GLOBAL
The Organization for Economic Co-operation and Development’s (OECD) Inclusive Framework on Base Erosion and Profit Sharing (BEPS) brings together over 135 countries and jurisdictions that are collaborating to implement 15 measures to address the misuse of BEPS. These actions are designed to maintain the fairness and integrity of tax systems worldwide.
In early 2020, the OECD/G20 Inclusive Framework on BEPS, moved ahead with a two-pillar negotiation to address the tax challenges of digitalization. Peer reviews of BEPS minimum standards took place, and Inclusive Framework members are expected to continue signing and ratifying the Multilateral Instrument to Implement Tax Treaty Measures to Prevent BEPS, which entered into force on July 1, 2018.
Furthermore, on June 29, 2020, the Platform for Collaboration on Tax (PCT) published a draft toolkit on Tax Treaty Negotiations. The toolkit, intended to help developing countries build capacity in tax treaty negotiations, describes the steps involved in tax treaty negotiations including how to decide whether a comprehensive tax treaty is necessary, how to prepare for and conduct negotiations, and follow-up measures to take after negotiations.
Early 2021 – The PCT aims to release the final toolkit in early 2021
Regulatory Margin Requirements (RMR) were put in place after the 2008 financial crisis and require entities trading over-the-counter (non-centrally cleared) derivatives to post margin on those transactions. Variation margin (VM) requirements were implemented in 2017, and phases 5 and 6 of initial margin (IM) requirements for newly in-scope counterparties will be implemented over the next two years.
IM requirements apply to entities if their average aggregate notional amount (AANA) of all non-centrally cleared derivatives breach an annually decreasing threshold. IM requirements were phased-in beginning in 2016 based on an entity’s AANA of non-centrally cleared derivatives exceeding prescribed phased-in decreasing thresholds.
In July 2019, BCBS and IOSCO revised deadlines for the implementation of IM requirements and introduced additional phases. As a result, phase 5 entities (with a month-end AANA of non-centrally cleared derivatives from €50 billion to less than €750 billion) and phase 6entities (with AANA from €8 billion to less than €50 billion) were created.
Subsequently, on April 3, 2020, due to the COVID-19 pandemic, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) further adjusted the deadlines for phases 5 and 6 by one year to September 1, 2021, and September 1, 2022, respectively. In response, most countries have amended their local regulations in accordance with the revised dates.
September 1, 2021 – Initial margin implementation deadline for phase 5 for entities with an AANA exceeding a threshold of: EUR 50 billion | USD 50 billion | CAD 75 billion; AANA calculation period will be the month-ends of March, April and May, 2021
Numerous amendments to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) will come into effect in early 2021.
On August 27, 2020, the IAS Board issued 'Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' with amendments that address issues that may affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments are effective for annual periods beginning on or after January 1, 2021.
January 1, 2021 – Effective date for certain amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, IFRS 16
Following the announcement of the need for London Interbank Offered Rate (LIBOR) reform in 2013, the Financial Stability Board (FSB) developed recommendations for reforming major interest rate benchmarks. The FSB’s Official Sector Steering Group (OSSG) published recommendations in 2014 to strengthen existing benchmarks and develop alternative risk-free rates (ARFRs). Legal, accounting and tax barriers to the transition from LIBOR were also considered.
As an independent initiative, the International Organization of Securities Commissions (IOSCO) published Principles for Financial Benchmarks (the IOSCO Principles). The IOSCO Principles apply to interbank offered rates (IBORs) and other types of benchmarks, and have been used as the basis for various domestic and supranational regulations.
Over the next year, IBORs across markets globally will be displaced by ARFRs and risk-free-rates (RFRs). By the end of 2021, most IBORs will have transitioned to their new formats or ARFRs. The Financial Conduct Authority (FCA) announced that after this time, it would no longer compel organizations to submit daily LIBOR rates, and the Benchmarks Regulation (BMR) transitional provisions for critical and third country benchmarks will also expire at this time. One exception exists for the US dollar LIBOR, which has been extended until June 30, 2023, to give markets more time to move to alternative rates.
January 25, 2021 – Amendments to ISDA 2006 Definitions and IBOR Protocol expected to come into effect in January 2021
(UK) Q1 2021 – The Working Group on Sterling Risk-Free Reference Rates targets the end-Q1 2021 for cessation of issuance of GBP LIBOR based loan products that mature post 2021
(US) June 2021 – New term rate based on SOFR derivatives markets expected
(US) June 30, 2021 – Alternative Reference Rates Committee target for cessation of new USD LIBOR Collateralized Loan Obligations (CLOs), new USD LIBOR Securitizations (ex CLOs), new USD LIBOR Business Loans and new USD LIBOR Derivatives trades that are not to manage legacy USD LIBOR risk
(EU) Q2 2021 – €STR term structure expected to be available
(EU) December 31, 2021 – EU BMR transitional provisions for critical and third country benchmarks expire
Following the Paris Agreement on climate change, and as a consequence of the COVID-19 pandemic, governments and regulators globally are considering the development of climate smart, environmentally friendly financing. The 17 United Nations Sustainable Development Goals (SDG) adopted in September 2015 provide an international framework for SDGs and broader environmental, social and governance (ESG) metrics. A growing number of financial products are aligned to these standards.
There are a large number of global and national initiatives underway. Key areas of focus include the establishment of standard definitions and taxonomy of what constitutes 'green', as well as consistent and comparable metrics and methodologies for measuring the climate impacts of green projects.
Several examples include:
January 27, 2021 – End of consultation period on TFCD’s Forward-Looking Financial Sector Metrics paper
September 2021 – TFCD status report for the Financial Stability Board
Q2 2021 – A proposal for the European Union Green Bond Standard is expected
Since 2015, the Financial Stability Board (FSB) has been leading initiatives to address the decline in correspondent banking and remittance payments. Recently, cross-border payments have faced major challenges and international action is necessary to help respond to these concerns to support economic growth and international development.
On October 13, 2020, the FSB published a cross-border payments roadmap to demonstrate payment improvements, which will be presented in a consolidated report for G20 review in October 2021.
October 2021 – Consolidated report due for G20 review
A Financial Stability Board (FSB) report on the market turmoil experienced in March 2020 revealed that the shock caused a fundamental repricing of risk, a heightened demand for safe assets, and large and persistent imbalances in the demand for, and supply of, liquidity, including significant outflows from money market funds (MMFs) and specific types of open-ended funds.
As a result, the FSB has identified a non-bank financial intermediation (NBFI) work program for 2021 and 2022 that will include an examination of MMF resilience, and liquidity risk management tools for open-ended funds. Policies to address systemic risks in NBFI are expected to be considered in 2022.
January 2021 – FSB to publish its 2021 workplan
2021 – FSB policy proposals regarding money market fund resilience are expected to be introduced in 2021, along with a report to the G20
2021 – Availability and effectiveness of liquidity risk management tools for open-ended funds will take place throughout 2021 and 2022
On October 19, 2020, the Financial Stability Board (FSB) issued its final report on effective practices for cyber resilience, and cyber incident response and recovery, given the risks cyber incidents pose to the smooth functioning of the financial system. The report included a toolkit of 49 cyber practices across governance, planning and preparation, analysis, mitigation, restoration and recovery, coordination and improvement. The FSB encourages authorities and organizations to use the toolkit to enhance their cyber practices. The FSB will continue its work in this area throughout 2021 by assessing use of the toolkit and monitoring the continuing work of national financial authorities.
January 2021 – FSB to publish its 2021 workplan; no fixed dates for specific actions in 2021
CANADA
On October 3, 2019, the Canadian Securities Administrators (CSA) published the final text of amendments to National Instrument (NI) 31-103 (Registration Requirements, Exemptions and Ongoing Registrant Obligations) and Companion Policy 31-103CP, to enhance the registrant-client relationship in five key areas: Know-Your-Client (KYC), Know-Your-Product (KYP), Suitability, Conflicts of Interest and Relationship Disclosure Information.
Key changes include the introduction of a materiality threshold for conflicts of interest, a codified KYP requirement that would require registrants to take reasonable steps to understand a security before offering it to clients, and an enhanced suitability obligation to include a requirement to put the client’s interest first when determining suitability.
Work on related topics will continue as separate projects, including the imposition of a statutory fiduciary duty where a client grants discretionary authority to a registrant in those jurisdictions not currently having such a duty in their legislation.
Due to COVID-19, the new conflict of interest thresholds will be delayed until June 2021, and the relationship disclosure requirement will take effect in December 2021.
June 30, 2021 – Effective date for enhanced conflict of interest requirements; conforming amendments to IIROC and MFDA rules for dealers and advisors will take effect in accordance with the CSA timeline
December 31, 2021 – Effective date for relationship disclosure requirements; conforming amendments to IIROC and MFDA rules for dealers and advisors will take effect in accordance with the CSA timeline
In June 2018, the Canadian Securities Administrators (CSA) proposed National Instrument (NI) 93-101 (Derivatives: Business Conduct), along with an associated Companion Policy, to implement a comprehensive regulatory regime for persons and companies who trade or advise on derivatives.
NI 93-101 sets out comprehensive conduct rules including requirements related to: fair dealing, conflicts of interest, KYC, suitability, pre-trade disclosure, reporting, compliance, responsibilities of senior managers, recordkeeping, and the treatment of derivatives party assets.
In September 2018, the CSA completed a second consultation on the proposed instruments, and may release updated draft or final NIs in 2021.
H1 2021 – Expected release of final NI 93-101 (Derivatives: Business Conduct)
In April 2018, the Canadian Securities Administrators (CSA) proposed National Instrument (NI) 93-102 (Derivatives: Registration), along with an associated Companion Policy, to implement a comprehensive regulatory regime for persons and companies who trade or advise on derivatives.
NI 93-102 sets out registration requirements and exemptions for derivatives market participants.
H1 2021 – Expected release of final NI 93-102 (Derivatives: Registration)
On April 15, 2019, the applicable securities regulatory authorities approved amendments to the Universal Market Integrity Rules and the Dealer Member Rules to include client identifiers.
The amendments are being implemented in three phases with the second and third phases closing on July 26, 2021. Global industry testing will be conducted between January 2021 and April 2021. On April 5, 2021, both the Investment Industry Regulatory Organization of Canada (IIROC) and marketplaces will begin accepting orders from Dealer Members and vendors that include information required under the Client Identifiers Amendments. This will occur just after IIROC has delivered the encryption key to Dealer Members.
July 26, 2021 – Participants will need to replace unique identifier with a Legal Entity Identifier (LEI) for Routing Arrangement (RA0) clients and Direct Electronic Access (DEA) clients that are eligible to obtain an LEI for orders in a listed security
National Instrument (NI) 94-101, requiring certain counterparties to clear certain prescribed derivatives through a central counterparty (CCP), came into force in April 2017.
In October 2017, the Canadian Securities Administrators (CSA) proposed amendments that would, among other steps, exclude from NI 94-101’s mandatory clearing requirement investment funds and trusts that would otherwise be included as “affiliate entities” of clearing participants or large counterparties.
Following a consultation on the proposed amendments, the CSA introduced further amendments to clearing rules regarding applicability to affiliates on September 3, 2020. The end of the consultation was December 2, 2020. Final rules are expected to be published in 2021.
RBC I&TS is considering solutions to support its clients under the Third-Party model. Analysis continues as the market works to finalize standards and regulations.
H1 2021 – Expected final release of revised proposed amendments
On February 20, 2020, all Canadian securities regulators, with the exception of Ontario, adopted amendments to National Instrument (NI) 81-105 Mutual Fund Sales Practices to prohibit the payment by fund organizations of upfront sales commissions to dealers, thereby banning all forms of the deferred sales charge (DSC) option, including low-load options in those jurisdictions. The rules take effect on June 1, 2022.
The Ontario Securities Commission’s (OSC) 2021-2022 Statement of Priorities includes a plan to work to finalize Ontario’s regulatory response to the use of the DSC option in the sale of mutual funds to address certain negative investor outcomes. Actions will include:
On September 17, 2020, the Canadian Securities Administrators (CSA) published amendments to NI 81-105, to prohibit the payment of trailing commissions by fund organizations to dealers that do not make a suitability determination, such as order-execution-only (OEO) dealers, which also takes effect on June 1, 2022. The ban affects all funds that pay trailing commissions, including funds sold under the DSC option. The CSA expects fund organizations and dealers to take necessary measures to ensure that investors with DSC holdings will not be required to pay redemption fees as a result of the ban, and to clearly communicate to investors the measures they intend to adopt.
2021 – The OSC is expected to issue a proposed DSC rule for comment, and possibly a final rule to be implemented
On July 10, 2019, the Government of Canada published final regulations amending existing regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
The wide-ranging amendments contain numerous changes for Canadian reporting entities, including: a requirement to file suspicious transaction reports (STRs) “as soon as is practicable” (a change from the current 30-day deadline), enhanced requirements to confirm and record beneficial ownership information, changes to the treatment of politically exposed persons (PEPs), and new definitions and reporting requirements for money services businesses (MSBs).
Electronic funds transfers (EFTs) will also be significantly affected. Reporting entities will be required to, among other things, record and report EFTs that are in-house transfers, verify the identity of EFT beneficiaries receiving amounts larger than CAD 1,000, and treat “international EFTs” in accordance with a unique set of requirements, including an updated “travel rule” that requires international EFTs to include the name, address and account number or other reference number of the person or entity requesting the EFT, as well as the corresponding beneficiary’s information.
On June 1, 2021, amendments will take effect to reduce compliance burdens, including the use of identification measures, requirement for virtual currency dealers to register as money services businesses, and all other regulatory amendments.
June 1, 2021 – Effective date for remainder of 2019 amendments
In November 2019, the Investment Industry Regulatory Organization of Canada (IIROC) updated its Anti-Money Laundering (AML) Compliance Guidance to help dealer members meet their AML and anti-terrorist financing (ATF) regulatory obligations. The Guidance included an appendix comparing AML rules and IIROC rules for client identification and verification requirements, and reminds dealer members to comply with the strictest requirement. Other amendments have been made to minimize unnecessary duplication with FINTRAC guidelines and to clarify language.
IIROC also published amendments to change the corporate beneficial ownership threshold from 10% to 25% to align with AML/ATF requirements and with National Instrument (NI) 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. These changes will take effect at the same time as the IIROC rules are implemented, now scheduled for December 31, 2021. However, in December 2020, IIROC advised that, since the Canadian Securities Administrators (CSA) have approved this amendment, IIROC would early adopt, on January 1, 2021, the 25% corporate beneficial ownership threshold in IIROC Rule clause 3204(1)(iii) into Dealer Member Rule clause 1300.1(b)(i). This would permit Dealers to identify beneficial owners of corporations at the 25% threshold, consistent with AML laws and NI 31-103.
January 1, 2021 – Implementation date of amendments to Dealer Member Rules relating to client identity corporate beneficial ownership threshold
December 31, 2021 – New target implementation date for IIROC Dealer Member Plain Language Rule Book
In March 2019, the Canadian Securities Administrators (CSA) proposed National Instrument (NI) 25-102 (Designated Benchmarks and Benchmark Administrators), along with a Proposed Companion Policy, seeking to implement a comprehensive regime for the designation and regulation of benchmarks and benchmark administrators in Canada, and to regulate persons and companies contributing data to, and using, benchmarks.
In early 2020, the Bank of Canada assumed responsibility for the administration of the Canadian Overnight Repo Rate Average (CORRA). Contributors to benchmarks are subject to a number of governance, control and reporting requirements, and certain benchmark users (including registrants and reporting issuers) are required to maintain plans in the event of significant change to or cessation of the designated benchmarks. In November 12, 2020, Refinitiv Benchmark Services (UK) Limited (RBSL), the administrator of the Canadian Dollar Offered Rate (CDOR), announced that the 6-month and 12-month tenors of CDOR will cease to be published effective May 17, 2021
The CSA closed its comment period on the proposed NI 25-102 in June 2019, and was originally expected to release an updated NI in 2020. It is now expected in 2021.
Q2 2021 – Expected release of updated NI 25-102
May 17, 2021 – 6-month and 12-month tenors of CDOR will cease to be published
On November 17, 2020, the Minister of Innovation, Science and Industry, introduced Bill C-11, An Act to enact the Consumer Privacy Protection Act and the Personal Information and Data Protection Tribunal Act and to make consequential and related amendments to other Acts, also referred to as the Digital Charter Implementation Act, 2020.
The new Act would repeal parts of the Personal Information Protection and Electronic Documents Act (PIPEDA) and replace them with a new legislative regime governing the collection, use, and disclosure of personal information for commercial activity in Canada. At the core of this regime, the Consumer Privacy Protection Act (CPPA) would be enacted to maintain, modernize, and extend existing rules and to impose new rules on private sector organizations for the protection of personal information. CPPA would also enhance the role of the Privacy Commissioner in overseeing organizations’ compliance with these measures. The Personal Information and Data Protection Tribunal Act would be enacted to create a Tribunal to hear appeals of orders issued by the Privacy Commissioner, and apply a new administrative monetary penalty regime created under CPPA. Provisions of PIPEDA governing electronic alternatives to paper records would be retained under the new title of the Electronic Documents Act.
January 17, 2021 – Government consultation concludes
In June 2020, the Government of Quebec introduced Bill 64, a legislative proposal to modernize the framework of personal information in Quebec, and provide citizens with more control over their personal information. If Bill 64 is enacted as currently drafted, it would create a private-sector privacy statute in that province that is substantially similar to the General Data Protection Regulation (GDPR) enacted in the European Union in 2018.
Bill 64 will create more onerous requirements to obtain consent to collect customer personal information, including the need for express consent relating to “sensitive” information. Businesses would still be able to share information without consent for the purpose of carrying out business transactions. Personal information may be used for secondary purposes that benefit the person concerned and for internal analytics and research. The Bill also proposes more substantial monetary administrative penalties for contraventions.
Bill 64 is in the committee stage with the National Assembly of Quebec. An implementation date has not yet been established, although it is not expected to come into force until late 2021.
Q4 2021 – Potential effective date
EUROPE
The Sixth Anti-Money Laundering Directive (AMLD6), which came into force in December 2020, aims to empower financial institutions and authorities to expand their scope beyond money laundering and terrorism by strengthening penalties and amendments on existing legislation.
Along with other measures, AMLD6 broadens the scope of money laundering through a unified list that defines different offences, extends criminal liability to legal persons to represent legal entities, and directs collaboration among member states to address money laundering offences.
AMLD6 covers all regulated entities throughout the European Union, including the United Kingdom, and will need to be transposed into local regulations for implementation by June 2021.
June 3, 2021 – Effective date of AMLD6 for local regulations
Q1 2021 – A proposal for a further review of the AML Directive is expected to be released in Q1 2021
The Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation covers all investment products and contracts in which consumers invest money directly or indirectly in capital markets, or where their repayment is otherwise linked to the performance of certain securities or reference values. UCITS have so far been exempt as an existing Key Investor Information Document (KIID) was already in place. In 2022, a new PRIIPs Key Investor Document (KID) is expected to replace the current version of the UCITS KIID.
The Markets in Financial Instruments Directive (MiFID II) is more extensive than PRIIPs. It includes individual investors and institutions, and covers the services provided around products, such as distribution/advice, discretionary management, trading, research and ongoing reporting. It places an ongoing responsibility on advisers and distributors to supply pre-sale cost projections, quarterly valuations and annual client-specific costs and charges reports.
The industry (i.e., European Fund and Asset Management Association (EFAMA), Insurance Europe, Investment Management Association (IMA)) have worked together to produce data exchange templates to help industry participants meet PRIIPs and MiFID II reporting requirements. These include:
RBC I&TS provides a PRIIPS KID reporting solution for funds other than UCITS, and also currently supports UCITS KIIDs. Our systems and processes will be updated to ensure readiness once the exemption for UCITS ends, when they will then be required to comply with the PRIIPS KID format
January 2021 – EMT version 3 expected to be released
The Central Securities Depositories Regulation (CSDR), which came into force in September 2014, aims to streamline the timing and conduct of securities settlements and the rules governing central securities depositories (CSDs). CSDR is pivotal to post-trade harmonization efforts in Europe, as it enhances the safety and efficiency of settlements, in particular cross-border settlement in the European Union.
Many CSDR measures have already taken effect. The settlement discipline regime was intended to take effect in February 2021, and has been postponed until February 1, 2022. These measures are intended to improve settlement efficiency, and include the imposition of a mandatory buy-in and cash penalties for settlement fails.
The United Kingdom (UK) has announced that it will not participate in the CSDR settlement discipline regime after Brexit, but will retain its existing domestic regime with some possible adjustments. The European Commission has adopted a temporary equivalence decision for UK CSDs which expires on June 30, 2021. The decision deems that the legal and supervisory arrangements of the UK, which became applicable to UK CSDs after December 31, 2020, meet the conditions laid down in CSDR Article 25(9).
The European Commission issued a targeted consultation document on the Review of Regulation on Improving Securities Settlement in the European Union and on Central Securities Depositories, with a closing date of February 2, 2021.
RBC I&TS has a Middle Office Trade Management solution in place including an electronic settlement tracker module allowing the automatic monitoring in near real time of settlement updates from SWIFT-enabled custodians. It allows proactive management of upcoming settlement issues to maximize settlement rates and minimize cash penalties. Additionally, a global follow the sun model allows communication with brokers and custodians in their time zone to manage pre-settlement queries in timely manner. Broker performance insights enable the proactive management of poor performing brokers. Also, RBC I&TS TDS activities control the timeliness of settlement transaction in the course of its oversight duty.
RBC I&TS continues to monitor the evolution of the timeline around CSDR and is working in conjunction with industry associations to participate in consultations.
February 1, 2021 (postponed to February 1, 2022) – Official revised effective date for settlement discipline measures.
February 2, 2021 – Closing date for the European Commission’s targeted consultation document on the Review of Regulation on Improving Securities Settlement in the European Union and on Central Securities Depositories.
June 30, 2021 – Current expiry date of European Commission’s temporary equivalence decision for UK CSDs
The Shareholder Rights Directive II (SRD II), which entered into force in June 2017, is aimed at enhancing and harmonizing shareholder rights in the European Union (EU), including intermediaries’ obligations to facilitate the exercise of shareholders’ rights, rights to vote on related party transactions and on executive compensation. SRD II also includes intermediaries’ obligations to comply with issuers’ shareholder identification requests, enhanced disclosure requirements for institutional investors and asset managers in the EU, who must develop, implement and publish policies on shareholder engagement.
The implementation date in relation to SRD II intermediary requirements was September 3, 2020.
RBC I&TS continues to enhance its regulatory solution and global infrastructure to better serve our clients in the context of SRD II. In anticipation of a potential SRD III, RBC I&TS is prepared to mobilize a team to assess and respond to upcoming new impacts.
Q4 2021 – The first report on SRD II is expected to relate to whether “there are national regulatory barriers to the use of new digital technologies that could make communication between issuers and shareholders more efficient and facilitate the identification of shareholders by the issuers or the participation and voting by shareholders in general meetings” and is expected to be followed by a review proposal in Q3 2023
The European Market Infrastructure Regulation (EMIR) requires entities that enter into derivatives contracts to report those contracts to a trade repository. It also requires such entities to clear specified OTC derivatives through a central counterparty (CCP), as well as implement prescribed risk management standards, including margin requirements, for OTC derivatives not cleared through a CCP.
While EMIR entered into force in 2012, final deadlines occurred in 2020. In January 2020, initial margin requirements began to apply to transactions where one counterparty is a third-country entity with no equivalence decision, and variation margin requirements apply for all non-centrally cleared derivatives on single stock equity options and index options. Due to COVID-19 postponements, all initial margin requirements are to be phased in, beginning with phase 5 by September 1, 2021.
Additionally, as a result of a recent review of EMIR, the European Commission concluded that specific areas could be amended. The new applicable date for validation rules that apply to Trade Repository (TR) derivatives will be postponed to March 8, 2021, to align with the Brexit transitional phase.
Under the EMIR Regulatory Fitness and Performance (REFIT) review, the requirement for the provision of clearing services will need to be completed on the fair, reasonable, non-discriminatory and transparent (FRANDT) terms for clients and members who perform clearing services. The FRANDT regime will be in accordance with the EMIR REFIT program, which will seek to address disproportionate compliance costs, transparency issues and insufficient access to clearing for certain counterparties. The clearing requirements under FRANDT terms will apply on June 18, 2021.
September 1, 2021 – Initial margin requirements effective date for Phase 5 entities
March 8, 2021 – New applicable date for EMIR validation rules
June 18, 2021 – Effective date for mandatory clearing obligations under EMIR REFIT (article 4)
The Benchmarks Regulation (BMR), which entered into force in June 2016 and entered into application in January 2018, introduced a framework intended to increase the reliability of financial benchmarks used in the European Union (EU) and mitigate the risk of manipulation.
BMR sets out obligations applicable to the administrators of, contributors to, and users of benchmarks. The extent of the obligations that apply to administrators and contributors is contingent on whether a benchmark has been designated as critical, significant or non-significant.
At the beginning of January 2020, certain transitional provisions expired, including the deadline for EU index providers already providing a benchmark to apply for authorization or registration of that benchmark.
Additionally, in February 2019, BMR was amended to extend transitional provisions for critical and third-party benchmark administrators’ compliance with the regulation to December 2021.
December 1, 2021 – Expiry of transitional provisions for third-party benchmarks, as extended by the Low-Carbon Benchmarks Regulation
The Directive on Mandatory Automatic Exchange of Information in the Field of Taxation in Relation to Reportable Cross-Border Arrangements (DAC6), which entered into force in June 2018, is aimed at addressing aggressive cross-border tax arrangements. It imposes a mandatory requirement on specified European Union (EU) intermediaries, including banks and financial advisors, to report cross-border tax schemes that meet prescribed characteristics to their local tax authorities.
DAC6 also requires the automatic exchange of information between EU tax authorities. Due to COVID-19, most EU cross-border reporting arrangements have been extended by up to six months, to February 28, 2021.
The UK is considering their own version of DAC 6 in 2021, and may look for equivalency following the Brexit effective date of January 1, 2021.
RBC I&TS has conducted a global review of DAC 6 impacts and concluded that securities lending activities are not in scope of the regulation. Our existing Securities Financing Transactions Regulation solution covers current transaction reporting requirements. For other products, RBC I&TS will introduce a DAC 6 solution in order to respond to the regulatory requirements.
January 1, 2021 – New date for reporting cross-border tax arrangement after June 30, 2020
February 28, 2021 – Deadline for reporting cross-border tax arrangements between June 25, 2018, and June 30, 2020
April 30, 2021 – Deadline for information exchange with EU tax authorities
The Securities Financing Transactions Regulation (SFTR), which came into force in January 2016, forms part of the European Union’s strategy to reduce “shadow banking” risks in securities financing markets. It aims to enhance transparency with regards to the use of securities and commodities borrowing and lending, repurchase transactions, sell-buy-backs and buy-sell-backs and margin lending (collectively, securities financing transactions, or “SFTs”).
The first part of SFTR was implemented in 2018, covering transparency requirements. SFTR reporting rules, which will require both financial and non-financial companies to report certain SFTs to approved trade repositories, started to be implemented on a phased basis beginning in 2020. Credit institutions, investment firms, central securities depositories, central clearing counterparties, and other financial counterparties (e.g., insurance companies, pension funds, UCITS, AIFs) are subject to different deadlines to commence SFT reporting.
RBC I&TS has an SFTR solution in place that covers the transaction reporting requirements. RBC I&TS continues to implement improvements to its solution, and will be ready for the April 2021 deadline regarding LEI requirements.
January 11, 2021 – Effective date for SFT reporting rules for non-financial entities/counterparties
January 16, 2021 – Effective date for SFT reporting rules for back-loading Central Securities Depositories (CSDs) and Central Counterparties (CCPs)
April 18, 2021 – Effective date for SFT reporting rules for insurance firms, UCITs, AIFs, and pension funds
July 20, 2021 – Effective date for SFT reporting rules for back-loading for non-financial counterparties
In June 2019, the European Parliament passed a Directive and Regulation setting out a comprehensive regulatory regime specifically for MiFID investment firms (other than those considered to be of systemic importance).
Accordingly, the Investment Firm Directive and Investment Firm Regulation (IFD/IFR) will replace the current Capital Requirements Directive/Capital Requirements Regulation (CRD/CRR) regime for the majority of MiFID investment firms and will apply from June 26, 2021.
IFD/IFR includes specific regulatory capital requirements and calculation rules, as well as requirements for the composition of own funds, concentration risk and liquidity, and reporting and disclosure, including the disclosure of environmental, social and governance (ESG) risks.
June 26, 2021 – Rules to apply to all investment firms authorized in the EU
The Financial Conduct Authority (FCA) proposes to introduce the Investment Firm Prudential Regime (IFPR). The objectives are similar to the European Investment Firm Directive / Investment Firm Regulation, while taking into consideration specifics relevant to the UK market. The IFPR is intended to:
TThe FCA has announced its intention to postpone the implementation of the Investment Firms Prudential Regime to January 2022. Also, the first of three FCA Consultation Papers was published in December 2020, with the other two expected in Q2 and Q3 2021.
Q3 2021 – IFPR comes into effect
The European Commission (EC) is proposing to introduce a new regulation to strengthen the current system of investment protection and facilitation within the European Union. The EC’s consultation period on this topic closed on September 8, 2020, and is expected to publish a regulation in the second quarter of 2021.
Q2 2021 - A proposed framework is expected
Since the adoption of the ELTIF legal regime in April 2015, only around 28 ELTIFs have been established, with a very low asset base (below EUR 2 billion). Given the relatively low interest in the ELTIF regime, along with the High-Level Forum on the Capital Markets Union’s recommendations for a review of the ELTIF regime, a public consultation was conducted by the European Commission, which was to close on January 19, 2021.
The responses to the public consultation will help inform the overall assessment of the ELTIF regime.
January 19, 2021 – End of public consultations on the functioning of the ELTIF regime
Q3 2021 – Possible amendments to the ELTIF framework
In August 2019, the European Parliament and European Council published an amendment to the first Alternative Investment Fund Managers Directive (AIFMD) and the UCITS Directive that sets out a regime covering the “pre-marketing” of AIFs and UCITS to investors.
Currently, AIFMD and the UCITS Directive regulate the marketing of funds, and not pre-marketing. The amendment includes a harmonized definition of “pre-marketing” in order to address different approaches among Member States. It also sets out requirements for the notification to regulators of pre-marketing activity, as well as a “reverse solicitation” provision that deems any subscription to an AIF or UCITS that has engaged in pre-marketing by an investor within 18 months of the AIF or UCITS commencing pre-marketing to have resulted from marketing.
The amendment also includes provisions that seek to ensure that non-European Union (EU) AIFs or UCITS are not given a pre-marketing advantage over EU AIFs or UCITS.
In addition, the mandatory review of AIFMD (AIFMD 2) continues. In 2020, ESMA consulted on Art. 25 of AIMFD, and in June 2020, the European Commission (EC) issued its report assessing the application and scope of Directive 2011/61/EU on AIF managers. A further public consultation by the EC closed on January 29, 2021.
RBC I&TS is an active participant to the consultation and will assess the potential impact on its products and services as soon as further clarity is provided by authorities. Our teams are mobilized to ensure a smooth transition to the new regime.
January 29, 2021 – End of EC’s public consultation on the review of AIFMD (AIFMD 2)
Q3 2021 – Publication of AIFMD 2 legislative proposals expected
August 2, 2021 – Member states must transpose the CBDD and CBDR rules into national law
August 2, 2021 – CBDD and CBDR rules are expected to apply
The Sustainable Finance Disclosure Regulation (SFDR) will take effect on March 10, 2021, and is designed to enhance transparency on the integration of environmental, social and governance (ESG) matters into investment considerations. SFDR promotes the building of a sustainable economy for the future and establishes a framework for “sustainable investments” for financial products.
The regulation will require financial market participants (FMPs), including Alternative Investment Fund managers, UCITS management companies and authorized MiFID investment firms to implement such policies and disclosures in consideration with their investment activities.
The European Commission has been clear that it expect FMPs to comply with SFDR by March 10, 2021, regardless of whether Level 2 implementation measures are available by that date. The Financial Conduct Authority has confirmed it will not be on-shoring SFDR into UK law for March 10, 2021.
RBC I&TS is making the necessary preparations to serve our clients including controls and oversights to be implemented under our Trustee and Depository activities.
March 10, 2021 – Level 1 measures enter into application
H2 2021 – No firm date confirmed for the application of Level 2 measures since the European Commission announced a delay in October 2020
The Non-Financial Reporting Directive (NFRD), or Directive 2014/95/EU, sets out rules to disclose non-financial and diversity information by large companies. On December 11, 2019, the European Commission (EC) announced its intention to review NFRD as part of the strategy to strengthen foundations for sustainable investment. As such, a public consultation was conducted between February 2020 and June 2020, to collect the views of stakeholders with regard to possible revisions to the NFRD provisions.
On May 27, 2020, the EC, in its adjusted Commission Work Program, indicated the first quarter of 2021 as the target delivery date for a new draft regulation.
Q1 2021 – Draft regulation expected before April 2021
On September 2020, the Irish government has announced the Investment Limited Partnership (ILP) Bill, a regulated common law partnership structure to promote investment, modernize the current partnership structure, and enhance the regulatory environment to enhance Ireland’s competitiveness in Europe. The Bill was signed into law on December 23, 2020 and is regulated by the Central Bank of Ireland.
RBC I&TS’ Trustee and Depository services group has the necessary procedures in place to accommodate the ILP structure in Ireland.
March 10, 2021 – Disclosure date
The European Securities and Markets Authority (ESMA) has identified costs and performance as a new Union Strategic Supervisory Priority to action in 2021.
The area of costs and performance is a key part of investor protection and affects investors’ trust in financial markets. Investment firms and fund managers should ensure costs and charges are reasonable and disclosed in a transparent and non-complex manner.
2021 – ESMA to launch a common supervisory action covering costs and fees, as well as securities lending fees and costs
A “quick fix” designed to remove administrative burdens in order to help the European Union recover from pandemic-related challenges is under review and is expected to be formally adopted by the European Parliament and Council in February 2021.
A full review of MiFID II will be assessed by the European Commission (EC) in H1 2021.
The amendments are focused on information requirements, product governance and position limits. The Committee on Economic and Monetary Affairs (ECON) of the European Parliament issued its report endorsing the proposals and suggesting minor amendments. The European Parliament has published the provisional version of its adopted text of the proposed amending Directive. Implementation dates are not yet available.
RBC I&TS will continue to monitor regulatory developments and assess any potential impacts to our securities lending activities.
2021 – EC to conduct a review
July 31, 2021 – Proposal expected following the review
Following the publication of the European Commission's (ED) 2020 work programme on January29, 2020 the EC announced its intention to review the regulatory framework for investment firms and market operators, set out in the Second Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).
While proposals were expected to be adopted in the third quarter of 2020, due to the COVID-19 pandemic, the 2021 Work Program postponed the adoption of proposals for one year.
Among other considerations, the proposals envisage the establishment of a European Union (EU) consolidated tape.
September 2021 - Review expected
Solvency II implemented a risk-based capital regime for most insurers and reinsurers having head offices in the European Union. Similar to the Basel rules, Solvency II is based on three pillars: consistent rules for calculation of assets and liabilities and risk-based capital, transparency and reporting requirements, and formal internal governance and risk mitigation measures, along with a consistent supervisory process.
The directive has been applicable since 2016. The European Commission (EC) has commenced a comprehensive review of Solvency II with a proposal expected to be released in Q3 2021.
In the UK, the directive was adopted into UK law, and more recently it was “onshored” to ensure that Solvency II “reflects the circumstances of the UK’s withdrawal from the EU and that it will continue to apply effectively in the UK” after January 1, 2021. HM Treasury is currently engaged in a review of Solvency II identifying potential areas for reform that could improve the efficiency and effectiveness of the application of the UK prudential regulatory regime, and to better recognize the unique features of the UK insurance sector. A Call for Evidence was issued in October 2020 and submissions are being received until February 19, 2021.
RBC I&TS’ Solvency II solution aligns with the latest template in force and updates will continue to be implemented as the format evolves.
H1 2021 – EC to conduct a complete review
Q3 2021 – EC legislative proposal is expected following the review
ASIA PACIFIC
On August 28, 2020, the Inland Revenue Authority of Singapore (IRAS) enacted the Income Tax (International Tax Compliance Agreements) (United States of America) Regulations (“FATCA Regulations 2020”), which came into effect on January 1, 2021.
January 1, 2021 – Effective date for Foreign Account Tax Compliance Act regulations in Singapore
Over the next year, IBORs across markets globally will be displaced by alternative risk-free rates (ARFRs) and risk-free-rates (RFRs). By the end of 2021 most IBORs will have transitioned to their new formats or alternative risk-free rates. Under the guidance of the Steering Committee for SOR & SIBOR Transition to SORA (SC-STS), Singapore is preparing for the replacement of its benchmark by the Singapore Overnight Rate Average (SORA).
April 30, 2021 – SC-STS target for cessation of issuance of SOR-linked loans and securities that mature after end-2021; SORA is expected to be the de facto floating rate benchmark for institutional activity
Over the next year, IBORs across markets globally will be displaced by alternative risk-free rates (ARFRs) and risk-free-rates (RFRs). By the end of 2021 most IBORs will have transitioned to their new formats or alternative risk-free rates. Hong Kong, under the guidance of the Hong Kong Monetary Authority (HKMA), is preparing for the amendment of LIBOR-linked contracts and issuance of LIBOR-linked products.
June 30, 2021 – HKMA target for ceasing issuance of new LIBOR-linked products maturing after 2021
January 1, 2021 – HKMA target for inclusion of adequate fallbacks in all newly issued LIBOR-linked contracts maturing after 2021 and for institutions to being offering products that reference AFRS
Over the next year, IBORs across markets globally will be displaced by alternative risk-free rates (ARFRs) and risk-free-rates (RFRs). By the end of 2021 most IBORs will have transitioned to their new formats or alternative risk-free rates. Japan is preparing for the replacement of its LIBOR benchmark by the Tokyo Overnight Average Rate (TONA).
Q2 2021 – New term rate based on TONA derivatives markets expected