Global Financial Regulatory Blog

White House Recommends Stricter Regulations for Large Regional Banks

Posted in Banking

President Biden is calling for tougher standards and supervision for large regional banks in the wake of recent instability in the US banking sector.

By Arthur S. Long, Pia Naib, and Deric Behar

On March 30, 2023, the White House issued a Fact Sheet calling on the federal banking agencies, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), in consultation with the Treasury Department, to safeguard the banking system by imposing stricter rules on certain financial institutions — mostly large regional banks with US$ 100-250 billion in assets.

Notably, the White House recommended that regulators reverse some of the deregulatory measures that the Trump Administration had enacted in 2018. The Fact Sheet argues that this weakening of safeguards and supervisory requirements under the Dodd-Frank Act led directly to recent banking industry failures and the resulting threat of contagion.

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UK Government Consults on Regulation of ESG Ratings Providers

Posted in Benchmark Regulations, Environmental, Social and Governance (ESG)

The consultation considers what a potential regulatory regime would look like, and its proposed scope.

By Nicola Higgs, Paul A. Davies, Becky Critchley, Anne Mainwaring, Ella McGinn, and Charlotte Collins

On 30 March 2023, HM Treasury published a consultation on regulating ESG ratings providers, which ties in with and was published alongside the UK government’s latest Green Finance Strategy paper.

The government announced as part of the Edinburgh Reforms last year that HM Treasury would consult on a potential regulatory regime for ESG ratings providers. Now HM Treasury is seeking views on whether such a regime should be introduced, and what its potential scope should be. The government is not proposing to regulate ESG data providers for the time being. The consultation is open until 30 June 2023; no further timetable has been set at this stage but it could take a couple of years for any new regime to be finalised and take effect.

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UK Government and Regulators Launch SMCR Review

Posted in Regulatory Reform

The tone of the papers suggests that a fundamental reform of the Regime will be unlikely.

By Rob Moulton, David Berman, Jonathan Ritson-Candler, and Charlotte Collins

On 30 March 2023, the PRA and the FCA published a joint Discussion Paper (FCA DP23/3 and PRA DP1/23) seeking feedback on the Senior Managers and Certification Regime (SMCR). In parallel, HM Treasury published a Call for Evidence on the Regime. The Discussion Paper focuses on the operational aspects of the SMCR, whereas the Call for Evidence looks at the legislative aspects. Together, the papers seek comments on the SMCR’s performance, effectiveness, scope, and proportionality. The closing date for responses is 1 June 2023.

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FCA to Unveil Blueprint for Reforms to the Listing Regime

Posted in Capital Markets

FCA chief executive’s speech indicates an exciting transition to a lighter regime and a true single listing segment.

By James Inness, Anna Ngo, and Johannes Poon

On 29 March 2023, FCA Chief Executive Nikhil Rathi delivered a speech at the Global Investment Management Summit on the topic “Reforming our capital markets ecosystem”.

He announced that the FCA will soon publish a blueprint for further reform of the UK listing regime in which the current standard and premium listing segments for shares in commercial companies would be replaced with a single listing category with a single set of requirements.

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FCA Seeks Improvements to ESG Benchmarks

Posted in Environmental, Social and Governance (ESG)

The regulator is concerned that ESG-related disclosures are not meeting expectations.

By Nicola Higgs, Becky Critchley, Anne Mainwaring, Ella McGinn, and Charlotte Collins

The FCA has published a Dear CEO letter sent to benchmark administrators on 20 March 2023, expressing concerns about the quality of their ESG-related disclosures. The FCA’s concerns are based upon a preliminary review of ESG benchmarks, which assessed the disclosures made by a sample of UK benchmark administrators. The review found the quality of ESG-related disclosures to be poor, and the letter sets out the FCA’s specific findings in this regard. The FCA states that it is acutely aware that poor practices in this area could lead to claims of greenwashing and dilute trust and confidence in ESG labelling. Therefore, the FCA is not only concerned about technical compliance with disclosure requirements, but also about ensuring the integrity of ESG-related products.

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Consumer Duty Update: FCA Issues Dear CEO/Director Letters Setting Priorities for Sectors

Posted in Regulatory Reform

The letters ask senior management to prioritise implementing the Duty.

By David BermanNicola HiggsRob MoultonBecky CritchleyElla McGinnJaime O’Connell, and Dianne Bell

On 3 February 2023, the FCA published Dear CEO/Director letters underscoring the immediate (i.e., during the implementation period up until 31 July 2023) and longer-term expectations, priorities, and demands under the Consumer Duty. For further information, see Latham’s recent blog on the FCA’s multi-firm review summarising areas of improvement for firms’ implementation plans.

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FCA Publishes “Areas for Improvement” for Firms on Consumer Duty Implementation

Posted in Regulatory Reform

The FCA has reviewed firms’ progress to embed the Duty into their businesses, providing good and poor practice examples for firms to improve and direct their implementation work.

By Nicola HiggsBecky CritchleyJaime O’Connell, and Dianne Bell

The Consumer Duty (Duty) rules (as set out under the FCA’s Policy Paper (PS22/9) and guidance document FG22/5) come into force at the end of July 2023. On 25 January 2023, the FCA published feedback on firms’ current implementation progress via its Multi-firm review: Consumer Duty Implementation Plans. While the FCA notes a number of positives, the overall impression is that firms need to do more and do it quickly.

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Federal Reserve Establishes Bank Term Funding Program to Stabilize Financial System

Posted in Banking

The decisive action will mitigate emerging liquidity and solvency risks, contain pressure on the banking system, and protect depositors.

By Arthur S. Long, Pia Naib, and Deric Behar

On March 12, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) took a unanimous emergency step to protect the safety and soundness of the financial system from contagion risk following the second largest bank insolvency in US history. The move aims to “reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.”

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European Parliament Publishes Proposed Changes to AIFMD and UCITS Directives

Posted in Environmental, Social and Governance (ESG), Markets and Investments

The “AIFMD II” proposals continue their progress through the EU legislative process with more detail provided, but in many areas specific criteria will not be known until Level 2 measures are developed.

By Nicola Higgs, Jaime O’Connell, Denisa Odendaal, and Dianne Bell

On 9 February 2023, the European Parliament’s Economic and Monetary Affairs Committee (ECON) published a report on the amendments it has adopted to the European Commission’s legislative proposal for a directive (the Directive) amending the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) and Directive 2009/65/EC (UCITS Directive). The proposed new legislation arises out of the Commission’s AIFMD review and the identification of specific areas where the AIFMD framework could be improved, as well as the Commission’s view that a number of those issues were equally relevant for the activities of UCITS. As such, both directives will be amended to better align their requirements.

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DP 23/1: FCA Publishes Discussion Paper on Sustainability-Related Governance, Incentives, and Competence

Posted in Environmental, Social and Governance (ESG)

The discussion paper aims to encourage industry-wide dialogue on sustainability related-governance, incentives, and competence.

By Anne Mainwaring, Sara Sayma, and Dianne Bell

On 10 February 2023, the FCA published DP23/1: Finance for positive sustainable change: governance, incentives and competence in regulated firms.

The FCA considers that a firm’s governance, purpose, and culture are central to how it embeds environmental and social considerations into business, risk, and capital allocation decisions for the benefit of consumers. With this in mind, the FCA is seeking views on how it can move effectively beyond disclosure-based initiatives to help and encourage firms as they develop their arrangements for governance, incentives, and competence in the area of sustainability.

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