. In 2023, the ECB implemented a Supervisory Review and Evaluation Process reform, with Buch emphasising the need for banks to prepare for geopolitical disruptions, cyber threats, and potential shifts in economic conditions. The SSM also conducted a cyber resilience stress test recently, underscoring the ECB’s proactive stance on new and evolving risks.
Urgency for a completed banking union and European deposit insurance
Despite the accomplishments, Buch warned that the EU’s banking union lacks critical elements needed to manage future crises effectively. She stressed that the completion of the banking union must remain a priority to enable the system to absorb potential shocks. “Progress towards greater European financial integration cannot wait until the next crisis strikes,” Buch said. She argued that political efforts should focus on addressing productivity gaps and supporting the transition to a green and digital economy, adding that the next crisis may not allow fiscal and monetary policies the same room to manoeuvre as in the past.
One of Buch’s main calls was for a unified European deposit insurance scheme (EDIS), which would close the existing gap in the banking union framework. She noted that the necessary prerequisites for EDIS have largely been achieved, given the significant decrease in risks and the adoption of common supervisory standards across Europe. “These preconditions for EDIS are now met,” Buch said, insisting that EDIS would help decouple banks from sovereign risks, reinforcing financial stability.
Risks of regulatory rollback and the “prevention paradox”
Buch also cautioned against relaxing regulatory standards under the assumption that easing rules could foster growth. “Relaxing regulation and supervision with the misguided hope of promoting growth or competitiveness might be a temptation,” she said, but warned that such moves could have “severe unintended consequences.” Loosening standards, she argued, would likely undermine financial stability without driving economic growth. Instead, Buch pointed to evidence that “better capitalisation of banks has positive implications for lending to the real economy,” particularly in stressful economic times.
She also noted a “prevention paradox” created by the absence of major financial crises in Europe over the past decade, largely due to proactive supervision and regulation. Buch urged policymakers to remember the public costs associated with financial instability, arguing that the preventive measures currently in place must be maintained and strengthened.
Strengthening Europe’s financial stability and integration
In her speech, Buch outlined broader goals for European financial policy, emphasising the need to bolster the banking union with further integration of capital markets and resilience-building reforms. She stressed that policy should not “wait for the next crisis” to act, urging a forward-looking approach to financial integration. Strengthening regulatory cooperation and aligning legal frameworks, such as insolvency laws, could help create a more unified market, ultimately benefiting both banks and citizens.
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Swedish banks encouraged to strengthen sanctions screening systems
A new report from Sweden's Financial Supervisory Authority (FI) has found that that although banks generally comply with sanctions rules, there remains considerable room for improvement in detection accuracy.
Some context
The FI analysis reviewed how accurately banks’ automated systems identify sanctioned individuals, entities, and related transactions. Findings revealed that none of the banks’ systems achieved complete accuracy, underscoring the need for enhancement, particularly given the critical role sanctions screening plays in preventing financial crime.
Key takeaways
The FI report highlighted several insights into the state of sanctions screening in Swedish banks:
- Room for improvement: FI called on banks to enhance their detection capabilities to ensure compliance with sanctions regulations, especially in scenarios of heightened risk. Erik Blommé, head of FI's Money Laundering Supervision Department, stated, “We expect all banks to detect and prevent activities linked to sanctioned parties.”
- Size matters: Larger banks demonstrated higher screening accuracy than smaller ones, suggesting that smaller and medium-sized banks may face greater challenges and risk concentrations in sanctions compliance.
- Variation in screening effectiveness: Banks generally performed better in transaction screening compared to customer data screening, indicating a possible gap in customer onboarding processes.
Next steps
While FI’s analysis did not involve actual transactions, it underscores a regulatory priority for ongoing monitoring and potential further investigations into banks’ sanctions screening practices. FI may undertake follow-up reviews to ensure banks enhance their compliance with international sanctions standards, particularly as risks intensify globally.
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