The financial sector faces unprecedented challenges as the most far-reaching set of reforms in the history of the industry are implemented.
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In June 2021, following action by the Financial Action Task Force (FATF) we published a briefing outlining concerns that AML-related actions of the EU might make it more difficult for European entities to deal with Cayman securitisation SPVs. In a document dated 7 January, the European Commission has proposed to add the Cayman Islands to its list of jurisdictions which have strategic deficiencies in their Anti-Money-Laundering / Counter Terrorist Financing (AML/CFT) regimes that pose significant threats to the financial system of the EU. In this briefing we set out the next steps and possible consequences for EU entities who have relationships with Cayman securitisation SPVs. We also consider the implications for non-EU sponsors of Cayman securitisation SPVs that seek EU investors. Read more about the European Commission to ban Cayman Securitisation SPVs.
The European Commission has now published its legislative proposals for a new regulation and directive amending the EU Markets in Financial Instruments Regulation and Directive. This new legislation would create a new process for selecting consolidated tape providers for EU trade data, make significant changes to the EU transparency regimes, update the EU share and derivative trading obligations, ban payments for order flow and make other changes to the EU regime for securities and derivatives trading.
The proposals aim to improve the level-playing field between execution venues, improve transparency and the availability of market data and ensure that EU market infrastructure remains competitive internationally.
Clifford Chance has prepared a briefing on the proposals and redlines to indicate the proposed changes to the texts of MiFIR and MiFID. Read the EU MiFID Review: the MiFIR2/MiFID3 legislative proposals.
The European Commission has proposed new harmonised rules for non-EU firms carrying on banking business in the EU, including deposit-taking, lending, payments, foreign exchange and securities and derivatives business. The new rules would restrict the ability of non-EU firms to carry on cross-border banking business into the EU except on a reverse solicitation basis. They would also harmonise the way in which Member States regulate non-EU firms carrying on banking business through EU branches. If adopted, the new rules would have a significant impact on the ability of many non-EU banks and non-bank firms to continue to deal with EU customers or counterparties on a cross-border basis in reliance on existing Member State regimes. The new rules would also significantly alter the regulatory regime for many non-EU firms currently operating through EU branches. Read more about the new EU third-country regime for banking business.
The recently proposed EU regulation on artificial intelligence (AI Act) will impose new regulatory requirements on firms across the financial sector when they use, provide, import or distribute computer software for biometric identification, human capital management or credit assessment of individuals.
It will also prohibit the deployment of software exploiting subliminal techniques or vulnerabilities due to age or disability and impose transparency obligations on providers and users of other software. Firms' compliance with the new requirements will be challenging because of the difficulty of determining what software will be treated as an 'artificial intelligence system' subject to these requirements and which entities within a financial sector group will be subject to obligations under the AI Act, especially given its extraterritorial application. Read more about the impact of the new EU AI regulation on financial sector firms.
“Quick fix” amendments to MiFID2 have now been published in the Official Journal. These amendments aim to support economic recovery from the COVID-19 pandemic, including via relief from certain administrative requirements on firms. EU Member States are required to transpose the quick fix amendments into their national frameworks by 28 November 2021 and apply them by 28 February 2022. Alongside this, the scheduled MiFID2 review continues, with the Commission expected to publish a further legislative proposal towards the end of 2021. Read more about MIFID quick fix and what's next for the MIFID2 review.
This report provides a high level overview of ongoing and expected EU initiatives on financial services. Read more about the EU financial services horizon scanner.
Three new decisions from the Financial Conduct Authority (FCA) show renewed focus on "non-financial misconduct", a term covering issues such as sexual misconduct and bullying, but a recent High Court finding against another regulator, the Solicitors Regulation Authority (SRA), potentially undermines the FCA approach.
This briefing explores, amongst other issues: when non-financial misconduct may amount to a breach of the Conduct Rules; how non-financial misconduct should be assessed; what the regulatory expectations on firms are to conduct investigations and notify the regulator; how the FCA views culture and psychological safety and links these with its objectives; and will there be a shift in stance as the High Court has recently cautioned regulators against being "dogmatic". Read more about Non-Financial Misconduct in Financial Services Regulation – Where do we stand?.