Council of EU Agrees General Approach on Proposed Regulation on Securities Financing Transactions

On November 20, the Council of the EU published a press release reporting that its Permanent Representatives Committee (COREPER) has agreed its approach on a draft regulation on reporting and transparency of securities financing transactions (SFTs) (the SFT Regulation).

SFTs are often carried out by the shadow banking sector and rely on assets belonging to the counterparty to generate financing.  They mostly involve lending or borrowing of securities and commodities, repurchase or reverse repurchase transactions, or buyback/sell-back transactions.

The SFT Regulation is intended to enhance financial stability by ensuring that information on SFTs is efficiently reported to trade repositories and investors in collective investment undertakings.

The Commission published its legislative proposal for the SFT Regulation in January 2014 and the Council published its first compromise proposal in October 2014. The Council’s agreement enables negotiations to commence as soon as the negotiating team of the European Parliament is entrusted with a mandate. The aim is to adopt the SFT Regulation at first reading. Press Release.

Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 Published

On November 20, the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 were published with an accompanying explanatory memorandum.  The Regulations were made on November 19, and come into force on December 15.  They amend the Financial Services and Markets Act 2000 (FSMA) to extend until July 3, 2016 the expiry dates of:

  • the prohibition on market manipulation (s118(8) FSMA);
  • the associated provisions (s118A(2) and (3) FSMA); and
  • the definition of “regular user” (s130A FSMA).

On July 3, 2016, the Market Abuse Regulation (MAR) will take effect and the above FSMA provisions will then expire.  The s118(8) prohibition will be replaced by a prohibition with similar scope under MAR.  RegulationExplanatory Memorandum.

ECON Publishes Draft Report on MMF Regulation

On November 17, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report on the proposed Regulation on Money Market Funds (the MMF Regulation).

Money market funds are a type of investment fund that invests in short-term debt such as money market instruments issued by banks, governments and companies (MMFs).  If adopted, the MMF Regulation will introduce a general framework of requirements to enhance the liquidity and stability of MMF funds.

The draft report sets out suggested amendments to the European Commission’s original proposal and an explanatory statement. The statement comments that:

  • there is still significant scope for improvement relating to liquidity and maturity transformation and in making MMFs more stable;
  • a new category of EU government constant net assets value money market fund (CNAV MMF) should be established, which would invest a majority of assets into EU government debt; and
  • the net asset value of CNAVs should be subject to daily disclosure requirements, stress tests should take place on a quarterly basis and there should be stronger investor warnings.

The Parliament is scheduled to consider the MMF Regulation at its plenary session on March 25, 2015. Draft report.

IOSCO Publishes Report on Post-Trade Transparency in the Credit Default Swaps Market

On November 17, the International Organization of Securities Commissions (IOSCO) published a report (CR08/2014) on post-trade transparency in the credit default swaps market. The report analyzes the potential impact of mandatory post-trade transparency in the credit default swaps market and identifies certain potential benefits and costs to mandatory post-trade transparency.  Comments are invited on the report by February 15, 2015.  Report.

FSB Consults on Total Loss-Absorbing Capacity for G-SIBs

On November 10, the Financial Stability Board (FSB) published a consultation paper on proposals on the adequacy of total loss-absorbing capacity (TLAC) of global systemically important banks (G-SIBs) in resolution.

In the consultation, the FSB seeks views on principles on loss absorbing capacity of G-SIBs in resolution, covering issues such as the calibration of the amount of TLAC required, the determination of TLAC-eligible instruments and the consequences of breaches of the requirement.  The deadline for responses to the consultation is February 2, 2015.

EBA Consults on RTS on Contractual Recognition of Write-Down and Conversion Powers under BRRD

On November 5, the European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS) on the contractual recognition of bail-in under the Bank Recovery and Resolution Directive (BRRD).

Under the BRRD, firms and other entities to whom the BRRD applies are required to include in relevant agreements a contractual term by which the creditor or party to the agreement creating a relevant liability recognizes that the liability may be subject to the write-down and conversion powers specified in the BRRD.  In the proposed draft RTS, the EBA seeks to determine the cases in which the requirement to include the contractual term does not apply.

The deadline for responses is February 5, 2015. The EBA is required to submit the draft RTS to the European Commission by July 3, 2015.  Consultation Paper.

ESMA Call for Evidence on AIFMD Passport and Third Country AIFMs

On November 7, the European Securities and Markets Authority (ESMA) published a call for evidence on the EU passport under the Alternative Investment Fund Managers Directive (AIFMD) and third country Alternative Investment Fund Managers (AIFMs).

Under the AIFMD, non-EU AIFMs and non-EU Alternative Investment Funds (AIFs) managed by EU AIFMs are subject to the national private placement regime of each of the member states where the AIFs are marketed or managed. However, the AIFMD makes provision for the passport to be potentially extended in the future.

Responses to the call for evidence from the EU and the non-EU stakeholders (as well as ongoing input ESMA is receiving from national competent authorities) will help ESMA develop the opinion and advice it is required to deliver to the European Commission.

The deadline for responses to the call for evidence is January 8, 2015.  ESMA will consider the feedback it receives to the call for evidence in the first quarter of 2015.  It is required to deliver the opinion and the advice to the Commission by July 22, 2015.  Call for Evidence.

EBA Releases Results of 2014 EU-Wide Stress Test

On October 26, the European Banking Authority (EBA) released the results of its 2014 EU-wide stress test covering more than 70% of total EU banking assets.  The purpose of the test is to address remaining vulnerabilities in the EU banking sector.

The impact of the stress test is assessed in terms of the transitional CRR/CRD IV Common Equity Tier 1 ratio for which defines 8.5% as the ratio for an adverse scenario as of end 2013.  The EBA reported that 24 participating banks fell below the defined thresholds leading to an aggregate maximum capital shortfall of €24.6 billion.

The EBA states that the supervisory actions will be communicated by each competent authority shortly after the publication of the stress test results.  Report.