ESMA Consults on Draft Guidelines on Non–Significant Benchmarks Under Benchmarks Regulation


On September 29, 2017, ESMA published a consultation paper on draft guidelines for non-significant benchmarks under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (Benchmarks Regulation or BMR).

The BMR envisages that ESMA may issue guidelines setting out the obligations that will apply to non-significant benchmarks in four areas. A separate chapter is dedicated to each area in the consultation paper, summarizing the proposed content of the guidelines for each, as well as outlining the objectives and policy issues:

  • Procedures, characteristics and positioning of oversight function, under Article 5 of the BMR (see chapter 5).
  • Appropriateness and verifiability of input data, under Article 11 (see chapter 6).
  • Transparency of methodology, under Article 13 (see chapter 7).
  • Governance and control requirements for supervised contributors, under Article 13 (see chapter 8).

The first three areas listed above apply to administrators of non-significant benchmarks, and the fourth to supervised contributors to non-significant benchmarks.

The proposals in the consultation paper impose lighter requirements for non-significant benchmarks (and their administrators and supervised contributors) in relation to the relevant areas than those for significant benchmarks. ESMA submitted its draft regulatory and implementing technical standards applicable to critical and significant benchmarks to the European Commission in March 2017.

The deadline for comments on the draft guidelines is November 30, 2017.

ESMA Comments on MiFID II Implementation and Brexit


On September 29, 2017, reported on comments by Stephen Maijoor, ESMA Chair, on the implementation of MiFID II and Brexit.

Mr. Maijoor believes that while implementation of the new rules under the MiFID II Directive (2014/65/EU) and Markets in Financial Instruments Regulation (Regulation 600/2014) may trigger some glitches, broader disruption is not anticipated. also reports that the FCA has said that it would not punish firms for “not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start date”. Mr. Maijoor further commented that it is likely that regulators would look differently on a violation on January 4, 2018, from one at a later date.

Regarding Brexit, Mr. Maijoor observed that MiFID II had been designed on the basis that the most liquid European market would indeed be within the EU. Depending on how Brexit negotiations progress, he believes that the exit of the UK from the single market would affect some elements of MiFID.

According to Mr. Maijoor, ESMA has begun assessing the impact of a possible “hard” Brexit on the stability of the EU’s securities market. This includes considering the position of credit rating agencies (CRAs) and trade repositories (both of which ESMA directly regulates), and protection for EU investors in UK-based mutual funds.

ECON Draft Reports on Proposed BRRD II Directive and SRM II Regulation


On September 29, 2017, the European Parliament’s Economic and Monetary Affairs Committee (“ECON“) published two draft reports relating to the European Commission’s proposed revisions to the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) and to the implementation in the EU of the Financial Stability Board’s total loss absorbing capacity (TLAC) standard (BRRD II):

  1. Draft report on the Commission’s proposal for a Regulation to amend the Single Resolution Mechanism (Regulation 806/2014) (proposed SRM II Regulation).
  2. Draft report on the Commission’s proposal for a Directive to amend the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) (proposed BRRD II Directive).

Each of the draft reports contains a Parliament legislative resolution on the proposed Regulation and Directive (as applicable), which suggests amendments to the European Commission’s original legislative proposal. They also each contain an explanatory statement by the rapporteur Gunnar Hökmark.

Next, ECON will vote to finalize the draft reports before they are considered by the Parliament.

Alterations related to insolvency rankings are necessary to integrate the TLAC standard requirements into the BRRD. In June 2017, ECON published a draft report on the Commission’s proposed Directive amending the BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy (the proposed Insolvency Hierarchy Directive).

As part of a package of banking reforms, the Commission published the proposed Directive in November 2016. The EU institutions have agreed to fast-track this proposal. The Council of the EU agreed to its general approach on the proposed Directive in June 2017 and, at that time, stated that it hoped the Parliament would be able to start negotiating by the end of 2017.

European Commission Adopts Amending Delegated Regulation on RTS on Consolidated Tape for Non-Equity Products Under MiFID II


On September 26, 2017, the European Commission published Delegated Regulation (C(2017) 6337 final), which it has adopted to amend Delegated Regulation (EU) 2017/571, which supplements MiFID II Directive (2014/65/EU) with regulatory technical standards (RTS) on authorization, organizational requirements and the publication of transactions for data reporting services providers.

The amending Delegated Regulation sets out RTS specifying the scope of the consolidated tape for non-equity financial instruments under MiFID II.

The RTS reflect a mandate given to ESMA under Article 65(8)(c) of the MiFID II Directive. ESMA submitted its draft RTS to the Commission in March 2017.

Next, the Council of the EU and the European Parliament will consider the Delegated Regulation. If neither of them objects, the amending Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (OJ). It is stated as applying from January 3, 2018, except for:

  1. Article 15a(4) (that is, the transitional provisions relating to the first assessment period for determining the coverage ratios by consolidated tape providers (CTPs)), which will apply from January 1, 2019; and

Articles 14(2), 15(1), (2) and (3), and 20(b) (that is, the provisions on the non-equity tape of Article 65(2)), which will apply from September 3, 2019.

Capital Markets Union: Commission proposals to reform European financial supervision regime


European Commission published proposals to reform the EU’s supervisory structure, including to extend ESMA’s role and powers in respect of prospectuses and market abuse on 20 September 2017. This represents the first concrete step towards the creation of a single European capital markets supervisor.

It is proposed (amongst other things) that the Prospectus Regulation be amended so as to task ESMA, rather than national competent authorities, with approving:

  • Prospectuses for certain wholesale non-equity securities.
  • Prospectuses relating to asset-backed securities.
  • Prospectuses that are drawn up by property companies, mineral companies, scientific research-based companies or shipping companies.
  • Prospectuses drawn up by non-EU country issuers.

Where it is responsible for approving a prospectus, ESMA would also control related advertisements.

This proposal is intended to create a level playing field for issuers, to speed up approvals, to enhance supervision in the EU and to prevent forum-shopping.

ESMA  would also be given a greater role in coordinating market abuse investigations. This could extend to recommending that competent authorities initiate investigations and to facilitating the exchange of information relevant for those investigations, where ESMA has reasonable grounds to suspect that activity with significant cross-border effects is taking place that threatens the orderly functioning and integrity of financial markets or financial stability in the EU. ESMA would maintain a data storage facility to collect from, and disseminate between, competent authorities, all relevant information.  

The Commission invites the European Parliament and the Council to discuss and agree its proposals as a high priority, in order to ensure their entry into force before the end of the current legislative term in 2019.




New Rules on Venture Capital Funds Adopted by the European Parliament


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


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


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


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.

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


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.