Delegated Regulation

Amendment to MiFID II – European Commission Adopts Delegated Regulation Amending Systematic Internaliser Definition

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The European Commission published the text of a Delegated Regulation amending Delegated Regulation (EU) 2017/565 in relation to the specification of the definition of systematic internalisers on August 28, 2017.

The Delegated Regulation (EU) 2017/565 supplements the MiFID II Directive (2014/65/EU) in relation to the organizational requirements and operating conditions for investment firms and defined terms.

Following perceived ambiguities in relation to the meaning of “trading on own account when executing client orders,” the Commission launched a public consultation on the Delegated Regulation in June 2017. Concerns raised during the consultation have been addressed by the introduction of a new recital and amending article 16a, which clarifies the scope of matching arrangements that are considered dealing on own account.

The Delegated Regulation was adopted on August 28, 2017, and will now need to be considered by the Council of the EU and the European Parliament. Provided neither of the Council or Parliament objects, the Delegated Regulation will be published in the Official Journal of the EU and will enter into force on the day after its publication.

European Commission Adopts Delegated Regulation on RTS on Additional Collateral Outflows

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On October 31, 2016, the European Commission adopted a Delegated Regulation supplementing the Capital Requirements Regulation (“CRR“) (Regulation 575/2013) in relation to regulatory technical standards (“RTS“) for additional liquidity outflows corresponding to collateral needs that have resulted from the impact of an adverse market scenario on an institution’s derivatives transactions (C(2016) 6867 final).

In March 2014, the EBA submitted a draft RTS to the European Commission. These proposed to take flows of collateral into account on a gross basis, contrary to the Basel Committee on Banking Supervision’s (“BCBS“) net approach. However, the assessment of the draft RTS was then delayed. The EBA submitted an amended draft RTS to the Commission for endorsement in May 2016. The method of calculation used in the RTS is founded on the historical look‑back approach developed by the BCBS.

The Council of the EU and the European Parliament must now consider the Delegated Regulation. If no objections are raised by either of them, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (“OJ“).

European Commission Adopts Delegated Regulation on RTS on Minimum Details of Data to Report to Trade Repositories

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On October 19, 2016, the European Commission adopted a Delegated Regulation amending Delegated Regulation 148/2013 supplementing EMIR (Regulation 648/2012) as regards regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories (C(2016) 6624 final).

EMIR requires all counterparties and central counterparties (CCPs) to report the details of any OTC derivative contract they have concluded and of any modification or termination of the contract to a trade repository.

The Delegated Act updates existing standards that were published in the Official Journal of the EU (OJ) in February 2013 (see Legal update, Delegated regulations on EMIR regulatory technical standards published in Official Journal). It reflects recent developments and experience gained in the area of trade reporting. The revised RTS aim to:

  • Introduce new fields and values to reflect market practice or other necessary regulatory requirements.
  • Clarify data fields, their description or both.
  • Adapt existing fields to the reporting logic prescribed in existing Q&As or reflect specific ways of populating them.

The Commission has also published an Annex, which sets out the counterparty data and common data details to report to trade repositories.

The next step is for the Council of the EU and the European Parliament to consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the OJ.

European Commission Adopts Delegated Regulation on RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contracts under EMIR

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On October 4, 2016, the European Commission adopted a Delegated Regulation supplementing EMIR (the Regulation on OTC derivatives, CCPs and trade repositories) (Regulation 648/2012) with regulatory technical standards (“RTS”) on risk mitigation techniques for uncleared OTC derivative contracts, together with related Annexes (C(2016) 6329 final).

The Delegate Regulation sets out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central counterparty (“CCP”). In the event that one counterparty to the transaction defaults, the margin collected will protect the non-defaulting counterparty against resulting losses.

The Joint Committee of the European Supervisory Authorities (ESAs) submitted the final draft RTS to the Commission in March 2016. In July 2016, the Commission informed the European Banking Authority that it intended to endorse the draft RTS with some amendments, including in relation to the concentration limits for pension scheme arrangements and the timeline for.

The Council of the EU and the European Parliament will now consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.

ECON Objects to Delegated Regulation on RTS on Key Information Documents for PRIIPs

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The European Parliament published a press release on September 1, 2016 announcing that the Economic and Monetary Affairs Committee (ECON) has voted to object to the European Commission’s proposed Delegated Regulation supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) (PRIIPs KID Regulation). This market is worth up to €10 trillion in Europe.

The proposed Delegated Regulation sets the regulatory technical standards (RTS) on the presentation, content, review and revision of the KID, together with the conditions for fulfilling the requirement to provide such documents.

ECON’s concerns include the fact that the proposed formulas in the KID for predicting investment performance contain flaws which would make performance look far better than it was likely to be. As such, this would be potentially misleading for investors.

The Commission adopted the Delegated Regulation (C(2016) 3999 final) in June 2016. The resolution will now proceed for consideration by the European Parliament in a plenary session to be held September 12-15, 2016. The PRIIPs KID Regulation is to apply from December 31, 2016. The press release does highlight that the Commission is prepared “as a second best option” to allow the PRIIPs KID Regulation to apply without the RTS in place.

European Commission Adopts Delegated Regulation on RTS on Key Information Documents for PRIIPS

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On June 30, 2016, the European Commission adopted a Delegated Regulation and related annexes supplementing the Regulation on key information documents (“KIDs”) for packaged retail and insurance-based investment products (PRIIPs) (PRIIPs KID Regulation). The delegated act introduces RTS specifying the content and underlying methodology of the KIDs that will have to be provided to retail consumers when they buy certain investment products.

The RTS specify the exact contents of the KID, which must outline the product’s aims, how risky it is, when investors can get their money back, how much it costs and its expected returns. The information must be set out in a standard way, regardless of the type of investment product.

The European Parliament and Council now have a two-month scrutiny period, which they can extend for a further month, during which to consider the Delegated Regulation. If neither of them objects, it will enter into force 20 days after its publication in the OJ and it will apply from December 31, 2016.

European Commission Adopts Delegated Regulation on RTS Specifying Obligation to Clear Derivatives Traded on Regulated Markets and Timing of Acceptance for Clearing under MIFIR

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On June 29, 2016, the European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (“MiFIR”) with regard to RTS specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing.

Under Article 29, ESMA was required to develop draft RTS to specify the requirements to ensure that cleared derivative transactions concluded on a trading venue or on a bilateral basis are submitted and accepted for clearing as quickly as technologically practicable using automated systems in order to facilitate clearing and trading certainty. The Commission’s Delegated Regulation is based on the draft RTS submitted by ESMA to the Commission in September 2015.

The RTS lay down requirements for the transfer of information, pre-trade checks and timeframes for the transfer of such information for cleared derivative transactions concluded either on a trading venue or on a bilateral basis. It also provides rules on the treatment of cleared derivative transactions which are not accepted for clearing by the CCP.

The Council of the EU and the European Parliament will consider the Delegated Regulation and if neither of them objects, it will enter into force 20 days after its publication in the OJ. It will apply from the date appearing in the second paragraph of Article 55 of MiFIR.

European Commission Adopts Delegated Regulation of RTS for Specifying Information to be Notified by Investment Firms, Market Operators and Credit Institutions under MIFID II

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On June 29, 2016, the European Commission adopted a Delegated Regulation supplementing the MiFID II Directive with regard to regulatory technical standards (RTS) specifying information to be notified by investment firms, market operators and credit institutions exercising their rights under the freedom to provide services or the freedom of establishment.

ESMA was required to develop an exhaustive list of information to be notified to the relevant competent authority by such investment firms and credit institutions under Articles 34(8) and 35(11) of MiFID II. The Commission’s Delegated Regulation is based on the draft RTS submitted by ESMA to the Commission in June 2015.

The purpose of the RTS are to provide certainty, clarity and predictability in the passport notification process for investment firms and to facilitate the review by competent authorities through the use of harmonized documents.

The Council of the EU and the European Parliament will consider the Delegated Regulation and if neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).   It will apply from the date appearing in the second sub-paragraph of Article 93(1) of the MiFID II Directive.

European Commission Adopts a Delegated Regulation on RTS Relating to Clearing Access in Respect of Trading Venues and Central Counterparties under MiFIR

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The European Commission has adopted a Delegated Regulation and annex supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) with regard to regulatory technical standards (“RTS“) relating to clearing access in respect of trading venues and central counterparties (C(2016) 3807 final). The European Securities and Markets Authority (“ESMA“) submitted the draft RTS to the Commission in September 2015. The RTS cover transparency, micro-structural issues, data publication and access, requirements applying on and to trading venues, commodity derivatives, market data reporting, post-trading issues and best execution. The Delegated Regulation will now be considered by the Council of the EU and the European Parliament. If neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU. The Delegated Regulation will apply from the application date of MiFIR (that is, January 3, 2018) with the exception of Articles 15, 16, 17, 19 and 20, which will apply from the date the Regulation enters into force.

European Commission Adopts Delegated Regulation on RTS Relating to Maintenance of Relevant Data Relating to Orders in Financial Instruments under MiFIR

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On June 24, 2016, the European Commission adopted a Delegated Regulation and annex supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) with regard to regulatory technical standards (“RTS“) for the maintenance of relevant data relating to orders in financial instruments (C(2016) 3821 final).

The Delegated Regulation will now be considered by the Council of the EU and the European Parliament. If neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU. The Delegated Regulation will apply from the application date of MiFIR (that is, January 3, 2018).