SCANNING NOVEMBER 2017

European Regulatory Watch Newsletter


Summary

EUROPE

Accounting - 5 amending Commission regulations published in the OJEU

  • Background

    The regulation (EC) No 1606/2002 of the European 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). In accordance with the Regulation 1606/2002, the commission regulation (EC) No 1126/2008 adopting certain international accounting standards entered into force on 2 December 2008 (the "Regulation 1126/2008", available here).

    On 13 January 2016, the International Accounting Standards Board ("IASB") published International Financial Reporting Standard ("IFRS") 16 Leases (available here). IFRS 16 aims to improve financial reporting on lease contracts.

    On 19 January 2016, the IASB published amendments to International Accounting Standard ("IAS") 12 Income Taxes (available here). The amendments aim to clarify how to account for deferred tax assets related to debt instruments measured at fair value.

    On 29 January 2016, the IASB published amendments to IAS 7 Statement of Cash Flows (available here). The amendments are intended to clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities.

    On 12 April 2016, the IASB published amendments to IFRS 15 Revenue from Contracts with Customers (available here). The amendments aim to clarify some requirements and provide additional transitional relief for companies that are implementing the standard.

    On 12 September 2016, the IASB published amendments to IFRS 4 Insurance Contracts (available here). The amendments to IFRS 4 aim to address the temporary accounting consequences of the different effective dates of IFRS 9 Financial Instruments and the new standard for insurance contracts replacing IFRS 4.

    Following consultations with the European Financial Reporting Advisory Group, the Commission concluded that the amendments to the above-mentioned IAS/IFRS meet the criteria for adoption set out in Article 3(2) of Regulation 1606/2002.

    What's new?

    On 9 November 2017, the following five amending Commission regulations supplementing certain international accounting standards (i.e. IAS 7 and IAS 12) and certain international financial reporting standards (i.e. IFRS 4, IFRS 15, and IFRS 16) were published in the OJEU:

    • Commission regulation (EU) 2017/1990 of amending Regulation 1126/2008 adopting certain international accounting standards in accordance with Regulation 1606/2002 of the European Parliament and of the Council as regards IAS 7 (the "Regulation 2017/1990", available here);
    • Commission regulation (EU) 2017/1989 of 6 November 2017 amending Regulation 1126/2008 adopting certain international accounting standards in accordance with Regulation 1606/2002 of the European Parliament and of the Council as regards IAS 12 (the "Regulation 2017/1989", available here);
    • Commission regulation (EU) 2017/1988 of 3 November 2017 amending Regulation 1126/2008 adopting certain international accounting standards in accordance with Regulation 1606/2002 of the European Parliament and of the Council as regards IFRS 4 (the "Regulation 2017/1988", available here);
    • Commission regulation (EU) 2017/1987 of 31 October 2017 amending Regulation 1126/2008 adopting certain international accounting standards in accordance with Regulation 1606/2002 of the European Parliament and of the Council as regards IFRS 15 (the "Regulation 2017/1987", available here);
    • Commission regulation (EU) 2017/1986 of 31 October 2017 amending Regulation 1126/2008 adopting certain international accounting standards in accordance with Regulation 1606/2002 of the European Parliament and of the Council as regards IFRS 16 (the "Regulation 2017/1986", available here).

    What's next?

    The Regulation 2017/1989 entered into force on 12 November 2017.

    The Regulation 2017/1990, the Regulation 2017/1988, Regulation 2017/1987, and the Regulation 2017/1986 entered into force on 29 November 2017.

  • BMR - ESMA updates its Q&As on Benchmarks Regulations

  • 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 ((EU) 2016/1011, "BMR").

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

    What's new?

    On 8 November 2017, ESMA updated its Q&As document on BMR.

    The Q&As document contains two new questions and answers relating to third country issues:

    • Application of the Regulation outside the EU.
      ESMA clarifies that the BMR does not apply to the provision of benchmarks that are exclusively used outside the Union. The same reasoning would apply to the contribution of input data with respect to a benchmark that is exclusively used outside the Union. An administrator providing a benchmark exclusively to users outside the Union would have to comply with any applicable third country regimes with respect to benchmarks.
    • Transitional provisions applicable to third country benchmarks.
      ESMA specifies that the meaning of the term "where the benchmark is already used in the Union" in Article 51(5) of the BMR is "where the benchmark is already used in the Union on or before 1 January 2020".

    ESMA’s Q&As document is available here.

    What's next?

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

  • CMU - Council adopts securitisation rules

  • Background

    At global level, the Basel Committee on Banking Supervision ("BCBS") and the International Organisation of Securities Commissions ("IOSCO") jointly lead a task force on the obstacles to securitisation. Its main task is to develop criteria to identify simple, transparent and comparable ("STC") securitisation instruments (available here).

    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).

    As part of the Capital Markets Union ("CMU"), on 30 September 2015, the Commission proposed new common rules on securitisation, which are simple, transparent and standardised ("STS"), and subject to adequate supervisory control (available here).

    On 30 May 2017, a trilogue agreement between the Commission, the European Parliament ("Parliament") and the Council of the EU ("Council") was reached on the new framework for securitisation (the "Agreement", available here). Three main political issues were resolved:

    • The risk retention requirements are set at 5%, in accordance with existing international standards and in line with the Council negotiating position;
    • In order to increase market transparency, a data repository system for securitisation transactions shall be created;
    • In order to prevent conflicts of interest, a "light-touch" authorisation process for third parties that assist in verifying compliance with STS securitisation requirements shall be introduced.

    On 26 October 2017, the Parliament plenary voted at first reading on (i) a draft regulation setting out rules on securitisations and establishing criteria to define STS securitisation (available here), and (ii) a draft regulation amending CRR to set out capital requirements for positions in securitisation (available here).

    What's new?

    On 20 November 2017, based on the Agreement, the Council adopted rules aimed at facilitating the development of a securitisation market in the EU (the "Press Release", available here).

    In this context, the Council voted on the following draft regulations (collectively the "Draft Regulations"):

    • 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);
    • Draft regulation amending CRR (PE-CONS 38/17, available here).

    What's next?

    The final version of the Draft Regulations would apply as from 1 January 2019.

  • EMIR - ESMA consults on calculation of derivative positions

  • Background

    Article 80(4) of EMIR provides that trade repositories ("TRs") calculate positions in derivatives in a harmonised and consistent manner. High-quality position data is necessary for the assessment of systemic risks to financial stability by the relevant authorities. The ESMA Guidelines aim therefore at providing specific information on the aggregation of certain data fields and how those should be calculated by TRs prior to the provision of the data to relevant authorities.

    ESMA has observed divergent and inconsistent approaches to position calculations by TRs, which hinder the successful aggregation of data across repositories for the purposes of monitoring of systemic risks to financial stability.

    The aim of the guidelines is to ensure consistency of position calculation across TRs, with regards to the time of calculations, the scope of the data to be used in calculations and the calculation methodologies. In addition, these guidelines will ensure that a consistent methodology is used to calculate collateral relating to positions.

    What's new?

    On 17 November 2017, ESMA launched a public consultation on future Guidelines on the calculation of derivative positions by TRs authorised in the EU under EMIR.

    ESMA proposed Guidelines aim at ensuring consistency of position calculations across TRs. The guidelines will provide specific information on the aggregation of certain data fields and how those should be calculated by TRs prior to the provision of the data to NCAs, including: (i) the timing of calculations; (ii) the scope of the data used in calculations; and (iii) the calculation methodologies.

    This Consultation Paper contains the following sections:

    • Section 1 begins by explaining the scope of the position calculation Guidelines.
    • Section 2 refers to the scope of the Guidelines.
    • Section 3 explains the terms used in this paper.
    • Section 4 explains the purpose of the Guidelines.
    • Section 5 explains the overall Guidelines TRs should follow when calculating positions.
    • Section 6 explains the specific aspects which relate to the calculations carried out by TRs to create position sets.
    • Section 7 explains the aspects that are relevant to collateral sets TRs should produce.
    • Section 8 relates to the approach TRs should take when calculating currency position sets.
    • Section 9 refers to the Guidelines for currency collateral position sets.

    ESMA Consultation Paper on calculation of derivative positions is available here.

    What's next?

    ESMA is seeking stakeholders’ views on the draft guidelines by 15 January 2018 and expects to publish a final report on the guidelines in the first half of 2018.

  • EMIR - ESMA updates its Q&As

  • Background

    The Regulation (EU) No 648/2012 dealing with over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") applies since 16 August 2012 ("EMIR", available here).

    Most of the obligations under EMIR needed to be specified further via regulatory technical standards ("RTS"), which entered into force on 15 March 2013 (available here).

    The purpose of the questions & answers ("Q&As") document on EMIR implementation 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 national competent authorities ("NCAs") in relation to the practical application of EMIR.

    The last version of the Q&As document on EMIR implementation was issued on 2 October 2017, in relation to the definition of OTC derivatives and the ongoing monitoring of collateral requirements.

    What's new?

    On 20 November 2017, the ESMA updated its Q&As document on EMIR implementation (ESMA70-1861941480-52 – the "New Document").

    In the New Document, the ESMA provides clarification in Part III dedicated to TRs on the following topics:

    • Buy/Sell indicators for swaps (Q&A 24) – For both FX swaps and cross-currency swaps, the relevant point in time for the determination of the buyer and seller should be the far leg, which is closer to the maturity date.
    • LEI changes due to mergers and acquisitions (Q&A 40) – The TR controlled process has been modified ('To the extent possible, the entity should provide the required information in advance so that the change is not done retrospectively, but as of the date on which the change takes place. It should be noted that failure to update the identifier on time would result in rejection of the reports submitted by the entity in case where it has been previously identified with an LEI with an appropriate status (i.e. "Issued", "Pending transfer" or "Pending archival") and that status has subsequently been changed to "Merged")');
    • Transition to the new EMIR technical standards on reporting (Q&A 44) – Validation rules in relation to old outstanding trades have been modified ('In the case of the TRs that accept partial messages for the "Modification" and "Correction" reports (i.e. messages containing only the strictly mandatory fields such as UTI or counterparties’ IDs and the fields that are modified/corrected), those TRs will need to ensure that the counterparties provide all the applicable data elements for action type New when sending the "Modification" or "Correction" report for the first time upon the application date of the revised technical standards').

    The New Document is available here.

    What's next?

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

  • EuSEF/EuVECA - Amending Regulation 2017/1991 published in the OJEU

  • Background

    The Regulation (EU) No 345/2013 on European venture capital funds ("EuVECA Regulation", available here) and the Regulation (EU) No 346/2013 on European social entrepreneurship funds ("EuSEF Regulation", available here) apply since 22 July 2013.

    These Regulations provide for a common EU framework for the managers of EuSEF and EuVECA funds, and for harmonised passporting rules in order to manage and market funds in the EU with the specific EuVECA and EuSEF labels. While EuVECA funds support young and innovative companies, EuSEF focus on enterprises whose aim is to achieve positive social impact.

    On 14 July 2016, the European Commission ("Commission") published its impact assessment (available here) and its proposal regulation amending the EuVECA Regulation and the EuSEF Regulation (COM(2016) 461 final – the "Commission Proposal", available here), in view of the following operational objectives:

    • Remove limitations for larger managers to manage EuSEF and EuVECA funds and dual registration requirements;
    • Strike the right balance between the need to have a light touch regime and a sufficient level of investor protection;
    • Streamline the rules for marketing and managing EuSEF and EuVECA funds.

    On 6 December 2016, the Council of the EU ("Council") issued its compromise text on the Commission Proposal (2016/0221 (COD) – the "Council Proposal", available here). On 30 March 2017, the European Parliament ("Parliament") issued its report with amendments to the Commission Proposal (A8-0120/2017 – the "Parliament Proposal", available here). Against this background, the Parliament and the Council reached a provisional political agreement in trilogue on 30 May 2017 (the "Compromise", available here), following which the agreed text was approved in committees (the "Agreed Text", respectively available here and here).

    On 14 September 2017, based on the Agreed Text, the Parliament plenary voted at first reading on a legislative resolution to adopt a regulation amending the EuVECA Regulation and the EuSEF Regulation (the "Amending Regulation", respectively available in tracked and clean version here and here), which was adopted by the Council on 9 October 2017 (available here).

    What's new?

    On 10 November 2017, the Amending Regulation was published in the OJEU (the "Regulation 2017/1991").

    The Regulation 2017/1991 is available here.

    What's next?

    The Regulation 2017/1991 will enter into force on 30 November 2017.

     

    The Regulation 2017/1991 shall apply as from 1 March 2018.

  • MiFID/MiFID II - 2 RTS and 2 ITS published in the OJEU

  • Background

    On 21 April 2004, the EU Parliament and the Council issued the Directive 2004/39/EC on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the EU Parliament and of the Council and repealing Council Directive 93/22/EEC ("MiFID", available here). It has been applicable across the EU since November 2007.

    On 15 May 2014, the EU Parliament and the Council issued the Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II, available here). It will apply as of 3 January 2018.

    In accordance with Article 7(2) of MiFID II, ‘investment firm shall provide all information, including a programme of operations setting out, inter alia, the types of business envisaged and the organizational structure, necessary to enable the competent authority to satisfy itself that the investment firm has established, at the time of initial authorisation, all the necessary arrangements to meet its obligations under Title II Chapter I of MiFID II’.

    According to Article 9(5) of MiFID II, ‘Member States shall require the investment firm to notify the competent authority of all members of its management body and of any changes to its membership, along with all information needed to assess whether the firm complies with paragraphs 1, 2 and 3 of Article 9 of MiFID II’.

    Pursuant to Article 11(2) of MiFID II, ‘competent authorities shall, without undue delay, provide each other with any information which is essential or relevant for the assessment [of proposed acquirer]. In that regard, the competent authorities shall communicate to each other upon request all relevant information and shall communicate on their own initiative all essential information.

    In accordance with Article 13(4) of MiFID II, ‘Member States shall make publicly available a list specifying the information that is necessary to carry out the assessment and that must be provided to the competent authorities at the time of notification [of proposed acquisitions] referred to in Article 11(1) of MiFID II. The information required shall be proportionate and adapted to the nature of the proposed acquirer and the proposed acquisition. Member States shall not require information that is not relevant for a prudential assessment'.

    What's new?

    On 26 October 2017, the following 2 regulatory technical standards ("RTS") and 2 implementing technical standards ("ITS") pursuant to MiFID/MiFID II were published in the OJEU:

    • Commission Delegated Regulation (EU) 2017/1943 of 14 July 2016 supplementing MiFID II with regard to RTS on information and requirements for the authorisation of investment firms (available here);
    • Commission Implementing Regulation (EU) 2017/1944 of 13 June 2017 laying down ITS with regard to standard forms, templates and procedures for the consultation process between relevant competent authorities in relation to the notification of a proposed acquisition of a qualifying holding in an investment firm in accordance with MiFID and MiFID II (available here);
    • Commission Implementing Regulation (EU) 2017/1945 of 19 June 2017 laying down ITS with regard to notifications by and to applicant and authorised investment firms according to Directive 2014/65/EU of the EU Parliament and of the Council (available here);
    • Commission Delegated Regulation (EU) 2017/1946 of 11 July 2017 supplementing MiFID and MiFID II with regard to RTS for an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm (available here).

    What's next?

     

    Commission Delegated Regulations (EU) 2017/1943 and (EU) 2017/1946 as well as Commission Implementing Regulations (EU) 2017/1944 and (EU) 2017/1945 entered into force on 15 November 2017 and apply as from 3 January 2018.

  • MiFID II - ESMA consults on systematic internalisers’ quote rules

  • Background

    Under MiFIR, ESMA received a mandate to develop draft Regulatory Technical Standards ("RTS") to specify further, in the context of the quoting obligation for systematic internalisers ("SIs"), "the determination of whether prices reflect prevailing market conditions".

    ESMA finalised its proposal in September 2015 and this proposal was endorsed and published in the Official Journal of the EU on 31 March 2017.

    Over recent months, it has come to ESMA’s attention that the concept of "prices reflecting prevailing market conditions" may require further clarification. In particular, there have been discussions whether SIs’ quotes should under certain circumstances reflect the same minimum price increments as orders and quotes submitted to trading venues trading for the same financial instrument.

    What's new?

    On 9 November 2017, ESMA launched a public consultation on SIs’ quotes rules under MiFID II. ESMA considers that in order to ensure that SIs’ quotes adequately reflect prevailing market conditions it may be necessary to link them to the minimum tick sizes applicable to trading venues.

    The consultation paper encompasses two sections:

    • Section 1 describes ESMA’s proposal for amending Article 10 of the RTS and clarifies the concept of "prices reflecting prevailing market conditions" for instruments subject to the mandatory tick size regime.
    • Section 2 addresses other amendments to the RTS which, although being of less significant nature, would allow for a more consistent and unambiguous application of the provisions contained in the RTS.

    ESMA consultation paper on SIs is available here.

    What's next?

    Stakeholders are invited to provide feedback on this proposal by 25 January 2018.

     

    The input from stakeholders should help ESMA to finalise its amendments to RTS.

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

  • Background

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

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

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

    What's new?

    On 14 November 2017, ESMA updated its Question and Answers ("Q&As") document on the implementation of commodity derivatives topics under MiFID II.

    ESMA has included 12 new Q&As relating to position limits, ancillary activities and position reporting.

    • Position limits:
      • Definition of a lot for those contracts where a lot or unit of trading does not necessarily represent a standard quantity of underlying across all maturities/delivery periods.
      • Confirmation that there will be no separate limits for futures and options on the same commodity derivative and how options should be converted into futures for the application of position limits.
      • Definition of how position limits regime should be applied to freight rate derivatives (wet and dry freight).
    • Ancillary activities:
      • ESMA clarifies that transactions concluded on non-EU venues should not be included in either numerator or denominator of the market size test.
      • OTC transactions done by non-EU entities of an EU group with EU counterparties would be considered to take place in the EU and thus should be counted for the market size test.
      • Firms can refer to the EBA Q&As on clarification of the treatment of positions in commodities for the purposes of calculating net and gross positions according to CRR.
    • Position reporting:
      • ESMA specifies that Non-Financial Entities should ensure that their position reports accurately describe their position, correctly flagging positions as hedging (or speculative) based on the conditions established.
      • Any investment firm trading in commodity derivative contracts trade on a trading venue or in EEOTC contracts is subject to position reporting.
      • End-of-day zero positions do not need to be reported to the NCA unless the firm showed a positive or negative position in the previous report.
      • Investment firms can delegate the reporting to third parties but shall remain responsible for the reports.
      • The various commodity derivative underlying within the scope of the C(10) category shall be treated consistently across all provisions concerning commodity derivatives in the MiFID II/MiFIR framework.
      • Submission of weekly reports to ESMA should be strictly limited to those contracts that fulfil the conditions specified in Article 83 of Commission Delegated Regulation (EU) 2017/565.

     

    ESMA Q&As on commodity derivatives under MiFID II is available here.

    What's next?

     

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

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

  • Background

    MIFID II encompasses the rules on governance, products, investor protection and information disclosure.

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

     

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

    What's new?

    On 10 November 2017, ESMA updated its Question and Answers ("Q&As") document on the implementation of investor protection topics under MiFID II.

    ESMA has included 4 new Q&As relating to record keeping, post-sale reporting and inducements.

    • Record keeping:
      ESMA clarified that Securities financing transactions are in scope of MiFID II requirements for order record keeping.
    • Post-sale reporting:
      ESMA explains that obligation to report on the overall value of a client’s portfolio depreciating by a 10% threshold on a particular business day apply to retail and professional clients.
    • Inducements:
      ESMA specifies that payments made or benefits provided to third parties by investment firms in connection with the provision of investment advice on an independent basis or portfolio management is subject to Article 24(9) of MiFID II on inducements. Moreover, ESMA outlines that once fees, commissions or other monetary benefits are received by an investment firm, they are to be considered as a liability of the investment firm.

     

    ESMA Q&As on investor protection under MiFID II is available here.

    What's next?

     

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

  • MiFID II - ESMA updates its Q&As on market structure

  • Background

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

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

    The purpose of the Q&As document is to promote common supervisory approaches and practices in the application of MiFID II on market structure issues.

    What's new?

    On 15 November 2017, ESMA updated its Question and Answers ("Q&As") document on the implementation of market structure topics under MiFID II.

    ESMA has included 4 new Q&As relating to Direct Electronic Access ("DEA") and algorithmic trading, the tick size regime and multilateral and bilateral systems.

    • DEA and algorithmic trading:
      ESMA provides clarification on the persons having DEA for the purpose of MiFID and authorisation of DEA providers. According to ESMA, the firm needs to be authorised as an investment firm under MiFID II to provide DEA to an EU trading venue.
    • Tick size regime:
      ESMA clarifies the scope by saying that it applies both to the orders and quotes.
    • Multilateral and bilateral systems:
      ESMA provides more clarity saying that there is no new client relationship between two counterparties that trade on a trading venue.

     

    ESMA Q&As on market structure under MiFID II is available here.

    What's next?

     

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

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

  • Background

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

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

     

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

    What's new?

    On 15 November 2017, ESMA updated its Question and Answers ("Q&As") document on the implementation of transparency topics under MiFID II.

    ESMA has included 13 new Q&As relating to general topics on transparency topics, equity and non-equity transparency, pre-trade transparency waivers, the systematic internaliser ("SI") regime, data reporting service providers and third country issues.

    • General Q&As:
      ESMA provides clarification regarding the obligation to make available data free of charge 15 minutes after publication.
    • Equity transparency:
      ESMA sets out the scope of the trading obligation for shares. ESMA confirms that where there is a chain of transmission of orders, all EU investment firms in the chain should ensure that the ultimate execution of the orders comply with the requirements to be traded on a regulated market, a MTF, systematic internaliser or equivalent third country venue.
    • Non-equity transparency:
      ESMA brings clarity on the questions related to package orders/transactions, publication of transactions in an aggregated form by APAs, temporary suspension of transparency for bonds and the geographical scope of the temporary suspension of transparency.
    • Pre-trade transparency waivers:
      ESMA clarifies the maximum authorised deviation around the reference price for negotiated transactions in illiquid equity instruments, partial execution of large-in-scale orders and orders above the size specific to the instrument (SSTI) as well as SSTI calculation of indicative pre-trade prices.
    • The SI regime:
      The only updated section is the price to be published by SIs in bonds and derivatives.
    • Data reporting services providers:
      ESMA provides clarity on the timeline for approving connections from the Approved Reporting Mechanism to National Competent Authorities and on the transactions outside the EU/trades by non-EU firms.
    • Third country issues:
      Transactions where both counterparties are not authorised EU investment firms and that are executed outside the EU are in any case not subject to the MiFIR transparency requirements and do not count for the systematic internaliser determination.

    ESMA Q&A on market structure under MiFID II is available here.

    What's next?

     

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

  • MiFID II/MiFIR - Commission issues FAQ on interaction with 3rd country broker-dealers

  • Background

    The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) 600/2014 ("MiFIR", available here) entered into force on 2 July 2014 and will apply as from 3 January 2018.

    Pursuant to Article 13 of the Commission delegated directive (EU) 2017/593 of 7 April 2016 supplementing MiFID II (the "Delegated Directive", available here), an EU investment firm providing portfolio management or other investment or ancillary services in the EU ("MiFID II Portfolio Manager") can chose one of the two options when procuring research from third-country broker-dealers:

    • Direct payments by the MiFID II Portfolio Manager out of its own resources; or
    • Payments from a separate research payment account ("RPA") controlled by the MiFID II Portfolio Manager, provided a series of conditions are met, most notably that the MiFID II Portfolio Manager agrees a research charge with its clients.

    In addition, Article 13(9) of the Delegated Directive provides, amongst other things, that research provided to MiFID II Portfolio Managers shall be subject to a separately identifiable charge.

     

    In this cross-border context, the European Commission (the "Commission") has determined that additional clarification would be helpful to assist MiFID II Portfolio Managers and their third-country sub-advisors that are contractually obliged to comply with MiFID II ("Third-Country Sub-Advisors").

    What's new?

    On 26 October 2017, the Commission issued a frequently asked questions document related to the application of MiFID II on third-country broker-dealers' provisions of research and execution services to MiFID II Portfolio Managers and Third-Country Sub-Advisors (the "FAQ").

    In the FAQ, the Commission highlights mostly the following clarification:

    • A third-country broker-dealer may receive combined payments for research and execution as a single commission when providing such services to a MiFID II Portfolio Manager or its Third- Country Sub-Advisor, as long as the payment attributable to research can be identified;
    • The MiFID II Portfolio Manager or its Third-Country Sub-Advisor which operates a RPA is responsible for managing its research budget based on a reasonable assessment of the need for research and subject to appropriate controls, which include maintaining a clear audit trail of payments made to research providers;
    • The MiFID II Portfolio Manager or its Third-Country Sub-Advisor which operates a RPA must be able, at all times and based on its own internal allocation/budgeting process, to identify vis-à-vis its own clients the amount spent on research with a particular third-country broker-dealer;
    • Both where research is paid for by means of a RPA or directly out of the MiFID II Portfolio Manager’s or its Third-Country Sub-Advisor’s own resources, the MiFID II Portfolio Manager/Third-Country Sub-Advisor is responsible for ensuring compliance with the requirements of Article 13 of the Delegated Directive, including the requirement to identify a separate charge for research supplied by third-country broker-dealers;
    • In the absence of a separate research invoice, the MiFID II Portfolio Manager or its Third-Country Sub-Advisor may decide, amongst other things, to consult with third parties, including the third- country broker-dealer, with a view to determining the charge attributable to the research provided. The supply of and charges for those benefits or services shall not be influenced or conditioned by levels of payment for execution services.

     

    The FAQ is available here.

    What's next?

     

    The FAQ does not purport to represent an authoritative interpretation of the law and are without prejudice to the view that the Commission may take on the matter in legal proceedings before the Court of Justice of the European Union.

  • MiFID II/MiFIR - ESMA updates its Q&As on data reporting

  • Background

    The MiFID II/MiFIR package encompasses rules on governance, products, data reporting, investors’ protection and information disclosure.

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

     

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

    What's new?

    On 13 November 2017, ESMA updated its Question and Answers ("Q&As") document on the implementation of data reporting under MiFIR.

    ESMA has included 4 new Q&As which clarify:

    • What are the reporting obligations for a typical primary issuance ("IPO");
    • When corporate events are reportable and how;
    • How transactions should be reported where portfolio management has been outsourced;
    • Swaps related to indices.

     

    ESMA Q&As on data reporting under MiFIR is available here.

    What's next?

     

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

  • MiFIR - Commission issues delegated regulation on the trading obligation for certain derivatives

  • Background

    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).

    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).

    In the Draft RTS, the ESMA identified certain interest rate swaps ("IRS") and Index Credit Default Swaps ("CDS") that 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 17 November 2017, based on the Draft RTS, the 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").

    Compared to the Draft RTS, it is to be noted that a second paragraph in Article 1 of the Delegated Regulation has been added as follows:

    "A derivative referred to in Table 1, Table 2 and Table 3 of the Annex shall be deemed to have a tenor of 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 15, 20 or 30 years where the period of time between the date at which the obligations under that contract come into effect and the termination date of that contract equals one of those periods of time, plus or minus five days".

    The Delegated Regulation is available here.

     

    The Annex 1 to the Delegated Regulation is available here.

    What's next?

     

    The final version of the Delegated Regulation (and Annex 1) shall enter into force on the day following that of its publication in the OJEU and shall apply as from 3 January 2018.

  • SFTR - Commission issues draft delegated regulation on fees charged by ESMA to trade repositories

  • Background

    The regulation (EU) 2015/2365 on transparency of securities financing transactions ("SFTs") and of reuse, and amending the regulation (EU) No 648/2012 ("EMIR", available here), applies since 12 January 2016 ("SFTR", available here). SFTR aims at enhancing financial stability by setting out reporting obligations as well as disclosure on these transactions, and on total return swaps in UCITS and AIF’s annual (and semi-annual) reports and prospectuses.

    In this context, the ESMA shall charge the trade repositories ("TRs") fees in accordance with SFTR and in accordance with the delegated acts adopted by the European Commission (the "Commission") pursuant to Article 11(2) of SFTR. Those fees shall fully cover ESMA’s necessary expenditure relating to the registration, recognition and supervision of TRs.

     

    On 20 April 2017, the ESMA submitted its technical advice entitled 'fees to TRs under SFTR and on certain amendments to fees to TRs under EMIR' to the Commission (ESMA70-151-223, the "Technical Advice", available here).

    What's new?

    On 16 November 2017, based most notably on the Technical Advice, the Commission issued its draft delegated regulation supplementing SFTR with regards to fees charged by the ESMA to TRs (Ref. Ares(2017)5597698 – the "Draft").

    In the Draft, the Commission provides for the following information:

    • General provisions on fees (e.g. Article 2 of the Draft defines the applicable turnover of TRs, on the basis of which supervisory fees will be charged);
    • Type of fees to be charged to TRs under EMIR (e.g. registration fee and extension of registration fee, annual supervisory fees for registered TRs and TRs that have extended their registration, fees for third-country TRs);
    • Payment modalities and possible reimbursement of fees;
    • Transitional and final provisions (e.g. Article 13 determines how first-year interim supervisory fees are calculated and to be paid by TRs);
    • Annex 1 to the Draft specifies the calculation method and payment terms for the first-year interim supervisory fees.

    The Draft and corresponding annex 1 are available here.

    What's next?

     

    The final version of the Draft will be subject to the right of the EU Parliament and the Council of the EU to express objections.

  • Sustainability - Commission consults on institutional investors and asset managers' duties

  • Background

    The European Commission ("Commission") commitment to incorporate sustainability elements into EU financial services policies and cross-cutting initiative is ingrained in the mid-term review of the Capital Markets Union action plan ("CMU Mid-Term Review", available here).

    On 13 July 2017, the High-Level Expert Group ("HLEG") published its interim report entitled 'Financing a Sustainable European Economy' which proposed eight early recommendations for policy action on sustainable finance ("Interim Report", available here). In particular, the third recommendation focuses on establishing a 'fiduciary duty that encompasses sustainability'. The HLEG suggests that regulatory authorities need to make clear to all entities involved in the investment and lending chain that the consideration and management of environmental, social and governance ("ESG") risks is integral to fulfilling fiduciary duty, acting loyally to beneficiaries and operating in a prudent manner.

    Against this background, the Commission has started to work on an impact assessment to assess whether and how a clarification of the duties of institutional investors and asset managers in terms of sustainability could contribute to a more efficient allocation of capital, and to sustainable and inclusive growth. For the purpose of the consultation process, sustainability factors refer to ESG issues as defined by the United Nations Environment Programme ("UNEP Note", available here).

    What's new?

    On 13 November 2017, the Commission launched its consultation on institutional investors and asset managers’ duties regarding sustainability (the "Consultation Document").

    The purpose of the Consultation Document is to determine possible action from the Commission to improve the assessment and integration of sustainability factors in the relevant investment entities’ decision-making process. 

    The Consultation Document is available here.

    What's next?

    Comments to the Consultation Documentation shall be submitted to the Commission by 22 January 2018.

     

    As announced in its Work Programme 2018 (available here), the Commission shall adopt an Action Plan on sustainable finance in Q1 2018.

  • LUXEMBOURG

    AIFMD - ALFI responds to European Commission’s consultation on secondary markets for NPLs and accelerated loan security

  • Background

    On 8 June 2011, the European Parliament (the "Parliament") and the Council issued the Directive 2011/61/EU on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFMD", available here). The AIFMD applies since 22 July 2013. The AIFMD provides a robust framework for non-UCITS funds primarily marketed to professional investors ("AIFs").

    AIFs include loan funds which are indirectly governed by the AIFMD. In the EU the loan funds are predominantly located in Luxembourg and in the UK. In Luxembourg they were already set up before the financial crisis of 2008 which provides Luxembourg's industry with experience and expertise in them.

    On 30 September 2015, the European Commission (the "Commission") adopted an action plan on building a capital market union (the "CMU Action Plan" — COM(2015) 468 final, available here) which aims at promoting alternative sources of financing for the European economy. On 8 June 2017, the Commission issued CMU Action Plan's midterm review (COM(2017) 292 final, available here) which announced that the Commission intends to help European banks to overcome challenges of non-performing loans ("NPLs") as the financial crisis and ensuing recessions have left banks in some EU states with particularly high levels of such loans that are subject to late repayment or unlikely to be repaid without requiring the sale of collateral.

    The Commission intended to consider policies that aim to improve the secondary markets for NPLs, which would allow banks to sell their NPLs to a larger pool of investors potentially leading to transaction prices that better reflect the underlying value of the assets. This could lead to cleaned up balance sheets of credit institutions, preparing them to provide new credit to the economy. The Commission also considered strengthening the ability of creditors to recover value from secured loans to corporates and entrepreneurs.

    On 10 July 2017, the Commission published a consultation paper on potential EU actions in the areas of (i) development of secondary markets for NPLs and distressed assets and (ii) protection of secured creditors from borrowers’ default (the "Consultation Paper", available here). The Commission intended to understand the main issues of the EU existing legal tools in recovering value for NPLs and to gather input on ways to improve the secondary markets and more specifically on loan servicing activities by 3rd parties and the transfer of loans away from the originating bank to outside investors.

    On 11 July 2017, the Council of the EU outlined policy actions to help reduce stocks of NPLs in the banking sector and to prevent their future emergence (press release on the "Council's Action Plan" available here).

    What's new?

    On 20 October 2017, the Association of the Luxembourg Fund Industry ("ALFI") published its response to the Consultation Paper (the "Response"). ALFI does not consider that an EU framework regulating certain aspects of the transfer of loans would be useful. Concerning a regulation of 3rd party loan services, ALFI tends to consider that services in this area can today be provided by various entities which are subject to certain licensing requirements and these activities are already regulated subject to wider framework.

    Addressing the creation of an EU framework for NPLs, ALFI stresses the need to ensure that rules comply with what is required in particular under the AIFMD. Any kind of restrictions or additional burdens would rather create an impediment to economic growth.

    ALFI notes that that the Consultation Paper relates to the Council's Action Plan and seeks information focused on the state of secondary markets for NPLs in the EU banking sector. However, ALFI takes opportunity to draw attention to non-bank entities such as investment funds. ALFI highlights that in a low interest rate environment and scarcity of bank credit they have become increasingly involved in capital markets and credit intermediation.

    ALFI suggests that, when considering the creation of an EU framework on NPL’s, it is crucial to preserve the activity of loan funds as credit intermediators within existing legal frameworks. Neither loan origination neither loan participation should be restricted or even negatively impacted.

    ALFI reasons that loan funds being non-bank entities, and providing credit to economic actors, play a significant role in economic growth complying with the goal of the CMU Action Plan. ALFI says that the sector is steadily growing without posing any systemic risks. In other words, the sector’s size is still limited.

    The Response is available here.

    What's next?

    It is expected that the Commission will consider all received responses and produce separate feedback statements on both sections of the Consultation Paper.

  • BMR - CSSF issues press release on indices used as benchmarks

  • 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 (the "BMR", available here).

    Pursuant to Article 29(1) of BMR, supervised entities as defined under Article 3(1)(17) of BMR ("Supervised Entities") may use a benchmark or a combination of benchmarks in the Union if the benchmark is provided by an administrator located in the Union and included in the register referred to in Article 36 of BMR (the "Register") or is a benchmark which is included in the Register.

    According to Article 29(2) of BMR, where the object of a prospectus to be published under Directive 2003/71/EC or Directive 2009/65/EC is transferable securities or other investment products that reference a benchmark, the issuer, offeror, or person asking for admission to trade on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether the benchmark is provided by an administrator included in the Register (the "Information").

    In addition, Supervised Entities that use a benchmark shall produce and maintain robust written plans setting out the actions that they would take in the event that a benchmark materially changes or ceases to be provided. Where feasible and appropriate, such plans shall nominate one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives. The Supervised Entities shall, upon request, provide the relevant competent authority with those plans and any updates and shall reflect them in the contractual relationship with clients in accordance with Article 28(2) of BMR.

    What's new?

    On 30 October 2017, the CSSF issued its press release 17/36 on indices used as benchmarks (the "Press Release").

    In the Press Release, the CSSF reminds most notably Supervised Entities of their future BMR obligations where relevant (e.g. under Articles 28 and 29 of BMR).

    In particular, the CSSF highlights that (i) the Information shall be mentioned in transferable securities’ prospectuses as from 1 January 2018 and that (ii), for UCITS prospectuses approved prior to 1 January 2018 and using benchmarks, the underlying documents shall be updated at the first occasion or at the latest within 12 months after that date. 

    The Press Release is available here (only in French).

    What's next?

     

    Further questions resulting from the BMR provisions can be submitted to benchmark(at)cssf.lu.

  • ICOs - CSSF informs about ESMA's alert to high risks of Initial Coin Offerings

  • Background

    An Initial Coin Offering ("ICO") is an innovative way of raising money from the public, using so-called coins or tokens and can also be called an initial token offering or token sale. In an ICO, a business or an individual issues coins or tokens and puts them for sale in exchange for fiat currencies (e.g. the Euro) or for virtual currencies (e.g. Bitcoin or Ether). The features and purpose of the coins or tokens vary across ICOs.

    Where the coins qualify as financial instruments, it is likely that firms involved in ICOs conduct regulated investment activities, such as placing, dealing or advising on financial instruments or managing or marketing collective investment schemes. Moreover, they may be involved in offering transferable securities to the public.

    Having observed a rapid growth in ICOs, which raise capital for enterprises, the European Securities and Markets Authority (the "ESMA") is concerned that firms involved in ICOs may conduct their activities without complying with applicable law.

    On 13 November 2017, the ESMA issued a statement urging firms involved in ICOs to consider whether their activities constitute regulated investment activities (ESMA50-157-828 ? the ESMA 1st Statement, available here). The ESMA 1st Statement contained a high level summary of key EU law which is likely to apply, it includes Prospectus Directive, MiFiD, AIFMD and AMLD IV.

    ICOs, depending on how they are structured, may fall outside of the regulated space, in which case investors do not benefit from the protection that comes with regulated investments. In this context the ESMA is also concerned that investors may not realise the high risks that they are taking when investing in ICOs.

    On 13 November 2017, the ESMA issued also a statement (ESMA50-157-829 ? the "ESMA 2nd Statement", available here) alerting investors that they are exposed to the following risks when investing in ICOs:

    • Vulnerability to fraud or illicit activities, not excluded, for money laundering;
    • High risk of total loss of the invested capital, especially due to early stage of development of many businesses launching the ICOs;
    • Extreme price volatility and lack of exit options, investors may not be able to exchange the coins to traditional currencies;
    • Inadequate information which can be unaudited, incomplete, unbalanced or even misleading; 
    • Flaws in technology, as distributed ledger of blockchain that underpins the coins is largely untested, it can be difficult to control the coins or the system can be hacked.

    What's new?

    On 16 November 2017, the Commission de Surveillance du Secteur Financier (the "CSSF") published a press release 17/38 to inform investors and other market participants about ESMA 2nd Statement which is setting out risks of so-called ICOs for investors (the "CSSF Press Release").

    The CSSF Press Release is available here.

  • PRIIPs - Implementation Bill 7199 submitted to Parliament

  • Background

    The regulation (EU) No 1286/2014 on key information documents ("KIDs") for packaged retail and insurance-based investment products entered into force on 29 December 2014 and will apply as from 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.

    What's new?

    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").

    In order to operationalize the PRIIPs Regulation in Luxembourg, the Bill designates the CSSF and the CAA (i.e. "Commissariat aux Assurances") as competent authorities to ensure compliance with the PRIIPs Regulation. For this purpose, the CSSF and the CAA shall have the powers of control and investigation necessary for the exercise of their respective tasks, within the limits defined by the said regulation.

    In particular, pursuant to Article 4 of the Bill which exercises the national discretion provided for in Article 5(2) of the PRIIPs Regulation, the CSSF and the CAA can require the ex-ante notification of the KID by PRIIPs manufacturers and persons selling PRIIPs who fall within the scope of their powers. A sanctions regime is also foreseen in accordance with the requirements of the PRIIPs Regulation.

    In the Bill, it should be noted that use is made of the option provided for in Article 32(2) of the PRIIPs Regulation to authorise SICARs (i.e. "Sociétés d'investissement en capital à risque") and undertakings for collective investment other than UCITS to prepare a UCITS KIID rather than a PRIIPs KID until 31 December 2019. Following the exercise of this option, a similar provision of the amended Act of 17 December 2010 concerning undertakings for collective investment shall be repealed.

    The Bill is available here (only in French).

    What's next?

    The Luxembourg Conference of Presidents will order the Bill referral to a parliamentary committee for discussion.

    As regards UCITS, the European Commission review shall assess by 31 December 2018 whether the transitional arrangements under Article 32 of the PRIIPs Regulation shall be prolonged, or whether, following the identification of any necessary adjustments, the provisions on UCITS KIIDs might be replaced by or considered equivalent to the KID under the PRIIPs Regulation.

  • 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, CACEIS Group Legal
    Elisabeth Raisson, CACEIS Group Compliance
    Corinne Brand, CACEIS Group Communications Specialist
    Alice Broussard, CACEIS Compliance and Regulatory Watch

    Special Contribution

    Clemence Dubreuil, Legal (France)
    Mireille Mol, Legal and Compliance (Netherlands)
    Stefan Ullrich, Legal (Germany)
    Robin Donagh, Legal (Ireland)

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

    Design
    Sylvie Revest-Debeuré, CACEIS, Communications

    Photos credit
    Yves Maisonneuve, Yves Collinet, CACEIS, Fotolia

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