Posts by: Stephen Wallace

New EU and UK Anti-Money Laundering Rules: The Fifth AML Directive Extends to Cryptocurrencies


The Fifth Anti-Money Laundering Directive (“MLD5“) entered into force in July 2018. MLD5 updates the legal framework under the Fourth Anti-Money Laundering Directive (“MLD4“) and must be implemented by the EU member states by January 2020. In response to the growing concerns over terrorist financing and the revelations of the Panama Papers, the amendments in MLD5:

  • increase transparency with respect to the beneficial ownership registers, which EU member states are required to establish under MLD4;
  • clarify and harmonize the enhanced due diligence measures that need to be applied to business relationships or transactions involving “high risk third countries”;
  • require EU member states to create and maintain a list of public functions that qualify as “politically exposed persons” or “PEPs” in their jurisdiction;
  • restrict the anonymous use of prepaid cards in order to mitigate the risk that they may be used for terrorist financing;
  • grant new powers for financial intelligence units, including the power to request, obtain and use information from any obliged entity based on their own analysis and intelligence, rather than just when triggered by a prior suspicious activity report; and
  • require member states to establish centralised registers or data retrieval systems to enable financial intelligence units and national competent authorities to access information about the identities of holders of bank and payment accounts and safe-deposit boxes.

In addition to these broad objectives, MLD5—for the first time—brings certain virtual currency service providers within the scope of EU anti-money laundering and terrorist financing regulations. Click here to read the full Orrick-authored alert.

Joint Committees of ESAs Recommend Action to Address Risks and Uncertainties in EU Financial System


On September 11, the Joint Committee of the ESAs published a report on the risks and vulnerabilities in the EU financial system (JC 2018 34), which sets out recommendations for policy action. The report can be found here.

The report states that in the light of ongoing risks and uncertainties, especially those around Brexit, supervisory vigilance and co-operation across all sectors remains key. As a result, the ESAs advise the following policy actions by financial institutions and by EU and national competent authorities:

  • Stress tests. Stress test exercises should continue to be conducted and developed further across all sectors, especially given rising interest rates and the potential for sudden risk premia reversals, which should be factored into the scenarios.
  • Risk appetite. Supervisory authorities need to pay continued attention to the risk appetite of all market participants. Banks should accelerate addressing their stocks of non-performing loans (NPLs) and adapt business models to sustainably improve profitability, and financial institutions need to carefully manage their interest rate risk.
  • Contagion risks. Macro and micro prudential authorities should contribute to addressing possible contagion risks, including continuing their efforts in monitoring lending standards.
  • Brexit. It is crucial that EU financial institutions and their counterparties, as well as investors and retail consumers, plan appropriate mitigating actions to prepare for the UK’s withdrawal from the EU in a timely manner, including the risks associated with a no-deal scenario.

European Parliament Votes to Adopt Resolution on Regulatory and Supervisory Relationships between EU and Third Countries


On September 11, the European Parliament voted in plenary to adopt a resolution on relationships between the EU and third countries concerning financial services regulation and supervision (2017/2253(INI)). It has published the minutes of the vote, found here, and a provisional edition of the resolution, found here.

The resolution was set out in a report prepared by rapporteur Brian Hayes that was adopted in July 2018 by the European Parliament’s Committee on Economic and Monetary Affairs (“ECON“).

The resolution contains recommendations relating to the equivalence framework in financial services legislation. In particular, it recommends that third countries should keep the European Supervisory Authorities (“ESAs“) (that is, ESMA, EIOPA and the EBA) informed of any national regulatory developments through the EU’s equivalence framework and that the Commission should introduce a standardised process for the determination of equivalence.

CB:PSB Issues Guidance to Support Implementation of Advanced Standard for Top Bankers


In the UK, guidance to support the implementation of advanced standards for professional bankers was published on August 15, 2018. The guidance is available here. The guidance is in fact dated January 2018, the same date as the advanced standard which was published in May 2018. READ MORE

Benchmarks Regulation Q&As Updated by ESMA


On July 17, 2018, The European Securities and Markets Authority (“ESMA“) published an updated version of its Q&As on the implementation of the Regulation on indices employed in financial instruments and financial contracts or to measure the performance of investment funds ((EU) 2016/1011) (Benchmarks Regulation or BMR) (ESMA70-145-11, version 8).

Two key amendments include the definitions of calculation agent and regulated data benchmark.

The Q&As were first published by ESMA in July 2017 and were previously updated in May 2018.

Provision of Microcredit in Europe: Commission to Update European Good Code of Conduct


The European Commission (Directorate-General for Employment, Social Affairs and Inclusion) published a press release informing readers that it is updating the European good code of conduct for microcredit provision. The publication can he found here.

Originally launched in 2011, the code’s aim was to provide a common set of standards relating to management, governance, risk management, reporting and consumer and investor relations for the EU microfinance sector.

The purpose of the update is to reflect market changes and the diversity of the microfinance sector. The updates are expected to be in place over the next 12 months.

European Commission Publishes Memo on Preparing for Brexit


The communication, published on July 19, 2018, points out that citizens, businesses, state bodies and others will be affected by Brexit and that a joint effort from all parties is required in order to be fully prepared.

The communication warns to prepare for two main scenarios:

  • If the Withdrawal Agreement is ratified before March 30, 2019, EU law will stop applying to the UK after the agreed transition period of 21 months, that is on January 1, 2021.
  • If the Withdrawal Agreement is not ratified before March 30, 2019, there will be no transition period and EU law will stop applying to the UK on March 30, 2019.

There will be consequences for many industries and the Commission has published more detailed preparedness notices on a sector-by-sector basis. These notices can be found here.

In terms of next steps, the Commission will ask the European Parliament and the European Council to prioritize the adoption of its Brexit proposals, so that they will be in force by the withdrawal date.

There is another Brexit meeting on October 18, 2018, after which the European Council will review the situation again.

OJ Publishes Ninth Implementing Regulation Extending Transitional Periods Related To Own Fund Requirements for CCP Exposures


Commission Implementing Regulation ((EU) 2018/815) on the extension of the transitional periods related to own funds requirements for exposures to central counterparties (“CCPs“), set out in the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) and the European Market Infrastructure Regulation (“EMIR“) (Regulation 648/2012) has been published in the Official Journal of the EU (“OJ“).

Commission Implementing Regulation ((EU) 2017/2241) was published in the OJ on June 4, 2018. It is available here. The Implementing Regulation will enter into force on June 7, 2018.