Legal Shorts 20.03.20 including FCA statement on Covid-19

FCA statement on Covid-19

On 4 March 2020, the FCA issued a press release stating that it is working closely with the financial services sector to ensure the sector is responding effectively to the Covid-19 outbreak. This is in conjunction with the Bank of England and HM Treasury. The FCA expects all firms to have contingency plans in place to deal with major events. In conjunction with the BoE, the FCA is actively reviewing the contingency plans of a wide range of firms including assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers.

The FCA continued that it expects to take all reasonable steps to meet their regulatory obligations, an example being that firms should be able to enter orders and transactions promptly into the relevant systems, use recorded lines when trading and give staff access to the compliance support they need. If firms are able to meet these standards and undertake these activities from backup sites or with staff working from home, the FCA will have no objections.

The FCA concluded its statement that it is discussing with firms and trade associations any particular issues they may have and are working with them to resolve these. The FCA is keen to understand the pressures firms are facing and will be continuing its dialogue with firms, institutions and industry bodies over the weeks to come and will continue to update its guidance as required.

FCA statement on property fund suspensions

On 18 March 2020, the FCA issued a statement on property fund suspensions. In the statement it acknowledged that certain Standing Independent Valuers have determined that there is currently material uncertainty over the value of commercial real estate (CRE) and stated:

  • in such situations, a fair and reasonable valuation of CRE funds cannot be established. As a result, some managers of open-ended CRE funds have temporarily suspended dealing in units of these funds and others are likely to follow for the same reason.

suspensions can be used by managers of open-ended funds, in line with their obligations under applicable regulations. In these circumstances, suspension is likely to be in the best interests of fund investors.

ICMA’s ERCC publishes guide to reporting under the SFTR

On 24 February 2020, the International Capital Markets Association’s European Repo and Collateral Council published its guide to reporting under the EU Securities Financing Transactions Regulation (SFTR). The guide aims to help members understand the regulatory reporting framework specified by the European Securities and Markets Authority (ESMA) and sets out complementary best practice recommendations to provide additional clarity and address ambiguities in the official guidance.

It is supplemented by a suite of sample reports and an overview of repo life-cycle event reporting. In its press release, ICMA stated that this documentation has evolved over the past couple of years as a product of discussions within the ERCC’s SFTR Task Force, which is made up of representatives from over 150 firms covering the whole spectrum of the market, including buy-side, sell-side, market infrastructure providers, but also trade repositories and relevant third-party service providers that are offering SFTR reporting solutions. The main objective of the SFTR Task Force is to develop a common understanding of the requirements and to develop market best practices in relation to SFTR reporting to complement guidance provided by regulators. The work is undertaken in close collaboration with other trade associations and the relevant regulators, in particular ESMA.

ICMA states that the documentation will continue to evolve to reflect additional guidance from ESMA and/or the National Competent Authorities or changes in the market consensus in relation to a specific question or market practice.

FMLC responds to European Commission consultation on regulatory framework for cryptoassets

On 17 March 2020, the Financial Markets Law Committee (FMLC) published a press release announcing the publication of its response to the European Commission’s consultation on the suitability of the existing regulatory framework for cryptoassets.
The FMLC’s response takes the form of two reports:

  • Taxonomical approaches to cryptoassets – this report calls on the FC to reconsider its proposed criteria for the classification of cryptoassets. It argues that the characterisation of cryptoassets simply by reference to their functions yields an incomplete picture and that regulation of cryptoassets on the basis of such characterisation may fail to take into account the many other factors that influence the roles of various actors creating, holding or transferring cryptoassets.

The regulation of cryptoassets – this report considers issues raised by the EC on the application of existing regulation to cryptoassets suggesting that legislation that regulates the financial markets in general, such as MiFID II and the Market Abuse Regulation (596/2014) can be considered to be technology neutral and could encompass cryptoassets to the extent that they are functionally equivalent to financial instruments.

JMLSG consults on new chapter of AML and CTF guidance relating to cryptoasset exchanges and custodian wallet providers

On 17 March 2020, the Joint Money Laundering Steering Group published for consultation the proposed text of a new chapter to be added to Part II of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance for the financial services sector.

The proposed new chapter (referred to as sector 22) contains sectoral guidance relating to cryptoasset exchanges and custodian wallet providers. It takes account of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (SI 2019/1511), which came into force on 10 January 2020.

Areas covered within the guidance includes the following:

• the scope of regulation;
• risk management;
• customer due diligence; and
• dealing with suspicious transactions.

The deadline for comments on the proposed new chapter is 18 May 2020.

FCA statement on short selling bans and reporting

On 17 March 2020, the FCA issued a statement on the Short Selling Regulation (SSR) which provides EU regulators and the FCA with the power to apply short or long-term bans on short sales in shares, and certain other financial instruments.

The FCA explained that if an EU regulator or the FCA decide to impose a ban, that regulator notifies other EU regulators, and the FCA, who then consider whether to do the same in their jurisdictions. The intention is to avoid short selling activity linked to particular shares moving to other jurisdictions where these shares are also traded.

The FCA continued that when considering whether to invoke short selling powers following action by an EU regulator, its standard policy has been to assist that regulator and expects this to continue. The FCA has rarely imposed its own ban on the short selling of UK shares and has never initiated a ban under the new powers under the SSR.

The FCA stated that it intends to apply ESMA’s decision to amend the thresholds for the notification of short selling positions to Competent Authorities under the SSR.

Belgium, Greece and Austria ban shorting

It was announced on 19 March 2020 that the Belgium, Greece and Austria Regulators have imposed a short-selling ban of one month as markets react to the spread of Covid 19.

Belgium’s FSMA has banned on-venue and OTC shorting on its Euronext Brussels and Euronext Growth exchanges until 17 April. This includes increasing or entering into or creating new net-short positions, with an exemption for market making, and only applies to indices where these Belgian shares represent 20% or more of the total index weight.

The Greek regulator, Helenic Capital Markets Association has issued a similar ban until 24 April, although made no mention of index thresholds.

Austria’s FMA has also prohibited shorting on its Wiener Börse for one month from 19 March

Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406
Email: claire.cummings@cummingsfisher.com

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