SCANNING JANUARY 2018

European Regulatory Watch Newsletter


Summary

EUROPE

From above
BMR - 4 Commission delegated regulations published in the OJEU

  • Background

    The Regulation (EU) 2016/1011 on indices used as benchmark in financial instruments and financial contracts applies across the EU as from 1 January 2018 ("BMR", available here). BMR introduces a common framework to ensure the accuracy and integrity of benchmarks referenced in financial instruments, financial contracts or investment funds in the EU.

    Following-up on a call for advice from the European Commission ("Commission"), the ESMA published its technical advice under BMR on 10 November 2016 (ESMA/2016/1560 – the "Technical Advice", available here). On 30 March 2017, the ESMA published its final report on 11 draft technical standards under BMR (ESMA70-145-48 – the "Report", available here).

    On 29 September 2017, based on the Technical Advice and the Report, the European Commission (the "Commission") published the following 3 draft delegated regulations supplementing BMR:

    • The delegated regulation specifying how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed (C(2017) 6464 final – the "DR 6464", available here);
      • In particular, it is to be noted that, according to Article 4(3) of the DR 6464, an "administrator using alternative amounts or data shall provide the competent authority with a written specification of the data sources used when notifying that competent authority".
    • The delegated regulation specifying how the criteria of Article 20(1)(c)(iii) of BMR are to be applied for assessing whether certain events would result in significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in one or more Member States (C(2017) 6469 final– the "DR 6469", available here);
      • In particular, Article 1(2) of the DR 6469 specifies that, "where competent authorities expect that such a significant and adverse impact shall occur in more than one Member State, they shall perform a separate assessment for each Member State concerned, as well as a general assessment for all Member States";
      • In order to give competent authorities enough flexibility to designate benchmarks as critical even if they do not exceed quantitative thresholds, the Commission did not develop further the concept of a "significant" share in terms of percentages or ranges of values in the DR 6469.
    • The delegated regulation specifying technical elements of the definitions laid down in paragraph 1 of Article 3 of BMR (C(2017) 6474 final – the "DR 6474", available here).
      • In particular, Articles 1 and 2 of the DR 6474 further specify the meaning of "making available to the public" and "administering the arrangements for determining a benchmark".

    On 3 October 2017, based on an optional empowerment in Article 51 of BMR, the Commission published its draft delegated regulation with regard to the establishment of the conditions to assess the impact resulting from the cessation of or change to existing benchmarks (C(2017) 6537 final – the "DR 6537", available here).

    What's new?

    On 17 January 2018, the DR 6464, the DR 6469, the DR 6474 and the DR 6537 were published in the OJEU (collectively the "4 Delegated Regulations") as follows:

    • The Commission delegated regulation (EU) 2018/64 specifying how the criteria of Article 20(1)(c)(iii) of BMR are to be applied for assessing whether certain events would result in significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in one or more Member States (the "Delegated Regulation 2018/64", available here);
    • The Commission delegated regulation (EU) 2018/65 specifying technical elements of the definitions laid down in Article 3 (1) of BMR (the "Delegated Regulation 2018/65", available here);
    • The Commission delegated Regulation (EU) 2018/66 specifying how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed (the "Delegated Regulation 2018/66", available here);
    • The Commission delegated regulation (EU) 2018/67 with regard to the establishment of the conditions to assess the impact resulting from the cessation of or change to existing benchmarks (the "Delegated Regulation 2018/67", available here).

    What's next?

    The 4 Delegated Regulations will enter into force on 6 February 2018.

  • BMR - LIBOR officially added to the list of critical benchmarks used in financial markets

  • 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 entered into force on 30 June 2016 and shall apply as from 1 January 2018 ("BMR", available here). BMR introduces a regime for benchmark administrators that will ensure the accuracy and integrity of benchmarks.

    In accordance with Article 20(1)(a) of BMR, a benchmark is considered as being a "critical benchmark" where it is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds, having a total value of at least EUR 500 billion on the basis of all the ranges of maturities or tenors of the benchmark, where applicable.

    Against this background, the additional obligations and powers of competent authorities of administrators of critical benchmarks require a formal process for the determination of critical benchmarks. The Commission implementing regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to BMR entered into force on 13 August 2016 (the "Regulation 2016/1368", available here). The Regulation 2016/1368 was first amended by the Commission implementing regulation (EU) 2017/1147 of 28 June 2017 (available here).

    What's new?

    On 28 December 2017, the Commission implementing regulation (EU) 2017/2446 amending the Regulation 2016/1368 was published in the OJEU (the "Regulation 2017/2446").

    The annex to the Regulation 2017/2446 replaces the annex to the modified Regulation 2016/1368, by adding the London Interbank Offered Rate ("LIBOR") to the list of critical benchmarks pursuant to Article 20(1) of BMR.

    The Regulation 2017/2446 is available here.

    What's next?

    In light of the importance of LIBOR for interbank market and the high number of financial instruments in the EU referencing it, the Regulation 2017/2446 entered into force on 29 December 2017.

  • CMU - 2 Securitisation Regulations applying as from January 2019 published in the OJEU

  • Background

    The current EU framework relating to securitisation is composed of provisions in various areas, such as banking (e.g. "CRR", available here and the "LCR Delegated Regulation", available here), insurance (e.g. "Solvency II", available here and the "Delegated Regulation relative to prudential requirements for insurers", available here), asset management (e.g. "AIFMD", available here), credit ratings (e.g. "CRA III", available here), and prospectuses (e.g. "Regulation 809/2004", available here).

    On 30 September 2015, the European Commission (the "Commission") proposed new common rules on securitisation, which are simple, transparent and standardised ("STS"), and subject to adequate supervisory control (available here).

    After extensive trilogue discussions, the European Parliament and the Council voted on a new framework for securitisation composed of two draft regulations, respectively on 26 October 2017 and on 20 November 2017 (collectively the "Securitisation Regulations"):

    • The draft regulation laying down a general framework for securitisation and creating a specific framework for STS securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (PE-CONS 39/17, available here);
    • The draft regulation amending CRR (PE-CONS 38/17, available here).

    What's new?

    On 28 December 2017, the Securitisation Regulations were published in the OJEU as follows:

    • The Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for STS securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (the "Regulation 2017/2402", available here);
    • The Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending CRR (the "Regulation 2017/2401", available here).

    What's next?

    The Regulation 2017/2402 and the Regulation 2017/2401 will enter into force on 17 January 2018 and will apply as from 1 January 2019. It is to be noted that transitional provisions are set out in Article 43 of the Regulation 2017/2402 and in Article 2 of the Regulation 2017/2401.

    By 2 July 2019, the EBA, in close cooperation with the ESMA and the EIOPA, shall publish a report on the feasibility of a specific framework for STS synthetic securitisation, limited to balance-sheet synthetic securitisation.

    By 2 January 2020, the Commission shall, on the basis the EBA report, submit a report to the European Parliament and the Council on the creation of a specific framework for STS synthetic securitisation, limited to balance-sheet synthetic securitisation, together with a legislative proposal, if appropriate.

    By 1 January 2021, the Joint Committee of the European Supervisory Authorities ("ESAs") shall publish a report most notably on the implementation of the STS requirements as provided for in Articles 18 to 27 of the Regulation 2017/2402.

    By 1 January 2022, the Commission shall present a report to the European Parliament and the Council on (i) the functioning of the Regulation 2017/2402 and on (ii) the application of the provisions in Chapter 5, Title II, Part Three of CRR, accompanied if appropriate, by a legislative proposal.

  • CRA - ESMA issues report on CRA market share calculation

  • Background

    One of the objectives of the Credit Rating Agencies Regulation ("CRA Regulation", available here) is to increase competition in the markets for credit ratings by encouraging issuers or related third parties to use smaller credit rating agencies.

    In this regard, Article 8(d) of CRA requires issuers or related third parties, who intend to appoint two or more EU registered credit rating agencies ("CRAs") to rate an issuance or entity, to consider appointing at least one CRA with no more than 10% of the total market share in the EU.

    In the event that the issuer or related third party does not appoint a CRA with no more than 10% total market share, the Regulation - Article 8(d) - requires that this decision is documented. The obligations of Article 8d are supervised and enforced at a national level by the relevant sectoral competent authorities.

    In order to assist issuers or related third parties with this assessment, Article 8(d) of CRA requires the ESMA to publish a list of registered CRAs and the types of credit ratings they issue, together with a calculation of CRAs’ revenues from credit rating activities and ancillary services at group level.

    What's new?

    On 20 December 2017, the ESMA published its annual market share calculation report for EU registered CRAs.

    The report entails the following sections:

    • Sections 2 and 3 of this document provide background and guidance as to how the market share calculation should be used by issuers or related third parties.
    • Section 4 provides information on how the market share is calculated while Section 5 provides information concerning its dates of application.
    • Section 6 provides a list of CRAs registered in the EU alongside their percentage of total market share.
    • Section 7 provides an overview of the type of credit ratings offered by each CRA registered in the EU.
    • Section 8 provides a breakdown by type of credit ratings as a percentage of each CRA’s overall issuance.
    • Section 9 provides details on the Common Supervisory Approach and Standard Form adopted by the ESMA Members in respect of Article 8(d).
    • Section 10 provides contact details should users of this document wish to provide comments or feedback.

    The ESMA’s report on CRA market share calculation is available here.

    What's next?

    This market share calculation is valid for use from its date of publication and applicable until the date of publication of the next market share calculation in 2018.

  • CRA/EMIR - ESMA raises concerns on fees charged by Credit Rating Agencies and Trade Repositories

  • Background

    The ESMA directly supervises credit rating agencies ("CRAs") and trade repositories ("TRs") as part of its mission to safeguard financial stability, enhance investor protection and promote stable and orderly financial markets. In particular, the relevant regulations aim to enhance the integrity, transparency, responsibility, good governance and independence of CRAs/TRs and to facilitate competition in their respective industries.

    The ESMA’s supervision covers all aspects of CRAs and TRs activities, including the fees that CRAs and TRs charge their clients. The CRA Regulation requires CRAs to ensure that fees for the credit rating and ancillary services are not discriminatory and based on actual costs (available here). The EMIR Regulation requires TRs to provide non-discriminatory access and charge publicly disclosed and cost-related fees (available here).

    Concerns have been raised by stakeholders about the current practices for fees charged in the credit rating and trade repository industries. Following these concerns, the ESMA has been willing to focus on reviewing the issue and has decided to issue a Thematic Report on the topic.

    What's new?

    On 11 January 2018, the ESMA published a thematic report on fees charged by CRAs and TRs (ESMA80-196-954 – the "Report").

    The ESMA identifies three main areas that raise supervisory concerns:

    • Transparency and disclosure
      • CRAs/TRs need to ensure sufficiency and clarity of information provided to actual and potential clients as well as to the ESMA;
      • CRA clients should be able to understand the key elements of the fee schedule, reasons for deviations from it, in addition to the reasons of price increases/decreases;
      • TRs can achieve more transparency through reducing complexity and increasing comparability of fee schedules, as well as disclosing sufficient information to enable clients to estimate any additional reporting cost.
    • Fee-setting process
      • CRAs/TRs need to ensure that cost is a key pricing factor and sufficient controls are in place to demonstrate that the regulatory objectives regarding pricing are met;
    • Interaction with entities related to CRAs and TRs
      • CRAs need to ensure that provision of rating related services by affiliated entities does not conflict with the non-discrimination and cost-based principles;
      • TRs that are part of a group need to ensure that intra-group transactions are on reasonable terms and on an arm’s-length principle to prevent discriminatory access and unfair cost allocation.

    The Report is available here.

    The ESMA factsheet on TRs' fees is available here.

    The ESMA factsheet on CRAs' fees is available here.

    What's next?

    The ESMA may decide to provide further supervisory guidance to ensure compliance with the relevant requirements.

  • EMIR - ESMA consults on CCP anti-procyclicality margin measures

  • Background

    EMIR recognises that margin calls and haircuts on collateral may have procyclical effects and central counterparties ("CCPs"), their competent authorities and the ESMA should therefore adopt measures to prevent and control possible procyclical effects in the risk management practices adopted by the CCP, to the extent that a CCP’s soundness and financial security is not negatively affected (available here). To this end, Article 41 of EMIR requires CCPs to regularly monitor and, if necessary, revise the level of margins to reflect current market conditions, taking into account any procyclical effects of such revisions.

    Article 28 of Commission Delegated Regulation (EU) No. 153/2013 supplementing EMIR requires that a CCP employs at least one of the following options: (i) apply a margin buffer at least equal to 25% of the calculated margins which it allows to be temporarily exhausted in periods where calculated margin requirements are rising significantly; (ii) assign at least 25% weight to stressed observations in the lookback period calculated in accordance with Article 26; and (iii) ensure that its margin requirements are not lower than those that would be calculated using volatility estimated over a 10 year historical lookback period ("RTS", available here).

    These guidelines seek to clarify the application of EMIR in the context of procyclicality of margins with the aim to ensure common, uniform and consistent application of the relevant EMIR provisions.

    What's new?

    On 8 January 2018, the ESMA published a consultation on draft guidelines which aim to clarify the implementation of anti-procyclicality provisions for CCPs under EMIR (ESMA70-151-1013 – the "Consultation").

    The ESMA proposes that the content of the Guidelines include:

    • Regular assessment of procyclicality;
    • Application of anti Procyclicality margin measures to all risk factors;
    • Exhaustion of margin buffers;
    • Selection of stressed observations;
    • Margin flood; and
    • Disclosure of margin parameters.

    The questions that the ESMA seeks to answer are:

    • Do you agree that CCPs should develop and maintain a policy for regular assessments of procyclicality of margin?
    • Do you find the examples of quantitative metrics for monitoring the efficiency of APC margin measures appropriate? Are there any additional metrics that could be mentioned in the guidelines?
    • Do you think that CCPs should apply the APC margin measures under Article 28 of the RTS to incorporate all risk factors? If appropriate and as necessary, please provide quantitative analysis to support your response.
    • Do you agree that CCPs that adopt Article 28(1)(a) should establish documented policies and procedures on the exhaustion of the margin buffers and the minimum level of details which should be included in such policies and procedures?
    • Do you agree that CCPs that adopt Article 28(1)(b) should adopt a consistent definition and identification of stress scenarios in line with Article 30 of the RTS? If appropriate and as necessary, please provide quantitative analysis to support your response.
    • Do you agree that CCPs that adopt Article 28(1)(c) should not use modelling procedures to alter the weights of the observations when computing the margin floor using the 10-year volatility estimate?
    • Do you agree that CCPs should calibrate the margin floor using the margin parameters used in the regular computation of margins and at the same frequency as regular margin computation?
    • Do you consider it appropriate for CCPs to disclose information on the margin models and the parameters used therein to facilitate the replication of margin calculations and improve the predictability of margins for clearing participants?
    • Do you agree with the contents of the disclosures proposed by the draft guidelines?

    The Consultation is available here.

    What's next?

    The Consultation is open until 28 February 2018. The ESMA will then use the feedback received to finalise the guidelines by the first half of 2018.

  • IDD - Commission proposes 1 October 2018 as new transposition date

  • Background

    On 9 December 2002, the European Parliament (the "Parliament") and the Council issued the Directive 2002/92/EC on insurance mediation ("IMD," available here). EU Member States had to transpose it by 14 January 2005.

    The Directive (EU) 2016/97 on insurance distribution (recast) entered into force on 23 February 2016 and replaces IMD ("IDD", available here). EU Member States ("MS") shall transpose IDD by 23 February 2018. IDD provides updated rules applicable to the distribution of insurance and reinsurance products, including insurance-based investment products ("IBIP"). It aims at ensuring a greater transparency of insurance distributors with regard to the price and costs of their products, better and more comprehensible product information and improved conduct of business rules, in particular with regard to advice. The new rules will be applicable to all distribution channels, including direct sales by insurance companies to create a level playing field for all distributors and guarantee uniform high standards of protection for consumers.

    Provisions included in IDD are essentially changes driven by the Directive 2014/65/EU on markets in financial instruments, which applies since 3 January 2018 ("MiFID II", available here).

    On 20 December 2017, the following two Commission delegated regulations supplementing IDD were published in the OJEU:

    • Delegated Regulation (EU) 2017/2358 with regard to product oversight and governance ("POG") requirements for insurance undertakings and insurance distributors (the "POG Regulation", available here);
    • Delegated Regulation (EU) 2017/2359 with regard to information requirements and conduct of business rules applicable to the distribution of IBIP (the "IBIP Regulation", available here).

    The POG Regulation and the IBIP Regulation shall enter into force on 9 January 2018 and apply as from 23 February 2018.

    What's new?

    On 21 December 2017, the European Commission (the "Commission") published a proposal for a directive amending IDD as regards the date of application of Member States' transposition measures (COM(2017) 792 final – the "Extension Directive", available here).

    Acting upon request from the Parliament and MS, the Commission agrees to extend the date from which MS shall apply the laws, regulations and administrative provisions necessary to comply with IDD until 1 October 2018 (i.e. Article 42(1) and Article 44(1) of IDD would be amended accordingly).

    On the same date, the Commission also published a draft delegated regulation amending the POG Regulation and the IBIP Regulation as regards their dates of application, in accordance with the Extension Directive (COM(2017) 8681 final – the "Extension Regulation", available here). Article 13(2) of the POG Regulation and Article 20(2) of the IBIP Regulation would be consequently amended.

    What's next?

    The Extension Directive and the Extension Regulation are subject to the right of the Parliament and the Council to express objections.

    The Extension Directive would enter into force on the day of its publication in the OJEU.

    The Extension Regulation would enter into force on the 20th day following that of its publication in the OJEU.

  • MiFID II - Amending Commission delegated regulation on data reporting services providers published in the OJEU

  • Background

    The Directive 2014/65/EU on markets in financial instruments applies since 3 January 2018 ("MiFID II", available here).

    In particular, MiFID II provides for the possibility of establishment of a consolidated tape ("CT") both for equity as well as for non-equity financial instruments. Consolidated tape providers ("CTPs") shall collect post-trade information published by trading venues and approved publication arrangements ("APAs"), consolidate them into a continuous live data stream and make the data available to the public.

    Article 15 of the Commission delegated regulation 2017/571 supplementing MiFID II with regard to regulatory technical standards ("RTS") on the authorisation, organisational requirements and the publication of transactions for data reporting services providers (the "Delegated Regulation 2017/571", available here) sets out the scope of the CT for shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments.

    Given the higher complexity for establishing and operating a non-equity CT and having regard to the provisions of Article 65(2) of MiFID II that will only apply as from September 2019, the ESMA decided to deliver the draft RTS specifying the scope of the non-equity CT at a later stage.

    On 26 September 2017, based on the ESMA draft RTS specifying the scope of the CT for non-equity financial instruments (available here), the European Commission published its draft delegated regulation amending the Delegated Regulation 2017/571 (C(2017) 6337 final – the "Draft DR", available here).

    According to the new Article 15a (3) of the Delegated Regulation 2017/571 ("scope of the consolidated tape for bonds, structure finance products, emission allowances and derivatives"), a CTP shall assess the coverage ratios (set out in paragraph 2) every six months, based on data covering the preceding 6 months. The assessment periods shall start on 1 January and 1 July each year. The first period shall cover the first 6 months of the year 2019.

    What's new?

    On 17 January 2018, based on the Draft DR, the Commission delegated regulation (EU) 2018/63 amending the Delegated Regulation 2017/571 was published in the OJEU (the "Delegated Regulation 2018/63").

    The Delegated Regulation 2018/63 is available here.

    What's next?

    The Delegated Regulation 2018/63 will enter into force on 6 February 2018.

    Article 15a (4) of the Delegated Regulation 2017/571 (as amended) shall apply as from 1 January 2019 and Articles 14(2), 15(1), (2) and (3), and 20(b) of the Delegated Regulation 2017/571 (as amended) shall apply as from 3 September 2019.

  • MiFID II - ESMA corrects its Opinion on ancillary activity and market size calculation

  • Background

    Article 2 of MiFID II Directive (available here) lays down the exemptions from its scope of application. According to point (j) of Article 2(1), MiFID II does not apply to persons dealing on own account or providing investment services in specific cases, including where their activity is an ancillary activity to their main business provided that certain conditions are met.

    Commission Delegated Regulation (EU) 2017/592 (the "Delegated Regulation", available here) further specifies the criteria for establishing when an activity is to be considered as ancillary to the main business at a group level pursuant to paragraph 4 of Article 2 of MiFID II. In particular, Article 2(3) of the Delegated Regulation lays down the rules for calculating the overall market trading activity.

    However, it is challenging for national competent authorities and market participants to determine the market size figures since there is no centralised place recording on-venue and off-venue transactions for commodity derivatives and emission allowances which is publicly available. As a result, national competent authorities and market participants have asked the ESMA to provide guidance for the determination of the market size figures to ensure the correct application of Article 2(3) of the Delegated Regulation.

    The ESMA published its Opinion on 30 June 2017 and reviewed it on 6 July 2017.

    What's new?

    On 22 December 2017, the ESMA updated its Opinion of 6 July 2017 on ancillary activity – market size calculation under MiFID II.

    In the previous version of this Opinion, published on 30 June 2017, there was a typing error in the table entitled "H2 2016 Estimates" on page 6. Two values for OTC figures were switched, namely between the items "Other C(10)" and "Emissions (combines emission allowances and derivatives thereof)". In this current version of the document, this error has been corrected.

    The ESMA’s Opinion on ancillary activity and market size calculation is available here.

  • MiFID II - ESMA updates its Q&As on transitional transparency calculations

  • Background

    MiFID II and MiFIR (available here and here) require performing various transparency calculations in relation to trading of equity and all non-equity instruments. Those calculations will have to be performed for the transition from MiFID I to MiFID II/MiFIR as well as on an ongoing basis once MiFID II/MiFIR applies. National Competent Authorities (NCAs) are responsible for performing the transparency calculations under MiFID II/MiFIR, both for transitional purposes and as the ongoing calculations.

    The ESMA was requested to coordinate the exercise in the transitional phase for the delegating NCAs. The ESMA staff performed the transitional transparency calculations using data related to 2016 trading activity provided by trading venues.

    This document aims at gathering frequently asked questions and answers regarding the publication of the MiFID II Transitional Transparency Calculations (TTC) for all non-equity instruments in accordance with Commission Delegated Regulation 2017/583 on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives under MiFIR (available here).

    What's new?

    On 22 December 2017, the ESMA updated its Question and Answers (Q&As) document on transitional transparency calculations under MiFID II.

    ESMA’s Q&A on interim transparency calculations is available here.

    What's next?

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

  • MiFID II/MiFIR - Commission equivalence decision for Switzerland published in the OJEU

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 on markets in financial instruments entered into force on 2 July 2014 and will apply as from 3 January 2018 ("MiFIR", available here).

    In accordance with Article 23(1) of MiFIR, an investment firm shall ensure the trades it undertakes in shares admitted to trading on a regulated market or traded on a trading venue shall take place on a regulated market, multilateral trading facility ("MTF") or systematic internaliser, or a third-country trading venue ("TV") assessed as equivalent in accordance with Article 25(4)(a) of MiFID II, as appropriate.

    Against this background, the European Commission (the "Commission") should assess whether the legal and supervisory framework of a third country ensures that a TV authorised in that third country complies with legally binding requirements, which are equivalent to the requirements resulting from the MiFID II/MiFIR framework. In particular, a third-country legal and supervisory framework may be considered equivalent where that framework fulfils at least 4 conditions:

    • The markets are subject to authorisation and to effective supervision and enforcement on an ongoing basis;
    • The markets have clear and transparent rules regarding the admission of securities to trading so that such securities are capable of being traded in a fair, orderly and efficient manner, and are freely negotiable;
    • Security issuers should be subject to periodic and ongoing information requirements ensuring a high level of investor protection; and
    • Market transparency and integrity should be ensured by the prevention of market abuse in the form of insider dealing and market manipulation.

    What's new?

    On 23 December 2017, the Commission implementing decision (EU) 2017/2441 of 21 December 2017 on the equivalence of the legal and supervisory framework applicable to stock exchanges in Switzerland in accordance with MiFID II was published in the OJEU (the "Decision").

    The annex to the Decision refers to "SIX Swiss Exchange AG" and "BX Swiss AG" stock exchanges in Switzerland, which are considered equivalent to regulated markets as defined in MiFID II.

    The Decision is available here.

    What's next?

    The Decision shall enter into force on 24 December 2017. It shall expire on 31 December 2018.

    The Commission will closely monitor the impact of the Decision and consider the broader political context.

  • MiFID II/MiFIR - ESMA delays publication of double volume cap data

  • Background

    MiFID II and MiFIR (available here and here) require all trading venues listing a particular equity (or equity like) instrument to provide data on trading activity for the complete previous year. A failure to provide this information leads to incompleteness in the relevant data for that instrument. MiFID II also retains the pre-trade transparency waivers, but controversially limits the use of the reference price waiver and negotiated transaction waiver according to a "double volume cap" ("DVC") mechanism.

    Since 3 January 2018, the ESMA has been performing an analysis of the quality and completeness of the data received from trading venues to perform DVC calculations. Based on the analysis performed, the ESMA realised that the publication would have resulted in a biased picture covering only a very limited number of instruments and markets.

    The ESMA is aware of the legal obligation to apply the DVC from January 2018. However, as the publication of the calculations triggers other legal obligations in terms of transparency waivers’ suspensions related to dark trading, initiating the new regime based on the insufficient data that the ESMA has received is not appropriate at this stage.

    What's new?

    On 9 January 2018, the ESMA decided to delay the publication of the data on the DVC mechanism for January 2018 (ESMA71-99-925 – the "Press Release"). The current quality and completeness of the data does not allow for a sufficiently meaningful and comprehensive publication of DVC calculations, as required under MiFID II/MiFIR, and the ESMA has taken this decision to avoid creating an unlevel playing field.

    While ESMA’s systems are functioning and ready to receive data, a large proportion of trading venues have yet to provide complete data. The ESMA expected to receive data for around 30,000 instruments in the context of the DVC mechanism, on the basis of the data collected for the transitional transparency calculations for equity and equity-like instruments.

    The ESMA has received files from 75% of trading venues. However, this resulted, in most cases, in only partial delivery of the information needed, i.e. data delivered by only some, but not all, venues trading an instrument, or data not covering the entire 12-month period from January to December 2017 that is relevant for the DVC calculations in January 2018.

    The Press Release is available here.

    What's next?

    In order to ensure a timely publication of DVC data, the ESMA is already engaging with NCAs and trading venues to close the gaps in reporting as soon as possible.

    The ESMA believes that the initial technical and reporting problems leading to this delay can be overcome within the next few weeks.

    In March 2018, the ESMA intends to publish the data covering the previous periods in order to ensure the full application of the DVC as of January 2018.

  • MiFID II/MiFIR - ESMA publishes key transparency calculations

  • Background

    The MiFID II/MiFIR 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 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 early December 2017.

    What's new?

    On 22 December 2017, the ESMA published an updated version of the MiFID II/MiFIR transitional transparency calculations ("TTC") for equity and bond instruments.

    This updated version mainly reflects changes in the classification of the instruments and the related parameters and resubmission of data by some trading venues.

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

    What's next?

    The TTC will be applicable starting 3 January 2018 and the equity instruments TTC will apply until 31 March 2019 and for bond instruments (liquidity assessment) until 15 May 2018.

  • MiFID II - ESMA publishes its Q&As on interim transparency calculations

  • Background

    The Regulation (EU) No 600/2014 on markets in financial instruments entered into force on 2 July 2014 and applies since 3 January 2018 ("MiFIR", available here).

    Pursuant to Article 32(1) of MiFIR, the ESMA shall develop regulatory technical standards ("RTS") specifying the derivatives that should be subject to the trading obligation as referred to in Article 28 of MiFIR, and the date(s) from which the trading obligation takes effect.

    On 28 September 2017, the ESMA published its final report concerning the draft RTS on the trading obligation for derivatives under MiFIR (ESMA70-156-227 – the "Draft RTS", available here).

    On 17 November 2017, based on the Draft RTS, the European Commission issued its delegated regulation supplementing MiFIR with regards to RTS on the trading obligation for certain derivatives (C(2017) 7684 final – the "Delegated Regulation" and "Annex", respectively available here and here). In the Delegated Regulation, the following interest rate swaps ("IRS") and Index Credit Default Swaps ("CDS") should be subject to the trading obligation under MiFIR:

    • Fixed-to-float IRS denominated in EUR;
    • Fixed-to-float IRS denominated in USD;
    • Fixed-to-float IRS denominated in GBP; and
    • Two Index CDS – iTraxx Europe Main and iTraxx Europe Crossover.

    What's new?

    On 22 December 2017, the Delegated Regulation was published in the OJEU (the "Delegated Regulation 2017/2417").

    The Delegated Regulation 2017/2417 entered into force on 23 December 2017.

    The Delegated Regulation 2017/2417 is available here.

    What's next?

    The trading obligation referred to in Article 28 of MiFIR took effect as from 3 January 2018.

  • Short Selling - ESMA publishes its Technical Advice to the European Commission

  • Background

    The ESMA received a formal mandate from the European Commission on 19 January 2017 seeking Technical Advice on the evaluation of certain elements of the Short Selling Regulation ("SSR", available here) that became applicable on 1 November 2012.

    The mandate required the ESMA to deliver its Technical Advice by 31 July 2017. Subsequently, on 22 February 2017, further to the ESMA’s request, the Commission postponed the deadline for delivery of the Technical Advice to 31 December 2017.

    The ESMA published a consultation paper on 7 July 2017.

    What's new?

    On 21 December 2017, the ESMA published its Technical Advice to the European Commission on how to improve the Short-Selling Regulation (SSR).

    ESMA’s Technical Advice includes proposals around the three main elements of the mandate.

    Firstly, on exemption for market making activities:

    • the ESMA proposes to include the different types of on-venue market making activities described in MiFID II in the definition of ‘market-making activities’;
    • the ESMA considers that market makers should be members or participants of only one of the trading venues where their market-making activity takes place, not of all of them;
    • the ESMA proposes not requiring any membership for OTC market-making activity;
    • the ESMA suggests introducing reporting obligations for market makers.

    Secondly on short-term bans on short-selling:

    • the ESMA recommends that only the competent authority of the most relevant market should have the capacity to adopt a short-term ban applicable across Europe;
    • the ESMA proposes transforming the current bans on short selling into a ban on entering into or increasing net short positions.

    Thirdly on transparency of net short positions:

    • the ESMA suggests practical improvements of the current regime including building a centralised notification and publication system across Europe;
    • the ESMA supports requiring the LEI for the identification of certain position holders.

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

    What's next?

    The European Commission will now examine this proposal and should endorse its delegated acts before 22 March 2018.

  • Transparency Directive - ESMA issues practical Guide on notifications of major holdings

  • Background

    The ESMAs' practical guide is an information document, which summarises the main rules and practices applicable across the European Economic Area ("EEA") in relation to notifications of major holdings under national law in accordance with the Transparency Directive (available here).

    The practical guide is intended as an aide to market participants and may be particularly helpful to shareholders with notification obligations under national law in accordance with the Transparency Directive. It has been compiled based on information provided by National Competent Authorities under the Transparency Directive.

    What's new?

    On 16 January 2018, the ESMA published a practical guide on national rules on notifications of major holdings under the Transparency Directive (ESMA31-67-535 – the "Guide").

    Part I of the Guide sets out a summary of the main rules and practices in relation to making and publishing notifications of major holdings under national law in accordance with the Transparency Directive. Information is presented on a country-by-country basis to allow market participants to easily identify information about the jurisdiction(s) of interest to them. The focus is on on-exchange transactions based on the assumption that these trigger the majority of notification obligations under the Transparency Directive.

    Part II of the Guide presents key data, i.e. information on notification thresholds, the triggering event, the deadline for learning of the triggering event, the deadline for making a notification as well as permitted channels and format for the filing of such and the deadline for publishing a notification. Information in Part II is organised in transversal tables, making it possible to compare rules across different jurisdictions.

    The Guide is available here.

    What's next?

    The ESMA will update the Guide on an ad hoc basis as and when necessary based on changes to national rules and practices.

  • LUXEMBOURG

    AML/CFT - 11 amendments to the Bill 7128

  • Background

    On 19 November 2004, the Luxembourg law on the fight against money laundering and terrorist financing transposing Directive 2001/97/EC was published in the Luxembourg Memorial A N° 183 (the "2004 Law", available here in French and here in English).

    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 26 April 2017, the omnibus bill 7128 transposing the 4AMLD, implementing the Regulation and modifying various Luxembourg legislations, was submitted to the Luxembourg Parliament for adoption (the "Bill", available here).

    On 7 December 2017, the European Commission (the "Commission") urged Luxembourg and 7 other countries to take the necessary measures to fully comply with the 4AMLD (available here). If Luxembourg fails to bring its national legislation into line with EU law within the next 2 months, the Commission may decide to refer such case to the Court of Justice of the EU.

    On 15 December 2017, the Luxembourg Conseil d'État issued its opinion on the Bill (the "Opinion", available here).

    What's new?

    On 9 January 2018, based on the Opinion, the Luxembourg Parliamentary Finance and Budget Commission published a set of 11 amendments to the Bill (the "Amendments").

    Besides certain minor deletions and corrections, the Amendments concern mostly the new Article 12 inserted into the Bill (in order to "fully and precisely" transpose Articles 37 and 38 of the 4AMLD as indicated in the Opinion) and hence the renumbering of the following Articles of the Bill (i.e. the old Articles 12-37 become the new Articles 13-38 of the Bill).

    In this context, the new Article 12 of the Bill would modify the Article 5 of the 2004 Law. According to the new Article 5 (4-3) of the 2004 Law, "individuals, including employees and representatives of the obliged entity, who report suspicions of money laundering or terrorist financing internally or to the financial intelligence unit ("FIU"), are protected from being exposed to threats or hostile action, and in particular from adverse or discriminatory employment actions".

    In addition, in order to avoid any ambiguity or even legal uncertainty resulting from the use of the term "competent authorities" (as under the 4AMLD), the Bill distinguishes between "control authority" ("autorité de contrôle" in French) and "self-regulatory body" ("organisme d'autorégulation" in French). This approach would allow to combine in the same law the supervisory and sanctioning powers of "control authorities", and to ensure that the supervisory and sanctioning powers of "self-regulatory bodies", as well as the manner in which these powers are exercised, continue to be governed by the organic laws establishing these bodies.

    The Amendments are available here (in French only).

    What's next?

    Respectively on 16 January 2018 and on 19 January 2018, the Luxembourg Institut des Réviseurs d'Entreprises and the Luxembourg Conseil d'État published additional opinions on the Bill, as amended (respectively available here and here in French only).

    The Bill should be adopted by the Luxembourg Parliament in the forthcoming weeks and is foreseen to enter into force by mid-February 2018.

  • Company Law - Amending RESA Regulation published in the Memorial A

  • Background

    On 1 June 2016, the Luxembourg law of 27 May 2016 creating a new electronic platform for legal publication ("RESA") and extending publication requirements to Luxembourg Fonds Communs de Placement ("FCPs") entered into force (the "RESA Law", available here in French only).

    On the same date, the Grand-Ducal regulation of 27 May 2016 laying down the criteria for the presentation and form of documents intended for publication in the RESA entered into force (the "RESA Regulation", available here in French only).

    What's new?

    On 11 January 2018, the Grand-Ducal Regulation of 20 December 2017 amending the RESA Regulation was published in the Memorial A N° 24 (the "Amending Regulation").

    In particular, the Amending Regulation modifies Article 1 of the RESA Regulation by adding information concerning 4 entities that may be registered with the Luxembourg Trade and Companies Register ("RCS") on the basis of Article 6 (2) of the modified RCS Law (available here in French only).

    • Specialised Investment Fund or "SIF" ("fonds d'investissement spécialisé");
    • SICAV – Reserved Alternative Investment Fund or "SICAV-RAIF" ("société d'investissement à capital variable - fond d'investissement alternatif réservé");
    • RAIF ("fonds d'investissement alternatif réservé");
    • Companies with a social or societal objective or "SIS" ("société d'impact sociétal").

    The Amending Regulation is available here (in French only).

    What's next?

    The Amending Regulation entered into force on 11 January 2018.

  • Financial Sector - 5 amendments to the omnibus Bill 7024

  • Background

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

    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 issued its first opinion on the Bill (the "First Opinion", available here).

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

    On 14 July 2017, the Luxembourg Conseil d'État published its opinion on the Revised Bill (the "Second Opinion", available here).

    What's new?

    On 9 January 2018, based most notably on the Second Opinion, the Luxembourg parliamentary Finance and Budget Commission published a set of 5 amendments to the Revised Bill (the "Amendments").

    Besides certain minor deletions and clarifications in the Revised Bill, the Amendments aim mostly at the following objectives:

    • Better distinguishing in terms of outsourcing between, on the one hand, the outsourcing operated by a Luxembourg entity to another Luxembourg entity subject to the prudential supervision of the CSSF, the ECB or the CAA and, on the other hand, all other cases of outsourcing;
    • Explaining the articulation between the terms of professional secrecy and the general application of the modified Luxembourg Law of 2 August 2002 on the protection of persons with regard to the processing of personal data in the Article 41 of the FSL.

    The Amendments are available here in French only.

    What's next?

    On 16 January 2018, the National Commission for Data Protection issued an additional opinion on the Revised Bill, as amended (available here in French only).

    The Luxembourg Parliament shall adopt the final version of the Revised Bill in the forthcoming months.

  • Financial Supervision - CSSF Fees as of 1 January 2018 published in Memorial A

  • Background

    Having regard to Article 24 of the modified CSSF Law (available here), the Grand-Ducal regulation of 28 October 2013 relating to the fees to be levied by the CSSF applies since 1 November 2013 (the "2013 Regulation", available here).

    What's new?

    On 22 December 2017, the Grand-Ducal regulation of 21 December 2017 relating to the fees to be levied by the CSSF was published in the Luxembourg Memorial A N° 1121 (the "2017 Regulation").

    Among the various changes introduced in the Article 1 of the 2017 Regulation entitled "Lump-sum fees", the following modifications shall be considered as regards the below entities:

    • Credit institutions
      • A distinction is made between the balance sheet total of (i) Luxembourg credit institutions and branches established in Luxembourg by a credit institution located in a non-EEA Member State, and of (ii) branches established in Luxembourg by a credit institution located in an EEA Member State;
      • A lump sum of EUR 25'000 is foreseen for every on-site inspection performed by the CSSF on a "given subject";
      • An annual lump sum is to be paid by every credit institution which is a member of the Luxembourg Deposit Guarantee Fund (ranging from EUR 5'000 to EUR 27'000 depending on its covered deposits total).
    • Undertakings for collective investment ("UCIs")
      • UCIs are formally distinguished between Luxembourg UCIs and other UCIs (in French "OPC de droit étranger"), with increased single examination lump sums, transformation lump sums and annual lump sums for Luxembourg UCIs;
      • A single lump sum of EUR 500 is to be paid for the examination of each new "sub-fund" (in French "compartiment") by an existing Luxembourg umbrella UCI (e.g. UCITS, SIF, SICAR, SIF-AIF, SICAR-AIF, SIAG);
      • Each transformation of the legal status of an existing Luxembourg UCI or its transformation into another legal form (a mutual fund into a company, "FCP en forme sociétaire" in French) shall be considered as a new examination by the CSSF (hence the examination fees table indicated in Article 1.C.I.1.4) of the 2017 Regulation applies).
    • Investment funds managers (in French "gestionnaires de fonds d'investissement" or "GFI")
      • As specified in Article 1.D. of the 2017 Regulation, the single examination lump sums, the transformation lump sums and the annual lumps for management companies ("ManCos") and alternative investment funds managers ("AIFMs") have increased (e.g. annual CSSF fees for ManCos and AIFMs now amount to EUR 35'000);
      • Each transformation of the legal status of an existing GFI shall be considered as a new examination by the CSSF (hence the examination fees table indicated in Article 1.D.I.1) of the 2017 Regulation applies);
      • A lump sum of EUR 10'000 is foreseen for every on-site inspection performed by the CSSF on a "given subject".

    In addition, it can also be noted that the section T "Public oversight of the audit profession" has been updated with references to the recent Law of 23 July 2016 on the audit profession, and that a new section U entitled "Resolution" has been inserted in Article 1 of the 2017 Regulation.

    The 2017 Regulation is available here in French only.

    What's next?

    The 2017 Regulation entered into force on 1 January 2018 and repealed the 2013 Regulation.

  • MiFID II/MiFIR - CSSF details the application of the new framework as of 3 January 2018

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 on markets in financial instruments ("MiFIR", available here) entered into force on 2 July 2014.

    Together with the related legal instruments adopted at EU level (available here on the CSSF website), the MiFID II/MiFIR framework strengthens regulation of trading activities on financial markets and enhances investor protection. The new framework replaces the existing framework that was established by the Directive 2004/39/EC ("MiFID I", available here).

    At Luxembourg level, MiFID I was implemented by the Law of 5 April 1993 on the financial sector (the "Law on the Financial Sector", available here) and the Law of 13 July 2007 on markets in financial instruments (the "Markets in Financial Instruments Law", available here). Against this background, the Bill 7157 transposing MiFID II into Luxembourg law has not yet been voted by the Luxembourg Parliament (available here in French only). Moreover, the CSSF updated its frequently asked questions' ("FAQs") document on MiFID II/MiFIR on 5 December 2017 (available here).

    On 18 December 2017, the ESMA published its guidance concerning the continuity of cross-border provision of investment services in the transition between MiFID I and MiFID II, including in the event of a late transposition of MiFID II by some EU Member States, which are addressed to national competent authorities ("NCAs") and market participants (the "Transition Guidance", available here).

    What's new?

    On 29 December 2017, the CSSF issued its press release 17/47 concerning the application of MiFID II/MiFIR as of 3 January 2018 (the "Press Release").

    In the Press Release, the CSSF details the following points:

    • –MiFIR provisions
      • Pursuant to Article 288 of the Treaty on the functioning of the EU (available here), the provisions of MiFIR are binding and directly applicable in Luxembourg as from 3 January 2018 (with the exception of the provisions of Article 37 of MiFIR entitled "Non-discriminatory access to and obligation to licence benchmarks", which shall apply as from 3 January 2020) and will immediately replace the corresponding provisions of the Markets in Financial Instruments Law;
      • In other words, as from 3 January 2018, credit institutions, investments firms and trading venue operators shall respect the provisions of MiFIR and no longer the corresponding provisions of the Markets in Financial Instruments Law or the Law on the Financial Sector respectively, which have been replaced by MiFIR;
      • Without prejudice to applicable Luxembourg legislation, the use of an approved reporting mechanism ("ARM") as foreseen by Article 26(7) of MiFIR will be authorised as from 3 January 2018.
    • MiFID II provisions
      • According to fundamental principles of EU law, MiFID II provisions which confer new rights or which are more favorable than the applicable Luxembourg rules and regulations shall apply from 3 January 2018 and existing provisions of the Law on the Financial Sector and of the Markets in Financial Instruments Law shall be interpreted accordingly;
      • In particular, this is the case for provisions of MiFID II, which strengthen investor protection, such as the more stringent rules regarding organisational requirements, inducements and research.
    • MiFID II/MiFIR secondary EU legislation – The CSSF highlights that the above-mentioned principles also apply to the various Commission delegated acts adopted under the MiFID II/MiFIR framework.

    The Press Release is available here.

    What's next?

    The MiFID II/MiFIR framework shall apply in Luxembourg as from 3 January 2018 (to the extent described by the CSSF in the Press Release, most notably concerning the application of Article 37 of MiFIR as from 3 January 2020).

    The Bill 7157 should be further discussed at the Luxembourg Parliament in Q1 2018.

    Further CSSF circulars and FAQs on MiFID II/MiFIR may follow.

  • PRIIPs - Luxembourg Chamber of Commerce Opinion on Bill 7199

  • Background

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

    Pursuant to Article 5(2) of the PRIIPs Regulation, any Member State of the EU may require the ex-ante notification of the KID by the PRIIPs manufacturer or the person selling a PRIIP to the competent authority for PRIIPs marketed in that Member State.

    In accordance with Article 32(2) of the PRIIPs Regulation, when a Member State of the EU applies rules on the format and content of the key investor information document as laid down in Articles 78 to 81 of Directive 2009/65/EC ("UCITS KIID", available here), to non-UCITS funds offered to retail investors, management companies, investment companies and persons advising on, or selling, units of such funds to retail investors shall be exempt from obligations under the PRIIPs Regulation until 31 December 2019.

    On 25 October 2017, the Luxembourg Minister of Finance submitted the bill 7199 implementing certain provisions of the PRIIPs Regulation to the Luxembourg Parliament (the "Bill 7199", available here in French only).

    What's new?

    On 16 January 2018, the Luxembourg Chamber of Commerce submitted its opinion on the Bill 7199 to the Luxembourg Parliament (the "Opinion").

    In particular, the Opinion proposes to modify certain terms in Article 3 of the Bill 7199 (aligning it with Articles 32 and 33 of the PRIIPs Regulation) and hence to delete the Article 9 of the Bill 7199.

    The Opinion is available here (in French only).

    What's next?

    The Luxembourg Parliament should adopt the final version of the Bill 7199 in the forthcoming months.

  • UCITS - CSSF changes policy as regards investment by UCITS in other UCIs

  • Background

    Article 41(e) of the Law of 17 December 2010 relating to UCIs (the "2010 Law", available here) transposes Article 50(1)(e) of the amended Directive 2009/65/EC ("UCITS Directive", available here) into the Luxembourg regulatory framework.

    On 6 July 2017, the CSSF published the 4th iteration of its FAQ on UCITS (the "FAQ v4", available here).

    Section 1.4 of the FAQ v4 stated that: "Non-UCITS ETFs belong to the category of open-ended "Other UCI" as illustrated in the chart under question 1.3). Such non-UCITS ETFs are eligible investments for UCITS if they effectively comply with all criteria of Articles 2(2) and 41(1)(e) of the 2010 Law, notwithstanding that the offering documents of non-UCITS ETFs grant possibilities which are not equivalent to requirements applicable to UCITS.

    Given the specificities of each other ETF, an eligibility analysis must be carried out on a case-by-case basis and the UCITS must continuously ensure that the investment rules applied are equivalent to the investment rules applicable to UCITS, for example, via a system of compliance control or a written confirmation of the ETF or its manager".

    What's new?

    On 5 January 2018, the CSSF published the press release 18/02 with regard to its change of policy on investment by UCITS in other UCIs under Article 41(1)(e) of the 2010 Law (the "PR 18/02").

    In the PR 18/02, the CSSF announces that the section 1.4 of the FAQ v4 has been deleted in the FAQ v5, and that "mere compliance controls or written confirmation of the ETF or of the manager" as mentioned in the FAQ v4 is not acceptable any more.

    In addition, the CSSF highlights the fact that for other UCIs to be eligible under Article 50(1)(e) of the UCITS Directive, such other UCIs:

    • (i) shall be prohibited from investing in illiquid assets (such as commodities and real estate) in line with Article 1(2)(a) of the UCITS Directive;
    • (ii) shall be bound by rules on asset segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments which are equivalent to the requirements of the UCITS Directive in line with article 50(1)(e)(ii) of the UCITS Directive; mere compliance in practice shall not be considered sufficient;
    • (iii) the fund rules or instrument of incorporation shall include a restriction according to which no more than 10% of the assets of the UCI can be invested in aggregate in units of other UCITS or other UCIs in line with article 50(1)(e)(iv) of the UCITS Directive; mere compliance in practice shall not be considered sufficient.

    The PR 18/02 is available here and the corresponding FAQ v5 is available here.

    What's next

    As a consequence, the UCITS subject to the 2010 Law and which have invested in other UCIs following the policy laid down in section 1.4 of the FAQ v4 have to disinvest from these UCIs as soon as possible taking into account the best interests of the investors.

    The CSSF underlines that new investments in such UCIs are not allowed any more.

    The CSSF will contact the investment fund managers which have invested in such UCIs to check the compliance with the above-mentioned policy until 31 March 2018.

  • SWITZERLAND

    MiFID II/MiFIR - Commission equivalence decision for Switzerland published in the OJEU

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 on markets in financial instruments entered into force on 2 July 2014 and will apply as from 3 January 2018 ("MiFIR", available here).

    In accordance with Article 23(1) of MiFIR, an investment firm shall ensure the trades it undertakes in shares admitted to trading on a regulated market or traded on a trading venue shall take place on a regulated market, multilateral trading facility ("MTF") or systematic internaliser, or a third-country trading venue ("TV") assessed as equivalent in accordance with Article 25(4)(a) of MiFID II, as appropriate.

    Against this background, the European Commission (the "Commission") should assess whether the legal and supervisory framework of a third country ensures that a TV authorised in that third country complies with legally binding requirements, which are equivalent to the requirements resulting from the MiFID II/MiFIR framework. In particular, a third-country legal and supervisory framework may be considered equivalent where that framework fulfils at least 4 conditions:

    • The markets are subject to authorisation and to effective supervision and enforcement on an ongoing basis;
    • The markets have clear and transparent rules regarding the admission of securities to trading so that such securities are capable of being traded in a fair, orderly and efficient manner, and are freely negotiable;
    • Security issuers should be subject to periodic and ongoing information requirements ensuring a high level of investor protection; and
    • Market transparency and integrity should be ensured by the prevention of market abuse in the form of insider dealing and market manipulation.

    What's new?

    On 23 December 2017, the Commission implementing decision (EU) 2017/2441 of 21 December 2017 on the equivalence of the legal and supervisory framework applicable to stock exchanges in Switzerland in accordance with MiFID II was published in the OJEU (the "Decision").

    The annex to the Decision refers to "SIX Swiss Exchange AG" and "BX Swiss AG" stock exchanges in Switzerland, which are considered equivalent to regulated markets as defined in MiFID II.

    The Decision is available here.

    What's next?

    The Decision shall enter into force on 24 December 2017. It shall expire on 31 December 2018.

    The Commission will closely monitor the impact of the Decision and consider the broader political context.

  • TAX

    CbCR - Activation of the automatic exchange relationships under the Multilateral Competent Authority Agreement

  • Background

    The Organization for Economic Co-operation and Development’s ("OECD") Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") has released two sets of guidance to give greater certainty to tax administrations and Multinational Enterprise ("MNE") Groups alike on the implementation and operation of Country-by-Country ("CbC") Reporting (BEPS Action 13). The implementation of the CbC is currently in process worldwide.

    What's new?

    On 21 December 2017, the automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports ("the CbC MCAA") was activated.

    The automatic exchange of CbC Reports will give tax administrations around the world access to key information on the annual income and profits, as well as the capital, employees and activities of MNE Groups that are active within their jurisdictions.

    The link is available here.

    What's next?

    Jurisdictions are expected to exchange CbC reports as of mid-2018.

  • CbCR - Scope of the CbC extended to Luxembourg transparent Constituent Entities

  • Background

    On 13 December 2016, the Luxembourg Parliament passed a legislation implementing Country-by-Country Reporting ("CbCR") requirements for Luxembourg entities that are part of a Multinational Enterprise ("MNE") Group. The Luxembourg Country-by-Country ("CbC") obligations require Luxembourg ultimate parent company controlling a MNE group whose total consolidated group revenue exceeds EUR 750 million to file CbC reports with the Luxembourg tax authorities. Other Luxembourg companies that are member of MNE groups may also have obligations to file CbC reports in Luxembourg.

    What's new?

    On 20 December 2017, the Luxembourg tax authorities have decided that, in their view, Luxembourg transparent Constituent Entities (based on article 175 of the Luxembourg Income Tax Law) included in the consolidation perimeter fall within the scope of CbCR notification and are thus required to file such notification by year-end. The notification concerns inter alia the Société en Nom Collectif ("SNC") and the Société en Commandite Simple ("SCS").

    Based on the Luxembourg Law of 23 December 2016 and OECD guidelines on CbCR, there are arguments to defend that those companies should be excluded from the scope of notification since they should not be considered as resident for tax purposes in Luxembourg.

    For the time being, no link is available.

    What's next?

    No clarification before year-end was provided by the Luxembourg tax authorities and therefore a notification might have been done. For the next reporting, clarifications are expected. Based on the above, filing the CbCR notification for SCS/SNC may be considered.

  • EoI - Luxembourg Draft law related to procedure for tax-related exchange of information

  • Background

    On 16 May 2017, the Court of Justice of the European Union ("CJEU") rendered its judgment in the Berlioz Investment Fund SA (Berlioz, C-682/15). This case, which concerned Exchange of Information ("EoI") upon request between tax administrations, was referred to the CJEU by the Luxembourg Administrative Court. The main issue at stake was whether national courts of the Member State, which has been asked to provide information, may review the foreseeable relevance of the requested information.

    The CJUE ruled that Member States have to ensure that information holders fined for failing to comply with an information request will have the possibility to challenge the validity of such request, including to some extent its foreseeable relevance for the investigation in the requesting Member State.

    What's new?

    On 19 December 2017, the Luxembourg Ministry of finance issued the draft bill 7223 regarding the procedure for tax-related EoI sent by another Member State. The purpose of this draft bill is to adjust the tax-related EoI procedure in accordance with the ECJ judgement in Berlioz Case in order to comply with the EU law and the international standards on administrative cooperation in the field of taxation.

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

    What's next?

    The draft law has not been voted yet, therefore the definitive version might be amended.

  • 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)
    Clemence Dubreuil, 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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