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Regulatory Update: October 2020


By FactSet Insight  |  October 6, 2020

Nels Ylitalo, VP, Director Product Strategy, Regulatory Solutions, and Marine Hutinel, Regulatory Advisor, Regulatory Solutions, contributed to this article.

Each month, FactSet's Regulatory team offers a rundown of the most important developments in compliance and regulatory news. Read on to see which stories dominated the conversation last month.


European Commission Adopts Time-Limited Equivalence Decision on UK CCPs

On September 21, 2020, the European Commission (EC) adopted a time-limited equivalence decision giving financial market participants 18 months to reduce their exposure to UK central counterparties (CCPs). The EC estimates that EU financial system is too heavily exposed to services provided by UK-based CCPs and encourages a transition to reduce financial instability that could result from the UK’s departure from the Single Market. This transitional equivalence decision will be in effect from January 1, 2021 through June 30, 2022.

A week after the EC’s equivalence decision, the European Securities and Markets Authority (ESMA) announced that ICE Clear Europe Limited, LCH Limited, and LME Clear Limited will be recognized as third country CCPs (TC-CCPs) and will be eligible to provide their services in the EU. The recognition decision will be coterminous with the equivalence decision. ESMA will use the time to review the systemic importance of UK CCPs and to take further measures to address relevant financial stability risks.

Fourth Financial Dialogue Between Switzerland and the United Kingdom

On September 8, 2020, Switzerland and the United Kingdom held their fourth Financial Dialogue. These dialogues aim to strengthen the cooperation between the two countries in financial services through an ambitious and comprehensive mutual recognition agreement. Even though the dialogue was mainly dedicated to discussing the implementation of the Joint Statement on deepening cooperation between Switzerland and the United Kingdom, they also shared their views on several topics where they identified mutual interest such as the impact and the management of the COVID-19 crisis, sustainable finance, stock market equivalence, and women in senior management in finance.

United States

SEC Proposes Significant Changes to Regulation ATS for “Government Securities ATSs”

On September 28, 2020, in a 429-page release, the U.S. Securities and Exchange Commission (SEC) proposed a series of amendments to Regulation ATS under the Securities Exchange Act of 1934 (Exchange Act) for alternative trading systems (ATSs) that trade “government securities” or repurchase and reverse repurchase agreements on government securities.

As summarized in the proposal, the SEC proposes to:

  1. Amend Rules 300 and 301 to eliminate the exemption from compliance with Rules 300 through 304 for such ATSs;
  2. Amend Rule 3a1-1(b) to require a Government Securities ATS to register as a national securities exchange if the ATS meets certain specified volume levels;
  3. Include Government Securities ATSs within the scope of Rule 304 of Regulation ATS;
  4. Require that Government Securities ATSs use new Form ATS-G;
  5. Amend the “Fair Access Rule” (Rule 301(b)(5)) to require Government Securities ATSs that meet certain trading volume thresholds to comply;
  6. Amend Rule 301 of Regulation ATS and Form ATS and Form ATS-R to provide that such forms must be electronically filed; and
  7. Amend Rule 1000 of Regulation Systems Compliance and Integrity under the Exchange Act by expanding the definition of “SCI alternative trading system.”

Comments on the proposal are due sixty days following publication of the proposal in the Federal Register. 

SEC Releases a Raft of ’33 Act and ’34 Act Final Rules in September

In September, the SEC released a raft of final rules affecting various market participants subject to the ’33 Act and ’34 Act, including:

  1. Update of Statistical Disclosures for Bank and Savings and Loan Registrants (release 33-10835);
  2. Publication or Submission of Quotations Without Specified Information (release 33-10842);
  3. Adoption of Updated EDGAR Filer Manual (release 33-10845);
  4. Whistleblower Program Rules (release 34-89963); and
  5. Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 (release 34-89964).

European Union

EU Financial Regulators Assess Risks to the Financial Sector from COVID-19

On September 4, 2020, the three European financial regulators (ESMA, EIOPA, and EBA) published a joint report on financial system risks and vulnerabilities resulting from the COVID-19 pandemic. Mainly, this report highlights the fact that pandemic has induced further profitability concerns across the board and sharpened liquidity challenges among certain asset classes in the investment fund sector. According to the ESAs, the COVID-19 pandemic leaves a lot of economic and market uncertainty.

The EU banks’ asset quality is a key concern as significant uncertainty about the timing and size of a recovery persists after six months of a crisis that has yet to end.

To minimize the impact of this crisis, the ESAs recommend improved cooperation between jurisdictions, continued monitoring and assessment of the risk of the crisis, support of the real economy, and preparedness for further disruptions in connection with the UK’s withdrawal from the EU.

ESAs Launch Survey on SFDR Investment Product Disclosure Templates

In a mark of progress for the EU Action Plan for Sustainable Finance, the European supervisory authorities (EBA, EIOPA, and ESMA) launched a survey seeking public feedback on presentational aspects of investment product disclosure templates required by the Sustainable Finance Disclosure Regulation (SFDR). The ESAs propose to standardize and harmonize the disclosure of information pursuant to SFDR Articles 8(3), 9(5), and 11(4). Standardized templates should improve the comparability of financial products from different EU Member States and will be included in the various existing disclosures provided by Alternative Investment Fund Managers (AIFMs), Undertakings for Collective Investment in Transferable Securities (UCITSs), insurance undertakings, Institutions for Occupational Retirement Provision (IORPs), or providers of pan-European Personal Pension Products (PEPPs).

ESMA Publishes Outcome of Market Abuse Regulation (MAR) Review

On September 23, 2020, ESMA published a 276-page MAR Review Report. The report is the first review of the functioning of MAR since its implementation in 2016. ESMA provided the report pursuant to a formal request from the EC, feed into the review report of MAR. ESMA’s report covers a number of topics originally included with the MAR Article 28 review requirements as well as related topics. The report follows on an October 2019 consultation paper and mainly concludes that “MAR has worked well in practice and is fit for purpose.” Given the report’s breadth, ESMA’s recommendations are too voluminous to summarize here. Market participants interested in preparing for multiple changes to the MAR regime will find relevant signposts in ESMA report. 

Draft European Commission Proposal to Regulate Cryptocurrencies

As reported by the media network EURACTIV, the EC has developed a 167-page draft proposal to comprehensively regulate cryptocurrencies, which is expected to be published in the coming weeks. As summarized by EURACTIV, the proposal includes setting up a college of supervisors, chaired by the European Banking Authority (EBA). The goals of the proposal are aligned with extant financial regulatory aims: “to provide legal certainty, support innovation, protect consumers and investors, ensure financial stability and market integrity, [foster] a market worth around $350 billion, and spread over more than 6,700 digital currencies.”

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