Posts by: Aoife Casey

ECB Finalizes Guide to On-Site Inspections and Internal Model Investigations


On September 21, the European Central Bank (the “ECB“) finalized its guide to on-site inspections and internal model investigations under the single supervisory mechanism (the “SSM“).

Under the SSM Regulation (Regulation 1024/2013), the aim of ECB Banking Supervision is ensuring a detailed and thorough analysis of the supervised entities’ business and can be exercised on and off-site. On-site supervision is performed through on-site investigations or internal model investigations, as specified under Article 12 of the SSM Regulation. On-site investigations are in-depth investigations of risk, risk controls and governance. Internal model investigations are in-depth assessments of internal models used for the calculation of own fund requirements, in particular with regard to methodologies, economic appropriateness, risks, risk controls and governance.

The guide aims to provide a reference document for supervised entities and other legal entities for which an on-site inspection has been launched by the ECB. It provides a general overview of the legal and supervisory framework for the investigations, describes the process and sets out applicable principles for inspections, covering the powers of inspection teams and the rights of inspected legal entities. The guide applies to inspections conducted in significant institutions, less significant institutions and other legal entities referred to in Article 10(1) of the SSM Regulation, including third parties to whom credit institutions have outsourced functions.

ESMA Publishes Opinion on Amendments to MiFIR RTS


On September 21, ESMA published an opinion (dated September 20, 2018) on amendments to Delegated Regulation (EU) 2017/587 (RTS 1) (ESMA70-156-769).

RTS 1 specifies that, in the context of the quoting obligation for systematic internalizers (the “SI“) “the determination of whether prices reflect prevailing market conditions”.

In November 2017, ESMA consulted on revisions to RTS 1 to clarify the concept of “prices reflecting prevailing market conditions” as well as other amendments to improve consistency in the application of its provisions. ESMA published a final report in March 2018 setting out a draft Delegated Regulation amending RTS 1 that sought to clarify that, for financial instruments subject to the minimum tick size regime, SI quotes would only be considered to reflect prevailing market conditions where those quotes reflect the price increments applicable to EU trading venues trading the same instruments.

The European Commission informed ESMA in August 2010 that it intended to endorse the amendments to RTS 1 subject to changes. In particular, the Commission intended to limit the obligation that quotes of SIs only adequately reflect prevailing market conditions where such quotes mirror the minimum price increments applicable to shares and depositary receipts, and not to all applicable equity and equity-like instruments as proposed by ESMA. The Commission also proposed a number of technical amendments to the other proposals submitted by ESMA.

In its opinion, ESMA agrees to limit the application of tick sizes to quotes of SIs to shares and depositary receipts. Although it continues to believe that applying the obligation to all equity and equity-like instruments better achieves the legislative goals expressed in Article 14(7) of Markets in Financial Instruments Regulation (Regulation 600/2014), ESMA considers that the Commission’s amendment will ensure the application of tick sizes to SIs’ quotes for most equity instruments in a timely fashion.

A revised draft Delegated Regulation amending RTS 1 is set out in the Appendix to the opinion.

Council of EU Adds Pakistan to List of High-Risk Third Countries Under MLD4


The Council of EU published the minutes of a meeting held in its configuration as the General Affairs Council (12279/18) on September 18, 2018.

On page 13 of the minutes, the Council confirms that it will not object to the addition of Pakistan to the list of high-risk third countries set out in Commission Delegated Regulation (EU) 2016/1675, which supplements the Fourth Money Laundering Directive ((EU) 2015/849) (“MLD4“).

The European Parliament will now consider the Delegated Regulation and decide whether to raise an objection. If the Parliament does not object, the Delegated Regulation will be published in the Official Journal of the EU (the “OJ“). It will enter into force 20 days after its publication in the OJ and will apply from that date.

Corrigendum to Delegated Regulation Relating to Passporting Under MiFID II Published in OJ


The Official Journal of the EU (OJ) has published a corrigendum to Commission Delegated Regulation ((EU) 2017/1018) supplementing the MiFID II Directive (2014/65/EU) with regard to regulatory technical standards (RTS) specifying information to be notified by investment firms, market operators and credit institutions.

The corrigendum makes the following minor change to the text of article 5(b) of the version of the Delegated Regulation published in the OJ:

“For: “(b) a short description of the appropriate arrangements to be in place and the date from which these arrangements will be provided in the host Member State;”

read: “(b) a short description of the arrangements and the date from which those arrangements will be provided in the host Member State;”.”

The Delegated Regulation was made under article 34(8) of the MiFID II Directive.

ECB Reports on Supervision of Less Significant Institutions in SSM


On November 8, 2017, the European Central Bank (“ECB“) published a report on the supervision of less significant institutions (“LSIs“) in the single supervisory mechanism (“SSM“).

In its role as lead supervisor in the SSM, the ECB directly supervises all credit institutions in the Eurozone that are classified as significant, while national competent authorities (“NCAs“) directly supervise other credit institutions, referred to by the ECB as LSIs.

In the report, the ECB sets out an overview of:

  • A description of the organization of banking supervision in the SSM, focusing on the supervision of LSIs.
  • A description of the LSI sector and the implications for supervision of current challenges for LSIs.
  • The main supervisory activities conducted of LSIs by NCAs. The ECB summarizes the NCAs’ work relating to off-site and on-site supervisory activities, thematic reviews and the application of supervisory powers under Article 104 of the CRD IV Directive (2013/36/EU).
  • The ECB’s work to promote the convergence of LSI supervision across the SSM. The ECB states that it and the NCAs have made substantial progress in promoting a common supervisory approach, methodologies and toolkit for LSIs. The ECB notes that further work is needed to address challenges arising from differences in practice relating to accounting systems.

EBA Opinion on Nonbank Financial Intermediaries and Regulatory Perimeter Issues Under CRD IV and CRR


On November 9, 2017, the European Banking Authority (“EBA“) published an own-initiative opinion (EBA/Op/2017/13) addressed to the European Parliament, the Council of the EU and the European Commission on nonbank financial intermediaries and regulatory perimeter issues under the Capital Requirements Directive IV (2013/36/EU) (“CRD IV Directive“) and the Capital Requirements Regulation (Regulation 575/2013) (“CRR“).

Publication of the opinion is part of the EBA’s work to regularly monitor credit intermediation activities outside the traditional banking system. This work takes account of other developments, including the emergence of FinTech. The opinion is based on the results of a detailed assessment across the EU of the prudential treatment of “other financial intermediaries” (“OFIs“). (OFIs are entities carrying out credit intermediation activities that are not credit institutions or other specified types of financial entity.) The results of the assessment are set out in a report, which the EBA has published alongside the opinion.

In terms of the overall scope of the CRD IV Directive and the CRR, the EBA observes that Article 2(5) of the CRD IV Directive (which lists entities excluded from the scope) remains valid and requires minor updating. Also, Article 9(2) of the CRD IV Directive (which sets out other exclusions) appears to continue to have relevance in member states, so any amendment should be substantiated by a prior and thorough impact assessment.  READ MORE

ECB Opinion on Implementation of TLAC


On November 10, 2017, the European Central Bank (“ECB“) published an opinion (dated November 8, 2017) on the European Commission’s legislative proposals to implement the Financial Stability Board’s (FSB) total loss absorbing capacity (“TLAC“) standard.

The opinion relates to the Commission’s legislative proposals to amend the following Regulations and Directive in order to implement TLAC in the EU: Bank Recovery and Resolution Directive (2014/59/EU) (“BRRD“), Regulation for Single Resolution Mechanism (Regulation 806/2014) (“SRM Regulation“), CRD IV Directive (2013/36/EU) and Capital Requirements Regulation (Regulation 575/2013) (“CRR“). The Commission published its legislative proposals in November 2016.

The ECB welcomes these proposals but highlights some areas for consideration, including issues relating to:

Implementation of the TLAC standard in the EU;

  • Amendments to the minimum requirement for own funds and eligible liabilities (“MREL“);
  • Transitional arrangements for MREL;
  • Early intervention measures; and
  • Pre-resolution moratorium tool.

Specific proposals to amend the drafting of the proposed Regulations and Directive, together with some additional proposals to amend the current texts of the BRRD, SMR Regulation, CRR and CRD IV Directive are set out in a technical working document, which is attached to the opinion.