ESMA Publishes Consultation Paper on Clearing Obligation Under EMIR

On May 11, 2015, the European Securities and Markets Authority (ESMA) published a fourth consultation paper (ESMA/2015/807) on the clearing obligation under EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories (Regulation 648/2012)). The consultation paper provides clarifications on various aspects of the draft regulatory training standards that ESMA is required to draft and submit to the European Commission. Stakeholders are invited to provide comments on the consultation paper before July 15, 2015.

Fourth Money Laundering Directive and Wire Transfer Regulation

The European Commission has published two communications to the European Parliament concerning the position of the Council of the EU on the adoption of the proposed Fourth Money Laundering Directive (MLD4), and the proposed Wire Transfer Regulation (WTR). Both MLD4 and the WTR were adopted by the Council of the EU at first reading on April 20, 2015. In each case the Commission confirms that the Council’s position reflects the political agreement reached on December 16, 2014, between the Parliament and the Council, including elements proposed by both institutions, and states its support for this agreement.

European Commission’s CCP Recovery and Resolution Roadmap

The European Commission has published a roadmap for non-bank recovery and resolution to provide a high-level public description of the planned initiative. Roadmaps give a first description of planned Commission initiatives – they describe the problem and set out possible policy options. They also provide an overview of the different planned stages in the development of the initiative, including consultation of stakeholders and impact assessment work. This roadmap identifies central counterparties as the sector for which a recovery and resolution framework may be necessary. An impact assessment is currently under preparation, with a legislative proposal on central counterparties expected in the third quarter of 2015.

European Commission Publishes Report on the Exercise of the Power to Adopt Delegated Acts Conferred on the Commission by Prospectus Directive

On April 13, 2015, the European Commission published a Report to the Council and the European Parliament on the exercise of the power to adopt delegated acts conferred on the Commission pursuant to Directive 2003/71/EC of the European Parliament and of the Council of November 4, 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (Prospectus Directive).

The Commission Report concludes that while the Commission believes that the delegation of powers to it has been crucial to further develop the single rulebook and therefore establish more harmonized, high quality rules, the Commission has not used some of those powers yet. The Commission Report in this context notes that the provisions concerned will also form part of the PD review required by Article 4 of the PD II, by January 1, 2016. The Commission therefore considers that the EP and the Council should not revoke those delegations of powers in accordance with Article 24b of the PD, as it may need to use those powers to adopt certain delegated acts in the future, in light of the developments on the financial markets.

European Commission Plans to Vet Gas and Energy Contracts and Its Approach to Russian Suppliers

A proposal to grant the European Commission a role in vetting gas supply contracts across the EU has been met with fierce resistance from the member states. The current proposal is another element of the EU’s broader initiative to create an “energy union,” as recommended by the Commission in its framework strategy in late February this year and initially approved on Thursday, March 19, 2015 to lower prices and improve the security of its gas and electricity supplies. The latest draft proposal suggests involving the Commission in all agreements with external suppliers that may affect EU energy security.

European Commission Unveils Tax Transparency Package

The European Commission has laid out its plans in a new Tax Transparency Package to clamp down on tax deals made between EU governments and multi-national corporations. As of next year, EU members would have to declare their cross border tax rulings every three months, as well as divulging information on existing deals. The Package comes during ongoing investigations into a number of member states’ tax regimes, and concerns that tax rulings which give a low level of taxation in one member state can entice companies to shift profits there artificially, leading to serious erosion of possible tax revenues for other member states.

In particular, the Commission is investigating deals between multinationals and governments in Luxembourg, Ireland, the Netherlands, and Belgium, and whether some of these agreements amounted to state aid. Last year, allegations emerged that around 340 multinational companies had tax avoidance deals with Luxembourg.

Prospectus Directive: Commission Consultation

On February 18, 2015, the European Commission published a consultation paper on the review of the Prospectus Directive (2003/71/EC). Matters on which the Commission seeks views include:

When a prospectus is needed. In particular, views are sought as to whether the current exemption thresholds should be adjusted so that a larger number of offers can be carried out without a prospectus; whether there should be an exemption for secondary issues under certain conditions, in addition to the proportionate disclosure regime for rights issues; and whether a prospectus should be required when securities are admitted to trading on an MTF.

The information that a prospectus should contain. Questions include whether the proportionate disclosure regime should be modified or extended; whether there should be a simplified prospectus for SMEs and companies with reduced market capitalization admitted to trading on an SME growth market; and whether there should be a maximum length for prospectuses.

How prospectuses are approved, including the role of national competent authorities in the approval process of prospectuses and the equivalence of third-country prospectus regimes. In particular, the Commission asks whether the scrutiny and approval procedure should be made more transparent to the public and flexible for issuers, for example by making public the first draft prospectus filed with a competent authority for review and by allowing the issuer to carry out certain marketing activities, going beyond advertising, in the period between the first submission of a draft prospectus and the approval of the final version.

Responses must be received by May 13, 2015. The Commission intends to decide in the next months how the Prospectus Directive should be amended. It plans to prepare amendment proposals in the second half of 2015, to be presented to the European Parliament and Council of the EU, together with its review of the application of the Directive, in early 2016 at the latest.

European Commission Publishes Green Paper on Building a Capital Markets Union

On February 18, the European Commission published a green paper on building a Capital Markets Union.

The green paper identifies a number of key priorities to create a fully integrated single market for capital. The early action priorities include relaxing rules around securitization, reviewing the prospectus regime, widening the small and medium-sized investor base by ensuring comparable cross-border credit information and credit-scoring, developing private placement markets by introducing common market practices, principles and standardizes documentation and boosting long-term investment through the European Fund for Strategic Investment and the European Long-Term Investment Funds regulatory framework.

The Commission will publish an action plan later in 2015 to identify and remove barriers for the free movement of capital, and aims to have in place a fully functioning Capital Markets Union by 2019.  Green Paper.

 

FMLC Publishes Letter to European Commission on Reporting and Transparency of Securities Financing Transactions

On February 10, the UK Financial Markets Law Committee (FMLC) published a letter to the Director-General for Financial Stability, Financial Services and Capital Markets Union of the European Commission.

The letter discusses the proposed Regulation on Reporting and Transparency of Securities Financing Transactions. The proposed regulation would introduce a transparency regime in the context of securities financing transactions (typically repurchase agreements (repos), securities lending activities, and sell/buy-back transactions) by requiring their reporting to trade repositories and disclosure to fund investors.

The FMLC is concerned that the proposed regulation fails adequately to reflect the difference between a title transfer financial collateral arrangement (TTFCA) and a security financial collateral arrangement (SFCA), pointing out that such failure adequately to differentiate had been flagged in comments by the ECB. To allay these concerns the FMLC recommends that the proposed regulation is amended to make it explicit that TTFCAs are excluded from Article 15 of the proposed regulation which states that counterparties shall have the right to rehypothecation only if the counterparty is informed in writing of the potential risks and has granted its prior express consent. Since a TTFCA (unlike a SFCA) involves the transfer to the receiving counterparty of the ownership of the assets in question, it is incongruous to say that the receiving counterparty has the right to use the assets transferred to him only if certain conditions are satisfied because the right to use them is a necessary incident of the ownership of the assets. Similarly, the FMLC points out that only assets transferred by means of a SFCA constitute “client assets” for the purposes of the receiving party as the transferor retains an equitable interest.  Letter.

ESMA Publishes an Opinion on Draft RTS on Clearing of Interest Rate Swaps under EMIR

Article 5(2) of Regulation (EU) No 648/2012 (EMIR) requires the European Securities and Markets Authority (ESMA) to develop draft regulatory technical standards specifying, inter alia, the class of OTC derivatives that should be subject to the clearing obligation, the date or dates from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies.

In October 2014, ESMA submitted a draft regulatory technical standard (RTS) on the clearing obligation in respect of interest rate swaps to the European Commission. On 18 December 2014, the Commission submitted to ESMA a modified version of the RTS (the “modified RTS”) introducing, among others, (1) amendments to the date on which the frontloading obligation starts to apply and (2) a new provision on the treatment of non-EU intragroup transactions. In the modified RTS, the Commission proposed that for a period of maximum three years, any third country shall be deemed equivalent within the meaning of Article 13(2) of EMIR. The effect would be to allow, for a period of three years, financial counterparties to apply for the intra-group exemption in respect of their transactions with any third-country entity in the absence of decisions on equivalence.

On January 29, ESMA published an opinion on the modified RTS stating that ESMA considers that the Commission’s proposal in relation to non-EU intra group transactions is not appropriate from a legal perspective. ESMA noted that (i) the adoption by the Commission of implementing acts on equivalence under Article 13 is the only procedure envisaged under EMIR to establish whether third-countries can be considered as having legal, supervisory and enforcement frameworks equivalent to EMIR; and (ii)any provision that has an effect equivalent to that of an implementing act on equivalence under Article 13, although limited in time and scope, but without the examination procedure referred to in Article 13(2), may have unintended consequences and therefore requires a very careful review. ESMA will explore, in coordination with the Commission, a different manner to incorporate that provision.  Opinion.