SCANNING APRIL 2018

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AML/CFT - Parliament votes at first reading on 5AMLD

  • Background

    The Regulation (EU) 2015/847 on information accompanying transfers of funds (the "Regulation", available here) and the Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the "4AMLD", available here) apply since 26 June 2017.

    On 5 July 2016, the European Commission ("Commission") published its proposal to amend the 4AMLD (COM(2016) 450 final - the "Commission Proposal", available here). In the Commission Proposal, the amendments to the 4AMLD relate mostly to the following points:

    • Designate virtual currency exchange platforms and custodian wallet providers as obliged entities;
    • Set lower maximum transaction limits for certain pre-paid instruments;
    • Enable Financial Intelligence Units ("FIUs") to request additional information on money laundering and terrorist financing from any obliged entity;
    • Enable FIUs and competent authorities to identify holders of bank and payment accounts;
    • Harmonise the EU approach towards high-risk third countries;
    • Improve access to the beneficial ownership registers;
    • Interconnection of the registers to facilitate cooperation between EU Member States ("MS"); and
    • Extending the information available to competent authorities.

    On 20 December 2017, EU ambassadors confirmed the political agreement reached between the Council Presidency and the European Parliament ("Parliament") on strengthening 4AMLD rules (the "Agreement", available here). The Agreement represents the fifth update to the EU's anti-money laundering directive ("5AMLD") and should be partly a response to the terrorist attacks of 2015 and 2016 in Paris and Brussels, as well as the Panama paper leaks.

    What's new?

    On 19 April 2018, based on the Agreement, the European Parliament voted at first reading on a directive proposal amending the 4AMLD (the "Parliament Text").

    In this context, the Parliament Text focuses on enhancing transparency in the following areas:

    • "Obliged entities" under the 5AMLD would cover broader form of tax advisory services, letting agents, art dealers, as well as electronic wallet providers and virtual currency exchange providers;
    • MS should ensure that providers of exchange services between virtual currency and fiduciary currency and custodian wallet providers are registered;
    • MS should set up centralised automated mechanisms allowing the identification of holders of bank and payment accounts and safe-deposit boxes;
    • Rules that apply to trusts and similar legal arrangements with respect to access to information relating to their beneficial ownership should be comparable to the corresponding rules that apply to corporate and other legal entities (such decision should be taken by MS);
      • Access to beneficial ownership information of trusts and similar legal arrangements should be granted to any person that can demonstrate a "legitimate interest" (e.g. press or civil society organisations);
      • It should be possible for MS to require online registration in order to identify any person who requests information from the register, as well as the payment of a fee for access to the information in the register; and
      • The Commission should have implementing powers to further increase the interconnection of MS' central registers holding beneficial ownership through the European Central Platform.
    • In order to better identify politically exposed persons ("PEPs") in the EU, MS should issue lists indicating the specific functions which, in accordance with national laws, regulations and administrative provisions, qualify as prominent public functions;
    • MS shall ensure that individuals, including employees and representatives of the obliged entity who report suspicions of money laundering or terrorist financing internally or to the FIU, are legally protected from being exposed to threats, retaliatory or hostile action, and in particular from adverse or discriminatory employment actions; and
    • Thresholds for identifying the holders of prepaid cards should be reduced from EUR 250 to EUR 150.

    The provisional edition of the Parliament Text is available here.

    What's next?

    The Council's position at first reading on the Parliament Text is expected shortly.

    The 5AMLD will enter into force three days after its publication in the Official Journal of the EU. MS will then have 18 months to transpose the new rules into national law (20 months for setting up beneficial ownership registers for trusts and similar legal arrangements).

  • BMR - ESMA updates its Q&As

  • Background

    The purpose of this questions and answers (Q&As) document is to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of Benchmarks Regulation(BMR).

    It does this by providing responses to questions asked by the public, financial market participants, competent authorities and other stakeholders.

    What's new?

    On 22 March 2018, the ESMA updated its questions and answers document on the Benchmarks Regulation.

    The Q&As include one new answer regarding the requirements applicable to supervised contributors during the transitional period.

    Article 16 of the BMR "Governance and control requirements for supervised contributors"sets out a number of requirements that apply directly to supervised entities when they contribute input data to an administrator located in the Union. The provisions of Article 16(1) include elements that refer to the "code of conduct referred to in Article 15" of the BMR.

    ESMA considers that the adherence by supervised contributors to a code of conduct not yet considered as compliant by the relevant NCA does not impede a supervised contributor to be compliant with the BMR. In this case, supervised contributors should comply with Article 16.

    In case no code of conduct exists, ESMA considers that supervised contributors should comply with Article 16, and where applicable points 5 to 12 of Annex I, only to the extent that these provisions are applicable without a code of conduct.

    The ESMA’s Q&As document on BMR is available here.

    What's next?

    This Q&As document on BMR is intended to be continually edited and updated as and when new questions are received.

  • CRD IV/MiFID II - Official translations of Joint Guidelines on the assessment of collective suitability are available

  • Background

    CRD IV (available here) and MiFID II (available here) include measures to remedy weaknesses identified during the financial crisis regarding the functioning and composition of the management body within credit institutions and investment firms and the qualifications of their members. When appointing members of the management body, institutions should ensure that the members have the reputation, knowledge, experience and skills necessary to safeguard proper and prudent management of the institution.

    On 26 September 2017, the EBA and ESMA published their final report on joint guidelines concerning the assessment of the suitability of members of the management body and key function holders under CRD IV and MiFID II (EBA/GL/2017/12 - the "Joint Guidelines", available here). The Joint Guidelines aim to further improve and harmonise the assessment of suitability within the EU financial sector, and to ensure sound governance arrangements in institutions. This joint work builds on the outcome of the EBA’s 2015 peer review of the EBA 2012 guidelines concerning the assessment of the suitability of members of the management body and key function holders of credit institutions (EBA/GL/2012/06 - the "EBA 2012 Guidelines", available here).

    Against this background, the Joint Guidelines shall apply to the following persons:

    • Members of the management body of credit institutions, investment firms, financial holding companies and mixed financial holding companies; and
    • Heads of internal control functions, chief financial officers of credit institutions and certain investment firms (where they are not part of the management body and where identified on a risk-based approach by those institutions) and other key function holders (as part of the governance arrangements referred to in Articles 74 and 88 of CRD IV and Articles 9(3), 9(6) and 16(2) of MiFID II).

    What's new?

    On 21 March 2018, the official translations and updated annexes to the Joint Guidelines were published on ESMA’s website (the "Translated Joint Guidelines").

    Having regard to Article 16(3) of the EBA/ESMA Regulation, competent authorities and financial institutions shall make every effort to comply with the Translated Joint Guidelines.

    The Translated Joint Guidelines are available here.

    What's next?

    The Translated Joint Guidelines will apply as from 30 June 2018 and will repeal the EBA 2012 Guidelines as from 30 June 2018.

    Transitional provisional are foreseen for persons appointed before 30 June 2018 in sections 17 and 155 of the Translated Joint Guidelines.

  • CSDR - ESMA releases Guidelines on how to report internalised settlement

  • Background

    According to Article 9 of Regulation (EU) No 909/2014on Central Securities Depositories (CSDR), settlement internalisersshall report to the competent authorities of their place of establishment on a quarterly basis the aggregated volume and value of all securities transactions that they settle outside securities settlement systems. Competent authorities shall transmit the information received, without delay, to the ESMA and shall inform the ESMA of any potential risk resulting from that settlement activity.

    In order to ensure the common, uniform and consistent application of Article 9 of CSDR, the ESMA has decided to issue Guidelines on internalisedsettlement reporting and on the exchange of information between the competent authorities and ESMA regarding internalised settlement.

    On 10 July 2017, ESMA published a Consultation Paper (CP) on Guidelines on Internalised Settlement Reporting under CSDR. The consultation closed on 14 September 2017. ESMA received 16 responses, mostly from banking and investment firms associations. The answers received are available on ESMA’s website unless respondents requested otherwise. ESMA also sought the advice of the Securities and Markets Stakeholder Group (SMSG).

    What's new?

    On 28 March 2018, the ESMA published its guidelines on how to report internalised settlement under the CSDR.

    ESMA’s guidelines clarify the scope and process of internalised settlement reporting as well as the exchange of information between ESMA and NCAs, who will receive the data from reporting entities.

    The guidelines cover the following issues:

    • Scope of data to be reported by settlement internalisers.
    • Entities responsible for reporting to competent authorities.
    • Data reporting parameters.
    • Process for the submission of internalised settlement reports by competent authorities to ESMA, based on the reports received by the competent authorities from settlement internalisers.
    • Process for the submission of the reports on potential risks resulting from internalised settlement activity by competent authorities to ESMA.
    • Access to data by competent authorities.

    ESMA guidelines on how to report internalised settlement under the CSDR are available here.

    What's next?

    The guidelines will apply from the date of their publication on ESMA’s website in all official languages of the EU. Within two months of the publication, NCAs will have to inform ESMA whether or not they intend to comply with these guidelines.

  • CSDR - ESMA updates its Q&As

  • Background

    Regulation (EU) No 909/2014on Central Securities Depositories (CSDR) entered into force on 17 September 2014.

    The purpose of this Q&As document is to promote common supervisory approaches and practices in the application of CSDR. It provides responses to questions posed by the general public, market participants and NCAs in relation to the practical application of CSDR.

    It is addressed to NCAs under the CSDR to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by the ESMA. It should also help, CSDs, their participants, investors and other market participants by providing clarity on the implementation of CSDR requirements.

    What's new?

    On 23 March 2018, the ESMA has updated its Question and Answers (Q&As) document on the implementation of the CSDR.

    The updated questions refer to authorisation and supervision and requirements for CSD links.

    The ESMA clarified that the CSD links that a CSD established or intends to at the time of its application for authorisation be assessed for the purpose of granting authorisation to that applicant CSD.

    Moreover, the ESMA highlighted that the links between CSDs participating in T2S interoperable links are the ones defined in the CSDR.

    ESMA Q&A on the implementation of the CSDR is available here.

    What's next?

    The ESMA will periodically review this Q&As and update it where required.

  • Data Protection Directive/GDPR - Commission publishes Article 29 Working Party Guidelines on consent and on transparency

  • Background

    The Directive 95/46/ECof the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on the protection of individuals with regard to the processing of personal data and on the free movement of such data entered into force on 13 December 1995 and was transposed in EU Member States ("MS") by 24 October 1998 (the "DPD", available here).

    The Regulation (EU) 2016/679 of the Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing the DPD entered into force on24 May 2016 and shall apply as from 25 May 2018(the "GDPR", available here).

    Article 29 of the DPD sets out composition and purpose of the Article 29 Data Protection Working Party ("Art. 29 WP")which is an independent European advisory body on data protection and privacy. It promotes the consistent application of the DPD. The Art. 29 WP includes a representative from the data protection authority of each MS, the European Data Protection Supervisor(the "EDPS") and the European Commission(the "Commission") which also provides its secretariat.Under the GDPR, the Art. 29 WP will be replaced by the European Data Protection Board (the "EDPB").

    On 13 July 2011, the Art 29 WP adopted its opinion 15/2011 on the definition of data subject's consent (the "Opinion", available here). Consent is one of the main data processing concepts used in the DPD and other applicable provisions (as Directive 2002/58/EC-the "E-Privacy Directive, available here). The Opinion is illustrated with examples of valid and invalid consent, focusing on its key elements such as the meaning of "freely given", "specific", "unambiguous", "explicit", "informed" etc. It further clarifies some related aspects, as the timing when consent must be obtained, how the right to object differs from consent, etc.

    On 28 and 29 November 2017, the Art. 29 WPheld its plenary meeting during which it examined various matters concerning the implementation of the GDPR and among other adopted proposed guidelines on consent (WP259 - the "Draft GL", available here). As the GDPR provides further specification than DPD regarding the requirements for obtaining and demonstrating valid consent, the Draft GL focus on these changes. The Draft GL provide practical guidance to ensure compliance with the GDPR and build upon the Opinion.

    The Draft GL were open for public consultation for 6 weeks - until 23 January 2018. Following the consultation, the Art. 29 WP reviewed received comments andrevised the Draft GL for final adoption.

    What's new?

    Regarding Consent

    On 11 April 2018, the Art. 29 WP revised and adopted guidelines on consent under the GDPR (WP259 rev.01 - the "Revised GL"). They are based on notion that in order to be valid, the consent has to reflect the data subjects' real choice and control.

    The Revised GL express Art. 29 WP clarifications on the key requirements for obtaining and demonstrating valid consent. In the Revised GL, the Art. 29 WP considers notably the data subject’s:

    • Understanding of the data processing operations from clearly provided information (the information cannot be hidden in general terms and conditions);
    • Freedom from inappropriate pressure or influence (deception, intimidation, coercion or significant negative consequences or costs);
    • Ability to receive services in case of refusing to disclose data requested;
    • Consent based on silence, especially in online environment (if such consent is clearly explicit and unambiguous);
    • Consent for data processing for a new purpose (if it has to require new consent);
    • Consent in cases when data is necessary for performance of contracts;
    • Consent to processing additional unnecessary personal data (for additional purpose) in exchange of performance (if such consent can be mandatory);
    • Consent in case of clear imbalance between data subject and controller (cases when data controllers are particular authorities);
    • Consent to other data controller regarding equivalent service;
    • Consent concerning child's data before and after certain age;
    • Withdrawal of consent which has to be as easy as giving consent and possible without detriment;
    • Burden of proof (shall be on data controller).


    Regarding transparency

    On 11 April 2018, the Art. 29 WP revised and adopted guidelines on transparency under the GDPR (wp260rev.01 - the"Revised GL"). According the Revised GL the central consideration of the transparency is that the data subject should be able to determine in advance what the scope of the data processing entails.

    The Revised GL considers transparency as applying throughout the processing lifecycle and not just on collection of the data. Transparency is intended to apply also when communicating with individuals regarding their rights and during the processing, it is to apply as much to children as it does to adults.

    In particular, the Revised GL analyse the elements of transparency (as expressed in Article 12 of the GDPR) which requires that any information that is given to data subjects is provided (i) in a concise, transparent, intelligible and easily accessible form; (ii) using clear and plain language, (iii) in writing, or by other means; (iv) where requested by the data subject, orally; and (v) free of charge.

    The Revised GL are intended to be generally applicable and relevant to data controllers. They do not address the nuances and many variables, arising in the context of the transparency obligations of a specific sector, industry or regulated area. Instead, the Revised GL aim to enable data controllers to understand, at a high level, Art. 29 WP’s interpretation of what the transparency obligations entail in practice and to indicate the approach which Art. 29 WP considers controllers should take to be transparent while embedding fairness and accountability principles into their transparency measures.

    The Revised GL are available here.

    What's next?

    Regarding consent

    The GDPR, which updates the DPD requirements regarding valid consent, shall apply as from 25 May 2018.

    Regarding transparency

    According to Recital 171 of the GDPR, where processing is already under way prior to 25 May 2018, a data controller should ensure that it is compliant with its transparency obligations as of 25 May 2018.

    Prior to 25 May 2018, data controllers should revisit all information provided to data subjects on processing of their personal data to ensure that they adhere to transparency requirements discussed in the Revised GL. Where changes or additions are made to such information, data controllers should make it clear to data subjects that they have been effected in order to comply with the GDPR. Art 29 WP recommends that such changes or additions be brought to the attention of data subjects by at a minimum making this information publically available (for instance on their website). However, the changes or additions, which are material or substantive, should be brought to the attention of the data subjects actively.

  • ELTIF - Commission Delegated Regulation published in the OJEU

  • Background

    The Regulation (EU) No 2015/760 of the European Parliament (the "Parliament") and of the Council on European long-term investment funds is applicable since 9 December 2015 (the "ELTIF Regulation", available here). It establishes a uniform set of rules for the authorisation, eligible investment assets, diversification and concentration, redemptions, distribution of proceeds and capital, transparency, requirements for retail investors and marketing passport for ELTIFs.

    ELTIFs may only be EU alternative investment funds and may only be managed by EU alternative investment fund managers authorised in accordance with the Directive 2011/61/EU, which is applicable since 22 July 2013 (the "AIFMD", available here). As a reminder, an ELTIF must invest at least 70% of its capital in eligible investment assets such as long-term infrastructure projects, roll-out of new technologies and SMEs and assets referred to in Article 50(1) of the Directive 2009/65/EC (the "UCITS Directive", available here). An ELTIF may not offer redemption rights before the end of its life.

    Articles 9(3), 18(7), 21(3), 25(3) and 26(2) of the ELTIF Regulation state that the European Securities and Markets Authority (the "ESMA") shall develop draft regulatory technical standards ("RTS") to determine the criteria for establishing the circumstances in which the use of financial derivative instruments solely serves hedging purposes, the circumstances in which the life of an ELTIF is considered sufficient in length, the criteria to be used for certain elements of the itemised schedule for the orderly disposal of the ELTIF assets, the costs disclosure and the facilities available to retail investors.

    In order to develop the draft RTS under the ELTIF Regulation, the ESMA conducted an open public consultation from 31 July to 14 October 2015 (the "Consultation Paper and Responses" are available here). On 8 June 2016, the ESMA submitted its final draft RTS combining strongly interconnected RTS developed under Articles 9(3), 18(7), 21(3) and 26(2) of the ELTIF Regulation to the European Commission (the "Commission") for endorsement (ESMA/2016/935 - the "Draft RTS", available here).

    On 4 December 2017, based on the Draft RTS, the Commission published its draft Delegated Regulation (EU) …/… supplementing the ELTIF Regulation (C(2017) 7967 final, the "Draft Delegated Regulation", available here). The Draft Delegated Regulation specified:

    • In which circumstances the use of financial derivative instruments qualifies as solely serving the purpose of hedging the risks inherent to the investments;
    • When the ELTIF life-cycle is considered sufficient in length so that each asset can be disposed within;
    • The elements and risks related to each ELTIF underlying assets which an ELTIF manager must take into account in the assessment of the market for potential buyers;
    • The criteria to be considered with regard to the valuation of the assets to be divested in order to include an appropriate value in the schedule for the orderly disposal of the ELTIF assets;
    • The characteristics and functions of the facilities to be put in place by the manager of an ELTIF marketed to retail investors.

    What's new?

    On 23 March 2018, the Commission delegated regulation 2018/480 (the "Delegated Regulation 2018/480") supplementing ELTIF with regard to RTS on financial derivative instruments solely serving hedging purposes, sufficient length of the life of the ELTIFs, assessment criteria for the market for potential buyers and valuation of the assets to be divested, and the types and characteristics of the facilities available to retail investors was published in the Official Journal of the European Union ("OJEU").

    The Delegated Regulation 2018/480 is available here.

    What's next?

    The Delegated Regulation 2018/480shall enter into force on 12 April 2018 (the 20th day following that of its publication in the OJEU).

    An ELTIF authorised under the ELTIF Regulation before the entry into force of the Delegated Regulation 2018/480shall be deemed to fulfil the requirements on the sufficient length of the life of the ELTIF set out in Article 2 of the Delegated Regulation 2018/480.

    An ELTIF authorised under the ELTIF Regulation before the entry into force of the Delegated Regulation 2018/480 shall apply the following articles of the Delegated Regulation 2018/480 from 1 May 2019: Article 1 on hedging derivatives, Article 3 on criteria for the assessment of the market for potential buyers, Article 4 on criteria for the valuation of the assets to be divested and Article 5 on specifications on the facilities available to retail investors.

  • EMIR - ESMA harmonises position calculation for trade repositories

  • Background

    Under the EMIR Regulation, Trade Repositories (TRs) should calculate positions in derivatives in a harmonised and consistent manner. High-quality position data is necessary for the assessment of systemic risks to financial stability by the relevant authorities. ESMA has observed divergent and inconsistent approaches to position calculations by TRs, which hinder the successful aggregation of data across repositories for the purposes of monitoring systemic risks to financial stability.

    On 17 November 2017, ESMA published a Consultation Paper on Guidelines for position calculation under EMIR. The consultation closed on 15 January 2018. ESMA received 13 responses (including five confidential responses), mostly from trade repositories and central banks. The answers received are available on ESMA’s website unless respondents requested otherwise. ESMA also sought the advice of the Securities and Markets Stakeholder’s Group (SMSG).

    What's new?

    On 27 March 2018, the ESMA publisheditsfinal Guidelines for position calculation by Trade Repositories under EMIR.

    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 and the calculation methodologies. These guidelines will also ensure a consistent methodology is used to calculate collateral relating to positions.

    The guidelines provide specific instructions on how the aggregation of certain data fields should be calculated by TRs prior to the provision of the data to relevant authorities.

    The report proposes that four separate datasets of calculations are calculated, Position Sets, Collateral Position Sets, Currency Position Sets and Currency Collateral Position Sets. The report first explains the existing situation in relation to position calculation and the purpose of the guidelines before explaining the feedback ESMA received to the consultation paper and how this has been considered in the final drafting of these guidelines. Finally, the Annexes refer to an analysis of the costs and benefits of the proposals and the guidelines in full.

    The ESMAGuidelines for position calculation by Trade Repositories under EMIR are available here.

    What's next?

    Following the publication of this final report, the guidelines for position calculations by Trade Repositories under EMIR will become applicable on 3 December 2018 and will require an annual assessment of the TRs’ compliance.

  • EMIR - Level 2 measures to be included to EEA agreement (proposal for a Council decision)

  • Background

    The EAA Joint Committee, as a responsible entity for managing the EEA Agreement (available here), aimed to amend Annex IX of the EEA Agreement, an Agreement that connects the EU and the EAA states, to incorporate European Market Infrastructure Regulation, Level 2 Acts (EMIR). The EMIR package consists of 22 Commission Delegated Regulations.

    Due to the amount of adaptations, appearing in the drafts of the annexed decisions of the EEA Joint Committee, the Council of the EU (the Council") shall therefore establish the Union’s position.

    What's new?

    On 22 March 2018, the proposal had been published, adopting the position by the Union, within the EEA Joint Committee. The proposed amendment to Annex IX to the EEA Agreement will be based on the draft decision of the EEA Joint Committee.

    Thus, the draft EEA Joint Committee Decisions extend the already existing EU policy (EMIR Level 2 Acts) to the EEA EFTA States (Norway, Iceland and Liechtenstein).

    The Proposal is available here.

    The annex to the Proposal is available here.

    What's next?

    The Decision shall enter into force on the date of its adoption.

  • IFRS 9 - European Commission amends Commission Regulation (EC) 1126/2008 as regards IFRS 9

  • Background

    The Regulation (EC) No 1606/2002 on the application of international accounting standards enters into force on 14 September 2002 ("Regulation 1606/2002", available here).

    The Commission Regulation (EC) 1126/2008, which adopts certain international accounting standards in accordance with Regulation 1606/2002, applies since 15 October 2008 ("Regulation 1126/2008", available here). In accordance with Regulation 1126/2008, this includes the adoption of the International Financial Reporting Standard.

    The Commission Regulation (EU) 2016/2067 of 22 November 2016, which adopts certain international accounting standards as regards International Financial Reporting Standard 9, enters into force on 19 December 2016 ("IFRS 9", available here). IFRS 9 applies since 1 January 2018 and replaces the International Accounting Standard 39 ‘Financial Instruments: Recognition and Measurement’ in terms of accounting for financial instruments by institutions ("IAS 39").

    Against this background, the International Accounting Standards Board published amendments to IFRS 9 ‘Financial Instruments: Prepayment features with Negative Compensation’ (the "Amendments"). The Amendments are intended to clarify the classification of particular prepayable financial assets when applying IFRS 9, and are available here.

    Having given consideration to the Amendments, the European Commission (the "Commission")concludes that they meet the criteria for adoption in accordance with Regulation 1606/2002.

    What's new?

    On 22 March 2018, the Commission published its Commission Regulation (EU) 2018/498 amending Regulation 1126/2008 ("Regulation 2018/498"). Regulation 2018/498 seeks to adopt the Amendments.

    As IFRS 9 has become applicable for financial periods starting at the latest on or after 1 January 2018, companies should be able to take into account of Regulation 2018/498 for the financial periods starting on or after 1 January 2018.

    The Regulation 2018/498 is available here.

    What's next?

    Regulation 2018/498shall enter into force on the third day following that of its publication in the Official Journal of the European Union.

  • MAR - ESMA updates its Q&As

  • Background

    The Market Abuse Regulation (MAR) came into effect on 3 July 2016. It aims at increasing market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising.

    The ESMA is required to play an active role in building a common supervisory culture by promoting common supervisory approaches and practices. It does this by providing responses to questions raised by the general public and competent authorities in relation to the practical application of MAR.

    What's new?

    On 23 March 2018, the ESMA updated its Question and Answers (Q&As) document on the Market Abuse Regulation.

    The new question refers to disclosure of inside information related to Pillar II requirements and in particular the Minimum Requirement for own funds and Eligible Liabilities ("MREL").

    The ESMA clarification refers to the disclosure of inside information related to Pillar II requirements of MREL and any information received in relation to the minimum requirement for own funds and eligible liabilities exercise. In the context of the MREL exercise to be conducted by the Single Resolution Board in accordance with the Bank Recovery and Resolution Directive, whenever a credit institution subject to the market abuse regime is made aware of information, it is expected to evaluate whether that information meets the criteria of inside information.

    ESMA Q&A on the Market Abuse Regulation is available here.

    What's next?

    The ESMA will periodically review this Q&As and update it where required.

  • MiFID II/MiFIR - ESMA asks European Commission to clarify ancillary activity test under MiFID II

  • Background

    Commission Delegated Regulation 2017/592(MiFID II RTS 20) provides for the criteria and tests to be performed for establishing whether an activity is to be considered to be ancillary to the main business.

    Over the last months, questions have emerged from stakeholders on how those tests should be performed at group or single entity level. Based on Level 1 (MiFID II Directive) and 2 (RTS 20) texts, there are indications that those tests should be performed at a group level. However, in the context of some drafting amendments that were introduced to RTS 20 by the Commission, it has also been argued that the ancillary activity test should be performed at a single entity level.

    As this appears to be a matter of interpretation related to the scope of the Level 1 text, and related amendments of the Level 2 text introduced by the European Commission, in the ESMA’s view it is not appropriate to address this issue through ESMA Q&A.

    What's new?

    On 10 April 2018, the ESMA sent a letter to the European Commission regarding the exemption from authorisation as investment firm which non-financial entities are eligible for when their commodity derivative trading activity is ancillary to their main business as set out in MiFID II.

    In its letter, the ESMA invites the Commission to provide further guidance on how the ancillary activity criteria set out in Article 2(4) of MiFID II, and further specified in RTS 20, are to be interpreted and implemented, and more specifically at which level the ancillary tests should be performed.

    The ESMA’s letter to the European Commission is available here.

  • MiFID II/MiFIR - ESMA updates its Q&As on commodity derivatives topics

  • Background

    The MiFID II Directive encompasses the rules on governance, products, investor protection and information disclosure.

    MiFID II and MiFIR, together with the Commission delegated acts as well as regulatory and implementing technical standards, is applicable since 3 January 2018.

    The purpose of the Q&As document is to promote common supervisory approaches and practices in the application of MiFID II on commodity derivatives topics.

    What's new?

    On 27 March 2018, the ESMA updated its Question and Answers (Q&As) document on commodity derivatives issues regarding the implementation of MiFID II and MiFIR.

    The four new questions refer to position limits and position reporting.

    On position limits, the ESMA clarifies the circumstances under which less liquid contracts may receive bespoke position limits established by the relevant national competent authority (NCA). It introduces a tailored approach to the development and application of commodity position limits for spread contracts (i.e. spread positions are disaggregated and the subsequent individual constituent positions are added to the relevant overall position for the relevant contract).

    On position reporting, the ESMA clarifies what NCA positions in an OTC commodity derivative contract, which is economically equivalent to more than one EU exchange-traded derivative ("ETD") contract, must be reported when the ETD contracts are not the same contract.

    ESMA Q&A on commodity derivatives topics under MiFID II and MiFIR is available here.

    What's next?

    The ESMA will periodically review this Q&As and update it where required.

  • MiFID II/MiFIR - ESMA updates its Q&As on investor protection topics

  • Background

    The MiFID II Directive and the MiFIR Regulation encompass rules on governance, products, investor protection, and information disclosure.

    MiFID II and MiFIR, together with the Commission delegated acts as well as regulatory and implementing technical standards, is applicable since 3 January 2018.

    The purpose of the Q&As document is to promote common supervisory approaches and practices in the application of MiFIR on investor protection issues.

    What's new?

    On 23 March 2018, the ESMA updated its Question and Answers (Q&As) document on investor protection issues regarding the implementation of MiFID II and MiFIR.

    The seven new questions referto research, post-sale reporting, costs and charges and inducements.

    The ESMA clarifies that whether macro-economic analysis can be considered research would depend on the nature and the content. It must concern one or several financial instruments or other assets, be closely related to a sector and explicitly or implicitly recommend or suggest an investment strategy. The ESMA believes that most macro-economic research would suggest an investment strategy. They also clarify that specific material relating to fixed income, currencies and commodities markets may be capable of being considered as research.

    The ESMA clarifies that only inducements accrued until 2ndJanuary can be received. From the 3rdJanuary 2018, the firms need to (i) demonstrate a transfer to its client of fees, commissions or monetary benefits paid or provided by a third party and (ii) change any existing arrangements in place with third parties to no longer receive inducements from them.

    As regards post-sale reporting, ESMA clarifies the notion of "holding a retail client account", and that the company does not need to report the fact that client has repeatedly exceeded the threshold during the same reporting period.

    The investment firms are to use PRIIPS KID information to provide information on the product costs in their ex ante MiF II report on costs. Any inducements paid by the product should be deducted from the product costs to be presented as the service costs.

    ESMA Q&A on investor protection topics under MiFID II and MiFIR is available here.

    What's next?

    The ESMA will periodically review this Q&As and update it where required.

  • MiFIR - ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors

  • Background

    CFDs and binary options are inherently risky and complex products. In recent years, ESMA and national competent authorities (NCAs) have been increasingly concerned about the rapid increase in the marketing, distribution or sale of these products to retail investors across the European Union.

    In order to tackle these concerns, ESMA has issued specific warnings and developed dedicated Questions and Answers (Q&As). Furthermore, it has coordinated the work of a joint group and a task force to tackle issues related to a number of providers offering CFDs and other speculative products to retail investors on a cross-border basis across the European Union as well as to monitor the offer of these products to retail investors.

    In addition, some NCAs have adopted national measures to limit the provision of these products to retail investors. Despite these actions, significant concerns remain that the risks to investor protection posed by these products is not sufficiently controlled or reduced. Further to its statements of 29 June 2017 and 15 December 2017, ESMA has therefore agreed on product intervention measures.

    What's new?

    On 27 March 2018, the ESMA published its measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union as well as a dedicated Q&As document.

    On binary options, the measure prohibits the marketing, distribution or sale of binary options to retail investors.

    On CFDs, the measure restricts the marketing, distribution or sale of CFDs to retail investors to circumstances where all of the following protections are provided:

    • Leverage limits on the opening of a position between 30:1 and 2:1, which vary according to the volatility of the underlying asset:
      • 30:1 for major currency pairs;
      • 20:1 for non-major currency pairs, gold and major equity indices;
      • 10:1 for commodities other than gold and non-major equity indices;
      • 5:1 for individual equities and any underlying not otherwise mentioned;
      • 2:1 for cryptocurrencies;
    • A margin close-out rule on a per account basis;
    • A negative balance protection on a per account basis;
    • A prohibition on benefits incentivising trading; and
    • A standardised risk warning.

    These measures apply to any person marketing, distributing or selling CFDs or binary options to retail investors in the Union that requires an authorisation to do so under the new MiFID regime. This includes investment firms and banks.

    ESMA’s product intervention measures relating to contracts for differences and binary options is available here.

    ESMA’s FAQ on product intervention measures in relation to CFDs and BOs offered to retail investors is available here.

    What's next?

    These measures will apply for three months, at which point they may be renewed.

  • MiFIR - ESMA clarifies treatment of packages under MiFIR’s trading obligation for derivatives

  • Background

    The MiFIR Regulationintroduces a requirement to trade derivatives that have been declared subject to the trading obligation (TO) in accordance with the procedure set out in Article 32 of MiFIR on regulated markets, multilateral trading facilities (MTFs), organised trading facilities (OTFs) or on equivalent third-country trading venues.

    The ESMA has received concerns from competent authorities and market participants that the absence of clarification on the treatment of packages under the TO might result in severe inconsistencies in the application of the TO, also to the detriment of trading those packages.

    The ESMA has considered that such clarification will contribute positively to the consistency of supervisory practices and will ensure consistent approaches throughout the Union, as a result of which, ESMA has decided to issue this Opinion.

    What's new?

    On 21 March 2018, the ESMA published an Opinion providing guidance on the treatment of packages under the trading obligation for derivatives under MiFIR.

    In its Opinion the ESMA suggests a tailored approach ensuring that, only where it is feasible to trade components of a package that are subject to the TO on a trading venue without creating undue operational or execution risk, those components need to be concluded on a trading venue. This approach applies to the following categories of packages:

    ? All components of the package are subject to the TO;

    ? At least one component is subject to the TO and all other components are subject to the clearing obligation for derivatives (CO);

    ? At least one component is an IRS subject to the TO and all other components are government bonds denominated in the same currency ("spread overs").

    The ESMA Opinion on the treatment of packages under the trading obligation for derivatives is available here.

    What's next?

    The ESMA may review this opinion should there be indications that it is feasible to execute categories of packages different to those specified above in a smooth manner and without increasing operational and execution risks.

  • MMF - Commission publishes draft delegated Regulation amending and supplementing MMF Regulation

  • Background

    The Regulation (EU) 2017/2402 of the European Parliament (the "Parliament") and the Council of the EU of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised ("STS") securitisation entered into force on 17 January 2018 and shall apply from 1 January 2019 (the "STS Securitisation Regulation", available here).

    The MMF Regulation (EU) 2017/1131of the Parliament and the Council of 14 June 2017 on money market funds ("MMF") entered into force on 20 July 2017 and shall apply from 21 July 2018 (the "MMF Regulation", available here). It intends to make MMF more resilient and to preserve the integrity and stability of the EU internal market.

    The MMF Regulation’s articles 11(4), 15(7) and 22 contain 3 empowerments (the "Empowerments") for the European Commission (the "Commission") to specify and amend certain its provisions:

    • To cross-refer to the criteria identifying STS securitisation and asset-backed commercial papers ("ABCP") in the corresponding provisions of the STS Securitisation Regulation (the STS Regulation was not finalised before the MMF Regulation was adopted, hence the Commission shall insert a cross-reference to the adopted and published text);
    • To specify the quantitative and qualitative liquidity requirements for collateral received as part of reverse repurchase agreements;
    • To specify the details of the credit quality assessment methodology for the assets in which the MMF manager concerned intends to invest.

    All the Empowerments aim to ensure that MMF are invested in appropriate eligible assets. The MMF Regulation therefore concerns MMF investment requirements and intends to ensure coherence of those requirements by giving the people subject to them an overview of, and single point of access to them.

    On 20 January 2017, the Commission sent a request to the European Securities and Markets Authority the (the "ESMA") for technical advice on possible delegated and implementing acts related to the MMF Regulation. From 24 May 2017 to 7 August 2017, the ESMA carried out a public consultation on its draft technical advice (ESMA34-49-82 - the "Consultation Paper", available here).

    On 13 November 2017, the ESMA published its final report on technical advice, draft implementing technical standards and guidelines under the MMF Regulation (ESMA34-49-103 - the "ESMA Technical Advice", available here). The Commission held meetings with various stakeholders to discuss this advice. No specific issues were raised and the Commission introduced no significant changes, so no further consultation was considered necessary.

    What's new?

    On 10 April 2018, based on the ESMA Technical Advice, the Commission published its draft delegated regulation (C(2018) 2080 final, the "Draft Delegated Regulation") amending and supplementing MMF Regulation with regard to STS securitisations and ABCPs, requirements for assets received as part of reverse repurchase agreements and credit quality assessment methodologies.

    The Draft Delegated Regulation is divided in 3 chapters according to the Empowerments:

    • Criteria for establishing a STS securitisation or ABCPs amends MMF Regulation including cross reference to STS Securitisation Regulation;
    • Quantitative and qualitative credit quality requirements for assets received as part of reverse repurchase agreements addresses in particular the quantitative and qualitative liquidity requirements for the assets referred to in Article 15(6) of MMF Regulation;
    • Credit quality assessment criteria addresses, among other, the criteria for:
      • Validating the internal credit quality assessment methodologies;
      • Quantifying credit risk, and the relative risk of default of the issuer and of the instrument, as referred to in Article 20(2)(a) of the MMF Regulation;
      • Establishing qualitative credit risk indicators in relation to the issuer of the instrument, as referred to in Article 20(2)(b) of the MMF Regulation.

    The Draft Delegated Regulation is available here.

    What's next?

    The final delegated Regulation shall enter into force on the 20th day following that of its publication in the Official Journal of the European Union ("OJEU").

    It shall apply from 21 July 2018 with the date of application aligning with the MMF Regulation date of application to ensure that all rules and requirements apply to MMF from the same date. Article 1 shall apply from 1 January 2019 (in this way the date of application of the amending provision cross-referring to the criteria for STS securitisations and ABCPs is the same as the date of application of the STS Securitisation Regulation).

  • LUXEMBOURG

    BMR - Implementing Law enters into force on 23 April 2018

  • Background

    The Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds applies since 1 January 2018 ("BMR", available here).

    In accordance with Article 40(1) of BMR, each EU Member State shall designate, for administrators and supervised entities, the relevant competent authority responsible for carrying out the duties under BMR.

    On 4 August 2017, the Luxembourg Minister of Justice submitted the bill 7164implementing certain provisions of BMR to the Luxembourg Parliament (the "Bill 7164", available hereonly in French).

    Without prejudice to the relevant missions of the Luxembourg Commissariat Aux Assurances ("CAA"), the Bill 7164 designates the Luxembourg Commission de Surveillance du Secteur Financier ("CSSF") as the competent authority for carrying out the duties under BMR concerning:

    • Administrators as defined under Article 3-1 (6) of BMR (including administrators located in third-countries provided Luxembourg is the Member State of reference pursuant to Article 32 of BMR, and administrators located in Luxembourg which apply for endorsing a benchmark or a family of benchmarks provided in a third-country pursuant to Article 33 of BMR); and
    • Supervised entities as defined under Article 3-1. (17a to l) of BMR (including supervised entities located in Luxembourg which apply for endorsing a benchmark or a family of benchmarks provided in a third-country pursuant to Article 33 of BMR).

    On 22 March 2018, the Luxembourg Parliament voted at first reading on the Bill 7164. On 30 March 2018, the Luxembourg Council of State waived the second constitutional vote on the Bill 7164. The legislative steps in relation to the Bill 7164 are available here(only in French).

    What's new?

    On 19 April 2018, the Luxembourg law of 17 April 2018 implementing certain provisions of BMR was published in the Luxembourg Memorial A N°257 (the "Loi du 17 avril 2018 relative aux indices de reference" or the "BMR Law").

    As a reminder, Articles 2 to 4 of the BMR Law define the CSSF’s powers and penalties applicable to infringements of the relevant BMR provisions (e.g. in case of BMR infringements by a legal person, maximum administrative pecuniary sanctions can be either EUR 1 000 000 or 10 % of its total annual turnover).

    As set out in Article 5 of the BMR Law, the CSSF shall ensure that any decision that is published in accordance with Article 45 of BMR shall remain accessible on its official website for a period of five years after its publication. Personal data contained in the publication shall only be kept on the CSSF's website for a maximum period of 12 months.

    The BMR Law is available here(only in French).

    What's next?

    The BMR Law enters into force on 23 April 2018.

    Articles 6 to 8 regarding certain amendments to the Luxembourg Consumer Code (available here, only in French) will enter into force on 1 July 2018.

  • GDPD/GDPR - Conseil d’État issues Opinion on Bill 7184

  • Background

    The Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data shall apply as from 25 May 2018 (the "GDPR", available here).

    The Directive (EU) 2016/680 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data shall be transposed into national law by 6 May 2018 (the "GDPD", available here).

    On 19 June 2017, the Luxembourg Minister of Internal Security submitted the bill 7151 transposing certain provisions of the Directive (EU) 2016/681 on the use of passenger name record data for the prevention, detection, investigation and prosecution of terrorist offences and serious crime (available here) to the Luxembourg Parliament (the "Bill 7151", available hereonly in French). The Bill 7151 is still under discussion at the Luxembourg Parliament.

    On 10 August 2017, the Luxembourg Minister of Justice submitted the bill 7168 transposing certain provisions of the GDPD to the Luxembourg Parliament (the "Bill 7168", available hereonly in French). The Bill 7168 is still under discussion at the Luxembourg Parliament.

    Under the current Luxembourg regulatory framework, the National Commission for Data Protection ("Commission Nationale pour la Protection des Données" - "CNPD") is an independent authority created by the Law of 2 August 2002 on the protection of individuals with regard to the processing of personal data (the "2002 Law", availablehere).

    On 12 September 2017, the Luxembourg Minister for Communications and Media submitted the bill 7184entitled the ‘Law dd/mm/yyyy establishing the National Commission for Data Protection and the general data protection regime’ to the Luxembourg Parliament (the "Bill 7184", available hereonly in French).

    On 6 March 2018, the Luxembourg Commission for Higher Education, Research, Media, Communications and Space adopted one amendment to the Bill 7184 (the "Document 7184/09", available hereonly in French).

    On 8 March 2018, the Luxembourg Minister for Communications and Mediaadopted a set of 35 amendments to the Bill 7184 and published the corresponding consolidated version of the Bill 7184 (the "Document 7184/10", available hereonly in French).

    What's new?

    On 30 March 2018, based mostly on the Document 7184/09 and the Document 7184/10, the Luxembourg Conseil d’État ("CE")issued its opinion on the Bill 7184 (N° CE: 52.422 - the "Opinion").

    Overall, the CE questions the repealing of the 2002 Law (with consecutive impacts on other Luxembourg laws and regulations) and the articulation between the Bill 7151, the Bill 7168 and the Bill 7184.

    In particular, the CEformally objects to the following Articles of the Bill 7184:

    • Articles 1 and 2 in relation to the scope of application of the Bill 7184;
    • Article 12 in relation to the new powers of the CNPD;
    • Article 23 in relation to the new conditions that (alternate) members of the CNPD shall fulfil;
    • Article 50 in relation to the fees collected by the CNPD in accordance with Article 58 of GDPR;
    • Article 51 to 53 in relation to the regime of administrative fines and periodic penalty payments imposed by the CNPD and collected by the competent Luxembourg tax authority;
    • Article 54 in relation to the possibility for the CNPD to impose a temporary or definitive limitation including a ban on processing;
    • Article 56 in relation to the possibility for the CNPD to publish its decisions at the expense of the person/entity concerned;
    • Article 67 in relation to processing for archiving purposes in the public interest, scientific or historical research purposes or statistical purposes; and
    • Article 68 in relation to processing by health professionals.

    The Opinion is available here(only in French).

    What's next?

    Taking into account the Opinion, the Bill 7184 is still under discussion at the Luxembourg Parliament.

  • MiFID - Measures on the provisions of CFD and binary options to retail investors

  • Background

    On 27 March 2018, the ESMA has published its measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union as well as a dedicated Q&As document. On binary options, the measure prohibits the marketing, distribution or sale of binary options to retail investors.

    On CFDs, the measure restricts the marketing, distribution or sale of CFDs to retail investors to circumstances where all of the following protections are provided:

    • Leverage limits on the opening of a position between 30:1 and 2:1, which vary according to the volatility of the underlying asset:
      • 30:1 for major currency pairs;
      • 20:1 for non-major currency pairs, gold and major equity indices;
      • 10:1 for commodities other than gold and non-major equity indices;
      • 5:1 for individual equities and any underlying not otherwise mentioned;
      • 2:1 for cryptocurrencies;
    • A margin close-out rule on a per account basis;
    • A negative balance protection on a per account basis;
    • A prohibition on benefits incentivising trading; and
    • A standardised risk warning.

    These measures apply to any person marketing, distributing or selling CFDs or binary options to retail investors in the Union that requires an authorisation to do so under the new MiFID regime. This includes investment firms and banks.

    ESMA’s product intervention measures relating to contracts for differences and binary options is available here.

    ESMA’s Q&A on product intervention measures in relation to CFDs and BOs offered to retail investors is available here.

    What's new?

    On 29 March 2018, the CSSF issued a press release (the "Press Release") in order to raise awareness on the publication of ESMA’s product intervention measures and of the related Q&A in a press release.

    The Press Release is available here.

    What's next?

    These ESMA measures will apply for three months, at which point they may be renewed.

  • MiFID II/MiFIR - Further legislative steps (Bill 7157)

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) 600/2014 ("MiFIR", available here) apply since 3 January 2018.

    On 20 April 2017, the Commission delegated directive (EU) 2017/593 supplementing MiFID II with regards to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits entered into force (the "Delegated Directive", available here).

    In particular, Article 6(1) of the Delegated Directive states that ‘Member States shall require that investment firms properly consider and are able to demonstrate the use of title transfer collateral arrangements in the context of the relationship between the client’s obligation to the firm and the client assets subjected to title transfer collateral arrangement by the firm’.

    On 3 July 2017, the Luxembourg bill 7157was transmitted to the Luxembourg Parliament for adoption (the "Bill 7157", available hereonly in French).

    In this context, the Bill 7157 transposes MiFID II and Article 6 of the Delegated Directive (entitled ‘Inappropriate use of title transfer collateral arrangements’), implements MiFIR, and modifies, amongst other, the following Luxembourg laws:

    • The law of 5 April 1993 as amended on the Financial sector (the "LSF", available here);
    • The law of 23 December 1998 on the establishment of the CSSF (the "CSSF Law", available here);
    • The law of 15 March 2016 on OTC derivatives, central counterparties, trade repositories amending laws related to the financial sector (available hereonly in French);
    • The Bill 7157 would repeal the law of 13 July 2007 relating to the markets in financial instruments (the "2007 Law", available here).

    On 25 January 2018, the European Commission ("Commission") issued a reasoned opinion, in which it requests several Member States, including Luxembourg, to fully implement MiFID II and the Delegated Directive into their national framework (the "Reasoned Opinion", available here).

    On 20 February 2018, the Luxembourg Conseil d’État ("CE") issued its opinion on the Bill 7157 (the "CE Opinion", available hereonly in French).

    On 5 March 2018, the law of 27 February 2018 on interchange fees and amending several laws relating to financial services, including the LSF and the CSSF Law, entered into force (the "Amending Law", available hereonly in French).

    What's new?

    On 30 March 2018, based most notably on the CE Opinion and the Amending Law, the Luxembourg Finance and Budget Commission published a letter, which contains 35 amendments to the Bill 7157 and which is addressed to the President of the CE (the "Letter").

    Besides some minor technical amendments, the Bill 7157 was amended as follows:

    • The definition of an "investment firm" would be clarified (new Article 1(16));
    • The CSSF would comply with a specific timeframe to refuse certain changes in the context of regulated markets (new Article 2(7-2), new Article 4(9-2) and new Article 5(2-3));
    • The articulation between professional secrecy and data protection rules would be clarified (new Article 43(10) and new Article 50(1));
    • CSSF powers would be widened, in order for the CSSF to require, in so far as permitted by Luxembourg law, existing data traffic records held by a telecommunication operator, where there is a reasonable suspicion of an infringement and where such records may be relevant to an investigation into infringements of MiFID II or of MiFIR (new Article 45(2-20) and (3), and new Article 124);
    • The CSSF would immediately supply another EU competent authority with the information required for the purposes of carrying out its respective duty under MiFID II and MiFIR (new Article 52(1));
    • Relations between the CSSF and statutory auditors would be clarified (new Article 55(1));
    • Certain provisions on "equivalent information" in the context of algorithmic trading would be clarified (new Article 60(2-7) and (6-7));
    • Theofficial listing regime would be clarified (new Article 63(1) and (2));
    • Luxembourg would introduce a CSSF authorisation regime, in order to allow third-country firms to provide investment services or perform investment activities together with ancillary services to eligible counterparties and professional clients in its territory, in accordance with national regimes in the absence of a Commission equivalence decision (new Article 91(1));
    • Certain provisions applicable to professionals of the financial sector ("PFS") other than investment firms would be clarified (new Article 98);
    • The CSSF would update official lists of the credit institutions and other categories of PFS under its remit on a regular basis (new Article 123(2)); and
    • The scope of market operators that could face CSSF administrative sanction would be wider (new Article 128(4)).

    It is to be noted that the annex to the Letter presents the consolidated text of the Bill 7157 in tracked changes.

    The Letter is available here(only in French).

    The legislative steps in relation to the Bill 7157, as amended, are available here(only in French).

    What's next?

    Taking into account the Letter, the Bill 7157, as amended, should be further discussed by the Luxembourg Finance and Budget Commission on 24 April 2018.

    Having regard to the Reasoned Opinion, the Bill 7157, as amended, should be put to the vote of the Luxembourg Parliament in May 2018.

  • PRIIPs - Implementing Law enters into force on 23 April 2018

  • Background

    The Regulation (EU) No 1286/2014 on key information documents ("KIDs") for packaged retail and insurance-based investment products applies in Luxembourg since 1 January 2018 (the "PRIIPs Regulation", available here).

    The PRIIPs Regulation lays down uniform rules on the format and content of the 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 these products.

    On 25 October 2017, the Luxembourg Minister of Finance submitted the bill 7199implementing certain provisions of the PRIIPs Regulation to the Luxembourg Parliament (the "Bill 7199", available hereonly in French). The Bill 7199 designates the CSSF and the CAA (i.e. "Commissariat aux Assurances") as competent authorities to ensure compliance with the PRIIPs Regulation.

    On 22 March 2018, the Luxembourg Parliament voted at first reading on the Bill 7199. On 30 March 2018, the Luxembourg Council of State waived the second constitutional vote on the Bill 7199. The legislative steps in relation to the Bill 7199 are available here(only in French).

    What's new?

    On 19 April 2018, the Luxembourg law of 17 April 2018 implementing certain provisions of the PRIIPs Regulation was published in the Luxembourg Memorial A N°256 (the "Loi du 17 avril 2018 relative aux documents clés relatifs aux produits d'investissement packagés de detail et fondés sur l'assurance" or the "PRIIPs Law").

    As a reminder, Article 2 of the PRIIPs Law authorises SICARs (i.e. "Sociétés d'investissement en capital à risque") and undertakings for collective investment ("UCIs"), other than UCITS, to prepare a key investor information document ("KIID") within the meaning of the Section C of the Chapter 21 of the modified Luxembourg Law of 17 December 2010 relating to UCIs (available here). In this context, the KIID shall clearly mention that such SICAR or UCI is not subject to the Directive 2009/65/EC (the "UCITS Directive"). Management companies, investment companies and persons advising on, or selling, units of such SICAR or UCI shall be exempted from the obligations under the PRIIPs Regulation until 31 December 2019.

    Pursuant to Article 3 of the PRIIPs Law, the CSSF and the CAA may require the ex-ante notification of the KID by PRIIPs manufacturers and persons selling PRIIPs who fall within the scope of their powers.

    Articles 4 to 5 of the PRIIPs Law define the CSSF’s and CAA's powers and penalties applicable to infringements of the relevant PRIIPs provisions (e.g. in case of PRIIPs infringements by a legal person, maximum administrative pecuniary sanctions can be either EUR 5 000 000 or 3 % of its total annual turnover).

    As set out in Article 7 of the PRIIPs Law, the CSSF and the CAA shall ensure that any decision that is published in accordance with Article 29 of the PRIIPs Regulation shall remain accessible on their website for a period of five years after its publication. Personal data contained in the publication shall only be kept on their website for a maximum period of 12 months.

    The PRIIPs Law is available here(only in French).

    What's next?

    The PRIIPs Law enters into force on 23 April 2018.

  • TAX UPDATES

    LUXEMBOURG — CbC Reporting - Heavy CbCR files can be downloaded on myguichet.lu

  • Background

    Certain Country by Country Reporting ("CbCR") files could not be downloaded due to their size on myguichet.lu.

    What's new?

    As of 29 March 2018, heavy CbCR can be downloaded under the tab "Declaration pays par pays - Rapport" on MyGuichet.lu. A reduced PDF with only the information on Luxembourg and complementary information will be created. Nonetheless, the other downloaded information by the depositor regarding the other data will be available at the Administration des Contributions Directes ("ACD") under the XML format and will be exchanged as received.

    Complementary information might be found in the item "Echanges électroniques", under the tab "Déclaration pays par pays - Country by Country Reporting ("CbCR").

    The link is availablehere(only available in French).

    What's next?

    More improvement might occur in the coming months regarding CbCR.

  • LUXEMBOURG/FRANCE — Double Tax Treaty - New double tax treaty signed between France and Luxembourg

  • Background

    The current Double Tax Treaty ("DTT") between Luxembourg and France was signed on 1 April 1958 and therefore it was not anymore in line with the recent international developments.

    Both country expressed the envy to implement the new approaches developed at international level during the OECD/G20 BEPS project which are now reflected in the 2017 version of the OECD Model Tax Convention ("the 2017 OECD Model") and in the Multilateral Convention to Implement tax treaty related measures ("the MLI"), signed by both Luxembourg and France in June 2017.

    What's new?

    On 28 March 2018, the Luxembourg and French Government signed a new DTT together with an accompanying Protocol.

    Among several modifications, the convention notably modifies:

    Firstly, the definition of residency (article 4 of the DTT) according to which a resident is a person "subject to tax". For certain collective investment funds and pension funds, in light of the recent case law of the French Administrative Supreme Court, being "subject to tax" necessitates being in effect subject to tax without the possibility of any exemption that could be granted by another provision of local law.

    Moreover, the definition of the permanent establishment (article 5 of the DTT) is strengthened in order to be in line with the recent OECD work and notably on the commissionaire arrangement. Although at the time of signing the MLI, France wished to have this part of the MLI apply to the fullest extent to all its treaties covered by the MLI, Luxembourg did not. Indeed, when signing the MLI, Luxembourg had opted to "reserve" against (and thus not to have to apply) any of these measures that re-define the permanent establishment for DTT purposes.

    Finally, in line with commitments made within the framework of the MLI (to which, as noted above, both Luxembourg and France are founding signatories) the DTT contains the Principal Purpose Test ("PPT"). Under this clause, benefitting from the DTT is not granted in respect of an item of income or capital, if it is reasonable to conclude, having regard to all relevant facts and circumstances that obtaining that benefit was one of the principal purpose of an arrangements or transaction that resulted directly or indirectly in that benefit unless it is established that granted that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the DTT.

    The link is available here(only available in French).

    What's next?

    The tax treaty will enter into force once both parties complete the ratification process.

  • WORLD AND EUROPE — EU Black List - Commission puts in place first EU counter-measures on listed non-cooperative tax jurisdictions

  • Background

    In January 2016, the Commission launched a three-step process for establishing the common EU list of non-cooperative jurisdictions as part of its broader agenda to curb tax evasion and avoidance. This initiative was justified by the fact that a common EU list of non-cooperative jurisdictions will carry much more weight than the existing patchwork of national lists when dealing with non-EU countries that refuse to comply with international tax good governance standards.

    On 23 January 2018, the decision was taken at a meeting of the Economic and Financial Affairs Council to remove eight jurisdictions from the EU’s list of non-cooperative jurisdictions for tax purposes. These jurisdictions are the following: Barbados, Grenada, the Republic of Korea, Macao SAR, Mongolia, Panama, Tunisia and the United Arab Emirate. These eight countries have been moved to a separate category of jurisdictions subject to close monitoring.

    The Council agreed to delist these countries in light of an expert assessment of the commitments made by these jurisdictions to address deficiencies identified by the EU. In each case, the commitments were backed by letters signed at a high political level.

    What's new?

    On 21 March 2018, guidelines have been adopted which mark the first step in stopping the transit of EU funds through non-cooperative tax jurisdictions. They will ensure that EU funds do not inadvertently contribute to global tax avoidance.

    The new requirements seek to align the EU’s objective of tackling tax avoidance at the global level with the rules governing the use of EU funds by International Financial Institutions (IFIs) such as the European Investment Bank (EIB), development financial institutions (DFIs) - including the European Fund for Sustainable Development (EFSD) - and other eligible counterparties.

    What's next?

    The new guidelines will ensure that the rules are interpreted and applied consistently. In order to safeguard the EU’s development policy, an exception is made for direct financing, where a project is physically implemented in a listed non-cooperative tax jurisdiction and is not linked to money-laundering, terrorism financing, tax fraud or tax evasion.

  • WORLD AND EUROPE — Multilateral Instrument - Multilateral BEPS Convention will enter into force on 1 July 2018

  • Background

    On 7 June 2017, the Multilateral Instrument to Modify Bilateral Tax Treaties ("MLI") has been signed in Paris by 68 countries. MLI globally implements mechanisms created to prevent international profit shifting to locations where they are subject to reduced taxation or non-taxation. OECD estimates that it will allow to change in a timely manner more than 1 000 Double Tax Treaties ("DTT"). Luxembourg was one of the countries that signed the MLI on 7 June 2017 and, in that respect, Finance Minister Pierre Gramegna has announced that Luxembourg opted for the minimum standard under the MLI.

    What's new?

    On 22 March 2018, the OECD has announced in a press release that the MLI will enter into force on 1 July 2018. This follows the deposit of the fifth instrument of ratification by Slovenia on 22 March 2018.

    The link is available here.

    What's next?

    MLI will thus enter into force on 1 July 2018.

  • 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 Head of Litigation and Legal Projects

    Permanent Editorial Committee
    Gaëlle Kerboeuf, Group Head of Litigation and Legal Projects
    Elisabeth Raisson, CACEIS Group Compliance
    Corinne Brand, CACEIS Group Communications Specialist
    Alice Broussard, CACEIS Compliance and Regulatory Watch

    Support
    Ana Vazquez, Group Head of Legal
    Tania Delchev, Legal (France)
    Malgorzata Journo, Legal (France)
    Eliane Meziani-Landez, Legal (France)
    Corentin Stefan (France)
    Sylvie Becker, Legal (Luxembourg)
    Fernand Costinha, Legal (Luxembourg)
    Stefan Ullrich, Legal (Germany)
    Costanza Bucci, Legal and Compliance (Italy)
    Mireille Mol, Legal and Compliance (Netherlands)
    Arianne Courtois (Belgium)
    François Honay, Legal (Belgium)
    Charles du Maisnil, Legal - Risk & Compliance (Belgium)
    Robin Donagh, Legal (Ireland)
    Helen Martin, Legal (Ireland)
    Samuel Zemp, Legal and Compliance (Switzerland)

    Design
    Sylvie Revest-Debeuré, CACEIS, Communications

    Photos credit
    Yves Maisonneuve, Yves Collinet, CACEIS, Adobe Stock

    CACEIS
    1-3, place Valhubert
    75206 Paris CEDEX 13