ESMA Updates MiFID II Q&As on Transparency Topics


On February 7, the European Securities and Markets Authority (“ESMA”) published an updated version of its questions and answers (Q&As) on transparent topics under MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014). The Q&As were last updated in December 2017.

The two new Q&As are in relation to pre-trade transparency waivers.

ESMA Updates Q&As on Benchmark Regulation


On February 5, the European Securities and Markets Authority (“ESMA”) published an updated version of its Q&As on the implementation of the Regulation on indices used in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (Benchmarks Regulation or BMR). The Q&As were first published in July 2017 and were last updated in December 2017.

The two new Q&As relate to commodity benchmarks (how the threshold in the exemption under Article 2(2)(g) of the BMR should be calculated – Q&A 4.4) and the definition of a benchmark and investment funds (what types of investment funds are considered to be using an index for the purpose of “tracking the return of [an] index” – Q&A 5.3).

SEC OCIE Examinations Announces 2018 Examination Priorities


On February 7, the Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) announced its 2018 examination priorities. OCIE publishes its exam priorities annually “to improve compliance, prevent fraud, monitor risk, and inform policy.”

According to the Press Release publishing the examination priorities, “of particular interest this year will be matters involving critical market infrastructure, duties to retail investors, and developments in cryptocurrency, initial coin offerings, and secondary market trading.”  Orrick believes that the focus on “developments in cryptocurrency, initial coin offerings, and secondary trading market” is significant. READ MORE

ESMA 2018 Regulatory Work Program


On February 8, the European Securities and Markets Authority (“ESMA”) published its 2018 regulatory work program, which provides a detailed breakdown of the individual work streams outlined in the 2018 work program. The areas covered in the regulatory work program include the following initiatives: European Social Entrepreneurship Funds (EuSEF) Regulation, European Venture Capital Funds (EuVECA) Regulation, EMIR, MiFID II, Market Abuse Regulation (MAR), Securities Financing Transactions Regulation (SFTR) and Proposed Regulation establishing a framework for the recovery and resolution of central counterparties (CCPs).

The 2018 regulatory work program can be found here.

EC Notices on Consequences of Brexit on Banking and Finance Sectors


The European Commission (“EC”) published a new webpage (which can be found here) which contains notices setting out the consequences that the UK withdrawal from the EU will have on banking and finance rules.

The notices relate to a number of areas including: markets in financial instruments, banking and payment services, post-trade financial services, asset management, credit rating agencies, insurance and reinsurance and, statutory audit.

Each note sets out the consequences of EU rules no longer applying to the UK in the above areas, if the UK becomes a third party. That could happen from March 30, 2019, when all EU primary and secondary law will cease to apply to the UK unless a ratified withdrawal agreement establishes another date.

Agencies Seek Comment on Proposed Amendments to Swap Margin Rule


On February 5, five federal agencies (the Farm Credit Administration, FDIC, Federal Housing Finance Agency, Federal Reserve and Office of the Comptroller of the Currency) proposed to amend swap margin requirements to conform with recent rule changes that impose new restrictions on certain qualified financial contracts of systemically important banking organizations. Under the proposed amendments, legacy swaps entered into before the applicable compliance date would not become subject to the margin requirements if they are amended solely to comply with the requirements of the qualified financial contract rules. Press Release. Proposed Rule.

Private Equity Fund Taxation Post-Tax Reform: What Really Changed?


Congress has passed the tax reform bill, known as the “Tax Cuts and Jobs Act” (the “Act”), and President Trump signed it into law on December 22, 2017.  The Act contains wide-ranging changes to the tax law, many of which will impact private equity funds, for good or ill.  Click below for a discussion of the important provisions of the Act affecting private equity funds, their investors and their managers, including:

  • New three-year holding period for carried interests
  • New interest expense limitation to 30% of EBITDA
  • Ability to write off the cost of all depreciable assets acquired
  • Lowered income tax rates for businesses and their balance sheet impact
  • Limitation on NOL usage
  • Partnership interests owned by foreign partners now subject to U.S. tax on sale
  • Effect on the buyout market of the lower tax rates and the mandatory repatriation of offshore funds

Although these changes affect all funds to a greater or lesser degree, many private equity funds may not consider their tax position to have significantly changed, depending largely upon the extent to which they are leveraged.  The new three-year holding period required to obtain long-term capital gains on carried interests, however, is likely to become a point for consideration in almost every fund’s exit planning and disposition discussions. Full text is available here.

EBA Launches 2018 EU-Wide Stress Test


On February 1, 2018, the European Banking Authority (EBA) published a press release announcing that it will be examining 37 euro area banks as part of the 2018 EU-wide stress test, and published the relating methodological note. The note describes the common methodology that defines how banks should calculate the stress impact of the common scenarios, and sets constraints for their bottom-up calculations, as well as provides guidance and support.

The adverse scenario for 2018 implies a deviation of EU GDP from its baseline level by 8.3% in 2020, resulting in the most severe scenario to date (the explanatory press release is available here), the results of which are expected to be published by November 2, 2018.

For the 2018 test, the EBA has also published the adverse macro-financial scenario (which can be found here), the market risk scenario (available here), a set of FAQs on the stress test (available here) and stress test templates.

EC Launches Blockchain Observatory and Forum


On February 2, 2018, the European Commission (“EC“) launched an observatory and forum dedicated to promoting discussion and collaboration on issues arising from blockchain technology. The forum will be for IT specialists, industry, public authorities, regulators, supervisory bodies and members of the public, to allow them to come together and discuss blockchain and the issues and opportunities it presents.

The Blockchain Observatory and Forum will be run by the blockchain software technology company ConsenSys, and its main objectives will be to coordinate across geographical borders, consolidate know-how, take advantage of opportunities and demonstrate thought leadership.

More information from the Commission about the forum and on Blockchain technologies more generally can be found here.