Posts by: Editorial Board

Council of EU Approves Commission Delegated Regulation to Extend PSA Transition Periods under EMIR

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On February 23, 2017, the European Parliament updated its procedure file on the proposed Commission Delegated Regulation amending European Market Infrastructure Regulation (“EMIR“) (Regulation 648/2012) as regards the extension of the transitional periods related to pension scheme arrangements (PSAs).

The procedure file states that the Council has raised no objection to the Delegated Regulation.

The Commission adopted the Delegated Regulation in December 2016.

The proposed Commission Delegated Regulation will enter into force unless the European Parliament objects. If the Parliament does not object, the Delegated Regulation will enter into force the day after it is published in the Official Journal of the EU.

ESAs and IOSCO Publish Statements on Variation of Margin Exchange under EMIR

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On February 23, 2017, the Joint Committee of European Supervisory Authorities (“ESAs“) published a statement on variation margin exchange under the EMIR regulatory technical standards (“RTS“) on risk mitigation techniques for uncleared over-the-counter derivative contracts under Article 11(15) of the European Market Infrastructure Regulation (“EMIR“). The International Organization of Securities and Commissions (“IOSCO“) has also published a related statement.

The statement responds to industry requests relating to operational challenges in meeting the deadline of March 1, 2017, for exchanging variation margin, the effect of which will be experienced particularly by smaller counterparties.

Neither the ESAs nor competent authorities (“CAs“) have the power to disapply directly applicable EU legalization. As a result, any further delays of the application of the EU rules would formally need to be implemented through EU legislation, which the ESAs state is not possible due to the lengthy process for adopting EU legislation.

The ESAs outline their expectations of smaller counterparties as follows:

“The ESAs expect CAs to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation. This approach entails that CAs can take into account the size of the exposure to the counterparty plus its default risk, and that participants must document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained, such as using existing Credit Support Annexes to exchange variation margins. This approach does not entail a general forbearance, but a case‑by‑case assessment from the CAs on the degree of compliance and progress. In any case, the ESAs and CAs expect that the difficulties will be solved in the coming few months and that transactions concluded on or after March 1, 2017, remain subject to the obligation to exchange variation margin.”

The statement points out that in 2015, the IOSCO had already granted a nine-month delay based on similar arguments from the industry. The ESAs comment that it is unfortunate that the financial industry has not prepared for the implementation. The ESAs had previously expressed concern about the delayed adoption of the then draft RTS.

In its statement, IOSCO explains that some market participants have faced difficulty in completing the necessary credit support documentation and operational processes to settle variation margin in accordance with the requirements. However, IOSCO expects all affected parties to make every effort to fulfill the necessary variation margin requirements by the deadlines. IOSCO adds that it believes that relevant IOSCO members should consider taking appropriate measures available to them to ensure fair and orderly markets during the introduction and application of such variation margin requirements.

The European Commission (EC) adopted Delegated Regulation 648/2012 supplementing EMIR with the RTS in October 2016. The Joint Committee of ESAs submitted the final draft RTS to the Commission in March 2016.

EBA Publishes Final Draft RTS Report Specifying Requirements on More Secure Customer Authentication

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On February 23, 2017, the European Banking Authority (“EBA“) published a report setting out its final draft regulatory technical standards (“RTS“) on strong customer authentication and common and secure communication under Article 98 of the Directive on payment services in the internal market (“PSD2“).

The RTS were developed in close cooperation with the European Central Bank (“ECB“) and consulted on by the EBA in August 2016. The key points raised in the consultation related to the scope and technologically neutral requirements of the draft RTS, the exemptions, including scope, thresholds and the request of many respondents for an exemption for transactions identified as low risk, access to payment accounts by third-party providers and the requirements around the information communicated.

The EBA states that it had to make difficult trade-offs between the various objectives of PSD2, including enhancing security, encouraging competition, allowing for technology and business‑model neutrality, contributing to the integration of payments in the EU, protecting consumers, facilitating innovation and enhancing customer convenience.

There was extensive input to the consultation paper. The EBA summarizes responses in section 4 of the report and provides its assessment as to whether changes have been made to the RTS as a result of the response.

The final draft RTS are set out in section 3 of the report. The draft will be submitted to the European Commission (EC), after which it will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the Official Journal of the European Union. The RTS will apply 18 months after their adoption by the Commission as a delegated act. The EBA states that this suggests an application date of the RTS in November 2018 at the earliest.

ECB Publishes Letter on Development of SSM Guides on ICAAP and ILAAP for Significant Institutions

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On February 20, 2017, the European Central Bank (“ECB“) published a letter from Ms. Daniele Nouy, Chair of the Supervisory Board of the ECB, to the management of significant institutions under the Single Supervisory Mechanism (“SSM“) on the development of comprehensive SSM guides on the Internal Capital Adequacy Assessment Process (“ICAAP“) and the Internal Liquidity Adequacy Assessment Process (“ILAAP“).

In January 2016, the ECB published a letter setting out its expectations as to the ICAAP and ILAAP information that institutions are expected to submit. Ms. Nouy explains that it has since become clear that there are still several areas in which improvements are needed across banks. To help move banks towards an adequate level of information provision, the ECB has started a multi-year project to develop comprehensive SSM guides on the ICAAP and ILAAP. The first step in this regard is to receive feedback from recipients of the letter on the two draft guides that are attached to the letter. The draft guides set out more detailed ICAAP and ILAAP principles, which provide a road map that the ECB intends to follow.

The ECB seeks comments on the guides by May 31, 2017. It will then review the guides in the light of the comments received and will publish the guides for consultation at the start of 2018.

In the meantime, institutions are expected to comply with the 2016 expectations and to submit corresponding documentation in accordance with the EBA guidelines on ICAAP and ILAAP information collected for the purposes of the supervisory review and evaluation process by April 30, 2017.

The full text of the letter can be found here.

SEC, NASAA Sign Info-Sharing Agreement for Crowdfunding and Other Offerings

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On February 17, 2017, the Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA) signed an agreement to facilitate information sharing with respect to rules regarding intrastate crowdfunding and regional offerings. The information sharing agreement is intended to help state and federal securities regulators ensure that the rules regarding intrastate crowdfunding and regional offerings ” are serving their intended purpose of facilitating access to capital for small businesses.” Release.

Rating Agency Developments

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On February 22, 2017, DBRS issued a report entitled DBRS Criteria: Recovery Ratings for Non‑Investment Grade Corporate Issuers. Report.

On February 22, 2017, DBRS issued a report entitled Rating Companies in the Services Industry. Report.

On February 22, 2017, DBRS issued a report entitled Rating Companies in the Industrial Products Industry. Report.

On February 22, 2017, Moody’s issued a report entitled Securities Industry Service Providers. Report.

On February 22, 2017, Moody’s issued a report entitled Securities Industry Market Makers. Report.

On February 21, 2017, DBRS issued a report entitled DBRS Criteria Commercial Paper Liquidity Support for Non‑Bank Issuers. Report.

On February 17, 2017, Fitch issued a report entitled Latin America RMBS Rating Criteria. Report.

On February 17, 2017, Fitch issued a report entitled Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria. Report.

On February 16, 2017, DBRS issued a report entitled DBRS Criteria: Rating Principal Protected Market‑Linked Securities. Report.

ECJ Clarifies Payment Services Directive

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On January 26, 2017, the Court of Justice of the EU (“ECJ“) published its judgment in BAWAG PSK Bank für Arbeit and others v. Verein für Konsumenteninformation (Case C-375/15) [2017] ECLI:EU:C:2017:38.

The judgment responds to a request for a preliminary ruling from the Oberster Gerichtshof (Austrian Supreme Court) concerning the interpretation of articles 36(1) and 41(1) of the Payment Services Directive (Directive 2007/64/EC) (“PSD“). The request was made during the proceedings relating to a clause included in the contracts of BAWAG PSK Bank für Arbeit (the “Bank“) entered into with consumers for the provision of e-banking services.

The ECJ was required to consider whether the information given by the Bank to its customers through an e-banking mailbox is “provided,” as opposed to being “made available,” through a “durable medium” for the purposes of the PSD.

The ECJ’s conclusion was that articles 41(1) and 44(1) of the PSD should be read in conjunction with article 4(25), meaning that the changes to the information and conditions as well as changes to the framework contract that are transmitted by the Bank to the customer through the electronic mailbox of an online banking website may not be considered to have been provided on a durable medium unless the following two conditions are met:

  1. The website must allow the user to store information addressed to them personally in such a way that they may access and reproduce it unchanged for an adequate period, without any unilateral alteration of its content by the user or any other professional being possible; and
  2. If the user is obliged to consult the website to become aware of that information, the transmission of that information must be accompanied by active behavior on the part of the user, aimed at drawing attention to the existence and availability of the information on the website.

If the user is obliged to consult a website to become aware of the relevant information, that information is merely made available to the user when the transmission of that information is not accompanied by such active behavior on the part of the user. The Austrian Supreme Court must now determine whether, in the case of the main proceeding, the two specified conditions have been met and whether the changes to the information and conditions, and the relevant framework contract, can be regarded as having been actively communicated by the Bank to the user of those services.

CFTC Extends Public Comment Period for the Supplemental Proposal for Regulation Automated Trading

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On January 23, 2017, the U.S. Commodity Futures Trading Commission announced an extension for the public comment period for the supplemental proposal for Regulation Automated Trading (Regulation AT). Comments may now be submitted through May 1, 2017. Release.

European Commission Consults on CMU Mid-Term Review

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On January 20, 2017, the European Commission published a consultation paper requesting targeted input on revisions on the capital markets union (“CMU“) action plan, together with frequently asked questions on the consultation.

The Commission intends to publish its mid-term review of the CMU action plan in June 2017. The aim of the review is to take stock of the progress towards implementing the action plan, to reframe actions in light of new developments and to add new measures to the action plan. The CMU action plan was published in September 2015, and it set out the Commission’s proposed initiatives for the establishment of the CMU.

In the consultation, the Commission seeks views from stakeholders on potential revisions to the action plan on any additional actions that could:

  • Improve financing for innovation, start-ups and non-listed companies.
  • Improve the ability of companies to enter and raise capital on public markets.
  • Foster long-term infrastructure and sustainable investment.
  • Foster retail investment.
  • Strengthen banking capacity to support the wider economy.
  • Facilitate cross-border investment.

The consultation sets out the current position of the CMU initiatives already underway and the expected timings for their next steps, where applicable.

The deadline for responses is March 17, 2017. The Commission will evaluate the responses and produce a summary feedback statement. It will also hold more focused roundtable discussions on small and medium enterprises, access to finance, retail investigator engagement and institutional investment.

Rating Agency Developments

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On January 23, 2017, DBRS issued a report entitled North American CMBS Rating Methodology. Report.

On January 23, 2017, DBRS issued a report entitled Rating U.S. Federal Family Education Loan Program Securitizations. Report.

On January 23, 2017, Moody’s issued a report entitled Global Packaged Goods. Report.

On January 23, 2017, Moody’s issued a report entitled Global Pay Television – Cable and Direct-to-Home Satellite Operators. Report.

On January 20, 2017, DBRS issued a report entitled Master European Structured Finance Surveillance Methodology. Report.