European Commission

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.

European Commission Work Program 2017

 

On October 25, 2016, the European Commission issued a communication outlining its 2017 Work Program (COM(2016) 710 final). The communication is addressed to the European Parliament, the Council of the EU, the European Economic and Social Committee (“EESC”) and the Committee of the Regions. Alongside the communication, the Commission has published a Q&As document, together with the following Annexes to the communication.

In Annex 1 of the Work Program, the Commission proposes 21 key initiatives for 2017 to implement 10 priorities for the year. In respect of finance matters, the Commission proposes to:

  • Follow up on a review of the European System of Financial Supervision to strengthen the effectiveness and efficiency of oversight at both macro- and micro- prudential levels; and
  • Present a mid-term review of the Capital Markets Union Action Plan identifying obstacles and any additional measures required in Q2 of 2017. New CMU measures will include a framework for an EU personal pension product in Q2 2017, a REFIT revision of EMIR (the Regulation on OTC derivatives, central counterparties and trade repositories) (Regulation 648/2012) in Q1 2017 and an action plan on retail financial services in Q1 2017. The Commission notes that the adoption of the Prospectus Regulation and the Securitization Regulation should be accelerated.

Annex 2 sets out 18 new REFIT initiatives being launched, and it complements the items listed with new initiatives in Annex I. REFIT is the Commission’s regulatory fitness and performance program. This is designed to make EU law simpler and reduce regulatory costs without compromising policy objectives. One of the new initiatives relates to the Regulation on cross-border payments in the Community (Regulation 924/2009).

The Commission has also published a scoreboard that shows the current state of play in the implementation of 231 REFIT initiatives, together with a summary of the key developments and results of REFIT.

Annex 3 sets out 35 priority‑pending proposals in relation to which the Commission wants the Parliament and the Council to take swift action. These include the proposals for a European deposit insurance scheme (“EDIS”) and the CMU reforms. For more information on the EDIS, see Practice note, European deposit insurance scheme (EDIS).

Annex 4 lists the intended withdrawal of 19 pending proposals. These are proposals assessed as no longer relevant, as they have either been blocked or no longer meet the Commission’s criteria.

Annex 5 contains a list of existing legislation that the Commission intends to repeal.

The Commission has also published a document that summarizes the legislation that will become applicable in 2017. This includes the Regulation on transparency of securities financing transactions (2015/2365/EU).

European Commission Report on Credit Rating Agencies Regulation

 

On October 19, 2016, the European Commission published a report (COM(2016) 664 final) responding to reporting obligations set out in Regulation 1060/2009 (CRA Regulation).

The report:

  • Analyzes references to external credit ratings in EU legislation and in private contracts among parties in financial markets.
  • Assesses potential alternatives to external credit ratings that are currently used by market participants in the EU. The Commission is of the view that there are currently no feasible alternatives that could entirely replace external credit ratings.
  • Evaluates the impact of the CRA Regulation on governance and internal procedures of CRAs, in particular the prevention of conflict of interests and the use of alternative remuneration models.
  • Analyzes the provisions relating to structured finance instruments (SFIs) and their potential extension to other asset classes. The Commission does not think it is appropriate to extend CRA Regulation provisions to other financial products.
  • Assesses the impact and effectiveness of the CRA Regulation’s measures concerning competition in the credit rating industry. Given some provisions are still in the process of implementation, the Commission will continue monitoring the development of the market before considering the adoption of further measures. More generally, the Commission will seek to avoid and further reduce regulatory barriers to market entry.
  • Considers the feasibility of establishing a European CRA for the assessment of sovereign debt and a European credit rating foundation for all other credit ratings. The Commission considers there to be no need at present for a European CRA specialized in sovereign debt or for other credit ratings.

European Commission Adopts Delegated Regulation on RTS on Minimum Details of Data to Report to Trade Repositories

 

On October 19, 2016, the European Commission adopted a Delegated Regulation amending Delegated Regulation 148/2013 supplementing EMIR (Regulation 648/2012) as regards regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories (C(2016) 6624 final).

EMIR requires all counterparties and central counterparties (CCPs) to report the details of any OTC derivative contract they have concluded and of any modification or termination of the contract to a trade repository.

The Delegated Act updates existing standards that were published in the Official Journal of the EU (OJ) in February 2013 (see Legal update, Delegated regulations on EMIR regulatory technical standards published in Official Journal). It reflects recent developments and experience gained in the area of trade reporting. The revised RTS aim to:

  • Introduce new fields and values to reflect market practice or other necessary regulatory requirements.
  • Clarify data fields, their description or both.
  • Adapt existing fields to the reporting logic prescribed in existing Q&As or reflect specific ways of populating them.

The Commission has also published an Annex, which sets out the counterparty data and common data details to report to trade repositories.

The next step is for the Council of the EU and the European Parliament to consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the OJ.

European Commission TTIP Advisory Group Report Considers Financial Services Under TTIP

 

On October 17, 2016, the European Commission published a report documenting the meeting of the Commission’s Transatlantic Trade and Investment Partnership (TTIP) Advisory Group on September 6, 2016.

Financial services are considered at section 4 of the report in the context of TTIP. The group notes that the EU tabled its offer on financial services market access in July 2016 (see Legal update, European Commission releases EU financial services offer for 14th round of TTIP negotiations: July 2016) . Discussions relating to this offer will continue during the next round of TTIP negotiations in October 2016.

The report also refers to the new joint EU-U.S. Financial Regulatory Forum, which was launched in July 2016 with the aim of making continued efforts to improve EU-U.S. regulatory coherence (see Legal update, EU and US establish joint financial regulatory forum ). The EU would like to see the work of the forum “linked into” the final TTIP agreement because, for the EU, the real issue for the financial services sector in the transatlantic context is regulatory transparency and cooperation. Diverging regulation may have negative implications on trade in financial services, financial stability, and consumer protection.

At the meeting, the group also discussed transparency (members expressed an interest in seeing documents related to financial services regulatory cooperation), domestic and international legislation (neither the U.S. nor the EU is seeking, through the forum, to revise the other’s legislation), the TTIP market access offer in financial services (prudential measures, such as capital requirements for banks, are not covered as these are out of scope) and measures to help consumers navigate transatlantic financial services (such as reduced charges for international transfers and simpler opening of bank accounts).

European Commission Adopts Delegated Regulation on RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contracts under EMIR

 

On October 4, 2016, the European Commission adopted a Delegated Regulation supplementing EMIR (the Regulation on OTC derivatives, CCPs and trade repositories) (Regulation 648/2012) with regulatory technical standards (“RTS”) on risk mitigation techniques for uncleared OTC derivative contracts, together with related Annexes (C(2016) 6329 final).

The Delegate Regulation sets out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central counterparty (“CCP”). In the event that one counterparty to the transaction defaults, the margin collected will protect the non-defaulting counterparty against resulting losses.

The Joint Committee of the European Supervisory Authorities (ESAs) submitted the final draft RTS to the Commission in March 2016. In July 2016, the Commission informed the European Banking Authority that it intended to endorse the draft RTS with some amendments, including in relation to the concentration limits for pension scheme arrangements and the timeline for.

The Council of the EU and the European Parliament will now consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.

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.