26 March 2020

Covid 19 - European Regulatory Updates

As the pandemic accelerates, European regulators have moved fast to shore up what they can of the financial system by relaxing, clarifying and delaying new rules and requirements. Below we set out a brief survey of those regulatory actions through 25th March.

European Regulatory Actions 

Financial Conduct Authority

  • 26/03/20:  Audited financial accounts:  The FCA, PRA and the Financial Reporting Council have issued guidance to firms on the production of audited annual accounts.  The FCA has given listed companies an extra two months to produce these (and urges market participants not to draw adverse inferences if companies chose to take this extra time).  The FRC has given guidance on making forward looking judgements and for auditors on carrying out audit responsibilities. 

  • 25/03/20:  LIBOR:  The FCA and the Bank of England have confirmed that the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed.  Firms must continue to transition away from LIBOR.

  • 21/03/20:  Preliminary financial statements:  The FCA has introduced a voluntary moratorium on companies with an official listing publishing preliminary financial statements.  The FCA also reminds firms that the Market Abuse Regulation (MAR)  is still in force, and when relevant, inside information must be announced, and persons discharging managerial responsibilities (PDMRs) and closely associated persons must still report when required to under MAR.

  • Regulatory reporting:  Firms experiencing difficulties sending in regulatory data must keep appropriate records and submit as soon as they are able.

Prudential Regulation Authority

  • 25/03/20:  Prudential adjustments:  In a joint letter with the Treasury and the FCA, the Bank of England has reminded banks that the countercyclical capital buffer has been reduced to 0% (though note that the PRA’s expectations is that firms will not increase dividends and distributions) and that there is guidance in place to remind firms to make use of buffers if necessary.  The 2020 stress test is now cancelled.

  • Regulatory reporting:  The PRA is accepting specified delays to PRA-owned reports.

European Securities and Markets Authority

  • 11/03/20 ESMA recommended actions:  ESMA published a statement setting out recommended actions for financial market participants:

  1. Be ready to deploy business continuity plans;

  2. Disclose any impacts on fundamentals, prospects or financial situations as required under MAR;

  3. To the extent financial reporting has not yet taken place, include qualitative and quantitative assessments of impacts in 2019 year end reports or otherwise in interim reports;

  4. Asset managers must continue to apply requirements on risk management.

  • 16/03/20 Short selling:  Holders of net short positions in shares traded on an EU regulated market must notify their regulator if they reach or exceed a position of 0.1% of issued share capital (half the previous threshold).  Note that subsequently, France, Italy, Belgium, Spain and Greece have short selling bans in place.  The UK (FCA) has indicated that it is not minded to ban, and while it will implement ESMA’s new reduced threshold, the old threshold remains while the FCA implements the necessary changes to its data-receiving technology.

  • 19/03/20 SFTR:  ESMA has delayed the reporting start date and that for the registration of Trade Repositories under the Securities Finance Transactions Regulation from 13 April to 13 July 2020.  However, ESMA does expect repositories to be registered ahead of the July date and for firms to be able to start reporting on that date.

  • 20/03/20 Tick sizes:  ESMA has delayed the application of the tick size regime (which requires firms to price certain financial instruments in the same increments) to firms defined as Systematic Internalisers under MiFID II from 26 March to 26 June 2020.

  • Communications surveillance:  ESMA has relaxed video communications monitoring requirements under MiFID II in circumstances when firms are unable to monitor.  Firms will be expected to use all possible efforts to ensure the measures are temporary and to revert to recording phone calls as soon as possible.

European Banking Authority

  • 25/03/20  Default, forbearance and IFRS9: The EBA has released a statement on the application of its prudential framework on default, forbearance and IFRS9.  Key points are:

  1. Public and private moratoria addressed to broad ranges of product classes or customers do not automatically have to be classified as forbearance measures;

  2. There is flexibility around default classifications;

  3. Firms should make careful assessments of obligors’ unlikeliness to repay;

  4. The EBA does not think there is currently a need to reclassify the measures banks are taking under the definition of forbearance;

  5. Note that ESMA has supported measures to provide temporary relief to borrowers under IFRS9.

A Guide to Doing Business in China

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