European Commission

European Commission Adopts Implementing Regulation on ITS for Reporting Results of Internal Approach Calculations under Article 78(2) CRD IV Directive

 

On September 19, 2016, the European Commission adopted an Implementing Regulation implementing technical standards (ITS) for templates, definitions and IT solutions to be used by institutions when reporting the results of their internal approach calculations to the European Banking Authority (EBA) and to competent authorities under the CRD IV Directive (2013/36/EU).

The Implementing Regulation is based on the draft ITS submitted by the EBA to the Commission in March 2015 to which the EBA published an opinion agreeing to the Commission’s amendments to the ITS in May 2016. Once the Implementing Regulation has been published in the Official Journal of the EU (OJ) it will enter into force on the 20th day following its publication.

European Commission Calls to Accelerate the Capital Markets Union Reforms

On September 14, 2016, the European Commission published a communication calling for an acceleration of the capital markets union (CMU) reforms (COM(2016) 601 final) in light of the current political and economic context.

Elements of particular interest to financial services practitioners include:

  • The Commission will support the co-legislators in reaching an agreement by the end of 2016 on the modernization of the prospectus rules;
  • The Commission calls on both the European Parliament and the European Council to finalize the Regulation amending the European Social Entrepreneurship Funds Regulation (Regulation 346/2013) (EuSEF Regulation) and the European Venture Capital Funds Regulation (Regulation 345/2013) (EuVECA Regulation) also by the end of 2016;
  • The prospect of a legislative proposal being tabled in 2017 relating to a simple, efficient and competitive EU personal pension product;
  • To reduce capital charges attaching to investments by insurers in infrastructure corporates, the Commission will adopt an amendment to the Solvency II Delegated Regulation (Regulation (EU) 2015/35);
  • In the hope of strengthening retail investor participation in capital markets and opening up the EU market for retail financial services, the Commission will present an action plan on retail financial services.

The Annex to the communication also provides an update on the CMU action plan initiatives.

ECON Objects to Delegated Regulation on RTS on Key Information Documents for PRIIPs

 

The European Parliament published a press release on September 1, 2016 announcing that the Economic and Monetary Affairs Committee (ECON) has voted to object to the European Commission’s proposed Delegated Regulation supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) (PRIIPs KID Regulation). This market is worth up to €10 trillion in Europe.

The proposed Delegated Regulation sets the regulatory technical standards (RTS) on the presentation, content, review and revision of the KID, together with the conditions for fulfilling the requirement to provide such documents.

ECON’s concerns include the fact that the proposed formulas in the KID for predicting investment performance contain flaws which would make performance look far better than it was likely to be. As such, this would be potentially misleading for investors.

The Commission adopted the Delegated Regulation (C(2016) 3999 final) in June 2016. The resolution will now proceed for consideration by the European Parliament in a plenary session to be held September 12-15, 2016. The PRIIPs KID Regulation is to apply from December 31, 2016. The press release does highlight that the Commission is prepared “as a second best option” to allow the PRIIPs KID Regulation to apply without the RTS in place.

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.

European Commission Implementing Regulation Establishing a List of Critical Benchmarks Used in Financial Markets under Benchmarks Regulation in OJ

 

On August 12, 2016, the European Commission Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (2016/1011/EU) (Benchmarks Regulation), was published in the Official Journal of the EU (OJ).

The Regulation highlights that benchmarks play an important role in the determination of the price of many financial instruments and financial contracts and of the measurement of performance for many investment funds. In order to fulfill their economic role, benchmarks need to be representative of the underlying market or economic reality they reflect. Should a benchmark no longer be representative of an underlying market, such as interbank offered rates, there is a risk of negative effects on, inter alia, market integrity, the financing of households (loans and mortgages) and businesses in the Union.

The Implementing Regulation, which specifies the Euro Interbank Offered Rate (EURIBOR) as a critical benchmark, enters into force on the day following its publication in the OJ (that is, August 13, 2016). It will apply from January 1, 2018.

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

 

On August 8, 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 June 30 until September 29, 2016 (that is, the third quarter of 2016) in accordance with the Solvency II Directive (2009/138/EC).

In the Regulation, technical information on relevant risk-free interest rate term structures, fundamental spreads for the calculation of the matching adjustment and volatility adjustments are formulated for every reference date, in order to guarantee uniform conditions for the calculation of technical provisions and basic own funds by insurance and reinsurance undertakings for the purposes of Solvency II.

The technical information to be used by insurance and reinsurance undertakings when calculating technical provisions and basic own funds for reporting with reference dates from June 30 until September 29, 2016 are detailed in the annexes to the Implementing Regulation, as follows:

  • Annex 1: the relevant risk-free rate term structures
  • Annex 2: the fundamental spreads for the calculation of the matching adjustment
  • Annex 3: the volatility adjustments for each relevant national market

The Regulation will enter into force the day after it has been published in the Official Journal of the EU (OJ). It will apply from June 30, 2016.

European Commission Addendum to Draft RTS on Margin Requirements for Uncleared OTC Derivatives under EMIR

On August 2, 2016, the European Commission published an addendum to the draft regulatory technical standards (RTS) on margin requirements for uncleared OTC derivatives under Article 11(15) of the European Market Infrastructure Regulation (EMIR).  This follows an endorsement by the European Commission on July 28, 2016 of the draft RTS with amendments.  The ESAs will have 6 weeks to respond to these amendments before resubmitting them to the Commission in the form of a formal opinion.

In the addendum, the Commission states that there are some clarifications to be made to the revised draft RTS on margins in Articles 34 and 36 on application timing and in Annex III where a formula is missing. The intention of the Commission is to have the first wave of the initial margin requirements applied from the date one month after the date the RTS enter into force. This was the intention of paragraph 1 in Article 36. However, the Commission considers that the reading of the interaction of paragraph 1 with the other paragraphs in Article 36 is not clear and that the revisions set out in the addendum are therefore necessary.

European Commission Intends to Endorse, with Amendments, Draft RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contacts under EMIR

On July 28, 2016, The European Commission published a letter to the Joint Committee of the European Supervisory Authorities (ESAs) informing them that it intends to endorse, with amendments, the draft regulatory technical standards (RTS) on risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP) under Article 11(15) of EMIR. The Commission also published the revised text of the draft RTS, together with the accompanying annexes.

The letter highlights that the Commission intends to make several clarifications and to restructure the legal text of the draft RTS. The changes include:

  • introducing a recital containing reasoning for the delayed phase-in of the requirements for equity options;
  • clarification that EU counterparties wishing to rely on the intragroup exemption may submit their application after the RTS enter into force;
  • clarification that cash initial margin may be held with equivalent third country institutions (as well as with authorized EU credit institutions);
  • clarification that requirements relating to foreign exchange (FX) contracts should start to apply from the date of application of the relevant Delegated Act under the MiFID II framework, as opposed to the date of entry of this Delegated Regulation; and
  • changes to one provision relating to concentration limits for pension scheme arrangements.

The ESAs now have six weeks to amend the draft RTS and resubmit them to the Commission in the form of a formal opinion.

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.

EC Summary of Contributions of the Green Paper on Retail Financial Services

On July 14, 2016 the European Commission published a summary of responses to the public consultation launched on December 10, 2015 relating to the Green Paper on retail financial services prepared by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union.

The summary report sets out the broad content of responses received. Firms highlighted a number of obstacles to offering services cross-border, including local financial regulation, tax laws, access to data and information, local network for insurance claims handling, and divergent national interpretations of the anti-money laundering directive (2015/849/EU).

The report states that work is ongoing in the Commission services on a follow-up initiative, which might take the form of an action plan.