Posts by: Editorial Board

The European Commission’s Technical Expert Group Requests Feedback on Proposed EU Green Bond Standard

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The interim report, published by the European Commission’s Technical Expert Group (TEG), outlines the work carried out so far on developing an EU green bond standard. Annex 1 of the report sets out the proposed content of a draft standard. The Technical Expert Group is proposing a voluntary standard building on existing market practices and designed to be compatible with them. This would rely on a strong verification structure, being closely linked to the new EU-wide classification system for environmentally sustainable economic activities.

The TEG demonstrates how the standard should be developed and implemented in the EU. This includes preliminary guidance to the Commission on the proposed road map, as well as possible legislative initiatives and amendments. The clear objective is to allow for substantial financial investments into green activities by developing an EU label that would alleviate barriers to development of the green bond market.
Interested parties are invited to provide feedback by April 3. Comments that address how to tackle the important hurdles to development of the green bond market, reporting and verification, eligible use of proceeds raised, and on possible incentives to help the market grow will be particularly useful.

The TEG will seek to use the feedback in developing its final recommendations to the Commission. These are due to be presented in June. The TEG’s final recommendations are expected to be fed into the Commission’s parallel work on a potential EU Ecolabel for green financial products.

Joint Committee of the ESAs Propose Draft RTS to Clarify Application of the KID to Investment Funds

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On March 8, the Joint Committee of the European Supervisory Authorities (ESAs) published a letter that had been sent to the European Commission proposing draft regulatory technical standards (RTS) amending Commission Delegated Regulation (EU) 2017/653 to clarify the application of the key information document (KID) to multi-option products (MOPs).

MOPs are Undertakings for Collective Investments in Transferable Securities (UCITS) and certain non-UCITS funds offered as underlying investment options to a packaged retail and insurance-based investment product (PRIIP). In February 2019, the ESAs identified the draft RTS are required following a decision during the trialogue on the cross-border distribution of investment funds that will extend the time period for which MOPs are excused from preparing a PRIIPs KID from December 31, 2019 until December 31, 2021.

The draft RTS seek to align the date of the exemption in Article 18 of the PRIIPS Delegated Regulation with the revised date in the PRIIPS Regulation ((EU) 1286/2014). The objective is to provide legal certainty to market partakers before the expiry of the current provision in the PRIIPs Delegated Regulation at the end of 2019.

The letter from the Joint Committee of the ESAs to the European Commission can be found here.

European Parliament Publishes Erratum to ECON Report on Proposed Regulation on Facilitating Cross-Border Distribution of Collective Investment Funds

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On January 22, the European Parliament published an erratum (A8-0431/2018/err01) to a report of its Economic and Monetary Affairs Committee (“ECON“) on the proposal for a Regulation on facilitating cross-border distribution of collective investment funds (2018/0045(COD)).

It amends Recital 6 and Article 10, as well as inserting new Recitals 7a, 7b and 7c. It explains that these amendments were adopted by ECON but were missing from the text sent for translation. It should be noted that the changes affect all language versions of the report.

The erratum can be found here.

ESMA Updates MiFID II Transitional Transparency Calculations for Electricity Derivatives

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On January 22, the European Securities and Markets Authority (“ESMA“) published an updated version of its transitional transparency calculations (“TTC“) required under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (600/2014) (“MiFIR“).

The update relates to the TTC for commodity derivatives and affects only electricity derivatives.

Further information is contained in section E10 of ESMA’s frequently asked questions (“FAQ“) (ESMA50-164-677) on the TTC, which explains why the last TTC results for commodity derivatives, published on December 6, 2017, have been modified.

The transparency calculations can be found here and the FAQs, which were published on ESMA’s website, can be found here.

European Parliament to Consider Proposed Regulation and Directive on Cross-Border Distribution of Collective Investment Funds

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On January 24, the European Parliament updated the following procedure files:

  • The procedure file for the proposal for a Directive on the cross-border distribution of collective investment funds (2018/0041(COD)).
  • The procedure file for the proposal for a Regulation on facilitating cross-border distribution of collective investment funds (2018/0045(COD)).

The updated procedure files specify that the Parliament may consider the proposals at its plenary session between April 15-18.

The Parliament’s Economic and Monetary Affairs Committee (“ECON“) voted to adopt draft reports on the proposals on December 4, 2018. It subsequently published the reports on December 7, 2018.

The proposed Regulation envisages a harmonized framework regarding features of the cross-border distribution of funds, in respect of marketing communications and member states’ marketing requirements. The proposed Directive contains alterations to the UCITS Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD“) relating to pre-marketing and the discontinuation of marketing among other things.

The procedures files can be found here and here. The UCITS Directive can found here and the AIFMD can be found here.

EIOPA Publishes Results of Peer Review Under Solvency II

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On January 25, the European Insurance and Occupational Pensions Authority (“EIOPA“) published the results of its peer review that examined how national competent authorities (“NCAs“) evaluated the propriety of administrative, management or supervisory body (“AMSB“) members and qualifying shareholders between January 2016 and May 2017.

Important areas of risk include:

  • A number of regulatory frameworks are not aligned with the Solvency II framework and NCAs are applying different standards and scope while assessing propriety.
  • Very few NCAs perform continuing assessment of the propriety of qualifying shareholders and AMSB members. Continuing assessment should involve proactive, risk-based and proportionate engagement resulting from the NCAs’ own initiative, as part of its supervisory activities.
  • Some NCAs do not make their supervisory expectations and standards known internally to supervisory staff and externally to insurers.

Insurers are required to be owned and run by persons of integrity and of good repute to ensure sound and proper management under the Solvency II Directive (2009/138/EC).

The results published by EIOPA can be found here.

Settlements of SEC Registration Charges with Two ICO Issuers Serve as Warning and Compliance Models

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On November 16, the Securities Exchange Commission (“SEC“) announced settled charges against two companies that sold digital tokens in initial coin offerings (“ICOs“). According to the Press Release announcing these settlements, these are the Commission’s first cases imposing civil penalties solely for ICO securities offering registration violations. The remedies agreed to include the return of funds to harmed investors, the registration of the tokens as securities under the Securities Exchange Act of 1934, the filing of periodic reports with the Commission, and the payment of $ 250,000 as a monetary penalty. READ MORE →

SEC Charges EtherDelta Founder with Operating an Unregistered Securities Exchange

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On November 8, the Securities and Exchange Commission (“SEC“) announced that it has settled charges against Zachary Coburn, the founder of EtherDelta, a digital token trading platform. Significantly, this is the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange. The SEC has previously brought enforcement actions relating to unregistered broker-dealers and unregistered Initial Coin Offerings (“ICOs“), including some of the tokens traded on EtherDelta.

According to the SEC’s order, EtherDelta is an online platform for secondary market trading of ERC20 tokens, a type of blockchain-based token commonly issued in ICOs. The order found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.

As stated in the Press Release and Order, EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” run on the Ethereum blockchain. Most notably, over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities law. Notably, the SEC did not identify the specific tokens it found to be securities or the salient characteristics thereof.

Therefore, EtherDelta acted as an online national securities exchange and was required to register with the SEC or qualify for an exemption.

The SEC’s investigation is ongoing.

DFS Authorizes Coinbase Global, Inc. to Form Coinbase Custody Trust Company LLC

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On October 23, the Superintendent of the New York State Department of Financial Services (“DFS“) announced that the DFS has approved the application of Coinbase Custody Trust Company LLC, a wholly-owned subsidiary of Coinbase Global, Inc., to operate as a limited purpose trust company. The announcement also notes that Coinbase Inc. has held Money Transmitter and Virtual Currency licenses from DFS since January 2017 and DFS approved Coinbase Trust to offer secure custody services for six of the largest virtual currencies: Bitcoin, Bitcoin Cash, Ethereum, Ether Classic, XRP and Litecoin. Release.

CFTC Proposes to Streamline Regulations for Commodity Pool Operators and Commodity Trading Advisors

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On October 9, the Commodity Futures Trading Commission (“CFTC“) unanimously approved proposed rules as a part of its KISS initiative to simplify regulations for commodity pool operators (“CPOs“) and commodity trading advisors (“CTAs“). The KISS initiative “requested public input on simplifying and modernizing the agency’s regulations to make them less burdensome and costly, while maintaining their regulatory benefits.” READ MORE →