Posts by: Heidi Wardle

European Commission Adopts New Delegated Regulation Identifying High-Risk Third Countries under MLD4


On February 13, the European Commission adopted a Delegated Regulation (C(2019) 1326 final) which supplements the Fourth Money Laundering Directive ((EU) 2015/849) (“MLD4“) by identifying 23 high-risk third countries with strategic deficiencies. The Delegated Regulation will repeal Delegated Regulation (EU) 2016/1675 which currently lists 16 countries as high-risk. READ MORE

Council of EU Agrees Position on Proposed PEPP Regulation


On February 13, the Council of the EU published a press release which announced that its Permanent Representative Committee (COREPER) had agreed its position relating to the proposed Regulation on a pan-European personal pension product (“PEPP“). The text, now agreed between the European Commission, the European Parliament and the Council, will undergo legal and linguistic review, before the Parliament and Council will be called to adopt the final text.

In a press release, the Commission welcomed the agreement.

FSB Report Assesses Fintech Developments and Potential Financial Stability Implications


On February 14, the Financial Stability Board (“FSB“) published a report assessing Fintech market developments in the financial system and the potential implications for financial stability.

Three Fintech developments were considered: new providers of bank-like services competing or co-operating with established financial services providers; the provision of financial services by large technology companies (BigTech); and reliance on third-party providers for cloud services. These are considered to be developments that are altering, or have the potential to alter, the current structure of the financial system and as a result may have financial implications for financial stability. READ MORE

European Parliament Adopts Proposed Regulation Amending Regulation on Cross-Border Payments


On February 14, the European Parliament published a press release announcing it had adopted in plenary at first reading the proposed Regulation amending the Regulation on cross-border payments (924/2009regarding certain charges on cross-border payments in the EU and currency conversion charges (20189/0076/(COD)). On the same day the provisional edition ((P8_TA-PROV(2019)0124) of the text of the legislative resolution was also published.

The next step is for the proposed Regulation to be adopted by the Council, after which it will enter force 20 days after its publication in the Official Journal (“OJ“) and the majority of provisions will apply from December 15.

An FAQs and factsheet have also been published in relation to the proposed Regulation.

ESMA Renews Restriction of CFDs for Further Three Months


On December 19, European Securities and Markets Authority (“ESMA”) published a press release announcing it is renewing the restriction on the marketing, distribution or sale of contracts for differences (“CFDs”) to retail clients. The restriction has been in effect since August 1, 2018 and the extension is for 3 months from February 1, 2019. The extension is because ESMA considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. The renewal is on the same terms as the previous renewal on November 1, 2018 and include:

  • Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying.
  • A margin close out rule on a per account basis.
  • Negative balance protection on a per account basis.
  • A restriction on the incentives offered to trade CFDs.
  • A standardized risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

ESMA Final Report and Guidelines on NSBs under BMR


On December 20, ESMA published a final report containing guidelines on non-significant benchmarks (“NSBs”) under the Benchmarks Regulation ((EU) 2016/1011) (“BMR”). The guidelines apply to competent authorities designated under Article 40 of the BMR, benchmark administrators and supervised contributors, and apply in relation to the provision of, and contribution to, NSBs.

The purpose of the guidelines is to ensure common, uniform and consistent application, for NSBs, of:

  • The oversight function requirements in Article 5 of the BMR.
  • The input data provision in Article 11 of the BMR.
  • The transparency of the methodology provision in Article 13 of the BMR.
  • The governance and control requirements for supervised contributors provision in Article 16 of the BMR.

The guidelines will apply two months after they have been translated into the official EU languages and published on ESMA’s website. During the two months national competent authorities must notify ESMA whether they comply or intend to comply with the guidelines and those that do not intend to comply must notify ESMA of their reasons for not complying.

The final report can be found here and the guidelines, which were published on ESMA’s website, can be found here.

Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Loans Referencing LIBOR


On December 21, the Working Group on Sterling Risk-Free Reference Rates published a paper aiming to help market participants prepare in advance of 2021, when LIBOR may not be available. The paper considers new and legacy loan transactions that reference LIBOR and highlights possible issues should it be replaced, and also the impacts a LIBOR replacement could have on the regulatory obligations of market participants. The paper also considers the possibility that LIBOR might continue to be published but based on a different methodology. READ MORE

ESMA Adopts Decision to Renew Ban on Marketing, Distribution or Sale of Binary Options


On December 21, European Securities and Markets Authority (“ESMA”) published a notice of its decision to renew the prohibition on the marketing, distribution or sale of binary options to retail clients as it considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist. The decision renews on the same terms as the previous renewal decision of September 21, 2018. The decision was made under Article 40 of the Markets in Financial Instruments Regulation (600/2014) and applies from January 2, 2019 for three months.

ISDA Publishes Statement on Benchmark Fallbacks

On November 27,the International Swaps and Derivatives Association (“ISDA“) published a statement of the preliminary results of its consultation on new benchmark fallbacks for derivatives contracts that reference certain interbank offered rates (“IBORs“).

The consultation suggests four options for calculating the applicable adjusted risk-free rates (“RFRs“), if fallbacks are triggered, and three options for calculating spread adjustments, as well as setting out which of the options the ISDA expects to proceed with and include in its standard definitions.

The information in the statement is subject to the final decision of the ISDA Benchmark Committee and only reflects its preliminary findings at this stage.

The full statement can be found here.

ECB Speech on Climate Change and Central Banking

On November 27, the European Central Bank (“ECB“) published a speech by Yves Mersch, ECB executive board member, on climate change and central banking. Key points included:

  • Three principal sources of risk have been identified by the Financial Stability Board’s (“FSB“) taskforce on climate related financial disclosures, the European Systemic Risk Board and other bodies: (i) physical risk from exposure to climatic events; (ii) transition risk; and (iii) the undervaluation risk in new “green” financial products leading to price bubbles.
  • The physical risk falls mainly on insurers who need to ensure capital adequacy (the ECB is excluded from supervising insurance firms under the Treaty of the Functioning of the EU) but the banking sector may also be affected to the extent that climatic events affect the physical collateral underpinning lending, such risk is increased if banks have loan portfolios concentrated in particular geographic areas.
  • The ECB is not a regulator for financial markets or banks, so cannot vary the capital requirements of supervised banks to take into account their climate risks, or to encourage climate finance.
  • Climate risks have been identified in the ECB Banking Supervision’s risk assessment for 2019 and will be among the topics covered in the qualitative discussions held with banks on an individual basis.