Posts by: Sejal Patel

ECB Finalizes Guides on Bank and Fintech Bank Licensing


On March 23, 2018, the European Central Bank (“ECB“) published the final versions of its:

  • Guide to assessments of license applications, available here. This sets out the general process and the requirements for the assessment of credit institution licensing applications. It applies to all license applications to become a credit institution within the meaning of the Capital Requirements Regulation (Regulation 575/2013) (“CRR“), including initial authorizations for credit institutions, applications from Fintech companies, authorizations in the context of mergers or acquisitions, bridge bank applications and license extensions.
  • Guide to assessments of Fintech credit institution license applications, available here. This is directed at entities with a Fintech business model that are considering applying for a banking license.

The guides are not legally binding. Instead, their aim is to support applicants and all entities involved in the process of authorization to ensure a smooth and effective procedure and assessment.

Responses were received from, among others, UK Finance, the European Savings and Retail Banking Group (“ESRBG“) and the Association of Financial Markets in Europe (“AFME“). Most respondents supported the goal of achieving maximum transparency in the license application process and raising greater awareness of the procedure followed and criteria applied by the ECB in its assessment of license applications. With respect to the guide relating to Fintech credit institutions, there was also strong support for the ECB’s aim of upholding the same supervisory standards for all credit institutions and ensuring a technology-neutral approach to assessing license applications. Both guides have been amended in response to the comments received.

Second ECB Consultation on New Euro Unsecured Overnight Interest Rate


On March 15, 2018, the European Central Bank (“ECB“) published its second consultation paper on a new euro unsecured overnight interest rate, available here.

The ECB announced in September 2017 that it intended to start providing a euro unsecured overnight interest rate based on data already available to the Eurosystem (that is, the rate will be calculated entirely on transactions in euro that are reported by banks in the ECB’s money market statistical reporting (“MMSR“)). The ECB aims to produce the new rate before 2020 and plans for it to be consistent with the principles on financial benchmarks developed by the International Organization of Securities Commissions (“IOSCO“). The interest rate will complement existing benchmark rates produced by the private sector and will serve as a backstop reference rate.

Joint Committee of ESAs Final Report on Use of Big Data by Financial Institutions


On March 15, 2018, the Joint Committee of the European Supervisory Authorities (“ESA“) published its final report, together with a factsheet, on the use of big data by financial institutions (JC/2018/04). The report is available here and the factsheet here.

Chapter 4 of the report contains a feedback statement summarizing the responses received. Among other things, respondents expressed concerns about practices that do not guarantee the accuracy of the data collected and the potential consequences of the increasing level of segmentation of customers enabled by big data. They also warned that consumers may not be fully aware of big data tools being used and that the growing use of big data could increase the risk of harm from cyberattacks.

The ESAs consider that the requirements in sectoral financial legislation and in legislation relating to data protection, cybersecurity and consumer protection mitigate the risks identified by the ESAs. This framework will be further strengthened with the entry into application of several key pieces of legislation in the financial sector and the General Data Protection Regulation ((EU) 2016/679) (“GDPR“). The ESAs intend to monitor the extent to which these requirements contribute to mitigate big data risks.

The ESAs invite financial institutions to develop and implement good practices on the use of big data to promote a fair, transparent and nondiscriminatory treatment of consumers and to ensure that big data strategies are designed in a responsible way and are fully aligned with the interests of consumers. The ESAs suggest an indicative list of arrangements and behaviors concerning:

  • Robust big data processes and algorithms relating to the monitoring of the functioning of big data procedures and methodologies.
  • Consumer protection. Among other things, the ESAs suggest firms should periodically assess whether big data-based products and services are aligned with consumers’ interests.
  • Disclosures on the use of big data, relating to firms’ transparency toward customers concerning the use of big data technologies to process their data.

EU Covered Bonds Framework: Proposed Legislation


On March 12, 2018, and further to its action plan on building a capital markets union (“CMU“), the European Commission published a draft Directive and Regulation on covered bonds in line with its aim to create an integrated EU covered bonds framework.

The Commission’s proposed Directive sets out the conditions that covered bonds must satisfy to be recognized under EU law. It also strengthens investor protection by imposing specific supervisory duties. The proposal for a Directive is complemented by a proposal for a Regulation amending Regulation (EU) No 575/2013 (the “Capital Requirements Regulation“).

ESMA Launches Interactive Single Rulebook


On February 14, 2018, the European Securities and Markets Authority (“ESMA“) launched a new interactive single rulebook to help facilitate the consistent application of the EU single rulebook in the securities markets area.

In a related press release, available here, ESMA explains that this new interactive tool will provide market participants and other interested stakeholders with a comprehensive overview of and easy access to all level 2 and level 3 measures adopted in relation to a level 1 text. This includes all relevant delegated and implementing acts adopted by the European Commission (including regulatory technical standards and implementing technical standards developed by ESMA and endorsed by the Commission), as well as guidelines, opinions and Q&As issued by ESMA. The interactive single rulebook is described as a “documentation tool,” and users are reminded that they should refer to the Official Journal of the EU for the authentic version of EU legislation. ESMA is committed to developing the online tool in its 2018 work program.

Council of EU Agrees to Delay Application Date of IDD

The Council of the European Union (“EU“) has agreed to delay the transposition deadline of the Insurance Distribution Directive ((EU) 2016/97) (“IDD“) to July 1, 2018, and the application date to October 1, 2018.

On February 14, 2018, the Council of the EU published a press release confirming this. The press release is available here.

The press release explains that the delay will help the insurance industry prepare for the IDD and the changes necessary to comply with implementing rules. Member states will also have more time to transpose the IDD’s provisions.

The press release states that the delay will apply retroactively from February 23, 2018, as the European Parliament and the Council are not expected to adopt the proposed Directive delaying application of the IDD before March 2018.

ECB Speech on European Retail Payments Developments


On February 15, 2018, the European Central Bank (“ECB“) published a speech by Yves Mersch, ECB executive board member, on European retail payments markets developments. The speech is available here.

In the speech, Mr. Mersch calls on the payment industry to develop end-user solutions that will allow consumers and businesses to enjoy the benefits of instant payments in any payment situation, in addition to cash. Issues considered by Mr. Mersch include:

  • Instant payments. Among other things, Mr. Mersch notes that the TARGET instant payment settlement (“TIPS“) service is scheduled to go live in November 2018.
  • Point-of-sale-payments. Mr. Mersch calls on the payment industry to develop instant point-of-sale solutions that provide merchants with immediate and final payment, with funds credited to their accounts with finality, like cash.
  • E-commerce. The ERPB’s work to reach an agreement on the necessary technical, operational business elements to ensure the pan-European provision of innovative and competitive payment initiation services is expected to be concluded by June 2018.
  • Security. Mr. Mersch notes that the regulatory technical standards supplementing the revised Payment Services Directive on strong customer authentication and common and secure communication calls on payment service providers will probably not be applicable until September 2019 at the earliest.

He calls on payment service providers to comply with these regulatory technical standards before they apply, even though they will not be legally required to do so.