NCAs

ESMA Publishes Guidelines on Risk Factors Under Prospectus Regulation

 

On March 29, the European Sescurities and Markets Authority (ESMA) published a report setting out final guidelines on how national competent authorities (NCAs) should review risk factors as required by the new Prospectus Regulation. The aim of the guidelines is to encourage more appropriate, focussed and streamlined risk factor disclosures for securities and are intended to assist NCAs in their review of disclosure. ESMA noted that in 2019 it will focus on the consistency of application of the guidelines on risk factors by NCAs.

The purpose of including risk factors in a prospectus is to help investors make informed investment decisions by enabling them to assess the risks. Risk factors generally include information concerning: the issuer’s financial situation, business activities and industry; the nature of the security; external risks such as legal and regulatory, environmental, social and governance.

A copy of the report can be found here.

EIOPA Publishes Recommendations for Insurers in Event of No-Deal Brexit

On February 19, EIOPA published recommendations (EIOPA-BoS-19/040) on providing guidance on the treatment of UK insurance undertakings and distributors with regard to cross-border services in the EU in the event of the UK leaving the EU without a deal.

The recommendations are addressed to NCAs and their general objective is to minimise the detriment to policyholders with cross-border insurance contracts. They are issued in accordance with Article 16 of the EIOPA Regulation (1094/2010), and are based on the Solvency II Directive (2009/138/EC), the Insurance Distribution Directive ((EU) 2016/97) (“IDD“), EIOPA guidelines and other relevant EIOPA instruments.

The recommendations relate to matters including the following:

  • Authorization of third-country branches. In accordance with Article 162 of Solvency II, UK insurance undertakings may seek authorization to carry out cross-border business through a branch in a member state.
  • Orderly run-off. NCAs should prevent that UK undertakings conclude new insurance contracts or establish, renew, extend, increase or resume insurance cover under the existing insurance contracts in their jurisdiction if they are not authorized for such insurance activities under EU law. This is without prejudice to policyholder rights to exercise an option or right in an existing insurance contract to realize their pension benefits.
  • Change in the habitual residence or establishment of the policyholder. If a policyholder with habitual residence or, in the case of a legal person, place of establishment in the UK, concluded a life insurance contract with a UK insurance undertaking and afterwards the policyholder changed its habitual residence of place of establishment to a EU27 member state, NCAs should consider in the supervisory review that the insurance contract was concluded in the UK.
  • Distribution activities. NCAs should ensure that UK intermediaries and entities that intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal, are established and registered in the EU27 in line with the relevant provisions of the IDD.
  • Portfolio transfer. If it was initiated before the withdrawal date, the NCAs should allow the finalization of portfolio transfer from UK insurance undertakings to EU27 insurance undertakings.

Competent authorities must inform EIOPA whether they comply or intend to comply with the recommendations within two months of the translated versions being issued. They will apply as of the date the UK leaves the EU.

EIOPA Publishes Framework for Identifying Conduct Risks

 

On February 20, the European Insurance and Occupational Pensions Authority (“EIOPA“) published a framework for assessing conduct risk through the lifecycle of an insurance product.

The purpose of the framework is to identify the drivers of conduct risk and the way in which these are detrimental to consumers. The aim is to help identify the issues faced by consumers and provide input on the types of risks EIOPA and national competent authorities (“NCAs“) should focus on. READ MORE

EIOPA Publishes Results of Peer Review Under Solvency II

 

On January 25, the European Insurance and Occupational Pensions Authority (“EIOPA“) published the results of its peer review that examined how national competent authorities (“NCAs“) evaluated the propriety of administrative, management or supervisory body (“AMSB“) members and qualifying shareholders between January 2016 and May 2017.

Important areas of risk include:

  • A number of regulatory frameworks are not aligned with the Solvency II framework and NCAs are applying different standards and scope while assessing propriety.
  • Very few NCAs perform continuing assessment of the propriety of qualifying shareholders and AMSB members. Continuing assessment should involve proactive, risk-based and proportionate engagement resulting from the NCAs’ own initiative, as part of its supervisory activities.
  • Some NCAs do not make their supervisory expectations and standards known internally to supervisory staff and externally to insurers.

Insurers are required to be owned and run by persons of integrity and of good repute to ensure sound and proper management under the Solvency II Directive (2009/138/EC).

The results published by EIOPA can be found here.

EIOPA Launch Big Data Review of the Motor and Health Insurance Markets

 

The European Insurance and Occupational Pensions Authority (“EIOPA“) has published a press release on July 6, 2018 announcing the launch of an EU wide review on the use of Big Data. The focus of the review is on the motor and health insurance markets.

The review is intended to gather empirical evidence on the use of Big Data by insurance undertakings and intermediaries along the whole insurance value chain (including pricing and underwriting, in product development, in claims management, as well as in sales and marketing).

The review will analyze the potential benefits and risks for both industry and consumers to determine what (if any) supervisory and regulatory actions are required. It will assess new business models and data quality issues arising from Big Data, including implications for consumers.

EIOPA will conduct the review in co-operation with national competent authorities (“NCAs“) with a view to covering at least 60% of the motor and health insurance markets in each member state. The data is intended to be collected during July and August 2018. The following quantitative and qualitative questionnaires have been sent to NCAs, consumer associations and representative sample of insurance undertakings:

EIOPA intends to publish the review’s key findings in the first quarter of 2019.

The review follows the cross-sectoral review of the use of Big Data by financial institutions published by the Joint Committee of the European Supervisory Authorities (“ESAs“) in March 2018.

EBA Opinion and Draft Guidelines on Implementation of Delegated Regulation Setting Out RTS on SCA and CSC Under PSD2

 

On June 13, 2018, the European Banking Association (“EBA“) published a consultation paper (EBA/CP/2018/09) on draft guidelines on the conditions to be met to benefit from an exemption from contingency measures under Article 33(6) of Delegated Regulation (EU) 2018/389, which sets out regulatory technical standards (“RTS“) on strong customer authentication (“SCA“) and common and secure communication (“CSC“) under the revised Payment Services Directive ((EU) 2015/2366) (“PSD2“).

Alongside the consultation paper, the EBA has published an opinion (EBA-Op-2018-04) on implementation of the RTS on SCA and CSC. Both the draft guidelines and the opinion are designed to clarify a number of issues identified by market participants relating to the RTS on SCA and CSC, which will apply from 14 September 2019.

The draft guidelines propose a pragmatic and consistent approach to the four conditions that an account servicing payment service provider (“ASPSP“) must meet if it wishes to benefit from an exemption from the fallback option envisaged under Article 33(6) of the Delegated Regulation. The EBA considers that the draft guidelines provide clarity for all parties involved (that is, ASPSPs, national competent authorities (“NCAs“) and the EBA) on the information to be considered to determine whether an exemption request meets the Article 33(6) conditions. In particular, the guidelines will enable NCAs to carry out a quick assessment of exemption requests, especially during the time when the bulk of these requests are received.

The EBA plans to hold a public hearing to discuss the draft guidelines on 25 July 2018. Comments can be made on the draft guidelines until 13 August 2018.

The opinion focuses on implementation of the RTS. It sets out the EBA’s views in “pressing” areas identified by the market and NCAs, including on exemptions to SCA, consent, the scope of data sharing, and requirements for application programming interfaces (“APIs“) and dedicated interfaces to take into account. Although the opinion is addressed to NCAs, given the supervisory expectations it is conveying, the EBA advises it should prove useful for PSPs, among others.

In the opinion, the EBA explains that it will provide further clarification on interpretation of the RTS on SCA and CSC through its online interactive single rulebook and Q&A tool. The tool will be extended to PSD2-related queries by the end of June 2018.

ESMA Publishes Opinion on the Effect of Excluding Fund Managers From the Scope of MiFIR Intervention Powers

 

On January 12, 2017, the ESMA published an opinion on the impact of exclusion of fund management from the entire scope of MiFIR (Markets in Financial Instruments Regulation) (Regulation 600/2014).

Although, under Articles 40 and 42 of MiFIR, the ESMA and other NCAs (national competent authorities) can prohibit and restrict the sale, marketing and/or distribution of specific financial instruments or shares in Alternative Investment Funds (AIFs), this power applies only to credit institutions and MiFID firms and excludes from its scope any alternative investment fund managers that might be authorized under the AIFM Directive (2011/61/EU) or to UCITS management companies so authorized under the UCITS IV Directive (2009/65/EC).

The ESMA has commented with the opinion that the intervention powers within MiFIR may create arbitrage situations between fund management companies themselves, as well as between fund management companies and MiFID firms. It has also stated that both the ESMA and relevant NCAs should be given the power to apply the restrictions under MiFIR directly to fund management companies.

Commission Extends by One Year the Application Date for the MiFID II Package

On February 10, the European Commission published a press release announcing it is proposing a one year extension to the application date of the MiFID II legislative package (that is, the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR).

To implement its proposal, the Commission has published:

  • A legislative proposal for a Directive amending the MiFID II Directive as regards certain dates.
  • A legislative proposal for a Regulation amending 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.

Member states must transpose the MiFID II Directive by July 3, 2016. Both the MiFID II Directive and MiFIR are scheduled to apply from January 3, 2017. Under the Commission’s proposal, national competent authorities (NCAs) and market participants will have an additional year to comply with MiFID II. The proposed new application date is January 3, 2018.

The Commission is proposing the application date extension as a result of the complex technical data infrastructure that needs to be established so that MiFID II can operate effectively. As a result of significant challenges in collecting the data that is needed, ESMA informed the Commission in October 2015 that neither NCAs nor market participants will have the necessary systems ready by January 3, 2017. As a result, ESMA has concluded that a delay is unavoidable.

In the light of these exceptional circumstances, and to avoid legal uncertainty and potential market disruption, the Commission considers an extension of the MiFID II application date is necessary.