European Commission

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.

European Commission Provides Guidance on MiFID II Ancillary Activity Test


A letter from the European Commission Vice President was published on June 22, 2018 which sought to clarify the exemption found in Article 2(1)(j) of the MiFID II Directive (the “Exemption“).

The Exemption states that the regulated activities of dealing on own account and providing investment services in relation to commodity derivatives will be exempt from the rules contained in the MiFID II Directive provided that the activities are “ancillary” to the main business.

The letter, addressed to Steven Maijoor, stated that in establishing if the Exemption applies, the MiFID activities that the person is engaged in will be compared with the commercial activities of the person or group which the person forms. This therefore accounts for varying commercial structures whereby business activities of a group may be separated into different legal entities.

The full letter explaining the Exemption and when this applies, is available here.

The EC has Published the Draft Text of a Regulation on Sovereign Bond-Backed Securities and Seeks Market Feedback on its Proposals


On May 24, 2018, the European Commission (“EC“) published a proposal for a Regulation of the European Parliament and of the Council on sovereign bond-backed securities (2018/0171 (COD)). Sovereign bond-backed securities (“SBBS“) are euro-denominated debt securities, created by private entities and backed by a pre-determined, diverse pool of bonds issued by euro-area national governments.

Akin to securitisation bonds, this new type of financial instrument is designed to be issued in tranched notes, appealing to a range of risk appetites. Senior ranking notes would pay a lower return than junior notes, in exchange for a lower risk profile. Junior notes would bear losses before senior notes but would be rewarded with a higher coupon.

Rather than being subject to the same regulatory treatment as securitisation bonds, the proposal seeks to grant SBBS the same regulatory treatment as national euro-area sovereign bonds denominated in euro; reflecting the relatively low risk and high liquidity of the pre-determined and diverse underlying portfolio of sovereign debt.

The draft Regulation follows the Commission’s publication of an impact assessment on enabling a regulatory framework for the development of SBBS, in January 2018.

The proposal includes measures relating to:

  • Eligibility and composition of the underlying portfolio and tranching of SBBSs issues (Articles 4 to 6 of the draft Regulation).
  • Issuance and management of SBBSs (Articles 7 and 8).
  • Use of the designation “Sovereign Bond-Backed Securities” (Article 9).
  • SBBSs notification and transparency requirements (Articles 10 to 12).

Specifically, the proposed Regulation requires:

  • The underlying portfolio to include sovereign bonds of all euro area Member States, with relative weights in line with each Member State’s contribution to the capital of the European Central Bank (the so-called ECB capital key).
  • The size of the senior tranche to be fixed at 70% of the overall SBBS issuance. The remaining 30% can be divided in as many sub-senior (or subordinate) claims as the issuer finds best suited to the demand of its investors.

The Commission is inviting market feedback on its proposals. The feedback period is open and ends on July 26, 2018.

The EC has Published Proposals to Amend Existing Legislation to Promote the Use of Small and Medium-Sized Enterprise (SME) Growth Markets


On May 24, 2018, the European Commission (“EC“) published:

  • A draft Regulation to amend the Market Abuse Regulation (Regulation 596/2014) (“MAR“) and the Prospectus Regulation ((EU) 2017/1129) in respect of promotion of the use of small and medium-sized enterprise (“SME“) growth markets.
  • A draft Delegated Regulation amending Delegated Regulation (EU) 2017/565 (the Commission Delegated Regulation) as regards certain registration conditions to promote the use of SME growth markets.

The MiFID II Directive (2014/65/EU) created a new type of trading venue, the SME growth market, as a sub-group of multilateral trading facilities (“MTFs“), to facilitate access to capital for SMEs and the further development of specialist markets to cater for the needs of SME issuers. However, the current definition of SMEs is not suitable for companies issuing bonds. In addition, SME growth market debt-only issuers have to produce a semi-annual financial report. This is a more stringent requirement than the one applying to issuers of bonds to professional investors on regulated markets.

Addressing these specific issues, the Commission’s proposals include measures that will make it easier for trading venues specialised in bond issuance to register as SME growth markets. This will be done by formulating a new definition of debt-only issuers; being those that issue less than EUR 50 million of bonds over a 12-month period.

The proposals also give more flexibility for SME growth market operators on whether or not to impose the obligation to produce semi-annual reports on SME debt-only issuers.

Other proposals include an exemption for privately-placed bonds from the ‘market sounding regime’ (subject to conditions). Market sounding is where information is given prior to the announcement of a transaction to gauge the interest of potential investors.

EC Publishes “New Deal for Consumers” Package


The European Commission (“EC“) has published its “New Deal for Consumers” package. The package comprises 16 documents, some yet to be published.

The initiative is composed of two proposals for Directives:

A proposal for a Directive on better enforcement and modernisation of EU consumer protection rules (2018/0090 (COD)). This will amend the Unfair Contract Terms Directive (93/13/EEC), the Consumer Price Indications Directive (98/6/EC), the Unfair Commercial Practices Directive (2005/29/EC) and the Consumer Rights Directive (2011/83/EU). This proposal’s aim is to ensure better enforcement and to modernise EU consumer protection rules, in particular in the light of digital developments.

A proposal for a Directive on representative actions for the protection of the collective interests of consumers (2018/0089 (COD)), dealing with representative actions for the protection of the collective interests of consumers, and repealing the Injunctions Directive (2009/22/EC). This proposal’s aim is to improve the tools for stopping illegal practices and facilitating redress for consumers whose rights have been infringed.

The main themes are improved enforcement measures, better protection for online consumers, and EU harmonisation:

  • The proposals will, among other things, empower qualified entities to launch representative actions on behalf of consumers and introduce stronger sanctioning powers for member state consumer authorities.
  • There will be greater online protection for consumers in the form of new disclosure rules concerning the identity of traders and the existence of paid advertisements. In addition, consumers will have similar rights in respect of “free” digital services as they do in respect of paid services, such as information rights and the right to cancel within 14 days. (The latter measures are directed at digital services for which consumers provide their personal data, but do not pay with money, such as cloud storage services, social media or email accounts.)
  • The new regime will also deal with the practice of offering products of differing quality but in the same format within different member states.

The next step is for the Commission’s proposals to be discussed by the European Parliament and the Council.

EC Publishes Report on the Application of Title III of the Solvency II Directive (2009/138/EC)


The European Commission (“EC“) has published a report on the application of Title III (of the Solvency II Directive) on April 5, 2018.

The EC has commented that, given the need for the Solvency II Directive to be generally evaluated in 2020, only one area of the group supervision regime within Article 242(2) of the Directive requires any legislative amendments at this point in time. This relates to group internal models, and as member states have often diverged on this point, the EC has stated that the European Insurance and Occupational Pensions Authority (“EIOPA“) will need enhanced powers to bring about convergence.

A proposal to reform the European System of Financial Supervision (“ESFS“) by the EC, published in September 2017, contains proposals to amend the Directive in order to do this, and to generally mitigate any potential divergences in the approval and supervision of group internal models.

Finally, the report also confirms that the EC will report on the transition period for institution for occupational retirement provisions (“IORPs“) that are operated by relevant life insurers. Pending a further extension of the decision, the EC states that the legislative proposal relating to this could be imposed before the end of 2022.

To view the report, please click here.

EC Notices on Consequences of Brexit on Banking and Finance Sectors


The European Commission (“EC”) published a new webpage (which can be found here) which contains notices setting out the consequences that the UK withdrawal from the EU will have on banking and finance rules.

The notices relate to a number of areas including: markets in financial instruments, banking and payment services, post-trade financial services, asset management, credit rating agencies, insurance and reinsurance and, statutory audit.

Each note sets out the consequences of EU rules no longer applying to the UK in the above areas, if the UK becomes a third party. That could happen from March 30, 2019, when all EU primary and secondary law will cease to apply to the UK unless a ratified withdrawal agreement establishes another date.

Final Report by EC Expert Group on Sustainable Finance


On January 31, 2018, the European Commission (“EC“), published the final report of its high-level expert group (“HLEG“) on sustainable finance. A copy of the report can be found here.

The HLEG was established to help develop an overarching EU roadmap on sustainable finance and to give advice on how to steer more capital flow toward sustainable investments, identify steps that financial institutions and supervisors should take to protect the financial system from sustainability risks, and apply these policies on a pan-EU scale.

The HLEG recommended a number of actions, including the following, which were considered priority actions:

  • Establish a classification system (or taxonomy), starting with climate mitigation, to establish market clarity on what is “sustainable”;
  • Clarify investor duties and bring greater focus on environmental, social and governance (ESG) factors when making investment decisions;
  • Improve disclosure by financial institutions and companies to make sustainable opportunities and risks transparent;
  • Develop official EU sustainability standards for some financial assets, starting with green bonds; and
  • Integrate sustainability in financial institutions’ governance as well as in financial supervision.

On February 1, 2018,the European Commission published two annexes to the HLEG’s report, the ‘Informal supplementary document on green bonds’ (available here) and ‘Summary of the contributions to the HLEG on sustainable finance consultation document’ (available here).

EC Sets out Roadmap on the European Economic and Monetary Union


The European Commission (“EC“) published a communication and legislative proposal on the December 6, 2017, with the goal of finalizing Europe’s economic and monetary union.

The communication, which contained a number of measures, was directed at the European Parliament, the European Council, the Council of the EU and the European Central Bank.  The communication sets out deadlines for completing certain initiatives including a number of financial services measures relating to the capital markets union, as well as banking reforms.

The communication also outlined the legislative proposal for the establishment of the European Monetary Fund, which is intended to replace the European Stability Mechanism.  The European Monetary Fund will continue the European Stability Mechanism’s role of providing financial stability where this is required by member states, as well as raising funds by issuing capital market instruments.

The communication is available here and the legislative proposal is available here.