European Commission

Delegated Regulation under MAR Covering Indicators of Market Manipulation, Disclosure Thresholds, Trading During Closed Periods and Notifiable Managers’ Transactions

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The European Commission’s Delegated Regulation supplementing the Market Abuse Regulation (Regulation 596/2014) (MAR) as regards an exemption for certain third countries’ public bodies and central banks, the indicators of market manipulation, the disclosure thresholds, the competent authority for notifications of delays, the permission for trading during closed periods and types of notifiable managers’ transactions, was published in the Official Journal of the EU on 5 April 2016.

The Delegated Regulation specifies:

  • The public bodies and central banks of third countries benefitting from the exemption under Article 6(1) of MAR.
  • The indicators of market manipulation set out in Annex I of MAR.
  • The minimum thresholds for the exemption of certain participants in the emission allowance market from the requirement to publicly disclose inside information.
  • The competent authority that should be notified concerning delays in the public disclosure of inside information.
  • The circumstances under which trading in a closed period may be permitted by an issuer.
  • The types of transactions that would trigger the notification requirement under Article 19 of MAR.

The Delegated Regulation enters into force on April 24, 2016 and will apply from July 3, 2016.

Joint Committee of ESAs Final RTS on Key Information Documents for PRIIPs

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The Joint Committee of the European Supervisory Authorities (ESAs) published its final draft regulatory technical standards (RTS) on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The draft RTS include a mandatory template, which includes certain mandatory texts and details of the layout to use, a methodology for the assignment of each PRIIP to one of the seven classes in the summary risk indicator, and the requirements relating to the presentation of costs.

An accompanying press release states that the proposed KIDs provide retail investors, for the first time across the EU, with simple and comparable information on PRIIPs. It is intended that the three page document will increase the transparency and comparability of information about the risks, performance and costs of PRIIPs.

The draft RTS have been submitted to the European Commission for endorsement and will enter into force on December 31, 2016.

European Commission Adopts Delegated Directive Supplementing MiFID II

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On April 7, 2016, the European Commission adopted a Delegated Directive supplementing MiFID II regarding the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision of reception of fees, commissions or any monetary or non-monetary benefits (i.e. inducements).

The aim of the draft Delegated Directive is to specify further the following MiFID II rules and details for their implementation:

  • The safeguarding of clients’ financial instruments and funds;
  • Product governance obligations for investment firms manufacturing or distributing financial instruments (or both);
  • The provision or reception of inducements.

The draft Delegated Directive is based on the final technical advice on MiFID II and MiFIR provided to the Commission by ESMA in December 2014. The Council of the EU and the European Parliament will now consider the Delegated Directive. If neither of them object, it will enter into force twenty days after publication in the Official Journal.

European Commission Adopts Delegated Regulation on Presentation of Investment Recommendations and Disclosure of Conflict of Interest Under MAR

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The European Commission has adopted a Delegated Regulation supplementing the Market Abuse Regulation (“MAR“) with regard to regulatory technical standards for the technical arrangements for the objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflict of interest (under Article 20).

The Delegated Regulation provides for rules on the identity of producers of recommendation; introduces a general standard on objective presentation of recommendations, applicable to any person mentioned in Article 20(1); sets out requirements on the maintenance of records of all recommendations produced on any issuer or financial instrument and disseminated during the preceding 12-month period and determines the general standards and additional obligations relating to disclosure of interests or of conflicts of interest. It also ensures that recommendations include the date and time on which the recommendation was first disseminated and provides for specific arrangements for dissemination of recommendations, their summary or extract and when recommendations are substantially altered.

Once approved by the Council of the EU and the European Parliament, it is expected that the Delegated Regulation will apply from July 3, 2016. The Delegated Regulation can be found here.

Bank Recovery and Resolution Directive; Exceptions to “Bail-In” of Liabilities

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On February 4, 2016, the European Commission adopted a Delegated Regulation (C(2016) 379) which (taking into account advice given by the European Banking Authority in March 2015) specifies where exclusion from the application of write-down or conversion powers is allowed under Article 44(3) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).

The BRRD’s bail-in tool gives a resolution authority the power to bail in all the liabilities of a firm in resolution, subject to exclusions specified in Article 44 of the BRRD. In exceptional circumstances, Article 44(3) permits the resolution authority to exclude certain liabilities from the scope of the bail-in tool, if certain conditions are met. The Commission has the power under Article 44(11) to adopt a delegated act specifying the circumstances in which exclusions from the bail-in tool are necessary under Article 44(3).

The Delegated Regulation:

  • Lays down common rules to be applied whenever a resolution authority considers excluding a liability from the application of the bail-in tool under Article 44(3).
  • Clarifies when a liability can be excluded from bail-in based on the impossibility of bailing-in that liability within a reasonable timeframe.
  • Lays down the elements to determine the reasonable time after which a liability can be excluded from bail-in.
  • Clarifies when a liability can be excluded from bail-in based on the need to preserve certain critical functions and core business lines, to avoid widespread contagion or to avoid value destruction.

The Council of the EU and the European Parliament are now considering 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.

Delegated Regulation Adopted Under Market Abuse Regulation

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On February 26, the European Commission adopted a Delegated Regulation supplementing the Market Abuse Regulation (No. 596/2014) (“MAR“) laying down regulatory technical standards on accepted market practice.

MAR defines “accepted market practice” as a specific market practice that is accepted by a competent authority of a member state (Article 3(1) MAR). ESMA is required to develop draft regulatory technical standards specifying the criteria, procedure and requirements for establishing an accepted market practice and the requirements for maintaining or terminating it or modifying the conditions for its acceptance. The Delegated Regulation provides for a list of “supervised persons” for the purposes of the Delegated Regulation, and lays down requirements for establishing an accepted market practice.

The Council of the EU and European Parliament are expected to review and consider the Delegated Regulation. Provided there are no objections the Delegated Regulation will apply from July 2, 2016.

European Commission Publishes Secondary Implementing Decision on Third Country Equivalence for Purposes of Treatment of Exposures under CRR

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A European Commission Implementing Decision on the lists of third countries considered equivalent for the purposes of the treatment of exposures under the Capital Requirements Regulation (“CRR“) has been published in the Official Journal of the EU on February 18.

Under the CRR, certain categories of exposures to entities located in third countries can benefit from more favourable prudential treatment if the Commission has determined that a third country’s prudential supervisory and regulatory requirements are at least equivalent to those applied in the EU for the purposes of the treatment of exposures under the CRR. The latest Implementing Decision adds Australia, Hong Kong, Indonesia, Japan and South Korea to the list of third countries.

The Implementing Decision will enter into force on March 9.

European Commission Implementing Regulation Lays Down ITS on Disclosure of Leverage Ratio for Institutions under CRR

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A European Commission Implementing Regulation laying down implementing technical standards (“ITS“) on disclosure of the leverage ratio for institutions under the CRR has been published in the Official Journal of the EU on February 16.

The Implementing Regulation states that, to ensure the obligation in the CRR to disclose information related to the leverage ratio is carried out by institutions in an effective and harmonised manner across the EU as soon as possible, it is necessary to require institutions to use templates for disclosure at the earliest possible date. The templates and instructions on completing them are set out in the annexes to the Implementing Regulation.

The Implementing Regulation entered into force on February 17.

European Commission and U.S. CFTC Agree Common Approach on Requirements for Transatlantic CCPs

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On February 10, the European Commission published a statement setting out details of the common approach it has agreed with the U.S. Commodity Futures Trading Commission (CFTC) on requirements for transatlantic central counterparties (CCPs).

The statement explains that the agreement reached will ensure that EU CCPs will be able to do business in the U.S. more easily, and that U.S. CCPs can continue to provide services to EU companies. To implement the agreement:

  • The Commission intends to shortly propose for adoption an equivalence decision under the European Market Infrastructure Regulation (“EMIR”) with respect to CFTC requirements for U.S. CCPs. This will allow the European Securities and Markets Authority (“ESMA”) to recognize U.S. CCPs wanting to serve EU markets as soon as practicable. Once recognized, a U.S. CCP may continue to provide services in the EU while complying primarily with CFTC requirements. It will also become a qualifying CCP for the purposes of the Capital Requirements Regulation (Regulation 575/2013) (CRR), which will lower costs for EU banks and their subsidiaries.
  • The CFTC will propose a determination of comparability with respect to EU requirements. This will permit EU CCPs to provide services to U.S. clearing members and clients while complying primarily with certain corresponding EU requirements. The CFTC will also streamline the registration process for EU CCPs wishing to register with it.
  • The Commission will shortly propose the adoption of an equivalence decision to determine that U.S. trading venues are equivalent to regulated markets in the EU. This will provide a level playing field between EU and U.S. trading venues for the purposes of the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).
  • The steps needed to implement the agreement will be put in place as soon as practicable, and the Commission will work with the CFTC to ensure that the changes are implemented in a co-ordinated manner. The Commission will also work with the CFTC to monitor the impacts resulting from the changes, and assess whether any further actions are necessary to ensure financial stability or prevent regulatory arbitrage.

Commenting on the agreement in a separate statement, ESMA advises that, once the Commission’s equivalence decision on the U.S. regime is adopted under EMIR, it will “rapidly” resume the recognition process of specific CFTC-supervised U.S. CCPs that had applied to it to be recognized in the EU. Although EMIR gives ESMA up to 180 working days to conclude the recognition process, ESMA intends to do everything it can to shorten the period, and will proceed with recognition as soon as the U.S. applicant CCPs meet the conditions contained in the equivalence decision. Given the June 21, 2016 deadline for the start of the EMIR clearing obligation in the EU, ESMA understands that U.S. CCPs will have a strong interest in becoming fully compliant with EU equivalence conditions, which should help to shorten the period.

U.S. Commodity Futures Trading Commission and European Commission Announce Common Approach for Transatlantic CCPs

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On February 10, the U.S. Commodity Futures Trading Commission (the “CFTC”) and the European Commission announced a common approach relating to requirements for transatlantic central clearing parties (CCPs). The CFTC and the European Commission will work together to adopt (1) an equivalence decision that will allow US CCPs to continue to provide services in the EU whilst complying with CFTC requirements and (2) a determination of comparability that will allow EU CCPs to provide services to US clearing members whilst complying with EU requirements. These next steps will be put into place as soon as practicable.