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Posts by: Katrina Murphy

European Commission Publishes Green Paper on Building a Capital Markets Union

On February 18, the European Commission published a green paper on building a Capital Markets Union.

The green paper identifies a number of key priorities to create a fully integrated single market for capital. The early action priorities include relaxing rules around securitization, reviewing the prospectus regime, widening the small and medium-sized investor base by ensuring comparable cross-border credit information and credit-scoring, developing private placement markets by introducing common market practices, principles and standardizes documentation and boosting long-term investment through the European Fund for Strategic Investment and the European Long-Term Investment Funds regulatory framework.

The Commission will publish an action plan later in 2015 to identify and remove barriers for the free movement of capital, and aims to have in place a fully functioning Capital Markets Union by 2019.  Green Paper.

 

ICMA Publishes a Guide to the Pan-European Private Placement Market

On February 11, the International Capital Market Association (ICMA) published a guide on common market standards and best practices for the development of Pan-European private placement (PEPP) transactions. The guide is intended to be a foundation for a truly pan-European private placement market.

The guide states the market characteristics of a PEPP transaction and includes a guide to negotiation and documentation, emphasizing the utility of the Loan Market Association’s standard documents which were issued in January 2015. The guide further explains the roles of the parties in a PEPP transaction and gives an indicative timetable.

ICMA states that the guide is intended as guidance only and that negotiation of the contractual terms for each document in a PEPP transaction is essential. The guide will be updated and supplemented as the PEPP market and corresponding practice develops throughout the Member States of the European Union.  Guide.

FMLC Publishes Letter to European Commission on Reporting and Transparency of Securities Financing Transactions

On February 10, the UK Financial Markets Law Committee (FMLC) published a letter to the Director-General for Financial Stability, Financial Services and Capital Markets Union of the European Commission.

The letter discusses the proposed Regulation on Reporting and Transparency of Securities Financing Transactions. The proposed regulation would introduce a transparency regime in the context of securities financing transactions (typically repurchase agreements (repos), securities lending activities, and sell/buy-back transactions) by requiring their reporting to trade repositories and disclosure to fund investors.

The FMLC is concerned that the proposed regulation fails adequately to reflect the difference between a title transfer financial collateral arrangement (TTFCA) and a security financial collateral arrangement (SFCA), pointing out that such failure adequately to differentiate had been flagged in comments by the ECB. To allay these concerns the FMLC recommends that the proposed regulation is amended to make it explicit that TTFCAs are excluded from Article 15 of the proposed regulation which states that counterparties shall have the right to rehypothecation only if the counterparty is informed in writing of the potential risks and has granted its prior express consent. Since a TTFCA (unlike a SFCA) involves the transfer to the receiving counterparty of the ownership of the assets in question, it is incongruous to say that the receiving counterparty has the right to use the assets transferred to him only if certain conditions are satisfied because the right to use them is a necessary incident of the ownership of the assets. Similarly, the FMLC points out that only assets transferred by means of a SFCA constitute “client assets” for the purposes of the receiving party as the transferor retains an equitable interest.  Letter.

Council of the EU Endorses Agreement with the European Parliament Regarding the MLD4

On February 10, the Council of the European Union published a press release stating that agreement had been reached with the European Parliament regarding the Fourth Money Laundering Directive (MLD4) and the proposed revised Wire Transfer Regulation (WTR).

MLD4 has an extended scope and introduces due diligence requirements for a greater number of traders by lowering the threshold required for anti-money laundering steps from €15,000 to €10,000.

The agreement between the Council and the European Parliament means that MLD4 and WTR will go to second reading and can now be adopted. Member States will have two years to transpose the Directive into national law; the Regulation will be directly applicable.  Press Release.

Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 Published

On January 13, 2015, the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 were published.

The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 to introduce a systemic risk buffer (SRB) that will apply to ring-fenced banks (RFBs) and certain large building societies. This measure implements Articles 133 and 134 of the Capital Requirements Directive IV (CRD IV).

The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the buffer should be. It will need to publish this methodology by May 31, 2016. The Prudential Regulation Authority (PRA) will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size.

The Regulations were made on January 12, 2015 and come into force, unless otherwise stated, on May 31, 2016. The systemic risk buffer is applicable from January 1, 2019.  Regulations.

FCA Launches Consultation on Competition Powers

The Financial Conduct Authority (FCA) obtains concurrent competition powers on April 1, 2015, enabling it to enforce the prohibitions on anti-competitive behaviour in the Competition Act 1998 (CA98) and the Treaty on the Functioning of the European Union (TFEU) in relation to the provision of financial services. The FCA will also have powers to carry out market studies, and make market investigation references to the Competition and Markets Authority (CMA) under the Enterprise Act 2002 (EA02), in relation to the provision of financial services.

 On January 15, 2015, the FCA launched a consultation seeking views on draft guidance papers and amendments to the FCA handbook in relation to their exercise of these powers. Consultation closes on March 13, 2015.  Consultation.

Council of EU Agrees General Approach on Proposed Regulation on Securities Financing Transactions

On November 20, the Council of the EU published a press release reporting that its Permanent Representatives Committee (COREPER) has agreed its approach on a draft regulation on reporting and transparency of securities financing transactions (SFTs) (the SFT Regulation).

SFTs are often carried out by the shadow banking sector and rely on assets belonging to the counterparty to generate financing.  They mostly involve lending or borrowing of securities and commodities, repurchase or reverse repurchase transactions, or buyback/sell-back transactions.

The SFT Regulation is intended to enhance financial stability by ensuring that information on SFTs is efficiently reported to trade repositories and investors in collective investment undertakings.

The Commission published its legislative proposal for the SFT Regulation in January 2014 and the Council published its first compromise proposal in October 2014. The Council’s agreement enables negotiations to commence as soon as the negotiating team of the European Parliament is entrusted with a mandate. The aim is to adopt the SFT Regulation at first reading. Press Release.

Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 Published

On November 20, the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 were published with an accompanying explanatory memorandum.  The Regulations were made on November 19, and come into force on December 15.  They amend the Financial Services and Markets Act 2000 (FSMA) to extend until July 3, 2016 the expiry dates of:

  • the prohibition on market manipulation (s118(8) FSMA);
  • the associated provisions (s118A(2) and (3) FSMA); and
  • the definition of “regular user” (s130A FSMA).

On July 3, 2016, the Market Abuse Regulation (MAR) will take effect and the above FSMA provisions will then expire.  The s118(8) prohibition will be replaced by a prohibition with similar scope under MAR.  RegulationExplanatory Memorandum.

ECON Publishes Draft Report on MMF Regulation

On November 17, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report on the proposed Regulation on Money Market Funds (the MMF Regulation).

Money market funds are a type of investment fund that invests in short-term debt such as money market instruments issued by banks, governments and companies (MMFs).  If adopted, the MMF Regulation will introduce a general framework of requirements to enhance the liquidity and stability of MMF funds.

The draft report sets out suggested amendments to the European Commission’s original proposal and an explanatory statement. The statement comments that:

  • there is still significant scope for improvement relating to liquidity and maturity transformation and in making MMFs more stable;
  • a new category of EU government constant net assets value money market fund (CNAV MMF) should be established, which would invest a majority of assets into EU government debt; and
  • the net asset value of CNAVs should be subject to daily disclosure requirements, stress tests should take place on a quarterly basis and there should be stronger investor warnings.

The Parliament is scheduled to consider the MMF Regulation at its plenary session on March 25, 2015. Draft report.