eu

EIOPA Publishes Guidance on Authorization and Supervision in Light of Brexit

 

On May 25, 2017, it was reported on Reuters that the European Insurance and Occupational Pensions Authority (“EIOPA“) is to publish guidance directed to national regulators on the principles for authorization and supervision to ensure that they do not undercut one another in their attempts to attract firms moving from London due to Brexit. EIOPA is monitoring developments in this area and will publish guidance in due course.

According to Reuters, the European Securities and Markets Authority (“ESMA“) is also to publish guidelines on this issue before the summer. ESMA’s chairman has said it has discussed the potential risks of new “letter box” companies being set up in the EU, which would delegate key operations to group companies in London. ESMA warns that these arrangements could undermine stability.

European Commission Publishes Speech on FinTech

 

On March 8, 2017, the European Commission (EC) published a speech that considered the challenges currently faced by the financial services sector in the EU, with a particular emphasis on FinTech.

Financial technology, commonly referred to as FinTech, has been a hot topic in recent times, with the European Commission maintaining a task force specifically dealing with it.

The speech, given by Oliver Guersent, commented on a number of points, including the need to ensure that all human interaction was not excluded and the possible investor protection risks surrounding “robo-advice.” The speech can be found in its entirety 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.

Delegated Regulation on RTS Specifying Criteria for Setting MREL under BRRD published in OJ

 

On September 3, 2016, the Commission Delegated Regulation ((EU) 2016/1450) supplementing the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) with regulatory technical standards (RTS) highlighting the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities (MREL) has been published in the Official Journal of the EU (OJ).

Article 45(6) of the BRRD specifies certain criteria that a resolution authority must consider when determining the level of MREL for a BRRD institution. Article 45(2) of the BRRD gave the European Commission the power to adopt a Delegated Regulation containing RTS further specifying the Article 45(6) assessment criteria.

The RTS contain provisions relating to the interpretation of the six assessment criteria set out in Article 45(6). They also permit resolution authorities to provide a transitional period for reaching the final MREL for firms or entities to which resolution tools have been applied.

The Delegated Regulation was adopted by the Commission on May 23, 2016. It shall enter into force 20 days after its publication in the OJ (i.e. September 23, 2016).

House of Lords EU Committee Launches Inquiry into Brexit and Financial Services

 

On August 31, 2016, the House of Lords EU Sub-Committee on Financial Affairs published a webpage announcing the launch of an inquiry into Brexit and financial services in the UK. The Sub-Committee will begin its inquiry with two evidence sessions concentrating on the consequences of the referendum result for financial services and potential future arrangements.

The issues to be considered by the inquiry are as follows:

  • The reaction of financial services firms to the outcome of the EU referendum result
  • The possibility of the relocation of financial services firms from the UK
  • Priorities for the UK financial services sector in the withdrawal negotiations and in negotiating a future relationship for the UK with the EU
  • Equivalence rights to access the EU single market for the UK
  • Financial regulatory co-operation between the UK and the EU under different models of EU membership
  • A potential free trade agreement and the UK’s financial sector
  • Potential transitional arrangements
  • The importance of passporting rights for firms operating in the UK
  • Risks for retail customers and investors
  • Considerations for non-EU firms wishing to gain access to the EU through the EU’s equivalence regime

European Commission Implementing Regulation on Information for Calculation of Technical Provisions and Basic Own Funds for Q3 2016 Reporting under Solvency II Enters into Force

On August 18, 2016, the European Commission Implementing Regulation (EU) 2016/1376 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from June 30 until September 26, 2016 in accordance with the Solvency II Directive was published in the Official Journal of the EU following its adoption by the European Commission on 8 August.  The Implementing Regulation entered into force on August 19, 2016 (the day after publication in the Official Journal) and applies from June 30, 2016.

The purpose of the Implementing Regulation is to ensure uniform conditions for the calculation of technical provisions and basic own funds by insurance and reinsurance undertakings for the purposes of the Solvency II Directive by laying down technical information on relevant risk-free interest rate term structures, fundamental spreads for the calculation of the matching adjustment and volatility adjustments for every reference date.

Under the Implementing Regulation, insurance and reinsurance undertakings shall use the technical information provided in the annexures to the Implementing Regulation when calculating technical provisions and basic own funds for reporting with reference dates from June 30 until September 29, 2016.

EBA Publishes Interim Report on MREL

The European Banking Authority (EBA) has published an interim report on the minimum requirement for own funds and eligible liabilities (MREL). Under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) the EBA is required to submit a report to the European Commission on the implementation of MREL by October 31, 2016.  This report will assist the Commission in its work on a legislative proposal on the harmonized application of MREL as well as a legislative proposal to review MREL and implement the total loss absorbing capacity standard in the EU.

The EBA’s interim report is intended to provide input into the Commission’s deliberations ahead of the preparations of the EBA’s final report and contains a number of provisional recommendations. Preliminary quantitative findings on the financing capacity and needs of EU banking groups are also available in the interim report, although these are subject to several methodological caveats.  In the absence of MREL decisions for institutions to date, and given the limited information related to the resolution authorities’ MREL policy approach, the EBA was required to make assumptions on the likely scope and calibration of MREL.  These assumptions are by definition different from the actual levels of MREL which will ultimately be determined by resolution authorities in relation to each institution and group.

The interim report is available here.

EBA Clarifies Use of 2016 EU-Wide Stress Test Results in SREP Process

On July 1, 2016, the EBA published additional information on how the results of the EU-wide stress test will inform the Supervisory Review and Evaluation Process (“SREP”).

The focus of the update is to explain how additional capital guidance can be used to cover potential shortfalls in own funds based on the outcomes of supervisory stress tests. Although capital guidance does not constitute any form of minimum capital requirement, institutions are expected to incorporate it in their risk management frameworks. Competent authorities should also monitor its fulfillment.

The 2016 EU-wide stress test does not contain a pass fail threshold and instead is designed to be used as a crucial piece of information for SREP in 2016. The results will allow competent authorities to assess banks’ abilities to meet applicable minimum and additional own funds requirements under stressed scenarios based on a common methodology and assumptions. If competent authorities identify capital shortfalls leading to potential breaches of applicable own funds requirements revealed by the stress tests, they can employ the capital guidance to address their concerns.

The results of the EU-wide stress test, which was launched by the EBA in February 2016, are expected to be published in the early part of the third quarter of 2016.

Commission Adopts Proposal to Incorporate ESAs into EEA Agreement

On June 2, 2016, the European Commission published a press release announcing that it had adopted a proposal for a Council decision on the position to be taken by the EU on the incorporation of the Regulations on the European Supervisory Authorities (ESAs), and some of the related Regulations and Directives, into the Agreement on the European Economic Area (EEA).

The acts to be incorporated into the EEA Agreement include the ESAs Regulations (EBA, EIOPA and ESMA Regulations), the European Systemic Risk Board Regulation, the Alternative Investment Fund Managers Directive and related Delegated Acts, the Short Selling Regulation and related delegated acts, the European Markets Infrastructure Regulation (‘EMIR’) and the Credit Ratings Agency Regulations.

This is an important step towards the extension of the European System of Financial Supervision (ESFS) to the EEA EFTA countries: Norway, Iceland and Liechtenstein. The Commission explained that incorporating these acts into the EEA Agreement would ensure strong and co-ordinated financial supervision throughout the EEA.

Commission Summary of Contributions on EU Regulatory Framework

The European Commission has published a summary of contributions received to the ‘Call for Evidence’ on an EU regulatory framework for financial services. The consultation closed on January 31, 2016.

The summary reports who responded and gives an overview of the responses. Overall, the Commission claims that stakeholders did not dispute the reforms of recent years and many responses expressed support of the new rules. Many replies also related to unnecessary regulatory constraints on financing, proportionality, excessive compliance costs and complexity, reporting and disclosure obligations, and overlaps, duplications, and inconsistencies.