European regulatory news Q4 2020
Round-up of the latest European regulatory news.
Round-up of the latest European regulatory news.
This consultation will examine how to strengthen the rules and complete the internal market for such investment funds. This may also lead the Commission to adjust the rules on undertakings for collective investment in transferable securities (UCITS). The roadmap is upcoming. The public consultation is planned for the Q3 2020 and the Commission will propose a Directive in Q3 2021.
EU fund managers face fresh questions in Brussels over outsourcing of investment decisions and other services to companies outside the bloc. The European Commission is looking anew at the practice of “delegation,” within a consultation opened today on the Alternative Investment Fund Managers Directive (AIFMD).
ESMA launches a consultation on guidelines on marketing communications under the Regulation on facilitating cross-border distribution of collective investment undertakings. According to Article 4(1) of the Regulation 2019/1156, AIFMs, EuVECA managers, EuSEF managers and UCITS management companies shall ensure that all marketing communications addressed to investors are identifiable as such, that they describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and that all information included in marketing communications is fair, clear and not misleading. Furthermore, Article 4(6) of the Regulation provides that the Guidelines shall take into account the online aspects of marketing communications. ESMA is of the view that it should not be detailed in a separate section of the Guidelines, but rather treated as an aspect of all other requirements mentioned in Article 4(1) of the Regulation. The deadline for comments on the consultation paper is 8 February 2021.
The European Securities and Markets Authority warned investment funds with hard-to-sell assets to better prepare for market shocks. The Paris-based authority found “shortcomings” in an analysis of the impact of the COVID-19 market crash in March on real estate and corporate debt funds.
The report contains an overview of the applicable legal framework and information on the penalties and measures imposed by NCAs from 1 January 2018 to 31 December 2018 and from 1 January 2019 to 31 December 2019. The number of NCAs issuing sanctions increased between the reporting periods, from 14 in 2018 to 17 in 2019. Whilst the number of financial penalties decreased substantially, the total amount imposed doubled to €9m in 2019 due to high cumulative sanctions issued by two NCAs. A small number of NCAs are responsible for a majority of sanctions, and in general the numbers on a national level appear low.
While the number of NCAs issuing sanctions (penalties and measures) remains stable at 15, compared to the previous report for the period 2016-2018, the financial amount of penalties issued decreased slightly based on a year on year comparison. The data gathered under the sanction reports published so far shows that the sanctioning powers are not equally used among NCAs and, except for certain NCAs, the number and amount of sanctions issued at national level seems relatively low.
The ESRB recommendation requests that ESMA: (i) coordinates with NCAs to undertake a focused piece of supervisory exercise with investment funds that have significant exposures to corporate debt and real estate assets to assess the preparedness of these two segments of the investment funds sector to potential future adverse shocks, including any potential resumption of significant redemptions and/or an increase in valuation uncertainty; and (ii) reports to the ESRB on its analysis and on the conclusions reached regarding the preparedness of the relevant investment funds.
The European Commission has launched a public consultation seeking the views of stakeholders on how to make the EU's Alternative Investment Fund (AIF) market more efficient, effective and competitive, while maintaining the overall stability of the EU's financial system. Based on a report on the current EU directive on alternative investment fund managers, this initiative will examine how to strengthen the rules and complete the internal market for such investment funds. This may also lead the Commission to adjust the rules on undertakings for collective investment in transferable securities (UCITS). The EU Commission launched a feedback period (10 December 2020 - 07 January 2021) for a roadmap. It is noted that the end of the consultation is planned for 29 January 2021 and the adoption of a proposal for a directive is planned for the third quarter of 2021.
ESMA’s guidelines set out common criteria in order to promote convergence in the way National Competent Authorities (NCAs): (i) assess the extent to which the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system; and (ii) design, calibrate and implement leverage limits. The guidelines follow the 2 steps-approach introduced by IOSCO and translate this approach into the European framework. Furthermore, the guidelines provide NCAs with a set of indicators to be considered when performing their risk assessment and a set of principles that NCAs should take into account when calibrating and imposing leverage limits.
ESMA is launching a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of UCITS across the European Union (EU). The Common Supervisory Action will be conducted during 2021. The CSAs aim is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation of not charging investors with undue costs. Throughout 2021, NCAs will share knowledge and experiences through ESMA to ensure supervisory convergence in how they supervise cost-related issues, and ultimately enhance the protection of investors across the EU.
The EU’s banking regulator today called on Brussels to create an anti-money laundering rulebook that harmonizes safeguards like customer checks and sanctions across the bloc. The European Banking Authority published its opinion in response to the European Commission’s “call for advice” on how to harmonize dirty money safeguards in proposals due early next year.
The regulation on the mutual recognition of freezing and confiscation orders will start applying in the EU. With these new rules, it will be easier for EU Member States to cooperate on freezing and confiscating criminal assets located in different Member States. The new regulation will replace the existing rules closing any gaps and potential loopholes exploited by criminals. The new rules will also ensure the rights of victims to restitution and compensation in cross-border cases. They also include safeguards ensuring that mutual recognition of freezing or confiscation orders are in line with the EU Charter of Fundamental Rights. The regulation was published in the Official Journal of the European Union 24 months ago, following the agreement and formal adoption by the Council and the European Parliament. As of tomorrow, the regulation will apply between Member States (except Denmark and Ireland).
The European Central Bank is handing banks further relief during the pandemic by letting them exclude central bank reserves when calculating their leverage ratios. The move aims to help banks keep up lending and pass along along monetary easing to businesses and households. Banks are to benefit from the relief measure until 27 June 2021.
The European Banking Authority (EBA) published an Opinion addressed to the European Commission to raise awareness as to the opportunity to clarify certain issues relating to the definition of credit institution in the upcoming review of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD). Such clarifications would be beneficial to the development of a truly uniform Single Rulebook and ultimately to a deeper market integration of banking and financial services across the EU.
Following the political agreement reached by the ministers for economy and finance on 6 October 2020, member states' EU ambassadors today formally agreed the Council's position on the Recovery and Resilience Facility. The facility is the centrepiece of the Next Generation EU recovery instrument designed to respond to the COVID-19 crisis and the challenges posed by the green and digital transitions.
The European Commission plans to revise the law on EU bank failures next year as part of efforts to underscore financial stability. The EU executive today said it would propose changes to legislation on bank crisis management and deposit insurance in the fourth quarter of 2021. The statement came in the Commission’s 2021 work schedule, which confirms comments by officials about a need to fix parts of the regime brought in after the global financial crisis to prevent bailouts of failing lenders.
The European Banking Authority (EBA) launched a public consultation on revised Guidelines on sound remuneration policies. This review takes into account the amendments introduced by the fifth Capital Requirements Directive (CRD V) in relation to institutions’ sound remuneration policies and in particular the requirement that those remuneration policies should be gender neutral. The consultation runs until 29 January 2021.
This initiative is a review of the bank crisis management and deposit insurance framework. The review focuses on three legislative texts currently in force. The main purpose is to increase the efficiency, flexibility and overall coherence of the framework for handling EU bank failures in resolution or insolvency, to ensure equal treatment of depositors and to enhance the level of depositor protection, including through possibly the creation of a common depositor protection mechanism.
The report finds that further progress has been made since last year in implementing the Basel III standards, and banks have continued to build capital and liquidity buffers while reducing their leverage. With regard to COVID-19, the Committee has monitored regulatory and supervisory measures taken by members, including the use of flexibility and consistency of these measures with Basel III standards. Most measures taken by members have been capital- or liquidity-related, with the primary aim of supporting banks' ability to continue lending and providing liquidity to the real economy.
The European Banking Authority (EBA) published today revised final draft regulatory technical standards (RTS) to specify how to identify the indicators of global systemic importance and revised Guidelines on their disclosure. The need for this revision was prompted by the revised framework introduced by the Basel Committee on Banking Supervision (BCBS) in July 2018 to identify global systemically important banks (G-SIBs) as well as by the new requirements laid down in the fifth Capital Requirements Directive (CRD V), which recognise the importance of cross-border activities within the European Banking Union area.
ESMA has updated its Questions and Answers on the European Benchmarks Regulation (BMR). The Q&As provide clarification on transitional provisions of the Regulation regarding critical benchmarks: Q9.4 For how long a critical benchmark can be used by supervised entities in the Union if the index provider has not been granted authorisation?
The Guideline notes that: (i) asset-backed securities whose underlying assets include residential mortgages or loans to small and medium-sized enterprises, or both, and which do not fulfil certain requirements should no longer be eligible as Eurosystem collateral, in view of the fact that this asset class has never been used; (ii) the method of calculation of financial penalties in cases where credit claims that are not compliant with Article 154(1)(c) of Guideline (EU) 2015/510 of the ECB are included in a pool of additional credit claims under Article 4 of Guideline ECB/2014/31 should be amended to avoid the imposition of disproportionate financial penalties. This Guideline shall take effect on the date of its notification to the national central banks of the Member States whose currency is the euro. The national central banks of the Member States whose currency is the euro shall take the necessary measures to comply with this Guideline and apply them from 1 January 2021.
The FSB has published its 2020 report on the implementation of resolution reforms. The report details the progress made by FSB members in implementing reforms and summarises findings from the FSB's monitoring of resolvability across the banking, financial market infrastructure and insurance sectors, and examines the impact of the COVID-19 pandemic on resolution planning.
Overall the report finds that financial institutions entered the pandemic crisis in a more resilient state than they did the 2008 financial crisis, and that improving capabilities for monitoring the financial condition of firms and for cooperation and communication in a crisis served authorities well. The report includes a summary of actions and timelines for specific workstreams relating to banks, central counterparties and insurers.
This recommendation aims to contribute, in line with the ESRB's mandate, to the prevention and mitigation of systemic risks to the financial stability of the EU through the systematic use of the LEI ("legal entity identifier") by entities participating in transactions financial. The Recommendation seeks the introduction of a Union legal framework to uniquely identify legal entities engaged in financial transactions by LEIs and to make the use of the LEI more systematic in respect of supervisory reporting and public disclosure. The ESRB recommends that relevant authorities pursue and systematise their efforts to promote the adoption and use of the LEI, making use for this purpose of the various regulatory or supervisory powers which they have been granted by national or Union law.
The Single Resolution Board (SRB) has published its 2021-23 multi-annual work programme (MAP), which includes its work programme for 2021. The programme is structured around five strategic areas of operation, which broadly follow the priorities identified in the SRB's first MAP published in December 2017. Key actions that the SRB intends to take during 2021 to support these priorities include: (i) conducting pilot on-site visits with banks deemed to be of specific interest to assess their resolvability; (ii) working with national regulatory authorities (NRAs) to revise MREL policy with a focus on responses to breaches, new aspects of the eligibility framework, and the implications of the requirement to set up an intermediate-parent undertaking in the EU; (iii) notify NRAs of the individual 2021 ex-ante SRF contributions and on-board the two new participating Member States (Bulgaria and Croatia) into the contributions cycle; (iv) monitor the implementation of the SRF investment plan by the external investment manager and on-board a second investment manager; and (v) implement a comprehensive communications work programme across several different channels, including a new SRB website.
EU ambassadors today confirmed an agreement reached between the German presidency and the European Parliament's negotiators on amending the so-called Benchmark Regulation. The aim of the amendments is to make sure that a statutory replacement benchmark can be established by the regulators by the time a systemically important benchmark is no longer in use, and thus protect financial stability on EU markets.
In a statement following Friday's euro summit meeting, government heads called for more concrete work to better integrate their banking markets. Eurogroup finance ministers should prepare “a stepwise and time-bound work plan on all outstanding elements needed to complete the Banking Union,” the statement said.
The technical standards provide further specification of essential elements to ensure the effectiveness of the resolution regime established by the Bank Recovery and Resolution Directive (BRRD). These standards are part of the EBA's major programme of work to implement the BRRD and address the problem of too-big-to-fail banks. These technical standards aims to ensure the effective application of stay power. Where financial contracts are governed by the law of a third country, the BRRD requires these contracts to include a contractual recognition term by which the parties acknowledge that the contract may be subject to these stay powers and agrees to be bound by their effect.
The European Commission has presented a new strategy to stimulate the openness, strength and resilience of the EU's economic and financial system for the years to come. This strategy aims to better enable Europe to play a leading role in global economic governance, while protecting the EU from unfair and abusive practices. This goes hand in hand with the EU's commitment to a more resilient and open global economy, well-functioning international financial markets and the rules-based multilateral system.
The Decision will allow ESMA time to conduct a comprehensive review of the systemic importance of UK CCPs and their clearing services or activities to the EU and take any measures it deems appropriate to address financial stability risks in accordance with Article 25 of EMIR, including recommending to the Commission that a UK CCP should not be recognised or withdrawing its recognition. The Decision will enter into force on the day following that of its publication in the Official Journal. In order to provide ESMA with sufficient time to review the systemic importance of UK CCPs, to provide EU CCPs enough time to further develop their capacity to clear relevant trades and EU clearing members enough time to reduce their exposure to UK market infrastructures, the Decision will apply for 18 months from 1 January 2021 until 30 June 2022.
LCH and two other London clearinghouses gained recognition from EU regulators to temporarily keep market access after the Brexit transition period. LCH, ICE Clear and LME Clear will be able to keep serving EU traders and processing euro derivatives until mid-2022, under today’s decision by the European Securities and Markets Authority.
The Financial Conduct Authority put firms on notice that several requirements will take effect as the Brexit transition ends this year. Firms not already in line with the changes will need to show that they have made efforts to comply by December 31 to avoid penalties, the FCA said today.
The Bank of England and the U.S. Commodity Futures Trading Commission today agreed to jointly supervise their clearing industries. CFTC Chairman Heath Tarbert called the pact a “historic agreement” during a webinar today hosted by the Securities Industry and Financial Markets Association (SIFMA).
The U.K. government introduced a long-awaited financial services bill to parliament today, setting out its approach to the economically powerful sector after Brexit. The law would amend several rules across the financial industry, covering investment funds and pensions products, bank capital and the powers of regulators.
ESMA has updated the list of third-country venues (TCTV) in the context of the opinions on post-trade transparency and position limits under MiFID II and MiFIR. Consequently, from 1 January 2021: (i) EU investment firms will not be required to make transactions public in the EU via an EU APA if they are executed on one of the UK trading venues of the transparency list; and (ii) commodity derivative contracts traded on UK trading venues on the position limits list will not be considered as economically equivalent over-the-counter (EEOTC) contracts for the EU position limit regime.
The FCA has published a statement on its approach to the share trading obligation (STO) at the end of the Brexit transition period on 31 December 2020 if mutual equivalence is not agreed. Reiterating that it does not consider that the ISIN or currency of shares should determine the scope of the STO, the FCA intends to use the temporary transitional power (TTP) to allow UK firms to continue trading all shares on EU trading venues and systematic internalisers (SIs) where they choose to do so, and where the regulatory status of those venues and SIs permits such activity.
The European Banking Authority (EBA) reminded financial institutions affected by the end of the transition period to finalise the full execution of their contingency plans in accordance with the conditions agreed with relevant competent authorities before the end of the transition period on 31 December 2020. The EBA also reminds institutions to ensure adequate communication regarding their preparations and possible changes to any affected EU customers.
The ESMA has issued Q&As concerning the Prospectus Regulation (PR) and the Transparency Directive (TD) in the context of the Brexit transition period. ESMA has also updated prospectus Q&As as part of an ongoing Q&A revision exercise. The Brexit related Q&As concern the choice of home member state in the PR and TD sphere, and the use of prospectuses approved by the UK once the transition period is concluded. The Q&As published as part of the ongoing revision exercise focuses on thresholds in the prospectus area, and on the identification of profit forecasts.
Statutory Instruments (SIs) and directions relating to the UK Government's unilateral equivalence decisions in respect of EEA States announced on 10 November 2020 have been laid before Parliament and made according to the negative procedure. The Central Counterparties (Equivalence) Regulations 2020 (SI 2020/1244) specify that the regulatory framework for CCPs in each EEA state meet the relevant criteria for equivalence. The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) (No. 2) Regulations 2020 (SI 2020/1247) grants states of the EEA and Gibraltar approval as equivalent third countries. Equivalence directions have also been made under the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) relating to: (i) the Benchmarks Regulation; (ii) CSDR; (iii) the Credit Rating Agencies Regulation; (iv) the Short Selling Regulation; (v) EMIR; (vi) the Capital Requirements Regulation (CRR); and (viii) the Solvency II Regulation. The SIs and directions will come into force immediately following the end of the transition period on 31 December 2020. The UK Government has not ruled out further equivalence decisions.
The ESMA has updated three statements which address the impact on reporting under EMIR and SFTR and on the operation of ESMA databases and IT systems after 31 December 2020, the end of the UK’s transition from the EU. Previously published in preparation for a no-deal Brexit scenario in 2019, the following statements have now been updated: (i) Statement on issues affecting EMIR and SFTR reporting; (ii) Statement on the use of UK data in ESMA databases and performance of MiFID II calculations; and (iii) Statement on ESMA’s Data Operational Plan.
ESMA said EU firms cannot trade certain derivatives in Britain after Brexit despite a U.K. regulator’s warning that a ban could disrupt the market. ESMA said in a statement today that firms will be obliged to continue using EU-recognized venues under a rule known as the derivatives trading obligation, which bars unregulated dealing in the most actively traded contracts. U.K. trading platforms will not have that recognition when Brexit takes effect at the end of the year.
The statement clarifies that the DTO will continue applying without changes after the end of the transition period. ESMA considers that the continued application of the DTO would not create risks to the stability of the financial system. The statement confirms the approach outlined in ESMA’s previous statement in March 2019.
This implementing decision published in the Official Journal of November 26, 2020 sets that for the purposes of Article 25 of Regulation (EU) No 909/2014, the legal and supervisory arrangements of the United Kingdom of Great Britain and Northern Ireland applicable to central securities depositories already established and authorised in the United Kingdom of Great Britain and Northern Ireland shall be considered to be equivalent to the requirements laid down in Regulation (EU) No 909/2014. This decision will apply from 1 January 2021 and expire on 30 June 2021.
On behalf of the European Union, the President of the European Council and the President of the European Commission signed this morning the EU-UK trade and cooperation agreement. This agreement will now be brought to the United Kingdom to be signed by Prime Minister Boris Johnson, before being provisionally applied as of 1 January 2021. This agreement will then be examined by the European Parliament and the Council, before it can be ratified by the European Union.
The Financial Conduct Authority today said it was amending its position to prevent branches of EU firms in London becoming subject to both EU and U.K. requirements. With hours to go before Britain’s departure, U.K. firms will now be able to trade derivatives on EU venues on behalf of clients within the bloc. Previously, U.K. firms would not have been able to do those trades in the EU. Still, the FCA will not relax requirements for non-EU clients, proprietary trading or trades between U.K. branches of EU firms. The regulator said it would review its approach by March 31.
While the EU and U.K. struck a landmark trade deal on Thursday, the agreement does not detail the relationship that will cover financial services. The trade accord includes only a commitment from both sides to aim for an agreement on a framework for regulatory cooperation in financial services by March. This leaves the financial industry on both sides of the Channel holding out for “equivalence” decisions that allow easier access to each other’s markets based on similar rules.
The UK has implemented the G20 commitment to improve over-the-counter derivatives markets by onshoring the MiFIR derivatives trading obligation (DTO) under the EU Withdrawal Act. The UK DTO applies to the same classes of derivatives as the EU DTO. Where firms that are subject to the UK DTO trade with, or on behalf of, EU clients that are subject to the EU DTO, they will be able to transact or execute those trades on EU venues providing certain requirements. This modification of the application of the UK DTO applies to UK firms, EU firms using the UK’s temporary permissions regime (TPR), and branches of overseas firms in the UK. Transactions concluded by an EEA Undertakings for the Collective Investment in Transferable Securities (UCITS) fund or an EEA alternative investment fund (AIF) are currently outside the scope of the UK DTO.
The ESMA, the supervisor of European Union (EU) credit rating agencies (CRAs) and trade repositories (TRs), has withdrawn the registrations of the following United Kingdom (UK) based CRAs: (i) AM Best Europe-Rating Services Ltd; (ii) DBRS Ratings Ltd; (iii) Fitch Ratings Ltd; (iv) Fitch Ratings CIS Ltd; (v) Moody’s Investors Service Ltd; (vi) the Economist Intelligence Unit Ltd. And the following UK-based TRs: (i) DTCC Derivatives Repository Plc; (ii) UnaVista Limited; (iii) CME Trade Repository Ltd; and (iv) ICE Trade Vault Europe Ltd. ESMA’s decisions follow the end of the transition period of the UK’s withdrawal from the EU, which occurred on 31 December 2020. The CRA Regulation and the EMIR, as well as the SFTR, require ESMA to withdraw the registration of a firm where it no longer meets the conditions under which it was registered, including being a legal person established in the EU.
On 6 January 2020, the ESMA published its first set of Financial Instruments Reference Data System (FIRDS) files following the end of the Brexit transition period. ESMA states that the FIRDS delta files contain information about: (i) termination of all UK financial instruments: (ISIN, MIC) records for MICs in the UK and which were still active have been terminated and their termination date has been set to 31 December 2020 at 22:59:59 UTC; (ii) updated Relevant Competent Authority (RCA) for all financial instruments which previously had GB as RCA and which will continue to be traded in the EU.
The Single Resolution Board and the Bank of England continue to work closely together to ensure appropriate arrangements in place for effective cooperation on the management of the failure of cross border banks, should the need arise.
ESMA issued a Public Statement to remind firms of the MiFID II requirements on the provision of investments services to retail or professional clients by firms not established or situated in the EU. ESMA reminds firms that “where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client”. This is true “regardless of any contractual clause or disclaimer purporting to state, for example, that the third country firm will be deemed to respond to the exclusive initiative of the client”.
The letter explains that at a meeting on 22 July 2020 the Council’s Permanent Representatives Committee (COREPER II) decided to accept the outcome of the inter-institutional negotiations on the proposed Regulation. The letter states that if the Council formally transmits its first reading position, in the form of the text of the proposed Regulation set out in the Annex, the Committee on Economic and Monetary Affairs will recommend to the European Parliament plenary that the Council’s position should be approved without amendment in the European Parliament’s second reading.
This position and statement on Council's reasons has been published in the Official Journal of December 9, 2020.
Following consultation, the EIOPA has published its final draft RTS and ITS and its advice on Delegated Acts to implement the framework for the design and delivery of the Pan-European Personal Pension Product (PEPP) under the PEPP Regulation. EIOPA submitted the following draft legal instruments and technical advice to the European Commission under cover of a letter addressed to Vice-President, Valdis Dombrovskis.
The European Commission has published for consultation an inception impact assessment relating to its review of the Regulation on European long-term investment funds (ELTIF Regulation). The deadline for providing feedback to the Commission's consultation on the inception impact assessment is 14 October 2020. The Commission indicates that it will publish a consultation on the ELTIF review in Q4 2020 and a proposal for a regulation in Q3 2021.
The Commission is adopting an action plan to deliver on the capital markets union. The COVID-19 crisis makes it more important than ever that businesses – and in particular SMEs – can get the financing they need. Large and integrated capital markets can facilitate the recovery, support the green and digital transition, and help create a more inclusive and resilient EU economy.
The Commission will review CSDR rules, notably, the cross-border provision of services by CSDs, the handling of the relevant access requests and whether there are other substantive barriers to competition in relation to services subject to those rules, which could be insufficiently addressed. On that basis, the Commission may propose targeted amendments to current rules. The consultation is planned for Q1 2021. EU Commission will then propose a Regulation in Q2 2021.
Member states' ambassadors to the EU today agreed the Council's position on the Capital Markets Recovery Package, which contains targeted amendments to the EU capital market rules to help EU companies raise capital on public markets, support the lending capacity of banks and boost investment in the real economy. The amendments focus on MiFID II, the Prospectus Regulation and the securitisation framework laid down in the Securitisation Regulation and the Capital Requirements Regulation.
EU rules from 2019 on covered bonds (i.e. debt obligations issued by credit institutions that offer optimal protection to bondholders) introduced a liquidity buffer requirement that is thought to overlap with the liquidity coverage requirement introduced in 2015. This initiative amends the liquidity coverage requirement rules to cater for the specific situation of covered bonds. It also fixes any ambiguous or outdated rules. Feedback period: 27 October 2020 - 24 November 2020.
This ECB Guideline (EU) 2020/1692 of 25 September 2020 published in the Official Journal of November 13, 2020 adjusted Eurosystem risk control and valuation framework to reflect the fact that non-legislative covered bonds (i.e. contractual covered bonds) should no longer be accepted as Eurosystem collateral. The amending Guideline (EU) 2016/65 on the valuation haircuts applied in the implementation of the Eurosystem monetary policy framework (ECB/2020/46). This Guideline will take effect on the day of its notification to the national central banks of the Member States whose currency is the euro. The national central banks of the Member States whose currency is the euro shall take the necessary measures to comply with this Guideline and apply them from 1 January 2021.
EU Commission launched a consultation on a Delegated Regulation specifying the information referred to in art. 65.9 of the PEPP (Pan-European personal pension product) Regulation about product intervention: "The Commission shall adopt delegated acts in accordance with Article 72 to supplement this Regulation with criteria and factors to be applied by EIOPA in determining when there is a significant PEPP saver protection concern, including with respect to the long-term retirement nature of the product, or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system of the Union referred to in point (a) of paragraph 3 of this Article. Feedback period : 20 November 2020 - 18 December 2020
EU Commission launched a consultation on a Delegated Regulation specifying the information referred to in art. 40.9 of the PEPP Regulation about additional information for the purposes of the convergence of supervisory reporting. Feedback period : 20 November 2020 - 18 December 2020
Among other things, the Council highlights the following measures as the most urgent: (i) facilitating access to financing on capital markets, (ii) creating a single access point to financial and non-financial company data for investors, (iii) promoting long-term investment in EU businesses, (iv) enhancing financial literacy, (v) enhancing the cross-border activities of post-trading infrastructures and settlement, (vi) promoting further supervisory convergence and working towards a more harmonised legal framework for regulated capital market activities in the EU
On 3 December 2020, the Council approved a set of conclusions on the Commission's new action plan on the Capital Markets Union (CMU), published on 24 September 2020. Among other things, the Council highlights the following measures as the most urgent: (i) facilitating access by corporations, in particular SMEs, to financing on capital markets; (ii) creating a single access point to financial and non-financial company data for investors; (iii) supporting the role of insurers, banks and other institutional investors as long-term investors in EU businesses; (iv) enhancing financial literacy to promote well-educated investment decisions; (v) enhancing the cross-border activities of post-trading infrastructures and settlement; (vi) promoting further supervisory convergence and working towards a more harmonised legal framework for regulated capital market activities in the EU. The Council also encourages the Commission to work on more complex and time-consuming initiatives as well. These include increasing the convergence of the outcomes of insolvency procedures, and, strengthening the confidence of investors and facilitating cross-border investments by evaluating possible deficits in the rules on enforcement of financial reporting of listed companies
Negotiations on the so-called Capital Markets Recovery Package took top priority in the Council and in talks between the EU co-legislators in order to provide immediate support for the economic recovery by facilitating access to finance for EU companies and, in particular, SMEs. The legislative changes include amendments to the markets in financial instruments directive (MiFID) II, the prospectus regulation and the EU securitisation framework.
The economic effects of the COVID-19 crisis are likely to lead to a sizeable increase in non-performing loans (bank loans that borrowers are unable to repay, due to economic difficulties). The EU has already taken or proposed several measures to tackle this, but more may be needed. This communication adopted on December 16, 2020 outlines a comprehensive strategy, including more structural measures, to prevent a renewed build-up of these loans, which can reduce banks’ ability to lend, and so stimulate economic activity.
The German presidency and the European Parliament's negotiators today reached a provisional agreement on the Recovery and Resilience Facility. With a financial envelope of €672.5 billion, the facility is the centrepiece of the Next Generation EU recovery instrument. It will support public investments and reforms in member states, helping them to address the economic and social impact of the COVID-19 pandemic, as well as the challenges posed by the green and digital transitions.
ESMA has published its first two reports on the implementation of the Central Securities Depositories Regulation (CSDR) covering central securities depositories’ (CSDs) : (i) a report on cross-border services and handling of applications under article 23 of CSDR, and; (ii) a report on internalised settlement whcih presents the findings related to the settlement activity which does not take place through a securities settlement system operated by a CSD in the EEA.
The European Commission (EC) has opened its review of the Central Securities Depository Regulation (CSDR) and its controversial buy-in regime after launching an industry consultation on the rules. Earlier this year, the EC announced it would delay implementation of the Settlement Discipline Regime (SDR), a key aspect of the rules, to February 2022 after receiving a wave of industry pushback due to the operational strain the COVID-19 pandemic has had on regulatory preparedness.
The ECB outlined three scenarios for the use of stablecoins. The first is as a crypto-asset accessory where it’s referring to the current role of stablecoins, which is more-or-less limited to the (small) cryptocurrency community. It’s less worried about that and more concerned about the other two scenarios where stablecoins could potentially be used for mainstream payments or as a store of value. In passing, it also mentioned a fourth scenario of central bank digital currency (CBDC), which it said would make the stablecoin “value proposition redundant (at least for domestic payments)“. The ECB urged international coordination and the ‘same risks, same rules’ treatment. It’s to note that the U.S. significantly eased the path to adoption of stablecoins.
The Commission is adopting a digital finance package, which includes a strategy on retail payments and legislative proposals on crypto-assets and digital operational resilience. The aim is to make EU rules more digital-friendly and safe for consumers. The proposals should ensure that people have access to innovative financial products and modern payments solutions, while safeguarding consumer protection and financial stability.
EU Commission published on 24 September some Q&A (Questions and Answers) on the Digital Finance Package adopted the same day.
The Financial Conduct Authority said derivatives and exchange-traded notes that reference digital currencies are “ill-suited” for retail consumers. “Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale,” said Sheldon Mills, interim executive director of strategy and competition at the FCA, in a statement.
Official digital currencies should “do no harm” to monetary and financial stability as one of three principles endorsed by seven central banks in a joint report today. The group includes the European Central Bank, U.S. Federal Reserve and Bank of England plus their counterparts from Japan, Canada, Switzerland and Sweden, along with the Bank for International Settlements.
The Financial Stability Board (FSB) today published the final version of its high-level recommendations for the regulation, supervision and oversight of “global stablecoin” (GSC) arrangements following an earlier public consultation. The report states that GSC arrangements are expected to adhere to all applicable regulatory standards and to address risks to financial stability before commencing operation, and to adapt to new regulatory requirements as necessary.
The FSB published on 9 October a report on the use of supervisory (SupTech) and regulatory (RegTech) technology by FSB members and regulated institutions. The report finds that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.
The report includes 28 case studies giving practical examples on how SupTech and RegTech tools are being used. The report has been delivered to G20 Finance Ministers and Central Bank Governors on 14 October.
A digital euro would be an electronic form of central bank money accessible to all citizens and firms – like banknotes but in a digital form. It is not meant to replace cash, but rather to complement it. The consultation is structured into two main areas: (i) user perspective; (ii) financial, payment and technology professionals’ perspective. The deadline for the consultation is the 12 January 2021. Whatever the outcome of its consultations, practical experimentation, and discussions with public and private stakeholders, the ECB has said it will come to a decision on whether or not to launch a digital euro project "towards the middle of 2021."
This Regulation published in the Official Journal of 20 October 2020 lays down uniform requirements for the provision of crowdfunding services, for the organisation, authorisation and supervision of crowdfunding service providers, for the operation of crowdfunding platforms as well as for transparency and marketing communications in relation to the provision of crowdfunding services in the Union. This Regulation shall apply from 10 November 2021.
On 20 October, the European Parliament has adopted proposals for the EU to produce: (i) an ethics framework for artificial intelligence; and (ii) amended legislation for civil liability for when artificial intelligence causes damage. The European Commission is expected to produce legislative proposals in early 2021.
This Opinion presents the European Data Protection Supervisor (EDPS) views on the White Paper as a whole, as well as on certain specific aspects, such as the proposed risk-based approach, the enforcement of AI regulation or the specific requirements for the remote biometric identification (including facial recognition). The EDPS acknowledges AI’s growing importance and impact. However, AI comes with its own risks and is not a ‘silver bullet’ that will solve all problems. Benefits, costs and risks should be considered by anyone adopting a technology. The aim of the recommendations in this Opinion is to clarify and, where necessary, further develop the safeguards and controls with respect to protection of personal data, taking into consideration the specific context of AI.
The paper examines the open-economy implications of the introduction of a CBDC. It adds a CBDC to the menu of monetary assets available in a standard two-country DSGE model with financial frictions and consider a broad set of alternative technical features in CBDC design. It analyses the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features. It also shows that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies.
The Commission proposes an ambitious reform of the digital space, a comprehensive set of new rules for all digital services, including social media, online market places, and other online platforms that operate in the European Union: the Digital Services Act and the Digital Markets Act. European values are at the heart of both proposals. The new rules will better protect consumers and their fundamental rights online, and will lead to fairer and more open digital markets for everyone.
The European Commission proposed an overhaul of cybersecurity rules for critical sectors and a new cybersecurity strategy Wednesday, in an effort to strengthen defenses against major breaches and state-backed attacks. The new proposals come in the wake of a major breach of the European Medicines Agency, which is currently involved in approving coronavirus vaccines, and a slew of other attacks that aimed to disrupt Europe’s strategic industries and public institutions in past years. "The EU is stepping up to protect its governments, citizens and businesses from global cyber threats, and to provide leadership in cyberspace," said Josep Borrell, the EU's head of foreign policy.
On 15 December 2020, the EC published its Digital Services Act package which proposes two pieces of legislation: the Digital Services Act (DSA) and the Digital Markets Act (DMA). This package impacts the majority of digital service providers and their business users and customers. The DSA will change the rules for handling of illegal or potentially harmful content online, the liability of online providers for third party content, vetting obligations of third party suppliers and the protection of users' fundamental rights online. The DMA regulates the behaviour of core platform services acting as gatekeepers (platforms that serve as an important gateway between business users and their customers and enjoy a significant and durable market position). The DMA imposes several prohibitions and obligations on gatekeepers, such as the prohibition to discriminate in favour of own services and obligations to share data that is generated by business users and their customers in their use of the platform. A feedback period is open from 16 December 2020 to 11 February 2021.
The Guidelines are intended to help firms identify, address and monitor the risks arising from cloud outsourcing arrangements. They provide guidance to firms on: (i) the risk assessment and due diligence that they should undertake on their cloud service providers ("CSPs"); (ii) the governance, organisational and control frameworks that they should put in place to monitor the performance of their CSPs and how to exit their cloud outsourcing arrangements without undue disruption to their business; (iii) the contractual elements that their cloud outsourcing agreement should include; and (iv) the information to be notified to competent authorities. In addition, the Guidelines provide guidance to competent authorities on the supervision of cloud outsourcing arrangements, with a view to fostering a convergent approach in the EU.
The following three Delegated Regulations relating to fees, tiering and comparable compliance for third country central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR) have been published in the Official Journal:
All three Delegated Regulations will enter into force on 22 September 2020.
The EU Commission has published its report to the Parliament and the Council assessing whether any viable technical solutions have been developed for the transfer by pension scheme arrangements (PSAs) of cash and non-cash collateral as variation margin (VM) and the need for any measures to facilitate those viable technical solutions under Article 85(2) of EMIR.
The updated Trade Repository (TR) Q&A 1(c) clarifies that the counterparties should use the underlying to determine the asset class of total return swaps when reporting under EMIR. The new TR Q&As clarify (i) the reporting of the field reference entity for credit derivatives; and (ii) how the fields execution timestamp, effective date, maturity date and settlement date should be reported for Forward Rate Agreement derivatives (FRAs).
On 19 October 2020, ESMA issued a consultation paper regarding the technical standards on conditions which require an extension of authorisation for a CCP, conditions which require validations of a CCP’s changes to models and parameters by a NCA and ESMA and the procedure for consulting the college on whether or not those conditions are met. The legislative background to the consultation paper is EMIR 2.2 which requires ESMA, in cooperation with the European System of Central Banks, to develop RTS specifying the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation and also specifying the procedure for consulting the college established in accordance with Article 18 EMIR on whether or not those conditions are met. ESMA must also develop RTS specifying the conditions under which changes to the models and parameters are significant and therefore require validation by an NCA and ESMA. The deadline for comments on the consultation paper is 15 November 2020.
The ESMA has launched a consultation on guidelines addressing the consistency of supervisory reviews and evaluation processes of CCPs under Article 21 of EMIR. The closing date for responses is 16 November 2020.
The ESMA has launched a consultation on draft Regulatory Technical Standards (RTS) related to changes to central counterparties’ (CCPs) activities and models. Specifically, the RTS relate to the conditions for a CCP to add new additional services or activities to its business, that are not already covered by the initial authorisation. The RTS also set out the conditions under which changes to CCP models and parameters are significant under EMIR. ESMA seeks input to its draft regulatory technical standards (RTS) regarding the conditions under which: (i) additional services or activities require an extension of authorisation and the corresponding college consultation procedure; (ii) changes to the models and parameters are significant and therefore require the such authorisation and the corresponding college consultation procedure. The closing date for responses is 16 November 2020.
The ESMA has postponed the applicability date of the updated EMIR validation rules from 1 February to 8 March 2021due to technical issues related to their implementation in light of the UK’s withdrawal from the EU.
On 10 November 2020, ESMA issued a report on post trade risk reduction services (PTRR) under EMIR. In the report, ESMA looks at the different types of PTRR services being offered, and explains the purposes and functioning of such services. In addition, ESMA assesses if and to what extent an exemption from the clearing obligation for these services could discourage central clearing and could lead to a circumvention of the clearing obligation. ESMA has submitted the report to the European Commission. The Commission is mandated under EMIR to prepare a report assessing whether any trades that directly result from post-trade risk reduction services should be exempted from the clearing obligation.
The European Supervisory Authorities (ESAs) have published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on the risk mitigation techniques for OTC derivatives not cleared by a CCP (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR). ESMA has also published a final report with new draft RTS proposing to amend the three Commission Delegated Regulations on the clearing obligation under EMIR.
The key proposals included in the technical standards are: (i) alignment with international to foster global data harmonisation and facilitate compliance for entities that are subject to derivative reporting requirements in non-EU jurisdiction(s); (ii) end-to-end reporting in ISO 20022 XML; (iii) harmonised data quality requirements across TRs; (iv) simplified rules for extension of registration from SFTR to EMIR, and; (v) standardised process for data access. The draft technical standards have been submitted to the European Commission, and the proposed timeline for implementation of the technical standards by the reporting counterparties and TRs in the Union is 18 months from the date of their publication in the Official Journal. In the meantime, ESMA will commence working on the guidelines on reporting under EMIR REFIT as well as on the technical documentation, including XML schemas and validation rules. ESMA aims to provide the industry with the relevant guidance and documentation sufficiently ahead of the reporting start date to ensure a smooth transition to the reporting under the revised rules.
ESMA has updated its Q&As on OTC requirements and reporting issues under the European Markets Infrastructure Regulation (EMIR). The Q&A document clarifies the status after the post-Brexit transition period of legacy derivative transactions executed on UK markets and is relevant for EU counterparties in order to determine applicable EMIR requirements, and for position calculations against clearing thresholds. In addition, Parts IV and V were amended to clarify the reporting technique for derivatives executed on a third country venue and cleared on the same day.
The Commodity Futures Trading Commission (CFTC) and ESMA announced the signing of a new Memorandum of Understanding (MOU) regarding cooperation and the exchange of information with respect to certain registered derivatives clearing organizations established in the United States that are CCPs recognized by ESMA under EMIR. Through the MOU, ESMA and the CFTC express their desire for enhanced cooperation as to the larger U.S. CCPs operating in the European Union with provisions that expand upon the collaboration set out in the 2016 CFTC - ESMA MOU related to recognized CCPs. The MOU reflects ESMA’s and the CFTC’s commitment to strengthening their mutual cooperative relationship, which has continued to flourish over the last years.
Regulation 648/2012 provides for a temporary exemption from the central clearing obligation for pension scheme arrangements, considering the potential impact of this requirement on the retirement income of pensioners. According to the Regulation, the European Commission may extend the temporary exemption twice, each time by one year maximum, through a delegated act. This initiative is in preparation.
With this initiative, the Commission determines that the legal and supervisory arrangements applicable to CCPs in a non-EU country are equivalent to those laid down in the European Markets Infrastructure Regulation. On that basis, CCPs in that non-EU country may apply to the European Securities and Markets Authority and be recognised to offer central clearing services in the EU. These initiatives to adopt implementing decisions are in preparation.
Published on January 22, 2021, this Regulation lays down rules and procedures relating to the recovery and resolution of central counterparties (CCPs) authorised in accordance with Regulation (EU) No 648/2012 and rules relating to arrangements with third countries in the field of recovery and resolution of CCPs. This Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union, February 11, 2021.
The support will help the member states finance the severe increase in public expenditure incurred as of 1 February 2020 as a result of the use of national short-time work schemes and similar measures, including for self-employed persons, and some health-related measures in response to the pandemic. SURE is one of the three safety nets, worth up to €540 billion, that were agreed by the Eurogroup on 9 April 2020 and subsequently endorsed by the EU leaders to protect workers, businesses and sovereigns.
The European Central Bank is getting “stricter and more intrusive” in its scrutiny of bank directors in an attempt to unify varying standards across the EU. Yves Mersch, vice chair of the ECB’s supervisory board, wrote in an opinion piece that the banking supervisor plans a “gradually raising of the bar” for checks on prospective directors.
Following the political agreement reached by the ministers for economy and finance on 6 October 2020, member states' EU ambassadors today formally agreed the Council's position on the Recovery and Resilience Facility. The facility is the centrepiece of the Next Generation EU recovery instrument designed to respond to the COVID-19 crisis and the challenges posed by the green and digital transitions.
The Group of 20 countries are working to develop a common approach to reduce poor countries’ debt, a top U.S. Treasury Department official said on Wednesday, after agreeing to extend a freeze on debt payments during the coronavirus pandemic. G20 finance ministers will extend for six months a debt service suspension program launched in April to give the world’s poorest nations the option of deferring roughly $5 billion in bilateral debt payments.
The EU Commission has adopted its 2021 work programme, setting out its plan to manage the consequences of the COVID-19 pandemic and accelerate the EU's long-term transformation into a greener economy. Policy objectives relating to financial services include: (i) further work to deepen the Capital Markets Union (CMU), including a revision of MiFID and MiFIR; (ii) a revision of the bank crisis management and deposit insurance framework as part of the completion of the Banking Union; (iii) introducing legislation on sustainable corporate governance to foster long-term sustainable corporate behaviour; (iv) the establishment of an EU green bond standard; and (v) a REFIT initiative for the CSDR aimed at simplifying rules and making them more proportionate and less burdensome for stakeholders.
The overall objective of the consultation is to evaluate the effectiveness of the ELTIF framework and identify the reasons for the market’s failure to develop in line with expectations. Since the adoption of the ELTIF legal framework in April 2015, only a small number of ELTIFs have launched with a relatively small amount of net assets under management. The fact that market acceptance has not met expectations highlights the need to better understand the reasons for the low take-up and develop potential measures to address any issues identified. By reviewing the legal and policy elements of the ELTIF framework, the Commission is seeking to increase the number of ELTIF funds and overall investment in the real economy. The consultation is opened from 19 October to 19 January 2021.
The European Parliament gave the collective redress directive its final seal of approval today. The new directive will allow consumers across the European Union to bring forward class action cases on legal matters ranging from data protection to air and passenger rights to financial services and tourism, energy and telecommunications.
The European Central Bank expanded its coronavirus-related bond purchasing by €500 billion and extended its term by nine months to March 2022. The move on Thursday brings the total of the ECB's Pandemic Emergency Purchase Program (PEPP) to €1.85 trillion. The Frankfurt authority left its other bond-buying and interest rates unchanged, with the lowest at negative 0.5 percent. The central bank also extended the availablity of ultra-cheap loans to bank by a year, until June 2022.
The ECB recommended that banks exercise extreme prudence on dividends and share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends or conducting share buy-backs, or to limit such distributions, until 30 September 2021. The recommendation also reflects an assessment of the stability of the financial system and was made in close cooperation with the European Systemic Risk Board. Dividends are to remain below 15% of cumulated 2019-20 profits and not higher than 20 basis points of CET1 ratio. The ECB reiterates supervisory expectation that banks exercise extreme moderation on variable remuneration.
This proposed approach is based on three mutually reinforcing pillars: (i) promoting a stronger international role of the euro and promoting sustainable finance is also an opportunity to develop EU financial markets into a global ‘green finance' hub, bolstering the euro as the default currency for sustainable financial products; (ii) further developing EU financial market infrastructures and improving their resilience, including towards the extraterritorial application of sanctions by third countries, and; (iii) further promoting the uniform implementation and enforcement of the EU's own sanctions.
The Discussion Paper of FSB concerning Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships of 9 November was developed on the basis of this survey. It presents an overview of the current and evolving regulatory and supervisory landscape on outsourcing and third-party risk management in FSB-SRC member jurisdictions; it is intended to facilitate and inform discussions among authorities (including supervisory and resolution authorities), financial institutions and third parties on how to address the issues identified in the SRC survey and the December 2019 FSB report on Third-party dependencies in cloud services. The financial sector’s recent response to the COVID-19 pandemic highlights the benefits as well as the challenges of managing the risks of FIs’ interactions with third parties, and may have accelerated the trend towards greater reliance on certain third-party technologies. The Discussion Paper does not propose any specific principles or standards but rather seeks to promote greater global dialogue among FIs, supervisory authorities and third parties.
The Financial Stability Board on Monday pledged to improve regulation of nonbank firms whose activities have the potential to threaten the broader financial system, after market disruptions earlier this year highlighted weaknesses in the system. In a long-awaited report, the international standard-setting body analyzed the causes of financial market stress in March and laid out a plan to help prevent similar strains in the future by identifying and addressing systemic risks posed by nonbanks, also known as shadow banks.
The consultation paper contains ESMA’s proposals for possible amendments to the transaction reporting and reference data regime based on its experience in implementing the MiFIR reporting regimes since January 2018. ESMA’s objectives for this review are to simplify the current reporting regimes and enhance the quality of the data reported by ensuring consistency among various reporting and transparency requirements. ESMA invites all stakeholders involved in EU financial markets to respond to this consultation by 20 November 2020 and intends to submit its final review report to the European Commission in Q1 2021.
This consultation paper concerns the report on the functioning of OTFs required under Article 90(1)(a) of the MIFID II. The paper provides an overview of the functioning of the OTF regime and discusses the definition of OTFs, the use of discretion in the execution of orders and the current practice concerning the use of matched principal trading. In addition, the consultation paper looks also at the trading venue perimeter including a discussion on the definition of multilateral systems and the boundaries of trading venues’ authorisation, which are essential to a well-functioning OTF regime. Responses should be submitted by 25 November 2020.
This updated Q&As document includes a new Q&A and two amendments to existing Q&As: (i) clarifications in relation to the reporting requirements under Art. 26 of MiFIR and RTS 22; (ii) clarifications on how different national identifiers specified in Annex II of RTS 22 are represented.
On 29 September 2020, ESMA published a final report on the MiFID II/MiFIR transparency regime applicable to non-equity financial instruments. The proposals contained in the report aim at simplifying and bringing more efficiency to an overly complex regime and fostering harmonised application across the EU.
The draft technical standards are published following the changes to the MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by third-country firms, introduced by the Investment Firms Regulation (IFR) and Investment Firms Directive (IFD). The draft Technical Standards have been submitted to the European Commission for the adoption of the final legal text.
ESMA has updated the list of third-country venues (TCTV) in the context of the opinions on post-trade transparency and position limits under MiFID II and MiFIR. Following the publication of a Statement on the impact of Brexit on the application of MiFID II/MiFIR on 1 October 2020, ESMA proceeded with the assessment of UK venues against the criteria of the opinions related to the transparency and the position limits provisions. From 1 January 2021: (i) EU investment firms will not be required to make transactions public in the EU via an EU APA if they are executed on one of the UK trading venues of the transparency list; and (ii) commodity derivative contracts traded on UK trading venues on the position limits list will not be considered as economically equivalent over-the-counter (EEOTC) contracts for the EU position limit regime. ESMA has also updated the related guidance to take into account feedback received from market participants on the identification of bonds and U.S Treasuries, as well as on the treatment of venues without a market identifier code (MIC). To provide enough time to market participants to implement the changes to the guidance, the date of application of the transparency list is set on 10 November 2020.
ESMA has updated its Questions and Answers on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR) by adding three new Q&As on product governance (section 16 of the Q&As).
The proposed Guidelines build on the assessments and recommendations from a 2019 ESMA Report on Market Data. They provide guidance on the requirement to publish market data on a reasonable commercial basis and the requirement to make market data available free of charge 15 minutes after publication. The proposed Guidelines will ensure better and uniform application of the MiFID II/MiFIR obligations on market data. In addition, ESMA also believes that their implementation supports consistent, efficient and effective supervisory practices. The consultation closed on 11 January 2021. ESMA will consider the feedback received and expects to publish the final report and Guidelines by Q2 2021.
On 6 November 2020, ESMA updated guidance on the annex to ESMA opinion determining third-country trading venues for the purpose of transparency under MiFIR. The annex lists venues that meet the relevant criteria defined in the opinion. ESMA has updated section 3.1.1 of the guidance covering cases where the market identifier codes are not populated.
This consultation paper is published to seek stakeholders’ input on ESMA’s proposals relating to fees for data reporting service provides (DRSPs) in relation to the new competences granted to ESMA under Regulation (EU) 600/2014 (MiFIR) as amended by Regulation 2019/2175 (ESA Review).
This consultation paper is published to seek stakeholders’ input on ESMA’s proposals for technical advice to the Commission on delegated acts relating to the criteria to identify those ARMs and APAs that, by way of derogation from Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, on account of their limited relevance for the internal market, are subject to authorisation and supervision by a competent authority of a Member State.
The European Securities and Markets Authority (ESMA) has released a public statement that clarifies the application of the European Union’s (EU) trading obligation for derivatives (DTO) following the end of the UK’s transition from the EU on 31 December 2020.
The statement clarifies that the DTO will continue applying without changes after the end of the transition period. ESMA considers that the continued application of the DTO would not create risks to the stability of the financial system. The statement confirms the approach outlined in ESMA’s previous statement in March 2019.
This European Systemic Risk Board (ESRB) recommendation published in the Official Journal of 26 November 2020 aims to contribute, in line with the ESRB's mandate, to the prevention and mitigation of systemic risks to the financial stability of the EU through the systematic use of the LEI ("legal entity identifier") by entities participating in transactions financial. To achieve this objective, this Recommendation seeks the introduction of a Union legal framework to uniquely identify legal entities engaged in financial transactions by LEIs and to make the use of the LEI more systematic in respect of supervisory reporting and public disclosure. Taking into account the time frame for the adoption of such a Union framework, the ESRB recommends that relevant authorities pursue and systematise their efforts to promote the adoption and use of the LEI, making use for this purpose of the various regulatory or supervisory powers which they have been granted by national or Union law.
The European Commission welcomed the agreement reached by the European Parliament and the Council on important amendments to EU rules on investor protection and commodity derivatives (MiFID). The Commission proposed these amendments on 24 July 2020 to reduce some of the administrative burdens that experienced investors face in their business-to-business relationships – without reducing protection for retail investors – and to increase the competitiveness of the EU's commodity derivatives markets. The agreed amendments for MiFID will enter into application 1 year after publication in the Official Journal of the European Union, when Member States have transposed the changes into their national legislation.
MiFID II requires trading venues trading commodity derivatives or emission allowances or derivatives thereof to make public a weekly report. This gives aggregate positions held by the different categories of persons for the different instruments. To appear in the report, both the number of persons and their open positions need to exceed certain thresholds. However, 2 years after MiFID II started to apply, the thresholds have not fully delivered on the objective of providing market transparency to stakeholders. This initiative is aimed at reducing them.
On behalf of the Council, EU ambassadors endorsed targeted amendments to the EU capital market rules provisionally agreed with the European Parliament to support economic recovery from the COVID-19 crisis. The legislative changes include amendments to MiFID II: (i) simplify information requirements in a targeted way, for instance on costs and charges disclosures; (ii) a targeted exemption has been agreed to allow banks and financial firms to bundle research and execution costs when it comes to research on small and mid-cap issuers; (iii) the position limit regime for commodity derivatives will be adapted to help European businesses to react to market volatility and to support the emergence and growth of euro-denominated commodity derivatives markets. The changes do not affect agricultural products, in particular products used for human consumption. The Parliament and the Council will now be called on to formally adopt the amendments without further discussion, possibly in February 2021, after the usual legal-linguistic revision of the text.
ESMA has launched a consultation seeking input from market participants on the impact of requirements under MiFID II/MiFIR regarding algorithmic trading, including high-frequency algorithmic trading. The Consultation Paper covers the overall approach towards algorithmic trading, in particular: (i) the authorisation regime; (ii) provisions for algorithmic and high-frequency traders; and
(iii) provisions applicable to trading venues allowing or enabling these market participants. The consultation closes on 12 March 2021. ESMA, based on the input received, will prepare the final review report for submission to the EC by July 2021.
The Q&As includes one new Q&As on ‘Information on costs and charges’ that aim to give guidance on how firms can present ex-post costs and charges information to clients in a fair, clear and not misleading manner. In particular, the information should be presented: (i) through a standalone document (which could still be sent together with other periodic documents to clients); or (ii) within a document of wider content, provided that it is given the necessary prominence to allow clients to find it easily.
ESMA published an updated opinion providing guidance on pre-trade transparency waivers for equity and non-equity instruments. It covers guidance related to request for quote systems, guidance on how trading venues should apply for a waiver to their national competent authority, and updates on frequently encountered issues when assessing waiver notifications. The document updates the ESMA opinion from July 2020 providing guidance on pre-trade transparency waivers and provides stakeholders with information on ESMA’s assessment in the context of issuing opinions on waivers from pre-trade transparency over the last three years. The opinion aims at contributing to the consistent application of waivers from pre-trade transparency across the European Union.
ESMA launches a consultation on specific aspects of the procedural rules for imposing fines and penalties on Data Reporting Services Providers (DRSPs) under ESMA’s direct supervision. The amended MiFIR contains detailed rules regarding penalties for DRSPs. The Consultation Paper sets out ESMA’s proposals for a delegated act to be adopted by the Commission which will clarify relevant aspects of fines and penalties for DRSPs. These proposals leverage on the existing enforcement framework regarding Trade Repositories and Credit Rating Agencies as well as on the experience gained in its implementation in the last years. The closing date for responses is 23 January 2021.
ESMA announces an update of the validations of the technical instructions for reporting under MMFR. The requirements of Article 37 of MMF regulation require MMF managers to submit data to National Competent Authorities (NCAs), who will then transmit this to ESMA. Following feedback received by market participants after the publication of the validation rules, ESMA has decided to implement amendments on the validations.
ESMA has updated its validation rules regarding the MMFR. This relates to the requirements of Article 37 of MMFR that require MMF managers to submit data to National Competent Authorities, who will then transmit this to ESMA. The information will be included in a central database, with the objective of ensuring effective supervision within the Union.The changes provide clarifications on existing validation rules in order to fix inconsistencies or ease the understanding of the rules. It also extends the Classification of Financial Instruments (CFI) codes for eligible assets.
ESMA is publishing the 2020 update of guidelines on MMF stress tests under the MMFR. The updates take account of MMFs recent experience during March 2020, particularly in relation to redemption scenarios. The risk parameters will be modified in light of recent market developments. ESMA, in calibrating the new risk parameters, has worked closely with the European Systemic Risk Board and the European Central Bank. The Guidelines will now be translated into the official EU languages and subsequently published on ESMA’s website. They will become applicable two months after the publication of the translations.
Two Delegated Regulations supplementing Regulation (EU) 2017/1129 (the "Prospectus Regulation") were published in the Official Journal of the European Union on September 14, 2020. Delegated Regulation (EU) 2020/1272 which is relating to key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus and the notification portal. It amends Delegated Regulation (EU) 2019/979. Delegated Regulation (EU) 2020/1273 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. It amends Delegated Regulation (EU) 2019/980.
The European Commission welcomes the agreement reached by the European Parliament and the Council on important amendments to the Prospectus Regulation, as part of the Capital Markets Recovery Package. The Commission proposed these amendments on 24 July 2020. These new rules will introduce a new shorter prospectus (the ‘EU Recovery Prospectus') for well-known companies that have a track record in the public market. This will facilitate the recapitalisation of companies affected by the economic shock of the coronavirus pandemic. The amendments will apply 20 days after publication in the Official Journal of the European Union.
On 16 December 2020, the European Commission adopted a Delegated Regulation supplementing the Prospectus Regulation as regards the minimum information content of the document to be published for a prospectus exemption in connection with a takeover by means of an exchange offer, a merger or a division together with annexes. The Delegated Regulation is based on the empowerment set out in Article 1(7) of the Prospectus Regulation. The Delegated Regulation enters into force on the twentieth day following its publication in the Official Journal of the European Union.
On behalf of the Council, EU ambassadors endorsed targeted amendments to the EU capital market rules provisionally agreed with the European Parliament to support economic recovery from the COVID-19 crisis. The legislative changes include amendments to the Prospectus Regulation. (1) EU recovery prospectus will be available for capital increases of up to 150% of outstanding capital within a period of 12 months. This will avoid highly dilutive issuances, while ensuring that the new prospectus may be used as a basis for a meaningful recapitalisation of companies. (2) The Council and the Parliament have also fine-tuned the requirements regarding the minimum information to be included in the recovery prospectus, so as to provide adequate information to investors. The Parliament and the Council will now be called on to formally adopt the amendments without further discussion, possibly in February 2021, after the usual legal-linguistic revision of the text.
These Guidelines set out common provisions that a securitisation repository (SR) should follow when transferring securitisation information to another SR. The majority of the feedback received during the public consultation was supportive of the guidelines and an overview of the feedback is provided in the final report. The Q&As, inter alia, provide guidance on how to report certain underlying exposures which benefit from a COVID-related debt moratorium or payment holiday.
Pursuant to Article 16 of Regulation (EU) 2017/2402, ESMA shall charge securitisation repositories fees that fully cover its necessary expenditure relating to the registration and supervision of those repositories. ESMA will incur higher costs when processing applications for registration from securitisation repositories that intend to offer ancillary services. Such costs, however, will be lower where the securitisation repository is already registered as a trade repository under either Regulation (EU) No 648/2012 of the European Parliament and of the Council, or Regulation (EU) 2015/2365 of the European Parliament and of the Council. This Delegation Regulation deals among others with the coverage of the fees charged to securitisation repositories, the applicable turn over regime, the registration fee and extension-of-registration fee rules, the payment of registration fees and reimbursements.
The European Banking Authority (EBA) publishes a Report on significant risk transfer (SRT) in securitisation transactions, which includes a set of detailed recommendations to the European Commission on the harmonisation of practices and processes applicable to the SRT assessment. The EBA proposals aim to enhance the efficiency, consistency and predictability of the supervisory SRT assessment within the current securitisation framework. The report focuses on the three key subject areas: (i) the structural features of securitisation transactions, (ii) the SRT tests and (iii) the assessment process.
The rule, which the Committee started developing before the onset of the Covid-19 pandemic, closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitisations. The final rule allow banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk weight floor. In addition, the final rule refines the definition of discount incurred by the originating bank that factors in the capital requirements. Committee jurisdictions agreed to implement the technical amendment by no later than January 2023.
Securitisation transactions currently labelled as “STS securitisations” will lose the STS status where one or all the securitisation parties (originator, sponsor and/or the SSPE) are established in the UK after the end of the transition period. This will apply to STS asset-backed commercial paper (ABCP) securitisations and STS non-ABCP securitisations. ESMA is working with national competent authorities to ensure that ESMA’s STS securitisation public register is up to date on 1 January 2021. The loss of the STS status implies that the preferential capital treatment available for investments in this type of securitisations will come to an end. This will affect EU institutional investors, such as credit institutions and insurance entities, holding positions in STS securitisations where the originator, sponsor or the SSPE are established in the UK.
On behalf of the Council, EU ambassadors endorsed targeted amendments to the EU capital market rules provisionally agreed with the European Parliament to support economic recovery from the COVID-19 crisis. The legislative changes include amendments to the EU securitisation framework: (i) to facilitate securitisation, the existing EU framework for simple, transparent and standardised (STS) securitisations will be extended to cover synthetic securitisations; (ii) the agreed changes will free up bank capital for further lending and allow a broader range of investors to fund the economic recovery from the COVID-19 crisis; (iii) the new rules also remove regulatory obstacles to the securitisation of non-performing exposures (NPEs).
The FSB announced extensions to the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs), to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.
The purpose of this Q&A is to provide greater clarity to market participants on how to comply with their reporting requirements under SFTR. The Q&A includes clarifications on how reporting of certain business events should be performed, such as: (i) reporting of fields related to time and applicable calendars; (ii) reporting of settlement legs; (iii) reporting of SFTs collateralised initially at transaction and then at net exposure level; (iv) reporting of SFTs concluded off venue and cleared on the same day; (v) reporting of zero collateral for margin loans. The set of Q&A complements ESMA’s guidance on reporting under SFTR and is aimed at trade repositories and at entities that have a reporting obligation under SFTR.
The temporary transparency obligations apply to any natural or legal person, irrespective of their country of residence. They do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making or stabilisation activities. The measure applies from 18 September 2020 for a period of three months. Consequently, the net short positions of 0.1% and above held until that date have to be notified to the relevant competent authority no later than 15:30 CET on the next trading day.
In its decision published in the Official Journal of November 13, 2020, ESMA decided to renew, for an additional three months period, the temporary requirement made to natural or legal persons having net short positions in relation to the issued share capital of companies whose shares are admitted to trading on a regulated market, reaching, exceeding or falling below 0,1 % of the issued share capital to notify the competent authorities details of any such position (in accordance with point (a) of Article 28(1) of Regulation (EU) No 236/2012).
ESMA has renewed its decision to temporarily require the holders of net short positions in shares traded on a European Union (EU) regulated market, to notify the relevant national competent authority (NCA) if the position reaches, exceeds or falls below 0.1% of the issued share capital. The measure taken on 17 September is therefore extended and will expire on 19 March 2021. ESMA believes that this decision will continue to support the ability of NCAs to deal with threats to the orderly functioning of markets and financial stability at an early stage. The temporary transparency obligations apply to any natural or legal person, irrespective of their country of residence. They do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making or stabilisation activities. The measure applies from 19 December 2020 for a period of three months.
The European Insurance and Occupational Pensions Authority (EIOPA) submitted today to the European Commission its Opinion on the Solvency II 2020 Review. EIOPA’s approach has been “evolution not revolution”. The measures proposed aim at keeping the regime fit for purpose by introducing a balanced update of the regulatory framework, reflecting better the economic situation and completing the missing elements from the regulatory toolbox. From a prudential perspective, EIOPA is of the view that, overall, the Solvency II framework is working well and no fundamental changes are needed at this point in time but a number of adjustments are required to ensure that the regulatory framework continues as a well-functioning risk-based regime.
The European Commission today adopted rules for a new financing mechanism to support renewable energy projects as part of its wider plan to reduce EU greenhouse gas emissions by at least 55 percent by 2030. The EU Renewable Energy Financing Mechanism is set to become operational in January. It aims to increase investments in renewable energy production by allowing EU countries to meet their binding targets for the share of renewables in their energy mixes by funding green energy projects in a different member country — something that could be more cost-effective.
This Regulation published in the Official Journal of 17 September 2020, sets out provisions necessary for the implementation and functioning of the Union renewable energy financing mechanism. The mechanism shall fulfil the following two functions: (i) the ‘gap filling function’ and (ii) the ‘enabling function’. This Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union, the 7 October 2020.
The European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published a survey seeking public feedback on presentational aspects of product templates, pursuant to Article 8(3), Article 9(5) and Article 11(4) of the Regulation on sustainability‐related disclosures in the financial services (SFDR). The survey is open for comments until 16 October 2020.
The European Central Bank will accept bonds linked to green business as collateral for loans next year in a boost for sustainable finance. The change announced today comes as part of President Christine Lagarde’s pledge for the ECB to do more in helping address climate change. The decision takes effect January 1st.
To support the objectives of the European Green Deal, the renewed sustainable finance strategy will provide a roadmap with actions to increase private investment in sustainable projects and activities and to manage and integrate climate and environmental risks into our financial system. This strategy will build on the Commission’s 2018 Action Plan on financing sustainable growth. The adoption of a Communication is planned for Q1 2021.
The EU Commission has written to the ESAs regarding the application of the Sustainable Finance Disclosure Regulation (SFDR) and related RTS. In March 2019 the co-legislators agreed on a timeline to develop most of the RTS by 30 December 2020 and the application of the SFDR's provisions from 10 March 2021. The letter notes that the application of the SFDR is not conditional on the formal adoption and entry into force or application of the RTS, and that there are no impediments to financial market participants and financial advisers complying with the Level 1 requirements without the full RTS. The Commission has therefore advised that all applications dates as laid down by the Regulation are being maintained with effect from 2021 but the RTS will become applicable at a later stage in order to provide participants and advisers adequate time for implementation and national competent authorities to prepare for orderly and effective supervision.
The EBA published a Discussion Paper on ESG risks management and supervision aiming to collect feedback for the preparation of its final report on the topic. The Discussion Paper provides a comprehensive proposal on how ESG factors and ESG risks could be included in the regulatory and supervisory framework for credit institutions and investment firms. The consultation runs until 3 February 2021.
ESMA published its Consultation Paper containing ESMA’s draft advice to the European Commission on Article 8 of the Taxonomy Regulation. This specifies the content, methodology and presentation of the key performance indicators (KPIs) that non-financial undertakings and asset managers are required to disclose. ESMA’s proposals aim at ensuring a consistent application of the disclosure obligations required under the Taxonomy Regulation by non-financial undertakings and asset managers that fall within scope of the Non-Financial Reporting Directive. ESMA expects to submit its final advice report to the EU Commission by 28 February 2021.
The European Commission has launched a public consultation on the first two sets of criteria for determining which economic activities can qualify as environmentally sustainable, under the EU's Taxonomy. As part of the Taxonomy Regulation, the Commission was tasked with coming forward with technical screening criteria to develop the taxonomy further. The first two sets of criteria have been published in a draft delegated act, which is now open for feedback. It concerns those activities that substantially contribute to climate change mitigation or climate change adaptation. The Commission will consider the feedback received before finalising the adoption of the delegated act. It will then be subject to scrutiny by the European Parliament and the Council and will apply from 1 January 2022.
FSB analyses how climate-related risks might impact, or be amplified by, the financial system, including across borders. It also sets out next steps for the FSB’s work in this area.
Eurozone banks will be stress-tested on their ability to withstand climate change risks in 2022, the European Central Bank said Friday. The announcement came as the ECB finalized a set of of guidelines on how banks should manage and disclose climate risks. “Climate-related and environmental risks will have over time a substantial impact on the real economy and on banks,” Patrick Amis, director general at the ECB, told journalists.
The European Central Bank published its final and amended guide on climate-related and environmental risks following a public consultation. The guide explains how the ECB expects banks to prudently manage and transparently disclose such risks under current prudential rules. Banks are to perform self-assessment on ECB expectations in early 2021. The ECB will fully review banks’ practices in 2022. The next supervisory stress test in 2022 will also focus on climate-related risks. Separately, a new ECB report shows that banks’ climate-related and environmental risk disclosures lag behind significantly. The guide will apply immediately.
These 3 delegated regulations have been published in the Official Journal of December 3, 2020: (i) Commission Delegated Regulation (EU) 2020/1818 on minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks; (ii) Commission Delegated Regulation (EU) 2020/1816 on the explanation in the benchmark statement of how ESG factors are reflected in each benchmark provided and published; (iii) Commission Delegated Regulation (EU) 2020/1817 on the minimum content of the explanation on how ESG factors are reflected in the benchmark methodology.
In a letter dated 7 January 2021, the three Europeans Authorities (ESMA, EBA, EIOPA) have sent a list of important interpretive questions to the EU Commission regarding the application of the SFDR regulation, that will be applicable on March 10 2021. The questions are related to: (i) the application of SFDR to non-EU Alternative Investment Fund Managers (AIFMs) and registered AIFMs; (ii) application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group; (iii) the meaning of “promotion” in the context of products promoting environmental or social characteristics; (iv) the application of Article 9 of SFDR; and (v) the application of SFDR product rules to portfolios and dedicated funds.