Europe

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.

International Role of the Euro

On December 5, 2018, the Commission adopted a Communication and a Recommendation on a stronger international role of the euro, following President’s Juncker State of the Union address in September 2018, in which he highlighted the strategic importance of the euro.

Since then, the Commission has run a series of consultations and stakeholder dialogues to determine the potential obstacles to a broader use of the euro. The consultation activities targeted stakeholders in the sectors of foreign exchange markets, energy, raw materials, agricultural commodities and transport. READ MORE

EMU: European Commission Publishes Reports on Progress

The European Commission has recently published the following documents, accompanied by a series of press releases and fact sheets:

  • Communication, Deepening Europe’s Economic Monetary Union (EMU): Taking stock four years after the Five Presidents’ Report.
  • Staff Working Document, Strengthening the International Role of the Euro, Results of the Consultations.

Related to these documents, the Commission published a Communication, Fourth Progress Report on the reduction of non-performing loans (NPLs) and further risk reduction in the Banking Union.

ESMA Publishes Final Report on Frequent Batch Auctions for Equity Instruments Under MIFID II

On June 11, the European Securities and Markets Authority (ESMA) published its final report (ESMA70-156-1035) following a call for evidence on frequent batch auctions, a type of periodic auction trading system for equity instruments under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (600/2014) (MiFIR). READ MORE

A Delegated Regulation Supplementing EuVECA Regulation Regarding Conflicts of Interest is Published in OJ

 

On May 22, the Commission Delegated Regulation (EU) 2019/820 supplementing the European Venture Capital Funds (EuVECA) Regulation (345/2013) with regards to conflicts of interest EuVECAs was published in the Official Journal of the EU (OJ).

The Delegated Regulation, which was not objected to by the European Parliament on May 15, 2019 and presumably has not been rejected by the Council of the EU, sets out:

  • The types of conflict of interest for the purposes of Article 9(2) of the EuVECA Regulation.
  • Conflicts of interest policy requirements.
  • Procedures and measures to prevent, manage and monitor conflicts of interest.
  • Management of consequences of conflicts of interest.
  • Strategies for the exercise of voting rights to prevent conflicts of interest.
  • Disclosure of conflicts of interest.

The Delegated Regulation comes into force on June 11, 2019 and applies from December 11, 2019.

ESMA Updates Q&As on BMR: May 2019

 

On May 23, the European Securities and Markets Authority (ESMA) published an updated version (ESMA70-145-11) of its Q&As on the Benchmarks Regulation ((EU) 2016/1011) (BMR), which were previously updated in January 2019. The updated Q&As can be found here.

The Q&As have been updated to include:

  • A new Q&A 7.4 on the relevant time to determine the member state of reference in an application for recognition under Article 32(4) of the BMR.
  • A new Q&A 7.5 on the information on which national competent authorities may rely on in an external audit report of compliance with the International Organization of Securities Commission (IOSCO) principles for oil reporting agencies under Article 32(2) of the BMR.
  • A new Q&A 8.5 on the type of information that should be included in the field “contact info” of ESMA’s register of benchmark administrators.

FSB Launches Evaluation of TBTF for SIBs

 

On May 23, the Financial Stability Board (FSB) published a press release announcing the launch of an evaluation of its too-big-to-fail reforms (TBTF) for systemically important banks (SIBs).

The evaluation (i) will focus on the effects of the FSB’s TBTF reforms for SIBs (including increased capital buffers, total loss-absorbing capacity, enhanced supervision and resolution regimes); and (ii) will analyze the impact of the reforms on global systemically important banks and domestic systemically important banks, and will cover all FSB jurisdictions.

The aims of the evaluation are to (i) assess whether the reforms for which implementation has been completed or is well underway are reducing the systemic and moral hazard risk associated with SIBs; and (ii) examine the broader effects of the reforms on the financial system.

The evaluation will be based on the FSB’s July 2017 framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms.