Global Financial Regulatory Blog

UK Regulators Launch Discussion on Diversity and Inclusion

Posted in Conduct of Business, Environmental, Social and Governance (ESG), Regulatory Reform

Discussion Paper opens debate on potential new rules to improve diversity in financial services.

By Rob Moulton, David Berman, Paul Davies, and Charlotte Collins

On 7 July 2021, the FCA, the PRA, and the Bank of England published a joint Discussion Paper on diversity and inclusion in the financial sector. The regulators, in particular the FCA, have been focused on diversity and inclusion as regulatory issues for some time. According to the regulators, research shows there is a positive correlation between increased diversity and inclusion and better outcomes in risk management, conduct, culture, and innovation. Therefore, improving diversity and inclusion in financial services is seen as tying in closely with the regulators’ objectives. In the Discussion Paper, the regulators consider diversity and inclusion not only in terms of how a firm is run internally, but also how the firm serves its customers. Continue Reading

HM Treasury Consults on UK Wholesale Markets Reform

Posted in Derivatives, Regulatory Reform

Proposals signal that the UK government is willing to diverge significantly from EU rules.

By Rob Moulton and Charlotte Collins

On 1 July 2021, HM Treasury published a consultation on its Wholesale Markets Review. The Review was established to determine how the UK’s approach to regulating secondary markets needs to adapt post-Brexit, and to ensure that the framework is flexible enough to adapt to future challenges and opportunities. HM Treasury is also consulting separately on changes to the UK prospectus regime.

While the government and the regulators have already made or consulted on a number of changes to the UK regulatory framework post-Brexit, these changes have targeted specific areas and have not signalled fundamental change. For example, the FCA’s recent consultation on changes to MiFID proposed amendments that are similar to those already agreed in the EU. However, the Review represents the UK’s most significant and far-reaching proposals to date, indicating that the UK government is not afraid to diverge substantially from EU standards where it feels this is best for UK markets. Indeed, no longer does there seem to be a concern about maintaining equivalence with EU standards. Continue Reading

Private Bank Briefing – June 2021

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

By Rob Moulton, Nicola Higgs, Anne Mainwaring, and Charlotte Collins

The latest edition of our Private Bank Briefing provides a roundup of legal and compliance issues impacting private banks and their clients from Q2 2021.

In this edition, we cover sustainable finance developments, the regulators’ expectations regarding operational resilience and outsourcing, and the PRA’s plans to develop a new prudential regime for smaller banks. We feature areas of planned reform, including the FCA’s consultation on introducing a Consumer Duty and changes being brought in under the Financial Services Act 2021, as well as other key updates for private banks from the last three months. Continue Reading

FCA Seeks to Extend Climate-Related Disclosures for Listed Companies

Posted in Environmental, Social and Governance (ESG)

The FCA is consulting on extending its rules to standard listed issuers.

By Paul A. DaviesChris HortonJames InnessAnna Ngo, and Charlotte Collins

On 22 June 2021, the FCA published a Consultation Paper (CP21/18) on extending the application of the existing climate-related disclosure requirements for commercial companies with a UK premium listing to a wider scope of listed issuers, so that all commercial companies that issue listed equity shares would be captured by the requirements. The FCA had previously announced that it was going to consult on this extension, so standard listed issuers were forewarned. The FCA plans to apply the requirements for accounting periods beginning on or after 1 January 2022. Continue Reading

FCA Proposes New Climate-Related Disclosure Regime

Posted in Environmental, Social and Governance (ESG)

The FCA is proposing a disclosure regime for asset managers, life insurers, and pension providers.

By Paul Davies, Nicola Higgs, Victoria Sander, David Berman, Anne Mainwaring, and Charlotte Collins

On 22 June 2021, the FCA published a Consultation Paper (CP21/17) on introducing climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA-regulated pension providers. The disclosure requirements would be consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The FCA plans to introduce the disclosure requirements in a new ESG Sourcebook in the FCA Handbook. The regulator anticipates that this Sourcebook will expand over time to include new rules and guidance on other climate-related topics and wider ESG considerations. Continue Reading

Climate (and ESG) Risk: The Growing Focus on Board Accountability

Posted in Environmental, Social and Governance (ESG), Individual Accountability and Governance

Board members are expected to have adequate knowledge and understanding of climate-related and ESG risks.

By Nicola Higgs, Paul A. Davies, and David Berman

Legislators and regulators around the world have long recognised that one of the most effective ways to drive change is by focusing the minds of management — specifically by attaching individual accountability for ensuring that an organisation meets expected standards. Transitioning to net-zero carbon emissions has now become a critical priority for many governments, and the spotlight is shining on the boards of financial institutions and companies to drive that change.

This blog post highlights recent developments in the EU in this regard. At a time when standards on climate and environmental, social, and governance (ESG) issues are converging globally, these developments will be informative to global organisations wanting to embed best practices in governing the transition. Continue Reading

Taskforce Proposes New Approach to Financial Regulation in the UK

Posted in Fintech and Cryptocurrency, Payments, Regulatory Reform

A report from the Taskforce on Innovation, Growth and Regulatory Reform provides recommendations for how the UK can “re-imagine” its approach to regulation post-Brexit.

By Rob Moulton, Stuart Davis, and Charlotte Collins

On 16 June 2021, the Taskforce on Innovation, Growth and Regulatory Reform (the Taskforce) published a report (the Report) providing recommendations for how the UK could “refresh” its approach to regulation post-Brexit. The UK government convened the Taskforce in February with the directive to “re-imagine, quickly and creatively, the UK’s approach to regulation”.

The Report, which covers a broad range of sectors, includes notable recommendations in relation to financial services regulation. While it does not suggest a “bonfire of regulations”, the Report does convey a desire to move away from the European style of technical and prescriptive rule-making. The focus is very much on creating a flexible and adaptive regulatory system in the UK to encourage innovation and growth. The Report also hints at some specific areas of onshored EU legislation that the government may target for change in the near term. Continue Reading

EBA Consults on Prudential Disclosures on ESG Risks

Posted in Environmental, Social and Governance (ESG)

The EBA consultation paper calls for the implementation of a Green Asset Ratio to measure banks’ sustainability performance.

Regulators and sustainability-conscious investors increasingly expect banking institutions in the European Union to focus on environmental, social, and governance (ESG) issues and provide quantitative and qualitative disclosures relating to such issues, including climate change risks and the environmental objectives of climate change mitigation and adaptation, from as early as 2022.

These prudential disclosure requirements arise under Article 449a of the Capital Requirements Regulation (CRR) and are included in the Pillar 3 reporting framework, currently designed for disclosure of regulatory capital and risk exposures. On 1 March 2021, the European Banking Authority (EBA) published a consultation paper relating to the draft implementing technical standards (ITS) on prudential disclosures required from large institutions with securities that are traded on a regulated market of a Member State.

The disclosures are intended to provide investors and stakeholders with sufficiently comprehensive and comparable information to review and compare the ESG performance and risk profile of large institutions, with a spotlight on their financial activities and vulnerabilities and their strategy for supporting the transition towards a more sustainable economy.

See Latham’s Client Alert for more details.

The European Commission Unveils New Sustainable Finance Package

Posted in Environmental, Social and Governance (ESG)

The package focuses on material sustainability reporting and disclosure obligations, as the EU looks to direct capital toward sustainable activities.

By Paul A. Davies, Nicola Higgs, David Little, and Michael Green

On 21 April 2021, one day prior to Earth Day and a US-led global climate summit, the European Commission adopted a much-anticipated package of measures as part of its policy to help direct capital towards sustainable initiatives and to help the European Union reduce its greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and reach its 2050 carbon neutrality goal.

The package of measures include:

  • A proposed Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements under the Non-Financial Reporting Directive (NFRD) and seek to ensure that companies provide consistent and comparable sustainability information
  • The EU Taxonomy Climate Delegated Act, which aims to identify the economic activities that best contribute to climate change mitigation and adaptation
  • Six Delegated Acts on fiduciary duties, investment, and insurance advice, which aim to ensure that financial firms (e.g., advisers, asset managers, or insurers) include sustainability in their procedures and investment advice to clients

Continue Reading

FCA Proposes New Consumer Duty

Posted in Conduct of Business, Retail Markets

The FCA is proposing to set higher expectations for firms operating in retail markets.

By Andrea Monks, David Berman, Jon Holland and Charlotte Collins

On 14 May 2021, the FCA published a Consultation Paper (CP21/13) on introducing a new Consumer Duty. This consultation is intended to fulfil the FCA’s new statutory obligation to consult on whether or not to introduce a duty of care in financial services.

Rather than a standalone duty, the FCA is consulting on a package of measures, including a Consumer Principle and supporting rules and guidance (referred to collectively as the Consumer Duty). While some may consider that the proposed new Principle would not add much (or anything) of substance to firms’ existing obligations, the FCA considers that it would nevertheless be helpful to its stated desire to  hold firms to a higher standard. In practice, additional expectations are most likely to be set by the accompanying more granular rules and guidance. Although the FCA has not proposed drafting for these rules and guidance at this stage, the regulator is seemingly planning to use this opportunity to advance several aspects of its retail-sector work relating to, for example, customer communications, product governance, and the treatment of vulnerable customers. Continue Reading