Posts by: Rebecca Grevitt

European Commission Request to ESAS to Issue Recurrent Reports on Cost and Performance of the Main Categories of Pension, Insurance and Pension Products

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On October 17, 2017, the European Commission published a request to the European Supervisory Authorities (“ESAs“) to issue recurrent reports on the past performance and cost of the main categories of insurance, pension and retail investment products.

In its request, the Commission states that the reporting should be based on information originating from disclosures and reporting required under the MiFID Directive, the Insurance Distribution Directive, the Regulation on key information documents for packaged retail and insurance-based investment products and other EU and national legislation.

The Commission outlines a tentative timetable for the reports, indicating that the first report on data availability, costs and performances should be available in the third and fourth quarter of 2018.

Mitigating Risks Associated with SFTs: European Commission Publishes Report

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The European Commission has published a report to both the European Parliament and the Council of the EU under Article 29(3) of the Regulation on reporting and transparency of securities financing transactions ((EU) 2015/2365), (the “SFTR“).

Pursuant to Article 29(3) of the SFTR, the Commission is required to report on progress in international efforts to mitigate the risks linked with securities financing transactions.

The report provides a brief assessment of European securities financing transaction markets as well as discusses the Financial Stabilities Board’s (the “FSB“) recommendations aimed at mitigating securities financing transaction risks.

The report concludes that the FSB’s recommendations have been addressed in the EU through specific provisions within various financial services legislation and guidelines and the adoption of the SFTR.

To view the report, click here.

Legal Uncertainty Arising Out of the Clause 3 of European Union (Withdrawal) Bill 2017-2019: FMLC Publishes Letter

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On August 31, 2017, the Financial Markets Law Committee (“FMLC“) published a letter containing comments on clause 3 of the European Union (Withdrawal) Bill 2017-2019 following a request from the UK’s Ministry of Justice to discuss the Bill.

The FMLC considers clause 3, in the context of direct EU legislation, which applies section by section and includes the application of implementing technical and regulatory standards. In its letter, the FMLC made a number of recommendations, including that:

  • The UK government should clarify which UK bodies (if any) are to take on the role of the European Supervisory Authorities, how this role will be defined and how this will be resourced as soon as possible;
  • More thought should be given to the operation and mechanics of clause 3. The provisions of direct EU legislation that apply before the day that the UK exits the EU and those which do not must be managed.
  • The UK government should plan for instances where certain technical or regulatory standards are necessary to enable domestic legislation to function effectively. For example, the revised Directive on payment services in the internal market  (EU 2015/2366) will apply from January 13, 2018, yet measures on regulatory standards are not due to come into force before the UK exits the EU and will not be received into UK domestic legislation. Without the regulatory standards, market participants will struggle to implement the Directive effectively.

The FMLC declined to comment further on the Bill, stating that it can most usefully contribute research and analysis once the statutory instruments set out in the Bill are published.

European Commission Implementing Regulation Amending Implementing Regulation 2016/2070 Published in the OJ

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The European Commission Implementing Regulation amending Implementing Regulation 2016/2070 in relation to benchmarking portfolios and reporting instructions under the CRD IV Directive (2013/36/EU) (Regulation 2017/1486) was published in the Official Journal of the EU (“OJ“) on August 31, 2017.

The Implementing Regulation 2016/2070 sets out the reporting requirements required from institutions and was published in the OJ in December 2016. The European Banking Authority (“EBA“) and other competent authorities use the information reported to assess the quality of the institutions’ internal approaches under Article 78 of CRD IV.

Pursuant to Article 78(1) of CRD IV, institutions must submit the calculations of their internal approaches at least once a year. Given that the reporting requirements evolve over time in line with the changing focus of the competent authorities’ assessments and EBA Reports, the Commission considered it necessary to amend Annexes I to VI to Implementing Regulation 2016/2070.

The amendments to Implementing Regulation 2016/2070 are limited, and as such, there was no public consultation. The Implementing Regulation will enter into force on September 20, 2017.

BCBS Consults on the Implications of FinTech for Banks and Supervisors

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The Basel Committee on Banking Supervision (“BCBS“) published a consultative document (BCBS415) on the implications of FinTech for banks and their supervisors.

The BCBS set up a task force to assess how FinTech will affect the banking industry and their supervisors in the near to medium term. The consultative document focuses on future potential scenarios together with the specific risks and opportunities these may bring.

The consultative document also includes case studies on big data, cloud computing and distributed ledger technology as well as case studies on three FinTech business models (neo-banks, payment services and lending platforms).

The BCBS identified key observations and recommendations on supervisory issues to be considered by banks and bank supervisors in the light of the emergence of new FinTech business models and the rapid adoption of enabling technologies. These include the following:

  • The opportunities for supervisors to use innovative technologies;
  • Principal risks for banks resulting from FinTech developments, including cyber, compliance and operational risks;
  • Implications for the increasing use of third parties by banks via outsourcing and/or partnership arrangements; and
  • The need to ensure high compliance standards and safety without limiting innovation in the banking sector.

Comments can be made on the consultative document until October 31, 2017.

Amendment to MiFID II – European Commission Adopts Delegated Regulation Amending Systematic Internaliser Definition

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The European Commission published the text of a Delegated Regulation amending Delegated Regulation (EU) 2017/565 in relation to the specification of the definition of systematic internalisers on August 28, 2017.

The Delegated Regulation (EU) 2017/565 supplements the MiFID II Directive (2014/65/EU) in relation to the organizational requirements and operating conditions for investment firms and defined terms.

Following perceived ambiguities in relation to the meaning of “trading on own account when executing client orders,” the Commission launched a public consultation on the Delegated Regulation in June 2017. Concerns raised during the consultation have been addressed by the introduction of a new recital and amending article 16a, which clarifies the scope of matching arrangements that are considered dealing on own account.

The Delegated Regulation was adopted on August 28, 2017, and will now need to be considered by the Council of the EU and the European Parliament. Provided neither of the Council or Parliament objects, the Delegated Regulation will be published in the Official Journal of the EU and will enter into force on the day after its publication.

EBA Final RTS on Cooperation and Exchange of Information for Passporting under PSD2

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On December 14, 2016, the European Banking Authority (“EBA“) published the regulatory technical final draft on passport notifications under the revised Payment Services Directive ((EU) 2015/2366) (“PSD2“) (EBA/RTS/2016/08).

Article 28 of PSD2 requires an authorized payment institution to inform the competent authorities of its home member state if it wishes to provide payment services for the first time in one or more member states other than its home member state. Article 28(5) gives the EBA a mandate to develop draft RTS, specifying method, means and details of the cross-border cooperation between competent authorities in the context of passport notifications of payment institutions. The RTS must include the scope of information to be submitted, a common terminology and standard templates, to ensure that the process is consistent and efficient.

The EBA consulted on the draft RTS in December 2015. Changes to the final version of the RTS in light of responses to the consultation include:

  • More clarity for when a payment institution uses an agent or an e-money institution uses a distributor.
  • New provisions so that payment institutions will be informed when the notification is transmitted from the competent authority in the home member state to the authority in the host member state.
  • A new field in a number of templates to include the legal entity identifier (LEI) as an identification number where available.
  • Deletion of information relating to governance arrangements and internal control mechanisms, outsourcing and the agent structural organization.

The EBA has also published a flowchart providing a guide to competent authorities on which notification templates to use, a copy of which can be found here.

The final draft RTS will now be submitted to the European Commission for endorsement. The draft Delegated Regulation states that it shall enter into force 20 days after it is published in the Official Journal of the EU (OJ).

EBA Final Guidelines on Disclosure Requirements for EU Banking Sector

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On December 14, 2016, the European Banking Authority (“EBA“) published a final report (EBA/GL/2016/11) containing guidelines on regulatory disclosure requirements following its consultation in June 2016.

The guidelines follow an update of the Pillar 3 requirements by the Basel Committee on Banking Supervision (BCBS) and do not change the substance of the regulatory disclosures regarding the requirements defined in Part Eight of the Capital Requirements Regulation (Regulation 575/2013) (“CRR“).

They provide further guidance and support to institutions in complying with both the CRR and the Pillar 3 requirements. In particular, the guidelines cover the entire content of the Pillar 3 framework, with the exception of:

  • Securitization requirements, which are currently under discussion at the EU level following the finalization of a revised securitization framework at the international level.
  • Other disclosure requirements in Part Eight of the CRR for which there are already EBA delegated or implementing regulations or guidelines, such as own funds and leverage ratio.

The guidelines apply to globally and other systemically important institutions (“G-SIIs” and “O-SIIs“). Competent authorities may still require institutions that are neither G-SIIs nor O-SIIs to apply some or all the guidance provided for in the guidelines when complying with the requirements in Part Eight of the CRR.

The guidelines apply from December 31, 2017. However, an accompanying press release states that G‑SIIs are encouraged to comply with a subset of the guidelines as soon as December 31, 2016.

European Commission Confirms Insurance Block Exemption Regulation Not to Be Renewed

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On December 13, 2016, the European Commission announced in a press release that Regulation 267/2010, the Insurance Block Exemption Regulation (“IBER“), will not be prevented from expiring on March 31, 2017. The IBER entered into force on April 1, 2010 and provides a block exemption for agreements relating to joint compilations, tables and studies. This enables the exchange of statistical information (calculations, tables and studies), subject to the specified conditions, and common coverage of certain types of risks (co-(re)insurance pools), subject to market share thresholds and other specified conditions.

In March 2016, the Commission published a report and document presenting the preliminary findings and conclusions of its review of the IBER, which began in 2014. The Commission’s provisional conclusion with regard to joint compilations, tables and studies was that the functioning of the insurance industry no longer appears to require a special instrument like a block exemption regulation. As regards co-(re)insurance pools, the Commission considered the IBER to be of limited use and relevance.

The Commission has now confirmed the block exemption is no longer warranted because the Commission’s 2011 Guidelines on horizontal cooperation (OJ 2011 C11/1) already provides guidance on how to assess the conformity of joint compilations, tables and studies with EU antitrust rules. However, the expiry of the IBER does not mean that these forms of cooperation become unlawful under Article 101 of the Treaty on the Functioning of the European Union (TFEU). Rather, insurers, as with all other companies doing business in the EU, will need to assess their cooperation in the market context to see whether it is in line with EU competition rules.

ESMA Consultation on Consolidated Tape for Non Equity Products RTS Under MiFID II: Responses

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On December 8, 2016, ESMA published the responses it has received to its consultation on draft regulatory technical standards (RTS) specifying the scope of the consolidated tape for non‑equity financial instruments under Article 65(8)(c) of the MiFID II Directive (2014/65/EU).

Respondents include:

  • The Investment Association;
  • International Capital Market Association;
  • Wholesale Markets Brokers’ Association (WMBA)
  • Association française des investisseurs institutionnels; and
  • Deutsche Börse Group.

ESMA will use the feedback it receives to finalize the draft RTS, which will be submitted to the Commission for endorsement. The date of application of MiFID II Directive and MiFIR is January 3, 2018.