European Commission (EC)

European Parliament Will Consider Money Market Fund Regulation in April 2017 Plenary Session

 

The European Parliament has announced that it will consider the MMF regulation during its upcoming plenary session, currently scheduled to be held April 3-6, 2017.

The MMF regulation is intended to introduce new framework requirements to more effectively regulate money market funds, as well as increase their stability and general liquidity. In particular, the regulation (introduced by the European Commission) is intended to more tightly regulate the shadow banking sector.

The plenary session will allow debate and potential amendment to the scope of the MMF regulation.

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.

ESAs and IOSCO Publish Statements on Variation of Margin Exchange under EMIR

 

On February 23, 2017, the Joint Committee of European Supervisory Authorities (“ESAs“) published a statement on variation margin exchange under the EMIR regulatory technical standards (“RTS“) on risk mitigation techniques for uncleared over-the-counter derivative contracts under Article 11(15) of the European Market Infrastructure Regulation (“EMIR“). The International Organization of Securities and Commissions (“IOSCO“) has also published a related statement.

The statement responds to industry requests relating to operational challenges in meeting the deadline of March 1, 2017, for exchanging variation margin, the effect of which will be experienced particularly by smaller counterparties.

Neither the ESAs nor competent authorities (“CAs“) have the power to disapply directly applicable EU legalization. As a result, any further delays of the application of the EU rules would formally need to be implemented through EU legislation, which the ESAs state is not possible due to the lengthy process for adopting EU legislation.

The ESAs outline their expectations of smaller counterparties as follows:

“The ESAs expect CAs to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation. This approach entails that CAs can take into account the size of the exposure to the counterparty plus its default risk, and that participants must document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained, such as using existing Credit Support Annexes to exchange variation margins. This approach does not entail a general forbearance, but a case‑by‑case assessment from the CAs on the degree of compliance and progress. In any case, the ESAs and CAs expect that the difficulties will be solved in the coming few months and that transactions concluded on or after March 1, 2017, remain subject to the obligation to exchange variation margin.”

The statement points out that in 2015, the IOSCO had already granted a nine-month delay based on similar arguments from the industry. The ESAs comment that it is unfortunate that the financial industry has not prepared for the implementation. The ESAs had previously expressed concern about the delayed adoption of the then draft RTS.

In its statement, IOSCO explains that some market participants have faced difficulty in completing the necessary credit support documentation and operational processes to settle variation margin in accordance with the requirements. However, IOSCO expects all affected parties to make every effort to fulfill the necessary variation margin requirements by the deadlines. IOSCO adds that it believes that relevant IOSCO members should consider taking appropriate measures available to them to ensure fair and orderly markets during the introduction and application of such variation margin requirements.

The European Commission (EC) adopted Delegated Regulation 648/2012 supplementing EMIR with the RTS in October 2016. The Joint Committee of ESAs submitted the final draft RTS to the Commission in March 2016.

EBA Publishes Final Draft RTS Report Specifying Requirements on More Secure Customer Authentication

 

On February 23, 2017, the European Banking Authority (“EBA“) published a report setting out its final draft regulatory technical standards (“RTS“) on strong customer authentication and common and secure communication under Article 98 of the Directive on payment services in the internal market (“PSD2“).

The RTS were developed in close cooperation with the European Central Bank (“ECB“) and consulted on by the EBA in August 2016. The key points raised in the consultation related to the scope and technologically neutral requirements of the draft RTS, the exemptions, including scope, thresholds and the request of many respondents for an exemption for transactions identified as low risk, access to payment accounts by third-party providers and the requirements around the information communicated.

The EBA states that it had to make difficult trade-offs between the various objectives of PSD2, including enhancing security, encouraging competition, allowing for technology and business‑model neutrality, contributing to the integration of payments in the EU, protecting consumers, facilitating innovation and enhancing customer convenience.

There was extensive input to the consultation paper. The EBA summarizes responses in section 4 of the report and provides its assessment as to whether changes have been made to the RTS as a result of the response.

The final draft RTS are set out in section 3 of the report. The draft will be submitted to the European Commission (EC), after which it will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the Official Journal of the European Union. The RTS will apply 18 months after their adoption by the Commission as a delegated act. The EBA states that this suggests an application date of the RTS in November 2018 at the earliest.

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.

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

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).

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).

Implementing Regulation on Information for Calculation of Technical Provisions and Basic Own Funds for Q4 2016 Reporting Under Solvency II Adopted by European Parliament

 

On November 11, 2016, the European Commission adopted an Implementing Regulation laying down information for the calculation of technical provisions and basic own funds for reporting with reference dates from September 30 until December 30, 2016, in accordance with the Solvency II Directive (2009/138/EC).

EIOPA provided the Commission with the technical information related to end of September 2016 market data on October 11, 2016, which was published in accordance with Article 77E(1) of Solvency II.

The aim is that by setting out 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, conditions for the calculation of technical provisions and basic own funds will be uniform across all insurance and reinsurance undertakings for the purposes of Solvency II.

The annexes to the Implementing Regulation set out the technical information to be used by reinsurance and insurance undertakings for the reference dates from September 30 to December 30, 2016, are as follows:

  • Annex I: the relevant risk-free rate term structures.
  • Annex II: the fundamental spreads for the calculation of the matching adjustment.
  • Annex III: the volatility adjustments for each relevant national market.