Rebecca Evans

Senior Associate

London

rebecca.evans@orrick.com

Read full biography at www.orrick.com

Rebecca Evans is a Senior Associate in the Complex Litigation and Dispute Resolution Team, she advises on a wide range of litigation and dispute resolution matters including High Court litigation, professional discipline actions and internal and regulatory investigations.

Rebecca acts for clients on a broad range of litigation and regulatory matters. She has particular experience in acting for professional services firms in contentious regulatory investigations, enforcement proceedings and negligence claims.

Posts by: Rebecca Cousins

ECB Publishes Regulation and Guidance on Options and Discretions Available in Union Law

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On March 24, 2016, Regulation ((EU) 2016/445) of the European Central Bank (ECB) on the exercise of options and discretions (ODs) was published in the Official Journal of the EU (OJ). The ECB has also published a guide on the ODs available under Union law.

The Regulation details the legal obligations of the significant credit institutions within the scope of the single supervisory mechanism (SSM) regarding the prudential treatment of certain “general” ODs available to competent authorities under EU banking law (that is, the CRD IV Directive (2013/36/EU), the Capital Requirements Regulation (Regulation 575/2013) (CRR) and delegated acts).

The guide sets out the ECB’s approach concerning the exercise of the ODs. It aims to provide coherence, effectiveness and transparency regarding the supervisory policies that will be applied in supervisory processes within the SSM as far as the significant credit institutions are concerned. In particular, it is designed to assist the joint supervisory teams (JSTs) in the performance of their tasks regarding the principles the ECB intends to follow in supervising significant credit institutions.

A related ECB press release advises that, soon, the ECB will launch a consultation on how to harmonise a second, smaller group of identified ODs. Regulation. Guide.

Council of EU Grants Exemptions for Commodity Dealers under CRR

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On March 23, 2016, the Council of the EU published an approved final compromise text of a proposed Regulation extending the Capital Requirements Regulation (Regulation 575/2013) (CRR) to extend certain exemptions for commodity dealers.

Under the CRR commodity dealers are exempt from large exposure and own funds requirements until December 31, 2017, the Council has agreed to extend these exemptions until December 31, 2020. The measure is designed to protect commodity dealers from an unstable regulatory environment in the short term. The Council considered that the application of large exposure and own funds requirements to commodity dealers should come as the result of a thoroughly reasoned decision rather than as a result of a lapsed exemption.

The proposed regulation now requires approval from the European Parliament and adoption by the Council. The Council Presidency confirmed with member states that they will support the extension, which was approved by the Parliament’s Committee on Economic and Monetary Affairs (ECON) on March 7, 2016. Press release.

EBA Publishes Formula for Calculating MCD Benchmark Rate

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The EBA has published its final report setting out the formula that creditors will be required to use when calculating the benchmark rate under Annex II to the Mortgage Credit Directive (2014/17/EU).

Under certain circumstances the Mortgage Credit Directive requires creditors to use a benchmark rate specified by the EBA for the illustrative examples in the European Standardized Information Sheet (ESIS) for variable rate mortgages (specifically, the annual percentage rate of charge (APRC) and the maximum installment amount). This is intended to help consumers compare the characteristics of credit products.

Instead of publishing a specific pan-European rate the EBA has produced a formula for calculating the appropriate rate which takes into account national circumstances. The EBA formula includes an underlying rate specific to each member state (that is, the European Central Bank (ECB) rate for Eurozone countries and the national central bank rate for non-Eurozone countries). This means that each member state will have a bespoke EBA benchmark rate that will remain up to date over time. The EBA rate will only apply where no national rate has been set.

The decision will be translated into the official EU languages, and will be published on the EBA website and in the Official Journal of the European Union (OJ). The EBA formula will apply 20 days after its publication in the OJ, but can be used by creditors before this date.

Delegated Regulation Adopted Under Market Abuse Regulation

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On February 26, the European Commission adopted a Delegated Regulation supplementing the Market Abuse Regulation (No. 596/2014) (“MAR“) laying down regulatory technical standards on accepted market practice.

MAR defines “accepted market practice” as a specific market practice that is accepted by a competent authority of a member state (Article 3(1) MAR). ESMA is required to develop draft regulatory technical standards specifying the criteria, procedure and requirements for establishing an accepted market practice and the requirements for maintaining or terminating it or modifying the conditions for its acceptance. The Delegated Regulation provides for a list of “supervised persons” for the purposes of the Delegated Regulation, and lays down requirements for establishing an accepted market practice.

The Council of the EU and European Parliament are expected to review and consider the Delegated Regulation. Provided there are no objections the Delegated Regulation will apply from July 2, 2016.

PRA Publishes Policy Statement on Internal Governance of Third Country Branches

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The U.K. Prudential Regulation Authority (PRA) has issued a policy statement on the internal governance arrangements of U.K. branches of non-EEA banks and PRA designated investment firms, known as “third country branches.”

The rules and supervisory statement cover general organizational requirements; persons who effectively direct the business; responsibility of senior personnel; skills, knowledge and expertise; compliance and internal audit; risk control; outsourcing; and record keeping. These rules replace the rules and guidance in chapters 4 to 9, and 21, of the Senior Management Arrangements, Systems and Controls section of the PRA Handbook. The rules will come into effect on 7 March 2016. Press release.

EU-wide Stress Tests Launched by EBA

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The EBA has published a methodological note and the macroeconomic scenarios for the 2016 EU-wide stress test for banks. The stress test is designed to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks to economic shocks. The test is to be conducted on a sample of 51 EU banks and will cover 70% of the EU banking sector.

The methodological note explains the methodology by which the banks are intended to calculate the stress impact of the provided scenarios and sets constraints for their bottom-up calculations. It also aims to provide banks with guidance and support for performing the test. The EBA has also published a press release containing related technical documents, including a set of frequently asked questions (FAQs) on the stress tests.

Results from the stress-test are expected in the third quarter of 2016.

Draft Report on Virtual Currencies Published by EU Committee on Economic and Monetary Affairs

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On February 25, a draft report on the subject of virtual currencies was published by the European Parliament’s Committee on Economic and Monetary Affairs (“ECON“).

The draft report consists of a motion for a European Parliament Resolution and an Explanatory Statement. The motion contains an analysis of virtual currencies (“VC“s) and distributed ledger technology (“DLT“). The motion stresses that VCs and DLT have the potential to contribute positively to consumer welfare and economic development by, amongst other things:

  • Lowering transaction costs for payments and transfers of funds and thereby reducing global total costs for remittances by up to €20 billion
  • Reducing the cost of access to finance without a traditional bank account
  • Enhancing the speed and resilience of payment systems
  • Providing for a high degree of privacy, but without full anonymity so that transactions can be traced back in case of malfeasance

However, the motion also notes the following risks which should be addressed appropriately:

  • The potential for money laundering, terrorist financing and tax fraud
  • The sometimes limited capacity of regulators in the area of new technology
  • The legal uncertainty surrounding new applications of DLT, which may be the subject of (sometimes ill-suited) existing legislation or of no regulation at all

ECON argues that regulatory capacity must be enhanced in light of these risks but calls for a proportionate regulatory approach so as not to stifle innovation at an early stage. ECON welcomes the European Commission’s suggestions for including VC exchange platforms in the Fourth Money Laundering Directive ((EU) 2015/849) and recommends a review of EU legislation on payments, including the Payment Services Directive (2007/64/EC) and the second Electronic Money Directive (2009/110/EC).

EBA to Assess the Potential Impact of IFRS 9 on EU Banks

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In a press release dated 27 January 2016, the European Banking Authority (EBA) launched an impact assessment of IFRS 9 (dealing with financial Instruments) which is due to be implemented in the EU in 2018. The impact assessment is designed to assist the EBA to understand the likely impact of IFRS 9 on regulatory own funds, the interaction between IFRS 9 and other prudential requirements, and the way institutions are preparing for the application of IFRS 9. The assessment will be based on a sample of approximately 50 EU institutions. The EBA contemplates that the assessment process will need to be repeated in the run up to the implementation date for IFRS 9 as institutions are still developing their response to IFRS 9.

European Supervisory Authorities Request Response from European Commissioner to Inconsistencies in Cross-Selling Legislation

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On 26 January 2016, the Chairpersons of the European Supervisory Authorities (ESAs) (i.e. EBA, EIOPA and ESMA) sent a letter to the European Commissioner for the Directorate General Financial Stability, Financial Services and Capital Markets Union.

The letter flags up that differences in primary legislation currently preclude the ESAs from developing consistent guidelines on cross selling across the investments, insurance and banking sectors in the EU and asks that the Commission look into the differences in financial services legislation and consider the steps required in order to guarantee that the ESAs are fully equipped to regulate these practices, to the benefit of consumers, financial institutions and supervisory authorities. The ESAs suggest that the Commission may have an opportunity to review these matters as part of its follow up to its September 2015 call for evidence on the EU framework for the regulation of financial services and its December 2015 green paper on retail financial services.

ESMA and South African and Mexican Authorities to Cooperate Under EMIR on CCPs

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On 26 January 2016, ESMA announced that had entered into a memorandum of understanding (MoU) with each of the Mexican Comisión Nacional Bancaria y de Valores (CNBV) and the South African Financial Services Board (FSB) under the European Markets Infrastructure Regulation (EMIR).

EMIR provides for co-operation arrangements to be established by ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission. The memoranda set out the terms on which the two authorities will cooperate and share information with ESMA regarding Central Counterparties (CCPs) which are authorised or recognized in Mexico or South Africa, and which have applied for EU recognition under EMIR. As well as establishing these arrangements, the MoUs provide ESMA with adequate tools to monitor the on-going compliance by the CCPs with the recognition conditions contained in EMIR. The MoU with FSB entered into force on 30 November 2015 and the MoU with the CNBV entered into force on 25 January 2016.  Press release. CNBV MoU. FSB MoU.