Posts by: Rebecca Grevitt

ECB Consultation on Guide on Assessment Methodology for IMM and A-CVA

Posted on

On December 14, 2017, the European Central Bank (“ECB“) published its first consultation on the draft ECB guide on the assessment methodology (EGAM) for the internal model method (“IMM“) and the advanced credit valuation adjustment risk (“A-CVA“) charge for counterparty credit risk (“CCR“).

The guide relates to the supervisory assessment methodology used by banks to calculate capital requirements for CCR under the Capital Requirements Regulation (Regulation 575/2013) (“CRR“).

The ECB developed the guide, as there is no mandate in the CRR for the EBA to produce regulatory technical standards (RTS) for the assessment methodology for the IMM and the A‑CVA models.

The guide is intended to clarify the methodologies that the ECB uses to assess CCR model components within model investigations when determining if institutions meet those requirements.

The deadline for responses is March 31, 2018. The ECB intends to finalize the guide following another call for feedback in 2018.

The draft guide is available here.

ESRB Recommendation Amending 2015 Recommendation on EU Macroprudential Policy Framework Published in OJ

Posted on

On December 15, 2017, the Recommendation of the European Systemic Risk Board (“ESRB“) (ESRB/2017/4) (dated October 20, 2017) amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of, and voluntary reciprocity for, macroprudential policy measures was published in the Official Journal of the EU (OJ).

The recommendation states that the framework on the voluntary reciprocity for macroprudential measures set out in the 2015 recommendation should ensure that all exposure-based macroprudential policy measures activated in one member state are reciprocated in the other member states to the greatest extent possible. Relevant authorities in member states may exempt an individual firm with nonmaterial exposure from the application of the reciprocating measures. (the “De Minimis Principle“).

The 2015 recommendation provided no guidance on the threshold to be used by relevant authorities to determine the materiality of exposure. Consequently, where a relevant authority has exempted a firm with nonmaterial exposure, the authority has been able to adopt the threshold it considers appropriate, creating potential divergences in the application of the de minimis principle.

As a result, the 2017 recommendation amends the 2015 recommendation by stating that the relevant authority should propose a maximum materiality threshold at the firm level when requesting reciprocation.

 

 

ESMA Publishes Two Revised Opinions on Transaction on Third-Country Trading Venues

Posted on

On December 15, 2017, European Securities and Markets Authority (“ESMA“) published two revised opinions on third-country trading venues for post-trade transparency and position limits requirements under MiFID II. The revised opinions are:

These revise the original opinions issued in May 2017. The opinions addressed the treatment of transactions executed by EU investment firms on third-country trading venues as well as the treatment of positions held in contracts traded on those venues for the position limit regime under the MiFID II Directive.

These opinions stated that, provided that third-country trading venues meet a set of criteria, investment firms trading on those trading venues are not required to make transactions public in the EU via an approved publication arrangement (APA). Likewise, commodity derivatives contracts traded on those trading venues are not considered as economically equivalent over-the-counter (“EEOTC“) contracts for the purpose of the position limit regime.

When publishing these opinions, in its press release, ESMA explained that after the original publication of its opinions in May 2017, it had received requests to assess over 200 third-country trading venues. ESMA stated that it will not be able to assess all of these trading venues prior to the application of MiFID II (January 3, 2018) and highlighted the importance that all third-country trading venues are treated the same in order to maintain a level playing field.

Consequently, the opinions state that pending an ESMA assessment of these third-country trading venues, transactions on third-country trading venues do not need to be made post-trade transparent and positions held in those third-country venue contracts are not considered to be EEOTC contracts.

European Parliament’s Committee on ECON Publishes Draft Reports on CRR II Regulation and CRD V Directive

Posted on

 

On December 1, 2017, Economic and Monetary Affairs (“ECON“) published its draft report on the proposed CRR II Regulation and its draft report on the proposed CRD V Directive.

The European Commission’s proposals for the CRR II Regulation and the CRD V Directive contain revisions to the Capital Requirements Regulation (Regulation 575/2013) (CRR) and the CRD IV Directive (2013/36/EU) respectively.

The draft reports contain proposed amendments to the CRR II Regulation and the CRD V Directive as well as explanatory statements by the rapporteur.

The amendments include:

  • Scope: the definition for a small, non-complex institution should be amended to include a relative component geared to the gross domestic product of a particular member state;
  • Global systemically important institutions (G-SIIs): the leverage quotas for G-SIIs should increase to 4%. Grandfathering provisions for the introduction of the total loss absorbing capacity standard for G-SIIs should be introduced in order to ensure that buffers for liabilities capable of being bailed –in are built up as quickly as possible;
  • Remuneration and transparency: large institutions should be obliged to set and disclose a figure for the salary of each individual board member representing a proportion of the median salary of the institutions’ employees; and
  • Lending to SMEs and infrastructure:  the support factor for investment in infrastructure should equally be applicable to lending to public enterprises. A set of criteria to govern the exclusion of certain institutions from the scope of the CRR should also be introduced to encourage the set up promotional banks.

The draft report on the proposed CRR II Regulation (PE613.409v02-00) (dated November 22, 2017) is available here and the draft report on the proposed CRD V Directive (PE613.410v01-00) (dated November 16, 2017) is available here.

EC Publishes Report on Follow-Up to Call for Evidence on EU Regulatory Framework for Financial Services

Posted on

 

The European Commission (“EC“) published on December 1, 2017 a report on the follow-up to its call for evidence on the EU regulatory framework for financial services. The report contains an update on progress on the initiatives relating to its call for evidence since the prior communication in November 2016.

The report sets out details of measures introduced following the call for feedback, including several ongoing initiatives that require further analysis. These include:

  • the Commission’s work to monitor the application and impact of the outsourcing provisions in the Benchmarks Regulation;
  • the study conducted by the European Commission as part of the capital markets union action plan to assess the distribution of retail products to retail investors across the EU. The European Commission indicated that it expects to publish final findings from the study at the start of 2018;
  • the launch by the EBA of an IT tool aimed at promoting further proportionality in banking regulation. The idea is that the tool will help guide banks through relevant regulatory standards, provisions and templates in view of their specific size and business model; and
  • the assessment by the European Commission of the proportionality of the Alternative Investment Fund Managers Directive (2011/61/EU). The outcome of the European Commission’s review is expected in 2018.

The report is available here.

Council of the EU Publishes Progress Report on Commission’s Initiatives to Strengthen the Banking Union

Posted on

On November 29, 2017, the Council of the EU published a report on the progress of the European Commission’s initiatives to strengthen the banking union, including the proposed Regulation establishing the European deposit insurance scheme (EDIS) (14932/1/17).

The report provides an overview of the progress of the Commission’s banking reform legislative package, adopted in November 2017, and also refers to a progress report from the Presidency of the Council on the progress of the EDIS Regulation.

This progress report highlights several issues which are currently under discussion with the European Council. Such issues include:

  • alternative measures to prevent the failure of credit institutions;
  • the methodology for calculating risk-based contributions;
  • the scope of EDIS and the inclusion of branches of third-country credit institutions established in a member state and of non-CRD IV deposit-taking entities that are covered by existing deposit guarantee schemes (DGSs);
  • non-compliance by DGSs and the procedure for the disqualification; and
  • the design of EDIS, including the merits of the full insurance and reinsurance models.

The progress report is available here.

European Commission Outlines Work Program for 2018

Posted on

 

The European Commission published a communication on October 24, 2017, which outlined its work program for 2018. The communication included numerous annexes and outlined a number of initiatives which are intended to be the focus of the European Commission for the coming year.

The communication goes into further detail in a number of annexes that, for example, set out 10 political priorities, including the completion of the capital markets union and the banking union, as well as create a permanent and accountable European Minister of Economy and Finance.

The annexes also set out priority-pending proposals on which the European Commission wants the European Parliament and Council of the EU to prioritize while also listing a number of proposals which it intends to withdraw and legislation it intends to repeal.

The communication, addressed to the European Parliament, the Council of the EU, the European Economic and Social Committee and the Committee of the Regions, is available here.

European Parliament to Consider Report on Retail Financial Services

Posted on

 

The European Parliament procedure file indicates that the report outlining the European Commission’s action plan on retail financial services will be considered in mid-November.

The action plan, published in March 2017, forms part of the European Commission’s goal of establishing a capital markets union. It aims to increase consumer trust, empower consumers and reduce legal and regulatory obstacles, whilst supporting innovation in the industry.

Following publication of the action plan, the European Parliament’s Committee on Economic and Monetary Affairs published a draft report on the action plan which contained a motion for a Parliament resolution. The draft report is available here; however, the final version, which will be discussed in Parliament, has not yet been published.

European Commission Publishes Guidance on MiFiD II Inducements and Research Reforms

Posted on

 

On October 26, 2017, the European Commission issued a list of FAQs in an attempt to clarify the obligations of EU investment firms in relation to brokerage and research services which are located in non-EU jurisdictions.

The FAQs, available here, address how European firms can maintain full compliance with MiFiD II obligations when procuring international services. They were published following concerns raised by the FCA that market participants may be unable to access U.S. research without breaching the requirements.

In addition to the guidance published by the European Commission, the SEC also issued a press release, available here, while the FCA welcomed both announcements and issued a statement explaining the implications of the announcements for the UK (available here).

Regulation Amending EMIR: ECB Opinion

Posted on

 

On October 17, 2017, the European Central Bank (“ECB“) published an opinion on the proposed Regulation amending EMIR (Regulation 648/2012) in relation to the clearing obligation, its suspension, the reporting requirements, the risk-mitigation techniques and the registration and supervision of trade repositories.

The European Commission adopted the legislative proposal, which is aimed at introducing a number of changes to EMIR in order to simplify the applicable rules and eliminate disproportionate burdens.

In its opinion, the European Commission generally supports the Commission’s initiative and makes specific observations on the following topics:

Exemption of central bank transactions.

  • Amendments to ensure the quality of data.
  • Reporting obligation.
  • CCPs’ transparency.
  • Credit institutions’ compliance with risk-management procedures, intragroup exemptions and capital requirements.
  • Classification of securitization special purpose entities as financial counterparties.
  • Changes to methodology for calculating counterparties’ positions in OTC derivative contracts.
  • The ECB’s advisory role regarding draft-delegated and implementing acts.

The opinion is available here.