European Commission

European Commission Addendum to Draft RTS on Margin Requirements for Uncleared OTC Derivatives under EMIR

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On August 2, 2016, the European Commission published an addendum to the draft regulatory technical standards (RTS) on margin requirements for uncleared OTC derivatives under Article 11(15) of the European Market Infrastructure Regulation (EMIR).  This follows an endorsement by the European Commission on July 28, 2016 of the draft RTS with amendments.  The ESAs will have 6 weeks to respond to these amendments before resubmitting them to the Commission in the form of a formal opinion.

In the addendum, the Commission states that there are some clarifications to be made to the revised draft RTS on margins in Articles 34 and 36 on application timing and in Annex III where a formula is missing. The intention of the Commission is to have the first wave of the initial margin requirements applied from the date one month after the date the RTS enter into force. This was the intention of paragraph 1 in Article 36. However, the Commission considers that the reading of the interaction of paragraph 1 with the other paragraphs in Article 36 is not clear and that the revisions set out in the addendum are therefore necessary.

European Commission Intends to Endorse, with Amendments, Draft RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contacts under EMIR

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On July 28, 2016, The European Commission published a letter to the Joint Committee of the European Supervisory Authorities (ESAs) informing them that it intends to endorse, with amendments, the draft regulatory technical standards (RTS) on risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP) under Article 11(15) of EMIR. The Commission also published the revised text of the draft RTS, together with the accompanying annexes.

The letter highlights that the Commission intends to make several clarifications and to restructure the legal text of the draft RTS. The changes include:

  • introducing a recital containing reasoning for the delayed phase-in of the requirements for equity options;
  • clarification that EU counterparties wishing to rely on the intragroup exemption may submit their application after the RTS enter into force;
  • clarification that cash initial margin may be held with equivalent third country institutions (as well as with authorized EU credit institutions);
  • clarification that requirements relating to foreign exchange (FX) contracts should start to apply from the date of application of the relevant Delegated Act under the MiFID II framework, as opposed to the date of entry of this Delegated Regulation; and
  • changes to one provision relating to concentration limits for pension scheme arrangements.

The ESAs now have six weeks to amend the draft RTS and resubmit them to the Commission in the form of a formal opinion.

EBA Publishes Interim Report on MREL

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The European Banking Authority (EBA) has published an interim report on the minimum requirement for own funds and eligible liabilities (MREL). Under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) the EBA is required to submit a report to the European Commission on the implementation of MREL by October 31, 2016.  This report will assist the Commission in its work on a legislative proposal on the harmonized application of MREL as well as a legislative proposal to review MREL and implement the total loss absorbing capacity standard in the EU.

The EBA’s interim report is intended to provide input into the Commission’s deliberations ahead of the preparations of the EBA’s final report and contains a number of provisional recommendations. Preliminary quantitative findings on the financing capacity and needs of EU banking groups are also available in the interim report, although these are subject to several methodological caveats.  In the absence of MREL decisions for institutions to date, and given the limited information related to the resolution authorities’ MREL policy approach, the EBA was required to make assumptions on the likely scope and calibration of MREL.  These assumptions are by definition different from the actual levels of MREL which will ultimately be determined by resolution authorities in relation to each institution and group.

The interim report is available here.

EC Summary of Contributions of the Green Paper on Retail Financial Services

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On July 14, 2016 the European Commission published a summary of responses to the public consultation launched on December 10, 2015 relating to the Green Paper on retail financial services prepared by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union.

The summary report sets out the broad content of responses received. Firms highlighted a number of obstacles to offering services cross-border, including local financial regulation, tax laws, access to data and information, local network for insurance claims handling, and divergent national interpretations of the anti-money laundering directive (2015/849/EU).

The report states that work is ongoing in the Commission services on a follow-up initiative, which might take the form of an action plan.

European Commission Calls for Further Technical Advice from EBA on Prudential Regime for Investment Firms under CRD IV

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On July 6, 2016, the EBA published a call for advice, dated June 13, 2016, that it has received from the European Commission relating to the prudential requirements applicable to investment firms under the Capital Requirements Regulation (Regulation 575/2013) (“CRR”) and the CRD IV Directive (2016/36/EU) (together referred to as CRD IV).

The EBA already provided advice on this matter to the Commission in December 2015, in which it broadly concluded that the current prudential regime for investment purposes is not adequate. To better inform the Commission’s decision, it is seeking further technical advice from the EBA on the details of the high level recommendations set out in the December 2015 advice. It has asked the EBA to provide advice on the following:

  • the criteria and thresholds for each of the three proposed classes of investment firm;
  • the design and calibration of all relevant aspects of a new prudential regime for the three proposed classes of investment firm;
  • the application of the CRD IV remuneration requirements to the different proposed classes of investment firm, and if whether the proposed new classes would affect the applicability of the CRD IV corporate governance rules; and
  • any other issues or inconsistencies the EU competent authorities have identified in implementing the rules relating to investment firms.

The EBA is to consult with ESMA when preparing its advice. The deadline for preparing the advice on the analysis relating to class one investment firms is September 31, 2016. The EBA must prepare its final report on the substantive content and calibration of the proposed regimes for the different classes of investment firms to the Commission by June 30, 2017.

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).