European Commission Adopts Delegated Regulation That Supplements the MiFIR on the Treatment of Package Orders


On August 14, 2017, the European Commission has published the draft text of a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) with regard to the treatment of package orders.

Currently, Article 9(1)(e) of MiFIR provides that, where certain conditions apply, a waiver is given for both pre- and post-trade transparency requirements for packaged orders. This waiver is, however, limited where the package order is considered “liquid”.

Pursuant to the power of the Commission to adopt a Delegated Regulation establishing a clear methodology for determining package orders for which there is a “liquid market,” the Commission has introduced this Delegated Regulation. Article 1 of the Delegated Regulation sets out general methodology for establishing which for package orders there is a “liquid market.” Articles 2 to 5 then go on to specify the conditions under which a package order can fulfill asset-specific criteria set out in Article 1(b).

Following the introduction of the draft text of the Delegated Regulation, the Council of the EU and European Parliament will consider it. Subject to any objections, it will then enter into force 20 days after its publication in the Official Journal of the EU and apply from January 3, 2018.

To see the draft text of the Delegated Regulation, please click here.

European Commission Adopts Delegated Regulation on Waiver of Own Funds Requirements for Certain Covered Bonds Under the CRR


On August 21, 2017, the European Commission published the text of a Delegated Regulation that amends the Capital Requirements Regulation (Regulation 573/2013) (“CRR“). The main amendment pertains to Article 496(1) of the CRR. Currently, Article 496(1) allows competent authorities to waive, for certain covered bonds, the threshold of 10% referred to in Article 129 CRR until December 31, 2017.

The Commission has stated, however, that, given that some institutions rely in their business models on the use of this threshold waiver, it is appropriate for legal certainty to amend Article 496(1) to make the waiver permanent without the time limitation.

The Commission adopted the Delegated Regulation on August 11, 2017, and it is now for the Council of the EU and European Parliament to consider the Delegated Regulation. If neither objects, it will be published in the Official Journal of the EU and enter into force 20 days after its publication in the same. It will then start to apply from January 1, 2018.

To see the Delegated Regulation in full, please click here.

CMA Publishes Finalized Versions of Regulated Payment System Appeals Rules and Guide


On August 18, 2017, the Competition and Markets Authority (“CMA“) published the final version of its rules of procedure (CMA65) which governs appeals made under section 79 of the Financial Services (Banking Reform) Act 2013 (“FSBRA“) in respect of certain decisions made by the Payment Systems Regulator (“PSR“) under the same Act.

The FSBRA states that, in relation to decisions made by the PSR that:

  • require the granting of access to a payment system; or
  • require the variation of certain agreements relating to payment systems; or
  • require a person who has an interest in the operator of a regulated payment system to dispose all or part of that interest;

these can be appealed to the CMA by any person who is affected by the decision.

This ground is broad, and so the CMA will only allow appeals where it is satisfied that the PSR’s decision was wrong on the basis that:

  • the PSR failed properly to have regard to, or give appropriate weight to, the matters the PSR must have in regard to carrying out its functions under Part 5 FSBRA; or
  • the decision was based, either wholly or partly, on an error of fact or;
  • the decision was wrong in law.

Under the rules of procedure, any person who wishes to make an application to appeal a decision must first send a notice, marked “Notice of Payment Systems Appeal,” directly to the CMA within the two months following the date the appellant was notified of the decision or the date of publication of the decision (whichever is earlier). The CMA also has discretion to extend the two month time period where it concludes that there were exceptional circumstances for any appeal beyond this time.

To see the full draft of the rules, please click here.

ECB Publishes Interview Transcript on the Preparatory Work of Banks and Supervision as a Result of Brexit


The European Central Bank (“ECB“) has published a transcript of an interview, given by Sabine Lautenschlager (ECB Executive Board Member and Supervisory Board Vice-Chair), on the kind of preparation affected banks will have to undertake following the UK’s decision to leave the European Union. The interview is wide ranging, but includes the following pertinent points:

  • The ECB wants euro-area banks to be proactive and well prepared and is currently in discussion with all euro-area banks under its supervision that will be affected by Brexit.
  • The ECB has suggested that all affected banks should prepare for a hard Brexit. It has also recommended that all affected banks create their strategies for Brexit quickly and pass these on to the ECB, as they only have an extremely narrow time frame in which to assess plans and applications.
  • The ECB has itself set up a project to prepare for Brexit. It will need to increase its staff as it expects a significant increase in the number of internal model applications, qualifying holding procedures and licensing applications.

To see the full interview, please click here.

ESMA Publishes Responses to June 2017 Consultation on RTS Trading Obligations for Derivatives under MiFIR


On August 10, 2017, the European Securities and Markets Authority (“ESMA“), published responses to its June 2017 consultation on trading obligations for derivatives under the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“), viewable here.

Under Article 32(1) of MiFIR, ESMA is required to develop regulatory technical standards (RTS) specifying the derivatives that should be subject to the trading obligation. ESMA intends to use the feedback to finalize the draft RTS and submit them to the European Commission for endorsement.

Respondents include:

  • Investment Association (IA).
  • Alternative Investment Management Association (AIMA).
  • Building Societies’ Association (BSA).
  • European Savings and Retail Banking Group (ESRBG).
  • European Banking Federation (EBF).
  • Managed Funds Association (MFA).
  • Wholesale Markets Brokers’ Association (WMBA).
  • International Swaps and Derivatives Association (ISDA).

European Commission Requests Feedback on a Roadmap for Widening Access to Centralized Bank and Payment Account Registries


On August 9, 2017, the European Commission published an inception impact assessment (Ares (2017)3971182) (also called a roadmap) on access to centralized bank account registries.

In the roadmap, the Commission explains that the proposed Fifth Money Laundering Directive (“MLD5“) includes provisions that would require member states to establish automated centralized mechanisms, such as central registries or central electronic data retrieval systems, of bank and payment accounts. Member states would be required to grant access to these registries to financial intelligence units (FIUs) and national competent authorities (NCAs) to prevent money laundering and terrorist financing. The registries are intelligence tools, not data warehouses. They do not contain any information on the balance of the account or transaction details. The minimum data that would be contained in the registries would include information on the identification of the account holder, of any person acting on their behalf, of the beneficial owners, the IBAN account number (which would also identify the bank), the account opening date and, where applicable, the closing date.

The Commission advises that the inter-institutional negotiations on MLD5 are well advanced. The Council of the EU adopted its general approach in December 2016, in which no substantial changes were made to Article 32a of MLD5, which establishes the registries. The European Parliament has not presented substantive amendments on Article 32a either. As a result, the Commission believes that the provisions establishing centralized registers are likely to be included in the final text of MLD5, to be adopted by the co-legislators later in 2017.

However, the Commission explains that the scope of MLD5 is limited to the prevention of money laundering and terrorist financing. As a result, under MLD5, access to the registries can only be granted to FIUs and NCAs, but not to other law enforcement agencies. In some member states, a broader range of law enforcement agencies will be able to consult the registries. This means there will be differences among member states, which could be exploited by criminals and organized crime groups.

Under the Commission’s February 2016 terrorist financing action plan, it announced that it would explore the possibility of a self-standing legislative instrument to allow for broader access to the registries for other law enforcement investigations and by other authorities (such as tax authorities, asset recovery offices (AROs) and anti-corruption authorities (ACAs)). The Commission believes that this would contribute to the prevention of organized crime, and other serious offenses, by enabling public authorities to get timely access to information on the identity of holders of bank and payment accounts in their member state. This would facilitate criminal investigations, as well as the confiscation and recovery of criminal assets. The Commission also considers that banks are likely to benefit from the initiative, as they should experience a reduction in the administrative costs of regularly having to reply to authorities’ requests for information.

In June 2016, the Commission carried out a targeted consultation that involved sending a questionnaire on the issue of access to the registries to AROs and ACAs. 90% of all authorities who replied (representing 26 member states) consider that access would facilitate their tasks substantially. It is planning to launch a twelve-week public consultation in the third quarter of 2017 and, simultaneously, to carry out targeted consultations of key stakeholders (including banks) in the third and fourth quarter of 2017.

A related Commission webpage explains that comments can be made on the roadmap until September 6, 2017. The roadmap refers to an indicative planning date of the first quarter of 2018.

European Parliament Committee Publishes Study on the Legal Implications of Brexit


On August 9, 2017, a policy department of the European Parliament (“EP“) published a Study requested by the EP’s Committee on Internal Market and Consumer Protection (“IMCP“) on the “Legal Implications of Brexit: Customs Union, Internal Market Acquis for Goods and Services, Consumer Protection Law, Public Procurement“.

The Study categorizes the EU legal framework for the different stages of the withdrawal of a member state from the EU, namely:

  • Substantive legal obligations arising from Article 50 of the Treaty on the European Union concerning withdrawal from the EU resulting in a withdrawal agreement.
  • The legal nature and scope of the UK’s future relationship with the EU.
  • Possible transitional arrangements.
  • Implications of that future relationship for EU Internal Market law, particularly those policy areas covered by the IMCO Committee.

The Study emphasizes that there are significant limitations to its analysis owing to the fact there are still many major policy choices left to be made by the EU and the UK even before they start being negotiated. The main purpose of the study, therefore, is to provide an analytical framework for assessing the legal impact of different Brexit scenarios.

Scenarios for the Future EU-UK Relationship: The Study analyzes different scenarios of the UK withdrawing from the EU in relation to the EU Customs Union, the Internal Market law for Goods and Services, and on Consumer Protection law.

It takes fully-fledged EU membership as the baseline scenario and compares it to three other scenarios and assesses the legal implications of each scenario:

  • UK membership of European Economic Area (“EEA“).
  • A tailor-made free trade arrangement between the UK and EU.
  • WTO law governing relations between the UK and EU (the fall-back scenario).

Impact of a Scenario on EU Policy Areas: The Study also develops an analytical framework for identifying the legal impact of different Brexit scenarios on IMCO Committee policy fields, including proposing a two-step test.

Finally, it applies that test to the various Brexit scenarios on key EU laws in IMCO Committee policy areas and reaches some tentative conclusions on the likely impact, particularly for:

  • Consumer protection: relatively limited impact.
  • Policy areas involving standards, such as product safety: significant impact.
  • Goods: significant impact.

The Study is available here.

EBA Publishes Discussion Paper on Approach to Fintech


On August 4, 2017, the European Banking Authority (“EBA“) published its discussion paper (EBA/DP/2017/02) on its approach to fintech.

During the spring of this year, the EBA undertook a fintech mapping exercise in order to gain a better insight into the financial services offered and financial innovations applied by fintech firms in the EU, and their regulatory treatment. Competent authorities in 22 member states and two EEA states provided estimates on the current number and expected growth of fintech firms established in their respective jurisdictions. They also provided information on certain of the fintech firms, detailing information on the main financial innovations applied, main financial services provided, regulatory status and target end-users.

The EBA considers that there is merit in it undertaking follow-up work in several areas, as a result of the mapping exercise, work completed by other intergovernmental and EU bodies relating to fintech and previous work that the EBA has done on specific innovations. These areas relate to:

  • Authorization and sandboxing regimes.
  • The impact on the prudential risks for credit institutions and electronic money institutions.
  • The impact of fintech on the business models of the above institutions.
  • Consumer protection and retail conduct of business issues.
  • The impact of fintech on the resolution of financial firms.
  • The impact of fintech on anti-money laundering and countering the financing of terrorism.

In relation to the above areas, the discussion paper points out the issues, summarizes the EBA’s work to date to address them, identifies possible gaps and outlines the additional work that the EBA may wish to pursue. The objective of the discussion paper is to seek the opinions of external stakeholders on the EBA’s assessment and on the comprehensiveness and viability of the possible future work in the areas identified.

Comments can be made until November 6, 2017 and there will be a public hearing on October 4, 2017. The EBA will then assess the responses with the aim of deciding the further steps to be taken during 2018.

EBA Consults on Fraud Reporting Requirements under PSD2


On August 2, 2017, the EBA published a consultation paper (EBA/CP/2017/13) on its draft guidelines on reporting requirements on statistical data on fraud under Article 96(6) of the Directive on payment services in the internal market ((EU) 2015/2366) (PSD2).

One of the goals of PSD2 is to increase the security of retail payments in the EU. The aim of the EBA’s proposed guidelines, which have been developed together with the European Central Bank (ECB), is to ensure that the high-level fraud reporting requirements under PSD2 are implemented consistently among member states, and that the aggregated data provided by competent authorities to the EBA and the ECB is reliable and comparable.

The guidelines propose requirements applicable to all payment service providers (PSPs), but excluding account information service providers, and also set out requirements that are applicable to all competent authorities in the EU. The meaning of “fraudulent payment transactions” is also defined for the purpose of the data reporting under the guidelines. Periodic reporting requirements on payment transactions and fraudulent payment transactions are also included in the guidelines, together with the methodology for collating ad reporting data.

The consultation closes on October 31, 2017, after which the final guidelines will be published. A public hearing on the guidelines is being held by the EBA on October 5, 2017.

EBA Reports on Funding Plans and Asset Encrumbance


On July 31, 2017, the EBA published the following reports on EU banks’ funding plans and asset encumbrance:

  • Funding plans. The report assesses the feasibility of EU banks’ funding plans submitted to the EBA. It was drafted in response to the European Systemic Risk Board’s (ESRB) recommendations on the funding of credit institutions. The funding plans reported in accordance with the EBA guidelines published in July 2014 on harmonized definitions and templates for funding plans of credit institutions, form the basis of the analysis. Data was collected from a sample of the largest banks in each member state, including Barclays plc, HSBC and Lloyds. Report.

Asset encumbrance. The EBA monitors asset encumbrance in order to assess whether changes have broader implications for access to unsecured instruments. The report mainly uses data from 2016, which highlights a small increase in the level of asset encumbrance across the EU compared with the figures for 2015 and 2014. The report also demonstrates a wide dispersion of asset encumbrance across countries and institutions. This report is the EBA’s third report which analyses asset encumbrance in EU banks, having published the previous report in June 2016. Report.