European Parliament’s Committee on Economic and Monetary Affairs (ECON)

Draft Report on Virtual Currencies Published by EU Committee on Economic and Monetary Affairs

On February 25, a draft report on the subject of virtual currencies was published by the European Parliament’s Committee on Economic and Monetary Affairs (“ECON“).

The draft report consists of a motion for a European Parliament Resolution and an Explanatory Statement. The motion contains an analysis of virtual currencies (“VC“s) and distributed ledger technology (“DLT“). The motion stresses that VCs and DLT have the potential to contribute positively to consumer welfare and economic development by, amongst other things:

  • Lowering transaction costs for payments and transfers of funds and thereby reducing global total costs for remittances by up to €20 billion
  • Reducing the cost of access to finance without a traditional bank account
  • Enhancing the speed and resilience of payment systems
  • Providing for a high degree of privacy, but without full anonymity so that transactions can be traced back in case of malfeasance

However, the motion also notes the following risks which should be addressed appropriately:

  • The potential for money laundering, terrorist financing and tax fraud
  • The sometimes limited capacity of regulators in the area of new technology
  • The legal uncertainty surrounding new applications of DLT, which may be the subject of (sometimes ill-suited) existing legislation or of no regulation at all

ECON argues that regulatory capacity must be enhanced in light of these risks but calls for a proportionate regulatory approach so as not to stifle innovation at an early stage. ECON welcomes the European Commission’s suggestions for including VC exchange platforms in the Fourth Money Laundering Directive ((EU) 2015/849) and recommends a review of EU legislation on payments, including the Payment Services Directive (2007/64/EC) and the second Electronic Money Directive (2009/110/EC).

Benchmarks: Agreement Reached on ECON Committee

On March 31, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted its report on benchmarks. Key issues include: The Economic and Monetary Affairs Committee backed a draft EU law to make the benchmarks more trustworthy. The text aims to clean up the benchmark-setting process by curbing conflicts of interest like those that led to the London Interbank Offered Rate (LIBOR) rigging scandals of recent years. The setting of critical benchmarks that affect more than one country would be overseen by a “college” of supervisors, including the European Securities and Markets Authority (ESMA) and other competent authorities.

Curbing critical conflicts of interest

The draft law aims to curb conflicts of interest in setting “critical” benchmarks, such as LIBOR and EURIBOR, which, by influencing financial instruments and contracts with an average value of at least €500 billion, could affect the stability of financial markets across Europe.

The final decision on whether a benchmark is “critical” would be up to ESMA and national authorities, but a national authority could also deem a benchmark administered within its territory to be critical if it has a “significant” impact on the national market.

Critical benchmark administrators would have to have a clear organizational structure to prevent conflicts of interest, and be subject to effective control procedures.

Critical benchmark-setting data would have to be verifiable and come from reliable contributors who are bound by a code of conduct for each benchmark. Contributors, such as banks contributing data needed to determine a critical benchmark, would have to notify the benchmark administrator and the relevant authority if they wished to cease doing so, but would nonetheless have to continue doing so until a replacement were found.

Transparency requirements

All benchmark administrators would have to be registered with the ESMA and would have to publish a “benchmark statement” defining precisely what their benchmark measures and to what extent it is reliable. They would also have to publish or disclose existing and potential conflicts of interest and meet accountability, record keeping, audit and review requirements.

The text will be put to a vote by Parliament as a whole to consolidate Parliament’s position before its three-way negotiations with EU member states and the European Commission.

European Parliament’s Committee on Economic and Monetary Affairs (ECON) Adopted its Report on Securities Financing Transactions

March 24, 2015 – the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted its report on securities financing transactions (SFTs). This document reflects ECON’s final position on measures to monitor the build-up of risk related to SFTs, disclosure of information on such transactions to investors, and contractual transparency requirements for re-hypothecation activities. Special attention is given to the exemption of title transfer collateral arrangements (such as the ISDA credit support documentation) from the transparency requirements in Art. 15.1a. This exemption is helpful as different political groups (eg, Socialists and Greens) and the European Commission (EC) previously supported wording that failed to adequately reflect the difference between title transfer and security interest arrangements. The Council of the European Union, European Parliament and EC will now attempt to reach an agreement before September.

ECON Publishes Report on Proposed Regulation on Money Market Funds

March 4, 2015 – The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published its report on the proposed Regulation on Money Market Funds (MMF Regulation). The legislative proposal will be considered by the European Parliament at its plenary session to be held between April 27 and 30, 2015.