Posts by: David Griffiths

EIOPA Publishes Consultation Paper on the Development of an EU Single Market for Person Pension Products

Posted on

On February 1, the European Insurance and Occupational Pensions Authority (“EIOPA“) published a consultation paper on its advice on the development of an EU Single Market for personal pension products (“PPP“). This consultation is in response to EIOPA’s 2014 preliminary report “Towards an EU-Single Market for personal pensions” and EIOPA’s 2015 consultation paper on the creation of a standardised Pan-European Personal Pension product.

EIOPA is asking:

  1. Would PPPs benefit from harmonisation of provider governance standards?
  2. Would PPPs benefit from harmonisation of product governance rules?
  3. Would PPPs benefit from harmonisation of distribution rules?
  4. Would PPPs benefit from harmonisation in disclosure rules?
  5. Are respondents aware of any differences in prudential regimes that would lead to an unlevel playing field amongst PPP providers?
  6. Are further supervisory powers necessary?
  7. Do respondents agree with EIOPA’s assessment of the policy options’ impacts?

The Consultation Paper is open for responses until April 26 and such responses will be published on EIOPA’s public website.  Consultation Paper.

SFT Regulation Comes into Force on January 12, 2016

Posted on

On January 12, the Regulation on Reporting and Transparency of Securities Financing Transactions will come into force (“the SFT Regulation”).

Securities financing transactions (“SFTs”) allow market participants to access secured funding, in order to secure financing for their activities. This involves the temporary exchange of assets as collateral for a funding transaction.

The SFT Regulation enhances transparency in the shadow banking sector in three ways:

  1. introduction of reporting by any EU financial or non-financial counterparty (excluding SMEs) of all SFTs, except those concluded with central banks, to central databases known as trade repositories. Depending on their category, firms should start reporting at different stages from 12 to 21 months after the entry into force of the relevant regulatory technical standards;
  2. requirement for investment funds to disclose information regarding their use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents from the entry into force of the SFT Regulation, while the existing funds with have 18 months to amend them; and
  3. introduction 6 months after the entry into force of the SFT Regulation of some minimum transparency conditions that should be met on the reuse of collateral, such as:
    • counterparty’s consent to the reuse must have been obtained in a written agreement;
    • the potential risks must have been disclosed to the counterparty; and
    • the collateral reused must be shifted away from the account of the counterparty to the account of the re-user.

The provisions relating to reuse apply to all EU entities as well as third country entities which reuse collateral belonging to an EU entity.

On October 29, the Commission also published FAQs on the SFT Regulation.

ECB Publishes Its SSM Supervisory Priorities for 2016

Posted on

On January 6, the European Central Bank (“ECB”) published a paper setting out its supervisory priorities in relation to the banks it supervises under the Single Supervisory Mechanism (“SSM”).

The ECB’s supervisory priorities under the SSM are:

  • business model and profitability risk;
  • credit risk;
  • capital adequacy;
  • risk governance and data quality; and
  • liquidity.

The priorities are not an exhaustive list but are meant to provide an essential tool to coordinate supervisory actions across banks in an appropriately harmonized, proportionate and efficient way, thereby contributing to a level playing field and a stronger supervisory impact. Paper.

ESMA Publishes Peer Review Report on Compliance with SSR Regarding Market Making Activities

Posted on

On January 5, the European Securities and Markets Authority (“ESMA”) published a peer review report aimed at assessing how national competent authorities (“NCAs”) apply the exemption for market making activities foreseen in Article 17 of the Short Selling Regulation (SSR).  The report reviewed whether the NCAs are applying the general principles and criteria of eligibility for the exemption in compliance with the corresponding ESMA Guidelines and to identify good practices.

The report concluded that all NCAs have dedicated resources and have designed processes to handle the notification of exemptions and the notification functions are staffed with capable, knowledgeable and committed staff and that there are a number of approaches taken by NCAs.

The report highlighted some areas for concern, including: NCAs are not properly seeking assurance, in advance, that market makers seeking an exemption comply with the organizational requirement of the ESMA Guidelines; and many NCAs are too reliant on monitoring by trading venues rather than monitoring by the NCAs themselves. Report.

The PRA Publishes Guidance on Financial Conglomerate Waivers

Posted on

On January 4, the Prudential Regulation Authority (“PRA”) published guidance on the application and supplementary forms that should be submitted by firms requesting a Financial Groups Directive waiver.

The Financial Groups Directive supplements existing sectoral rules with additional requirements for groups with substantial banking/investment and insurance business. Groups are identified as financial conglomerates according to the threshold tests found in the Financial Conglomerates section of the rulebook.

The PRA document is designed to assist firms applying for a financial conglomerate waiver and firms notifying the PRA that a consolidation group is or has ceased to be a financial conglomerate. Document.

EBA Opinion on Regulation of EU Lending-Based Crowdfunding

Posted on

On February 26, 2015, the European Banking Authority (“EBA“) published an opinion on lending-based crowdfunding. The opinion notes that certain Member States (France, Italy, Spain and the UK) have created specific regulations to address risks arising from crowdfunding. Italy’s regulation only covers investment-based crowdfunding. In Spain, the draft law in the final approval stages. The EBA concludes that the convergence of practices across the EU for the supervision of crowdfunding is desirable in order to avoid regulatory arbitrage, create a level playing field, ensure that market participants can have confidence in crowdfunding, and contribute to the single European market.

The EBA considers that crowdfunding, whilst still at an early stage, should be regulated by existing legislation, the most relevant being the Payment Services Directive (the “Directive“), but acknowledges that the lending aspects of crowdfunding are not regulated by EU law.

The EBA also stated that the business models of lending-based crowdfunding platforms do not fall inside the perimeter of credit institutions with the result that funds provided by lenders to crowdfunding platforms would not qualify as deposits eligible for protection under a deposit guarantee scheme, representing a further risk to lenders.  Opinion.

ECB Publishes Eurosystem Oversight Report

Posted on

On February 27, 2015, the European Central Bank (“ECB“) published its 2014 Eurosystem oversight report, the third such report, reviewing the oversight that the Eurosystem has performed in the period from 2011 to mid-2014.  The Eurosystem is the monetary authority of the Eurozone and consists of the European Central Bank and the central banks of each of the Eurozone member states.

The oversight report focuses on the Eurosystem’s oversight of financial market infrastructures, including payment systems, securities and derivatives clearing and settlement systems and trade repositories.

The oversight report also discusses future work priorities. The future work priorities state that the oversight priorities of the Eurosystem will still be driven by the implementation measures of the regulatory reform process and the need to avoid the emergence of systemic risks in the Eurozone. The Eurosystem will also conduct assessments of the design and operation of T2S, the securities settlement platform operated by the Eurosystem that is set to go live in June 2015. Finally the Eurosystem will continue to conduct regular analyses of correspondent banking activities and is currently reviewing its assessment guides for credit cards, direct debits and credit transfers.  Report.

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

Posted on

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.

ECON Votes in Favor of the MIF Regulation

Posted on

On January 27, the Economic and Monetary Affairs Committee (“ECON”) released a press release stating that it had voted in favour of the proposed Regulation on multilateral interchange fees (“MIF Regulation”). This vote confirms an informal deal struck with the Council of Europe in December and will enforce a cap on the fees that banks can charge retailers for processing shoppers’ payments.

The European Parliament as a whole is expected to vote on the deal at the second plenary session in April.  Press Release.

The ECB Published a Recommendation on Dividend Distribution Policies

Posted on

On January 28, the European Central Bank (“ECB”) published a recommendation to establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements.

The ECB has published recommendations with regard to Category 1, Category 2 and Category 3 credit institutions. Category 1 credit institutions should only distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all the Pillar 1 requirements. Category 2 credit institutions should not only distribute their net profits in dividends in a conservative manner but should also only pay out dividends to the extent which is consistent, at a minimum, with a linear path towards the fully loaded ratios required by the Common Equity Tier 1 capital ratio. Category 3 credit institutions which under the 2014 comprehensive assessment have a capital shortfall should, in principle, not distribute any dividend.  Recommendation.