Legal Shorts 17.10.19 including FCA feedback statement on climate change and green finance

FCA feedback statement on climate change and green finance

On 16 October 2019, the FCA published a feedback statement (FS19/6) to its October 2018 discussion paper on climate change and green finance (DP18/8). FS19/6 contains a summary of responses to DP18/8 and sets out a detailed explanation of its priorities that will provide the basis for the FCA’s future work on climate change and green finance. The FCA’s key areas for action relate to:

  • Issuers’ climate change disclosures – the FCA will consult early in 2020 on proposals for new rules requiring certain listed issuers to make climate-related disclosures aligned with recommendations of the taskforce for climate-related financial disclosures. It will also clarify that existing rules require disclosure of all financially material climate-related claims.
  • Firms’ integration of climate change risk – the FCA will publish a feedback statement on its January 2019 discussion paper on stewardship (DP19/1), which it published jointly with the Financial Reporting Council. It will also publish a policy statement in late 2019 on proposals to require Independent Governance Committees to consider and reports on firms’ environmental, social and governance and stewardship policies. The FCA consulted on these proposals in April 2019. In addition, it will finalise measures to facilitate investment in patient capital, following its December 2018 consultation and discussion papers.
  • Innovation – the FCA launched its first Green Fintech Challenge in October 2018.
  • Expectations around green finance products and services – the FCA plans to carry out further analysis on greenwashing and challenge firms when it identifies potential greenwashing. It will also consider the proposals in the European Commission’s Sustainable Finance Action Plan, particularly relating to product disclosures.

The FCA also details work it plans to undertake jointly with other regulators and industry. This includes supporting the Climate Financial Risk Forum, contributing to the Fair and Effective Markets Review (FEMR) working group, and wider engagement in the Sustainable Finance Action Plan, including work on benchmarks, disclosures and taxonomy.

FSB fifth annual report to G20 leaders on implementation and effects of financial regulatory reforms

On 16 October 2019, the Financial Stability Board (FSB) published its fifth annual report on the implementation and effects of the G20 financial regulatory reforms. The FSB believes that implementation of the reforms called for by the G20 after the global financial crisis is being progressed, and that this is contributing to an open and resilient financial system supporting the provision of finance to the real economy. However, it warns that it is vital to maintain momentum and avoid complacency, in particular in the light of rapid structural and technological change.

The FSB makes a number of recommendations in its report, including:

  • regulatory bodies should promote the timely, full and consistent implementation of remaining reforms to support a level playing field and avoid regulatory arbitrage;
  • frameworks for cross-border co-operation between authorities should be enhanced to build trust, allow the sharing of information, and preserve an open and integrated global financial system;
  • authorities should evaluate whether their reforms are achieving their intended outcomes, identify any material unintended consequences, and address these without compromising on the objectives of those reforms; and
  • financial stability authorities should continue to contribute to the FSB’s monitoring of emerging risks and stand ready to act if these risks materialise.

Alongside the report, the FSB has published an implementation dashboard summarising the status of implementation across FSB jurisdictions for non-priority reform areas, together with summary tables and jurisdiction profiles on implementation progress.

The FCA stated that early changes to the new platform will be technology focused, so initially there will be no change to the way firms currently provide data to the FCA.

FSB fourteenth progress report on implementation of OTC derivatives reforms

On 15 October 2019, the Financial Stability Board (FSB) published its fourteenth report reviewing progress made by standard-setting bodies, national and regional authorities and market participants towards meeting the G20 commitments for reforms to global OTC derivatives markets.

The report considers progress in the implementation of OTC derivatives market reforms since the publication of the FSB’s previous report in November 2018. The report’s findings include the following:

  • Trade reporting – 23 out of 24-member jurisdictions have comprehensive requirements in force (an increase of one during the reporting period). Jurisdictions report efforts to reduce reporting barriers and masking relief, wider use of the legal entity identifier in trade reporting and streamlining reporting processes and trade repository operations.
  • Central clearing – 18 jurisdictions have in force comprehensive standards for determining when standardised OTC derivatives should be centrally cleared (no change from 2018). Work is ongoing in international workstreams on enhancing central counterparty resilience and on certain aspects of central counterparty resolution.
  • Margin requirements – 16 jurisdictions have comprehensive margin requirements for non-centrally cleared derivatives (NCCDs) (an increase of one during the reporting period). The need to amend certain tax policies before implementation and an increased rate of disputes on collateral and position valuations were reported as implementation challenges.
  • Higher capital requirements for NCCDs – interim higher capital requirements for NCCDs are in force in 23 of the 24 FSB member jurisdictions, a number which has remained unchanged for the last two progress reports. Only seven jurisdictions have implemented the final standardised approach for counterparty credit risk and capital requirements for bank exposures to CCPs, both of which were due to have been implemented by January 2017. Challenges are linked to the operational and IT complexity of implementation, and to inconsistency and uncertainty in the timing of implementation across different jurisdictions.
  • Platform trading – comprehensive platform trading requirements are in force in 13 jurisdictions, a number which has remained unchanged during the reporting period. Some limited progress occurred during the reporting period in the scope of products subject to a trading obligation and in the scope of requirements for trading venues.

The FSB will continue to monitor and report on OTC derivatives reform implementation progress, including the effects of OTC derivatives reforms over time

Financial Services (Implementation of Legislation) Bill 2017-19 falls

On 9 October 2019, the Parliament webpage for the Financial Services (Implementation of Legislation) Bill 2017-19 was updated to confirm that the Bill failed to complete its passage through Parliament before the end of the 2017-19 Parliamentary session and will make no further progress. This follows the prorogation of Parliament on 8 October 2019.

The purpose of the Bill was to provide a mechanism for HM Treasury to implement EU financial services legislation that is currently in the pipeline for a period of two years after the UK leaves the EU, if there is a no-deal Brexit. The Bill had completed its passage through the House of Lords but only proceeded as far as completing the committee stage in the House of Commons. It was among the Bills that was deemed to have fallen following the government’s attempt to prorogue Parliament in September 2019, which was later held by the Supreme Court to be unlawful.

FCA highlights Gabriel users’ suggestions for development of new data collection platform

On 14 October 2019, the FCA published a press release highlighting feedback received through its online survey on users’ experience of Gabriel which is the FCA’s main regulatory data collection system. The FCA launched the survey in July 2019 when it announced its plan to move to a new platform for data collection systems, which will include replacing Gabriel.

To date, over 1,000 users and other Gabriel stakeholders have completed the survey, which remains open to responses. Their feedback will help shape how the FCA develops the new platform, with some key changes reflecting the priorities identified. The responses indicate three key areas for improvement:

  • accessing Gabriel – this is focused on the need for improvements to the speed of the system and support when accessing the system;
  • viewing a user’s Gabriel reporting schedule – this relates to the need for changes in the layout of the schedules and in viewing previous data submissions; and
  • submitting data – this includes the need for better guidance when making a data submission and advancements to the system’s data validation processes.

Based on this, the FCA confirms that the new platform will allow the FCA to fix issues quicker and sooner and improve the support guidance to make it easier to know where to seek help. Users will also be able to see previous submissions made in Gabriel and the FCA is exploring ways to improve validations. Although the FCA will not be able to implement all planned improvements when the platform is first launched, a number of key changes will reflect the priorities highlighted in the survey.

Early changes to the platform will be technology-focused, so initially there will be no change to the way firms currently provide data.

The FCA will continue to use survey feedback to make further improvements and there will be an opportunity to help design and test the new platform. The new platform will support the FCA’s digital regulatory reporting work, through which it is exploring how technology could make it easier for firms to meet their regulatory reporting requirements and improve the quality of information they provide.

New FCA webpage on preparing change of control notifications

On 14 October 2019, the FCA published a new webpage on preparing change of control notifications. The webpage explains how to prepare and submit a change of control notification, although the FCA makes clear that the information provided is not an exhaustive list and there may be additional factors that need to be considered on a case-by-case basis.

The FCA explains that a firm must identify all controllers of the authorised firm subject to the change in control, and submit section 178 notification forms for each of them and to include:

  • detailed ownership charts, explaining any close links and regulated entities;
  • evidence that you understand the risks in your business model, and how these will be mitigated;
  • current and potential conflicts of interest, and how these will be managed;
  • evidence of any funding you have secured.

The FCA explains on the webpage that firms may wish to submit a business plan with a change of control notification. However, some notifications take longer because the business plan is not sufficiently detailed. The webpage includes a business plan contents template, which highlights the areas in respect of which information should be included.