COVID-19 Regulatory Roundup

COVID-19 Regulatory Roundup

COVID-19 Regulatory Roundup


In the wake of the coronavirus (COVID-19) pandemic, regulatory agencies are issuing press releases and regulatory guidance affecting financial services firms on a near-daily basis to keep institutions and the public informed about regulatory activity and relief offered by regulators to deal with problems caused by the pandemic.

Below are summaries and links to guidance issued by the following US, UK, and European financial regulators concerning COVID-19.  These summaries address issues unique to financial services firms and institutions, and do not address other, generally applicable laws and emergency orders:

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U.S.-Based Regulators

SECURITIES AND EXCHANGE COMMISSION (SEC)

The SEC has created a Coronavirus Response page on its website that describes its operational initiatives, market-focused actions, guidance and targeted assistance and relief, investor protection efforts and other work of the agency in response to the effects of COVID-19.

Since late January, the SEC has issued the following notices:

COMMODITY FUTURES TRADING COMMISSION (CFTC)

The CFTC has created a Coronavirus Response page to highlight the Commission’s actions related to COVID-19.

The CFTC has issued a series of temporary, targeted relief to designated market participants designed to help facilitate orderly trading and liquidity in the U.S. derivatives markets:

  • CFTC Letter 20-02: Temporary Relief for Members of Designated Contract Markets and Swap Execution Facilities (March 17, 2020). Provided no action relief from certain time-stamping requirements through June 30, 2020.
  • CFTC Letter 20-03: Temporary Relief for Futures Commission Merchants and Introducing Brokers (March 17, 2020). Provided no action relief from requirements to keep records of oral communications and time stamps, and extended deadline for furnishing CCO’s annual report.
  • CFTC Letter 20-04: Temporary Relief for Floor Brokers (March 17, 2020). Provided no action relief from requirements to keep records of oral communications and time stamps, as well as requirements to be physically present at a trading location.
  • CFTC Letter 20-05: Temporary Relief for Retail Foreign Exchange Dealers (March 17, 2020). Provided no action relief from requirements to keep records of oral communications and time stamps.
  • CFTC Letter 20-06: Temporary Relief for Swap Dealers (March 17, 2020). Provided no action relief from requirements to keep records of oral communications and time stamps, and extended deadline for furnishing CCO’s annual report.
  • CFTC Letter 20-07: Temporary Relief for Swap Execution Facilities (March 17, 2020). Provided no action relief from requirements to keep records of voice communications.
  • CFTC Letter 20-08: Temporary Relief for Swap Execution Facilities (March 17, 2020). Provided no action relief extending deadline for furnishing CCO’s annual report and Q4 financial report.
  • CFTC Letter 20-09: Temporary Relief for Designated Contract Markets (March 17, 2020). Provided no action relief from certain audit trail requirements.
  • CFTC Letter No. 20-10: No-Action Position for Excluding Certain Commodity Swaps from Major Swap Participant Registration Threshold Calculation of an Insured Depository Institution (March 20, 2020). Provided no action relief to an IDI from considering energy-related commodity swaps in determining whether the institution must register with the CFTC as a major swap participant.
  • CFTC Letter No. 20-11: No-Action Positions for Commodity Pool Operators in Response to the COVID-19 Pandemic (March 20, 2020). Provided no action relief from certain filing deadlines.
  • CFTC Letter No. 20-12: Temporary Relief for foreign affiliates of certain futures commission merchants (FCMs) that are exempt from registration with the Commission by CFTC Regulation 30.5. These foreign affiliates can accept orders from U.S. persons for execution on U.S. contract markets in the event an affiliated FCM’s U.S. personnel are unable to handle the order flow of U.S. customers due to their absence from normal business sites.  The relief expires on September 30, 2020.
  • Agencies Will Consider Comments on Volcker Rule Modifications Following Expiration of Comment Period (April 2, 2020). Five federal agencies announced they will extend the deadline to submit comments on proposed Volcker Rule modifications to April 30, 2020. The agencies will continue to consider comments regarding their proposal to modify the Volcker Rule’s general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds because of potential disruptions resulting from the coronavirus.
  • CFTC Issues COVID-19 Customer Advisory on Fee Scams (April 6, 2020). CFTC issued a COVID-19 customer advisory on fee scams. CFTC issued its second Customer Advisory informing the public to be on alert for frauds seeking to profit from recent job losses due to the COVID-19 (coronavirus) pandemic.
  • CFTC to Hold an Open Commission Meeting on April 14 (April 7, 2020). CFTC rescheduled the postponed March 31 open meeting for Tuesday, April 14, 2020. The meeting will be held via conference call, and the Commission will consider several proposed and final rules, as well as administration of comment periods. 
  • CFTC Extends Certain Comment Periods in Response to COVID-19 (April 10, 2020). CFTC announced that it has voted to extend certain currently-open comment periods in light of COVID-19. The extensions encompass rules proposed by the Division of Market Oversight for which current comment periods started in January and February of 2020. 
  • Commissioner Rostin Behnam: Dissenting Statement Regarding CFTC’s Extension of Currently Open Comment Periods in Response to the COVID-19 Pandemic (April 10, 2020).
  • CFTC Letter No. 20-14: CFTC Unanimously Approves 3 Proposed Rules, 2 Final Rules at April 14 Open Meeting (April 14, 2020). At its open meeting today, which was held via conference call, the CFTC unanimously approved three proposed rules and two final rules. Each of the commissioners released a statement related to the meeting:
  • CFTC Letter No. 20-15: CFTC Provides Further Relief to Market Participants in Response to COVID-19 (April 23, 2020). CFTC’s Division of Swap Dealer and Intermediary Oversight announced additional targeted no-action relief to futures commission merchants and introducing brokers in response to the pandemic. The relief addresses net capital treatment of cover loans related to the CARES Act.
  • CFTC Letter No. 20-16: CFTC Provides Additional Relief to Market Participants in Response to COVID-19 (April 24, 2020). CFTC’s Division of Swap Dealer and Intermediary Oversight announced additional targeted no-action relief to registrants listing new principals and to applicants for registration as associated persons from the requirement to submit a fingerprint card for any such principal or AP registration applicant.  The relief lasts until July 23, 2020 or until the National Futures Association notifies the public that it has resumed processing fingerprints, whichever is earlier.  The announcement lays out certain requirements that must be met to qualify for the relief.
  • CFTC Issues COVID-19 Customer Advisory on Commodity ETPs and Funds (May 22, 2020). CFTC issued a Customer Advisory regarding purchasing certain investment vehicles in hopes of profiting from changes in markets due to coronavirus.  Specifically, CFTC noted that there’s been recent volatility due to the pandemic, prompting investors to purchase shares of trading vehicles that use futures contracts or other commodity interests, in hopes of profiting from a recovery in particularly commodity prices.  CFTC warned such profits may not be realized, as the vehicles may not behave like traditional exchange-traded funds or mutual funds that invest in stocks, bonds, or other asset classes.
  • CFTC to Hold an Open Commission Meeting on May 28 (May 22, 2020). CFTC set an open meeting for May 28, 2020.  The Commission will consider a proposed rule providing an exemption from registration for foreign persons acting as commodity pool operators on behalf of offshore commodity pools, as well as an interim final rule extending the compliance schedule for initial margin requirements for uncleared swaps in response to the pandemic. 

The CFTC also published a COVID-19 Customer Advisory to advise the public to be on alert for frauds seeking to profit from recent market volatility related to COVID-19.

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

FINRA has a COVID-19 / Coronavirus resource page on its website that contains, among other things, member guidance and answers to frequently asked questions.

FINRA issued its primary coronavirus-related guidance in Regulatory Notice 20-08, which reminded member firms to consider pandemic-related business continuity planning and provided guidance and regulatory relief to member firms from some regulatory requirements. (March 9, 2020)

The Notice provided guidance concerning the following topics related to the pandemic:

  • Review of member firm business continuity plans to consider pandemic preparedness;
  • Supervision and oversight obligations in light of remote offices or telework arrangements;
  • Heightened cybersecurity risks;
  • Temporary suspension of certain Form U4/BR updates for office of employment addresses;
  • Emergency Office Relocations and related heightened supervision;
  • Communicating with customers and related supervisory control policies and procedures; and
  • Communicating with FINRA and member firm emergency contacts.

The Notice further provided regulatory relief concerning:

  • Extensions of time for regulatory filings, responses to FINRA inquiries, matters and investigations upon a showing of need;
  • Extensions of time for expiring qualification examinations and regulatory element continuing education; and
  • Obligations of registered persons who are called into active duty for military and national guard service.

FINRA’s website also contains links to guidance concerning the following topics:

  • FINRA Operating Status
  • Regulatory and Information Notices
  • Frequently Asked Questions
  • SEC Guidance
  • Impact on Arbitration & Hearings
  • Impact on FINRA-administered Exams
  • Fingerprints
  • Impact on FINRA’s Membership Application Program
  • Impact on FINRA Events & Conferences
  • Investor Education, including information on COVID-19-related fraud schemes
  • State “Shelter-in-Place” and “Stay-at-Home” Orders

Additional Guidance

  • FINRA issued a Uniform Practice Advisory (March 12, 2020) Notified issuers that certain Company-Related Action Submissions would not be deemed “late” if the issuer was unable to timely file as a result of the pandemic.
  • Regulatory Operations Update (March 23, 2020). Reported that FINRA remains fully operational during the COVID-19 outbreak through the support remote work capabilities.
  • FINRA Provides Temporary Extension of Time for Submission of Fingerprint Information Under Rule 1010(d) (March 24, 2020) Announced temporary extension of time for submission of fingerprint information under 1010(d). Members that submitted, or will submit, an applicant’s initial or transfer Form U4 between February 15, 2020 and May 30, 2020, will have until June 29, 2020 to submit the necessary fingerprint information.
  • Frequently Asked Questions Related to Regulatory Relief Due to the Coronavirus Pandemic (March 24, 2020). FINRA provided answers to common questions concerning: advertising regulation; anti-money laundering; best execution; broker-dealer registration; business continuity planning; filing extensions for annual reports and FOCUS reports; fingerprint information; individual registration; qualification examinations; Rule 4530 reporting requirements; and supervision.
  • State “Shelter-in-Place” and “Stay-at-Home” Orders (March 25, 2020). FINRA provided a list of state orders of which it was aware.
  • Information Notice – Cybersecurity Alert: Measures to Consider as Firms Respond to the Coronavirus Pandemic (COVID-19) (March 26, 2020). FINRA provided firms and associated persons with measures they may use to help strengthen their cybersecurity controls in areas where risks may increase in the current environment.
  • SEC Guidance and Resources Relevant to Member Firms (March 27, 2020). FINRA provided links to SEC guidance related to coronavirus.
  • CARES Act 2020: Retirement Fund Access and Student Loan Relief (April 10, 2020). FINRA issued an investor alert to summarize the CARES Act provisions that provide temporary support related to retirement assets and student loan payments to help Americans deal with the economic impacts of the pandemic.
  • Regulatory Notice 20-12 (May 4, 2020). FINRA issued a notice warning member firms to be on alert for fraudulent phishing emails purporting to be from FINRA.  According to its related announcement, there is a widespread ongoing phishing campaign that involves mass distribution of fraudulent emails purporting to be from FINRA officers, and that, in some cases, the email directed the recipient to a website prompting the user to enter their Microsoft Office or SharePoint password.  Examples of such fraudulent emails were attached to the announcement and Notice.
  • Regulatory Notice 20-13 (May 5, 2020). FINRA issued a notice reminding firms to beware of fraud during the coronavirus pandemic.  The Notice outlined four common scams— (1) fraudulent account openings and money transfers; (2) firm imposter scams; (3) IT Help Desk scams; and (4) business email compromise schemes—and described measures that firms and associated persons may take to mitigate related risks.  FINRA further reminded firms that in situations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, broker-dealers must immediately notify by telephone an appropriate law enforcement authority in addition to filing a timely SAR. 
  • FINRA filed with the SEC a Proposed Rule Change to temporarily amend certain timing, method of service and other procedural requirements in FINRA Rules during the outbreak of the coronavirus disease (COVID-19) (May 8, 2020).  FINRA proposed temporary rule changes to: (i) allow, and in some instances require, FINRA to serve certain documents by email; (ii) require that applicants, respondents, and other parties file or serve documents by electronic mail in connection with specified proceedings and processes, unless the parties agree to an alternative method of service; (iii) provide extensions of time to FINRA staff, respondents and other parties in connection with certain adjudicatory and review processes; and (iv) allow for oral arguments before the National Adjudicatory Council (“NAC”) to be conducted by video conference.  These temporary rules will expire June 15, 2020, unless extended by a subsequent proposal.
  • FINRA issued Regulatory Notice 20-16 titled FINRA Shares Practices Implemented by Firms to Transition to, and Supervise in, a Remote Work Environment During the COVID-19 Pandemic (May 28, 2020). FINRA prepared this Noticeto share common themes FINRA observed through discussions with small, mid-size and large firms about the steps they reported taking to transition their associated persons and supervisory procedures to a remote work environment.  In particular, FINRA focused on providing guidance concerning general supervision, trading supervision, supervision of communications with customers, and branch inspections.
  • FINRA, the SEC and the North American Securities Administrators Association (NASAA) Staff jointly issued a warning to investors about promoters targeting retirement accounts, as well as to provide a few key considerations for investors thinking of using 401(k) withdrawals or loans to purchase securities (June 3, 2020).  The CARES Act provided relief for individuals affected by the COVID-19 pandemic to gain access to up to $100,000 of their retirement savings without being subject to early withdrawal penalties and with an expanded window for paying the income tax they owe on the amounts they withdraw.  As a consequence, regulators have observed unscrupulous promoters using these benefits to encourage investors to take money from their 401(k)s or traditional IRAs, not for current emergency financial needs, but to buy often riskier investments in an account at a firm the promoter recommends or in the investor's existing account.  The warning also provided factors for investors to consider prior to selling or borrowing against a retirement account to make new investments in securities.

THE FEDERAL RESERVE

The Federal Reserve has created a COVID-19 Resources page on its website that contains a series of links to coronavirus-related press releases:

In the near term, the Fed noted, risks associated with the course of COVID-19 and its effect on the US and global economies remain high.  In addition, there is potential for stresses to interact with preexisting vulnerabilities stemming from financial system or fiscal weaknesses in Europe, China, and emerging market economies. These risks have the potential to interact with other vulnerabilities identified in its report and pose additional risks to the US financial system.

FEDERAL RESERVE BANK OF NEW YORK

The New York Fed recently released a resource hub with curated information for business owners, employees, nonprofit, and community organizations impacted by the coronavirus, or COVID-19.  The hub is organized by topic and includes links to resources about:

Press Releases

OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)

The OCC created a COVID-19 (Coronavirus) Information Page on its website with information to assist regulated institutions and their customers to manage the impact of the outbreak. The page provided the following links for use by national banks, federal savings associations, federal branches of foreign banks operating in the US, and their customers:

Consumer Information

News Releases

Supervisory Guidance

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

The FDIC has created a Coronavirus (COVID-19) Information for Bankers and Consumers page on its website with links to FAQs for those impacted by Coronavirus, divided by financial institutions and bank customers. The page also provides the following links to FDIC press releases and publicly issued letters:

Information for Use by Financial Institutions

Information for Use by Bank Customers

FEDERAL TRADE COMMISSION (FTC)

The FTC has created a page on its website that outlines its operational initiatives and other work of the agency in response to the effects of COVID-19.

The FTC’s Premerger Notification Office (PNO) has also published guidance regarding changes to the Hart-Scott Rodino filing process, which have also been adopted by the Department of Justice (DOJ), Antitrust Division, including:

  • Starting on Tuesday, March 17 at 8:30AM, all HSR filings must be submitted via Accellion to the Agencies.
  • The PNO and DOJ review of filings will continue as normal.
  • If a filing is deficient, PNO staff will contact the filer to coordinate the submission of additional or amended materials. In general, the submission of a page or two will generally be permitted by email. If filings are more than a page or two, the filer will need to use Accellion, an electronic file transfer system, and PNO staff will be in touch as necessary.
  • After the resumption of normal agency operations, all filing parties may have to submit hard copies or DVDs of filings made using the temporary e-filing system to both PNO and DOJ.
  • PNO and DOJ will not be granting early termination during the use of the temporary e-filing system.

Press Releases

DEPARTMENT OF JUSTICE (DOJ)

DOJ has established a webpage describing announcements and policy changes by the Department in response to COVID-19 and a separate website for COVID-19-related fraud news.

Press Releases

DOJ – Antitrust Division

On March 17, 2020, the DOJ’s Antitrust Division adopted a series of temporary changes to its civil merger investigation processes, which will remain in place during the pendency of the coronavirus (COVID-19) event.  The DOJ joined the Federal Trade Commission in making changes to the Hart-Scott-Rodino filing process.

Other civil process changes include the following:

  • For mergers currently pending or that may be proposed, the Antitrust Division is requesting from merging parties an additional 30 days to timing agreements to complete its review of transactions after the parties have complied with document requests. If circumstances require, the Division may revisit its timing agreements with merging parties in light of further developments.
  • The Antitrust Division will conduct all meetings by phone or video conference (where possible), absent extenuating circumstances.
  • All scheduled depositions temporarily will be postponed and will be rescheduled using secure videoconferencing capabilities.

Press Releases

FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCEN)

FinCEN issued a release encouraging financial institutions to communicate concerns related to the coronavirus and remain alert to related illicit financial activity. FinCEN requested financial institutions affected by the pandemic to contact FinCEN and their functional regulator as soon as practicable if a COVID-19-affected financial institution has concern about any potential delays in its ability to file required Bank Secrecy Act (BSA) reports. (March 16, 2020)

  • Updated Guidance: The Financial Crimes Enforcement Network Provides Further Information to Financial Institutions in Response to the Coronavirus Disease 2019 (COVID-19) Pandemic (April 3, 2020). FinCEN confirms that PPP loans will not require reverification of KYC and other AML information.
  • FinCEN has republished and updated FAQs about the Paycheck Protection Program (PPP) (April 13, 2020).
  • FinCEN Director Kenneth A. Blanco delivered prepared remarks related to COVID-19 at the Consensus Blockchain Conference(May 13, 2020). Director Blanco described FinCEN’s recent “important public-facing and strategic lines of effort” directed at institutions subject to AML regulations during the pandemic.  Among other things, these included: providing Notices to financial institutions advising them to be on alert for malicious and fraudulent transactions; providing financial institutions with information regarding AML operations during the pandemic; offering direct contact mechanisms for firms with COVID-19-related issues; monitoring activity for financial crimes exploiting the pandemic; and supporting law enforcement investigations into COVID-9-related cybercrime, scams, and fraud.  Director Blanco also noted that FinCEN plans to publish multiple advisories highlighting common typologies used in the pervasive fraud, theft, and money laundering activities related to the pandemic to better help the financial sector detect and report this activity.
  • FinCEN published an Advisory on Medical Scams Related to the Coronavirus Disease 2019 (COVID-19) (May 18, 2020).  The advisory -- released to C-suite executives, AML/BSA officers, cyber security professionals, and customer facing bank personnel --  identifies financial red flags indicative of potential COVID-19 fraudulent activity, including those concerning fraudulent cures, tests, vaccines, and services; non-delivery scams; and price gouging and hoarding of medical-related items, such as face masks and hand sanitizer.  For each of these categories the advisory provides a list of red flags that may be indicative of a fraudulent scheme and provides an analogous case study from a recent enforcement action or criminal prosecution.  FinCEN also reminds firms of their due diligence and SAR reporting obligations related to COVID-19.

NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES (NYDFS)

The NYDFS has redesigned its website to prominently display links to various coronavirus guidance directly from its homepage. The links concerning healthcare and paid family leave are geared toward consumers, as is a Consumer Alert concerning coronavirus driven scams and fraud.

The following industry guidance and press releases are found on a link containing Coronavirus Information for Consumers and Businesses:

Industry Guidance

Press Releases

UK-Based Regulators

FINANCIAL CONDUCT AUTHORITY (FCA)

The FCA website contains a coronavirus page, with links relevant to firms and consumers.

FCA Information for Firms on Coronavirus (COVID-19) Response

Among other things, the FCA provided firms with guidance concerning regulatory changes and impact on consumers related to specific products and activity, including insurance, mortgages, unsecured debt, and access to cash.

From an operational perspective, the FCA instructed regulated firms to have contingency plans to deal with major events and meet regulatory obligations, and included a link to a recent consultation paper published jointly by the FCA and Bank of England concerning operational resilience matters that firms should consider. The FCA also gave regulatory relief and/or guidance concerning, market trading and reporting, delayed Consultation Papers and Calls for Input, and delays to publications and other activity.

On March 20, 2020, the FCA published expectations for general insurance firms during coronavirus (Covid-19) pandemic, which included general instructions to treat customers fairly.

That same day, it also issued guidance for mortgage lenders on treating customers fairly.

It also issued a statement on key workers in financial services.

On March 25, 2020 HM Treasury, the FCA and the Bank of England published an open letter to UK banks on lending.

That same day the FCA published, jointly with the Bank of England, a short statement on LIBOR transition plans.

On March 26, 2020, the FCA, the Financial Reporting Council (the UK’s accounting and audit regulator) and the Bank of England issued a joint statement on supporting capital markets.  They put in place temporary relief on financial reporting for listed companies, under which firms may delay announcing results for 6 months from year-end without risking a suspension of their listing.  They also published an associated Q&A Document.

The same day, the FCA released a short statement on financial resilience for solo-regulated firms.

On March 29, 2020, the FCA released a statement on work-related travel for Senior Managers.

On March 31, 2020 the FCA released guidance for firms providing investment services to retail investors.

On April 2, 2020 the FCA issued proposals for temporary financial relief for consumers with credit products.  The consultation closes on April 6, 2020.

On April 3, 2020 the FCA and the Bank of England issued a statement of their expectations under the Senior Managers and Certification Regime for dual regulated firms.

On April 6, 2020 the FCA published its expectations for funds in the light of COVID-19.

On April 7, 2020, the FCA gave guidance to pension funds providers and advisers on COVD-19 related issues.

On April 8, 2020 the FCA released a number of primary market measures aimed at assisting listed companies.

On April 9, 2020 the FCA confirmed the temporary financial relief for consumer credit it had consulted on previously (consultation closed on April 6, 2020).

On April 15, 2020 the FCA published two Dear CEO Letters. The first was sent to CEOs of insurance firms and brokers insuring Small and Medium Sized Enterprises concerning business interruption insurance. The second was sent to banks lending to small businesses. These letters contained guidance from the FCA including its expectations concerning the treatment of small and medium sized enterprises suffering business interruptions and other financial hardships because of COVID-19. Both letters mentioned that the FCA had established a small business unit, headed by a member of its Senior Leadership Team, to consider small business issues.

On April 17, 2020, the FCA opened a short consultation on three linked pieces of guidance on the fair treatment of consumers for high cost credit and car finance.

On April 20, 2020, the FCA released its expectations for the use of wet signatures in light of Coronavirus restrictions.

On April 22, 2020, the FCA introduced new, longer deadlines for submitting a number of different regulatory returns.

On April 24, 2020 the FCA  finalised its guidance on motor finance and high cost credit.

On April 27, 2020 the FCA released guidance concerning the interaction between its rules (including on financial crime), the Business Interruption Loan Scheme and the Bounce Back Loan Scheme.

On April 28, 2020 the FCA issued a Dear CEO letter to banks concerning fair treatment of corporate customers preparing to raise equity finance.

On April 30, 2020 the FCA issued a statement that it had extended the deadline for implantation of strong customer authorisation for e-commerce by 6 months to 14 March 2021.

On May 1, 2020 the FCA announced that it would seek to obtain a court declaration to resolve contractual uncertainty in business interruption insurance coverage due to concerns about the lack of clarity and certainty for customers making business interruption claims, and the basis on which some firms are making decisions in relation to claims.

On May 4, 2020 announced that it would pilot a “digital sandbox” to provide enhanced regulatory support to FinTech companies facing coronavirus-related challenges. The FCA described the following features that could be the foundations of its digital sandbox: access to high-quality data assets; a regulatory call-to-action; a collaboration platform; an observation deck; application programming interface (API) or vendor market place; and access to regulatory support. The FCA  welcomed expressions of interest from regulated and unregulated firms, organizations, associations and individuals who would like to learn more, or discuss how they might contribute to developing the digital sandbox.

  • The same day, the FCA announced amendments to the Coronavirus Business Interruption Loan Scheme (CBILS), which included the launch of the Bounce Back Loan Scheme (BBLS) to support small businesses.  Yesterday, the BBLS formally launched and the FCA released an updated statement on its expectations of firms dealing with CBILS and BBLS.  Among other things, the FCA reminded firms to manage risks of fraud and money laundering -- while balancing the need for fast and efficient release of funds -- by scrutinizing new customers with whom the firm had no prior dealings.

The UK Financial Conduct Authority released a statement concerning exemptions for certain financial services firms form the provisions of the Corporate Insolvency and Governance Bill.   In March, Business Secretary Alok Sharma announced new insolvency and corporate governance measures to help businesses affected by the coronavirus pandemic, which were expected to be included in the Corporate Insolvency and Governance Bill.  The FCA reported that it expects that these measures will not be available for certain banks, investment firms, insurers, payments and e-money institutions and market infrastructure bodies.  Firms that safeguard client assets are also expected to be excluded from the company moratorium during the coronavirus period and temporary suspension of wrongful trading provisions.

On May 13, 2020 the FCA updated its page on LIBOR transition to note that it would resume full supervisory engagement with firms on this issue from June 1, 2020.

On May 14, 2020 the FCA confirmed a package of measures it previously consulted on, designed to encourage firms to assist consumers who may be in financial difficulty as a result of COVID-19.

On May 22, 2020 the FCA proposed to extend the mortgage payment deferment arrangements currently in place, allowing consumers who have not yet requested a payment holiday until October 31, 2020 to do so. The same day, the FCA launched a consultation on guidance for the payments sector which contains a number of proposals, including around safeguarding.

On May 26, 2020 the FCA published updated Q&A on delaying annual company accounts and half yearly reports.

On May 27, 2020 the FCA published Marketwatch 63, which sets out the FCA’s views on market related issues (including disclosure) during the COVID-19 pandemic. It also published Primary Market Bulletin No 28, setting out its views on a number of market-related COVID-19 issues. The same day, the FCA published a statement on training and competence requirements for employees of regulated firms.  In this, the FCA noted that it expected firms to ensure their relevant individuals remained competent to carry out their work.  But in exceptional COVID-19 related circumstances, the FCA noted it was willing to allow firms to defer Continuing Professional Development (CPD) to the following CPD year.

On June 1, 2020 the FCA released draft guidance for insurers who write business interruption policies on the fair treatment of consumers in the light of a test case which is to some before the UK courts.  The guidance sets out the FCA’s expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during the test case brought by the FCA.

On June 2, 2020 the FCA confirmed the draft guidance issued on May 22  concerning fair treatment of consumers who have difficulties paying their residential mortgages.

On June 3, 2020 the FCA published finalized guidance for insurers on the assessment of product value during the pandemic. The guidance includes changes to clarify that firms: should consider the value of products where, due to the impact of COVID-19, there has been a material reduction in risk so that they are providing little or no utility to customers, and not just where claims are no longer possible; are not expected under this guidance to assess value on an individual customer level, but should consider our guidance on helping customers in temporary financial difficulty as a result of COVID-19; can assess the longer-term impacts of COVID-19 on their insurance products on an ongoing basis beyond the 6-month period the FCA has set out for product reviews resulting from this guidance. The guidance comes into immediate effect and may be revised if appropriate.

On June 4, 2020 the FCA published its expectations on banks, building societies, and credit unions on reinstating in-person services in a consistent way.  After working closely with firms to help them consistently reinstating services for customers, the FCA expects that firms will prioritize several areas, including: continuing to ensure essential services are available for the most vulnerable customers and expand capacity where possible; proactively contact vulnerable customers to make sure they know about the services they offer for those self-isolating, and how they can contact their bank if they do not have access to online banking; where possible, and in line with relevant government guidelines, reinstating access to cash and essential services in local areas which have lost access to bank branches or cash during the crisis; where it is not possible to reinstate access, and in areas where a reduced service remains, ensuring that there is clear communication to customers through websites and physical signs at branches to signpost to alternatives, such as Post Office services.

Coronavirus (COVID-19): Support for Consumers
Consumer guidance included information concerning retail insurance products, and general guidance intended to ensure that customers had access to cash, were treated fairly, and were aware that insurance providers must consider the needs of consumers potentially affected by the pandemic. The FCA further provided guidance for consumers to avoid scams and fraudulent schemes related to COVID- 19.

BANK OF ENGLAND

The Bank of England provided links to Letters, New Releases, Market Notices and Monetary Policy Committee releases on its Response to Coronavirus website. In addition to general links related to Government Response and Government guidance to employers and businesses, the Bank of England provided links to the following:

EU Regulators

EUROPEAN COMMISSION (Commission)
  • Communication to the European Parliament and the Council (April 28, 2020):
    • IFRS 9: The Commission expects banks to fully use judgement and flexibility within the confines of IFRS 9 to mitigate unwarranted impact of the COVID-19 crisis on banks´ expected credit loss provisions. Banks´ assessment of a significant increase in credit risk should be based on the remaining lifetime of the financial assets concerned. Private or statutory moratoria are considered unlikely to constitute substantial modifications under IFRS 9.
    • Classification of non-performing loans: The Commission basically confirms the principles set forth in the EBA Guidelines on moratoria on loan repayments of April 2, 2020 (see below).
    • Role and responsibility of the banking sector: Banks are held responsible for keeping liquidity flowing and shall continue to lend households and business. The Commission urges all banks in the EU to refrain from making dividend distributions and carrying out share buy-backs aimed at remunerating shareholders during the period of the COVID-19 crisis. Furthermore, banks are invited to adopt a conservative approach to the payment of variable remuneration.
    • Monitoring and follow-up: The Commission, together with the ECB, the EBA and national authorities, will monitor how banks will use the flexibility and freed-up capital and assess to what extent the relief measures contribute to the supply of bank credit. Besides proposed amendments to the Capital Requirements Regulation (see below), measures to help consumers will be considered in the review of the Consumer Credit Directive and the Mortgage Credit Directive.
  • Proposal for a Regulation amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic (April 28, 2020): Provides, inter alia, for an extension of transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital; preferential treatment under the NPL prudential backstop for exposures guaranteed or counter-guaranteed by the public sector in the context of measures aimed at mitigating the economic impact of the COVID-19 pandemic; deferral of the date of application of the leverage ratio buffer; modifications to the calculation of the leverage ratio; acceleration of the date of application of the exemption of certain software assets from capital deductions.
  • Q&A on the Banking Package to facilitate bank lending (April 28, 2020): Provides a summary of the above documents.
EUROPEAN CENTRAL BANK (ECB)

The ECB has issued a letter to the significant institutions, several press releases and an FAQ on ECB supervisory measures in reaction to the coronavirus:

EUROPEAN BANKING AUTHORITY (EBA)
  • Statement on actions to mitigate the impact of COVID-19 on the EU banking sector (March 12, 2020): In order to enable banks to address any operational challenges, the EBA postponed the EU-wide stress test exercise to 2021; in addition, the EBA recommended that national supervisory authorities plan supervisory activities, including on-site inspections, in a flexible way, and possibly postpone those deemed non-essential.
  • Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID-19 measures (March 25, 2020):
    • Loans in default: Public moratoria (and similar private moratoria) shall not trigger the past due criterion as such; delays are counted based on the modified schedule of payments. If loans are renegotiated in a way that the financial position of the lender does not diminish, there is no default on the grounds of a distressed restructuring under the unlikely to pay criterion.
    • Classification of forbearance: General moratoria will not necessarily lead to a reclassification of a loan under the definition of forbearance, and the moratoria being introduced as a response to COVID-19 pandemic are generally not to be considered borrower-specific with this regard.
    • IFRS9: Public or private moratoria, aimed at addressing the adverse systemic economic impact of the COVID-19 pandemic, should not by themselves automatically trigger the conclusion that a significant increase in credit risk has occurred. In assessing the credit risk, institutions would be expected to distinguish between obligors for which the credit standing would not be significantly affected by the current situation in the long term, from those that would be unlikely to restore their credit worthiness.
  • Statement on consumer and payment issues in light of COVID19 (March 25, 2020):
    • Consumer protection: Institutions shall act in the interest of the consumer, in particular when engaging with customers regarding temporary measures for consumer and mortgage loans in identified cases. Such measures must be granted in compliance with EU law (in particular, the rules on information disclosure). New/additional charges in relation to contingency measures as well as the cross selling of products shall be carefully considered from a legal and reputational perspective. The acceptance of general temporary measures should not automatically affect the consumer´s credit rating.
    • Payment services: Payment services providers shall facilitate consumer´s ability to make payments without the need for physical contact by making use of the exemption from strong customer authentication for contactless payments and thereby applying the maximum threshold of EUR 50 per transaction.
  • Statement on postponed activities (March 25, 2020): EBA extends the deadlines of ongoing public consultations by two months, postpones all public hearings already scheduled and runs them remotely, and extends the deadlines for specified data collection exercises.
  • Statement on dividends distribution, share buybacks and variable remuneration (March 31, 2020):
    • Distribution/share buybacks: The EBA urges all banks to refrain from dividends distribution or share buybacks which result in a capital distribution outside the banking system; within banking groups, capital should be allocated efficiently and prudently.
    • Variable remuneration of staff: Variable remuneration should be set at a conservative level; a larger part of the variable remuneration could be deferred for a longer period and a larger proportion could be paid out in equity instruments.
  • Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19 (March 31, 2020):
    • Supervisory reporting: Subject to exceptions, institutions should be allowed up to one additional month for submissions due between March and end of May 2020. EBA suggests that competent and resolution authorities do not prioritise their supervisory actions towards ad-hoc data collections that are not specifically needed to monitor institutions in the context of the COVID-19 outbreak. The QIS exercise based on June 2020 data is cancelled.
    • Pillar 3 disclosures: The EBA encourages competent authorities to be flexible when assessing the institutions´ compliance with the deadlines for the publication of their Pillar 3 reports. On the other hand, the need for additional Pillar 3 disclosures on prudential information necessary in order to properly convey the institution´s risk profile should be assessed.
  • Statement on actions to mitigate financial crime risks in the COVID-19 pandemic (March 31, 2020): The EBA emphasizes the importance of AML/CFT measures. In particular, institutions should take risk-sensitive measures to establish the legitimate origin of unexpected financial flows, where these financial flows stem from customers in sectors that are known to have been impacted by the economic downturn and COVID-19 measures. Competent authorities shall make use of embedded in the EU´s AML/CFT framework and consider, for example, a temporary postponement of non-essential onsite inspections on a case-by case basis even after current restrictions on movement have been lifted, a move towards virtual meetings and inspections where appropriate, or an extension of submission dates for AML/CFT questionnaires.
  • Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (April 2, 2020):
    • Prudential effect of general payment moratoria: General (legislative or non-legislative) payment moratoria should not change the classification of exposures under the definition of forbearance (art. 47b CRR) or change whether they are treated as distressed restructuring (art. 178 para. 3 lit. d) CRR). For purposes of the definition of default, institutions should count the days past due based on the revised schedule of payments, resulting from the application of any moratorium (past due-criterion); institutions should perform the assessment of unlikeliness to pay based on the most up-to-date schedule of payment, resulting from the application of the general payment moratorium (unlikely to pay-criterion).
    • Definition of general payment moratoria: Moratoria must fulfill certain requirements to qualify as general payment moratoria, such as (inter alia): The moratorium applies to a large group of obligors predefined on the basis of broad criteria; the moratorium does not change any other terms and conditions of the loans than the schedule of payments (e.g., not the interest rate); the moratorium does not apply to new loan contracts granted after the date when the moratorium was announced; the moratorium was launched in response to the COVID-19 pandemic.
  • Final draft Regulatory Technical Standards on prudent valuation under Article 105(14) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR) (April 22, 2020): Since the COVID-19 pandemic has triggered extreme levels of volatility, the EBA is proposing amendments to Delegated Regulation (EU) No. 101/2016 in order to mitigate the increase in aggregated amounts of additional valuation adjustments to trading book positions. These adjustments shall be valid until 31 December 2020.
  • Statement on the application of the prudential framework on targeted aspects in the area of market risk in the COVID-19 outbreak (April 22, 2020):
    • Postponement of the application of certain new reporting requirements introduced by CCR 2 applicable to institutions whose trading book and business subject to market risk exceed certain thresholds: The EBA intends to submit its ITS to the European Commission with a postponed starting date for such reporting, and recommends the European Commission to consider the same delay in the date of application of the delegated act.
    • Postponement of final two implementation phases of the margin requirements for non-centrally cleared derivatives: The requirement to implement initial margins for counterparties above EUR 50 bn (due to start September 2020) and for counterparties above EUR 8 bn (due to start September 2021) shall be postponed by one year.
    • Increase in the Value-at-Risk (VaR) risk metrics and multiplication factors under the Internal Models Approach (IMA) for market risk: Besides some flexibility allowed by the CRR to mitigate these effects, EBA recommends that the annual review of the Stressed VaR observation period provided for by the CRR could be postponed to the end of 2020 and should not constitute a supervisory priority at the moment.
  • Statement on additional supervisory measures in the COVID-19 pandemic (April 22, 2020):
    • Supervisory review and evaluation process (SREP): For the 2020 SREP, the usual thorough and comprehensive assessment of all risk and vulnerabilities of institutions shall be replaced by a risk-driven supervisory assessment focusing on the most material risks and vulnerabilities dirven by the crisis. The ability of institutions to respond to current challenges, including operational continuity, will be key elements of the supervisory focus.
    • Recovery planning: Recovery plans, which aim at restoring the institutions´ financial and economic viability under stress, should be kept reviewed and updated in order to be implemented timely and effectively if needed. Institutions should be allowed to submit only key elements of their recovery plans in 2020 to the competent authorities, with the possibility to postpone the submission of other parts of the plans until the following assessment cycle.
    • Digital operational resilience: The EBA calls on financial institutions to ensure, inter alia, appropriate information & communication technology (ICT) and security risk management, that the capacity of their IT systems support their most critical activities, and that the business continuity plans are up to date and adapted. Furthermore, the EBA calls on competent authorities to apply reasonable supervisory flexibility when assessing the implementation of the EBA Guidelines on ICT and security risk management.
    • Securitisation: The EBA provides details on the application of its Guidelines on moratoria of April 2, 2020 (see above) to securitisations and on the interaction between the concept of “implicit support” under art. 250 CRR and general payment moratoria within the meaning of the aforementioned EBA Guidelines.
  • The European Banking Authority published a Thematic Note titled The EU Banking Sector: First Insights into the COVID-19 Impacts (May 25, 2020).  The Note acknowledges that banks entered the crisis in better shape than they did in previous crises, however, vulnerabilities remain in several areas including persistently low interest rate margins which look to continue to remain low for the foreseeable future.  In addition, despite continuous improvements in asset quality over the past few years, the non-performing loan (NPL) ratio in several countries and banks is still well above pre-global financial crisis levels and funding conditions have significantly deteriorated since February 2020.
  • The EBA issued guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis in a Final Report (June 2, 2020). The guidelines cover reporting and disclosure requirements related to certain supervisory measures applied in response to the pandemic, in particular: reporting requirements to monitor the use of payment moratoria and the evolution of the credit quality of the exposures subject to such moratoria in accordance with the EBA-Guidelines of April 2, 2020; reporting requirements for the new loans subject to specific public guarantees set up to mitigate the effects of the COVID-19 crisis, and reporting requirements on other forbearance measures applied in response to the COVID-19 crisis; disclosure requirements for exposures subject to the payment moratoria in accordance with the EBA-Guidelines on moratoria as well as disclosure requirements for the new loans subject to the specific public guarantees set up to mitigate the effects of the COVID-19 crisis.

EUROPEAN SECURITIES AND MARKETS AUTHORITY (ESMA)

ESMA has published a general recommendation to financial market participants, followed by several specific public statements:

  • Recommendation for COVID-19 impact (March 11, 2020): ESMA made general recommendations to financial market participants with regard to business continuity planning, market disclosure, financial reporting and fund management.
  • Public statement (March 18, 2020): Postponement of the reporting obligations related to securities financing transactions.
  • Public statement (March 20, 2020): Taping requirement under MiFID II could be replaced by other measures (such as written minutes), if the coronavirus situation did not allow for taping (g., due to the sudden remote working by a significant part of staff).
  • Public statement (March 25, 2020): ESMA provides issuers with guidelines on the accounting implications of the economic support and relief measures on recognized financial instruments and their conditions. If the support measures provide temporary relief to debtors affected by COVID-19 and the net economic value of the loan is not significantly affected the modification of the terms of the instrument would be unlikely to be considered as substantial.
  • Public statement (March 26, 2020): Postponement of the reporting obligations related to securities financing transactions under the SFTR and under MiFIR
  • Press release (March 27, 2020): ESMA confirms application date of equity transparency calculations for equity instruments under MiFID II/MiFIR.
  • Public statement (March 27, 2020): ESMA expects national authorities not to prioritise supervisory action against issuers whose securities are admitted to trading on regulated markets in respect of upcoming publication deadlines under the Transparency Directive with regard to annual/half-yearly financial reports.
  • Public statement (March 31, 2020): ESMA recommends that national authorities consider postponing deadlines related to the publication of certain reports by execution venues and investment firms.
  • Risk Dashboard Risk up-date (April 2, 2020): ESMA updated its risk assessment in light of the COVID-19 pandemic for securities markets, trading venues, central clearing and asset management (funds).
  • Public statement (April 9, 2020): ESMA expects national authorities not to prioritize supervisory action against fund managers in respect of certain upcoming deadlines for the publication of annual and half yearly reports for a specified period of time.
  • Public statement (April 9, 2020): ESMA expects national authorities not to prioritize supervisory action against interest rate benchmark administrators and contributors to interest rate benchmarks relating to the timeliness of fulfilling external audit requirements for interest rate benchmarks under the Benchmarks Regulation.
  • Q&A on Guidelines on Alternative Performance Measures (APMs) (April 17, 2020): Provides guidance to issuers on the ESMA APM-Guidelines, APMs being financial measures of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The Q&A encourages issuers to use caution when adjusting APMs and when including new APMs to address the impact of COVID-19. Besides, the Q&A invites issuers to provide narrative information regarding the modifications made, the assumptions used and the impact of COVID-19, and to provide information on measures taken or expected to be taken by issuers to address the impact that the COVID-19 outbreak may have in their operations and performance.
  • Joint committee of the European Banking Authority, the European Securities and Markets Authorities, and the European Insurance and Occupational Pensions Authority released its final report regarding European Market Infrastructures Regulation Regulatory Technical Standards (EMIR RTS) related to amendments to the bilateral margin requirements. (May 4, 2020).  See summary under EBA section above.
  • Public statement (May 6, 2020): In light of current market circumstances, as well as increasing retail investor activity, ESMA reminded investment firms of their MiFID II conduct of business obligations. In particular, ESMA pointed to the product governance, information disclosure, suitability and appropriateness requirements for retail customers. With regard to the suitability test (which applies to investment advice and portfolio management services), ESMA emphasizes that investment firms should pay particular attention to the possible ramifications of the COVID-19 crisis for the client´s personal situation and the risk profile of his financial instruments to ensure that these financial instruments are suitable for him.
  • The European Securities and Markets Authority issued a Thematic Report on EU CLO credit ratings. (May 14, 2020) The report presented the merits and risks of the major credit rating agencies´ practices when rating CLOs. The report also addressed the potential impact of COVID 19, noting that its current information collected in March 2020 failed to account for the impact of the pandemic. However, the ESMA observed that credit quality of the CLO loan portfolio had started to deteriorate, with CRAs downgrading or issuing negative outlooks on some leveraged loans included in CLO portfolios.
  • Public statement (May 14, 2020): ESMA supports the ESRB´s recommendation on liquidity risks in investment funds.
  • The European Securities Market Authority issued a Public Statement on the implications of COVID-19 outbreak on the half-yearly financial reports (May 20, 2020).  The Statement addressed the preparation of interim financial statements according to International Financial Reporting Standards and the interim management reports for the 2020 half-yearly reporting periods, and highlighted the need for issuers to provide updated information that is useful to investors to adequately reflect the current and expected impact of the COVID-19 pandemic on the financial position, performance and cash-flows of issuers. The ESMA also emphasized the importance of providing information on the identification of pandemic-related principal risks and uncertainties to which issuers are exposed.