Financial Services Regulatory Update – January 2021 Round Up


Asset Tokenisation – OECD Report

Asset tokenisation has become one of the most prominent use-cases of distributed ledger technologies (DLTs) in financial markets, for assets including securities, commodities, and other non-financial assets such as real estate. It has potential cross-cutting implications for financial market practices and participants, market infrastructure and regulators across a large range of financial instruments and asset classes.

On 26 January, the OECD published a report (here) which seeks to provide conceptual clarity on asset tokenisation and the approaches that policymakers are adopting in this area. It also identifies some key regulatory issues in tokenised assets and markets that policymakers should be aware of and/or which may warrant attention by policymakers. An annex features a substantial list of policymaking approaches taken by different countries concerning asset tokenisation markets and their participants.


ISDA’s new fallbacks for derivatives linked to key interbank offered rates came into effect on 25 January 2021 (here). See our briefing here.

ICE Benchmark Administration (“IBA”) launched ICE Term SONIA Reference Rates (“ICE TSRR”) as a benchmark for use in financial instruments by licensees (here). The ICE TSRR, which are published daily, are designed to measure expected SONIA rates over one, three, six and 12 month tenor periods and are based on a waterfall methodology using eligible prices and volumes for specified SONIA-linked interest rate derivative products.

The FCA published a press release highlighting the need for firms to complete the transition of sterling LIBOR by the end of 2021 (here). In order to support this, the Working Group on Sterling Risk Free Rates has published an updated version of its priorities and roadmap for the final year of transition (here).


On 26 January, the EBA published a letter addressed to the European Commission outlining inconsistencies between the Capital Requirements Regulation (“CRR”) and the Bank Recovery and Resolution Directive (“BRRD”) (here) and the subsequent impact on its ability to deliver the regulatory technical standards under the mandate in Article 45f(6) of the BRRD on "daisy chains" of internal minimum requirement for own funds and eligible liabilities (MREL) instruments.

Central Counterparties (CCPs)

Regulation (EU) 2021/23 on a framework for the recovery and resolution of CCPs was published in the EU’s Official Journal ("OJ") (here), on 22 January and will generally apply from 12 August 2022. The Regulation seeks to reduce the risk of a CCP failing and establishes procedures for the resolution of a failed CCP to limit impact on the financial system and on public funds.

ESMA and the US Commodities Future Trading Commission (“CFTC”) published an enhanced memorandum of understanding (“MoU”) expanding on collaboration arrangements set out in an earlier MoU, entered into in 2016, with respect to certain US-established registered derivatives clearing organisations that are recognised by ESMA under EMIR (here).

A Commission Decision determining that the legal and supervisory arrangements applicable to US CCPs registered with the SEC can be considered equivalent with those laid down in EMIR was published in the EU’s OJ and applies from 17 February (here). The Decision only applies to SEC-regulated covered clearing agencies which have specified risk management measures rules in place.

ESMA published the final report on its revised Guidelines regarding written agreements between members of CCP colleges (here).


The EBA published an updated version of its report on the implementation of selected COVID-19 policies (here), on 29 January.  The updated report contains new FAQs on the implementation of the requirements set out in the EBA's Guidelines on moratoria and on COVID-19 reporting and disclosure and aim to clarify:

  • the functioning of the nine‐month cap which limits the period of time for which payments on a certain loan can be suspended, postponed or reduced as a result of the application (and reapplication) of general payment moratorium.
  • the treatment of loans and advances subject to expired moratoria. The EBA is of the view that when a moratorium expires, the loans and advances subject to this expired measure should be reported, regardless of whether they are subject to another measure.

Commission Delegated Regulation (“CDR”) 2021/70, which delays the entry into force of CDR 2018/1229 concerning the RTS on settlement discipline until 1 February 2022, was published in the EU's OJ (here). The postponement is due to the impact of the COVID-19 pandemic on the implementation of regulatory projects and IT deliveries by central securities depositories (“CSDs”) and a wide range of market participants.

Credit institutions – SSM

The ECB has identified four supervisory priority areas for the Single Supervisory Mechanism for 2021, each of which has been materially impacted by COVID-19 (here): credit risk management; capital strength; business model sustainability; and internal governance.

Supervisory activity will also focus on:

  • action taken by banks in response to the ECB guide on climate-related and environmental risks; and 
  • prudential threats stemming from money laundering, cyber and digitalisation-related risks and banks' preparedness for Basel III implementation.

The ECB published a guide on its supervisory approach to consolidation for banks in the Single Supervisory Mechanism (here), on 12 January. The guide aims to clarify the principles underpinning the ECB’s prudential supervisory approach when determining whether the arrangements implemented by a credit institution resulting from a consolidation ensure the sound management and coverage of its risks.

Credit Institutions – Taxonomy Regulation

The European Banking Federation and the United Nations Environment Programme Finance Initiative published a report assessing how the Taxonomy Regulation can be applied to core banking products (here), on 28 January. The report:

  • shares key insights from the first set of comprehensive case studies on the application of the Taxonomy Regulation to core banking products, including retail banking, SME lending and corporate banking;
  • sets out eight recommendations addressed to legislators; regulators; owners of environmental and social standards and frameworks, labels and certification schemes used by banks; and banks; and
  • provides a summary of the benefits and challenges of applying the Taxonomy Regulation.

EU Economic and Financial System – Communication

The European Commission published a Communication on fostering openness, strength and resilience in the EU economic and financial system (here), on 19 January. The proposed approach in the Communication is based on the following three pillars:

  • A stronger international role for the euro, which includes supporting the development of euro denominated instruments and benchmarks and fostering its status as an international reference currency in the energy and commodities sectors.
  • Further developed and more resilient EU financial market infrastructures, including to any extra-territorial application of sanctions to third countries.
  • Further enhanced uniform implementation and enforcement of the EU's own sanctions.

For further information see our briefing here.

EU-UK Relationship

The European Commission for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness addressed the future UK-EU financial services relationship in remarks made at a meeting of the European Parliament's Economic and Monetary Affairs Committee (here), on 25 January.

According to Commissioner McGuinness, the Commission envisages a future framework similar to that which exists between the EU and the USA, involving a voluntary structure to compare regulatory initiatives, exchange views on international developments, and discuss equivalence-related issues. Once the working arrangements are agreed, the EU will resume its unilateral equivalence assessments of the UK, which will involve a case-by-case discussion in each area.

EU-UK Relationship – Credit Rating Agencies

ESMA announced that it has withdrawn the registrations of six UK-based credit rating agencies (“CRAs”) and four trade repositories (“UK TRs”) as a result of the end of the Brexit transition period (here). This means that:

  • The ratings issued by the six CRAs cannot be used for regulatory purposes in the EU unless endorsed by an EU CRA. In a communication from October 2020, ESMA confirmed that all UK-based CRAs except the Economist Intelligence Unit Ltd took steps to ensure that an EU CRA is willing and able to endorse its credit ratings.
  • EU derivatives and securities financing transactions subject to the reporting obligation under EMIR and the Securities Financing Transaction Regulation can no longer be reported to any of the UK TRs but need to be reported to an EU established TR.

EU-UK Relationship – MoUs

ESMA and EIOPA have each published a number of MMoU with various UK competent authorities (here, here and here), allowing for post-Brexit cooperation in various areas.

Financial Service Providers – IOSCO Report

IOSCO published a report on complaint handling and redress system for retail investors (here), on 28 January.  The report sets out nine sound practices to assist IOSCO’s members in developing and improving their complaint handling procedures and mechanisms for retail investors.

Funds – SFDR Pre-Contractual disclosures

The Central Bank of Ireland (“CBI”) has established a fast-track filing process for pre-contractual document updates based on the SFDR Level 1 text, under which both UCITS management companies and AIFMs will be able to certify their SFDR compliance. Filings for existing funds can be made from 11 January 2021 to 10 March 2021 and the CBI is encouraging early filing. More information is available here.

Funds – UCITS

On 6 January, ESMA published a press release announcing that it will conduct a common supervisory action (“CSA”) with national competent authorities (“NCAs”), during 2021, on the supervision of costs and fees of UCITS across the EU (here).

The aim of the CSA is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework and the obligation of not charging investors with undue costs.

The CSA will also cover entities employing efficient portfolio management techniques to assess whether they adhere to the requirements set out in the UCITS framework and ESMA's Guidelines on exchange-traded funds and other UCITS issues.

Insurers – Climate Change Financial Disclosure

The United Nations Environment Programme Finance Initiative issued guidance for insurers on identifying, assessing and disclosing climate change impacts (here), on 19 January. The guidance sets out methodologies that insurers can use to implement the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosure. It also recognises that further work is necessary to assess climate change risks of insurance underwriting and investment portfolios in an integrated way.

Investment Firms – MiFID II – Reverse Solicitation

Under the MiFID II Directive, a retail or opted-up professional client can obtain investment services from a third country firm on a “reverse solicitation basis”, namely where the service is exclusively initiated by the client. On 13 January, ESMA published a statement to remind firms of the requirements applicable to services provided on a reverse solicitation basis (here), in response to the emergence of some questionable practices by firms following the end of the UK transition period. The letter also highlights that:

  • the provision of investment services in the EU without proper authorisation in accordance with the EU and the national law applicable in Member States exposes service providers to the risk of administrative or criminal proceedings, for the application of relevant sanctions; and
  • when using the services of investment service providers which are not properly authorised in accordance with EU and Member States’ law, investors may lose protections granted to them under EU relevant rules, including coverage under the investor compensation schemes in accordance with Directive 97/9/EC.

Investment Firms – Prudential Regulation

The Investment Firms Directive and the Investment Firms Regulation provide for a new prudential regime for certain investment firms, which will apply from 26 June 2021. The new regime contains a number of discretions and the Central Bank has published a consultation outlining how it intends to implement these discretions (here).

In addition, Gerry Cross, Director or Policy & Risk and Asset Management and Investment Banks (Interim) at the Central Bank gave a speech on the new prudential regime on 27 January, entitled “Ready for change: The new prudential regime for Investment Firms” (here).   

Securities Financing Transaction Regulation (SFTR)

ESMA published an updated version of their SFTR Q&As which provides some helpful additional clarifications on reporting (here).

Single Resolution Fund (SRF)

The Council of the EU announced that representatives from Member States had signed the amending agreements to the Treaty on the European Stability Mechanism (ESM) and the Single Resolution Fund (SRF) Intergovernmental Agreement (here), on 27 January. This signature follows political agreement on the ESM reform package which includes the ESM providing a common backstop to the SRF by means of a credit line as of the beginning of 2022, two years ahead of schedule. Member states must now ratify the amended agreements in accordance with national ratification procedures.

Sustainable Finance – ESG Ratings

On 29 January, ESMA published a letter it sent to the European Commission, setting out its views on the main challenges in the area of ESG ratings and assessment tools (here) and outlining a potential future legal framework to address those challenges, which framework would include:

  • A common definition of ESG ratings, covering the broad spectrum of possible ESG assessments currently on offer, in order to help future-proof any regulatory framework.
  • Requiring any legal entity whose occupation includes the issuing of these ESG ratings and assessments to be registered and supervised by a public authority.
  • Applying specific product requirements applicable to the ESG ratings and assessments provided by such an entity.
  • Imposing a full suite of organisational and conflict of interest requirements on larger more systemic entities that reflect their growing importance in sustainable finance.

Sustainable Finance – SFDR Disclosure

The European Supervisory Authorities (“ESAs”) sent a letter, dated 7 January, to the European Commission, seeking urgent clarification of a number of issues arising under the SFDR (here), including:

  • the application of the SFDR to non-EU alternative investment fund managers (“AIFMs”) and registered AIFMs.
  • the application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group.
  • the meaning of "promotion" in the context of products promoting environmental or social characteristics.
  • the application of Article 9 of the SFDR (transparency of sustainable investments in pre-contractual disclosures).
  • the application of SFDR product rules to portfolios and dedicated funds.

Selected Consultations, Discussion Papers, Speeches and Reports Published

  • EBA – Consultation on Guidelines on the monitoring of the threshold and other procedural aspects for establishing an intermediate parent undertaking under Article 21b of the CRD IV Directive (here). The consultation is open until 4 March 2021.
  • EIOPA – Consultation on open insurance (here). The consultation is open until 28 April 2021.
  • EIOPA – Annual report on use of capital add-ons by NCAs under Solvency II (28 January 2021)(here).
  • EIOPA – 2020 Consumer Trends Report (29 January 2021)(here).
  • ESMA – Consultation on draft Guidelines on aspects of appropriateness and execution-only under MiFID II (here). The consultation is open until 29 April 2021. 
  • European Commission – Consultation on draft implementing decisions on equivalence under EMIR (here). The consultation is open until 17 February 2021.
  • European Commission – Consultation on European single access point for financial and sustainable investment-related information (here). The consultation is open until 3 March 2021.
  • European Commission – Consultation on review of the crisis management and deposit insurance framework (here). The consultation is open until 20 April 2021.
  • European Supervisory Authorities – Consultations on mapping of external credit assessment institutions' credit assessments (here) and (here). The consultation is open until 5 March 2021.

You may also be interested in---

McCann FitzGerald regularly publishes briefings on topics relevant to financial services regulation, among others. You may be interested in the following briefings:

  • Financial Services Regulatory Update – December 2020 Round Up (here)
  • Brexit: Documenting Corporate Financing in the Post-Brexit World (here)
  • The Brexit Deal: Impact on Financial Services (here)
  • ISDA IBOR Fallbacks Tool Goes Live on 25 January 2021 (here)
  • Brexit Trade Deal: Impact on Data Transfers (here)
  • Disputes – Investigations and White Collar Crime: EU Fraud Offences set for Irish Implementation (here)
  • A Survey of the Impact of GDPR and its Effect on Organisations in Ireland 2021 (here)
  • IBA Banking Law Committee Survey: COVID-19 Emergency Measures (here)

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.