European Commission Issues Call for Advice on Own Fund Requirements for Market Risk

On April 22, 2016, the European Banking Authority published a call for advice it had received from the European Commission regarding revisions to the own fund requirement for market risk as part of the CRR review.

The call for advice sets out that the EC is undertaking a review of the Capital Requirements Regulation and is considering the impact of implementing the agreed Basel Committee on Banking Supervision framework detailed in the document “Minimum capital requirements for market risk.” The EC notes that to date there has been no EU-specific assessment of the convenience and impact of updating these rules in the ways proposed by the BCBS.

Insurance Europe Raises Concerns over Misunderstanding of Ultimate Forward Rate

On April 21, 2016, Insurance Europe, the European insurance and reinsurance federation, released a press releaseraising concerns over how Solvency II liabilities are currently calculated, including discount rates. This press release was published in response to the consultation carried out by the European Insurance and Occupational Pensions Authority and it discusses whether the Ultimate Forward Rate should be calculated by reference to the discount rate, or whether it may be adjusted to reflect changes in long-term expectations.

ECB Offers Opinion on Proposed Regulation to Establish a European Deposit Insurance Scheme

On April 20, 2016, the European Central Bank (ECB) published an opinion on a proposal for a regulation amending Regulation (EU) No. 8.6/2014 in order to establish a European Deposit Insurance Scheme (EDIS).

The ECB notes that an EDIS is a necessary third pillar to complete the Banking Union, having established a Single Supervisory Mechanism and the Single Resolution Mechanism and overall welcomes the system proposed. However, the opinion notes risks in terms of scope and governance of the scheme.

The opinion appends a technical working document containing drafting proposals as proposed amendments to the text released by the European Commission.

EBA Publishes Final Report on Provision of Information in Summary or Collective Form

On April 19, 2016, the European Banking Authority published its final report providing guidelines on the provision of information in summary or collective form for the purposes of Article 84(3) of Directive 2014/59/EU. This relates to general rules in relation to professional secrecy and confidentiality requirements when dealing with confidential information.

The report includes a summary of responses to the consultation and the EBA’s own summarized analysis.

ESMA Publishes Principles on Stakeholder Engagement in Peer Reviews

On April 15, the European Securities and Markets Authority (“ESMA”) published a paper on stakeholder engagement in peer reviews.

The paper sets out six high-level principles guiding the interaction with stakeholders with the objective of obtaining background information relevant for the peer review:

  • What entities are considered as stakeholders in the context of a peer review?
  • Who decides if interaction with stakeholders is needed?
  • When does this decision need to be taken? Must national competent authorities (“NCAs“) accept the fact of stakeholder engagement?
  • If an NCA may decline such a possibility, does an NCA need to explain why it would not want to have stakeholder engagement for a particular peer review?
  • How is the interaction organized and how are the stakeholders chosen?
  • What use is made of the outcome of the stakeholder interaction?

The principles contribute to ESMA’s commitment to focus on supervisory convergence in 2016. ESMA may in the future, in light of its experience, prepare a set of procedures for stakeholder engagement in peer reviews, which could be annexed to the Methodology for peer reviews (ESMA/20131709). Paper.

ISDA Publishes Updated EMIR Classification Letter

On April 13, the International Swaps and Derivatives Association, Inc. (“ISDA”) published an updated classification letter that enables counterparties to notify each other of their status for clearing and other regulatory requirements under the European Market Infrastructure Regulation (“EMIR”).

The updated letter covers the clearing obligation for certain interest rate derivatives classes denominated in EEA currencies and certain credit default swap index classes. The ISDA EMIR classification letter allows market participants to bilaterally communicate their status to their counterparties by answering a series of questions.

The updated letter makes several substantive amendments, including:

  • aligning the definition of “Category 1 entity” to the one used in the final, published version of the G-4 interest rate products regulatory technical standards (“RTS”) (which come into force from June 2016); and
  • providing the ability for entities to make classifications in respect of the draft RTS for EEA rates and the RTS on credit default swap index classes.

Classification Letter.

Delegated Regulation under MAR Covering Indicators of Market Manipulation, Disclosure Thresholds, Trading During Closed Periods and Notifiable Managers’ Transactions

The European Commission’s Delegated Regulation supplementing the Market Abuse Regulation (Regulation 596/2014) (MAR) as regards an exemption for certain third countries’ public bodies and central banks, the indicators of market manipulation, the disclosure thresholds, the competent authority for notifications of delays, the permission for trading during closed periods and types of notifiable managers’ transactions, was published in the Official Journal of the EU on 5 April 2016.

The Delegated Regulation specifies:

  • The public bodies and central banks of third countries benefitting from the exemption under Article 6(1) of MAR.
  • The indicators of market manipulation set out in Annex I of MAR.
  • The minimum thresholds for the exemption of certain participants in the emission allowance market from the requirement to publicly disclose inside information.
  • The competent authority that should be notified concerning delays in the public disclosure of inside information.
  • The circumstances under which trading in a closed period may be permitted by an issuer.
  • The types of transactions that would trigger the notification requirement under Article 19 of MAR.

The Delegated Regulation enters into force on April 24, 2016 and will apply from July 3, 2016.

Joint Committee of ESAs Final RTS on Key Information Documents for PRIIPs

The Joint Committee of the European Supervisory Authorities (ESAs) published its final draft regulatory technical standards (RTS) on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The draft RTS include a mandatory template, which includes certain mandatory texts and details of the layout to use, a methodology for the assignment of each PRIIP to one of the seven classes in the summary risk indicator, and the requirements relating to the presentation of costs.

An accompanying press release states that the proposed KIDs provide retail investors, for the first time across the EU, with simple and comparable information on PRIIPs. It is intended that the three page document will increase the transparency and comparability of information about the risks, performance and costs of PRIIPs.

The draft RTS have been submitted to the European Commission for endorsement and will enter into force on December 31, 2016.

ESMA Publishes New Q&A on CFDs and Other Speculative Products

The European Securities and Markets Authority (ESMA) has published a new question and answer document (ESMA/2016/590) on the application of MiFID to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients.

ESMA explains that, although CFDs and other speculative products (such as binary options and rolling spot forex) are complex products, they are widely advertised to the retail mass market by a number of firms, often through online platforms. The Q&A document is designed to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients. Although they are targeted at competent authorities, the answers are also intended to help firms by providing clarity on MiFID requirements.

ESMA has also added that, while the Q&A refer to MiFID, the principles and requirements underpinning the content of the document will remain unchanged once MiFID II enters into application.

European Commission Adopts Delegated Directive Supplementing MiFID II

On April 7, 2016, the European Commission adopted a Delegated Directive supplementing MiFID II regarding the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision of reception of fees, commissions or any monetary or non-monetary benefits (i.e. inducements).

The aim of the draft Delegated Directive is to specify further the following MiFID II rules and details for their implementation:

  • The safeguarding of clients’ financial instruments and funds;
  • Product governance obligations for investment firms manufacturing or distributing financial instruments (or both);
  • The provision or reception of inducements.

The draft Delegated Directive is based on the final technical advice on MiFID II and MiFIR provided to the Commission by ESMA in December 2014. The Council of the EU and the European Parliament will now consider the Delegated Directive. If neither of them object, it will enter into force twenty days after publication in the Official Journal.