Structured products bulletin: year-end 2024

Welcome to our structured products bulletin which provides a year-end review of 2024, rounding up key legal and regulatory developments in the structured products space.

2024 brought changes of government in the US and UK, as well as a new EU Parliament and (after some political wrangling) a new European Commission, with political shifts expected to continue to shape the regulatory and legislative landscape for financial markets globally.

Work within the EU to bolster and further progress the Capital Markets Union has continued to drive integration and de-fragmentation and enhance regulation in EU capital markets, through work in areas including market architecture, retail investor protection and wholesale markets, which will continue throughout 2025 and beyond. The CMU’s recent rebrand as the Savings and Investment Union places retail savings and investment at the centre of turbocharging growth.

In the UK, progress has continued on implementing various aspects of the ‘Edinburgh Reforms’ which has resulted in post-Brexit regulatory reforms in several areas affecting structured products, including prospectuses and PRIIPs. With UK regulators utilising new powers under the Financial Services and Markets Act 2023, a new regulatory architecture has been established that re-shapes the future of financial regulation for UK markets and participants.

EU

EU Listing Act package: Prospectus Regulation

Update on reforms to the EU Prospectus Regulation
On 8 October 2024, the Council of the EU formally adopted the “EU Listing Act”, package, which aims to make public capital markets in the European Union more attractive for EU companies and to facilitate access to capital for small and medium-sized enterprises.

On 14 November 2024, the new measures were published in the Official Journal of the EU.

The Listing Act package comprises the following:

• Regulation 2024/2809 amending the EU Prospectus Regulation, Market Abuse Regulation and the Markets in Financial Instruments Regulation;
• Directive 2024/2811 amending MiFID II, in particular the MiFID II research unbundling rule, introducing an EU code of conduct for issuer-sponsored research and repealing the Listing Directive; and
• Directive 2024/2810 on multiple-vote share structures in companies that seek the admission to trading of their shares on an SME growth market.

The amendments to the Prospectus Regulation are targeted reforms intended to provide greater flexibility and reduce complexity and issuer burdens (e.g. removing the requirement to supplement base prospectuses to update annual or interim financial information incorporated by reference), but it does not represent a radical departure from the existing regime. Among the key changes introduced by the amendments are:

• An exemption for issuers of debt securities from the obligation to prepare a supplement to a base prospectus to incorporate new annual or interim financial information (subject to conditions);
• The period within which withdrawal rights may be exercised following the publication of a supplement is increased from 2 to 3 days;
• The types of information that may be incorporated by reference has been expanded to include ESG disclosure;
• Standardisation of the format and content of prospectuses and summaries (see also ESMA’s Consultation Paper (below) providing technical advice to the European Commission on Level 2 measures regarding prospectus content and scrutiny);
• Removal of the obligation to rank the most material risk factors, and prohibit those that are generic or only act as disclaimers;
• The introduction of a new EU follow-on prospectus for secondary issuance and an EU Growth issuance prospectus;
• Secondary issuances of securities fungible with those already listed on a regulated market or SME growth market will not require a prospectus, subject to meeting certain conditions;
• New requirements for green bond sustainability disclosures;
• The requirement for a printed prospectus is abolished; and
• The total aggregated consideration threshold for the prospectus exemption for banks issuing in a continuous or repeated manner has been raised from €75 million to €150 million.

While certain of the measures entered into force on 4 December 2024, Member States have between 14 and 24 months in which to implement other aspects of the package.

ESMA Consultation on Level 2 measures under the new EU Prospectus Regulation
On 28 October 2024, ESMA published a Consultation Paper providing technical advice to the European Commission on Level 2 measures for the new EU Prospectus Regulation (which forms part of the EU Listing Act package). The Commission has requested technical advice from ESMA on a range of topics under the new Prospectus Regulation for when it takes effect (which is expected to be July 2026), and this set of advice relates to prospectus content and scrutiny, and data collection.
In particular, ESMA’s draft technical advice covers:

• The standardised format and content of prospectuses (and the standardised “sequence” of the prospectus, including base prospectus and final terms), plus a building block of additional information for non-equity (debt) securities offered to the public of admitted to trading on a regulated market that are advertised as taking ESG factors into account or pursuing ESG factors;
• The criteria for the scrutiny and the procedures for the approval of the prospectus, including proposed amendments to Delegated Regulation 2019/980 on scrutiny and disclosure; and
• Related proposed amendments to Delegated Regulation 2019/979 on ‘metadata’, including to reflect the changes in prospectus types, streamline data gathering and improve data collection in line with the EU Green Bond Regulation.

Alongside the Consultation, ESMA also published a Call for Evidence which seeks input on possible harmonisation of prospectus liability, and responses to both were requested by 31 December 2024.

Retail Investment Package

European Council reaches agreement on Retail Investment Package
On 12 June 2024, the European Council announced that it had agreed its position on the Retail Investment Package that was adopted by the European Commission in May 2023. The European Council’s agreement means that negotiations can proceed with the European Parliament on the final composition of the rules. The Package comprises:

• A proposal for a Regulation amending the PRIIPs Regulation which focuses on modernising the Key Information Document (KID); and
• A proposal for an “Omnibus” Directive amending several Directives including MiFID, the IDD, Solvency II, UCITS and AIFMD, which aims to align transparency and information requirements across the EU, in particular aligning the IDD and MiFID disclosure rules with PRIIPs.

Regarding the proposed amendments to the PRIIPs Regulation, the amending regulation proposes several changes to Key Information Documents (“KID”) to make them more suitable for the changing needs of investors and use on digital devices, and to increase legal clarity. In particular, the changes would affect the contents of the KID in certain areas (subject to negotiations on the text between the EU institutions) including:

• New sections in the KID (including “product at a glance” and “how sustainable is this product?”) with dashboards containing summary information (on which technical standards will be drawn up);
• A simplification of the rules on providing a KID by electronic disclosure;
• Specifying how layering can be used in the digital provision of a KID, and requiring the European Supervisory Authorities to develop technical standards on the content of dashboards and the principles for the use of layering and digital options using an electronic format;
• Specifying the disclosure of costs information with respect to Multi-Option Insurance Products (MOPs) to promote choice between different products;
• The removal of the comprehension alert (‘You are about to purchase a product that is not simple and may be difficult to understand’) at the start of the KID, and
• Confirming that some corporate bonds with make-whole clauses are out of scope of the PRIIPs Regulation.

Longer proposed implementation and transposition periods would mean that the measures may not take effect for at least 30 months following their finalisation and publication in the Official Journal of the EU.

Negotiations between the European institutions are ongoing and further updates will be provided during the course of 2025.

Benchmarks Regulation

Proposed Regulation Amending the BMR
On 24 October 2024, the European Parliament published its position on the adoption of a proposed Regulation Amending the EU Benchmarks Regulation (BMR). The proposed Amending Regulation would require only administrators of critical benchmarks, significant benchmarks, EU climate transition benchmarks, EU Paris-aligned benchmarks and certain commodity benchmarks to continue to be subject to the registration or authorisation requirement. ESMA would have a supervisory role relating to these benchmarks. In addition, the current threshold of a total average of EUR50 billion to define a significant benchmark will be retained, subject to ESMA technical standards for the determination of significant benchmarks. Previously supervised benchmark administrators would keep their existing registration or authorisation for nine months after the entry into force of the new rules.

The proposed regulation is expected to be negotiated among the European institutions throughout 2025.

ESG/Sustainable finance

Update on the EU Green Bond Regulation
On 21 December 2024, the key aspects of the EU Green Bond Regulation (Regulation (EU) 2023/2631) began to apply, and use of the EU Green Bond standard became available to issuers (note that certain aspects of the Regulation began to apply from 20 December 2023, and other aspects do not apply until 21 June 2026). The Regulation sets a voluntary standard for (both EU and non-EU) issuers wishing to use the designation “EU Green Bond”, or “EuGB” for bonds made available to investors within the EU, promoting consistency and comparability in the European green bond market.

Among the key requirements of the uniform rules for issuers of EuGBs are:

• Bonds marketed as EuGBs must meet strict standards on the application of proceeds to sustainable objectives, with proceeds fully allocated to certain prescribed categories aligned with the EU Taxonomy Regulation;
• The prospectus for an EuGB must comply with the EU Prospectus Regulation unless an exemption applies;
• Detailed pre- and post-issuance reporting requirements including publication of an EuGB factsheet prior to issuance, and regular allocation reports until proceeds have been fully allocated;
• Review of the allocation report once proceeds have been fully allocated;
• Impact reporting following full allocation; and
• Review of reports by an ESMA-registered, independent external reviewer which will assess the information provided and

A transitional period applies from 21 December 2024 until 21 June 2026 during which firms may act as external reviewers of EU Green Bonds, subject to meeting certain criteria, ahead of full registration as such with ESMA.

In early 2025, the European Commission is expected to publish Guidelines establishing templates for voluntary pre-issuance disclosures, and adopt a Delegated Act on the information to be disclosed in periodic post-issuance information (which can be used voluntarily by issuers of non-EUGBs whose bonds are environmentally sustainable or sustainability-linked but which do not qualify as EuGBs).

ESMA is expected to issue its Final Report on the first package of Technical Standards and submit its drafts to the European Commission in early 2025. A second package of technical standards under the EuGB is also due during 2025.

European Commission publishes FAQs on Taxonomy Regulation, CSRD and SFDR
On 29 November 2024, the European Commission published an updated set of frequently asked questions on the technical application of the EU Taxonomy, in particular on the technical screen criteria for new activities included in the Taxonomy Climate and Environmental Delegated Acts, the “do no significant harm” criteria and the related reporting obligations.

In addition, on 13 November 2024, the European Commission published a detailed set of 90 frequently asked questions (FAQs) intended to provide assistance to market participants regarding their understanding and compliance with the sustainability reporting requirements of the Corporate Sustainability Reporting Directive Sustainable (CSRD, Directive 2022/2464) and the Sustainable Finance Disclosure Regulation (SFDR, Regulation 2019/2088).

European Council adopts new Regulation on ESG rating activities
On 19 November 2024, the European Council announced that it had adopted in final form a new Regulation on the transparency and integrity of Environmental, Social and Governance (“ESG”) rating activities.

The Regulation specifies that ESG rating providers based in the EU must be authorised by ESMA, and imposes requirements on ESG rating providers relating to their internal organisation, disclosures concerning methodologies and mechanisms addressing conflicts of interest. ESG ratings providers based outside the EU will need to have their ratings endorsed by an EU authorised ESG rating provider, recognition based on qualitative criterion, or be included in the EU registry of ESG rating providers on the basis of an equivalence decision.

Acknowledging that ESG ratings are becoming increasingly important in the context of investor confidence in sustainable products, in particular by providing critical sources of information for investment strategies, risk management and disclosure obligations by investors and financial institutions, the European Council notes that the Regulation will strengthen the reliability and comparability of ESG ratings.

The Regulation will now be published in final form in the Official Journal of the EU and will enter into force 20 days later. It will start to apply 18 months from the date of its entry into force.

CSDR/Trade settlement

Progress towards T+1 Settlement
On 15 October 2024, ESMA, the ECB and the European Commission issued a joint Statement outlining their commitment to shortening the securities settlement cycle from T+2 (settlement of securities on the second day after trade date) to T+1, with ESMA mandated to report to the EU Council and Parliament on the appropriateness and impact of shortening the settlement cycle and propose a detailed roadmap.

On 18 November 2024, ESMA published its Final Report which recommends 11 October 2027 as the optimal transition date. The EU Regulation on Central Securities Depositories (CSDR) would require amendment to give effect to the transition.

UK

UK Prospectus regime

FCA consults on new UK public offers and admission to trading regime
On 26 July 2024, the FCA published Consultation Paper 24/12 on the UK’s forthcoming new public offers and admissions to trading regime (the successor to the UK prospectus regime), alongside Consultation Paper 24/13 on the new public offers platform regime. The proposals consult on the rules required to accompany the new UK Public Offers and Admission to Trading Regulations 2024 which were made in final form in January 2024 (see below), with detailed, firm-facing requirements.

CP24/12 sets out the FCA’s detailed proposals regarding:

• When a company will be required to produce a prospectus for the admission of securities to UK regulated markets or certain primary Multilateral Trading Facilities (MTFs); and
• Detailed requirements for the contents of prospectuses for regulated markets (the FCA can also require an MTF to require an admission document for markets that retail investors can access).

While the majority of the proposals in CP24/12 impact equity capital markets, some key aspects will be of particular relevance to the structured products community, including:

• The possibility for forward incorporation of financial information by reference;
• Greater flexibility around the use of supplementary prospectuses, allowing new securities to be added to the base prospectus subject to certain conditions;
• For sustainable finance:
  • No new general corporate sustainability disclosure rules have been introduced for debt issuers;
  • Use-of-proceeds bonds and sustainability-linked bonds will be required to state in the prospectus that the securities are marketed as “green”, “social”, sustainable” or “sustainability-linked”, or are issued under a framework; and
  • There is a set of voluntary disclosures for use-of-proceeds bonds and sustainability-linked bonds.

The proposed new rules are contained in a new FCA Sourcebook, the Prospectus Rules: Admission to Trading on a Regulated Market (PRM) which will replace the existing Prospectus Regulation Rules Sourcebook.

Responses to CP24/12 and CP24/13 were requested by 18 October 2024, and the FCA’s feedback (and expected publication of near-final rules) is awaited. In CP24/12, the FCA also confirmed its plans to publish a separate consultation on debt offerings to retail investors in late 2024.

Feedback on a series of engagement papers published by the FCA during 2023 on various aspects of the new regime (see in particular Engagement Papers 1 (admission to trading) and 4 (non-equity securities)) was requested by 29 September 2023, and the FCA published the engagement feedback it received at the end of 2023. The FCA has taken the feedback received into account in developing its proposals in CP24/12 and CP24/13.

New UK Public Offers and Admission to Trading Regulations 2024
Following publication of initial draft and revised versions during 2023, the final version of The Public Offers and Admission to Trading Regulations 2024 (POAT Regulations) were made on 29 January 2024. The POAT Regulations will replace the EU-derived UK Prospectus Regulation as well as certain aspects of Part 6 of the Financial Services and Markets Act 2000, and will define the UK’s new approach to regulating public securities offerings, which follows the “FSMA model” of regulation (the use of legislative “framework” requirements accompanied by detailed, firm-facing regulatory rules).

In summary, the POAT Regulations provide (amongst other things) for the following:

• A general prohibition on offers to the public in the UK of “relevant securities” unless the offer falls within a specific exemption;
• Separate treatment of public offers and admissions to trading, with prospectuses required for admissions to trading only;
• The specification of certain activities as “designated activities” and the granting of powers to the FCA to make rules for such designated activities, as well as FCA powers in relation to public offers, admissions to trading and enforcement;
• Rules governing the rights of investors to compensation for loss suffered as a result of statements in prospectuses; and
• A separate regulated activity of operating an electronic system for making public offers of relevant securities where that offer is not otherwise exempt from the prohibition on making public offers.

Detailed FCA rules accompanying the POAT Regulations with firm-facing requirements were set out for consultation in CP24/12 and CP24/13 (see above), and the FCA is currently considering feedback.

While certain aspects of the POAT Regulations took effect immediately on 29 January 2024 (including powers for the FCA to make rules), they will not take full effect until the new FCA rules are in final form, and the EU-derived UK Prospectus Regulation has been repealed. These developments are expected during 2025.

UK PRIIPS: CCI regime

New UK Regulations replacing PRIIPs: Consumer Composite Investments (CCI) regime
On 21 November 2024, a final version of the Consumer Composite Investments (Designated Activities) Regulations 2024 (S.I. 2024 No. 1198) were made, along with Explanatory Notes. The Regulations will replace the onshored UK PRIIPs Regulation with a new legislative framework for the regulation of Consumer Composite Investments (CCIs, formerly PRIIPs) in the UK.

The Regulations specify certain activities relating to CCIs as “designated activities” for the purposes of FSMA 2000 and grant powers to the FCA to make firm-facing rules on retail disclosure, as well as supervisory powers to oversee manufacturers of CCIs. They also make various transitional provisions and consequential amendments to other legislation.

Key aspects of the Regulations include:

• Definitions of key concepts including consumer composite investment, retail investor, and the designated activities in relation to CCIs, which involve manufacturing, advising on, offering or selling a CCI to a retail investor located in the UK (notably, certain debt securities are specifically excluded);
• Establishing the scope of the new framework through the new designated activities of manufacturing, advising and offering a CCI to a UK retail investor, which will require firms to provide disclosure to UK retail investors. Firms engaged in these designated activities will be subject to FCA rules regardless of their authorisation status;
• Giving the FCA power to make detailed firm-facing rules, and certain supervisory and enforcement powers in relation to the designated activities relating to CCIs;
• Removing the exemption from the financial promotion regime for those advising on or selling PRIIPs, so that the provision of information required by CCI rules may constitute a financial promotion;
• Establishing firms’ civil liability regarding disclosure provided to retail investors;
• Restating (with modifications) the FCA’s existing supervision and enforcement powers in relation to product intervention and suspension; and
• Maintaining the transitional period – until 31 December 2026 – during which funds that currently provide the UCITD KIID may continue to do so. They may also move to the new disclosure framework earlier, once the FCA’s new rules take effect (see below).

The Regulations will come into force on the day on which the UK PRIIPs Regulation is revoked under FSMA 2023, which is expected sometime in early 2025.

Detailed, firm-facing rules to be delivered under the powers provided in the Regulation were due to be consulted upon in “Autumn 2024” and in December 2024 published a Consultation Paper on those rules (see below), with the FCA recently confirming that its new regime is expected to be in place during 2025.

A set of related minor amendments to FSMA have also been made in draft form. The (draft) Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 extends certain of the FCA’s powers in relation to already authorised persons to certain designated activities, specifically those relating to CCIs and short selling. This ensures the FCA’s powers are applied consistently to both regulated activities and designated activities.

FCA consults on new UK product information Rules for Consumer Composite Investments (CCIs)

On 19 December 2024, the FCA published Consultation Paper 24/30 on the new firm-facing rules for CCIs, in which it proposes significant changes to the requirements for the way product information for CCIs is presented, moving away from the rigidly templated format of PRIIPs (and UCITS Key Investor Information Documents) and aiming for a simpler and more flexible regime that will apply to any firm that manufactures or distributes a CCI to a retail investor in the UK (subject to a new, lower £50,000 investment limit for a product that would deem it to be “made available” to a retail investor).

Among the key aspects of the Consultation Paper are proposals on:

• Required product information, including giving firms freedom to design product information without rigid format and template requirements, with all CCIs to be accompanied by a product summary provided in a ‘tech-neutral’ format early in the consumer journey and provided in a durable medium at the point of sale;
• Cost information in the product summary would be required to clearly and prominently explain the impact of costs and charges, with greater flexibility for firms to describe what costs mean and their impact on returns, subject to standardised methodologies that could be adapted for different products;
• Standard risk and reward metrics that could be adapted by manufacturers based on product characteristics, with a linear 1-10 scale based on product volatility and accompanied by descriptions including concise narrative risk descriptions that give a more rounded view of a product;
• Performance information would need to include a past performance graph covering a 10-year period (where available) and other general investment information including warnings and material change information; and
• Alignment of the framework with the Consumer Duty, prioritising good consumer outcomes and empowering consumers to make effective, timely and properly informed decisions.

Responses to the Consultation Paper are requested by 20 March 2025. A further consultation will follow in early 2025 setting out draft rules for the transitional provisions and consequential amendments. The FCA envisages that a Policy Statement and final Rules will be published later in 2025, with implementation to be subject to transitional provisions that will include an 18-month period during which PRIIPs may continue to continue to comply with the existing regime.

For further information, please see the Simmons & Simmons Client Note on Key Points from the FCA’s draft CCI rules.

UK Consumer Duty: Update on developments

FCA publishes Good and Poor Practices Update under the Consumer Duty (Price and Value Outcome)
On 18 September 2024, the FCA published an update on good and poor practices in relation to the price and value outcome of the Consumer Duty, with which firms have been required to comply since 31 July 2023 (with the Duty applying to closed products and services from 31 July 2024). Reviewing practices during the first year of implementation of the Consumer Duty, the FCA’s key messages to firms are:

• Consumer Duty outcomes should be considered holistically, with price and value not to be considered in isolation but alongside the other outcomes and cross-cutting obligations under the Duty: products and services, consumer understanding, and consumer support.
• Firms should consider and target the customers likely to get value from the product (inside the target market), and those less likely to get value (outside the target market), separately.
• While cross-subsidies between different products or services are not prohibited, firms must demonstrate that all groups of customers get fair value from their products, and be alert that cross-subsidies may disadvantage vulnerable customers.
• Reasonable, proportionate evidence should support assertions made in fair value assessments about the costs and benefits of a product or service.

If fair value assessments show that customers are at risk of not receiving fair value, prompt and specific action should be taken.

FCA highlights good practices and areas for improvement under the Consumer Duty
On 20 February 2024, the FCA highlighted good practices and areas for improvement across the Consumer Duty as a whole, which it flagged as being particularly relevant for firms becoming subject to the Duty for closed products and services from 31 July 2024. The areas covered by the FCA are:

• Culture, governance and monitoring: including ensuring consumers have confidence in retail financial services markets; firms proactively delivering good consumer outcomes; and Board and senior leadership involvement in ensuring consistency with the Duty.
• Consumers in vulnerable circumstances: including ensuring firms’ communications, service design, and approach, systems and processes, adequately identify, cater for and capture information about vulnerable customers, in line with the FCA’s Guidance on the fair treatment of vulnerable customers.
• Products and services: ensuring firms act in good faith to provide products and services that are designed to meet consumers’ needs, characteristics and objectives.
• Price and value: ensuring firms focus on not just price and fair value, but factors such as unsuitable features that could lead to foreseeable harm, frustrate the consumers’ use of a product, or poor communication and customer support.
• Consumer understanding: ensuring consumers understand and make timely, informed decisions about the products, their features and any risks, and the implication of decisions.
• Customer support: providing support that meets customers’ needs, including ensuring there are no unreasonable barriers to support, and that support is provided when consumers seek help.

Firms are encouraged to consider the findings and continue to make improvements including to identify and close any gaps in implementation.

Benchmarks Regulation

Specification of critical benchmarks in the UK
On 21 October 2024, the Critical Benchmarks Regulations 2024 (S.I. 2024 No. 1051) were published, together with an explanatory memorandum. The Regulations specify the following as “critical” benchmarks for the purposes of Article A20(5) of the UK Benchmarks Regulation (BMR) (assimilated EU Regulation 2016/1011):

• WMR Closing Spot Rates (also known as the WMR London 4pm Closing Spot Rate or the WMR 4PM Fix); and
• ICE Swap Rate.

Under the BMR, a benchmark is deemed “critical” where it meets certain qualitative or quantitative criteria, such as where the value of the contracts referencing the benchmark is at least €500bn, where it has no or very few market-led substitutes if it were to cease being produced, or where it is not reasonably practicable for one or more users to switch to an available market-led substitute.

As a result of this specification as “critical”, the administrators of these benchmarks will become subject to more stringent regulatory requirements, reflecting the importance of the benchmarks to the operation of financial markets, particularly since the wind-down of LIBOR, which was previously the only “critical” benchmark until its cessation. The Regulations entered into force on 13 November 2024.

Transparency Directive/MAR requirements/Transaction reporting

New post-trade transparency regime for bonds and certain derivative transactions
On 5 November 2024, the FCA published Policy Statement 24/14 which sets out the FCA’s final position on the rules and guidance that will be introduced (starting in December 2025) for pre- and post-trade transparency in bond and derivatives markets. The Policy Statement follows an earlier consultation in December 2023 which proposed a series of changes to the existing regime, with final rules to be introduced in several areas including:

• Pre-trade transparency will now only be required for continuous auction order book, quote-driven trading systems and periodic auction trading systems meaning that trading which is based on bilateral negotiation or on quotes provided on request will not be subject to pre-trade requirements.
• The thresholds for deferring publication of details of large-in-scale transactions and the length of deferrals in order to calibrate these more accurately. A 15-minute maximum delay will be permitted for package and portfolio trades, but all others will remain subject to a maximum delay of five minutes.
• The exemption for inter-fund transfers will remain, subject to a new definition, and there will also be a new definition of give-up and give-in trades that are exempt from post-trade reporting.
• Changes to various post-trade reporting fields and flags.
• The definition of “systematic internaliser” will be amended to become a qualitative definition, but is not expected to change which firms are designated as systematic internalisers.

The new rules will apply to a narrower set of bonds than previously (those admitted to trading on a trading venue) and only to derivatives subject to the clearing obligation, and will optimise timely transparency, provide greater protection for investors and liquidity providers, set new criteria and outcomes for trading venues, and, once the new rules are in place, establish a new bond consolidated tape (on which the FCA has commenced the process to appoint a provider) to improve post-trade data.

Improving the UK transaction reporting regime
On 15 November 2024, following the UK Chancellor’s annual Mansion House speech, HM Treasury published a Policy Paper setting out the next steps in reforming the UK MiFID framework, in particular, delegating power to the FCA to develop new firm-facing rules for transaction reporting. In conjunction, the FCA published Discussion Paper 24/2 seeking input on possible changes to the UK transaction reporting regime, which will inform its proposals for consultation. The new regime will have the overall aims of improving the usefulness of transaction reporting through better data quality, and enhancing proportionality. Among the key aspects of a new regime on which input is sought are:

• Simplification and its benefits, seeking feedback on the most burdensome requirements for firms, with a view to accommodating new and developing technologies.
• The scope of the firms and transactions that are subject to the transaction reporting regime (with the FCA considering extending the regime to AFIMs and UCITS managers, seeking input on changes to the scope and nature of reporting for OTC derivatives, and possibly allowing UK firms to act as receiving firms for non-MiFID investment firms).
• Possible changes to the transaction reporting fields that are currently contained in EU MiFID technical standards (including additional fields such as MiFID client categorisation that would identify, for example, a retail client).

Input to the Discussion Paper is requested by 14 February 2025, following which the FCA will take into account feedback prior to consulting in full.

Product intervention

UK Short Selling Regulations published in draft
On 11 November 2024, the UK government committed to taking forward the previous government’s work to develop the UK short selling regime, with publication of the final Draft Short Selling Regulations 2024 and Explanatory Note, which represent the final policy following consultation. The Regulations establish a new UK framework for short selling that will replace the assimilated UK law version of the (EU) Short Selling Regulation, and give the FCA rulemaking (and intervention) powers for certain “designated activities” relating to short selling. The “designated activities” are: entering into a short sale of an admitted share; and entering into any transaction other than a short sale of an admitted share, where an effect of the transaction is to confer a financial advantage on the person entering into that transaction in the event of a decrease in the price or value of an admitted share. The Draft Regulations will be made as a final Statutory Instrument shortly and are expected to enter into force in conjunction with repeal of the existing regime.

ESG/Sustainable finance

UK Chancellor prioritises sustainable finance in Mansion House Speech
On 14 November 2024, the UK Chancellor announced as part of the annual “Mansion House” speech that “sustainable finance” was one of five key priorities for the wider Financial Services Growth and Competitiveness Strategy.

To support this, a Consultation Paper was published which seeks views on the value case for a UK Green Taxonomy as part of the UK’s wider sustainable finance framework. The government envisages several use cases, from specific uses such as providing a tool for appraising green bonds to more general purposes such as channelling and mobilising transition finance, and generally preventing greenwashing. In addition, a commitment was made to consult on the UK sustainability reporting standards which will be based on the ISSB standards. Input to the Consultation Paper is requested by 6 February 2025.

Alongside the Consultation, the government has also published a consultation response and draft legislation to bring ESG ratings providers within the scope of regulation (technical comments on the draft regulation were requested by 14 January 2025).

MiFID Org Regulation

FCA consults on MiFID Organisational Regulation
On 27 November 2024, the FCA released Consultation Paper 24/24 setting out its plans for the repeal and replacement of the MiFID Organisational Regulation (MiFID Org Regulation) with firm-facing Rules in the FCA Handbook. These rules apply to investment firms including retail platforms, portfolio managers and wholesale brokers, and cover a wide range of areas including client categorisation, disclosure, suitability, reporting to clients, best execution, inducements, research, conflicts of interest, business continuity, outsourcing, control procedures, and risk, compliance and internal audit functions. The FCA proposes to restate the existing firm-facing requirements with minimal or no changes and is not proposing new requirements on firms at this stage. Future changes to simplify and streamline various conduct rules stemming from multiple EU Directives, in line with an earlier FCA Call for Input following the introduction of the Consumer Duty are anticipated.

The Consultation Paper also confirms that the FCA will be consulting soon on a new retail disclosure regime that would replace the PRIIPs and UCITS disclosure obligations (see above in relation to the new CCI regime replacing PRIIPs in the UK), and aspects of the MiFID Org Regulation relating in particular to costs disclosure will be dealt with in those CCI-related proposals.

Feedback on the Consultation is requested by 28 February 2025 in relation to the proposals for restating the MiFID Org Regulation, and by 28 March 2025 on the proposed future amendments to the other EU-derived organisational and conduct rules.

For further information, please read the Simmons & Simmons Insights Briefing on CP24/24: MiFID Org Reg Reform

CSDR/Trade settlement

Progress towards T+1 Settlement
As noted above, on 15 October 2024, ESMA, the ECB and the European Commission issued a joint Statement outlining their commitment to shortening the securities settlement cycle from T+2 (settlement of securities on the second day after trade date) to T+1, with ESMA mandated to report to the EU Council and Parliament on the appropriateness and impact of shortening the settlement cycle and propose a detailed roadmap.

On 18 November 2024, ESMA published its Final Report which recommends 11 October 2027 as the optimal transition date. The EU Regulation on Central Securities Depositories (CSDR) would require amendment to give effect to the transition. ESMA’s proposal is in line with the recommendations of the UK’s Accelerated Settlement Taskforce in its March 2024 Report which proposed that the UK’s move to T+1 settlement should be completed no later than the end of 2027.

LIBOR cessation

Cessation of all LIBOR settings on 30 September 2024
Following the gradual transition away from LIBOR, only the 1-, 3-, and 6-month US dollar LIBOR settings were still being published in synthetic form until the end of September 2024, for use in legacy contracts only (other than in cleared derivatives).

Effective from 1 October 2024, all 35 LIBOR settings, including the remaining synthetic LIBOR settings, have permanently ceased to be published and are no longer available to be used, marking a significant event in the financial markets and the culmination of almost a decade of cross-industry work.

The Bank of England has issued a joint press release with the Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates confirming the cessation of LIBOR, encouraging the use of robust rates such as SONIA and SOFR going forward, and discouraging the emergence of so-called credit sensitive rates.

UK High Court considers first LIBOR cessation test case
In the case of Standard Chartered v Guaranty Nominees Limited & Ors ([2024] EWHC 2605 Comm), the High Court considered the first LIBOR cessation test case, and found that a term should be implied into an offering circular (for perpetual preference shares, issued by the bank as “Tier 1 capital”) that a “reasonable alternative rate” should be applied to the calculation of the rate of dividends on the preference shares following the cessation of LIBOR. While the contractual terms provided for fallbacks in the event that LIBOR was not published, it was not possible for those fallbacks to operate once LIBOR had actually ceased. The reasonable alternative rate in this circumstance was determined by the court to be the CME Term SOFR plus the ISDA Spread Adjustment.

Although the case related to a long-term contract, and the court was guided by the principles of contractual interpretation on the specific facts of the case, the decision provides welcome guidance as to how courts are likely to approach contractual interpretation in the context of ‘tough legacy’ LIBOR contracts. In fact, the court specifically stated that the arguments which had led it to find the implied term “are likely to be similarly persuasive when considering the effect of the cessation of LIBOR on debt instruments which use LIBOR as a reference rate but do not expressly provide for what is to happen if publication of LIBOR ceases”.

Trade association updates

ICMA

ICMA Updates Primary Markets Handbook
On 8 October 2024, the International Capital Market Association (ICMA) published amendments to its Primary Markets Handbook. The changes relate to Appendix A1 Agreement Among Managers (Versions 1 and 2), amending Part 5A Version 1 – Asia Pacific (ex-Japan) subscription agreement amendments, to include a provision relating to Singapore rules on the contractual recognition of resolution stay powers.

ICMA updates Green Bonds Guidance
On 4 November 2024, the International Capital Market Association (ICMA) updated its Guidance Handbook which accompanies the Green Bonds Framework, to incorporate additional questions covering how to treat sustainability-linked bonds (SLBs) in the context of sustainable finance disclosure and labelling regimes, and whether an SLB should match updated corporate-level sustainability strategy targets and disclosures. This edition also provides guidance on the selection of Key Performance Indicators for an SLB to be able to claim alignment with the Sustainability-Linked Bond Principles.

ICMA updates Harmonised Framework for Impact Reporting for Social Bonds
On 25 September 2024, ICMA’s Executive Committee of the Green Bond Principles issued an updated version of the Harmonised Framework for Impact Reporting for Social Bonds, a Green Bond Principles-aligned set of core principles and reporting recommendations for issuers of social bonds.

ICMA publishes Paper on Role of Commercial Paper in the Sustainable Finance Market
In October 2024, ICMA published a new paper on The Role of Commercial Paper (CP) in the Sustainable Finance Market which assesses the potential of CP to form an integral part of issuers’ overall sustainable finance strategies and outlines some high-level considerations for both “use of proceeds CP” and “sustainability-linked CP”, as well as setting out some initial and preliminary best practices for the structuring and reporting of UoP CP issuance, and some initial observations pending further development of the sustainability-linked CP market.

ISDA

MiFIR/Post-trade transparency
On 8 October 2024, ISDA submitted a Paper to ESMA which outlines the consensus developed among ISDA members as to how the MiFIR post-trade transparency regime should be applied in practice, focusing on the treatment of certain interest rate derivatives, index credit default swaps and securitised derivatives. ISDA anticipates that ESMA’s CP on the revised regulatory technical standards, covering OTC derivatives, will be published later in 2024 or early 2025.

Best Practices for Single-Name CDS
On 18 November 2024, ISDA announced the publication of its Best Practices for Single-Name Credit Default Swaps regarding Reference Obligations or Standard Reference Obligations, which set out suggested best practices for documenting Reference Obligations or Standard Reference Obligations in confirmations for single-name CDS that reference the 2014 ISDA Credit Derivatives Definitions.

For further information on any of the topics covered in this Bulletin, please contact the authors, or your usual Simmons & Simmons structured products contact.