SCANNING MARCH 2017

European Regulatory Watch Newsletter


Summary

EUROPE

Corporate Governance - Parliament endorses SRD 2

  • Background

    On 11 July 2007, Directive 2007/36/EC of the EU Parliament and of the Council of the EU was adopted ("SRD 1", available here). It aims at tackling shortcomings of shareholders rights to enable shareholders regardless of their residence into the EU, to exercise their voting rights. SRD 1 applies since 3 August 2009.

    The 2008 crisis aftermath has revealed that shareholders in many cases supported managers’ excessive short-term risk taking, hence on 9 April 2014, the EU Commission proposed a draft proposal to the EU Parliament and Council, amending in that sense SRD 1 by introducing a "say on pay" for EU largest companies (available here).

    On 9 December 2016, the EU committee of permanent representatives ("Coreper") endorsed the agreement reached between the Council of the EU and the EU Parliament representatives on the SRD 2 proposal (the "SRD 2 Proposal"). Intermediaries providing services to shareholders or other intermediaries with respect to shares of companies which have their registered offices in a Member State and the shares of which are admitted to trading on a regulated market would be in scope of SRD 2.

    What's new?

    On 14 March 2017, the EU Parliament adopted its position at first reading with a view to the adoption of SRD 2 (the "SRD 2 Text") and published a press release on the subject (the "Press Release"). On the same date, the EU Commission released a Q&A (the "Q&A").

    The SRD 2 Text does not substantially departs from the SRD 2 Proposal cited above. The SRD 2 once adopted by the Council of the EU will amend the SRD 1 by fostering and sharpening the engagement of shareholders of big EU firms in the long-run performance mainly with the insertion of the following new chapters and articles:

    • Chapter Ia on shareholders identification ("ID");
    • Chapter Ib on transparency requirements applicable to (i) institutional investors, (ii) asset managers, and (iii) proxy advisors;
    • Articles 9a, 9b, 9c on shareholders 'say on pay'; and
    • Chapter II on implementing acts and penalties.

    The SRD 2 Text is available here.
    The Q&A is available here.
    The Press Release is available here.

    What's next?

    The EU Commission has received mandate (i) to release ITS on the format of the ID transmitted, the request and the deadlines 15 months after the entry into force of the SRD 2, and to (ii) submit a report to the two legislators on the implementation of the EP and EIS five years after the entry into force of the SRD2.

    The final adoption step shall take place in the Council of the EU shortly.

  • CRD IV - Commission implementing regulation 2017/461 for proposed acquisitions of qualifying holdings published in the OJEU

  • Background

    On 26 June 2013, the EU Parliament and the Council of the EU adopted Regulation (EU) No 575/2013 ("CRR") and Directive 2013/36/EU ("CRD IV") on prudential requirements for credit institutions and investment firms (jointly referred to as the "CRD IV package", respectively available here and here).

    CRD IV sets out the legal framework for the prudential assessment of acquisitions by natural or legal persons of qualifying holdings in credit institutions and of further increases of such holdings, and recognises the potential international and cross-sectorial dimensions of such acquisitions.

    Pursuant to Article 24 of CRD IV, the relevant competent authorities shall fully consult each other when carrying out the assessment of proposed acquisitions if the proposed acquirer is one of the following:

    • A credit institution, insurance undertaking, reinsurance undertaking, investment firm, or a UCITS management company authorised in another Member State or in a sector other than that in which the acquisition is proposed;
    • The parent undertaking of a credit institution, insurance undertaking, reinsurance undertaking, investment firm or UCITS management company authorised in another Member State or in a sector other than that in which the acquisition is proposed; or
    • A natural or legal person controlling a credit institution, insurance undertaking, reinsurance undertaking, investment firm or UCITS management company authorised in another Member State or in a sector other than that in which the acquisition is proposed.

    According to Article 22(9) of CRD IV, the European Banking Authority ("EBA") shall develop draft implementing technical standards to establish common procedures, forms and templates for the consultation process between the relevant competent authorities as referred to in Article 24 of CRD IV (the "ITS").

    On 22 September 2016, EBA published its final report concerning the ITS (EBA/ITS/2016/05, available here). The ITS sets out requirements for the designation of contact points by competent authorities, as well as a timeframe and process for submitting the consultation notice and for providing the response, which is meant to ensure a timely assessment of the proposed acquisition. In addition, the ITS provides templates for the consultation notice and for the response from the requested authority.

    What's new?

    On 17 March 2017, the EU Commission implementing regulation 2017/461 of 16 March 2017 laying down the ITS was published in the OJEU (the "Implementing Regulation").

    The Implementing Regulation is available here.

    What's next?

    All EU Member States and concerned institutions shall forthwith comply with the provisions of the Delegated Regulation 2017/208.

  • CRR - Entry into force of Commission Delegated Regulation 2017/208

  • Background

    Regulation (EU) 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms applies since 1 January 2014 ("Capital Requirements Regulation" or "CRR", available here).

    Article 423(3) of CRR refers to collateral needs; it provides that 'institutions are to add an additional outflow corresponding to collateral needs that would result from the impact of an adverse market scenario on the institution’s derivatives transactions, financing transactions and other contracts if material'.

    In accordance with the same Article 423 (3), the EU Commission is empowered to adopt delegated acts specifying the conditions of application in relation to the notion of materiality and the methods for measurement of additional collateral outflows resulting from the impact of such adverse market scenario.

    On 27 March 2014, the European Banking Authority ("EBA") submitted the draft regulatory technical standards ("RTS") with regard to additional collateral outflows under Article 423(3) of CRR to the EU Commission for endorsement (available here).

    On 3 December 2015 the EU Commission informed the EBA about its intention not to endorse the draft RTS (available here).

    On 3 May 2016, EBA re-submitted the draft RTS to the EU Commission in the form of a formal opinion (available here). The calculation of the additional collateral outflows in the draft RTS are based on the Historical Look Back Approach ("HLBA") for market valuation changes as developed by the Basel Committee on Banking Supervision (available here).

    On 31 October 2016, the EU Commission published its delegated regulation supplementing CRR with regard to RTS for additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution’s derivatives transactions ("Delegated Regulation", available here).

    In the Delegated Regulation, 'an institution’s derivatives transactions shall be considered material where the total of notional amounts of such transactions has exceeded 10% of the net liquidity outflows as referred to in Article 412(1) of CRR at any time in the previous two years. The additional outflow corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution’s derivatives transactions considered as material, shall be the largest absolute net 30-day collateral flow realised during the 24 months preceding the date of calculation of the liquidity coverage requirement'.

    What's new?

    On 28 February 2017, the Delegated Regulation as published in the OJEU on 8 February 2017 entered into force ("Delegated Regulation 2017/208").

    The Delegated Regulation 2017/208 is available here.

    What's next?

    All EU Member States and concerned institutions shall forthwith comply with the provisions of the Delegated Regulation 2017/208.

  • CSDR - ESMA publishes list of CAs

  • Background

    Regulation (EU) 909/2014 on improving securities settlement in the EU and on central securities depositories ("CSDs") entered into force on 17 September 2014 ("CSDR", available here).

    In accordance with Article 11(1) of CSDR, each EU Member State shall 'designate the competent authority ("CA") responsible for carrying out the duties under CSDR for the authorisation and supervision of CSDs established in its territory and shall inform ESMA thereof'.

    What's new?

    On 24 February 2017, ESMA published on its website the list of CAs designated in accordance with Article 11(1) of CSDR (ESMA70-708036281-159, the "List").

    It is to be noted that in the List no information has been provided for Finland, Greece, Italy, Luxembourg and Poland.

    The List is available here.

    What's next?

    The List will be updated on an ongoing basis.

  • CSDR - Package of 6 Commission delegated acts published in the OJEU

  • Background

    Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories ("CSDs") entered into force on 17 September 2014 ("CSDR", available here). It applies since the same date (with the exception of transitional measures application dates).

    The main objective of CSDR is to increase the safety and efficiency of securities settlement and settlement infrastructures in the EU by providing, among others, for the following:

    • Shorter settlement periods;
    • Settlement discipline measures (mandatory cash penalties and "buy-ins" for settlement fails);
    • An obligation regarding dematerialisation for most securities;
    • Strict prudential and conduct of business rules for CSDs;
    • Strict access rights to CSD services; and
    • Increased prudential and supervisory requirements for CSDs and other institutions providing banking services ancillary to securities settlement.

    On 23 July 2014, the EU Commission published its first FAQ on CSDR (available here).

    On 3 October 2014, the EU Commission published its second FAQ on CSDR concerning (i) the timing of implementation, (ii) the scope of the CSDR requirements and (iii) the position of third country CSDs (available here).

    Overall, CSDR empowers the EU commission to adopt seven delegated acts on various CSD requirements provisions (e.g. on prudential and supervisory requirements for CSDs, on reporting and transmission of information on internalised settlements, etc.).

    What's new?

    On 10 March 2017, two EU Commission implementing regulations and four EU Commission delegated regulations supplementing CSDR were published in the OJEU (the "CSDR Level 2 Package").

    The CSDR Level 2 Package is composed of the following documents:

    • Commission Delegated Regulation (EU) 2017/389 of 11 November 2016 supplementing CSDR as regards the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States ("Delegated Act", available here);
    • Commission Delegated Regulation (EU) 2017/390 of 11 November 2016 supplementing CSDR with regard to regulatory technical standards ("RTS") on prudential requirements for CSDs and designated credit institutions offering banking-type ancillary services ("RTS on CSD Prudential Requirements", available here);
    • Commission Delegated Regulation (EU) 2017/391 of 11 November 2016 supplementing CSDR with regard to RTS further specifying the content of the reporting on internalised settlements ("RTS on Internalised Settlement", available here);
    • Commission Delegated Regulation (EU) 2017/392 of 11 November 2016 supplementing CSDR with regard to RTS on authorisation, supervisory and operational requirements for CSDs ("RTS on CSD Requirements", available here);
    • Commission Implementing Regulation (EU) 2017/393 of 11 November 2016 laying down implementing technical standards ("ITS") with regard to the templates and procedures for the reporting and transmission of information on internalised settlements in accordance with CSDR ("ITS on Internalised Settlement", available here); and
    • Commission Implementing Regulation (EU) 2017/394 of 11 November 2016 laying down ITS with regard to standard forms, templates and procedures for authorisation, review and evaluation of CSDs, for the cooperation between authorities of the home Member State and the host Member State, for the consultation of authorities involved in the authorisation to provide banking-type ancillary services, for access involving CSDs, and with regard to the format of the records to be maintained by CSDs in accordance with CSDR ("ITS on CSD Requirements", available here).

    In addition, the CSDR Level 2 Package is expected to be complemented by the delegated acts to be adopted by the EU Commission pursuant to Articles 6(5) and 7(15) of CSDR, based on ESMA draft RTS submitted to the EU Commission on 2 February 2016 ("Draft RTS on settlement discipline", available here).

    What's next?

    On 30 March 2017, the Delegated Act, the RTS on CSD Prudential Requirements, the RTS on Internalised Settlement, the RTS on CSD Requirements, and the ITS on CSD Requirements shall enter into force.

    On 10 March 2019, the ITS on Internalised Settlement shall enter into force.

    Article 54 of the RTS on CSD Requirements ("Transaction/settlement instruction (Flow) records") and Article 11(1) of the ITS on CSD Requirements ("Format of records") shall apply from the date of entry into force of the (Draft) RTS on settlement discipline.

    The Delegated Act and the RTS on Internalised Settlement will be applicable as from 10 March 2019.

  • CSDR - ESMA releases first Q&A

  • Background

    Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories ("CSDs") entered into force on 17 September 2014 ("CSDR", available here). It applies since the same date (with the exception of transitional measures application dates).

    On 16 April 2014 the EU Commission issued, its first FAQ on CSDR (available here). The FAQ was made available to the public on 23 July 2014.

    On 3 October 2014, the EU Commission published its second FAQ on CSDR concerning (i) the timing of implementation, (ii) the scope of the CSDR requirements and (iii) the position of third country CSDs (available here).

    On 10 March 2017, two EU Commission implementing regulations and four EU Commission delegated regulations supplementing CSDR were published in the OJEU (the "CSDR Level 2 Package"):

    • Delegated Act (available here);
    • RTS on CSD Prudential Requirements (available here);
    • RTS on Internalised Settlement (available here);
    • RTS on CSD Requirements (available here);
    • ITS on Internalised Settlement (available here); and
    • ITS on CSD Requirements (available here).

    In addition, the CSDR Level 2 Package is expected to be complemented by the delegated acts to be adopted by the EU Commission pursuant to Articles 6(5) and 7(15) of CSDR, based on ESMA draft RTS submitted to the EU Commission on 2 February 2016 ("Final Report on settlement discipline", available here).

    What's new?

    On 13 March 2017 ESMA released its first set of questions and answers on CSDR (ESMA70-708036281-2, the "Q&A").

    The Q&A is addressed to national competent authorities ("NCAs") to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. It should also help CSDs, their participants, investors and other market participants by providing clarity on the implementation of CSDR requirements.

    The Q&A focuses on CSD requirements provisions, which will enter into force on 30 March 2017 and will trigger the CSD authorisation process. Prospective CSD applicants will have until the end of September 2017 to apply for authorisation.

    The Q&A is divided into two parts:

    • The first part relates to general questions (definition of "providing regulatory services");
    • The second part sheds light on various CSD questions (e.g. authorisation and supervision of CSDs, organisational requirements, record keeping, conduct of business rules, protection of securities of participants and those of their clients, prudential requirements – operational risks, and market infrastructures).

    The Q&A is available here.

    What's next?

    ESMA will update the Q&A on a regular basis.

  • EMIR - Commission postpones clearing obligation deadline for Category 3 counterparties

  • Background

    Regulation (EU) 648/2012 dealing with over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") applies since 16 August 2012 ("EMIR", available here).

    In accordance with Article 5(2) of EMIR, the EU Commission is empowered to adopt draft regulatory technical standards ("RTS") in relation to the clearing obligation, most notably on the date from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies.

    In this context, there are currently three EU Commission delegated regulations in force on the clearing obligation:

    • EU Commission delegated regulation 2015/2205 (available here);
    • EU Commission delegated regulation 2016/592 (available here); and
    • EU Commission delegated regulation 2016/1178 (available here);

    As regards Category 3 counterparties (i.e. financial counterparties and certain funds which are classified as non-financial counterparties belonging to a group whose aggregate positions in OTC derivatives are EUR 8 billion or below), the start date of the clearing obligation was set as follows:

    • 21 June 2017 for OTC interest rate derivatives denominated in EUR, GBP, JPY, and USD; and
    • 9 February 2018 for OTC index credit default swaps and for OTC interest rate derivatives denominated in NOK, PLN and SEK.

    On 14 November 2016, ESMA published its final report on the clearing obligation for financial counterparties with a limited volume of activity (ESMA/2016/1565 - the "Final Report", available here). In order to cater for the important difficulties some Category 3 counterparties are facing in preparing for the clearing obligation (due to complexities affecting both types of access, client clearing and indirect client clearing), the date of application of the clearing obligation for Category 3 counterparties shall be postponed to 21 June 2019.

    What's new?

    On 16 March 2017, the EU Commission published its delegated regulation amending delegated regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 as regards the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives (C(2017) 1658 final - the "Delegated Regulation").

    Built on the Final Report, the Delegated Regulation amends point (c) of Article 3(1) of delegated regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178, so that the phase-in periods for Category 3 counterparties are extended to 21 June 2019. Hence, it aligns the date in which all three clearing obligations mentioned above take effect with respect to Category 3 counterparties.

    Undertaking for collective investment having position in OTC derivatives amounting 8 million and below will fall in Category 3 counterparties.

    The Delegated Regulation is available here.

    What's next?

    The Delegated Regulation will enter into force on the twentieth day following that of its publication in the OJEU.

  • EMIR - Level 3 - ESMA and SRB statements on the recovery and resolution of CCPs at ECON meeting

  • Background

    Regulation (EU) 648/2012 dealing with over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories applies since 16 August 2012 ("EMIR", available here).

    EMIR, directly applicable and enforceable throughout the EU, aims at increasing financial stability and safety by preventing the situation where a collapse of one financial firm can cause the collapse of others. It requires mandatory clearing of certain OTC derivatives. A CCP role is to act as the buyer to every seller and the seller to every buyer for a specified set of contracts. CCPs deal in financial transactions in various asset classes such as in equities, derivatives and repos. However, no EU wide rules are in place for the scenario where CCPs face severe distress or failure and therefore need to be recovered or resolved in an orderly manner.

    At the international level, the Committee on Payment and Market Infrastructures ("CPMI") and the International Organisation of Securities Commissions ("IOSCO") have developed guidance on recovery plans for financial market infrastructures, including CCPs (available here), while the Financial Stability Board ("FSB") has issued guidance on the application of its key attributes of effective resolution regimes to financial institutions such as CCPs (available here).

    On 29 April 2016, the European Securities and Markets Authority ("ESMA") published its report on EU-wide CCP Stress test 2015 (ESMA/2016/658, available here).

    On 28 November 2016, the EU Commission issued its regulation proposal on a framework for the recovery and resolution of all authorised CCPs in the EU in accordance with EMIR (the "Proposal", available here) and its fact sheet, which sets out frequently asked questions on the Proposal (the "FAQ", available here). Directive 2014/59 EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms set out provisions comparable to those in the recovery and resolution rules for banks ("BRRD", available here), however the Proposal contains CCP-specific tools that better align with CCPs’ default management procedures and operating rules. See our 3W Flashnews RW-2016-844 for further information.

    On 20 March 2017, ESMA established five new Memoranda of Understanding ("MoU") under EMIR with the following non-EU regulators:

    • The Reserve Bank of India (available here);
    • The UAE Securities and Commodities Authority (available here);
    • The Dubai International Financial Centre (available here);
    • The Banco Central do Brasil and the Comissão de Valores Mobiliários (available here);
    • The Japan Ministry of Agriculture, Forestry and Fisheries ("MAFF") and the Ministry of Economy, Trade and Industry ("METI") (available here).

    What's new?

    On 22 March 2017, ESMA Chair Steven Maijoor (ESMA71-99-372, the "ESMA Statement") and SRB Chair Elke König (the "SRB Statement") delivered statements on the recovery and resolution of CCPs at the ECON public hearing.

    ESMA considers the Proposal overall balanced, proportionate and consistent with other existing relevant EU legislation, including EMIR, BRRD, and with current international guidance provided by the CPMI-IOSCO (on recovery) and by the FSB (on resolution). The ESMA Statement focuses on the following three aspects of the Proposal:

    • Recovery planning – In view of facilitating supervisory convergence within the EU and setting a benchmark for third country CCPs, the Proposal could benefit from a more detailed technical outline (e.g. regulatory technical standards or guidelines);
    • Proposed resolution tools – Resolution tools should be considered in the CCP specific context under EMIR and a possibly broad choice of resolution tools in the legislative framework would allow resolution authorities to have the required degree of flexibility;
    • Governance of resolution processes – Lowering the hurdle for ESMA mediation in the Proposal is appropriate considering ESMA’s practical experiences with colleges operating under EMIR.

    In the SRB Statement, three main areas of the Proposal have been highlighted as follows:

    • Treatment of clearing members – A waiver for certain obligations for clearing members that are already in resolution should be considered (e.g. waivers from taking on additional positions or waivers from meeting additional CCP cash calls for the purpose of absorbing losses);
    • Flexible entry into resolution – Resolution should happen before the end of the CCP’s waterfall, and when there are still enough resources to ensure an orderly resolution;
    • Harmonisation of CCP supervision – Harmonisation should be done through replicating the Banking Union approach, with a single EU supervisor and a single EU resolution authority for the 17 CCPs under the remit of the Proposal.

    The ESMA Statement is available here.
    The SRB Statement is available here.

    What's next?

    The Proposal will be submitted to the EU Parliament and the Council of the EU for approval and adoption.

    The final FSB guidance on CCP resolution is expected to be published by the G20 summit in July 2017.

  • MAR - ESMA publishes compliance tables

  • Background

    Regulation (EU) 596/2014 ("MAR", available here) and Directive 2014/57 EU on criminal sanctions ("CS MAD", available here), together MAD II, apply since 3 July 2016. MAR aims at enhancing market integrity and investor protection, strengthens and updates the existing MAD framework.

    According to Article 11(11) of MAR, ESMA shall issue guidelines addressed to persons receiving market soundings ("MSRs"). The guidelines are intended to uphold a common, uniform and consistent approach in relation to the requirements that MSRs are subject to. Furthermore, the guidelines are developed with the purpose of reducing the overall risk of spreading of the inside information communicated in the course of the market sounding and at providing tools for the competent authorities to effectively conduct investigations on suspected market abuse cases.

    Article 17(11) of MAR states that ESMA shall issue guidelines to establish a non-exhaustive indicative list of the legitimate interests of issuers to be prejudiced by immediate disclosure of inside information and of situations in which delay of disclosure of inside information is likely to mislead the public.

    On 20 October 2016, ESMA issued two sets of guidelines, respectively on delay in the disclosure of inside information (ESMA/2016/1478, available here) and on MSRs (ESMA/2016/1477, available here).

    What's new?

    On 17 March 2017, ESMA published two guidelines compliance tables; the first one on MAR guidelines on delay in the disclosure of inside information (ESMA70-145-67, the "Compliance Table on delay in disclosure of inside information") and the second one on guidelines for MSRs (ESMA70-145-66, the "MSR Compliance Table").

    The Compliance Table on delay in disclosure of inside information is available here.
    The MSR Compliance Table is available here.

  • MiFID II/MiFIR - ESMA issues implementing rules for package orders

  • Background

    Directive 2014/65/EU as amended by Directive (EU) 2016/1034 ("MiFID II", respectively available here and here ) and Regulation (EU) 600/2014 as amended by Regulation (EU) 2016/1033 ("MiFIR", respectively available here and here) entered into force on 2 July 2014. MiFID II and MiFIR, together with the EU Commission delegated acts as well as regulatory and implementing technical standards ("RTS/ITS"), will apply as from 3 January 2018.

    Investment firms often execute, on their own account or on behalf of clients, transactions in derivatives and other financial instruments or assets that comprise a number of interlinked, contingent trades. Such package transactions can take various forms, such as exchange for physicals, trading strategies executed on trading venues, or bespoke package transactions.

    Regulation (EU) 2016/1033 also referred as the "Quick Fix Regulation" added a new Article 2(1)(49) to MiFIR defining package order as 'an order priced as a single unit for the purpose of executing an exchange for physical ("EFP"), or in two or more financial instruments for the purpose of executing a package transaction'.

    Before the Quick Fix Regulation was adopted, MiFID II/MiFIR (Article 8(1)) only provided for a pre-trade and post-trade transparency regime for non-equity instruments. These requirements were further specified in Commission Delegated Regulation of 14 July 2016 ("RTS2" available here). Package orders by contrast, were not identified as a specific category of orders. Consequently, ESMA was not entrusted with the elaboration of a bespoke pre-trade transparency regime for those package order. ESMA, was empowered to provide some guidance on packages’ post-trades transparency regime in RTS2.

    After the adoption of the Quick Fix Regulation, MiFIR specifies the pre-trade transparency requirements applicable to package orders and the conditions under which waivers from such pre-trade transparency requirements can be granted by competent authorities.

    At the same time, MiFIR, as amended, recognises that for certain package orders it is important to restrict the use of pre-trade transparency waivers available to package orders, in particular, where such package orders as a whole are sufficiently standardised and frequently traded to be considered as having a liquid market.

    In Accordance with Article 9(6) of MiFIR (waivers for non-equity instruments), ESMA shall develop draft RTS to establish a methodology for determining those package orders for which there is a liquid market. ESMA shall submit the draft RTS to the EU Commission by 28 February 2017.

    On 10 November 2016, ESMA published its consultation paper on package orders for which there is a liquid market (ESMA/2016/1562, the Consultation Paper available here).

    What's new?

    On 27 February 2017, ESMA submitted the "final report - Draft RTS on package orders for which there is a liquid market" (ESMA70-872942901-21, the "Final Report") and the draft Commission delegated regulation supplementing MiFIR with regard to package orders" (the "Delegated Regulation") to the EU Commission.

    The Final Report outlines the methodology for identifying standardised and frequently traded package orders that have a liquid market as a whole. In addition, it outlines the asset-class specific criteria for interest rate derivatives, equity derivatives, credit derivatives, commodity derivative and other derivatives.

    In the Delegated Regulation, ESMA identify those package orders which should be considered as standardised and liquid as a whole. Such qualitative criteria include general criteria applicable across all asset classes, as well as criteria which are specific to the different asset classes comprising a package order.

    The Delegated Regulation recognizes a liquid market for a package orders as a whole where (a) the package order consists of no more than four components that belong to asset classes of derivatives subject to trading obligation, unless all components are orders that are large in scale compared to normal market size or are not of the same asset class; (b) all the component of the package order are available on the same trading venue and all components are subject to the clearing obligation.

    It should be noted that in the Final Report as well as in the Delegated Regulation, ESMA favoured a holistic approach based on qualitative criteria as opposed to quantitative approaches suggested by some respondents to the Consultation Paper.

    The Final Report is available here.
    The Delegated Regulation is available here.

    What's next?

    The EU Commission may endorse the Delegated Regulation within three months.

  • PRIIPs - Commission finally addresses Parliament concerns and adopts new RTS

  • Background

    Regulation (EU) No 1286/2014 ("PRIIPs Regulation", available here) entered into force on 29 December 2014. It was supposed to apply from 1 January 2017.

    The PRIIPs Regulation lays down uniform rules on the format and content of the key information document for PRIIPs ("KID") to be drawn up by PRIIPs manufacturers and on the provision of the KID to retail investors in order for them to better understand and compare the key features and risks of the PRIIPs.

    On 6 April 2016, the European Banking Authority ("EBA"), the European Occupational Pensions Authority ("EIOPA") and the European Securities and Markets Authority ("ESMA") jointly submitted a proposal for the draft RTS on KID to the EU Commission.

    On 30 June 2016, the EU Commission endorsed the draft RTS by adopting the Commission delegated Regulation (the "CDR") and following the scrutiny period on 14 September 2016, the EU Parliament issued a motion for a resolution ("MFR") expressing concerns about (1) the removal of credit risk from the calculation of risk categorisation of insurance products, (2) the treatment of multi-option products ("MOPs") which should be clarified especially regarding the exemption granted to UCITS funds under the PRIIPs Regulation, (3) the remaining flaws in the methodology for the calculation of future performance scenarios, and (4) the lack of detailed guidance in the CDR on the comprehension alert (the "Motion").

    On 9 November 2016, the EU Commission issued a press release indicating the extension by one year of the entry into application of the PRIIPs Regulation and on 10 November 2016 sent a letter to the ESAs setting out the amendments to be made to the PRIIPs RTS in order to address the concerns expressed by the EU Parliament in the MFR (the "EU Commission Letter", available here).

    On 1 December 2016, the EU Parliament voted to delay the application date of the PRIIPs level 1 and on 8 December 2016, the Council of the EU adopted a regulation postponing the application date of the PRIIPs rules by 12 months (the "Regulation", available here).

    The ESAs discussed the amendments to the draft RTS received from the EU Commission and presented an opinion to the three board of supervisors covering all of the areas addressed by the EU Commission Letter and the amendments in the RTS. The opinion was adopted by the EBA and ESMA boards but was rejected by EIOPA notably due to differing views on (1) the treatment of the MOPs, (2) the criteria to determine whether a comprehension alert should be included in a KID, and (3) the provisions in the RTS on the risk mitigation factors for insurers. Nevertheless, there was a general consensus within the ESAs’ boards on the concerns raised by the EU Parliament on the performance scenario issue.

    On 22 December 2016, in a letter addressed to Mr. Oliver Guersent, Director General for the financial stability, financial services and the capital market union at the EU Commission, the ESAs informed that they could not agree on the changes proposed by the EU Commission (the "ESAs Letter", available here).

    What's new?

    On 8 March 2017, the EU Commission issued its delegated regulation addressing the concerns and endorsing the amendments (PE587.693v01-00) proposed by the Committee on Economic and Monetary Affairs ("ECON") on 30 August 2016 C (2017) 1473 final (the "Commission Delegated Regulation").

    The Commission Delegated Regulation hence takes account of the following:

    • Comprehension alert – PRIIPs manufacturers shall enclose in their KIDs for each underlying investment option such alert, where the PRIIPs is not a vanilla product pursuant to Article 30(3) (a) of Directive 2016/97/EU ( "IDD") and Article 25(4)(a) of Directive 2014/65/EU ("MiFID II").
    • Risk categorisation of insurance products – In Article 5, 'What are the cost section', the insurance costs have been deleted and have been bundled into the 'other ongoing costs'. The costs are dealt with in point III of the Annex VI 'List of insurance-based investment products'. The Section 'What is this product' of the KID shall now display all the information linked to insurance benefits and costs.
    • MOPs – The specific nature of MOPs is now envisaged.  Under Article 14 of the Commission Delegated Regulation, a point 2 has been added that specifies the conditions under which, PRIIPS manufacturers may use the key investor information document ("KIID") prepared under UCITS rules.
    • Performance scenarios – PRIIPs manufacturers shall include four appropriate performance scenarios, as set out in Annex V in the section entitled ‘What are the risks and what could I get in return?’ of the KID.

    The Commission Delegated Regulation is available here.
    The Annexes to the Commission Delegated Regulation are available here.

    What's next?

    The EU Parliament and the Council of the EU have three months to raise objections to the Commission Delegated Regulation. We understand that objections are not anymore expected at this stage and that the scrutiny period could be significantly reduced. The Commission Delegated Regulation shall then be published in the OJEU after linguistic review and will apply as from 1 January 2018.

    Article 14(2) of the Commission Delegated Regulation shall apply until 31 December 2019, which means that the PRIIPs manufacturers will be able to use KIIDs received from UCITS until this date.

  • WORLD

    OTC Derivatives - FSB consults on UTI governance

  • Background

    The Financial Stability Board ("FSB") was established in April 2009 to coordinate at the international level the work of national financial authorities and international standard setting bodies, and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

    The primary purpose of the Unique Transaction Identifier ("UTI") is to uniquely identify individual over-the-counter ("OTC") derivatives transactions that are required by authorities to be reported to trade repositories ("TRs"). Global uniform UTIs facilitate the consistent global aggregation and analysis of OTC transaction data reported across TRs that authorities can use in service of their legal obligations and prudential requirements.

    Following the September 2014 Feasibility Study on approaches to aggregate OTC derivatives data (available here), FSB tasked CPMI and IOSCO to develop global guidance on the harmonisation of data elements that are reported to TRs and that are important for the aggregation of data by authorities. In November 2014, CPMI and IOSCO established a harmonisation group to prepare technical guidance on relevant data elements, including the UTI and Unique Product Identifier ("UPI").

    In March 2016, FSB established the working Group on UTI and UPI Governance ("GUUG") with the primary objective to propose to the FSB Plenary recommended governance arrangements for each of the UTI and UPI that fulfils identified functional needs and meets relevant criteria. In order to fulfil this objective, the GUUG will, inter alia: (i) identify the necessary functions of governance arrangements for the UTI/UPI; (ii) define key criteria for potential governance arrangements for each identifier; and (iii) propose governance arrangements for the UTI/UPI.

    On 28 February 2017, CPMI and the Board of IOSCO issued technical guidance on the harmonisation of the UTI (the "UTI Technical Guidance", available here). The governance of the UTI was not covered in the UTI Technical Guidance.

    What's new?

    On 13 March 2017, FSB published a consultation document entitled 'Proposed governance arrangements for the unique transaction identifier (UTI)', which complements the UTI Technical Guidance (the "Consultation Document").

    The Consultation Document focuses notably on the following areas:

    • The key criteria that the FSB has identified and intends to use to assess UTI governance arrangements (e.g. public interest, economic sustainability, open access, etc.);
    • The potential governance functions that should be performed and that are divided into three general areas of governance:
      • Area 1 – Overseeing the UTI data standard, including the operation of the UTI data standard and its structure and format (i.e. how a UTI should be constructed, its length, and which characters should be used in its construction);
      • Area 2 – Implementing the UTI Technical Guidance and dealing with operational and implementation issues; and
      • Area 3 – Coordinating among authorities, helping to ensure consistent application of technical guidance (e.g. uniqueness) across jurisdictions, and updating the UTI Technical Guidance as necessary.
    • The four possible governance options for the three different areas of UTI governance:
      • Option 1 – Authorities;
      • Option 2 – CPMI and IOSCO or a body set up by them;
      • Option 3 – A technical committee or similar under the FSB; and
      • Option 4 – An international standardisation body.

    Feedback to the Consultation Document should be submitted by 5 May 2017.

    The Consultation Document is available here.

    What's next?

    FSB will host a stakeholder roundtable on UTI governance on 25 April 2017 in Amsterdam.

    After the consultation, and taking into account the received contributions, the GUUG expects to prepare final recommendations on UTI governance arrangements for adoption by the FSB Plenary later in 2017.

  • LUXEMBOURG

    Accounting Law - CSSF press release on the GDR provisions with regard to balance sheet and profit and loss accounts layouts

  • Background

    On 31 December 2002, the Law of 19 December 2002 on the commercial and companies register and on the accounting and annual accounts of undertakings, as amended was published in the Memorial A- N°149 (the "RCS Law", available here).

    Article 27 of the RCS Law provides that companies listed under Article 8 of the commercial code ("CC"), investment companies with variable capital ("SICAV") and holdings companies of Article 30 and 31 of the CC may be exempted of presenting their balance sheet and profit and loss account according to mandatory layouts for profit and loss account.

    On 2 October 2013, the Law of 30 July 2013 implementing Directive reforming the Commission des normes comptables (Accounting Standard Board or "CNC") was published in the Memorial A N°177 (the "CNC Law", available here). The CNC Law, reformed and amended various accounting provisions relating to accounting and annual accounts of firms as well as to consolidated accounts of certain types of companies. Particularly, the CNC Law repealed the exemption of standardised layouts provided for under the RCS Law to certain financial services companies.

    On 21 December 2016, the Regulation Grand Ducal of 15 December 2016 was published in the Memorial A N°265 (the "GDR", available here). The GDR Law reintroduces exemptions for financial services regulated by the CSSF and have to produce their accounts in accordance with the CNC Law. These entities will again benefit from the possibility to adapt the format of their balance sheets and profit and loss account layouts.

    What's new?

    On 1 March 2017, the CSSF issued a press release on the publication of the GDR (the "Press Release"). In its Press Release, the CSSF outlines that the GDR have reintroduced the derogations to standardised layouts of the balance sheets and profit and loss accounts for certain type of companies that were formerly repealed by the CNC Law.

    Entities in scope are the one not subject to standard reporting via the eCDF platform and that are exempted to draw up their annual accounts in accordance with the standard chart account.

    These entities include entities supervised by the CSSF such as management companies, AIFM and PSF (other than support PSF).

    The Press Release is available only in French version here.

    What's next?

    Entities that are concerned by this exemption will be able adjust layouts as from 31 December 2016.

  • VAT - Circular ACD 45/2 – 152/1 – 168/1 on withholding tax on directors’ fees

  • Background

    On 30 September 2016 Luxembourg VAT authorities issued Circular 781 related to the VAT status of directors’ fees (the "2016 Circular").

    The 2016 Circular confirms that the activity performed by directors is an economic activity that makes them VAT taxable persons. This activity is, as a rule, subject to VAT at the standard rate of 17%. Therefore, directors have to comply with their VAT obligations since 1 January 2017.

    What's new?

    On 14 February 2017, Luxembourg Tax Authorities of Direct Contributions ("LTA") issued the Circular ACD n°45/2 – 152/1 – 168/1 concerning the fees paid to directors (the "Circular").

    The Circular aims at clarifying the link between the VAT and direct tax treatments of the fees received by independent directors.

    The Circular refers to the 2016 Circular and reminds that directors’ fees fall within the scope of VAT with the exception of the director being an employee representing his employer on the board.

    The Circular confirms that, when directors’ fees are subject to VAT, the withholding tax due by the paying company has to be determined based on the amount VAT excluded. The Circular further indicates that, when the directors’ fees are not deductible for the company for VAT purposes, these directors’ fees and the non-recoverable VAT are both not deductible for direct tax purposes.

    The Circular is available here (text in French only).

    What's next?

    The Circular applies to directors’ fees received as from 1 January 2017.

  • BELGIUM

    Alternative Investment Funds, Royal Decree of February 2nd, 2017 on public alternative investments funds and their managers and containing various provisions

  • Background

    The Royal Decree on public alternative investments funds and their managers and containing various provisions has been published on March 17th, 2017 and entered into force on March 27th, 2017. The Decree aims to complete the new regulatory architecture in relation with the undertakings for collective investment which do not fall under the conditions of Directive 2009/65 / EC.

    What's new?

    The Royal Decree defines the “product rules” of the public alternative investment funds. As a consequence, the existing Royal Decree of November 12th, 2012 will not apply anymore to such funds. In addition, the Decree finalise the transposition of the UCITS V Directive in relation with the Prospectus, the KIID and the Annual Report. Finally the Decree modifies several existing Royal Decrees concerning the undertaking for collective investments.

  • Alternative Investment Funds, Communication FSMA_2017_05 dated February 24th, 2017 on the marketing of units in EEA AIFs in another EEA Member State by managers holding an authorization under Belgian law

  • Background

    The communication is addressed to Belgian alternative investment fund managers who intend to market, to professional investors, units of shares of European Economic Area AIFs (‘EEA’) in other EEA member state.

    What's new?

    The communication clarifies the prior notification to be fulfilled with the FSMA in view to market EEA AIFs managed by Belgian AIFMs to professional investors in other EEA member states in conformity with the article 32 of the AIFMD.

    No later than 20 working days after the date of receipt of the complete notification file, the FSMA shall forward it to the competent authorities of the Member States where it is provided that the shares of the AIF are to be marketed.

    At the same time, the FSMA notifies this transmission to the AIFM, which can, upon receipt of this notification, begin marketing the shares of the AIF in the Member States concerned.

  • Alternative Investment Funds, Communication FSMA_2017_06 dated February 24th, 2017on the marketing AIFs in Belgium without a passport to professional investors

  • Background

    This Communication is addressed to (i) alternative investment fund managers established in the European Economic Area (‘EEA’) who intend to market, to professional investors in Belgium, units or shares of non-EEA AIFs which they manage, including non-EEA feeder AIFs; and to (ii) alternative investment fund managers not established in the European Economic Area who intend to market, to professional investors in Belgium, units or shares in AIFs which they manage.

    What's new?

    The communication clarifies the prior notifications to be submitted to the FSMA by the managers referred to above in order to be permitted to market units or shares of AIFs in Belgium without a European passport to professional investors (in accordance with article 36 & 42 AIFMD).

    Provided the legal conditions are met, the FSMA will inform managers that they may begin marketing the AIFs in question in Belgium to professional investors.

  • Royal Decree of December 5th, 2016 amending the Royal Decrees relating to the annual accounts of credit institutions, investment firms and management companies of undertakings for collective investment and insurance and reinsurance undertakings

  • Background

    The Royal Decree of December 5th, 2016 amending the Royal Decrees relating to the annual accounts of credit institutions, investment firms and management companies of undertakings for collective investment and insurance and reinsurance undertakings has been published on February 17th, 2017 and entered into force on the same date.

    What's new?

    The Royal Decree aims to amend some existing decrees to be in line with Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on annual financial statements, consolidated financial statements and Reports on certain types of undertaking, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. Taking advantage of this review, certain provisions of the aforementioned decrees have been updated.

    The dynamic of the Royal Decree is to ensure better information of the investors and creditors of the undertakings concerned, and to promote transparency.

    What's next?

    The amendments made by the Decree apply for the first time in the fiscal year beginning January 1, 2016 or during the calendar year 2016.

  • This publication is produced by Legal and Compliance teams of CACEIS with the kind support of Communication teams and Group Business Development Support teams.

    Editors
    Gaëlle Kerboeuf, Group General Counsel
    Chantal Slim, Compliance and Regulatory Watch Manager (France)

    Permanent Editorial Committee
    Gaëlle Kerboeuf, Group General Counsel, Head of Legal Group
    Chantal Slim, Compliance and Regulatory Watch Manager (France)
    Eliane Meziani-Landez, Head of Legal (France)
    Emilie Zaracki, Legal Officer (France)
    Eliane Jacquet, Compliance Officer (France)
    Ana Vazquez, Head of Legal (Luxembourg)
    Véronique Bastin, Head of Compliance (Luxembourg)
    Stefan Ullrich, Head of Legal (Germany)
    Costanza Bucci, Legal and Compliance Manager (Italy)
    Mireille Mol, Legal and Compliance Manager (Netherlands)
    Charles du Maisnil, Head of Legal - Risk & Compliance (CACEIS Belgium)
    Helen Martin, Head of Legal (Ireland)
    Samuel Zemp, Head of Legal and Compliance (CACEIS Bank Luxembourg - Swiss Branch)
    Sandra Czich, Head of Legal and Compliance (CACEIS Switzerland)
    Corinne Brand, Marketing and Communication Specialist (France)
    Arianna Arzeni, Head of Group Business Development Support
    Malgorzata Journo, Legal Officer (France)

    Design
    Sylvie Revest-Debeuré, CACEIS, Communications

    Photos credit
    Yves Maisonneuve, Yves Collinet, CACEIS, Fotolia

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    This publication is provided by CACEIS from sources believed to be reliable. The present publication is not intended as an offer to sell or a commercial solicitation and may be amended at any time by CACEIS. Information contained in the present newsletter are not a substitute to legal, taxation or investment consultation or advice from an appropriately qualified professional. CACEIS does not warrant the accuracy and completeness of this newsletter, nor endorse or make any interpretation about its content. In no event will CACEIS be liable for any damages whatsoever arising out of the use of, or reliance on the content of this newsletter. Unauthorized used or distribution without the prior written permission of CACEIS is prohibited.