Europe

ESMA Publishes New Methodology for Mandatory Peer Reviews of CCPS Authorization and Supervision Under EMIR

 

On January 5, 2017, the European Securities and Markets Authority (“ESMA“) published its methodology (ESMA71-1154262120-155) for mandatory peer reviews relating to the authorization and supervision of central counterparties (“CCPs“) under the European Market Infrastructure Regulation (“EMIR“) (the Regulation on OTC derivative transactions, CCPs and trade repositories (Regulation 648/2012)).

The scope of peer reviews under EMIR is defined, and ESMA has a specific role to further supervisory cooperation. Based on the experience of the first peer review undertaken in 2016 in the context of EMIR, ESMA’s Board of Supervisors decided that a methodology for the new type of peer reviews should build on the existing methodology. Further reviews will be conducted on, at least, a yearly basis.

The methodology sets out information relating to the legal basis and scope of the review, the topics covered, the assessment specifications and the approach taken to the questionnaire and report.

The application of the methodology will be restricted to peer reviews undertaken in the application of Article 26 of EMIR. This scope may be reconsidered by ESMA at a later date, when the mandatory peer reviews relating to other EU legislation need to be launched (for example, in relation to the Alternative Investment Fund Managers Directive (2011/61/EU) and the Regulation on improving securities settlement and regulating central securities depositories (Regulation 909/2014)).

ECB Consults on Changes to the Regulation on Oversight Requirements for Systemically Important Payment Systems

 

On January 3, 2017, the ECB published a consultation paper on the revision of the Regulation on oversight requirements for SIPS (“SIPS Regulation“).

There are four payment systems that fall under the SIPS Regulation, which are TARGET2, EURO1, STEP2-T and CORE(FR). The SIPS Regulation aims to ensure the efficient management and smooth operation of SIPS in the euro area.

A press release published with the consultation paper states that, under the SIPS Regulation, the general application of the SIPS Regulation must be reviewed every two years and amended if needed. Among other things, the revised version sets clearer requirements on liquidity risk mitigation and new requirements on cyber resilience, and assigns additional powers to the competent authorities.

As part of the revision, the ECB has also published a consultation paper on its decision relating to the methodology used to calculate sanctions that can be imposed in cases of non‑compliance with the SIPS Regulation.

The consultation closes on February 20, 2017.

EBA Requests European Commission to Revise Deadlines for the Submission of Certain Draft Technical Standards Under the CRD IV and the CRR

 

On January 3, 2017, the EBA published a letter (dated December 23, 2016) that was sent to the Director-General Financial Stability, Financial Services and Capital Markets Union (“FISMA“), by Andrea Enria, EBA Chairman, requesting the revision of deadlines for the submission of certain draft technical standards required under the CRD IV and the CRR.

In the letter, the EBA states that it cannot deliver on all the mandates required under the CRD IV and the CRR due to a “significant workload” and “considerable resources constraints” and goes on to request submission within new time limits for the following mandates, which were due to be delivered by the end of December 2016:

  • Regulatory technical standards (“RTS”) and implementing technical standards (ITS) on the authorization of credit institutions. The EBA currently expects to be able to accomplish these mandates during 2017, most likely around mid-2017.
  • RTS on consolidation methods under Article 382(5) of the CRR. The EBA currently expects to deliver on this mandate by the end of 2017, subject to developments relating to revisions of the CRR.
  • RTS on the exclusion of transactions with non-financial counterparties established in third countries under Article 382(5) of the CRR. The EBA expects to submit the RTS during Q1 2017.
  • RTS on disclosure of encumbered and unencumbered assets under Article 443 of the CRR. The EBA intends to deliver these during Q1 2017.

The letter goes on to address some of the remaining mandates given to the EBA under the CRD IV and the CRR, which, in the light of EU and international developments, were assessed as less meaningful by the supervisory community. Mr. Enria notes that these are continuously re‑prioritized due to scarce EBA resources. He highlights the following:

  • With regard to the credit risk mitigation (“CRM”) framework, in particular the RTS on immaterial portfolios for the internal ratings approach, RTS on conditional guarantees and RTS on eligible collateral within the CRM framework.

With regard to the operational risk area, in particular the RTS on the combined use of different approaches.

EBA Final RTS on Cooperation and Exchange of Information for Passporting under PSD2

On December 14, 2016, the European Banking Authority (“EBA“) published the regulatory technical final draft on passport notifications under the revised Payment Services Directive ((EU) 2015/2366) (“PSD2“) (EBA/RTS/2016/08).

Article 28 of PSD2 requires an authorized payment institution to inform the competent authorities of its home member state if it wishes to provide payment services for the first time in one or more member states other than its home member state. Article 28(5) gives the EBA a mandate to develop draft RTS, specifying method, means and details of the cross-border cooperation between competent authorities in the context of passport notifications of payment institutions. The RTS must include the scope of information to be submitted, a common terminology and standard templates, to ensure that the process is consistent and efficient.

The EBA consulted on the draft RTS in December 2015. Changes to the final version of the RTS in light of responses to the consultation include:

  • More clarity for when a payment institution uses an agent or an e-money institution uses a distributor.
  • New provisions so that payment institutions will be informed when the notification is transmitted from the competent authority in the home member state to the authority in the host member state.
  • A new field in a number of templates to include the legal entity identifier (LEI) as an identification number where available.
  • Deletion of information relating to governance arrangements and internal control mechanisms, outsourcing and the agent structural organization.

The EBA has also published a flowchart providing a guide to competent authorities on which notification templates to use, a copy of which can be found here.

The final draft RTS will now be submitted to the European Commission for endorsement. The draft Delegated Regulation states that it shall enter into force 20 days after it is published in the Official Journal of the EU (OJ).

EBA Final Guidelines on Disclosure Requirements for EU Banking Sector

On December 14, 2016, the European Banking Authority (“EBA“) published a final report (EBA/GL/2016/11) containing guidelines on regulatory disclosure requirements following its consultation in June 2016.

The guidelines follow an update of the Pillar 3 requirements by the Basel Committee on Banking Supervision (BCBS) and do not change the substance of the regulatory disclosures regarding the requirements defined in Part Eight of the Capital Requirements Regulation (Regulation 575/2013) (“CRR“).

They provide further guidance and support to institutions in complying with both the CRR and the Pillar 3 requirements. In particular, the guidelines cover the entire content of the Pillar 3 framework, with the exception of:

  • Securitization requirements, which are currently under discussion at the EU level following the finalization of a revised securitization framework at the international level.
  • Other disclosure requirements in Part Eight of the CRR for which there are already EBA delegated or implementing regulations or guidelines, such as own funds and leverage ratio.

The guidelines apply to globally and other systemically important institutions (“G-SIIs” and “O-SIIs“). Competent authorities may still require institutions that are neither G-SIIs nor O-SIIs to apply some or all the guidance provided for in the guidelines when complying with the requirements in Part Eight of the CRR.

The guidelines apply from December 31, 2017. However, an accompanying press release states that G‑SIIs are encouraged to comply with a subset of the guidelines as soon as December 31, 2016.

European Commission Confirms Insurance Block Exemption Regulation Not to Be Renewed

On December 13, 2016, the European Commission announced in a press release that Regulation 267/2010, the Insurance Block Exemption Regulation (“IBER“), will not be prevented from expiring on March 31, 2017. The IBER entered into force on April 1, 2010 and provides a block exemption for agreements relating to joint compilations, tables and studies. This enables the exchange of statistical information (calculations, tables and studies), subject to the specified conditions, and common coverage of certain types of risks (co-(re)insurance pools), subject to market share thresholds and other specified conditions.

In March 2016, the Commission published a report and document presenting the preliminary findings and conclusions of its review of the IBER, which began in 2014. The Commission’s provisional conclusion with regard to joint compilations, tables and studies was that the functioning of the insurance industry no longer appears to require a special instrument like a block exemption regulation. As regards co-(re)insurance pools, the Commission considered the IBER to be of limited use and relevance.

The Commission has now confirmed the block exemption is no longer warranted because the Commission’s 2011 Guidelines on horizontal cooperation (OJ 2011 C11/1) already provides guidance on how to assess the conformity of joint compilations, tables and studies with EU antitrust rules. However, the expiry of the IBER does not mean that these forms of cooperation become unlawful under Article 101 of the Treaty on the Functioning of the European Union (TFEU). Rather, insurers, as with all other companies doing business in the EU, will need to assess their cooperation in the market context to see whether it is in line with EU competition rules.

ESMA Consultation on Consolidated Tape for Non Equity Products RTS Under MiFID II: Responses

 

On December 8, 2016, ESMA published the responses it has received to its consultation on draft regulatory technical standards (RTS) specifying the scope of the consolidated tape for non‑equity financial instruments under Article 65(8)(c) of the MiFID II Directive (2014/65/EU).

Respondents include:

  • The Investment Association;
  • International Capital Market Association;
  • Wholesale Markets Brokers’ Association (WMBA)
  • Association française des investisseurs institutionnels; and
  • Deutsche Börse Group.

ESMA will use the feedback it receives to finalize the draft RTS, which will be submitted to the Commission for endorsement. The date of application of MiFID II Directive and MiFIR is January 3, 2018.

European Commission Report on Benchmarking of Diversity Practices Under CRD IV

 

On December 8, 2016, the European Commission published a report on benchmarking of diversity practices under the CRD IV Directive (2013/36/EC).

Article 161(5) of the CRD IV Directive requires the Commission to review and report to the Council of the EU and the European Parliament on the results reached under the diversity benchmarking, including the appropriateness of benchmarking diversity practices.

The Commission discusses the EBA’s report and reaches the conclusion that:

  1. It would not be useful at this stage to envisage putting forward a legislative proposal to amend the provisions of the CRD IV Directive diversity provisions, given that it is satisfied with the added value of the benchmarking diversity practices;
  2. There is still considerable room for improvement both in having diversity policies in place and achieving greater diversity of the management bodies of institutions;
  3. The majority of the sampled institutions were not compliant with the CRD IV Directive requirement of putting in place a policy promoting the diversity of their management bodies; and
  4. The majority of the institutions that had set a gender diversity target had not yet met it or had not set a timeline for doing so (or both).

Council of EU Postpones PRIIPS Regulation by One Year

 

On December 8, 2016, the Council of the EU announced that it has adopted a Regulation postponing the application date of the Regulation on key information documents (KIDs) for packaged retail and insurance‑based investment products (“PRIIPs“). (Regulation 1286/2014) (PRIIPs Regulation).

The PRIIPs Regulation will now apply from January 1, 2018 rather than December 31, 2016.

In the Council’s press release on December 8, 2016, the Council explained that the delay will enable regulatory technical standards (RTS) to be defined, leaving enough time for the industry to adapt to the new rules.

The Council published a document (PE-CONS 51/16) setting out the text of the Regulation postponing the application of the PRIIPs Regulation.

European Commission Adopts Delegated Regulation on RTS for the Application of Position Limits to Commodity Derivatives

 

On December 1, 2016, the European Commission adopted a Delegated Regulation supplementing the MiFID II Directive (2014/65/EU) in relation to regulatory standards (“RTS“) for the application of position limits to commodity derivatives (2016) 4362 final).

The MiFID II Directive requires that competent authorities, in line with ESMA’s methodology, establish and apply position limits on the size of a net position a person can hold in certain commodity derivatives and economically equivalent OTC (EEOTC) contracts. Article 57(3) and (12) of the MiFID II Directive empowers ESMA to develop RTS providing the basis of the methodology for the calculation and application of the position limits.

In September 2015, ESMA submitted the draft RTS to the Commission. The Commission then notified ESMA in April 2016 that it intended to endorse the RTS, provided that a number of changes were made. ESMA submitted revised draft RTS to the Commission in May 2016. The Commission explains that the amended provisions create a more stringent regime for liquid contracts whose underlying product is food for human consumption. Further, it caps the upper position for new and illiquid contracts to 40%, but stipulates that upper position limits of up to 50% can be imposed on a temporary basis. The proposed methodology also highlights how competent authorities are to consider volatility when setting position limits.

The Council of the EU and the European Parliament are now to consider the Delegated Regulation. Should neither of them object, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).