European Commission

European Commission Adopts Delegated Regulations on RTS Relating to Execution Venues under MiFID II

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On June 8, 2016, the European Commission adopted the following two Delegated Regulations supplementing the MiFID II Directive (2014/65/EU):

  1. A Delegated Regulation (C(2016) 3333 final) in relation to regulatory technical standards (RTS) surrounding the data to be published by execution venues on the quality of execution of transactions, together with an Annex. For financial instruments subject to the trading obligation, each trading venue and systematic internalizer must, under MiFID II, make available to the public, at no cost and on at least an annual basis, data relating to the quality of execution of transactions on that venue.
  2. A Delegated Regulation (C(2016) 3337 final) in relation to RTS for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution, together with an Annex. Investment firms that execute client orders must, under MiFID II, summarize and make available annually, the top five execution venues in terms of trading volumes where they executed client orders in the preceding year, and information on the quality of execution obtained.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulations. Subject to any objection, they shall enter into force 20 days after their publication in the Official Journal of the EU (OJ).

European Parliament Votes to Postpone MiFID II Implementation until January 2018

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On June 7, 2016, the European Parliament published a press release announcing that it has voted to postpone the implementation of MiFID II (the MiFID II Directive (2014/65/EU)) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR)) until January 3, 2018. This grants member states a year’s extension on the original July 3, 2016 deadline to transpose the legislation. The extension was triggered by the European Commission and the European Securities and Markets Authority’s (ESMA) delay in producing the necessary technical standards.

MiFID II intends to close the gaps left by MiFID I. Following the financial crisis, it was introduced to create a single market for investment services and activities, with the aim of improving the competitiveness of EU financial markets. The Parliament, through MiFID II, seemingly aims to introduce: (i) a dedicated regime for the treatment of package transactions with regards to pre-trade transparency obligations; (ii) clarification for the own-account exemption for corporate end-users and securities financing transactions, which are excluded from MiFID transparency obligations; and (iii) a technical cross-referencing issue between the Prospective Directive (2003/71/EC) and MiFID II.

On June 8, the Parliament proceeded to publish the provisional edition of: (i) the text of the legislative proposal for a Directive amending the MiFID II Directive as regards certain dates; and (ii) the text of the legislative proposal amending the MiFIR, the Market Abuse Regulation (Regulation 596/2014) (MAR) and the Regulation on improving securities settlement and regulating central securities depositories (CSDs) (Regulation 909/2014) (CSDR) as regards certain dates.

It now remains for the proposals to be formally adopted by the Council, following which they will be published in the Official Journal of the EU (OJ) and enter into force in line with the timing stipulated in the legislation.

European Commission Adopts Delegated Regulation on RTS on Detailed Records of Financial Contracts under BRRD

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On June 7, 2016, the European Commission adopted a Delegated Regulation supplementing the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The Delegated Regulation deals with the regulatory technical standards (RTS) on a minimum set of the information on financial contracts that should be contained in the detailed records, together with the circumstances in which the requirement should be imposed (C(2016) 3356 final).

Following submission of draft RTS by the EBA in December 2015, the Commission is entitled, under Article 71 of the BRRD, to adopt delegated regulations which highlight the methodology for assessing the value of assets and liabilities of institutions or entities. The draft RTS state that, should the relevant conditions for resolution be satisfied, an institution must maintain detailed records of financial contracts where it is foreseen that resolution actions would be applied to the institution concerned. The Annex accompanying the Delegated Regulation highlights the minimum list of information on financial contracts.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulation. Subject to any objection, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).

European Commission Adopts MiFIR Delegated Regulation on RTS on Access to Benchmarks

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On June 2, 2016, the European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) with regard to regulatory technical standards (RTS) on access in respect of benchmarks (C(2016) 3203 final).

MiFIR provides for the non-discriminatory access for central counterparties (CCPs) and trading venues to licences of, and information relating to, benchmarks that are used to determine the value of some financial instruments for trading and clearing purposes.

The Delegated Regulation lays down the list of information to be provided to a trading venue or CCP, the conditions under which access must be granted as well as specifications on non-discriminatory treatment. It also sets out the standards for determining how a benchmark can be considered to be new, and hence benefit from transitory arrangements.

Following adoption of the Delegated Regulation by the Commission, it will be considered by the Council of the EU and the European Parliament. If neither of them objects, the Delegated Regulation states that it will enter into force 20 days after its publication in the Official Journal of the EU (OJ) and will apply from the date referred to in the fourth paragraph of Article 55 of MiFIR.

Commission Adopts Proposal to Incorporate ESAs into EEA Agreement

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On June 2, 2016, the European Commission published a press release announcing that it had adopted a proposal for a Council decision on the position to be taken by the EU on the incorporation of the Regulations on the European Supervisory Authorities (ESAs), and some of the related Regulations and Directives, into the Agreement on the European Economic Area (EEA).

The acts to be incorporated into the EEA Agreement include the ESAs Regulations (EBA, EIOPA and ESMA Regulations), the European Systemic Risk Board Regulation, the Alternative Investment Fund Managers Directive and related Delegated Acts, the Short Selling Regulation and related delegated acts, the European Markets Infrastructure Regulation (‘EMIR’) and the Credit Ratings Agency Regulations.

This is an important step towards the extension of the European System of Financial Supervision (ESFS) to the EEA EFTA countries: Norway, Iceland and Liechtenstein. The Commission explained that incorporating these acts into the EEA Agreement would ensure strong and co-ordinated financial supervision throughout the EEA.

European Commission Adopts Implementing Regulation on Risk-Free Rate under Solvency II

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The European Commission has adopted an Implementing Regulation on the risk-free rate under the Solvency II Directive (2009/138/EC). The Implementing Regulation sets out technical information to be used by insurers when calculating technical provisions and basic own funds for reporting with reference dates from March 31 until June 29, 2016. Insurers should use the technical information, which is based on market data related to the end of the last month preceding the first reporting reference date to which the Implementing Regulation applies. EIOPA provided the Commission with the technical information relating to end March 2016 market data in April 2016. That information was published on April 7, 2016 in accordance with Article 77e(1) of Solvency II.

The Implementing Regulation will enter into force on the day after it is published in the Official Journal of the EU (OJ) and shall apply from March 31, 2016.

Commission Summary of Contributions on EU Regulatory Framework

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The European Commission has published a summary of contributions received to the ‘Call for Evidence’ on an EU regulatory framework for financial services. The consultation closed on January 31, 2016.

The summary reports who responded and gives an overview of the responses. Overall, the Commission claims that stakeholders did not dispute the reforms of recent years and many responses expressed support of the new rules. Many replies also related to unnecessary regulatory constraints on financing, proportionality, excessive compliance costs and complexity, reporting and disclosure obligations, and overlaps, duplications, and inconsistencies.

ESMA Publishes Final Report on Amendment of Draft RTS on Reporting Obligations under Article 26 of MiFIR

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On May 4, 2016, The European Securities and Markets Authority (ESMA) published its final report requesting an amendment of ESMA draft regulatory technical standards (RTS) on transaction reporting under the Markets in Financial Instruments Regulation (MiFIR).

The draft RTS were submitted to the European Commission in September 2015. However, ESMA has since identified a need to amend Article 2 of RTS 22 as a result of an unintentional omission in the final stage of drafting.

The amendment relates to the list of instances that are not considered to be reportable transactions for the purposes of Article 26 of MiFIR. It resolves an unintended omission by adding acquisitions or disposals that are solely a result of a transfer of collateral to the list of exclusions from transaction reporting specified in Article 2(5) of RTS 22. It thus ensures that investment firms are not required to submit transaction reports for transfers of collateral, which ESMA concluded would be costly and bring no supervisory benefit. ESMA anticipates that the amendment will be taken into account in the context of the Commission’s endorsement of RTS 22.

EBA Amends Historical Look-Back Approach Method for Calculating Additional Collateral Outflows

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On May 3, 2016, the European Banking Authority (EBA) issued an opinion to the European Commission supporting the Commission’s proposed amendment to the historical look-back approach (HLBA) methodology used in the draft Regulatory Technical Standards (RTS) on additional collateral outflows.

The amendment by the EBA followed a request by the European Commission that the draft RTS be amended so that the calculation of the additional collateral outflows was based on the HLBA for market valuation changes developed by the Basel Committee on Banking Supervision (BCBS). The BCBS’s HLBA focuses on the largest net difference in collateral posted instead of the largest gross difference which had been the focus of the EBA’s approach.  In December 2015, the Commission had raised concerns that the EBA’s HLBA approach could have a significant impact on credit institutions and international derivative markets.  Therefore, it decided not to adopt the draft RTS as it had been submitted by the EBA, but signalled it was open to endorsing an amended draft RTS based on the BCBS’s HLBA approach.

ECB Offers Opinion on Proposed Regulation to Establish a European Deposit Insurance Scheme

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On April 20, 2016, the European Central Bank (ECB) published an opinion on a proposal for a regulation amending Regulation (EU) No. 8.6/2014 in order to establish a European Deposit Insurance Scheme (EDIS).

The ECB notes that an EDIS is a necessary third pillar to complete the Banking Union, having established a Single Supervisory Mechanism and the Single Resolution Mechanism and overall welcomes the system proposed. However, the opinion notes risks in terms of scope and governance of the scheme.

The opinion appends a technical working document containing drafting proposals as proposed amendments to the text released by the European Commission.