On May 11, ESMA published a consultation paper (CP) on the clearing obligation for additional classes of interest rate derivatives, including fixed-to-floating interest rate swaps denominated in Czech Republic koruna (CZK), Danish krone (DKK), Hungarian forint (HUF), Norwegian krone (NOK), Swedish krona (SEK) and Polish zloty (PLN), as well as forward rate agreements (FRAs) denominated in NOK, SEK and PLN.
The CP follows the publication of clearing obligation CPs for interest rate derivatives classes, credit derivatives classes and foreign-exchange non-deliverable forward (NDF) classes, the publication of a final report on the clearing obligation for certain interest rate derivatives classes, and a feedback statement on NDF classes.
The draft RTS includes the following classes of derivatives:
fixed-to-floating CZK, DKK, HUF, NOK PLN swaps with maturities of up to five years;
fixed-to-floating SEK swaps with maturities of up to 15 years;
NOK and PLN-denominated FRAs with maturities of up to one year;
SEK-denominated FRAs with maturities of up to two years.
The CP does not address the issue of third-country entity intragroup transactions. ESMA states in paragraph 184 of the CP that, at the time of publication, it is not yet known how a provision related to the application of intragroup transactions concluded with third-country entities will be treated in the first RTS on the clearing obligation (for G-4 currencies). This aspect is therefore not addressed in the current CP/draft RTS.
On May 12, 2015, the Joint Committee of the three European Supervisory Authorities (ESAs) published a report detailing its findings and recommendations regarding the disclosure requirements and obligations relating to due diligence, supervisory reporting and retention rules in existing EU law on Structured Finance Instruments (SFIs). The ESAs comprise the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.
The report states that its recommendations constitute the Joint Committee’s response to the European Commission’s recent consultation on securitization and should be considered in the light of further work on the transparency requirements for SFIs.
The report focuses on the interplay between investor due diligence requirements and the disclosure requirements that apply to issuers, originators and sponsors. It aims to establish whether investors are effectively protected and whether the supervision framework is appropriate to support the redevelopment of the EU securitization markets. It includes recommendations to:
harmonize due diligence requirements across the EU.
standardize investor reports and have them stored in a centralized, public space.
ensure investors receive loan-by-loan level data.
review the use of different definitions and key terms across EU legislative texts.
complement a harmonized due diligence and disclosure framework with a comprehensive regime for supervision and enforcement.
On May 12, 2015, the European Securities and Markets Authority (ESMA) published an updated versionof its Q&A paper on the application of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) (2015/ESMA/850). The Q&A includes new questions and answers on reporting and calculation of leverage. The aim of the Q&A is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures.
On May 11, 2015, the European Banking Authority (EBA) published a consultation paper(EBA/CP/2015/09) on draft regulatory technical standards (RTS) on assigning risk weights to specialized lending exposures under Article 153(9) of the Capital Requirements Regulation (Regulation 575/2013).
Specialized lending is a type of exposure towards an entity specifically created to finance or operate physical assets, where the primary source of income and repayment of the obligation lies directly with the assets being financed.
The proposed RTS define four classes of specialized lending:
object finance; and
For each of these classes, the draft RTS specify a list of factors that institutions shall take into account and propose two options on how these factors should be combined to determine the risk weight assigned to the specialized lending exposure. The EBA has invited responses to the consultation before August 11, 2015, and will hold a public hearing for discussion on July 6, 2015.
On May 6, 2015, the European Securities and Markets Authority (ESMA) published guidelines (ESMA/2015/675) on the definitions of commodity derivatives and their classification under C6 and C7 listed in Section C of Annex 1 to the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).
The guidelines will apply to national competent authorities from August 7, 2015 and are intended to apply until the MiFID II Directive comes into force on January 3, 2017. The guidelines will clarify the definitions by specifying, in particular, what is meant by “physically settled” and confirming that forwards traded on a regulated market or multilateral trading facility (MTF) fall within the scope of MiFID.
On May 8, 2015, the European Banking Authority (EBA) published its final report (EBA/GL/2015/03) on guidelines on triggers for the use of early intervention measures under Article 27(4) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The guidelines identify a set of triggers that are closely linked to the outcomes of the common EU supervisory review and evaluation process conducted by national competent authorities, and elaborate on the circumstances prompting the consideration of whether to apply early intervention measures. The guidelines will apply from January 1, 2016.
On May 11, 2015, the European Securities and Markets Authority (ESMA) published a fourth consultation paper (ESMA/2015/807) on the clearing obligation under EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories (Regulation 648/2012)). The consultation paper provides clarifications on various aspects of the draft regulatory training standards that ESMA is required to draft and submit to the European Commission. Stakeholders are invited to provide comments on the consultation paper before July 15, 2015.
The European Securities and Markets Authority (ESMA) has recognised ten third-country Central Counterparties (CCPs) in Australia, Hong Kong, Japan, and Singapore. The recognition allows these CCPs to provide clearing services to clearing members or trading venues established in the EU. The recognition is based on an assessment of these jurisdictions by the European Commission as “equivalent” with regard to their legal and supervisory arrangements for CCPs, as well as several other steps, including the conclusion of cooperation agreements with the relevant third-country authorities and the consultation of certain European competent authorities and central banks, as required by EMIR. ESMA has published a list of the recognised third-country CCPs as well as the classes of financial instruments covered by the recognition.
The European Commission has published two communications to the European Parliament concerning the position of the Council of the EU on the adoption of the proposed Fourth Money Laundering Directive (MLD4), and the proposed Wire Transfer Regulation (WTR). Both MLD4 and the WTR were adopted by the Council of the EU at first reading on April 20, 2015. In each case the Commission confirms that the Council’s position reflects the political agreement reached on December 16, 2014, between the Parliament and the Council, including elements proposed by both institutions, and states its support for this agreement.
On April 29, 2015, the European Parliament adopted a report by its Committee on Economic and Monetary Affairs (ECON) containing amendments to the European Commission’s proposed Regulations on Money Market Funds (MMF Regulation). The ECON report proposes:
limiting constant net asset value (CNAV) MMFs to two types (retail CNAV MMFs and public debt CNAV MMFs);
introducing low volatility net asset value MMFs, requiring MMFs to divest their asset portfolios and have in place sound stress-testing processes;
preventing MMFs from receiving external support from third parties, including their sponsors;
requiring MMFs to report certain information to their investors on a weekly basis; and
requiring public debt and retail CNAV MMFs and low volatility net asset value MMFs to apply “liquidity fees” and “redemption gates” to help stem sudden outflows.
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