Europe

European Commission Republishes CMU Report on Addressing National Barriers to Capital Flows

 

The European Commission has republished a report as part of its Capital Markets Union (CMU) initiative on addressing national barriers to capital flows.

The European Commission originally published the report in February 2017, but later removed it from its website. The European Commission stated that it was made aware of certain inaccuracies, mainly due to incomplete or conflicting information, and so decided to adopt an amended version. The majority of the changes relate to the removal of references to specific member states.

In the report, the European Commission sets out the initial findings of its expert group of representatives of member states on national barriers to cross-border capital flows and the steps that the Commission expects member states to take to address them. The issues highlighted include barriers to the cross-border distribution of investment funds, national approaches to crowdfunding and residence requirements on managers of financial institutions.

European Commission Responds to ECON Concerns About MiFID II Systematic Internalizers Operating Broker Crossing Networks

 

The European and Monetary Affairs Committee (ECON) has published correspondence between the European Parliament’s negotiating team for the Markets in Financial Instruments Directive (“MiFID“) II package of measures and Vice-President Valdis Dombrovskis about concerns relating to the potential establishment of networks of systematic internalizers (“SIs“) and of other liquidity providers that might circumvent certain MiFID II obligations, in particular concerning the trading of shares.

In a letter dated February 24, 2017, the negotiating team refers to the European Securities and Markets Authority’s (“ESMA“) letter from February 1 to Olivier Guersent, Director General, Financial Services and Capital Markets Union. The negotiating team and ESMA share the same concern that certain investment firms may be setting up interconnected SIs to cross third-party buying and selling interests via matched principal trading or other types of back-to-back transactions. The negotiating team has asked the European Commission to examine whether these practices comply with the letter and spirit of the MiFID II framework.

Mr. Dombrovskis responded in a letter dated March 16, 2017, setting out the conclusions of an initial investigation into the issue. He explained that a group of exchange operators are concerned about attempts to establish broker crossing networks in which both SIs and high frequency trading (HFT) firms interact in a manner that market operators describe as multilateral. Market operators are concerned that such networks may not be considered a multilateral trading system by all competent authorities, and so some variants of broker crossing networks may not be required to be authorized as multilateral trading facilities (“MTFs“). On the other hand, investment firms argue that the establishment of electronic links between SIs and other liquidity providers would not amount to the creation of an MTF. Market operators have requested that guidance be issued to the effect that such networks involving the rapid exchange of order information between participating SIs is an MTF and should be authorized as such.

The European Commission proposes to engage in a dialogue with ESMA and competent national regulators to determine the jurisdictions that the alleged broker crossing networks could potentially be established in. The European Commission will then engage with the relevant authorities on how to address the establishment of such networks within the MiFID II rules.

European Commission Publishes Inception Impact Assessment on New Prudential Framework for Investment Firms

 

The European Commission has published an inception impact assessment on its review of the appropriate treatment for investment firms.

The impact assessment relates to the Commission’s review of the prudential framework for investment firms, as required by Articles 293(2), 498(2), 508(2) and 508(3) of the Capital Requirements Regulation (“CRR“) (Regulation 575/2013). In November 2016, the European Banking Authority (“EBA“) published a discussion paper on a new prudential framework, with the aim of submitting an opinion and report to the European Commission by June 30, 2017.

The impact assessment provides an overview of the background to the initiative and the European Commission’s ongoing work. The European Commission states that, in light of the EBA’s consultation on the prudential framework, it does not intend to launch its own public consultation. It is, however, carrying out a consultation with industry stakeholders on the proposal. In particular, it intends to liaise with the industry on aspects of the proposal, such as the calibration and impact of any changes to the regime and foreseeable potential costs.

The European Commission states that the bulk of any new rules will take the form of a Regulation. This will be accompanied by a Directive covering elements that need to take the form of a directive for legal reasons, such as organizational and authorization requirements and corporate governance.

The impact assessment indicates that the European Commission will adopt a legislative proposal in the fourth quarter of 2017.

The European Commission is seeking feedback on the impact assessment. The European Commission’s website on impact assessments states that the deadline for comments is April 19, 2017.

European Parliament Will Consider Money Market Fund Regulation in April 2017 Plenary Session

 

The European Parliament has announced that it will consider the MMF regulation during its upcoming plenary session, currently scheduled to be held April 3-6, 2017.

The MMF regulation is intended to introduce new framework requirements to more effectively regulate money market funds, as well as increase their stability and general liquidity. In particular, the regulation (introduced by the European Commission) is intended to more tightly regulate the shadow banking sector.

The plenary session will allow debate and potential amendment to the scope of the MMF regulation.

European Parliament Publishes Report on Fifth Money Laundering Directive Proposal

 

On March 9, 2017, the European Parliament published a report on the Fifth Money Laundering Directive (MLD5), this being the same report adopted by the Parliament’s Economic and Monetary Affairs Committee (ECON), as well as Parliament’s Civil Liberties, Justice and Home Affairs Committee (LIBE).

The report focuses on draft EP legislation resolutions and also contains opinions from the Committee on Legal Affairs (JURI), Development (DEVE) and International Trade (INTA).

Following publication of the report, the EP must now permit MEPs to start discussions with the European Commission and the Council to begin the process of amending and potentially implementing the directive so that it can be integrated by Member States.

EPC Publishes Updated White Paper on Mobile Payments in the SEPA

 

On March 7, 2017, the European Payments Council (“EPC“) published version 5 of a white paper that evaluates mobile payments across Single Euro Payments Area (“SEPA“). The white paper, the result of a collaborative effort between the EPC and expert groups in the area, is designed to help evolve an integrated payment market across the SEPA. It focuses primarily on mobile remote payments and mobile proximity payments and suggests ways in which these could improve in order to further support and develop SEPA card payments and credit transfers, for businesses and consumers alike.

It is the intention of the EPC to further consult industry bodies in order to develop interoperability between different mobile payment systems, to then be used by all interested parties.

EMMI Considers EURIBOR Reforms

 

On March 9, 2017, the European Money Markets Institute (“EMMI“) issued a paper that considered the legal grounds for a proposed reform to EURIBOR.

Possible reform to EURIBOR was previously outlined by the EMMI in October 2015 (available here), and the most recently issued paper delves deeper into possible evolution. In particular, the paper considers the legal ramifications of the points previously considered.

The EMMI has encouraged EURIBOR users to consider the proposed reforms in an attempt to address possible issues around any changes. The paper is available here.

European Commission Publishes Speech on FinTech

 

On March 8, 2017, the European Commission (EC) published a speech that considered the challenges currently faced by the financial services sector in the EU, with a particular emphasis on FinTech.

Financial technology, commonly referred to as FinTech, has been a hot topic in recent times, with the European Commission maintaining a task force specifically dealing with it.

The speech, given by Oliver Guersent, commented on a number of points, including the need to ensure that all human interaction was not excluded and the possible investor protection risks surrounding “robo-advice.” The speech can be found in its entirety here.

European Banking Authority Publishes Report on Liquidity Coverage Ratio Disclosure

 

On March 8, 2017, the European Banking Authority (“EBA“) issued a report that considered the disclosure requirements in relation to the liquidity coverage ratio.

As it stands, European regulation specifies the liquidity coverage ratio for credit institutions, with the goal of maintaining a buffer against stressed situations and acting as an important tool in the assessment of risk management.

The guidelines that have been published harmonize and specify the necessary disclosures applicable to credit institutions. The final guidelines are available here.

European Commission Passes Delegated Regulation on Exempted Entities Under EMIR on Derivatives, Central Counterparties and Trade Repositories

 

On March 2, 2017, the European Commission (the “Commission“) adopted a Delegated Regulation amending the European Market Infrastructure Regulation (“EMIR“) with regard to the list of exempted entities (C(2017) 1324 final).

EU central banks and public bodies tasked with managing and intervening in public debt are exempted from EMIR. As per article 1(6) of EMIR, the Commission is empowered to adopt delegated acts in accordance with Article 82 to amend the list of entities to which EMIR will not apply.

The Commission has accordingly assessed the treatment of central banks and public bodies managing public debt by a number of third countries where the implementation of OTC derivative reforms were sufficiently advanced, or which had specifically requested an assessment. As part of the process, the Commission consulted the six jurisdictions under assessment to gather information on their legal frameworks with respect to OTC derivatives and on the treatment, within those frameworks, of central banks and public bodies charged with or intervening in the management of the public debt. The Commission also consulted the Expert Group of the European Securities Committee, comprising member state representatives.

The Commission has concluded that central banks and public bodies charged with or intervening in the management of the public debt from Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland should be exempt from the clearing and reporting requirements set out in EMIR. Article 1 of the Delegated Regulation therefore amends article 1(4)(c) of EMIR to add the central banks and public bodies of these jurisdictions to the list of exempted entities under EMIR. The Commission has previously exempted from EMIR the central banks and public bodies charged with or intervening in the management of the public debt in Japan and the United States of America

The Delegated Regulation will enter into force 20 days after it has been published in the Official Journal of the EU (OJ).