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Posts by: Richard Hunt

EC Sets out Roadmap on the European Economic and Monetary Union

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The European Commission (“EC“) published a communication and legislative proposal on the December 6, 2017, with the goal of finalizing Europe’s economic and monetary union.

The communication, which contained a number of measures, was directed at the European Parliament, the European Council, the Council of the EU and the European Central Bank.  The communication sets out deadlines for completing certain initiatives including a number of financial services measures relating to the capital markets union, as well as banking reforms.

The communication also outlined the legislative proposal for the establishment of the European Monetary Fund, which is intended to replace the European Stability Mechanism.  The European Monetary Fund will continue the European Stability Mechanism’s role of providing financial stability where this is required by member states, as well as raising funds by issuing capital market instruments.

The communication is available here and the legislative proposal is available here.

Implementing Decision Adopted Regarding US Trading Venues Under MiFIR

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On December 5, 2017, an Implementing Decision was adopted by the European Commission which recognized certain US trading venues under MiFIR.

The Implementing Decision outlined that the European Commission considers US designated contract markets and swap execution facilities as equivalent to trading venues as defined in the MiFID II Directive.

As well as the decision, which is available here, the European Commission and the Commodity Futures Trading Commission (“CFTC“) issued a joint statement which confirmed the ability of EU counterparties to trade derivative instruments which are subject to EU trading obligations on the markets and facilities referred to above.

The joint statement also outlined that the CFTC have recommended to the European Commission that an order of exemption from SEF registration requirements is authorized in the EU.

The joint statement is available here.

Verena Ross Gives Speech On Asset Management Sector Priorities

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Verena Ross, ESMA Executive Director, gave a speech which was published on December 5, 2017 which outlined the asset management sector priorities of ESMA for 2018.

The speech builds on a speech given by the ESMA Chair, Steven Maijoor, on November 16, 2017, and in particular discussed the co-operation arrangements that need to be in place between regulators prior to Brexit; the intention to carry out more detailed analysis of the performance of active and passive funds; and ESMA’s decision not to set specific reference parameters in relation to stress testing under the MMF Regulation.

The speech also referred to MiFID II and in particular, the importance of investment firms and trading venues obtaining the legal entity identifier in good time.

The full speech is available here.

New Rules on Venture Capital Funds Adopted by the European Parliament

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New rules to facilitate innovative and socially beneficial companies accessing capital in the European Union were adopted by the European Parliament on September 14, 2017.

The European Parliament approved changes to Regulation (EU) no. 345/2013 on European venture capital funds (“EuVECA“) and Regulation (EU) no. 346/2013 European social entrepreneurship funds (“EuSEF“), aimed at attracting more investors for start-ups.

The changes are intended to reduce costs and barriers to entry for funds that lend to entrepreneurs and small to mid-sized enterprises. They include widening the range of managers eligible to create and manage EuVECA and EuSEF funds to those with assets under management of more than €500 million. Venture capital funds will also be able to invest in unlisted companies with up to 499 employees, allowing managers to diversify their funds. It is hoped that widening the range of eligible undertakings in which qualifying venture capital funds can invest will make them more appealing for investors and increase the flow of capital for businesses. The European Securities and Markets Authority has been charged with ensuring that funds are consistently registered and supervised across the EU.

The changes to the legislation are designed to make the cross-border marketing of both types of funds easier and less expensive as part of the EU’s efforts to create an integrated capital market, namely the Capital Markets Union.

The revised rules will enter into force 20 days after being published in the Official Journal of the European Union.

European Commission Publishes Summary of FinTech Consultation

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In March 2017, the European Commission published a consultation paper on FinTech, seeking input from stakeholders which could assist the European Commission’s policy approach towards technological innovation in the financial sector.

In total, the European Commission received a total of 226 responses, the majority from the finance industry, and a summary of the contributions provided were published on September 12, 2017.

The summary indicates that the main risks which were raised by the industry were that of cybersecurity, the use and control of data, and money laundering. With that being said, FinTech was also seen as a driver of development within the sector which created opportunities as to efficiency, cost-saving, competition, and access to finance.

A full copy of the summary is available here. The significantly longer annex, available here, provides some of the detailed responses received.

Basel III Monitoring Exercise Report Published

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The European Banking Authority (“EBA“) published a report on September 12, 2017, which outlined the results of a monitoring exercise on Basel III and the impact of the CRD IV Directive and Capital Requirements Regulation.

The report includes analysis of a number of statistics, including capital ratios, liquidity coverage ratios and the impact of phase-in arrangements. Over 200 banks were analyzed in the report.

In general, the EBA found that there was an improvement of capital positions in European banks, evidenced by an increase in total average common equity tier 1 ratio, average liquidity coverage ratio and net stable funding ratio.

The full report is available here.

Paper Published by AFME on Brexit

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The Association for Financial Markets in Europe (“AFME“) published a paper on September 6, 2017, which highlighted the necessity of transitional arrangements in the finance sector following Brexit.

AFME has made clear that it believes transitional arrangements need to be put in place prior to the United Kingdom’s exit from the European Union in order to avoid a number of risks relating to the recognition of central counterparties, cross-border contracts and data transfers, as well as a number of other potential issues.

The paper suggests that transitional measures, such as grandfathering cross-border trades and contracts executed prior to Brexit, regulators adopting a flexible and pragmatic approach to structures and operating models, and regulators and central banks taking steps to maintain a stable market, are essential in order to minimize disruption.

AFME also outlines a number of elements that the design of the transitional arrangements should contain.

The full paper is available here.

European Commission Publishes Speech on Reducing Uncertainty in the Financial Services

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On April 6, 2017, the European Commission published a speech that considered a number of areas in the financial services sector where action can be taken to reduce uncertainty and strengthen recovery. The speech, given by Vice President Valdis Dombrovskis, touched on a number of interesting points, including nonperforming loans, the Capital Markets Union and the effect of Brexit on the central clearing of derivatives. The full speech is available here.

Money Market Funds Regulation Adopted by the European Parliament

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On April 5, 2017, it was announced that the European Parliament voted to adopt the Money Market Funds Regulation (“MMFR“). The MMFR focuses on increasing regulation on shadow banking and investment funds and creates new rules that regulate money market funds. The MMFR intends to enhance the liquidity profile and stability of the funds it regulates. Now that the MMFR has been through the European Parliament, the next step is for the regulation to be formally adopted by the Council before being published in the Official Journal of the EU. It would then come into force shortly thereafter.

European Banking Authority Publishes Final Guidelines on Bail-in

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On April 5, 2017, the European Banking Authority published three sets of guidelines in relation to the Bank Recovery and Resolution Directive, and in particular, bail-in. The guidelines looked at: a) the interrelationship between the Bank Recovery and Resolution Directive sequence of write-down and conversion and the Capital Requirements Regulation; b) the rate of conversion of debt to equity in bail-in; and c) the treatment of shareholders in bail-in or the write-down and conversion of capital instruments. The guidelines give greater clarification on the area of bail-in and are intended to complement existing regulation and guidance. The guidelines and related press release, are available here.