Margin phase 5 came and went, with many relying on threshold monitoring rather than repapering (a risk that will become ever more acute with the higher volumes in phase 6). The possible divisions in regulatory approach created by Brexit have not really manifested yet, though we are seeing the first signs of things to come in the consultations on MiFID2[1] and positioning on EUR clearing.

Read on to see the main themes we expect to see in 2022, starting with a quick timeline...

• LIBOR[2]: as we set-out in Going, going, gone before Christmas, 31 Dec saw LIBOR end except for USD; no new transactions in USD LIBOR in any asset class are permitted from 1 January 2022 except for derivatives for risk management of existing positions (see FCA prohibition statement), with USD LIBOR finally ceasing in June 2023; the FCA[3] announcement permitting tough legacy transactions in GBP & JPY LIBOR to reference synthetic LIBOR rates has provided a welcome safety net for any positions that didn’t transition or fallback at year end, but it leaves a tail of trades still to deal with in 2022; EONIA[4] also ceased publication on 3 January (but EURIBOR[5] continues).
• ESG[6]: climate-related and other ESG disclosures are going to become ever-more prevalent in the industry; the EU has led the charge with SFDR[7] and CSDR[8] (see our PIEs note), but the UK has recently made strong statements in their Green Finance Roadmap about their commitment to reporting under Sustainability Disclosure Requirements (SDR) and the UK Green Taxonomy; first up in January 2022 the EU is mandating qualitative disclosures under EU Taxonomy Regulation for ‘large undertakings’ (> 500 employees), accompanied by a high level quantitative disclosure of ‘taxonomy eligibility’. An interesting argument within the EU over Christmas around the inclusion of nuclear and gas within the EU taxonomy which underlines the challenges that will be faced globally as different jurisdictions start to implement their own taxonomies.
• CSDR: the Central Securities Depository Regulation goes live in the EU on 1 Feb 2022, although there has been a delay to some of the requirements. The rules apply to firms that trade in-scope securities that settle on an EEA CSD – importantly the rules relating to mandatory buy-ins have been delayed (not yet decided until when), but various contractual agreements and operational processes do need to be in place for February; the UK did not onshore CSDR but there may be extra-territorial impacts for UK firms operating in the EU. For more information on CSDR see our website here..
• FICC Research in UK: the FCA has announced it will no longer be necessary for firms subject to UK MiFID2 obligations to pay separately for FICC[9] research (‘unbundling’) from 1 March 2022, although the exemption does not extend to macro-economic research. Firms within the EU subject to the original EU MiFID2 rules will still be subject to the inducement regime; if you are unsure whether the exemption should apply to your relationship with NatWest, please speak to your usual bank contact.
• WMR/MiFID2: the Wholesale Markets Review (WMR) is the UK review of the MiFID2 regime it inherited from the EU; a consultation took place earlier in 2021, with further consultations expected in Q1/Q2 2022; though details and timing not yet clear, changes could have a significant impact in the area of transparency and the liquidity determination for fixed income / derivatives; meanwhile the EU is also revising MiFID2 with changes expected in Q2 following multiple consultation papers over the last 2 years, though given EU trilogue process, likely a further year before implementation; expect more discussion from EU on establishing a consolidated tape for EU markets as well, in line with Capital Markets Union commitments.
• Margin: Initial Margin Phase 6 goes live on 1 Sep 2022; this pulls in a wide range of additional firms with AANA10 above $/€8bn; as with Phase 5 (where repapering across the industry is still not complete with reliance on Threshold Monitoring to alert counterparties to when they are approaching levels where IM would be required), this will require a huge lift in legal docs and operational set up. Another change for the UK affecting both Margin and Clearing is the upcoming loss of intragroup exemption in June 2022, impacting firms with legal entities both inside and outside the EU.
• Clearing: the temporary equivalence decision by the EU, permitting EU firms to clear trades on UK based CCPs[11], was due to expire in June 2022, however in November 2021 the Commission agreed to extend the exemption (though as yet we don’t know for how long); at the same time the UK has announced plans to consider relying on ‘comparable compliance’ from their home country for non-UK CCPs; on 17 Dec ESMA[12] released a statement that they would not derecognise UK CCPs “at this point in time”, though they went on to list various measures they see as necessary to reduce systemic risk; a somewhat reluctant but ultimately welcome reprieve for EUR clearing for the time being.
• PRIIPS: the change to the PRIIPS[13] regulation is due to go live in EU on 1 July (having been delayed from 1 January 2022); it revises the performance calculations for category 2 to 4 PRIIPS significantly, with only a minor modification to category 1 PRIIPS calculations; following agreement on a delay, the UK on-shored version of the revised regulation will be published in Q1 – it is not yet known what lead time there will be before implementation, but it is hoped it will not go live until Jan 2023.  
• EMIR Refit: both EU and UK are reviewing their versions of EMIR[14] under the general heading of ‘EMIR Refit’. In the EU the final results are expected to be published in an RTS[15] in Q1 2022 which will give final detail for example on the Trade & Transaction Reporting changes that will be required, with go-live probably 18 months later. In the UK a consultation is underway with final rules published in Q3 2022 for implementation the following year. In both cases quite substantial revisions are expected to T&TR; there are also changes in pipeline from CFTC[16] for Dodd Frank reporting, meaning the scale of impact to operations teams is likely to be substantial.
• UK Ringfencing: the independent Ring-fencing and Proprietary Trading (RFPT) Review is expected to publish a statement setting-out its initial findings and recommendations during the week commencing 17 January. These are likely to inform a detailed consultation by HM Treasury later in 2022. The UK currently has the most stringent post-crisis rules on structural separation of retail and wholesale activities, and the review has had a broad scope to consider whether these have met their original objectives of supporting financial stability, as well as their impacts on customers, competition and competitiveness.
• Basel 3.1: due to apply from January 2023, implementing remaining Basel 317 provisions; the EBA[18] has suggested that these rules will have an estimated increase of capital of 18.5% for EU banks; the PRA[19] has been given significant discretion of how Basel 3.1 will be implemented for UK banks and plans to issue a consultation paper in Q3 2022. Both the UK and EU are committed to full, timely and consistent implementation of the remaining Basel standards, but doubts persist as to whether either jurisdiction will meet the 1 January 2023 deadline. Given the specificities of their respective economies there is now greater potential for divergence on detail. 
• Crypto Assets: the draft Markets in Crypto-Assets Regulation (MiCA) is scheduled to come into force at the end of 2022; MiCA will establish a fully harmonised EU-wide regulatory framework for crypto-assets which will include crypto-asset service providers (CASPs); the FCA published a consultation paper concerning cryptoassets in January 2021, which ended in March.

For a more exhaustive list of the FCA’s planned regulatory agenda see the Regulatory Initiatives Grid they published In November.

We look forward to engaging clients in the year ahead on these and other topics. 

All the best for the new year.

Notes

[1] MiFID2 Markets in Financial Instruments Directive 2

[2] LIBOR London Inter-Bank Offered Rate

[3] ESG Environmental, Social, & Governance

[4] FCA Financial Conduct Authority

[5] EONIA Euro Overnight Index Average

[6] EURIBOR Euro Interbank Offered Rate

[7] SFDR Sustainable Finance Disclosure Regulation

[8] CSDR Central Securities Depository Regulation

[9] FICC Fixed Income Currencies & Commodities

[10] AANA Average Aggregated Notional Amount

[11] CCPs Central counterparties

[12] ESMA European Securities and Markets Authority

[13] PRIIPS Packaged retail and insurance-based investment products

[14] EMIR European Market Infrastructure Regulation

[15] RTS Regulatory Technical Standards

[16] CFTC Commodity Futures Trading Commission

[17] Basel 3 Third Basel Accord or Basel Standards

[18] EBA European Banking Authority

[19] PRA Prudential Regulation Authority