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    UK Authorities Issue Regulatory Updates for Banks

    December 16, 2022

    The HM Treasury (HMT) published a policy statement on the new UK-customized financial services model, announced a Memorandum of Understanding (MoU) with Chile on financial cooperation (including fintech, open finance, and sustainable finance), and issued a joint statement, with the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR), on the future of open banking. Additionally, the Bank of England (BoE) and the Prudential Regulation Authority (PRA) published the financial stability report, a new edition of the Regulatory Initiatives Grid, and the policy statement PS11/22 on the margin requirements for non-centrally cleared derivatives.

    Highlights of the key updates follow:

    • The HMT policy statement sets out the government’s approach to repealing and replacing the retained European Union law on financial services to deliver a comprehensive Financial Services and Markets Act (FSMA) model of regulation tailored to the UK. The statement sets 
      out the implementation plan to deliver a comprehensive FSMA model of regulation through the powers established in the Financial Services and Markets (FSM) Bill. 
      The FSM Bill will implement the outcomes of the Future Regulatory Framework Review, which was established by the UK government to consider how the financial services regulatory framework in UK should adapt for the future and in particular to reflect the UK’s position outside of the European Union. The government also published three illustrative statutory instruments (SIs), each accompanied by a policy note, to help Parliament scrutinize how the government intends to exercise the powers in the FSM Bill to establish a comprehensive FSMA model. The three statutory instruments cover the reform of the prospectus regulation, the repeal of the securitization regulation, and the grant of the rulemaking powers to FCA in relation to payments regulation.
    • The joint statement on open banking provides an update on the work of the Joint Regulatory Oversight Committee on developing the vision for the future of open banking in UK. The statement sets out views and recommendations on the design of the future entity—Open Banking Implementation Entity (OBIE). The Committee has identified three priorities to deliver on the vision for the future of open banking: unlocking the potential of open banking payments, adopting a scalable model, and establishing a sustainable footing for ongoing development of the open banking ecosystem. With regard to design of the future entity, the Committee is finalizing its proposals and expects that the entity should be independent, well-governed, and underpinned by a set of values that include an emphasis on integrity and promoting ethical behaviors, have effective regulatory oversight with a new long-term regulatory framework to govern the ecosystem, and have a broad-based and equitable funding model. Going forward, the Committee will publicly set out its recommendations in relation to the design of the future entity, both during the interim state and once a long-term regulatory framework is in place, along with the vision for open banking, in the first quarter of 2023.
    • The sixth edition of the Regulatory Initiatives Grid sets out the list of upcoming publications, along with the recent and ongoing consultations that were not included in the May 2022 Grid. The upcoming publications will address amendments to the Depositor Protection rules, policy statement related to remuneration, policy statement on margin requirements for non-centrally cleared derivatives, supervisory statements on outsourcing and third-party risk management policy for financial market infrastructure, and consultations on central bank digital currency, non-performing exposures capital deduction, and remuneration with respect to the small firm proportionality.
    • The financial stability report sets out the view of Financial Policy Committee (FPC) on the stability of the UK financial system, including its assessment of the financial system resilience, the main risks to UK financial stability, and the actions being taken to remove or reduce these risks. Post its review, FPC has decided to maintain the UK countercyclical capital buffer (CCyB) rate at 2%, the rate that is due to come into effect on July 05, 2023. The report notes that the capital and liquidity positions of major UK banks remain strong while the pre-provision profitability has increased. Emphasis is on the need for urgent international action to reduce risks in non-bank finance in 2023. BoE also notes that it will run, for the first time, an exploratory scenario exercise focused on non-bank financial institution (NBFI) risks, to inform understanding of these risks and future policy approaches, for which the details will be set out in the first half of 2023. 
    • The policy statement on margin requirements addresses the treatment of third-country funds as eligible collateral, a fallback transition period to address practical issues where firms face immediate application of the bilateral margining requirements, and the criteria for a central counterparty (CCP) to be excluded from the requirements. The statement is relevant to PRA-authorized firms that are financial counterparties for the purposes of Article 2 of the European Market Infrastructure Regulation (UK EMIR). It is also relevant to all FCA solo-regulated entities and non-financial counterparties in scope of the margin requirements under UK EMIR.

     

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    Keywords: Europe, UK, Banking, Future Regulatory Framework, FSMA, Open Banking, Regtech, Regulatory Initiatives Grid, Third Party Risk, CBDC, Financial Stability Report, Basel, Non Bank Financial Institutions, CCyB, Derivatives, Margin Requirements, BOE, PRA, FCA, HM Treasury 

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