European regulatory news Q2 & Q3 2020
Round-up of the latest European regulatory news.
Round-up of the latest European regulatory news.
In order to reduce the risk of regulatory arbitrage and ensure equal levels of investor protection throughout the EU, ESMA has produced a supervisory briefing addressed to NCAs, which focuses on how NCAs supervise the relevant cost-related provisions under UCITS and AIFMD and on the managers’ obligation to prevent undue costs charged to investors. The supervisory briefing, in addition to being addressed to NCAs, is also aimed at providing market participants with indications of NCAs’ expectations and compliant practices regarding the cost-related provisions of the UCITS and AIFMD frameworks.
ESMA and national competent authorities have identified many areas that could be improved in the legislation to enhance the supervision of alternative fund managers in Europe. ESMA's letter includes recommendations for changes in 19 areas including: (i) harmonising the AIFMD and UCITS regimes; (ii) delegation and substance; (iii) liquidity management tools; (iv) leverage; (v) the AIFMD reporting regime and data use; (vi) and the harmonisation of supervision of cross-border entities
The European Banking Authority (EBA) welcomed the EU Commission’s action plan on anti-money laundering and counterterrorist financing (AML/CFT), and stands ready to support the Commission’s considerations through the consultation, whilst continuing to fulfil its recently strengthened mandate to prevent ML/TF and use new powers to lead, coordinate and monitor the EU financial sector’s fight against ML/TF.
EBA published the results of its inquiry into dividend arbitrage schemes, which looked into the actions of prudential and anti-money laundering (AML) and countering the financing of terrorism (CFT) supervisors in dealing with such schemes. The resulting report sets out the EBA’s expectations of credit institutions and national authorities under the current regulatory framework. The EBA also decided on a 10-point action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.
The EBA issued a call for input to understand the scale and drivers of ‘de-risking‘ at EU level and its impact on customers. This call, which forms part of the EBA’s work to lead, coordinate and monitor the EU financial sector’s AML/CFT efforts, aims primarily to understand why financial institutions choose to de-risk instead of managing the risks associated with certain sectors or customers. This call for input is of interest to stakeholders across the financial sector and its users, as the EBA wants to hear from all groups affected by de-risking. The call for input runs until 11 September 2020.
The Basel Committee on Banking Supervision (BCBS) issued the updated version of its guidelines on Sound management of risks related to money laundering and financing of terrorism, with guides on the interaction and cooperation between prudential and anti-money laundering and combatting the financing of terrorism (AML/CFT) supervisors. These guidelines are intended to enhance the effectiveness of supervision of banks' money laundering and financing of terrorism risk management, consistent with and complementary to the goals and objectives of the standards issued by the Financial Action Task Force and principles and guidelines published by the Basel Committee.
In October 2019, the G20 asked the FATF to consider the anti-money laundering and counter-terrorism financing issues relating to so-called stablecoins. This report sets out the FATF’s views on so-called stablecoins and addresses the following: (i) what the characteristics of so-called stablecoins are; (ii) what the money laundering and terrorist financing risks of so-called stablecoins are; (iii) how the FATF Standards apply to so-called stablecoins and the different businesses involved in the so-called stablecoins; and (iv) how the FATF plans to enhance the global anti-money laundering and counterterrorism financing framework for virtual assets and stablecoins.
The report sets out the impact of the Basel III framework that was initially agreed in 2010 as well as the effects of the Committee's December 2017 finalisation of the Basel III reforms and the finalisation of the market risk framework published in January 2019. Given the June 2019 reporting date, the results do not reflect the economic impact of the coronavirus disease on participating banks. Nevertheless, the Committee believes that the information contained in the report will provide relevant stakeholders with a useful benchmark for analysis.
The package includes a proposal for targeted amendments to the Capital Requirements Regulation (CRR) and an Interpretative Communication on the application of the EU's accounting and prudential frameworks, which encourages banks and supervisory bodies to apply the rules more flexibly. The proposed amendments seek to maximise the ability of banks to lend and absorb losses related to coronavirus. In particular, the EC proposes: (i) exceptional temporary measures to alleviate the immediate impact of the pandemic; (ii) to advance the date of application of several agreed measures that incentivise banks to finance employees, SMEs and infrastructure projects. The Commission has published a Q&A on the new banking package.
The European Central Bank (ECB) has “totally rewired” this year’s exercise of setting each bank’s capital requirements due to the coronavirus crisis. A. Enria, chairperson of the ECB’s supervisory arm, told EU lawmakers that the Supervisory Review and Evaluation Process (SREP) for 2020 would focus on the “unfolding risks” for individual lenders and how they manage them. The ECB is also analysing banks’ vulnerability to different scenarios and hypothetical shocks.
The Single Resolution Board (SRB) finalized its policy on minimum requirements for own funds and eligible liabilities (MREL), following a proposal in February. Eurozone banks will need to build up more loss-absorbing capital in the coming years with firmer conditions on the financial instruments that count toward the requirements. Banks are required to maintain certain levels of the “bail-in” debt, which can be written down or converted to equity, in order to recapitalize a troubled lender while avoiding the need for a government bailout.
The Croatian Presidency has published a progress report on measures to strengthen the Banking Union during the first semester of 2020. The report sets out among other things: (i) parameters of the hybrid model, (ii) the treatment of non-CRR institutions and the inclusion of alternative and preventive measures as well as pay-outs; (iii) implementation of the Banking Package, including the EU Commission decision to postpone a new legislative proposal concerning the finalisation of post crisis reforms; (iv) specific COVID-19 related measures; and (v) the action plan to tackle NPLs, including the current status of legislative measures proposed by the EC.
The EBA published its 2019 Annual Report, which provides a detailed account of all the work the Authority achieved in the past year and anticipates the key areas of focus in the coming year.
The EBA wants to know if banks are shunning entire classes of clientele for fear of handing illicit cash rather than managing individual concerns as they come. The EBA called on lenders and other interested parties to answer 11 questions that home in on which customers they’re sending away and what services they’ve withdrawn in the name of “de-risking.” Responses are due September 11.
The proposal establishes a 100 % risk weight for certain senior tranches of non-performing loan securitisations. The risk weight applicable to other positions is determined by the existing hierarchy of approaches, in conjunction with a 100% risk weight floor and a ban on the use of certain inputs for capital requirements. The amendment does not change the applicable capital requirements to securitisations of performing assets.
EU countries signed off on a package of measures to loosen capital requirements for banks during the pandemic. The Council gave its nod of approval following a vote in the European Parliament last week. The package will become applicable for the bloc’s lenders the day after publication in the EU’s Official Journal and at the latest by end of June.
The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system. Key findings of the evaluation: (i) TBTF reforms have made banks more resilient and resolvable; (ii) the benefits of the reforms significantly outweigh the costs; (iii) there are still gaps that need to be addressed. Responses to the public consultation are invited by 30 September 2020.
The BCBS has issued the 18th progress report on adoption of the Basel regulatory framework. The progress report sets out the adoption status of Basel III standards for each Committee member jurisdiction as of end-May 2020. It includes the Basel III post-crisis reforms published in December 2017 and the finalised minimum capital requirements for market risk in January 2019. These reforms should take effect from 1 January 2023.
The report is intended to clarify the implementation of the EBA's April 2020 guidelines on legislative and non-legislative moratoria on loan repayments by addressing a number of interpretative questions and presents an overview of the general payment moratoria in place in the EU based on notifications sent to the EBA. Common criteria is set out to provide clarity on the supervisory and regulatory expectations regarding the treatment of COVID-19 operational risk losses in the capital requirement calculations. The report also encourages credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements.
The statement reiterates the importance of resolution planning in times of uncertainty to ensure that resolution stands as a credible option in times of stress. In addition, the statement highlights the importance for resolution authorities to continue promoting institutions' efforts to enhance their capabilities and increase their resolvability. Resolution authorities should: (i) take into account the impact of COVID-19 on banks and their business models when taking decisions on resolution plans and on the minimum requirement for own funds and eligible liabilities (MREL); and (ii) use and test resolution colleges as the main fora to exchange information and share decisions in these times of stress.
The EBA published guidelines that make available to competent authorities a special procedure for the supervisory review and evaluation process (SREP) for the year 2020. The new guidelines identify how flexibility and pragmatism could be exercised in relation to the SREP framework in the context of this pandemic. These guidelines apply from 23 July 2020.
This ninth ESRB Annual Report covers the year from 1 April 2019 to 31 March 2020. While that period includes the early onset of the coronavirus pandemic, the economic and financial consequences of the COVID-19 crisis have continued to evolve rapidly in subsequent months. This year’s Annual Report includes the ESRB’s assessment of risks up to June 2020 in order to reflect the new systemic risks that have emerged as the European economy has endured this extraordinary macroeconomic shock. COVID-19 and the associated containment measures have given rise to an economic contraction that is unprecedented in peacetime, triggering exceptional macroeconomic uncertainty and precautionary behaviour. The ESRB’s risk assessment also includes threats originating from system-wide cyber incidents, disruption to critical financial infrastructure, and climate change and transition risks, all of which remain critical for longer-term financial stability.
The ECB found that for some IT risk areas banks remain "too optimistic" in their self-assessment reports, particularly in the field of data quality management and IT risk management. Data integrity risk continues to be of concern, with deficiencies identified in IT data quality management and data architecture models. IT security is also considered a significant challenge for institutions, says the ECB, noting that the number of reported cyber incidents through its cyber incident-reporting framework has increased from year to year.
The ECB: (i) asks banks not to pay dividends and not to buy back shares until January 2021; (ii) expects banks to exercise extreme moderation on variable remuneration to conserve capital in crisis; (iii) ECB clarifies expected pace for banks to restore capital and liquidity positions, and; (iv) clarified that it will give enough time for banks to replenish their capital and liquidity buffers in order not to act pro-cyclically.
ECB announced changes to the organisational structure of its supervisory arm to ensure continued effective and efficient supervision of banks in the euro area and beyond: (i) the ECB aims to strengthen cooperation between bank-specific and thematic supervisory teams; (ii) a new structure reinforces supervisory strategy and risk function, ensuring consistency of supervisory outcomes; (iii) reorganisation to foster transparency and predictability of supervisory actions. The changes are expected to be completed in the fourth quarter of 2020.
This follows the publication, following consultation, of the SRB Expectations for Banks document, which sets out the capabilities the SRB expects banks to demonstrate to show that they are resolvable including the dimensions of OCIR and access to FMIs. The guidance on OCIR provides further clarifications to banks on how to implement SRB expectations related to service identification and mapping, assessment of operational continuity risk, mitigating measures such as having adequately documented, resolution-resilient contracts, appropriate management information systems and governance arrangements.
The British government published the draft documents setting out its approach to negotiations on a future relationship with the EU as Michael Gove blasted Brussels over its “ideological approach” to the Brexit talks. The government published texts online on a draft free-trade agreement, a draft fisheries plan, a draft air transport arrangement, draft social security coordination plan, draft civil aviation safety agreement, draft energy deal, draft civil nuclear cooperation plan, draft law enforcement and judicial cooperation proposal, and a proposal on how to deal with unaccompanied asylum-seeking children, and the “readmission of those residing without authorization.”.
The Council adopted by written procedure the conclusions on EU-UK relations thereby taking note of the UK government’s decision not to request and its intention to refuse an extension of the transition period foreseen in the Withdrawal Agreement. This means that the transition period will end on 31 December 2020. The Council also welcomes the plans agreed by the Chief Negotiators to intensify the negotiation process and to create the most conducive conditions for reaching an agreement before the end of 2020.
EU chief negotiator Michel Barnier rejected Britain’s proposals for financial services after Brexit and warned the UK is late in seeking “equivalence” recognition for its rules. “I will be blunt: its proposals are unacceptable,” Barnier said in response to British plans, in a speech published by the EC.
After the end of the transition period on 31 December 2020, the United Kingdom will be a third country as regards the implementation and application of EU law in the EU Member States. The EU Commission has updated its notice to remind stakeholders and economic operators on the legal situation implications that the end of the transition period will have on asset management activities.
The EC will grant U.K. clearinghouses short-term access to the EU market at the end of the Brexit transition period to prevent any turmoil in the financial system. “In light of possible risks to financial stability, the EC intends to adopt a time-limited equivalence decision,” tweeted Valdis Dombrovskis, the Commission’s financial services chief.
The EC set out guidelines for businesses, governments and citizens to prepare for the end of the transition period, regardless of whether and what kind of deal is agreed between the EU and the U.K. “Even in case of the most ambitious future partnership … there will be far-reaching and automatic changes and consequences for citizens, consumers, businesses, public administrations, investors, students and researchers, as of 1 January 2021,” the document reads.
The EU Commission has published updated stakeholder preparedness notices relating to financial services, originally published during the Article 50 negotiations. Updated notices, referred to as readiness notices, take into account the transition period and the EU-UK Withdrawal Agreement and seek to highlight consequences for public administrations, businesses and citizens as of 1 January 2021, regardless of the outcome of the negotiations on the future UK-EU relationship.
ESMA urges financial market participants to finalise preparations and implement suitable contingency plans in advance of the end of the UK transition period on 31 December 2020. ESMA also confirms that previously agreed MoUs on cooperation and information exchange concluded with the Financial Conduct Authority (FCA) remain valid and will come into effect at the end of the transition period. ESMA, EU national securities regulators, and the FCA confirm that these MoUs, agreed in 2019, remain relevant and appropriate to ensure continued good cooperation and exchange of information and will come into effect at the end of the transition period, which is set to expire on 31 December 2020
Europe’s banking regulator has warned lenders there is “no room for complacency” ahead of the end of the Brexit transition period. The EBA encouraged banks and payment firms to finalize their preparations before Britain leaves the single market and customs union at the end of the year. The Paris-based authority said financial players need to wrap up their contingency plans and alert customers to any changes to services.
The EU is stepping up its rules to make clearing houses safer and address systemic risk that could arise from their potential failure. The Presidency of the Council and the European Parliament reached a deal on a common set of rules for central counterparties (CCPs) and their authorities to prepare for and deal with financial difficulties. The proposed rules aim at providing national authorities with adequate tools to manage crises and to handle situations involving failures of key financial market infrastructures. They build on the same principles as the recovery and resolution framework applying to banks. Following finalisation of technical work, the political agreement will be submitted for endorsement by member states' ambassadors to the EU.
The measures aim to make it easier for capital markets to support European businesses to recover from the crisis. The package proposes targeted changes to capital market rules, which should encourage greater investments in the economy, allow for the rapid re-capitalisation of companies and increase banks' capacity to finance the recovery. Targeted amendments will make it easier for our businesses to get the funding they need and to invest in our economy. The package contains targeted adjustments to the Prospectus Regulation, MiFID II and securitisation rules. All of the amendments are at the heart of the Capital Markets Union project aimed at better integrating national capital markets and ensuring equal access to investments and funding opportunities across the EU. A Q&A is also available.
The review of the EU rules on European Long Term Investment Funds (ELTIF) will assess the contribution of the ELTIF legal framework to the completion of the Capital Markets Union and to the achievement of smart, sustainable and inclusive growth. A consultation in preparation is planned for Q4 2020. EU Commission adoption is planned for Q3 2021.
The EC has endorsed the ESMA’s proposal to push back the implementation of the CSDR until 1 February 2021. CSDR aims to improve settlement rates by imposing cash penalties for fails along with a mandatory buy-in requirement. The settlement discipline regime was originally due to come into effect in September but “technical impossibilities” scuppered this timeline.
ESMA updated its Q&As regarding the implementation of the CSDR. The Q&As relate to the implementation of the settlement discipline regime and clarifies that, for the purpose of initiating a buy-in process, the concept of “business days” under CSDR refers to the definition given in the rules of the securities settlement systems where the settlement fail occurred. The party in charge of the buy-in should initiate the buy-in process (i.e. check if a buy-in is possible and, if it is the case, launch an auction or appoint a buy-in agent, as the case may be) at any time during the business day (as defined in the rules of the securities settlement system where the settlement fail occurred) following the expiry of the extension period, and not necessarily at the start of that business day.
Delegated Regulation (EU) 2018/1229 supplementing the CSDR with regard to RTS on settlement discipline was due to come into force on 13 September. However, on 24 August 2020, Commission Delegated Regulation (EU) 2020/1212 was published in the OJ, which amends Delegated Regulation 2018/1229 to postpone its entry into force until 1 February 2021. The new Delegated Regulation enters into force on 27 August.
ESMA has published a final report on draft regulatory technical standards (RTS) definitively postponing the date of entry into force of the Commission Delegated Regulation (EU) 2018/1229 (RTS on settlement discipline) until 1 February 2022.
The newly added trade repository (TR) Q&As provides clarifications on reporting of OTC derivatives by a financial counterparty (FC) on behalf of a non-financial counterparty below clearing threshold (NFC-) under EMIR Refit. In particular, the Q&A clarifies: (i) the reportable details that the NFC- should provide to the FC; (ii) how the FC should proceed if the NFC- does not renew its LEI; (iii) how the FC should proceed if an NFC that has been classified as an NFC+ changes its status to NFC- and fails to timely inform the FC of this fact; (iv) how FC and NFC- should proceed if they report to two different trade repositories.
ESMA’s technical advice details how to specify the conditions under which the commercial terms for the provision of clearing services are to be considered fair, reasonable, non-discriminatory and transparent (FRANDT). The final report containing ESMA’s technical advice takes into account the feedback received, aiming to strike a balance between improving clearing client’s access to clearing services and ensuring such services are provided on FRANDT compliant terms, while ensuring the requirements are proportionate and within the mandate received.
ESMA, the EU’s securities markets regulator, has decided, in view of the effects of the ongoing COVID-19 pandemic on stakeholders and market participants, to extend the response date for the consultation on the technical standards on reporting, data quality, data access and registration of Trade Repositories under EMIR REFIT to 3 July 2020.
The EU is stepping up its rules to make clearing houses safer and address systemic risk that could arise from their potential failure. The proposed rules aim at providing national authorities with adequate tools to manage crises and to handle situations involving failures of key financial market infrastructures. They build on the same principles as the recovery and resolution framework applying to banks.
The updated TR Q&A clarifies that the counterparties should follow their local time and the relevant calendar of their Member State to specify the “working day” in the context of determining the deadline for reporting under EMIR. This clarification should be applied even if the two counterparties to the same derivative follow different calendars and/or are located in different timezones, meaning that each counterparty should follow its own local calendar and use the local time to determine the deadline for reporting.
ESMA has published a letter sent to the EC as a contribution to the EC consultation on the delegated acts on tiering, comparable compliance and fees related to third-country central counterparties (TC-CCPs) under the revised European Market Infrastructure Regulation (EMIR 2.2).
EU clearinghouses face a “significant risk” from concentrated positions in certain derivatives, according to a stress test conducted by the EU’s securities regulator. The European Securities and Markets Authority found concentration risk — as measured by the cost of liquidating a position in the market at short notice — is clustered in one or two clearinghouses for most asset classes.
The EC will propose an EU watchdog against money laundering and a single rulebook next year to tighten policing of dirty money. Executive Vice President Valdis Dombrovskis unveiled the action plan in response to banking scandals showing how illicit funds flowed across the bloc. The Commission also proposed a revised blacklist of 20 countries with weak defenses, including the Bahamas and Panama. EU banks doing business with clients in those countries will need to carry out extra checks on them.
The adjustments include a non-legislative proposal relating to a renewed sustainable finance strategy being issued in Q4 2020. A due date for a report on the application of the Electronic Identification and Signature Regulation has also been given (1 July 2020). The timing of initiatives regarding the FinTech action plan have not been changed. A strategy on an integrated EU payments market, along with a legislative proposal on crypto-assets and a cross-sectoral financial services legislative proposal on operational and cyber resilience are still expected in Q3 2020.
The Council adopted an amendment to the DAC allowing member states an option to defer by up to 6 months the time limits for the filing and exchange of certain information. Member states' ambassadors to the EU also reached a preliminary agreement on postponing by six months the application of the VAT regime applicable to online companies - as of 1 July 2021, instead of 1 January 2021.
The Council of the European Union’s deputy ambassadors approved the provisional agreement on a directive on collective redress. The new directive will allow consumers across the European Union to bring forward class action cases on legal matters ranging from data protection, air and passenger rights and financial services to tourism, energy and telecommunications.
The European Central Bank is seeking to clear obstacles to bank mergers by clarifying its approach to industry consolidation. The bank’s supervisory arm for eurozone lenders proposed guidelines on how it weighs up takeovers, to make its stance more predictable for the market and dispel banks’ concerns about punitive conditions.
The European Central Bank will prolong a strategy review due to the pandemic while elevating climate change and financial stability as priorities in that debate. President Christine Lagarde said the euro central bank will brainstorm over how it pursues price stability beyond its mid-2021 expected end date. “I would probably say second half of 2021 because there’s an awful lot of work that needs to be done,” Lagarde said in response to a journalist’s question. She spoke in a news conference after the ECB kept monetary policies unchanged in support of a fragile economic recovery.
The report entitled « A regulatory and financial stability perspective on global stablecoins » focuses on the asset management function of global stablecoins and the attendant risks to financial stability. The report provides a general description of stablecoin arrangements, before looking at how certain asset management functions might potentially be classified under current financial legislation. The ECB argues that, as things stand, depending on their specific design features regulatory gaps may exist. The ECB then discusses the financial stability risks that are posed if a stablecoin arrangement reaches a global scale. Finally, the ECB attemps to quantify potential financial stability risks by estimating the potential size of a global stablecoin arrangement, using the Libra initiative as an example.
The Council of the EU adopted a decision concerning restrictive measures against cyber-attacks threatening the EU or its Member States, that extends until 18 May 2021, the restrictive measures set out in Decision 2019/797. This decision shall be kept under constant review and shall also be renewed or amended as appropriate if the Council deems that its objectives have not been met. This Decision entered into force on 16 May 2020.
On 2 June 2020, the EU commission has launched a public consultation on the Digital Services Act (previously announced in the 19 February Commission's communication “Shaping Europe's Digital Future”), opened until 8 September 2020. This consultation is expected to lead to the most important regulatory intervention in the electronic marketplace since the adoption of the e-Commerce Directive in 2000.
Financial firms must keep a closer eye on their cloud data storage providers under draft guidelines from the Europe’s securities-market regulator. ESMA proposed stricter requirements for how financial firms assess and monitor their cloud outsourcing. ESMA and other financial watchdogs have voiced worries that the whole financial system could be vulnerable in case of problems at one of the few big providers such as IBM Cloud, Microsoft Azure and Amazon Web Services.
The draft guidelines’ purpose is to provide guidance on the outsourcing requirements applicable to financial market participants when they outsource to cloud service providers. In particular, they aim to help firms and competent authorities identify, address and monitor the risks and challenges that arise from cloud outsourcing arrangements. The consultation is open until 1 September and seeks feedback from both NCAs, financial market participants and cloud service providers, as the draft guidelines aim to ensure that potential risks firms may face from the use of cloud services are properly addressed. ESMA aims to publish the Final Report on the Guidelines by Q1 2021.
The Council adopted conclusions on shaping Europe’s digital future, addressing a wide range of issues related to the implementation of the EU digital strategy. The areas covered by the conclusions range from connectivity, digital value chains and eHealth to the data economy, artificial intelligence and digital platforms. The text also highlights the impact of the digital transformation on fighting the pandemic, and its critical role in the post-COVID-19 recovery.
The EC launched a survey on the review of its cybersecurity law covering critical infrastructure Thursday. The Commission is asking for feedback on its plans by August 13. The EU is expected to update its Network and Information Security Directive (NIS Directive) by year-end. The Commission plans a public consultation on the law in the third quarter of 2020. The updated law is expected to come out together with a new Cybersecurity Strategy, a new law on the protection of critical infrastructure and a proposal for a Joint Cybersecurity Unit.
The EC launched on 7 July a public consultation on the revision of the Directive on security of network and information systems (the NIS Directive). Since the current Directive entered into force in 2016, the cyber-threat landscape has been evolving quickly. The EU Commission now plans to kick-start the procedure for the revision of the NIS Directive, starting with a public consultation that aims to collect views on its implementation and on the impact of potential future changes. The consultation, which will be open until 2 October 2020, seeks opinions and experiences from all interested stakeholders and citizens.
This report sets out the FATF’s views on so-called stablecoins and addresses the following: (i) characteristics of so-called stablecoins; (ii) what the money laundering and terrorist financing risks of so-called stablecoins are; (iii) how the FATF Standards apply to so-called stablecoins and the different businesses involved in the so-called stablecoin; and (iv) how the FATF plans to enhance the global anti-money laundering and counter-terrorism financing framework for virtual assets and so-called stablecoins.
The EC will put forward a proposal for a digital tax in early 2021, with a view to introduce it “at the latest” by January 1 2023, according to the latest proposal for the bloc’s long-term budget presented by European Council President Charles Michel. The European Union estimates the tax could bring in €1.3 billion for the bloc’s budget if the Organisation for Economic Co-operation and Development (OECD) fails to deliver a plan.
AI is a fast-evolving and strategic technology with tremendous opportunities. However, some of its uses pose specific significant risks to the application of various EU rules designed to protect fundamental rights, ensure safety and attribute liability. The EU Commission considers that it is necessary to ensure AI is safe, lawful and in line with EU fundamental rights. The overall goal is to stimulate the uptake of trustworthy AI in the EU economy. Consultation feedback period : 23 July 2020 - 10 September 2020.
EU Commission aims to make more publicly-funded information available for new information products and innovation, in particular in Artificial Intelligence. This initiative defines a list of ‘high-value’ datasets held by the public sector (datasets whose re-use can have major benefits for society and the economy). Under the initiative, these datasets should be: re-usable for free, using application programming interfaces: (i) available in machine-readable format; (ii) downloadable in bulk, where possible. Consultation feedback period : 28 July 2020 - 25 August 2020.
ESMA published a consultation paper on guidelines on outsourcing to cloud service providers. The guidelines’ purpose is to provide guidance on the outsourcing requirements applicable to financial market participants when they outsource to cloud service providers. In particular, they aim to help firms and competent authorities identify, address and monitor the risks and challenges that arise from cloud outsourcing arrangements. The final guidelines are expected to be published in Q1 2021.
ESMA has issued a public statement to clarify the application of the MiFIR open access provisions (OAP) for trading venues (TVs) and central counterparties (CCPs) in light of the recent adverse developments related to COVID-19. It also aims to coordinate the supervisory actions of national competent authorities (NCAs) by setting out the issues they should consider when assessing OAP requests.
The transitional period expires on 3 July 2020. The current market environment, with a high degree of uncertainty and volatility driven by the COVID-19 pandemic, increases operational risks for CCPs and trading venues. Increased risk requires more focus on business continuity and the assessment of access requests may, in the current environment, have negative repercussions on the orderly functioning of markets in trading and clearing of exchange- traded derivatives. The co-legislators therefore agreed to extend the transitional period until 3 July 2021.
ESMA provides clarifications in relation to the reporting requirements for submission of transaction reports under Art. 26 of MiFIR and RTS 22. In particular, the new Q&A provides two reporting scenarios where an Investment Firm executes a transaction through an execution algorithm provided by another Firm. The amendments becomes effective from 8 July 2020.
ESMA has published its second report on sanctions and measures imposed under MiFID II by NCAs. Overall, in 15 (out of 30) EEA Member States, NCAs imposed a total of 371 sanctions and measures in 2019 of an aggregated value of about €1.8 million.
The EC adopted a capital markets recovery package that would roll back key planks of financial markets rules in an effort to stimulate the economy. The legislative proposal makes changes to the second markets in financial instruments directive (MiFID II) — the cornerstone of EU capital markets — and amends regulations governing prospectuses and securitization.
These Guidelines will be updated in 2020 to include a modification of the risk parameters to reflect recent market developments related to the COVID-19 crisis. ESMA has assessed whether the scenarios envisaged in the 2019 Guidelines are still appropriate and finds that applying the 2019 scenarios in the current market environment generally leads to absolute levels of stress similar to the levels observed in March 2020. In the interim, pending the 2020 update, all the sections of the 2019 Guidelines will continue to apply, including the internal stress test exercise to be carried out by managers of MMFs.
ESAs have informed the EU Commission of the outcome of the review conducted by the ESAs of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). This follows the ESAs’ consultation paper published on 16 October 2019 on draft regulatory technical standards (RTS) to amend the technical rules on the presentation, content, review and revision of KID. The three ESAs pointed out that "Given that the draft RTS was not adopted by the three ESA Boards, the ESAs are not in a position to formally submit an RTS to the Commission".
The ESMA has launched a consultation on draft Guidelines on the calculation of positions by TRs under the Securities Financing Transactions Regulation (SFTR). The aim of the Guidelines is to ensure consistency of position calculation across TRs, with regard to the time of calculations, the scope of the data used in calculations, the data preparation, the recordkeeping of data and the calculation methodologies. The closing date for responses is 15 September 2020. ESMA will consider the responses to this consultation with a view to finalise the proposed Guidelines and to publish a final report in Q4 2020/Q1-2021.
It requires natural or legal persons who have net short positions in relation to a share admitted to trading on a regulated market to notify to a competent authority details of any such position if the position reaches or exceeds 0,1 % of the issued share capital. The measure imposed by the ESMA Decision addresses the necessity for national competent authorities and ESMA to be aware of the net short positions that market participants have entered into in relation to shares admitted to trading on a regulated market, given the recent exceptional developments in financial markets.
European financial regulators are lifting short-selling bans as stock markets have stabilized since a bruising slide in March brought on by the coronavirus pandemic. The European Securities and Markets Authority (ESMA) said the Austrian, Belgian, French, Greek, Italian and Spanish authorities will scrap the bans as of midnight on Monday. The Paris-based authority said it had contributed to the “aligned action” to lift the bans. Still, it is maintaining a lower EU-wide threshold for traders to report short positions.
This Decision renews the temporary requirement to natural or legal persons who have net short positions to temporarily lower the notification thresholds of net short positions in relation to the issued share capital of companies whose shares are admitted to trading on a regulated market to notify the competent authorities exceeding or falling below 0,1 % of the issued share capital. This Decision enters into force on 17 June 2020. It shall apply from the date of its entry into force for a period of three months.
Following EIOPA’s Recommendations of 20 March 2020 on annual and quarterly reporting and publication deadlines, EIOPA considers that insurance and reinsurance undertakings should now be in condition to comply with the deadlines provided in the Solvency II framework.
The EU is putting in place a common classification system to encourage private investment in sustainable growth and contribute to a climate neutral economy. The taxonomy will enable investors to refocus their investments on more sustainable technologies and businesses. It will be key to enabling the EU to become climate neutral by 2050 and achieve the Paris agreement's 2030 targets. These include a 40% cut in greenhouse gas emissions, for which the Commission estimates that the EU has to fill an investment gap of about 180 billion EUR per year. The future framework will be based on six EU environmental objectives:
The taxonomy for climate change mitigation and climate change adaptation would be established by the end of 2020 in order to ensure its full application by end of 2021. For the other objectives, the taxonomy should be established by the end of 2021 for application by the end of 2022.
The EU Commission is consulting on the Delegated Regulation supplementing Regulation 2016/1011 regarding the minimum content of the explanation on how ESG factors are reflected in the benchmark methodology. These criteria are designed to make it easier to compare assets and make well-informed investment choices. The feedback period closed in May 2020.
The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) have issued a Consultation Paperseeking input on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products. These standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR).
In light of the absence of relevant Delegated Acts (DAs), specifying the requirements of Carbon Benchmarks with regards to the disclosure of ESG factors, ESMA acknowledges the difficulties benchmark administrators face in order to fulfil the Level 1 requirements and opines ‘that NCAs should not prioritise supervisory or enforcement action against administrators regarding these new requirements until the Delegated Acts apply’. In addition, ESMA also issued an Opinion to the EC, stating that any delay in the adoption of the DAs should be avoided.
EU Commission adopts communication to the EU Parliament concerning the position of the Council on the adoption of a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment 2018/0178 (COD), and amending Regulation 2019/2088 on sustainability-related disclosures in the financial services sector.
The EC has approved all requests made by 18 Member States for support with the preparation of their territorial just transition plans, which each Member State will have to draw up to get access to funding from the Just Transition Mechanism (JTM). The JTM is part of the European Green Deal Investment Plan and will mobilise at least €100 billion of investments to provide additional targeted support to the regions most impacted by the transition towards a climate-neutral economy and with less capacity to deal with the challenge.
The guide, developed by the ECB and NCAs is not legally binding. It describes how the ECB expects significant institutions to consider climate-related and environmental risks when formulating and implementing their business strategy and governance and risk management frameworks. It further explains how the ECB expects institutions to become more transparent by enhancing their climate-related and environmental disclosures. Deadline for comments is 25 September 2020.
The EU Commission published several draft delegated directives and regulations related to sustainable finance for consultation. The draft acts modify some of the main European sectoral legislation - MiFID (1, 2), UCITS/AIFMD (1,2) and IDD/Solvency II (1,2) - and are intended to clarify the duties of financial institutions (notably product oversight and governance obligations) to integrate sustainability matters. The feedback period is open from 8 June 2020 to 6 July 2020.
ESMA has submitted a response to the EC consultation on a revision of the Non-Financial Reporting Directive (NFRD). The response recommends standardising disclosure requirements, widening the range of companies required to report and ensuring consistency between legislative initiatives on sustainable finance.
The European Union is considering financial incentives to help spur the growth of the green-bond market, according to a consultation on an EU Green Bond Standard launched. The euro is the dominant currency for green bond issuance but the EU lacks a uniform set of standards for the financial instruments. Consultation period : 12 June 2020 - extended to 2 October 2020.
The EU Parliament has adopted at second reading a regulation on the establishment of a framework or 'taxonomy' to facilitate sustainable investment. The Taxonomy Regulation, which is intended to provide businesses and investors with a common language to identify those economic activities that are considered environmentally sustainable. The Regulation will enter into force on the 20th day following its publication.
Regulation (EU) 2020/852, the taxonomy regulation, intends to provide businesses and investors with a common language to identify economic activities that are considered environmentally sustainable. It will enter into force on 12 July 2020. Articles 4, 5, 6 and 7 and Article 8(1), (2) and (3) shall apply:
This initiative aims at revising the EU consumer law to enhance the participation of consumers in the green transition by ensuring that consumers receive trustworthy and relevant information on products, including on their lifespan and on the availability of repair services. It will also consider further strengthening consumer protection against greenwashing and premature obsolescence, and setting minimum requirements for logos or information tools showing products’ sustainability traits. Feedback period: 23 June 2020 - 01 September 2020.
The response covers a broad range of topics from strengthening the foundations for sustainable finance, increasing opportunities for citizens, financial institutions and corporates to have a positive impact on sustainability, to managing and reducing risks relating to ESG factors. The Chairs of the ESAs have submitted a joint letter to the EC highlighting common main messages which are of particular importance for Europe’s strategy in the area of sustainable finance.
New rules have been adopted which set out minimum technical requirements for EU Climate Benchmarks, as well as a number of ESG disclosure requirements. New rules also set out a number of ESG disclosure requirements for benchmark administrators, including disclosures related to the Paris Agreement. This delegated act will further contribute to an increased level of transparency and comparability on the products offered to the public. The delegated regulations will enter into force 20 days following their publication in the Official Journal.
This initiative complements the Taxonomy Regulation with a delegated act specifying the requirements for entities subject to the Non-Financial Reporting Directive or NFRD to publish information on how and to what extent their activities are associated with the EU taxonomy. The delegated act will be adopted by June 2021 and it is distinct from two other delegated acts under the taxonomy regulation that set technical screening criteria for six environmental objectives and are to be adopted by 31 December 2020 and 31 December 2021. Feedback period : 28 July 2020 - 08 September 2020
This initiative aims to improve the EU regulatory framework on company law and corporate governance. It would enable companies to focus on long-term sustainable value creation rather than short-term benefits. It aims to better align the interests of companies, their shareholders, managers, stakeholders and society. It would help companies to better manage sustainability-related matters in their own operations and value chains as regards social and human rights, climate change, environment, etc. Feedback period: 30 July 2020 - 08 October 2020