Bank of Tokyo-Mitsubishi UFJ and MUFG Securities Fined by PRA


On February 9, 2017, the Prudential Regulation Authority (“PRA“) issued a notice imposing fines of £17.75m and £8.925m on Bank of Tokyo-Mitsubishi UFJ (“BTMU“) and MUFG Securities EMEA (“MUFG“), respectively, for failing to be open and cooperative. The fines related to enforcement action by the New York Department of Financial Services (“NYDFS“) against both BTMU and MUFG, following which the PRA deemed that the two banks were in breach of the PRA Fundamental Rules.

In particular, it was deemed that they had breached Fundamental Rule 6, which states “a firm must organize and control its affairs responsibly and effectively,” and Fundamental Rule 7, which outlines “a firm must deal with its regulators in an open and cooperative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice.”

It was found by the PRA that BTMU failed to put in place appropriate procedures, systems and controls for communicating information relating to the NYDFS action, and failed to deal with the PRA openly following it. This was despite the action being linked to BTMU’s conduct in New York.

MUFG was fined by the PRA for a similar offense, as it was deemed to have not been open and cooperative in relation to a NYDFS investigation into an individual at the firm. It was deemed that the PRA had not been informed in a timely manner and was therefore deprived the opportunity to rule on the fitness of the individual.

This is the first time the PRA has issued a fine in breach of Fundamental Rules 6 and 7, and this sends out a warning that the PRA should be informed of any sanctions by the regulator in a timely manner, irrespective of the jurisdiction of the regulator.

The full notice is available here.

ESMA Issues Report on Distributed Ledger Technology


On February 7, 2017, the European Securities and Markets Authority (“ESMA“) published a report regarding distributed ledger technology (“DLT“).

DLT is a developing technology that has the potential to significantly alter and bring a number of benefits to securities markets. These benefits include, among others, enhanced efficiency in post‑trade processes, enhanced reporting and reduced costs. With these prospective benefits, however, come potential risks and legal questions.

ESMA has therefore issued a report that summarizes its position on DLT, with a note that it will continue to monitor this dynamic technology and consider whether a regulatory response may become a necessity.

The full report is available here.

ESMA Publishes Guide on Major Holdings Notifications


On February 3, 2017, a guide was published by ESMA that looked at major holdings notifications under the Transparency Directive. The Transparency Directive established a minimum level of information that needed to be provided to the public in relation to securities across the EU, and the recently issued guide discusses requirements that vary from country to country within the EEA and will assist readers in establishing the different requirements.

The guide, which is available here, summarizes the national requirements in relation to making and publishing notifications of major holdings.

The Financial Services Aspects of the Brexit White Paper


On February 2, 2017, the Department for Exiting the European Union, the department of the UK government tasked with extricating the UK from the EU, published a white paper on the UK’s exit from and new partnership with the EU. The white paper contains further detail on the UK government’s approach to financial services in sections 8.22 to 8.26.

The white paper states that the UK government will target the following aims in its negotiations with the EU in respect of the financial services sector:

  • Achieving the “freest possible trade” in financial services between the UK and EU member states.
  • Establishing strong co-operation and oversight arrangements with the EU, reflecting the interconnectedness of financial markets. The paper suggest that the UK will continue to support and implement international financial standards.
  • Negotiating on the UK’s future status and arrangements with regard to EU agencies, including the European Supervisory Authorities (ESAs) (that is, ESMA, EIOPA and the EBA).
  • Agreeing on a “phased process of implementation” to allow for the UK and the EU to prepare for the new arrangements that will apply following the UK’s departure from the EU. It is suggested that the phased process might relate to the future legal and regulatory framework for business. In any event, the UK government will take steps to mitigate the impact on economic and other functions, including passing legislation if necessary.

The UK government argues that factors such as the UK’s legal system, language and infrastructure will help to ensure that it remains a preeminent global financial center after the implementation of Brexit.

Further to the publishing of the white paper, the Financial Markets Law Committee published a letter on February 3, 2017, addressed to Andrew Tyrie, Treasury Select Committee chair, commenting on the UK’s financial services industry in the context of the UK’s withdrawal from the EU. The letter has been written in response to the Committee’s inquiry on the UK’s future economic relationship with the EU. The letter notes that post-Brexit, the UK will lose access to the European single market in financial services and will become a third country from the perspective of EU law. The letter notes that there are serious uncertainties as to the conditions that the UK and regulators will have to satisfy as a third country. As such, staged transitional arrangements negotiated well in advance of the UK’s withdrawal from the EU will be valuable in promoting legal certainty and minimizing disruption.

European Commission to Publish Legislative Proposal to Revise the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”)


On January 31, 2017, the European Commission published a speech by Valdis Dombrovskis, Commission Vice President, on finance for growth in manufacturing.

The speech included the Commission’s recent review of EMIR, the outcome of which the European Commission reported on in November 2016.

Mr. Dombrovskis commented that, during the review process, the European Commission received substantial feedback on the rules governing derivatives. Several respondents, including regulators and industry participants, argued that there is scope to make the rules and reporting obligations in this area more proportionate, particularly for non-financial counterparties.

The European Commission agrees with this feedback and intends to address some of the issues by revising existing technical standards to make reporting standards simpler and clearer. It will publish its legislative proposal to revise EMIR in spring 2017.

Brexit: Supreme Court Ruling


The UK Supreme Court rules that the Government cannot trigger Article 50 without a vote in Parliament.

Following the June 2016 referendum, the UK Government proposed to use its prerogative powers to withdraw from the EU by serving a notice in accordance with Article 50 of the Treaty on European Union, withdrawing the UK from the EU treaties. To read the full article, please click here.

ECJ Clarifies Payment Services Directive


On January 26, 2017, the Court of Justice of the EU (“ECJ“) published its judgment in BAWAG PSK Bank für Arbeit and others v. Verein für Konsumenteninformation (Case C-375/15) [2017] ECLI:EU:C:2017:38.

The judgment responds to a request for a preliminary ruling from the Oberster Gerichtshof (Austrian Supreme Court) concerning the interpretation of articles 36(1) and 41(1) of the Payment Services Directive (Directive 2007/64/EC) (“PSD“). The request was made during the proceedings relating to a clause included in the contracts of BAWAG PSK Bank für Arbeit (the “Bank“) entered into with consumers for the provision of e-banking services.

The ECJ was required to consider whether the information given by the Bank to its customers through an e-banking mailbox is “provided,” as opposed to being “made available,” through a “durable medium” for the purposes of the PSD.

The ECJ’s conclusion was that articles 41(1) and 44(1) of the PSD should be read in conjunction with article 4(25), meaning that the changes to the information and conditions as well as changes to the framework contract that are transmitted by the Bank to the customer through the electronic mailbox of an online banking website may not be considered to have been provided on a durable medium unless the following two conditions are met:

  1. The website must allow the user to store information addressed to them personally in such a way that they may access and reproduce it unchanged for an adequate period, without any unilateral alteration of its content by the user or any other professional being possible; and
  2. If the user is obliged to consult the website to become aware of that information, the transmission of that information must be accompanied by active behavior on the part of the user, aimed at drawing attention to the existence and availability of the information on the website.

If the user is obliged to consult a website to become aware of the relevant information, that information is merely made available to the user when the transmission of that information is not accompanied by such active behavior on the part of the user. The Austrian Supreme Court must now determine whether, in the case of the main proceeding, the two specified conditions have been met and whether the changes to the information and conditions, and the relevant framework contract, can be regarded as having been actively communicated by the Bank to the user of those services.

European Commission Consults on CMU Mid-Term Review


On January 20, 2017, the European Commission published a consultation paper requesting targeted input on revisions on the capital markets union (“CMU“) action plan, together with frequently asked questions on the consultation.

The Commission intends to publish its mid-term review of the CMU action plan in June 2017. The aim of the review is to take stock of the progress towards implementing the action plan, to reframe actions in light of new developments and to add new measures to the action plan. The CMU action plan was published in September 2015, and it set out the Commission’s proposed initiatives for the establishment of the CMU.

In the consultation, the Commission seeks views from stakeholders on potential revisions to the action plan on any additional actions that could:

  • Improve financing for innovation, start-ups and non-listed companies.
  • Improve the ability of companies to enter and raise capital on public markets.
  • Foster long-term infrastructure and sustainable investment.
  • Foster retail investment.
  • Strengthen banking capacity to support the wider economy.
  • Facilitate cross-border investment.

The consultation sets out the current position of the CMU initiatives already underway and the expected timings for their next steps, where applicable.

The deadline for responses is March 17, 2017. The Commission will evaluate the responses and produce a summary feedback statement. It will also hold more focused roundtable discussions on small and medium enterprises, access to finance, retail investigator engagement and institutional investment.

European Commission Publishes Consultation Paper on Capital Markets Union (CMU) Mid-Term Review


The European Commission published a paper (dated January 20, 2017) requesting feedback and general input on revisions to the CMU action plan. The original action plan was published in September 2015 and set out the Commission’s proposals for the establishment of the CMU.

The European Commission wishes to publish a mid-term review of the action plan by June 2017, with the review being set up to look at any progress in implementing the CMU action plan and amend accordingly, dependent on responses.

The deadline for such responses is March 17, 2017, upon which the Commission will evaluate all responses and produce a feedback assessment.

The Commission has also promised to hold discussions with relevant stakeholders, notably small and medium enterprises and other institutional investors.

The Commission seeks views from any relevant stakeholders on the action plan – in particular, it seeks views on any relevant revisions to the same on actions that could, inter alia:

  • Assist in allowing companies to raise capital on public markets (and enter those markets)
  • Create sustainable investment and long-term infrastructure, as well as foster retail investment and cross-border investment

Solidify the capacity of banks to support the economy

ESMA Publishes Opinion on the Effect of Excluding Fund Managers From the Scope of MiFIR Intervention Powers


On January 12, 2017, the ESMA published an opinion on the impact of exclusion of fund management from the entire scope of MiFIR (Markets in Financial Instruments Regulation) (Regulation 600/2014).

Although, under Articles 40 and 42 of MiFIR, the ESMA and other NCAs (national competent authorities) can prohibit and restrict the sale, marketing and/or distribution of specific financial instruments or shares in Alternative Investment Funds (AIFs), this power applies only to credit institutions and MiFID firms and excludes from its scope any alternative investment fund managers that might be authorized under the AIFM Directive (2011/61/EU) or to UCITS management companies so authorized under the UCITS IV Directive (2009/65/EC).

The ESMA has commented with the opinion that the intervention powers within MiFIR may create arbitrage situations between fund management companies themselves, as well as between fund management companies and MiFID firms. It has also stated that both the ESMA and relevant NCAs should be given the power to apply the restrictions under MiFIR directly to fund management companies.