Posts by: Heidi Wardle

European Commission 2019 Work Program: Financial Services Aspects

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On October 23, the European Commission published a communication outlining its work program for 2019. There are a number of priority-pending financial services legislative proposals which the Commission wants the European Parliament and the Council of the EU to take swift action on. The proposals include:

  • Sustainable finance
  • Cross-border investment funds
  • Crowdfunding services
  • The pan-European pension product (“PEPP“)
  • Banking
  • Recovery and resolution on central counterparties (“CPPs“)
  • The European deposit insurance schemes (“EDIS“)
  • Anti-money laundering

The full communication can be found here. The Annexes were published separately, alongside a Q&As document and a factsheet.

UK Withdrawl from the EU: Changes to PRA Rulebook and Onshored Binding Technical Standards

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On October 25, the Bank of England (“BOE“) and the PRA published a package of consultation papers that propose changes to the relevant onshored binding technical standards (“BTS“), the rules for financial market infrastructure providers and the PRA Rulebook arising from the UK’s withdrawal from the EU. They do not reflect any other policy changes other that those related to EU withdrawal.

The deadline for comments on all four consultation papers in January 2, 2019.

The papers are relevant to:

  • All firms authorized and regulated by the PRA.
  • EEA firms undertaking cross-border activities into the UK from the rest of the EU.
  • UK financial market infrastructures (“FMIs“) regulated by the BOE.
  • Non-UK central counterparties (“CCPs“) and central securities depositories (“CSDs“) providing cross-border services into the UK.

Joint Committee of ESAs Report on Automation in Financial Advice

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Over the past two years the Joint Committee of the European Supervisory Authorities (“ESAs“) have been undertaking a monitoring exercise on the evolution of automation in financial advice in the securities, banking and insurance sectors. On September 5, they published a report setting out their results, and made the following conclusions:

  • Analysis shows that while automation in financial advice seems to be slowly growing, the overall number of firms and customers involved still seems to be quite limited.
  • The risks and benefits of automation in financial advice, which were originally identified by the ESAs in their original discussion paper and related report, have largely been confirmed by national competent authorities and seem to be still valid.
  • In terms of emerging business models, it appears that automated services are being offered through partnerships, by established financial intermediaries, rather than by pure FinTech firms.
  • While some new trends seem to have emerged (such as the use of Big Data, chatbots and extension to a broader range of products), there seems to have been no substantial change to the overall market since the publication of the ESA report on automation in financial advice in December 2016

The ESA considered that as there has been limited growth of automated financial advice and a lack of materialization of identified risks, no immediate action by the ESAs is necessary. The ESAs also stated that no new monitoring exercise will be undertaken until the market has further developed enough for a third monitoring exercise to be deemed warranted.

ECB Issues Opinion on Proposed Regulation Amending Regulation on Cross-Border Payments

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On August 31, the European Central Bank (“ECB“) has published an opinion on the European Commission’s legislative proposal for a Regulation amending the Regulation on cross-border payments.

The ECB outlined the proposed Regulation, which is to provide all citizens and companies in the EU transferring euros cross-border (whether between euro area and non-euro area member states or between non-euro area member states) with the low levels of fees that are currently available in respect of domestic payments made in the official currency of a member state. This is intended to improve transparency and consumer protection, enhance the internal market for payment services in euros and reinforce the euro as the currency of choice for intra-EU payments.

The ECB also outlined specific observations in relation to the scope of the provisions and provided additional definitions. The ECB has set out its specific drafting proposals in a technical working document that is appended to its opinion.

ECON Reports on Regulatory and Supervisory Relationships Between EU and Third Countries

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The European Parliament’s Committee on Economic and Monetary Affairs (“ECON“) published a report on August 29, (a draft of which it published in April) on relationships between the EU and third countries concerning financial services regulation and supervision. The report included recommendations for a European Parliament resolution, including:

  • Third countries must keep the ESAs (that is, ESMA, EIOPA and the EBA) informed of any national regulatory developments through the EU’s future equivalence framework and the equivalence decision should require good regulatory and supervisory co-operation.
  • The European Commission should provide a clear framework for the application of equivalence procedures that introduces a standardized process for the determination of equivalence.
  • The Commission should review the effectiveness of the current equivalence regime and publish its findings together with any proposals for improvement.
  • The Commission should report annually to the European Parliament on all decisions on equivalence and explain the rationale for those decisions.
  • The ESAs should have the capacity and powers to collect, collate and analyze data to enable them to monitor third country supervisory and regulatory frameworks.

We note the draft report included a call for a financial services chapter as part of any future EU-US trade agreement, but this was not included in the final version.

ESMA Updates MiFID II Q&As on Transparency Topics

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On February 7, the European Securities and Markets Authority (“ESMA”) published an updated version of its questions and answers (Q&As) on transparent topics under MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014). The Q&As were last updated in December 2017.

The two new Q&As are in relation to pre-trade transparency waivers.

ESMA Updates Q&As on Benchmark Regulation

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On February 5, the European Securities and Markets Authority (“ESMA”) published an updated version of its Q&As on the implementation of the Regulation on indices used in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (Benchmarks Regulation or BMR). The Q&As were first published in July 2017 and were last updated in December 2017.

The two new Q&As relate to commodity benchmarks (how the threshold in the exemption under Article 2(2)(g) of the BMR should be calculated – Q&A 4.4) and the definition of a benchmark and investment funds (what types of investment funds are considered to be using an index for the purpose of “tracking the return of [an] index” – Q&A 5.3).

ESMA 2018 Regulatory Work Program

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On February 8, the European Securities and Markets Authority (“ESMA”) published its 2018 regulatory work program, which provides a detailed breakdown of the individual work streams outlined in the 2018 work program. The areas covered in the regulatory work program include the following initiatives: European Social Entrepreneurship Funds (EuSEF) Regulation, European Venture Capital Funds (EuVECA) Regulation, EMIR, MiFID II, Market Abuse Regulation (MAR), Securities Financing Transactions Regulation (SFTR) and Proposed Regulation establishing a framework for the recovery and resolution of central counterparties (CCPs).

The 2018 regulatory work program can be found here.

EC Notices on Consequences of Brexit on Banking and Finance Sectors

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The European Commission (“EC”) published a new webpage (which can be found here) which contains notices setting out the consequences that the UK withdrawal from the EU will have on banking and finance rules.

The notices relate to a number of areas including: markets in financial instruments, banking and payment services, post-trade financial services, asset management, credit rating agencies, insurance and reinsurance and, statutory audit.

Each note sets out the consequences of EU rules no longer applying to the UK in the above areas, if the UK becomes a third party. That could happen from March 30, 2019, when all EU primary and secondary law will cease to apply to the UK unless a ratified withdrawal agreement establishes another date.

EBA Launches 2018 EU-Wide Stress Test

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On February 1, 2018, the European Banking Authority (“EBA“) published a press release announcing that it will be examining 37 euro area banks as part of the 2018 EU-wide stress test, and published the relating methodological note. The note describes the common methodology that defines how banks should calculate the stress impact of the common scenarios, and sets constraints for their bottom-up calculations, as well as provides guidance and support.

The adverse scenario for 2018 implies a deviation of EU GDP from its baseline level by 8.3% in 2020, resulting in the most severe scenario to date (the explanatory press release is available here), the results of which are expected to be published by November 2, 2018.

For the 2018 test, the EBA has also published the adverse macro-financial scenario (which can be found here), the market risk scenario (available here), a set of FAQs on the stress test (available here) and stress test templates.