EC Publishes Draft Delegated Regulations under MiFiD II and IDD on Sustainable Finance


On January 4, the European Commission published the following draft Delegated Regulations which are designed to ensure insurance distributors and investment firms take environmental, social and governance (“ESG“) issues into account when advising customers:

  • a Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards to the integration of ESG considerations and preferences into investment advice and portfolio management under the MiFID II Directive (2014/65/EU); and
  • a Delegated Regulation amending Delegated Regulation (EU) 2017/2359 as regards to the integration of ESG considerations and preferences into investment advice for insurance-based investment products (“IBIPs“) under the Insurance Distribution Directive ((EU) 2016/97) (“IDD“).

The draft Delegated Regulations have been produced under Articles 24(13) and 25(8) of the MiFID II Directive, and Article 30(6) of the IDD, respectively. Publication follows a consultation run in May 2018. Although there was generally strong support to enhance the focus on non-financial objectives within the investment process, some stakeholders were reluctant to change their recently-implemented MiFID II or IDD processes. However, the Commission is convinced of the urgency of moving ahead with its sustainable finance proposals. The Commission also believes the proposed timeline for application of the draft Delegated Regulations provides sufficient flexibility as, although each explanatory memorandum states that the draft Delegated Regulations provide for an 18-month transition period, the draft legal texts themselves state that they will apply 12 months after they come into force.

The Commission can only officially adopt the draft Delegated Regulations once the new disclosure provisions for sustainable investments and sustainability risks have been agreed at the EU level. However, in a press release, it advised that publication of the drafts should enable firms to start preparing to take ESG considerations and preferences into account.

The Commission issued a call, in August 2018, for technical advice from EIOPA and ESMA relating to its sustainable finance proposals.

Once adopted by the Commission, the draft Delegated Regulations will enter into force twenty days after publication in the Official Journal of the EU (“OJ“), unless the European Parliament or the Council of the EU objects.

Council of the EU Publishes Notes on Proposed Regulation and Directive for Supervision Investment Firms


On January 4, the Council of the EU published the following notes from the Council Presidency to its Permanent Representatives Committee (“COREPER“) relating to the European Commission’s proposed Regulation and Directive establishing a new framework for prudential requirements for investment firms:

  • A note (5022/19) setting out the Presidency compromise proposal on the proposed Directive on the prudential supervision of investment firms and amending the CRD IV Directive (2013/36/EU) and the MiFID II Directive (2014/65/EU) (2017/0364 (COD)) (the proposed Investment Firms Directive (“IFD“)).
  • A note (5021/19) setting out the Presidency compromise proposal on the proposed Regulation on the prudential requirements of investment firms and amending the Capital Requirements Regulation (Regulation 575/2013) (“CRR“), the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) and the EBA Regulation (Regulation 1093/2010) (2017/0358 (COD)) (the proposed Investment Firms Regulation).

The previous compromise proposals were published in October 2018. The notes do not explain the changes that have been made in the latest revised versions. However, it appears that new text is marked in underlined bold and deletions are indicated in strikethrough.

Joint Committee of ESAs Publishes Report on Regulatory Sandboxes and Innovation Hubs


On January 7, the Joint Committee of the European Supervisory Authorities (“ESAs“) (that is, the EBA, EIOPA and ESMA) published a report (JC 2018 74) on regulatory sandboxes and innovation hubs.

The ESAs set out in the report a comparative analysis of the innovation facilitators established to date within the EU, further to the mandate specified in the European Commission’s FinTech action plan, which was published in March 2018. READ MORE

ECB Publishes Letter on Variable Remuneration Policies of Credit Institutions


On January 10, the European Central Bank (“ECB“) published a letter (SSM/2019/010) (dated January 9, 2019) from Andrea Enria, ECB Supervisory Board Chair, on the variable remuneration policies of credit institutions in the single supervisory mechanism (“SSM“).

The letter states that the ECB pays close attention to the dividend and remuneration policies of the financial institutions under its supervision. In particular, the ECB will focus on any impact that these policies may have on the maintenance of a sound capital base. READ MORE

ESMA Publishes First Annual Statistical Report on Retail Investment Products


On January 10, ESMA published its first annual statistical report on the performance and costs of retail investment products in the EU (ESMA 50-165-731).

The report highlights, in particular, the significant impact of costs on the final returns that retail investors make on their investments. It covers undertakings for collective investments in transferable securities (“UCITS“), alternative investment funds sold to retail investors (“retail AIFs“) and structured retail products (“SRPs“).. READ MORE

ESMA Renews Restriction of CFDs for Further Three Months


On December 19, European Securities and Markets Authority (“ESMA”) published a press release announcing it is renewing the restriction on the marketing, distribution or sale of contracts for differences (“CFDs”) to retail clients. The restriction has been in effect since August 1, 2018 and the extension is for 3 months from February 1, 2019. The extension is because ESMA considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. The renewal is on the same terms as the previous renewal on November 1, 2018 and include:

  • Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying.
  • A margin close out rule on a per account basis.
  • Negative balance protection on a per account basis.
  • A restriction on the incentives offered to trade CFDs.
  • A standardized risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

ESMA Final Report and Guidelines on NSBs under BMR


On December 20, ESMA published a final report containing guidelines on non-significant benchmarks (“NSBs”) under the Benchmarks Regulation ((EU) 2016/1011) (“BMR”). The guidelines apply to competent authorities designated under Article 40 of the BMR, benchmark administrators and supervised contributors, and apply in relation to the provision of, and contribution to, NSBs.

The purpose of the guidelines is to ensure common, uniform and consistent application, for NSBs, of:

  • The oversight function requirements in Article 5 of the BMR.
  • The input data provision in Article 11 of the BMR.
  • The transparency of the methodology provision in Article 13 of the BMR.
  • The governance and control requirements for supervised contributors provision in Article 16 of the BMR.

The guidelines will apply two months after they have been translated into the official EU languages and published on ESMA’s website. During the two months national competent authorities must notify ESMA whether they comply or intend to comply with the guidelines and those that do not intend to comply must notify ESMA of their reasons for not complying.

The final report can be found here and the guidelines, which were published on ESMA’s website, can be found here.

Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Loans Referencing LIBOR


On December 21, the Working Group on Sterling Risk-Free Reference Rates published a paper aiming to help market participants prepare in advance of 2021, when LIBOR may not be available. The paper considers new and legacy loan transactions that reference LIBOR and highlights possible issues should it be replaced, and also the impacts a LIBOR replacement could have on the regulatory obligations of market participants. The paper also considers the possibility that LIBOR might continue to be published but based on a different methodology. READ MORE

ESMA Adopts Decision to Renew Ban on Marketing, Distribution or Sale of Binary Options


On December 21, European Securities and Markets Authority (“ESMA”) published a notice of its decision to renew the prohibition on the marketing, distribution or sale of binary options to retail clients as it considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist. The decision renews on the same terms as the previous renewal decision of September 21, 2018. The decision was made under Article 40 of the Markets in Financial Instruments Regulation (600/2014) and applies from January 2, 2019 for three months.

LMA Paper on the Consequences of a No-Deal Brexit on the European Loan Market

On December 3, the Loan Market Association (“LMA“) published a paper on the impact of a no-deal Brexit scenario on lending to borrowers located in EU countries by UK lenders, and the wider negative impact on the EU economy. A link to the paper can be found here.

The LMA states that it is vital that transitional arrangements are put in place as soon as possible so that borrowers are adequately protected irrespective of the manner of exit of the UK from the EU. It sets out a number of issues which arise when considering the need for transitional arrangements in a syndicated loan market context, along with proposed solutions, including:

  • Licensing and the ability to do cross-border business in respect of both new and existing customers.
  • Ensuring the continuing validity, effectiveness and enforceability of the loan contract itself, including the extent to which judgments of the English courts will be enforceable in EU member states.
  • Ancillary issues outside of core lending activity but which might impact the decision or ability of an institution to lend.

The paper also sets out a “package” of products and services provided by both syndicate lenders and other specialist providers, which borrowers require access to in addition to the syndicated loan itself. The LMA states that without appropriate transitional arrangements, borrowers may find themselves in a difficult situation if a particular product becomes illegal to provide post-Brexit.