Europe

Econ Draft Report on Proposed Regulation Amending CRR as Regards Transitional Period for Mitigating Impact on Own Funds of Introduction of IFRS 9

 

On June 8, 2017, the European Parliament’s Committee on Economic and Monetary Affairs (“ECON“) published its draft report on the proposed Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) regarding the transitional period for mitigating the impact on own funds of the introduction of International Financial Reporting Standard 9 (“IFRS 9“) and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states.

The European Commission’s November 2016 legislative proposal for a Regulation amending the CRR (“CRR II Regulation“) contained transitional provisions relating to IFRS 9 and the large exposures treatment of certain public sector exposures. The explanatory statement to the draft report explains that the Presidency of the Council of the EU proposed that these provisions should be split from the proposed CRR II Regulation and dealt with in a separate draft Regulation “to allow for a timely entering into force of these transitional provisions.” The European Parliament’s Conference of Presidents approved the proposed split in May 2017. On June 1, 2017, the Council of the EU published the final Presidency compromise proposal relating to the split-out Regulation.

The draft report contains a European Parliament legislative resolution on the Regulation, the text of which sets out suggested amendments to the proposed CRR II Regulation that reflect the splitting out of the transitional provisions into a separate Regulation. The amendments delete provisions in the CRR II Regulation that do not relate to the transitional provisions. The report states that the deleted parts will be covered in a separate ECON report. It also contains an explanatory statement by the rapporteur, Peter Simon.

European Commission Mid-Term Review of CMU Action Plan: Financial Services Aspects

 

On June 8, 2017, the European Commission published a communication on the mid-term review of the capital markets union (“CMU“) action plan (COM(2017) 292). This follows the action plan published by the Commission in September 2015, which set out its proposed initiatives relating to the establishment of the CMU, and the consultation paper published by the Commission in January 2017, which sought targeted input on revisions to the CMU action plan that would feed in to its mid-term review of the action plan.

The purpose of the mid-term review is to set out an additional set of actions that complement the initiatives laid down in the action plan that have not yet been completed. It consists of:

  • Initiatives that follow on from completed work announced in the action plan:
    • The Commission has confirmed that it intends to proceed with legislative proposals on (i) the Pan-European Personal Pension Product (PEPP); (ii) conflict of laws rules for third-party effects of transaction and securities and claims; and (iii) an EU framework for covered bonds.
    • The Commission also intends to proceed with further work on initiatives relating to commitments announced in the action plan, including (i) amendments to the Solvency II Delegated Regulation ((EU) 2015/35); (ii) recommendations on private placements; (iii) communication on a roadmap for removing barriers to post-trade market infrastructure; and (iv) communication on corporate bond markets.
  • New priority initiatives intended to strengthen the CMU action plan:
    • The initiatives relate to issues including (i) the functioning of the European Supervisory Authorities (ESAs); (ii) prudential treatment of investment firms; (iii) Fin Tech; (iv) non-performing loans (NPLs); and (v) cross-border investment funds.

The Annex to the mid-term review contains a consolidated list of the CMU initiatives and the proposed timings for those initiatives.

European Commission Adopts Delegated Regulation Amending Solvency II Delegated Regulation On Infrastructure Corporates

 

On June 8, 2017, the European Commission adopted a Delegated Regulation amending the Solvency II Delegated Regulation ((EU) 2015/35) concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (C(2017)3673 final). An impact assessment and executive summary were published alongside the Delegated Regulation.

The Solvency II Delegated Regulation was amended, with effect from April 2016, to provide for appropriate risk calibrations for qualifying infrastructure projects, but not infrastructure corporates. EIOPA submitted a report to the Commission in June 2016, which set out technical advice on infrastructure corporates and recommended several changes to the previous treatment of infrastructure projects. This included amendments to the definition and qualifying criteria for infrastructure projects to avoid inadvertent exclusion of investments in those projects with a better risk profile.

The amendments to the Delegated Regulation will reduce the capital charges attached to investments by insurance companies in infrastructure companies. The aim is to remove regulatory barriers to investment opportunities in infrastructure that fulfill a number of criteria and are considered to have a better risk profile. The amending Delegated Regulation forms part of the Commission’s wider efforts on capital markets unions (CMUs) to support insurers in their role as long-term investors in the EU economy.

It is now for the Council of the EU and the European Parliament to consider the amending Delegated Regulation. Should neither the Council nor the Parliament object to the amending Delegated Regulation, it will be published in the Official Journal of the EU (OJ). It will enter into force on the date following its publication in the OJ and will apply from that date.

European Commission’s Review of Consumer Rights Directive

 

The European Commission has published the results of its evaluation of the Consumer Rights Directive (2011/83/EU) (“CRD“).

The evaluation found that the CRD had positively contributed to the functioning of the business-to-consumer internal market and had ensured a high common level of consumer protection across member states of the EU. Areas for improvement were also highlighted. READ MORE

Council of EU Presidency Compromise Proposal on Proposed Regulation Amending CCR

 

The Council of the EU has published the final Presidency compromise proposal on the proposed Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) as regards the transitional period for mitigating the impact on its own funds of the introduction of International Financial Reporting Standard 9 (“IFRS 9“) and the large exposures treatment of certain public sector exposures denominated in nondomestic currencies of member states.

The European Parliament issued a resolution for the adoption of IFRS 9 in September 2016, and in November 2016 the European Commission, as part of its legislative proposals to revise the CRR and the CRD IV Directive (2013/36/EU), suggested transitional arrangements to mitigate the effect of the introduction of IFRS 9 on Common Equity Tier 1 capital resulting from the impairment requirements of IFRS 9. The EBA published an opinion on transitional arrangements and credit risk adjustments due to the introduction of IFRS 9 in March 2017.

ESMA Consults on Guidelines on CCP Conflicts of Interest Management Under EMIR

 

On June 1, 2017, ESMA published a consultation paper (ESMA70-151-291) on guidelines relating to central counterparties (“CCPs“) management of conflicts of interest.

ESMA explains that the European Market Infrastructure Regulation (“EMIR“) only contains generic provisions relating to CCPs’ conflict of interest management. It requires CCPs to act in the best interests of their clearing members and the clients. Therefore, CCPs need to have in place robust organizational arrangements and policies to prevent potential conflicts of interest and to solve them if they occur. ESMA believes that further guidance would be beneficial and further facilitate supervisory convergence on this area.

The purpose of the guidelines is to set out the criteria CCPs should apply to avoid or mitigate the risks of conflicts of interest and to ensure a consistent implementation across CCPs. Areas addressed by the guidelines include:

  • written arrangements to identify and manage any potential conflicts of interest between CCPs, clearing members and clients;
  • where written arrangements are not sufficient, disclosure of conflicts of interest to the clearing member or clients before entering into any new transactions; and
  • possible conflicts with a CCP’s parent undertaking or subsidiary.

The consultation will close on August 24, 2017, upon which ESMA will consider the feedback received to the consultation. ESMA expects to publish a final report on the guidelines by the end of 2017.

EIOPA Publishes Guidance on Authorization and Supervision in Light of Brexit

 

On May 25, 2017, it was reported on Reuters that the European Insurance and Occupational Pensions Authority (“EIOPA“) is to publish guidance directed to national regulators on the principles for authorization and supervision to ensure that they do not undercut one another in their attempts to attract firms moving from London due to Brexit. EIOPA is monitoring developments in this area and will publish guidance in due course.

According to Reuters, the European Securities and Markets Authority (“ESMA“) is also to publish guidelines on this issue before the summer. ESMA’s chairman has said it has discussed the potential risks of new “letter box” companies being set up in the EU, which would delegate key operations to group companies in London. ESMA warns that these arrangements could undermine stability.

New FCA Web Page on Cyber Resilience

 

On May 18, 2017, the FCA published a new Web page on cyber resilience.

The FCA notes that cyber risks pose a threat to all financial services firms. Firms should be aware of the threat, able to defend themselves effectively, and respond proportionately to cyber events.

The FCA’s goal is to help firms become more resilient to cyberattacks while ensuring that consumers are protected and market integrity is upheld. To achieve this, firms of all sizes should:

  • Develop a “security culture” from the board down to every employee.
  • Be able to identify, prioritize and protect their information assets (that is, hardware, software and people).
  • Detect breaches.
  • Respond to and recover from incidents.
  • Constantly evolve to meet new threats.

Under Principle 11 of the FCA’s Principles for Businesses, firms must report material cyber incidents. A firm may consider an incident to be material if it:

  • Results in significant loss of data or the availability or control of the firm’s IT systems.
  • Impacts a large number of victims.
  • Results in unauthorized access to, or malicious software present on, the firm’s information and communication systems.

These requirements will be updated in line with any future regulations.

Where a firm considers an incident to be material for Principle 11 purposes, it should report this to the FCA and other relevant authorities, including the PRA if the firm is dual-regulated, and to the Information Commissioner’s Office (ICO) if the incident is a data breach.

The FCA states that cybersecurity is a shared responsibility. It takes a cooperative approach to address the threat, working with government and other regulators, nationally and internationally. The Web page contains a link to the National Cyber Security Centre (NCSC) website, together with links to relevant FCA publications.

European Commission to Publish CMU Midterm Review on June 7, 2017

 

On May 18, 2017, Ugo Bassi, Director of Financial Markets, European Commission DG FISMA, confirmed that the Commission will publish its midterm review of the capital markets union (“CMU“) on June 7, 2017.

Mr. Bassi stated that the review would contain an action plan for “CMU 2.0” and would announce a number of additional initiatives. These initiatives include measures to make it easier to sell funds cross-border using passporting mechanisms and to strengthen supervisory powers at the EU level, potentially through increased supervisory powers for ESMA. The Commission will adapt the initiatives envisaged under the CMU to reflect the UK’s decision to leave the EU.

European Parliament Adopts Resolution on FinTech

 

On May 17, 2017, the European Parliament voted in plenary to adopt a resolution on FinTech and the influence of technology on the future of the financial sector. The provisional text (P8_TA-PROV(2017)0211) of the resolution has been published.

The Parliament’s Committee on Economic and Monetary Affairs (ECON) published a report on FinTech, which included the resolution, on May 3, 2017.

The Parliament has instructed its president to forward the resolution to the Council of the EU and the European Commission.