Posts by: Stephen Hancock

European Commission Publishes Report on Group Supervision Provisions Under Solvency II Directive

 

On June 27, the European Commission published a report (COM(2019) 292 final) on the group supervision and capital management provisions under the Solvency II Directive (2009/138/EC).

In the report, addressed to the European Parliament and the Council of the EU, the Commission assesses the benefit of enhancing the Solvency II Directive provisions on group supervision and capital management within a group.

The Commission considers that some areas of the prudential group supervision framework may not ensure harmonized implementation of the rules by groups and national supervisors. This has the potential to have an impact on both the level playing field and capital management strategies.

The Commission has identified some legal uncertainties and diverging supervisory practices that can have a significant impact on group solvency. They concern group own funds, the group solvency capital requirement (SCR) and the group minimum capital requirement (MCR). The use of group internal models may raise additional issues. The Commission has also found a wide variety of interpretations of the group governance provisions.

The Commission has found that diverging implementation of the group supervision provisions may be detrimental to policyholder protection, depending on how national supervisors determine the scope of supervision, and exercise supervision at the level of parent holding companies. In addition, in light of the wide differences between the supervisory powers of different national supervisors, the Commission believes it is necessary to assess the appropriateness of the early intervention powers embedded in the Solvency II regime.

The Commission recognizes that it has identified a number of important issues that may need to be addressed, possibly including by way of legislative changes. However, further analysis is needed on the impact of the potential changes on the existing requirements. Therefore, the Commission deems it appropriate to include group supervision in the scope of its 2020 general review of the Solvency II Directive. As part of the 2020 review, the Commission has invited the European Insurance and Occupational Pensions Authority (EIOPA) to provide technical advice on the issues identified in the report, as well as other related issues that may be detrimental to policyholder protection.

COREPER Publishes Position on European Crowdfunding Service Providers

 

On June 26, a press release was published by the Council of the EU’s Permanent Representatives Committee (COREPER). COREPER has agreed its position relating to the proposed Regulation on European crowdfunding service providers and the proposed Directive making consequential amendments to the MiFID II Directive (2014/65/EU).

The press release states that the EU is setting out a new regulatory framework for the operation of crowdfunding platforms. The new framework will make it easier for crowdfunding platforms to provide their services across the EU. It harmonizes the minimum requirements on these platforms when operating in their home market and other EU countries. The proposal also increases legal certainty by harmonizing investor protection rules.

COREPER’s position

  • removes barriers for crowdfunding platforms operating across borders;
  • provides tailored rules for EU crowdfunding businesses depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds);
  • provides a common set of prudential, information and transparency requirements to ensure a high level of investor protection; and
  • defines common authorization and supervision rules for national competent authorities.

According to COREPER’s position, the proposal covers crowdfunding campaigns of up to €8 million over a 12-month period as a general rule. Where member states have decided to set the threshold for prospectus obligations below €8 million, they should be able to prohibit the raising of capital for crowdfunding projects from its residents for amounts exceeding that national threshold. Larger operations are regulated by MiFID and the prospectus regulation. Reward- and donation-based crowdfunding fall outside the scope of the proposal since they cannot be regarded as financial services.

ESMA Writes to European Commission on Delaying Review of Certain MiFID II Transparency Requirements

 

On June 25, the European Securities and Market Authority (ESMA) published a letter (dated June 17) sent by Steven Maijoor, ESMA Chair, to Olivier Guersent, European Commission Director General for Financial Stability, Financial Services and Capital Markets Union (CMU), on the annual review required by Article 17 of Commission Delegated Regulation (EU) 2017/583 on transparency requirements for non-equity instruments (RTS 2).

The letter follows up a previous letter (dated January 16) sent to the Commission relating to the review reports on the MiFID II Directive and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR). In that letter, ESMA raised the issue of carrying out the annual review of the operation of certain transparency requirements for bonds and derivatives, as required by Article 17 of RTS 2. A positive assessment by ESMA can lead to a legislative change subjecting more bonds, and larger trade sizes in bonds and derivatives, to real-time transparency.

ESMA considers that the outstanding uncertainties on the time and conditions of Brexit do not allow for an adequate assessment at this time. Including or excluding UK data from the assessment would have a fundamental impact on the results, and any decision whether to include UK data would depend on whether the UK is still a member of the EU at the time any legislative change would take effect. In addition, Brexit will likely affect liquidity in bond and derivative markets and the value of the assessment will be limited if it is carried out before these effects have materialized.

ESMA Publishes Consolidated Guidelines on the Application of the Endorsement Regime Under CRA Regulation

 

On March 20, the European Securities and Markets Authority (ESMA) published the official translations of its consolidated guidelines on the application of the endorsement regime under Article 4(3) of the Credit Rating Agencies Regulation (Regulation 1060/2009) (CRA Regulation) (ESMA33-9-282). READ MORE

Commission Publishes Delegated Regulation Supplementing MLD4

 

On May 14, a Delegated Regulation ((EU) 2019/758) supplementing the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4) with regulatory technical standards (RTS) specifying the minimum action and the type of additional measures credit and financial institutions must take to mitigate money laundering and terrorist financing risk in certain third countries was published in the Official Journal of the EU (OJ). READ MORE

FCA Updates Paper on Price Discrimination in Cash Savings Market

 

On May 14, the Financial Conduct Authority (FCA) updated its webpage on its July 2018 discussion paper on price discrimination in the cash savings market (DP18/6).

The FCA states that it is considering the responses to the discussion paper in the context of its broader work on assessing the role and impact of Open Finance and the role of a duty of care in its future approach to regulation, as outlined in its 2019/20 business plan.

In DP18/6, the FCA set out a range of options to address issues faced by longstanding customers in the easy-access cash savings market and stated that it would publish a feedback statement in early 2019. It now intends to publish a consultation paper or feedback statement in the second half of 2019, which will outline the feedback received to the discussion paper and its next steps.

Shareholder Rights Directive: The Proxy Advisors Regulations 2019

 

On May 14, the Proxy Advisors (Shareholders’ Rights) Regulations 2019 (SI 2019/926) were published. The regulations transpose into UK law Article 3j (transparency of proxy advisors) of the Shareholder Rights Directive (as amended by the Shareholder Rights Directive II). The Regulations will enter into force on June 10. READ MORE

European Commission Consults on Effectiveness of DMD

 

The European Commission has launched a consultation relating to its evaluation of the Distance Marketing of Financial Services Directive (2002/65/EC) (DMD).

The DMD provides details on the information that a consumer should receive about a financial service and the financial services provider before concluding a distance contract. Among other things, it also gives consumers a 14-day withdrawal period for certain financial services contracts, and bans services and communications from suppliers that a consumer has not solicited or consented to.

The European Commission published a new webpage announcing a consultation relating to its evaluation of the Distance Marketing of Financial Services Directive (2002/65/EC) (DMD). The Commission explains that, since the DMD came into force, the retail financial sector has gone increasingly digital, with new products and actors available on the market, and new sales channels being used. Also, several EU laws relating to financial services have been adopted or updated. As a result, the Commission has launched an evaluation of the DMD to assess whether it is still fit for purpose.

The aim of the consultation is to ensure that all relevant stakeholders have the opportunity to express their views on the relevance, effectiveness, pertinence and coherence of the DMD. The Commission particularly wants to hear from consumers, retail financial services providers and authorities responsible for supervising and enforcing compliance with the DMD’s provisions.

Responses to the consultation can be made by completing an online questionnaire, which is linked to from the consultation webpage. Comments can be made on the consultation until 2 July 2019. The Commission expects to publish the conclusions of the evaluation exercise by the end of 2019.

Financial Services Trade Associations Urge HM Treasury to Recognize EEA Derivatives Trading Venues in Event of No-deal Brexit

 

A number of key UK, EU and international financial services trade associations published a letter (dated April 5) to HM Treasury on the equivalence of European Economic Area (EEA) derivatives trading venues under the EU retained versions of European Market Infrastructure Regulation (EMIR) (648/2012) (UK EMIR) and the Markets in Financial Instruments Regulation (600/2014) (UK MiFIR) if there is a no-deal Brexit.

The trade associations highlight the disruptive impact on UK market participants and European derivatives markets arising from the absence of HM Treasury equivalence determinations:

  • Under Article 28(4) of UK MiFIR with respect to EEA multilateral trading facilities (MTFs) and organized trading facilities (OTFs). This will mean that UK financial counterparties (FCs) and UK non-financial counterparties (NFCs) over the clearing threshold would cease to be able to execute transactions in over-the-counter (OTC) derivatives subject to the trading obligation under UK MiFIR on those venues in a no-deal Brexit.
  • Under Article 2a of UK EMIR with respect to EEA regulated markets. This will mean that EEA exchange-traded derivatives (EEA ETDs) are considered OTC derivatives under UK EMIR in a no-deal Brexit.

The trade associations urge HM Treasury to prepare the necessary measures to recognise the equivalence of EEA derivative trading venues under UK EMIR and UK MiFIR, with a view to those measures taking effect on or very shortly after a no-deal Brexit. They suggest that HM Treasury could make an equivalence direction under the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) or, alternatively, the FCA could grant transitional relief for this purpose using its temporary transitional powers under Part 7 of the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (SI 2019/632). They urge HM Treasury and the FCA to indicate the approach that they intend to take as soon as possible.

 

Newly Launched MAPS Consults on National Strategy for Money and Pensions

 

On April 8, the Money and Pensions Service (MAPS) published a press release announcing its official launch, and a listening document on a national strategy for money and pensions and MAPS’ three-year corporate plan (together with an executive summary).

MAPS is consulting on the listening document until June 30. Written comments are invited and input will be obtained during a UK-wide program of “listening events.” Input from interested parties will influence MAPS’ strategy to collectively address building blocks to managing money and pensions well. MAPS will publish a national strategy and its corporate plan for 2020-2023 (setting out how MAPS will organize, encourage and monitor the national strategy) in autumn 2019.

MAPS has also published its business plan for 2019-2020 setting out the key performance indicators for the organization’s “transition year” during which it will continue the three services provided by Pension Wise, Money Advice Service (MAS) and the Pensions Advisory Service (TPAS). Among other things, MAPS expects to publish by the end of 2019/2020 the results of tests on different approaches for defaulting pension holders into guidance at the point they seek to access or transfer their pension savings. This will contribute to the evidence base for making the rules on referring pension scheme members to financial guidance required by sections 18 and 19 of the Financial Guidance and Claims Act 2018.

The new MAPS customer website will go live towards the end of 2019. Until then, guidance will continue to be available through the existing websites of MAS, TPAS and Pension Wise.