SCANNING FEBRUARY 2018

European Regulatory Watch Newsletter


Summary

EUROPE

From above
Accounting - Commission amending Regulation published in the OJEU

  • Background

    The regulation (EC) No 1606/2002 of the European Parliament (the "Parliament") and of the Council on the application of international accounting standards entered into force on 14 September 2002 (the "Regulation 1606/2002", available here). The Commission regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with the Regulation 1606/2002 entered into force on 2 December 2008 (the "Regulation 1126/2008", available here).

    The International Accounting Standards Board (the "IASB") issued the following accounting standards:

    • The International Accounting Standard 28 Investments in Associates and Joint Ventures ("IAS 28", available here) on 12 May 2011. The IAS 28 outlines how to apply, with certain limited exceptions, the equity method to investments in associates and joint ventures.
    • The International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1", available here) on 19 June 2003. It sets out the procedures that an entity must follow when it adopts IFRS for the first time as the basis for preparing its general-purpose financial statements. The IFRS 1 grants limited exemptions from the general requirement to comply with each IFRS effective at the end of its first IFRS reporting period.
    • The IFRS 12 Disclosure of Interests in Other Entities ("IFRS 12" available here) on 12 May 2011. IFRS 12 is a consolidated disclosure standard requiring a wide range of disclosures about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured entities'.

    On 8 December 2016, the IASB published the annual improvements to IFRS 2014-2016 cycle in order to address non-urgent but necessary issues discussed by the IASB during the project cycle on areas of inconsistency in IFRS or where clarification of wording is required (the "Improvements Document", available here).

    The Improvements Document included amendments that addressed IAS 28 (concerning measuring an associate or joint venture at fair value), IFRS 1 (deletion of short-term exemptions for first-time adopters), and IFRS 12 (clarification of the scope of the standard).

    Following the consultations with the European Financial Reporting Advisory Group, the European Commission concluded that the amendments to IAS 28, IFRS 1 and IFRS 12 meet the criteria for adoption set out in Article 3(2) of the Regulation 1606/2002. Accordingly, the Regulation 1126/2008 needed to be amended.

    What's new?

    On 8 February 2018, the Commission Regulation (EU) 2018/182 amending the Regulation 1126/2008 as regards IAS 28, IFRS 1 and IFRS 12 was published in the OJEU (the "Regulation 2018/182").

    It is to be noted that the amendments to Annex of the Regulation 1126/2008 are detailed in Annex of the Regulation 2018/182 (the "Amendments").

    The Regulation 2018/182 is available here.

    What's next?

    Companies shall apply the Amendments addressing IFRS 12 as from the commencement date of its first financial year starting on or after 1 January 2017 (retroactively, the date set by the IASB).

    Companies shall apply the Amendments addressing IAS 28 and IFRS 1 at the latest, as from the commencement date of its first financial year starting on or after 1 January 2018.

    The Regulation 2018/182 enters into force on 28 February 2018.

  • AIFMD - Survey about the functioning of the AIFMD

  • Background

    On 8 June 2011, the European Parliament (the "Parliament") and the Council of the EU (the "Council") issued the Directive 2011/61/EU on alternative investment fund managers (the "AIFMD", available here). The AIFMD applies since 22 July 2013.

    As set forth in Article 69(1) of the AIFMD, a review of the AIFMD scope and application was originally intended to be conducted by the European Commission (the "Commission") by 22 July 2017.

    In this context, the Commission has contracted KPMG to carry out a general survey on (i) the functioning of the AIFMD rules, (ii) the experience acquired in applying them, and (iii) the market impacts of the AIFMD (the "Survey").

    What's new?

    On 8 February 2018, the Commission published the link to the Survey, thus inviting stakeholders to give their feedback

    The Survey is available here.

    What's next?

    The closing date for responses to the Survey is 15 March 2018.

    After finalising its review, the Commission will submit a report to the Parliament and the Council. If appropriate, the Commission will make proposals, including amendments to the AIFMD.

  • 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", available here).

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

    What's new?

    On 5 February 2018, the ESMA updated its Q&As document on BMR.

    The Q&As include two new answers regarding the following topics:

    • Commodity benchmarks: how the threshold in the exemption under Article 2(2)(g) of BMR should be calculated; and
    • Definition of a benchmark and investment funds: clarification of the cases in which a benchmark is used to measure the performance of an investment fund.

    Regarding the definition of a benchmark and investment funds, the ESMA particularly considers that indices referenced in the documentation of an investment fund solely to compare the performance of the investment fund should not be included in the scope of the regulation, where no investment constraint on the asset allocation of the portfolio is established in relation to the index.

    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.

  • Brexit - Commission issues notices to stakeholders on consequences of Brexit for financial sector

  • Background

    On 29 March 2017, the United Kingdom (the "UK") notified the European Council of its intention to withdraw ("Brexit") from the European Union (the "EU") pursuant to Article 50 of the Treaty on European Union (the "TEU", available here).

    Unless a ratified withdrawal agreement establishes another date or the European Council, in accordance with Article 50(3) of the TEU and in agreement with the UK, unanimously decides on a later date, all EU primary and secondary law will cease to apply to the UK from 30 March 2019, 00:00h (CET) (the "Withdrawal Date"). The UK will then become a "3rd Country".

    Brexit will affect financial sector regulation. Subject to any transitional arrangements that may be contained in the withdrawal agreement, as of the Withdrawal Date, among other, the following EU asset management and markets in financial instruments rules will not apply to the UK:

    • Directive 2009/65/EC of the European Parliament (the "Parliament") and of the Council on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities ("UCITS Directive", available here), applicable since 30 June 2011.
    • Directive 2011/61/EU of the Parliament and the Council on Alternative Investment Fund Managers ("AIFMD", available here), applicable since 22 July 2013.
    • Directive 2014/65/EU ("MiFID II", available here) and Regulation (EU) No 600/2014 ("MiFIR", available here) of the Parliament and the Council on markets in financial instruments, applicable since 3 January 2018 and together referred to as "MiFID".

    What's new?

    On 8 February 2018, in view of uncertainties, in particular concerning the content of a possible withdrawal agreement, the European Commission (the "Commission") issued public notices to stakeholders of financial sector. The notices plainly spell out the legal repercussions and practical consequences to be considered when the UK becomes a 3rd Country.

    In particular 2 of the notices concern asset management and markets in financial services as follows:

    • Highlight that when the UCITS Directive, AIFMD and MiFID will no longer apply to the UK, then UK UCITS, UK AIFMs and UK investment companies will no longer benefit from authorisation for activities in the EU (so called "EU Passport");
    • Explain the status of subsidiaries (legally independent companies established in EU-27 controlled or affiliated to entities established in the UK) which may continue to operate on the basis of their authorisation in EU-27;
    • Address the status of branches (permanent presences which are not legally independent) of non-EU managers or investment firms which shall be subject to national requirements where established (national private placement regimes mentioned in AIFMD) or need to comply with MiFID II Chapter IV relevant measures on provision of investment services and activities by 3rd Country firms;
    • Clarify that UCITS and AIFs authorised or registered in the UK in accordance with UCITS Directive or AIFMD will be non-EU AIFs. EU-27 UCITS authorised in the UK will need to obtain authorisation according to AIFMD to manage non-EU AIFs;
    • Warn that loss of MiFID authorisations may affect the ability of UK established firms to continue performing certain obligations deriving from existing contracts;
    • Include other specific information, for instance on topics as outsourcing and MiFID obligations on disclosure of information to clients.

    In addition, the Commission issued 5 notices addressed to stakeholders of other policy areas such as (i) banking and payment services, (ii) insurance and reinsurance, (iii) post-trade financial services, (iv) credit rating agencies, (v) statutory audit.

    • The Asset Management Notice is available here.
    • The Markets in Financial Services Notice is available here.
    • The Banking and Payment Services Notice is available here.
    • The Insurance and Reinsurance Notice is available here.
    • The Post-trade Financial Services Notice is available here.
    • The Credit Rating Agencies Notice is available here.
    • The Statutory Audit Notice is available here.

    What's next?

    Where necessary, the Commission will update its dedicated websites, which provide for general information concerning the areas addressed in its notices:

    • Asset Management (available here);
    • Markets in Financial Services (available here);
    • Banking and Payment Services (available here);
    • Insurance and Reinsurance (available here);
    • Post-trade Financial Services (available here);
    • Credit Rating Agencies (available here);
    • Statutory Audit (available here).
  • CRR/EMIR - Commission issues delegated regulation on exclusion from CVA risk of non-EU NFCs

  • Background

    The Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms applies since 1 January 2014 ("CRR", available here).

    In accordance with Article 382(4)(a) of CRR, transactions between an institution and a non-financial counterparty ("NFC" as defined under Article 2(9) of EMIR, available here) that do not exceed the clearing threshold (referred to in Article 10(3) and (4) of EMIR) are excluded from the own fund requirements for credit valuation ("CVA") risk, irrespective of whether that NFC is established in the EU or in a third-country.

    In this context, pursuant to Article 382(5) of CRR, the EBA in cooperation with the ESMA shall develop draft regulatory technical standards ("RTS") to specify the procedures for excluding transactions with NFCs established in a third country from the own funds requirement for CVA risk.

    On 9 February 2017, the EBA published its final draft RTS concerning the procedures for excluding transactions with NFCs established in a third country from the own funds requirement for CVA risk under Article 382(5) of CRR (EBA/RTS/2017/01 - the "EBA Draft", available here).

    What's new?

    On 24 January 2018, based on the EBA Draft, the European Commission published its draft delegated regulation supplementing CRR with regard to RTS for procedures for excluding transactions with NFCs established in a third country from the own funds requirements for CVA risk (C(2018) 256 final - the "Delegated Regulation").

    In particular, the Delegated Regulation specifies that the institution shall verify, either at the inception of each new trade with that counterparty or on a periodic basis, that the counterparty would qualify as a NFC if it were established in the Union, and that for each class of OTC derivatives (referred to in Article 11 of the Commission delegated regulation No 149/2013 supplementing EMIR, available here), the gross notional value of the OTC derivative contracts of that counterparty within the class does not exceed the relevant clearing threshold.

    The Delegated Regulation is available here.

    What's next?

    The Delegated Regulation is subject to the right of the Parliament and the Council of the EU to express objections.

    The final version of the Delegated Regulation shall enter into force on the 20th day following that of its publication in the OJEU.

  • CSDR - ESMA updates its Q&As

  • Background

    The Regulation (EU) No 909/2014 on Central Securities Depositories entered into force on 17 September 2014 ("CSDR", available here).

    The purpose of this Questions and Answers ("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 6 February 2018, the ESMA updated its Q&As document on the implementation of the CSDR.

    The three new questions refer to ancillary service, organisational requirements and prudential requirements.

    • The first new answer clarifies that CSDs intending to provide data reporting services as defined under MIFID II should fully comply with the requirements set out therein.
    • The second new answer relates to risk monitoring committees for CSDs belonging to the same group of companies. More precisely, each CSD should have its own committees and such committees could have the same membership under certain conditions (that the membership of each committee is adapted to each CSD, and that the rules on composition, outsourcing of staff and management of conflicts of interests are strictly complied with).
    • The third answer clarifies that TARGET2-Securities should not be subject to the provisions applicable to critical service providers, given that the organisational and operational safety, efficiency and resilience of T2S should be ensured through the dedicated legal, regulatory and operational framework and agreed governance arrangements.

    The 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.

  • EMIR - ESMA issues conflict of interest Guidelines for CCPs

  • Background

    Under EMIR (available here), central counterparties ("CCPs") shall act in the best interests of their clearing members and the clients. In that sense, CCPs shall have robust organisational arrangements and policies to prevent potential conflicts of interest and to solve them if the preventive measures are not sufficient.

    Article 33 of EMIR specifies the requirements in terms of management of conflicts interest by CCPs. In particular, CCPs are required to have written organisational and administrative arrangements to identify and manage any potential conflicts of interest between themselves and their clearing members or the clients known to them.

    The ESMA considers that there is a need to specify further those rules and procedures.

    These Guidelines follow a Consultation Paper issued in June 2017, which presented a first draft of guidelines addressing these issues. A total of nine responses were received and these allowed the ESMA to prepare the final guidelines.

    What's new?

    On 7 February 2018, the ESMA published its final Guidelines on the management of conflict of interests for CCPs under EMIR.

    In order to ensure a level playing field across the EU, the ESMA decided to develop guidance on CCPs management of conflicts of interest so as to:

    • Clarify how CCPs should prevent or mitigate the risks of conflicts of interest; and
    • Ensure a consistent implementation across CCPs.

    The ESMA's guidelines provide details on circumstances where conflicts of interests could arise and specifies the corresponding organisational arrangements and procedures to be set-up including in the case when a CCP is part of a group structure. In particular, section 2 contains information on the background and mandate, and Section 3 contains the feedback to the responses received to the CP, highlighting where the ESMA has changed the proposed guidelines following the consultation.

    Annex I provides the legislative mandate, Annex II sets out ESMA's view on the costs and benefits associated with these guidelines and Annex III contains the text of the guidelines.

    The ESMA conflict of interest guidelines for CCPs are available here.

    What's next?

    The guidelines will be translated into the official languages of the EU and published on the ESMA website. Within two months of the publication of the translations, each National Competent Authority will have to confirm whether it intends to comply with the guidelines.

  • EMIR - ESMA updates its Q&As

  • Background

    The Regulation (EU) No 648/2012 entered into force on 16 August 2012 ("EMIR", available here).

    The purpose of this document is to promote common supervisory approaches and practices in the application of EMIR. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of EMIR.

    The content of this document is aimed at competent authorities under the Regulation to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. It should also help investors and other market participants by providing clarity on the requirements under EMIR.

    What's new?

    On 5 February 2018, the ESMA updated its Question and Answers ("Q&As") document on EMIR.

    The updated section refers to the trade repositories and timelines for provision of data and validation of a request for access to data.

    The ESMA clarifies how should the trade repositories comply with the timelines in the case of scheduled maintenance that impacts trade repositories services related to authorities' access to data and in case of non-scheduled maintenance at the trade repositories.

    The ESMA Q&A on EMIR is available here.

    What's next?

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

  • MiFID II - ESMA publishes translations for Guidelines on MiFID II product governance requirements

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) has introduced product governance requirements to ensure that firms which manufacture and distribute financial instruments act in the clients' best interests during all the stages of the life-cycle of products or services.

    While the MiFID II product governance requirements cover a broad range of topics, the ESMA has decided to develop guidelines which mainly address the 'target market assessment', as this aspect was identified as the most important one for ensuring the common, uniform and consistent application of the product governance rules.

    On 2 June 2017, the ESMA published its final report on its Guidelines on product governance to safeguard investors. The proposed guidelines address issues specific to manufacturers and distributors as well as issues common to both. In particular, it specifies the categories that must be taken into account by manufacturers and by distributors when they identify the product's target-market.

    What's new?

    On 5 February 2018, the ESMA published the official translations of its Guidelines on MiFID II product governance requirements (the "Translations").

    The Translations are available here.

    What's next?

    National Competent Authorities ("NCAs)" to which these Guidelines apply must notify the ESMA whether they comply or intend to comply with the Guidelines, within two months of the date of publication by the ESMA of the Guidelines in all EU official languages.

  • GDPD - Commission communicates on the direct application of GDPR as of 25 May 2018

  • 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).

    Member States shall transpose 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 by 6 May 2018 (the "GDPD", available here).

    At Luxembourg level, the Luxembourg Government submitted the following bills to the Luxembourg Parliament, in order to implement GDPR and to transpose GDPD:

    • The bill 7168 transposing GDPD was submitted on 10 August 2017 (the "Bill 7168", available here in French only). The Bill 7168 is still under discussion at the Luxembourg Parliament, and the various opinions to the Bill 7168 are available here (in French only);
    • The bill 7184 in relation to GDPR was submitted on 12 September 2017 (the "Bill 7184", available here in French only). The Bill 7184 is still under discussion at the Luxembourg Parliament, and the various opinions to the Bill 7184 are available here (in French only).

    What's new?

    On 24 January 2018, the European Commission ("Commission") issued a communication to highlight the direct application of GDPR as of 25 May 2018 to EU governments, data protection authorities, businesses, and citizens (COM(2018) 43 final – the "Communication").

    In particular, the Communication identifies five remaining steps for a "successful" preparation of the GDPR deadline:

    • Member States should finalise the set-up of the legal framework at the national level;
    • Data protection authorities should ensure that the new independent European Data Protection Board ("EDPB") is fully operational, as a successor to the Article 29 Working Party. The EDPB may be called on to issue binding decisions on disputes regarding cross-border processing;
    • Member States should provide the necessary financial and human resources to national data protection authorities (e.g. in Luxembourg, the "Commission nationale pour la protection des données" or "CNPD", as modified by the Bill 7184);
    • Businesses, public administrations and other organisations processing data should get ready for the application of GDPR; and
    • Raising awareness and inform stakeholders, in particular citizens and small and medium-size businesses.

    The Communication is available here.

    The corresponding Commission Q&A document on GDPR is available here.

    The corresponding Commission online tool on GDPR is available here.

    What's next?

    As indicated in the section 4 to the Communication, the Commission underlines that it will take the following actions after 25 May 2018:

    • The Commission will closely monitor the application of GDPR in EU Member States and take appropriate actions as necessary, including the recourse to infringement actions;
    • The Commission will contribute to the work of the EDPB;
    • In 2018-2019, the Commission will assess the need to make use of its power to adopt delegated or implementing acts;
    • In May 2019, the Commission will take stock of the GDPR implementation and will produce a report by May 2020 on the evaluation and review of GDPR.

    On 12 February 2018, the Luxembourg CNPD issued (i) an updated GDPR data breach notification form (available here in French and in English) and (ii) a dedicated FAQ document (available here in French only).

  • MiFID II/MiFIR - Corrigendum to Commission Implementing Regulation 2017/2382 on the transmission of information published in the OJEU

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 ("MiFIR", available here) on markets in financial instruments apply since 3 January 2018.

    The Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms applies since 31 December 2013 ("CRD IV", available here).

    On 29 June 2016, the European Securities and Markets Authority (the "ESMA") issued and submitted to the European Commission (the "Commission") its first set of technical standards under the MiFID II/MiFIR framework, which included its draft implementing technical standards under the mandates of Articles 34(9) and 35(12) of MiFID II (the "Draft ITS", available here).

    On 20 December 2017, based on the Draft ITS, the Commission implementing regulation (EU) 2017/2382 of 14 December 2017 laying down ITS with regard to standard forms, templates and procedures for the transmission of information in accordance with MiFID II was published in the Official Journal of the European Union ("OJEU") and applies since 3 January 2018 (the "Implementing Regulation 2017/2382", available here).

    The Implementing Regulation 2017/2382 applies to (i) investment firms and market operators operating a multilateral trading facility ("MTF") or an organised trading facility ("OTF"), and (ii) credit institutions authorised under CRD IV, which provide one or more investment services or perform investment activities under MiFID II, and wish to use tied agents under the right of freedom to provide investments services or by establishing of a branch.

    What's new?

    On 7 February 2018, the corrigendum to Implementing Regulation 2017/2382 was published in the OJEU (the "Corrigendum"). The Corrigendum addresses a numbering issue on page 21, in Annex VI, Part 2, Programme of operations, Business Plan and structural organisation of the branch, Systems & Controls.

    The Corrigendum states that the numbering "1, 4, 5, 6, 7, 8" shall be read as "1, 2, 3, 4, 5, 6" instead.

    The Corrigendum is available here.

  • MiFID II/MiFIR - ESMA updates key transparency calculations

  • Background

    The MiFID II Directive (available here) and MiFIR Regulation (available here) framework introduces transparency requirements for bonds, structured finance products, emission allowances and derivatives, empowering competent authorities to waive the obligation for market operators and investment firms operating a trading venue, to make public pre-trade information for non-equity instruments.

    The Commission Delegated Regulation 2017/583 (available here) on transparency requirements for non-equity instruments establishes that, 6 months prior to the date of application of MiFIR, competent authorities shall publish information on the liquidity classification of financial instruments and the sizes large in scale compared to normal market size and the size specific to the instrument.

    Competent authorities have delegated to ESMA the computation of transparency calculations including the transitional transparency calculations (TTC). To execute them, the ESMA has compiled the information from Trading Venues of the Member States. The ESMA had already provided TTC for non-equity instruments in July, September and December 2017.

    What's new?

    On 22 January 2018, the ESMA updated the MiFID II/MiFIR transitional transparency calculations ("TTC") for equity and bond instruments.

    The ESMA has added the applicable TTC for:

    • Equity instruments, traded for the first time on a trading venue between 13 September 2017 and 2 January 2018 (included); and
    • Bond instruments (except ETCs and ETNs), traded for the first time on a trading venue between 01 November 2017 and 2 January 2018 (included).

    The calculations of the newly added instruments where done by National Competent Authorities. ESMA compiled these calculations with utmost care and to the best of its ability for publication.

    The ESMA updated TTC for equity and bond instruments are available here.

    The updated files establish the transparency parameters that are currently applicable for instruments first listed before 3 January 2018.

  • MiFID II/MiFIR - ESMA updates key transparency calculations and tick sizes band assessment

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 ("MiFIR", available here) framework introduces transparency requirements for bonds, structured finance products, emission allowances and derivatives, empowering competent authorities to waive the obligation for market operators and investment firms operating a trading venue, to make public pre-trade information for non-equity instruments.

    The Commission Delegated Regulation 2017/583 (available here) on transparency requirements for non-equity instruments establishes that, 6 months prior to the date of application of MiFIR, competent authorities shall publish information on the liquidity classification of financial instruments and the sizes large in scale compared to normal market size and the size specific to the instrument.

    Competent authorities have delegated to the ESMA the computation of transparency and tick sizes calculations including the transitional transparency calculations ("TTC"). To execute them, the ESMA has compiled the information from Trading Venues of the Member States. The ESMA had already provided TTC for non-equity instruments in July, September, December 2017 and January 2018.

    What's new?

    On 1 February 2018, the ESMA updated the MiFID II/MiFIR TTC for equity and tick sizes.

    The update modifies the previously published values for two specific instruments, namely DK0060946788 and IE00BF0L3536. The modifications are displayed alongside the calculations already published on 19 January 2018.

    The calculations for the two updated instruments were executed by National Competent Authorities ("NCAs") and refer to instruments that were traded for the first time on a trading venue between 13 September 2017 and 2 January 2018 (included).

    The ESMA updated TTC for equity instruments are available here.

    The ESMA updated tick sizes calculations are available here.

    What's next?

    The ESMA may receive further corrections for the TTC for equity and tick sizes in the following two weeks.

    If so, the ESMA will update the associated files without necessarily announcing each update.

  • Short selling - ESMA updates its Q&As

  • Background

    The purpose of this document is to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the Regulation on short selling and certain aspects of credit default swaps ("SSR", available here).

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

    What's new?

    On 5 February 2018, the ESMA updated its questions and answers ("Q&As") document on SSR.

    The Q&As includes one new answer regarding the covering a short sale with claims to as yet unissued shares.

    ESMA specifies that rights to subscribe for new shares cannot be used to cover a short sale where, at the time of entering into the short sale, there is uncertainty as to whether the new shares subscribed for will be available for settlement in due time. That would be the case at least where:

    • Taking into account that the procedure for capital increase may vary in the Member States, the successful conclusion of the capital increase is not yet known and certain as it would be where the capital increase is subject to conditions (e.g. minimum level of subscriptions);
    • It is not certain that the new shares resulting from the capital increase are fungible with the existing shares sold short;
    • There is uncertainty as to whether a sufficient number of new shares will be allocated to the subscriber that undertakes the short sale of the existing shares; and
    • The delivery of the new shares in accordance with the applicable national law in the context of the concerned capital increase cannot be effective before or on the date of settlement of the short sale of the existing shares.

    The ESMA's Q&As document on SSR is available here.

    What's next?

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

  • UCITS - ESMA launches Interactive Single Rulebook

  • Background

    The ESMA, in publishing this Interactive Single Rulebook, aims to facilitate the consistent application of the EU single rulebook for securities markets area. The new on-line tool provides, for Directives or Regulations in the ESMA’s remit, a comprehensive overview of all Implementing or Delegated Acts adopted by the European Commission (including Technical Standards developed by the ESMA and endorsed by the European Commission: RTS or ITS), as well as Guidelines, Opinions and Q&As issued by the ESMA.

    What's new?

    On 14 February 2018, the ESMA launched its Interactive Single Rulebook, which is a new service for market participants and other interested stakeholders across the European Union.

    The Interactive Single Rulebook is an on-line tool that aims at providing a comprehensive overview of and easy access to all level 2 and level 3 measures adopted in relation to a given level 1 text. The purpose of the Interactive Single Rulebook is to facilitate the consistent application of the EU single rulebook in the securities markets area. The ESMA's objective is to provide an interactive version for each key level 1 text under the ESMA's remit over time.

    The tool is launched with the Level 1 text of the UCITS Directive, and links to all relevant Level 2 and Level 3 measures already available elsewhere on the ESMA’s website.

    The ESMA Interactive Single Rulebook is accessible here.

    What's next?

    The ESMA's objective is to provide an interactive version for each key level 1 text under the ESMA's remit incrementally, with the next texts being the Credit Rating Agencies Regulation and MiFID II/MiFIR.

  • LUXEMBOURG

    AML/CFT - CSSF issues Circular 18/680 endorsing ESAs' Guidelines on transfers of funds

  • Background

    The Regulation (EU) 2015/847 on information accompanying transfers of funds applies since 26 June 2017 (the "Regulation", available here).

    In order to ensure the transmission of information throughout the payment chain, the Regulation provides for a system imposing the obligation on payment service providers ("PSPs") to accompany transfers of funds with information on the payer and the payee.

    According to Article 25 of the Regulation, the European Supervisory Authorities ("ESAs") shall issue guidelines addressed to competent authorities ("CAs") and PSPs on measures to be taken in accordance with the Regulation, most notably as regards the implementation of Articles 7, 8, 11 and 12.

    On 16 January 2018, the ESAs published the final translations of their joint guidelines on the measures PSPs should take to detect missing or incomplete information on the payer or the payee, and the procedures they should put in place to manage a transfer of funds lacking the required information (JC/GL/2017/16 – the "Guidelines", available here). The Guidelines apply to PSPs where they act as the PSP of the payee, and intermediary payment service providers ("IPSPs") as defined in Article 3(6) of the Regulation.

    Against this background, CAs must notify the respective ESA whether they comply or intend to comply with the Guidelines, or otherwise with reasons for non-compliance by 16 March 2018.

    What's new?

    On 24 January 2018, the CSSF published its circular 18/680 endorsing the Guidelines (the "Circular 18/680").

    In particular, the Circular 18/680 indicates that PSPs and IPSPs must establish and maintain, through a regular review, effective policies and procedures to detect if the required information on the payer or the payee is missing, which are proportionate to the nature, size and complexity of their activities. These policies and procedures should also be commensurate with the money laundering/terrorist financing ("ML/TF") risks to which PSPs and IPSPs are exposed. For example, they need to determine precisely the transfers of funds that must be controlled in real time ("real-time monitoring") and those that can be retrospectively controlled ("ex-post monitoring").

    The written record of all follow-up measures, including the reasons for the decisions taken, as well as the keeping of this information so that it can subsequently respond to any requests from the CAs, are other obligations that PSPs and IPSPs must fulfil under the Guidelines.

    The Circular 18/680 is available here (only in French).

    What's next?

    The Guidelines will apply as from 16 July 2018.

  • CRR - CSSF issues Circular 18/682 on less significant institutions

  • Background

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

    Less significant institutions ("LSIs") are further specified in Article 6(4) of the Council regulation No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank ("ECB") concerning policies relating to the prudential supervision of credit institutions (the "SSM Regulation", available here).

    On 13 April 2017, the following two ECB guidance texts addressed to national competent authorities ("NCAs") were published in the OJEU:

    • Guideline (EU) 2017/697 of the ECB on the exercise of options and discretions available in Union law by NCAs in relation to LSIs (ECB/2017/9 – the "Guideline", available here);
    • Recommendation of the ECB on common specifications for the exercise of some options and discretions available in Union law by NCAs in relation to LSIs (ECB/2017/10 – the "Recommendation", available here).

    Against this background, the CSSF regulation N° 14-01 on the implementation of certain discretions of CRR applies in Luxembourg since 1 January 2014 (the "CSSF Regulation 14-01", available here).

    What's new?

    On 6 February 2018, the CSSF published its circular 18/682 concerning the exercise of options and discretions under CRR, which is addressed to LSIs (the "Circular 18/682").

    In particular, the Circular 18/682 draws the attention to the entry into force of the Guideline and of the Recommendation. The CSSF informs LSI that it intends to comply with the Guideline and the Recommendation as of 1 January 2018, except for Article 7 of the Guideline, which applies as from 1 January 2019.

    In addition, the CSSF highlights that the provisions of the Guideline and of the Recommendation do not affect the provisions of the CSSF Regulation 14-01. With respect to the exemption to the large exposure limitation, the CSSF will continue to make use, as provided in Article 6(f) of the Guideline, of the following discretions:

    • The national discretion of Article 493(3)(c) of CRR (as set out in Article 56-1 of the Luxembourg Law of 5 April 1993 on the financial sector, available here);
    • The other national discretions of Article 493(3) of CRR, which are made use of in Article 19 of the CSSF Regulation 14-01.

    The Circular 18/682 is available here in English and here in French.

    What's next?

    The Circular 18/682 applies since 6 February 2018.

  • Financial Sector - Omnibus Bill 7024 adopted by the Parliament

  • Background

    On 29 July 2016, the omnibus Bill 7024 was submitted to the Luxembourg Parliament for adoption (the "Bill", available here in French only).

    In particular, the Bill will have an impact on various Luxembourg legislations as follows:

    • The Bill implements the Regulation (EU) 2015/751 on interchange fees for card-based payment transactions (available here);
    • The Bill updates, complements, reformats and sets out errata concerning various Luxembourg laws of the financial sector (e.g. the UCI Law of 17 December 2010, the AIFM Law of 12 July 2013, or the modified Law of 5 April 1993 on the financial sector ("FSL"), available here).

    On 13 December 2016, the Luxembourg Conseil d'État ("CE") issued its first opinion on the Bill (the "First Opinion", available here in French only).

    On 5 April 2017, the Luxembourg Government proposed amendments to the Bill (the "Revised Bill", available here in French only).

    On 14 July 2017, the CE published its second opinion on the Revised Bill (the "Second Opinion", available here in French only).

    On 9 January 2018, the Luxembourg parliamentary Finance and Budget Commission ("Commission") published a set of 5 amendments to the Revised Bill (the "Amendments", available here in French only).

    On 30 January 2018, the CE released a third opinion on the Revised Bill (the "Third Opinion", available here in French only).

    On 2 February 2018, the Commission submitted its report on the Revised Bill to the Luxembourg Parliament (the "Report", available here in French only).

    What's new?

    On 6 February 2018, the Luxembourg Parliament voted at first reading on the Revised Bill, and on 20 February 2018, the CE waived the second constitutional vote on the Revised Bill (available here in French only).

    Further information concerning the legislative procedure on the Revised Bill is available here in French only.

    What's next?

    The final version of the Revised Bill should be published in the Luxembourg Memorial A shortly and shall enter into force on the 4th day following that of its publication.

  • IFRS 9/Reporting - CSSF issues Circular 18/678 applying to credit institutions

  • Background

    The Commission Regulation (EU) 2016/2067 of 22 November 2016, which adopts certain international accounting standards as regards International Financial Reporting Standard 9, entered 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 FINREP schema were modified by the Commission implementing regulation (EU) 2017/1443 laying down implementing technical standards with regards to supervisory reporting of institutions according to Regulation (EU) No 575/2013 ("FINREP/IFRS 9", available here).

    On 1 August 2017, the circular CSSF 14/593 on supervisory reporting requirements applicable to credit institutions was last amended by the circular CSSF 17/663 (the "Circular 14/593", available here only in French).

    What's new?

    On 23 January 2018, the CSSF published its circular 18/678 updating the Circular 14/593 (the "Circular 18/678").

    In particular, the Circular 18/678 amends Circular 14/593 by adding the latest developments in reporting requirements, i.e. the adaptation of the "full, simplified-extended and over-simplified" versions of FINREP/IFRS 9.

    It is to be noted that the annex to the Circular 18/678 includes the changes brought by this circular to Circular 14/593 in tracked changes in order to make the reading and comprehension easier.

    The Circular 18/678 is available here (only in French).

    What's next?

    Credit institutions that have closed their fiscal year on 31 December 2017 shall report to the CSSF the version FINREP/IFRS 9 for the first time according to the reference date as of 31 March 2018.

    The CSSF specifies that the previous version FINREP/IAS 39 is no longer to be reported by credit institutions, once they report under FINREP/IFRS 9.

  • Reporting - CSSF draws attention to Commission Guidelines on non-financial reporting

  • Background

    The Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups entered into force on 5 December 2014 (the "2014 Directive", available here). The 2014 Directive amends the Directive 2013/34/EU concerning annual financial statements, consolidated statements and related reports of certain undertakings (the "2013 Directive", available here).

    The 2014 Directive applies only to large undertakings that are public-interest entities ("PIEs", as referred to in Article 2(1) of the 2013 Directive, i.e. listed entities on a regulated market in the EU, credit institutions and insurance undertakings) exceeding 500 employees, total assets of EUR 20 million and/or a net turnover of EUR 40 million (i.e. the last 2 thresholds are mentioned in Article 47 of the amended Luxembourg RCS Law of 19 December 2012, available here only in French). Undertakings concerned will start applying the 2014 Directive on information relating to the 2017 financial year as from January 2018.

    In Luxembourg, the 2014 Directive was transposed by the Law of 23 July 2016 on disclosure of non-financial and diversity information by certain large undertakings and groups (available here only in French).

    On 5 July 2017, the European Commission's guidelines on non-financial reporting was published in the OJEU (2017/C 215701 – the "Guidelines", available here). The Guidelines are intended to help companies draw up relevant, comparable and useful concise non-financial statements according to the requirements of the 2014 Directive. The Guidelines could represent best practice for all companies that disclose non-financial information, including other companies not included in the scope of the 2014 Directive.

    What's new?

    On 29 January 2018, the CSSF published the press release 18/04 on disclosure of non-financial and diversity information (the "PR 18/04").

    In the PR 18/04, the CSSF draws the attention to the scope of the 2014 Directive and to the non-binding reporting methodology described in the Guidelines.

    The PR 18/04 is available here.

    What's next?

    The European Commission shall publish a report concerning the implementation of the 2014 Directive by 6 December 2018.

  • Transparency Law/MAR - CSSF issues Circular 18/679 updating Circular 08/337

  • Background

    The Regulation (EU) N0 596/2014 on market abuse applies since 3 July 2016 ("MAR", available here).

    In Luxembourg, the Law of 11 January 2008 on transparency requirements for issuers of securities was last amended by the Law of 23 December 2016 on market abuse (the "Law", available here), and the corresponding Grand-Ducal Regulation of 11 January 2018 was last amended by the Grand-Ducal Regulation of 10 May 2016 (the "Regulation", available here).

    On 22 June 2016, the circular CSSF 08/337 concerning the entry into force of the Law and the Regulation was last amended by the circular 16/637 (the "Circular 08/337", available here only in French).

    What's new?

    On 24 January 2018, the CSSF published its circular 18/679 updating the Circular 08/337 (the "Circular 18/679").

    In particular, the Circular 18/679 makes technical changes to the Circular 08/337 mostly in relation to MAR (e.g. the new Section 3 of the Circular 08/377 includes references to Article 17 of MAR on public disclosure of inside information or to Article 19 of MAR on managers' transactions). In addition, the new Section 5.c. of the Circular 08/337 specifies that the issuer has the possibility to either itself or to mandate a third party to file all regulated information with the CSSF. However, the issuer remains fully and solely responsible for the obligations incumbent upon it, including the transmission of the information to be provided when filing with the CSSF in accordance with the Circular 08/337.

    It is to be noted that the annexes to the Circular 18/679 include the changes brought by this circular to Circular 08/337 in tracked changes in order to make the reading and comprehension easier and the corresponding clean version.

    The Circular 18/679 is available here (only in French).

    What's next?

    The Circular 18/679 applies as from 24 January 2018.

  • WORLD

    OTC Trading - IOSCO consults on Retail OTC Leveraged Products

  • Background

    The International Organisation for Securities Commissions (the "IOSCO") is a global standard setter for securities regulation. The IOSCO membership regulates more than 115 jurisdictions. Its Committee for Regulation of Market Intermediaries (the "Committee 3") represents close to 80 per cent of the IOSCO membership.

    In July 2015, the Board of the IOSCO approved a mandate for the Committee 3 envisaging a survey on certain retail over the counter ("OTC") leveraged products that typically are not exchange-traded and are offered and sold by intermediaries to retail investors in many jurisdictions domestically and internationally. The considered products were in particular rolling-spot forex contracts, contracts for differences ("CFDs") and binary options ("BOs") together referred to as the "Relevant Products".

    This market sector has been subject to regulatory scrutiny due to the complex and risky nature of the Relevant Products, due to international dimension that is predominantly internet based and due to reported frequent losses of investor money. Hence, the Committee 3 members were surveyed on market trends, practices, experiences with the Relevant Products, applicable regulations (existing and proposed) as well as challenges faced in supervising relevant markets and protecting the investors.

    On 21 December 2016, based on the Committee 3 survey, the IOSCO published a final fact-finding report on retail OTC leveraged products (FR14/2016 — the "2016 Report", available here). The 2016 Report described the market activity in retail OTC leveraged products sector. It explained the types of the Relevant Products offered and identified the approaches taken by the IOSCO member jurisdictions to regulate the distribution of the Relevant Products by firms. The 2016 Report outlined probable investor risks and increasing concerns related to activity by unlicensed entities mainly offering the Relevant Products online. It also outlined misconduct by licensed firms.

    In July 2017, the IOSCO decided to extend the mandate of its Committee 3 to focus on the ongoing regulatory challenges and concerns related to the Relevant Products offered and sold to retail investors. The objective of the extended mandate was to identify and promote regulatory approaches that can increase the protection of retail investors. The extended mandate proposed 3 complementary work streams to address investor detriment in this sector. That included development of 3 toolkits all of which shall be included in the final report of the mandate:

    – Policy measures with guidance for the regulation of the offer and sale of the Relevant Products by intermediaries (the "1st Toolkit");

    – Educational material for investors with guidance on the Relevant Products and firms (the "2nd Toolkit"); and

    Enforcement approaches and practices to address and mitigate the risks posed by unlicensed firms offering the Relevant Products to real investors (the "3rd Toolkit").

    What's new?

    On 13 February 2018, the IOSCO issued a report for consultation on retail OTC leveraged products (CR01/2018, the "2018 Consultation Report"). It includes the 1st Toolkit and describes the following regulatory measures that may be adopted by the IOSCO members to address the specific risks arising from the offer and sale of the Relevant Products by intermediaries;

    • Requirement for firms offering the Relevant Products to retail investors to be licensed;
    • Requirement for firms to incorporate a prescribed minimum margin requirement for retail investors;
    • Measures to address the risk of investors losing more than their initial investment;
    • Measures to enhance the disclosure of costs and charges of the Relevant Products;
    • Measures to improve the disclosure of risks of the Relevant Products (including profit and loss ratios);
    • Adoption of a fair pricing methodology and use of externally verifiable price sources;
    • Enhanced disclosures about order execution quality; and,
    • Measures to restrict or ban the sale, distribution and marketing of the Relevant Products with a view to addressing mis-selling

    The 2018 Consultation Report is available here.

    What's next?

    Respondents to the Consultation Report 2018 should consider the appropriateness of the measures included in the 1st Toolkit for addressing risks arising from offer and sale of OTC leveraged products to retail clients.

    Comments to the 2018 Consultation Report may be submitted on or before 27 March 2018.

  • TAX

    AML/CFT - European Blacklist - 8 jurisdictions removed from EU list

  • 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.

    What's new?

    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.

    The link is available here.

    What's next?

    The decision leaves 9 jurisdictions on the list of non-cooperative jurisdictions out of 17 announced initially on 5 December 2017. These are American Samoa, Bahrain, Guam, Marshall Islands, Namibia, Palau, Saint Lucia, Samoa and Trinidad and Tobago. The list also carries recommendations on steps to take to be de-listed.

    Jurisdictions that remain on the list are strongly encouraged to make the changes requested of them. Their tax legislation, policies and administrative practices result or may result in a loss of revenues for the EU's member states.

  • Exchange of Information - Amendment to the Regulation EU 2015/2378

  • Background

    On 18 December 2015, the regulation (EU) 2015/2378 was published in the official journal of the European Union. The Regulation aimed at laying down detailed rules for implementing certain provisions of Council Directive 2011/16/EU on administrative cooperation in the field of taxation. It also repealed the implementing Regulation (EU) No 1156/2012.

    The new Regulation provides rules on the standard forms and computerised formats as well as the practical arrangements on the exchange of information between Member States. The purpose is to ensure the appropriateness and usability of the information exchanged and the efficiency of the exchange itself.

    What's new?

    On 22 January 2018, the European Commission adopted the implementing Regulation (EU) 2018/99 amending Implementing Regulation EU 2015/2378 as regards the form and conditions of communication for the yearly assessment of the effectiveness of the automatic exchange of information and the list of statistical data to be provided by Member States for the purposes of evaluating of Council Directive 2011/16/EU.

    Among other, the European Commission amended the form and conditions for the communication of the yearly assessment and more specifically decided that before 1 April of each year, Member States shall communicate to the European Commission by electronic means the yearly assessment using the form referred to in the amended Regulation. The assessment shall cover the period of the previous calendar year.

    In addition, list of statistical data required for all forms of administrative cooperation and for the mandatory automatic exchange of information are set out in the annexes of the new Regulation.

    The link is available here.

    What's next?

    The Regulation is binding for all Member States and will enter into force the twentieth day following that of its publication (i.e. 23 January 2018) in the Official Journal of the European Union.

  • 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

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