CACEIS May 2024


CONTENT

CACEIS

EUROPEAN UNION

Anti-money laundering / Combating the financing of terrorism (AML / CFT)

EBA will start collecting information on natural persons through its AML/CFT database, EuReCA

CACEIS

  • On May 2 2024, the European Banking Authority (EBA) published a press release announcing the start of collecting information on natural persons through its AML/CFT database, EuReCA.

    Starting from May 2024, supervisors across the European Union will be able to report names of natural persons to EuReCA, the EU central database on AML and CFT of the EBA. Through EuReCA, the EBA has been able to contribute to making supervision more informed, targeted and effective. With this step, the EBA will contribute to further strengthening the fight against money laundering (ML) and terrorist financing (TF) in the EU.

    EuReCA contains information on serious AML/CFT deficiencies in individual financial institutions that have been identified by EU supervisors. It also contains information on the measures taken by supervisors to address those deficiencies. If a serious deficiency or a measure is linked to a natural person, for example a customer or a beneficial owner, supervisors will be able to report this information to EuReCA. Supervisors can also report the name of a member of the management body or a key function holder in a financial institution, if necessary, because a lack of honesty or integrity can cause or lead to serious problems in a financial institution’s governance arrangements, business model or activities and ultimately, weaken the institution’s AML/CFT defences.

    Since its launch on January 31 2022, 41 authorities have made more than 1400 reports to EuReCA. On May 2 2024, the European Banking Authority (EBA) published a press release announcing the start of collecting information on natural persons through its anti-money laundering and countering the financing of terrorism (AML/CFT) database, EuReCA.

    Starting from May 2024, supervisors across the European Union will be able to report names of natural persons to EuReCA, the EU central database on AML and CFT of the EBA. Through EuReCA, the EBA has been able to contribute to making supervision more informed, targeted and effective. With this step, the EBA will contribute to further strengthening the fight against money laundering (ML) and terrorist financing (TF) in the EU.

    EuReCA contains information on serious AML/CFT deficiencies in individual financial institutions that have been identified by EU supervisors. It also contains information on the measures taken by supervisors to address those deficiencies.

    If a serious deficiency or a measure is linked to a natural person, for example a customer or a beneficial owner, supervisors will be able to report this information to EuReCA. Supervisors can also report the name of a member of the management body or a key function holder in a financial institution, if necessary, because a lack of honesty or integrity can cause or lead to serious problems in a financial institution’s governance arrangements, business model or activities and ultimately, weaken the institution’s AML/CFT defences.

    Since its launch on January 31 2022, 41 authorities have made more than 1400 reports to EuReCA.

  • EU Council adopts AML package

    CACEIS

  • On May 30 2024, the Council of the European Union adopted an anti-money-laundering (AML) package of rules.

    With the new package, all rules applying to the private sector will be transferred to a new directly applicable regulation, while a directive will deal with the organisation of national competent authorities fighting against money laundering and countering the financing of terrorism (AML/CFT).

    The regulation exhaustively harmonises anti-money laundering rules for the first time throughout the EU, closing loopholes for fraudsters.

    It extends the anti-money laundering rules to new obliged entities, such as most of the crypto-sector, traders of luxury goods and football clubs and agents. The regulation also sets tighter due diligence requirements, regulates beneficial ownership and sets a limit of € 10.000 to cash payments, among other things. 

    The directive will improve the organisation of national anti-money laundering systems setting out clear rules on how financial intelligence units (FIUs - the national bodies which collect information on suspicious or unusual financial activity in member states) and supervisors work together.

    The package sets up a new European Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) that will have direct and indirect supervisory powers over high-risk obliged entities in the financial sector.

    Given the cross-border nature of financial crime, the new authority will boost the efficiency of the AML/CFT framework by creating an integrated mechanism with national supervisors to ensure obliged entities comply with AML/CFT-related obligations in the financial sector. AMLA will also have a supporting role with respect to the non-financial sector, and coordinate and support FIUs.

    In addition to supervisory powers and in order to ensure compliance, in cases of serious, systematic or repeated breaches of directly applicable requirements, the Authority will impose pecuniary sanctions on the selected obliged entities.

    The new anti-money laundering directive also prescribes that EU member states make information from centralised bank account registers – containing data on who has which bank account and where – available through a single access point. As the AML directive will provide access to the single access point only to FIUs, the Council adopted a separate directive to ensure that the national law enforcement authorities will have access to these registers via the single access point. This directive also includes the harmonisation of bank statement format. Such direct access and use of harmonised formats by the banks is an important instrument in fighting criminal offences and in efforts to trace and confiscate the proceeds of crime.

    This is the final step of the adoption procedure. The texts will now be published in the EU’s Official Journal and enter into force.

    The AML regulation will apply three years after the entry into force. Member states will have two years to transpose some parts of the AML directive and three years for others.

    AMLA will be based in Frankfurt and start operations in mid-2025.

  • Artificial Intelligence Act (AIA)

    EU Council adopts AI Act

    CACEIS

  • On May 21 2024, the Council of the European Union adopted the Artificial Intelligence (AI) Act.

    The flagship legislation follows a ‘risk-based’ approach, which means the higher the risk to cause harm to society, the stricter the rules. It is the first of its kind in the world and can set a global standard for AI regulation. 

    The new law aims to foster the development and uptake of safe and trustworthy AI systems across the EU’s single market by both private and public actors. At the same time, it aims to ensure respect of fundamental rights of EU citizens and stimulate investment and innovation on artificial intelligence in Europe. The AI act applies only to areas within EU law and provides exemptions such as for systems used exclusively for military and defence as well as for research purposes.

    The new law categorises different types of artificial intelligence according to risk. AI systems presenting only limited risk would be subject to very light transparency obligations, while high-risk AI systems would be authorised, but subject to a set of requirements and obligations to gain access to the EU market. AI systems such as, for example, cognitive behavioural manipulation and social scoring will be banned from the EU because their risk is deemed unacceptable. The law also prohibits the use of AI for predictive policing based on profiling and systems that use biometric data to categorise people according to specific categories such as race, religion, or sexual orientation. 

    The AI act also addresses the use of general-purpose AI (GPAI) models.

    GPAI models not posing systemic risks will be subject to some limited requirements, for example with regard to transparency, but those with systemic risks will have to comply with stricter rules. 

    To ensure proper enforcement, several governing bodies are set up:

    • An AI Office within the Commission to enforce the common rules across the EU;
    • A scientific panel of independent experts to support the enforcement activities;
    • An AI Board with member states’ representatives to advise and assist the Commission and member states on consistent and effective application of the AI Act;
    • An advisory forum for stakeholders to provide technical expertise to the AI Board and the Commission.

    The fines for infringements to the AI act are set as a percentage of the offending company’s global annual turnover in the previous financial year or a predetermined amount, whichever is higher. SMEs and start-ups are subject to proportional administrative fines. 

    Before a high-risk AI system is deployed by some entities providing public services, the fundamental rights impact will need to be assessed. The regulation also provides for increased transparency regarding the development and use of high-risk AI systems. High-risk AI systems, as well as certain users of a high-risk AI system that are public entities will need to be registered in the EU database for high-risk AI systems, and users of an emotion recognition system will have to inform natural persons when they are being exposed to such a system.

    The AI act provides for an innovation-friendly legal framework and aims to promote evidence-based regulatory learning. The new law foresees that AI regulatory sandboxes, enabling a controlled environment for the development, testing and validation of innovative AI systems, should also allow for testing of innovative AI systems in real world conditions. 

    After being signed by the presidents of the European Parliament and of the Council, the legislative act will be published in the EU’s Official Journal in the coming days and enter into force twenty days after this publication. The new regulation will apply two years after its entry into force, with some exceptions for specific provisions. 

  • EC establishes AI Office to strengthen EU leadership in safe and trustworthy AI

    CACEIS

  • On May 29 2024, the European Commission established the Artificial Intelligence (AI) Office to strengthen EU leadership in safe and trustworthy AI.

    The Commission has unveiled the AI Office, established within the Commission. The AI Office aims at enabling the future development, deployment and use of AI in a way that fosters societal and economic benefits and innovation, while mitigating risks. The Office will play a key role in the implementation of the AI Act, especially in relation to general-purpose AI models. It will also work to foster research and innovation in trustworthy AI and position the EU as a leader in international discussions.

    The AI office is composed of:

    • Regulation and Compliance Unit that coordinates the regulatory approach to facilitate the uniform application and enforcement of the AI Act across the Union, working closely with Member States. The unit will contribute to investigations and possible infringements, administering sanctions;
    • Unit on AI safety focusing on the identification of systemic risks of very capable general-purpose models, possible mitigation measures as well as evaluation and testing approaches;
    • Excellence in AI and Robotics Unit that supports and funds research and development to foster an ecosystem of excellence. It coordinates the GenAI4EU initiative, stimulating the development of models and their integration into innovative applications;
    • AI for Societal Good Unit to design and implement the international engagement of the AI Office in AI for good, such as weather modelling, cancer diagnoses and digital twins for reconstruction;
    • AI Innovation and Policy Coordination Unit that oversees the execution of the EU AI strategy, monitoring trends and investment, stimulating the uptake of AI through a network of European Digital Innovation Hubs and the establishment of AI Factories, and fostering an innovative ecosystem by supporting regulatory sandboxes and real-world testing.

    The AI Office will be led by the Head of the AI Office and will work under the guidance of a Lead Scientific Adviser to ensure scientific excellence in evaluation of models and innovative approaches, and an Adviser for international affairs to follow up on our commitment to work closely with international partners on trustworthy AI.

    The AI Office will employ more than 140 staff to carry out its tasks. The staff will include technology specialists, administrative assistants, lawyers, policy specialists, and economists.

    The office will ensure the coherent implementation of the AI Act. It will do this by supporting the governance bodies in Member States. The AI Office will also directly enforce the rules for general-purpose AI models. In cooperation with AI developers, the scientific community and other stakeholders, the AI Office will coordinate the drawing up of state-of-the-art codes of practice, conduct testing and evaluation of general-purpose AI models, request information as well as apply sanctions, when necessary.

    To ensure well-informed decision-making, the AI Office will collaborate with Member States and the wider expert community through dedicated fora and expert groups. At EU-level the AI Office will work closely with the European Artificial Intelligence Board composed of representatives of Member States. The Scientific Panel of independent experts will ensure a strong link with the scientific community and further expertise will be gathered in an Advisory Forum, representing a balanced selection of stakeholders, including industry, startups and SMEs, academia, think tanks and civil society.

    The AI Office will promote an innovative EU ecosystem for trustworthy AI. It will contribute to this by providing advice on best practices and enabling access to AI sandboxes, real-world testing and other European support structures for AI uptake, such as the Testing and Experimentation Facilities in AI, the European Digital Innovation Hubs, and the AI Factories. It will support research and innovation activities in the field of AI and robotics and implements initiatives, such as GenAI4EU, to ensure that AI general-purpose models made in Europe and trained through EU supercomputers are finetuned and integrated into novel applications across the economy, stimulating investment.

    Finally, the AI Office will ensure a strategic, coherent and effective European approach on AI at the international level, becoming a global reference point.

    The organisational changes outlined above will take effect on June 16 2024. The first meeting of the AI Board should take place by the end of June. The AI Office is preparing guidelines on the AI system definition and on the prohibitions, both due six months after the entry into force of the AI Act. The Office is also getting ready to coordinate the drawing up of codes of practice for the obligations for general-purpose AI models, due 9 months after entry into force.

  • Capital requirements / CRD / CRR / Basel III/IV

    EU Council adopts CRR III and CRD VI

    CACEIS

  • On May 30 2024, the Council of the European Union adopted Capital Requirements Regulation III (CRR III) and Capital Requirements Directive VI (CRD VI).

    The Council adopted new rules aimed at making banks operating in the EU more resilient to possible economic shocks. The changes aim to increase the resilience of banks, strengthen their supervision and reinforce risk management. In addition they will strengthen supervision and sustainability in the banking sector.

    The new rules update the capital requirements regulation and the capital requirements directive that translate the Basel III standards into EU legislation.  

    The reforms’ main feature is the introduction of an "output floor" that limits the risk of excessive reductions in banks’ capital requirements and, makes those requirements more comparable. The output floor sets a lower limit on the capital requirements that are determined in accordance with banks’ internal models to 72,5% of the capital requirements that would apply if they used standardised measurements.

    Beyond the implementation of Basel III standards, the new rules harmonise minimum requirements applicable to the authorisation of branches of third-country banks and the supervision of their activities in the EU.

    They also set a transitional prudential regime for crypto assets and introduce amendments to enhance banks' management of Environmental, Social and Governance (ESG) risks.

    This is the last step of the adoption procedure. The amended capital requirements regulation and capital requirements directive will now be published in the EU’s Official Journal and enter into force 20 days later. Member states will have 18 months to transpose the directive into national legislation. The regulation will apply from January 1 2025. 

  • European Market Infrastructure Regulation (EMIR)

    ESMA updates its Q&A on EMIR

    CACEIS

  • On May 27 2024, the European Securities and Markets Authority (ESMA) updated its Q&A on European Market Infrastructure Regulation (EMIR).

    The questions include the following:

    • For the purpose of reporting under EMIR REFIT, how should OTC accumulator contracts – i.e., derivative contracts in which the buyer enters into an agreement to purchasing a predetermined number of underlying financial instruments at a predefined price, per day - over a specified ‘accumulation’ period, be classified?
      How should these contracts be reported under EMIR REFIT?
    • Should the price field at position level be amended following a change in the notional amount?
  • Financial Data Access Regulation (FIDA)

    EP ECON adopts text on FIDA proposal

    CACEIS

  • On May 18 2024, the European Parliament's Committee on Economic and Monetary Affairs (ECON) adopted the text on the Financial Data Access Regulation (FIDA) proposal.

    The framework would be established for the access of customer data processed by financial institutions across the financial sector beyond payment account data. Based on owner’s permission, their data (including holdings of savings and investments in financial instruments and insurance-based investment products as well as data collected for the purposes of carrying out a suitability and appropriateness assessment) would be made available in order to develop and provide tailor-made and data-driven financial products and services.

    For smaller companies the access to data would be useful when attracting new customers, lowering costs and barriers of entry thus increasing competition and innovation for financial products and services. Customers would decide how and by whom their financial data is used. The access should be based on customers’ explicit permission and data users would have to specify what they intend to make with them. The data could not be transferred to a third-party without permission. Moreover a consent could be withdrawn at any time and free of charge.

    Financial data access scheme members, including data holders and data users, should be required to agree on the contractual liability for potential data breaches, which foresees customer compensation in case data was misused, for instance if data was to be transferred to a third-party without the customer’s explicit permission.

    Processing of personal data in the context of the new rules should be carried out in accordance with the existing EU legislation (GDPR). Data related to sickness and health cover would be excluded from the scope, as well as confidential business data and undisclosed know-how. MEPs also decided that the large digital platforms designated as Gatekeepers pursuant to the Digital Markets Act should not be eligible to become financial information service providers.

    MEPs proposed the data access by way of high-quality technical interfaces and agreed that data holders and data users should be allowed to use existing market standards and infrastructures for technical interfaces like application programming interfaces when developing common standards for mandatory data access. Data holders should be able to request reasonable compensation from data users for costs incurred in providing access and those related to putting in place and maintaining application programming interfaces.

    The EBA should establish a register of authorised financial information service providers, as well as financial data access schemes agreed between data holders and data users. Finally, MEPs want to give 12 more months to small firms to apply the rules, to ensure their proportional involvement.

    The file will be followed up by the new Parliament after the 6-9 June European elections.

  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    ESMA publishes call for evidence on review of UCITS Eligible Assets Directive

    CACEIS

  • On May 7 2024, the European Securities and Markets Authority (ESMA) published a call for evidence on the review of the Undertakings for Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive (EAD).

    The objective of this call is to gather information from stakeholders to assess possible risk and benefits of UCITS gaining exposure to various asset classes.

    Investors and consumer groups interested in retail investment products, management companies of UCITS, self-managed UCITS investment companies, depositaries of UCITS and trade associations are invited to provide their feedback on market practices and interpretation or practical application issues with respect to the eligibility criteria and other provisions set out in the UCITS EAD.  

    ESMA is additionally interested in gathering insights on some key notions and definitions used in the UCITS EAD and their transversal consistency with other pieces of legislation in the EU Single Rulebook.  

    UCITS are the key retail investment product in the EU, accounting for around 75% of all collective investments by retail investors. The acclaimed success of UCITS as a global brand is based on their established reputation of being well-regulated and supervised investment products. Most notably, UCITS shall be invested in assets subject to stringent eligibility criteria with a view to ensuring adherence to the investor protection principles underlying the UCITS Directive. 

    Since the adoption of the UCITS EAD almost two decades ago, the number and variety of financial instruments traded on financial markets has increased considerably, leading to uncertainty in determining whether some categories of assets are eligible for investment, in turn giving rise to divergent interpretations and market practices in terms of the application of the UCITS Directive.  

    ESMA’s technical advice on the review of the UCITS EAD therefore aims to preserve and strengthen the well-functioning of the UCITS framework and the operation of UCITS in the best interest of investors, as well as the quality of investment products offered to retail investors.  

    ESMA will consider all feedback received by August 7 2024.

  • ESMA updates its Q&A on AIFMD

    CACEIS

  • On May 8 2024, the European Securities and Markets Authority (ESMA) updated its Q&A on Alternative Investment Fund Managers Directive (AIFMD).

    The questions are as follows:

    • Where a manager applies an additional reference indicator to the performance fee model (e.g.: a hurdle rate on top of the High-Water Mark model or the benchmark model), should the minimum performance reference period be applied to the additional reference indicator?
      Answer: The minimum performance reference period in accordance with paragraph 40-42 of the Guidelines should be applied to the performance fee model. However, the manager is not required to apply the minimum performance reference period to the additional reference indicator, considering that (a) the final combination (i.e.: the performance fee model plus the additional reference indicator) does not result in increased fees for investors compared to the use of the performance fee model alone and (b) the performance fee model (excluding the additional reference indicator) is consistent with the fund’s investment objectives, strategy and policy, in line with Guideline 2. In line with paragraph 46 of guidelines, appropriate disclosure should be provided in the prospectus.
    • Can the manager of a Fund of Funds (FoF) charge performance fees?
      Answer: In line with paragraph 18 of the Guidelines, the manager of a FoF should be able to demonstrate to the NCA that the performance fee model of a fund it manages constitutes a reasonable incentive for the manager and is aligned with investors’ interests. Against this background, as a general principle, where the investment policy of a FoF requires the active management of the FoF and the determination of the allocation in the underlying funds has a material impact on the FoF performance, performance fees for the manager of the FoF could be considered as justified. The assessment on how performance fees are justified in light of the investment policy of the FoF should be reflected in the fund documentation, including the fund rules or the instruments of incorporation and may be reviewed, where needed, by the NCA on a case-by-case basis. 
  • ESMA updates its Q&A on UCITS

    CACEIS

  • On May 27 2024, the European Securities and Markets Authority (ESMA) updated its Q&A on Undertakings for Collective Investment in Transferable Securities Directive (UCITS).

    The questions are as follows:

    • Where a manager applies an additional reference indicator to the performance fee model (e.g.: a hurdle rate on top of the High-Water Mark model or the benchmark model), should the minimum performance reference period be applied to the additional reference indicator?
      The minimum performance reference period in accordance with paragraph 40-42 of the Guidelines should be applied to the performance fee model. However, the manager is not required to apply the minimum performance reference period to the additional reference indicator, considering that (a) the final combination (i.e.: the performance fee model plus the additional reference indicator) does not result in increased fees for investors compared to the use of the performance fee model alone and (b) the performance fee model (excluding the additional reference indicator) is consistent with the fund’s investment objectives, strategy and policy, in line with Guideline 2. In line with paragraph 46 of guidelines, appropriate disclosure should be provided in the prospectus.
    • Can the manager of a Fund of Funds (FoF) charge performance fees?
      In line with paragraph 18 of the Guidelines, the manager of a FoF should be able to demonstrate to the NCA that the performance fee model of a fund it manages constitutes a reasonable incentive for the manager and is aligned with investors’ interests. Against this background, as a general principle, where the investment policy of a FoF requires the active management of the FoF and the determination of the allocation in the underlying funds has a material impact on the FoF performance, performance fees for the manager of the FoF could be considered as justified. The assessment on how performance fees are justified in light of the investment policy of the FoF should be reflected in the fund documentation, including the fund rules or the instruments of incorporation and may be reviewed, where needed, by the NCA on a case-by-case basis. 
  • Market Abuse Directive & Regulation (MAD / MAR)

    ESMA reminds of rules for sharing information during pre-close calls

    CACEIS

  • On May 29 2024, the European Securities and Markets Authority (ESMA) published a statement reminding on rules for sharing information during pre-close calls.

    “Pre-close calls” are communication sessions between an issuer and an analyst or group of analysts who generate research, forecasts, and recommendations related to the issuer’s financial instruments for their clients. These “pre-close calls” usually take place immediately before the periods preceding an interim or a year-end financial report during which issuers refrain from providing any additional information or updates. “Pre-close calls” can influence market expectations and instrument prices.

    Following some recent news in the media suggesting a connection between episodes of high volatility in share prices and “pre-close calls”, ESMA reminds issuers that any disclosure of inside information should only take place in accordance with the Market Abuse Regulation (MAR). Consequently, issuers should only share non-inside information during these “pre-close calls”.

    To address potential concerns related to pre-close calls, ESMA recommends following several good practices, including:

    • Prior to a “pre-close call”, carrying out an assessment of the information intended to disclose, making sure that it is not inside information; 
    • Informing the public about the upcoming “pre-close calls” on the issuer’s website, highlighting the relevant details (date, place, topics and participants); 
    • Making the material and documents used simultaneously available on the issuer’s website. 

    ESMA also notes that the analysis of specific episodes and identification of potential breaches of MAR is for NCAs.

  • Markets in financial instruments Directive and Regulation (MiFID II / MiFIR)

    EU publishes Commission Notice on the interpretation and implementation of the transitional provision laid down in the new MiFIR

    CACEIS

  • On May 2 2024, the European Union published a Commission Notice on the interpretation and implementation of the transitional provision laid down in Regulation (EU) 2024/791 amending Regulation (EU) No 600/2014 as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising the trading obligations and prohibiting receiving payment for order flow.

    Regulation (EU) No 600/2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MiFIR) is amended by Regulation (EU) 2024/791 (MiFIR review). This interpretative notice aims to clarify the transitional arrangement set out in Article 54(3) of MiFIR as amended by the MiFIR review.

    Several provisions in the MiFIR review need to be supplemented by Commission delegated regulations to become fully operational. Article 54(3) MiFIR aims to ensure continuity for market participants while the new Commission delegated regulations are being prepared. Pursuant to Article 54(3) MiFIR, the existing Commission delegated regulations continue to apply. In some cases, the new MiFIR provisions are to be supplemented by new or amended Commission delegated regulations to become fully operational and cannot be supplemented adequately by the existing Commission delegated regulations, due to the differences between the new MiFIR provisions and the MiFIR provisions that the existing Commission delegated regulations supplement, as applicable before March 28 2024. In those cases, it follows from Article 54(3) MiFIR that the existing delegated regulations continue to apply together with the MiFIR provisions that they supplement, as applicable before March 28 2024.

    • The volume cap mechanism (Article 5 MiFIR)
      Article 5 MiFIR on the single volume cap mechanism sets the threshold below which equity trading under the reference price waiver is allowed. Article 5 MiFIR is to be supplemented by a Commission delegated regulation defining how ESMA collates, calculates and publishes the transaction data required to calculate the single volume cap. As the single volume cap is calculated on the basis of a data set that is different from the data set used for the calculation of the double volume cap, the new single volume cap cannot be supplemented adequately by Commission delegated regulation (EU) 2017/577 (‘RTS 3’). In consequence, pursuant to Article 54(3) MiFIR, the rules on the double volume cap, as specified in RTS 3, continue to apply. The single volume cap will become applicable as from the date of application of the Commission delegated regulation adopted pursuant to Article 5(9) MiFIR.
    • Deferred publication of the details of transactions in respect of bonds, structured finance products or emission allowances and deferred publication of the details of transactions in respect of derivatives (Articles 11 and 11a MiFIR)
      Articles 11 and 11a MiFIR set out rules concerning the deferred publication of the details of transactions executed in respect of bonds, structured finance products, emission allowances and derivatives. Articles 11 and 11a MiFIR are to be supplemented by Commission delegated regulations defining the calibration of the deferral schedules. As the MiFIR review has significantly amended the criteria to define such calibration, Articles 11 and 11a MiFIR cannot be supplemented adequately by Commission delegated regulation (EU) 2017/583 (RTS 2). In consequence, pursuant to Article 54(3) MiFIR, the deferral rules as applicable before 28 March 2024, as specified in RTS 2, continue to apply. The new deferral schedules for bonds, structured finance products, emission allowances and derivatives will apply as of entry into application of the Commission delegated regulations adopted pursuant to Articles 11(4) and 11a(3) MiFIR respectively.
    • Obligation to make pre-trade and post-trade data available on a reasonable commercial basis (Article 13 MiFIR)
      Article 13 MiFIR requires market operators, investment firms operating a trading venue, approved publication arrangements, consolidated tapes and systematic internalisers (SIs) to make the pre-trade and post-trade information on transactions in financial instruments available to the public on a reasonable commercial basis and to ensure non-discriminatory access to that information. Article 13 MiFIR is to be supplemented by a Commission delegated regulation specifying a number of elements, in particular what is to be included in the calculation of cost and reasonable margin. As the MiFIR review introduces a new principle according to which users cannot be charged based on the value that the data represents to them, Article 13 MiFIR cannot be supplemented adequately by Commission delegated regulation (EU) 2017/565 and Commission delegated regulation (EU) 2017/567. In consequence, pursuant to Article 54(3) MiFIR, the obligation to make pre- and post-trade data available on a reasonable commercial basis as applicable before 28 March 2024, as specified in the relevant provisions of Commission delegated regulation (EU) 2017/565, Commission delegated regulation (EU) 2017/567 and ESMA guidelines (ESMA70-156-4263), continues to apply. The amended obligation to make pre-trade and post-trade data available on a reasonable commercial basis will apply as of entry into application of the Commission delegated regulation adopted pursuant to Article 13(5) MiFIR.
    • Quotation rules for SIs in equity instruments (Article 14 MiFIR)
      Article 14 MiFIR delegates to a new Commission delegated regulation the definition of the minimum quote size as well as of the threshold below which pre-trade transparency rules apply to SIs in equity instruments. Commission delegated regulation (EU) 2017/587 only defines the methods to determine the standard market size. However, it does not contain any indication as to the minimum quote size and the threshold below which pre-trade transparency rules apply to equity SIs (both elements being defined in Article 14 as applicable before 28 March). Article 14 MiFIR therefore cannot be supplemented adequately by Commission delegated regulation (EU) 2017/587. In consequence, pursuant to Article 54(3) MiFIR, the quotation rules for SIs in equity instruments, as applicable before March 28 2024, as specified in the relevant provisions of Commission delegated regulation (EU) 2017/587, continue to apply. The new quotation rules for SIs will apply as of entry into application of the Commission delegated regulation adopted pursuant to Article 14(7) MiFIR.
    • The obligation to report transactions (Article 26 MiFIR)
      Article 26 MiFIR sets out rules on the obligation for investment firms which execute transactions in financial instruments to report the details of such transactions to the competent authority. Article 26 MiFIR is to be supplemented by a Commission delegated regulation that will specify which financial instruments that have an index as the underlying need to be reported as well as modify certain details of the transactions to be reported. Article 26 MiFIR therefore cannot be supplemented adequately by Commission delegated regulation (EU) 2017/590 (RTS 22). In consequence, pursuant to Article 54(3) MiFIR, the rules on transaction reporting as applicable before March 28 2024, as specified in RTS 22, continue to apply. The new transaction reporting rules apply as of entry into force of the Commission delegated regulation adopted pursuant to Article 26(9) MiFIR.
  • ESMA publishes Consultation on non-equity trade transparency, RCB and reference data under MiFIR review

    CACEIS

  • On May 21 2024, the European Securities and Markets Authority (ESMA) published a consultation on non-equity trade transparency, reasonable commercial basis (RCB) and reference data under the Markets in Financial Instruments Regulation (MiFIR) review.

    The final legislative amending text of MiFIR (MiFIR review) was published in the Official Journal of the European Union on March 8 2024 and entered into force on March 28 2024. The MiFIR review requires ESMA to develop new draft Regulatory Technical Standards (RTS) and to propose revisions to existing RTS.

    This consultation paper includes draft technical standards related to pre- and post-trade transparency requirements for non-equity instruments under Articles 9, 11 and 20 of the MiFIR review. In addition, the consultation paper covers the mandate under Article 13 in relation to the obligation to make pre-and post-trade data available on a reasonable commercial basis (RCB). Finally, it also covers the mandate under Article 27 of the MiFIR review on the obligation to supply instrument reference data.

    Respondents to this consultation are encouraged to provide the relevant background information, and qualitative and quantitative data on costs and benefits, as well as concrete redrafting proposals, to support their arguments where alternative ways forward are called for. If respondents envisage any technical difficulties in implementing the proposed requirements, they are encouraged to provide details regarding the specific technical and operational challenges and specify the costs involved, which are important for the cost-benefit analysis.

    This consultation paper contains three different sections each covering one draft technical standard: (1) the amendment of RTS 2 in relation to non-equity transparency; (2) the draft RTS on RCB; and, the amendment to RTS 23 in relation to reference data.

    The RTS 2 amendment section includes an introduction covering the mandate and scope of the proposed amendments to RTS 2. It also includes ESMA’s proposals on pre-trade transparency, in particular in relation to the definition and characteristics of central limit order books (CLOB) and periodic auctions, and limited amendments to the pre-trade waiver regime. In addition, it covers the mandate under Article 11 of MiFIR in relation to the deferral regime for bonds, structured finance products and emission allowances. Finally, the RTS 2 amendment also suggests some changes to specific transparency fields.

    The RTS on RCB section introduces the ESMA mandate and background for the provision of market data. The proposed new RTS converts the ESMA guidelines on cost of market data into legal obligations. It furthermore strengthens the provisions with the aim of ensuring that market data users are not charged for market data according to the value that the market data represents to them. It includes proposals on the RCB and unbiased and fair contractual terms based on which the relevant market data needs to be made available. In addition, the RTS contains provisions to ensure non-discriminatory access to the relevant information and specifies that the relevant data policies should be made public free of charge and in a manner which will make it easy to access and to understand these. The RTS concludes with proposing the relevant reporting to the competent authorities.

    The consultation on the amendment to RTS 23 includes Section 13 which presents the legal mandate and explains how ESMA is planning to address the provisions set therein. Section 14 outlines the background to the proposals and includes questions for respondents’ consideration.

    Finally, Section 15 includes the annexes with the list of all questions formulated in this consultation, legal mandate, note on cost-benefit analysis and draft regulatory technical standards.

    On the basis of the feedback received to this consultation paper ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of Q4 2024.

    ESMA will consider all comments received by August 28 2024.

  • ESMA publishes Report on the application of MiFID II marketing requirements

    CACEIS

  • On May 27 2024, the European Securities and Markets Authority (ESMA) published a final report on the 2023 Common Supervisory Action (CSA) and Mystery Shopping Exercise (MSE) on marketing.

    In 2023 ESMA launched a CSA with National Competent Authorities (NCAs) and a MSE on the application of MiFID II disclosure requirements with regard to marketing communications. An important aspect of this exercise is to learn from each other’s approach on how to conduct supervisory activities related to marketing communications (including advertisements).

    The 2023 CSA covered firms’ internal policies, processes and procedures adopted to ensure compliance with MiFID II requirements applicable to marketing communications including advertisements (in addition, the CSA considered governance aspects such as questions on the role of control functions and senior management). Part of the assessment of the NCAs for both the CSA and the complementary MSE was to review examples of marketing communications (including advertisements) and to assess their compliance with MiFID II disclosure requirements.

    Both the CSA and MSE have been used to gather evidence on the topic of greenwashing.

    This report sets out ESMA’s analysis and conclusions on the CSA and MSE and presents ESMA’s views on the findings. It concludes with the follow-up actions envisaged by NCAs.

    Section 2 explains the background and organisation of the exercises, Sections 3 and 4 set out the CSA’s main findings complemented by the findings of the MSE.

    More specifically, section 3 focusses on the organisation and procedures related to marketing, this includes processes and procedures regarding the drafting, approval and review of marketing communications including advertisements. The section also covers outsourcing arrangements in place, the recordkeeping and complaints handling and finally a part is included on the preapproval of marketing material by two NCAs.

    Section 4 reports on the findings related to the review of the contents of marketing communications including advertisements to clients and potential clients, and whether they comply with MiFID II requirements.

    Section 5 includes follow-up actions planned and or taken by NCAs and next steps.

    Building on the findings of both the CSA and MSE exercises, ESMA will continue liaising with NCAs on this topic and exchange on their (planned) follow-up actions.

  • ESMA updates its Q&A on MiFIR

    CACEIS

  • On May 27 2024, the European Securities and Markets Authority (ESMA) updated its Q&A on Markets in Financial Instruments Regulation (MiFIR).

    The question is as follows:

    How should accumulators - i.e. derivative contracts whereby the buyer commits to buy a predefined number of underlying financial instruments at a predefined price, per day, over a certain “accumulation” period - be classified?

    Should the IF report the single transactions executed when settling the accumulator contract?

    Should the IF report the transactions concluded with third parties to secure the financial instruments to be sold to the accumulator’s buyer?

    How should the accumulator contract be reported?

  • ESMA provides Guidance to firms using artificial intelligence in investment services

    CACEIS

  • On May 30 2024, the European Securities and Markets Authority (ESMA) published a public statement on use of artificial intelligence (AI) in provision of retail investment services.

    When using AI, ESMA expects firms to comply with relevant Markets in Financial Instruments Directive (MiFID) II requirements, particularly when it comes to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

    Although AI technologies offer potential benefits to firms and clients, they also pose inherent risks, such as:

    • Algorithmic biases and data quality issues;
    • Opaque decision-making by a firm’s staff members;
    • Overreliance on AI by both firms and clients for decision-making; and 
    • Privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

    Potential uses of AI by investment firm which would be covered by requirements under MiFID II include customer support, fraud detection, risk management, compliance, and support to firms in the provision of investment advice and portfolio management. 

    The use of AI in investment services presents both opportunities and challenges. Upholding MiFID II requirements and prioritising clients' best interests serve as guiding principles for investment firms leveraging AI. By fostering transparency, implementing robust risk management practices, and compliance with legal requirements, ESMA would aim to help firms ensure they harness the potential of AI while safeguarding investors' confidence and protection.

    This statement serves the purpose of initial guidance to firms on this key topic in light of MiFID II relevant obligations. Investment firms are encouraged to seek further resources and engage with their supervisory authorities to navigate complex AI-related challenges effectively.

    ESMA and the National Competent Authorities (NCAs) will keep monitoring the use of AI in investment services and the relevant EU legal framework to determine if further action is needed in this area.

  • Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT Regulation)

    ESMA publishes Letter from EC on DLT Pilot Regime

    CACEIS

  • On May 7 2024, the European Securities and Markets Authority (ESMA) published a letter from the European Commission on the Distributed ledger technology (DLT) Pilot Regime.

    The Commission has observed with interest an increasing degree of engagement of the financial industry with DLT in recent months. In this context, it is very important that the DLT Pilot Regime creates and maintains the space for European businesses to innovate in the areas of asset tokenisation and market infrastructure. 

    There is no expiration date for the DLT Pilot Regime. As with any other EU legislation, changes to the Regime – and this includes its termination - may only occur if, in accordance with its Article 14(2), the Commission were to submit a new legislative proposal and if that proposal were to be agreed by the co-legislators. In other words, if no proposal is made and adopted to amend the Regime, the framework will continue to apply in its current form. And at this stage, no proposal to terminate the regime is envisaged. The Commission remains fully committed to the Regime and its policy objective of fostering DLT-based innovation in financial markets.

  • Regulation on digital operational resilience for the financial sector (DORA)

    AFME publishes Paper on DORA compliance, untangling key hurdles to implementation

    CACEIS

  • On May 22 2024, the Association for Financial Markets in Europe (AFME) published a paper on Digital Operational Resilience Act (DORA) compliance, untangling key hurdles to implementation.

    The DORA (Regulation (EU) 2022/2554) took effect on January 16 2023, with final industry compliance required by January 17 2025. The regulation underscores the importance of digital operational resilience in today’s increasingly interconnected and digitised landscape and seeks to expand the reach of European regulators incorporating both financial institutions that operate in Europe and providers of information and communication technology (ICT) to these firms. Compliance with DORA is a top priority given financial entities’ dependence on ICT, including third-party ICT service providers, as well as the heightened focus on ICT and cyber-related risks impacting these third parties.

    Understanding the full implications of the DORA text and aligning with its intent have been challenging for many financial institutions despite being more than a year into implementation. Finalised standards are expected on July 17 2024, providing firms with six months to analyse the text amendments, assess feasibility of available options, and implement the requirements. Following this, it may take additional months before the European Commission publishes the final Delegated Regulations, as was the case with the first batch of Technical Standards. Firms will likely choose not to wait for the release of the Commission Delegated Regulations to begin compliance, hence firms will face a degree of uncertainty until they are published.

    With the deadline for compliance rapidly approaching, there are some concerns with firms’ abilities to respond to and apply the DORA requirements by the implementation date, particularly for firms that had not already built most of the required capabilities.

    The five key concerns are as follows:

    • Constraints with obtaining data points and conducting analysis may lead to excessive reporting, detracting from the effective management of ICT-related incidents.
    • The large volume of potentially in-scope ICT third-party providers, lack of automation and extensive amount of information pose challenges and, in some cases, complexities fulfilling the third-party risk management requirements, including contract management and completion of the register of information.
    • The potentially broad scope of threat-led penetration testing (TLPT) and the involvement of third-party providers in the scope of a firm’s TLPT could place pressure on firms’ ability to manage the TLPT exercise.
    • The broad nature of DORA definitions and questions concerning the notion of proportionality result in an overly expansive scope, which could lead to extensive time and effort required to comply.
    • The January 2025 compliance date may be impractical for some firms without a proportionate approach to supervision and enforcement.
  • EU publishes Delegated Regulation 2024/1502 supplementing DORA by specifying the criteria for the designation of critical ICT third-party service providers

    CACEIS

  • On May 30 2024, the European Union published a Commission Delegated Regulation 2024/1502 supplementing DORA specifying the criteria for the designation of critical ICT third-party service providers.

    To assess whether an ICT third-party service provider is critical for financial entities, and taking into account the criteria set out in Article 31(2) of the DORA, the European Supervisory Authorities (ESAs) should use sub-criteria in a two-step approach assessment. Considering the important number of ICT services and the diversity and number of financial institutions using those services, such a two-step approach should be undertaken to filter the population of ICT third-party service providers and identify the most critical ICT third-party service providers. The quantitative sub-criteria that are to be considered as part of the first step of the assessment are necessary to carry out a first selection of the population of ICT third-party service providers for which it is relevant to carry out a further in-depth analysis in light of the qualitative sub-criteria that are to be considered as part of the second step of the assessment.

    The extent to which an ICT service provided by an ICT third-party service provider supports critical or important functions of the financial entity is considered a crucial element of the criticality assessment in general. Therefore, the importance of the activities of the financial entities that are supported by ICT services should be integrated in all sub-criteria considered as part of the first step. Consequently, there should not be a distinct quantitative assessment related to the criticality of the functions of the financial entities as part of the first step of the assessment. Instead, it is appropriate that the ESAs consider the criticality and importance of the functions of the financial entities supported by ICT services as part of the qualitative second step of the assessment

    The assessment should be carried out per individual ICT third-party service provider or, where applicable, per group of ICT third-party services providers in case the ICT third-party service provider belongs to a group as per Article 31(3) of the DORA. In order to enable a comprehensive assessment of the potential systemic impact on the Union financial sector, ICT subcontractors of ICT third-party service providers should also be subject to the assessment by the ESAs, and where applicable, designated as critical ICT third-party service providers.

    To determine the systemic impact of the ICT third-party service provider on the stability, continuity or quality of the provision of financial services it is of paramount importance to develop a clear view on the extent and nature of systemic impact which a large-scale operational failure of an ICT third-party service provider would have on financial entities, which rely on services provided by an ICT third-party service provider, and on the financial system. Therefore, it is appropriate to consider the number of financial entities of a specific category of financial entities using the same ICT services, as well as the value of their assets to assess whether it is relevant to consider the ICT third-party service provider offering those ICT services as critical. Furthermore, a qualitative assessment of the systemic importance and interconnectedness of ICT third-party service providers, as well as the importance of the services provided by an ICT third-party provider on financial entities’ provision of financial services taking into account the stability and the continuity of the services should be carried out to determine the systemic impact of the ICT third-party service provider on the activities of financial entities.

    To determine the systemic character and importance of the financial entities relying on the ICT services, it is necessary to take into account the nature of those financial entities. Where financial entities that are classified as G-SIIs and O-SIIs or that are identified as ‘systemic’ rely on the same ICT services to support their critical or important functions, it is appropriate to assess whether the ICT third-party service provider providing those services should be considered as critical for the Union financial sector. The interconnectedness between financial entities within the Union financial sector that rely on ICT services provided by the same ICT third-party service provider should also be assessed to determine the reliance of financial entities on that ICT third-party service provider.

    The Regulation enters into force on June 19 2024. However, the Lead Overseer shall apply the sub-criterion 1.4 referred to in Article 2, paragraph 5, point (b) as of January 16 2025.

  • EU publishes Delegated Regulation 2024/1505 supplementing DORA by determining the amount of the oversight fees to be charged by the Lead Overseer to critical ICT third-party service providers

    CACEIS

  • On May 30 2024, the European Union published a Commission Delegated Regulation (EU) 2024/1505 supplementing Digital Operational Resilience Act (DORA) of by determining the amount of the oversight fees to be charged by the Lead Overseer to critical Information and communication technology (ICT) third-party service providers and the way in which those fees are to be paid.

    An annual oversight fee should be established to fully cover the Lead Overseer’s and the other European Supervisory Authorities’ necessary expenditure when performing oversight tasks in the context of the DORA. The annual oversight fee should also cover the estimated costs by competent authorities to whom tasks are delegated by the European Supervisory Authorities.

    In line with the principle of annuality and the principle of full cost recovery, the annual oversight fees should be calculated on the basis of the direct and indirect costs estimated by the ESAs to perform their oversight tasks. The annual oversight fees should be adjusted every year to match the estimated costs.

    To ensure the fair allocation of oversight fees which, at the same time, reflects the actual administrative effort devoted to each overseen provider, the annual oversight fee should be proportionate to the turnover generated by the ICT third-party service provider in the Union from the provision of the ICT services to financial services clients.

    To ensure the accuracy of the financial information needed to calculate the applicable turnover, all figures provided by the ICT third-party service providers should be audited. Considering that information on the applicable turnover is necessary for the Lead Overseer to establish the amount of the oversight fee charged to each critical ICT third-party service provider yearly to cover the costs of the oversight, the Lead Overseer should consider the worldwide revenues of ICT third-party service provider generated irrespective of the types of clients in the case where the critical ICT third-party service provider does not provide for tailored information on the revenues generated in the Union from the provision of the ICT services to financial entities.

    A minimum annual oversight fee should be imposed on each critical ICT third-party service provider, given that certain fixed administrative costs apply for the oversight of all critical ICT third-party service providers, irrespective of the amount of turnover accrued.

    To cater for the specific costs incurred during the first year of designation and oversight of critical ICT third-party service providers, related among others to the designation process and the appointment of the Lead Overseer, a fixed fee should be established. To reflect the costs incurred for the oversight following the designation of the critical ICT third-party service provider, this fee should be adjusted to the period of time in that first year during which the critical ICT third-party service provider has been designated. It should replace the annual oversight fee for that year.

    To cover the additional costs related to the designation of critical ICT third-party service providers that voluntary request to be designated as critical in accordance with Article 31(11) of the DORA, an additional fixed fee should be established. In order to discourage unfounded requests, such additional fixed fee should not be reimbursed if an ICT third-party service provider withdraws its request during the registration process, nor if the request is rejected.

    To ensure the timely payment of oversight fees, those fees should be paid within 30 days from the date of issuance of the Lead Overseer’s debit note. To simplify the fee payment flows, and to ensure ESAs have the necessary funds to carry out their planned supervisory activities, annual oversight fees should be paid in a single instalment during the first four months of the calendar year for which such fees are due by critical ICT third-party service providers subject to oversight activities on 1 January of that year or, in the case of critical ICT third-party service providers designated throughout that year, at the latest by the end of that year.

    The Regulation enters into force on June 19 2024.

  • ESAs publish templates and tools for voluntary dry run exercise to support the DORA implementation

    CACEIS

  • On May 31 2024, the European Banking Authority (EBA) publishes European Supervisory Authorities (ESAs) templates and tools for voluntary dry run exercise to support the DORA implementation.

    The materials published include:

    • templates for the registers of information with example (in Excel);
    • draft technical package for reporting, including data point model (DPM), annotated table layout and validation rules;
    • optional tool (VBA macro) to assist with the conversion of Excel templates into .csv files and .zip files for their submission;
    • frequently asked questions regarding the exercise.

    Financial entities can use these materials and tools to prepare and report their registers of information of contractual arrangements on the use of ICT third-party service providers in the context of the dry run exercise, and to understand supervisory expectations for the reporting of such registers from 2025 onwards.

    The participating financial entities are expected to submit their registers of information to the ESAs through their competent authorities between July 1 and August 30 2024.

  • Regulation on Markets in Crypto-Assets (MiCA)

    EBA publishes final Draft Technical Standards under MiCA

    CACEIS

  • On May 7 2024, the European Banking Authority (EBA) published final draft technical standards under Markets in Crypto-Assets Regulation (MiCA).

    EBA published three sets of final draft regulatory technical standards (RTS) and one set of final draft implementing technical standards (ITS) relating to the authorisation as issuer of asset-referenced tokens (ARTs), to the information for the assessment of acquisition of qualifying holdings in issuers of ARTs and to the procedure for the approval of white papers for ARTs issued by credit institutions under the MiCAR. These technical standards are key to regulate access to the EU market by applicant issuers of ARTs and persons intending to exercise significant influence on these undertakings via the acquisition of qualifying holdings.

    The RTS on authorisation lay down the information requirements to be included when applying for authorisation to offer to the public or seek admission to trading of an ART, so to enable the comprehensive assessment of the application by the competent authority. Following the public consultation, the scope of the authorisation has been amended to clarify that: a) the applicant issuer may only be a legal person or undertaking established in the EU, and b) whilst the issuance is not subject to authorisation, which only covers the public offer or the admission to trading, an application may only be submitted by an applicant issuer, therefore only an issuer may be granted authorisation. 

    The ITS  on authorisation set out the standard application letter and the application template and clarify the process relating to the assessment of completeness of the application by the competent authority. As credit institutions are only required to receive approval to publish a white paper, the RTS and ITS on authorisation do not apply to credit institutions. The RTS on the detailed content of the information to be included in the notification for of the proposed acquisition of direct or indirect qualifying holdings lay down the information requirements that are necessary to the competent authority to carry out the prudential assessment in case of proposed acquisitions in issuers of ARTs that are not credit institutions.

    This information covers five criteria relating to (a) the reputation of the proposed acquirer, (b) the suitability of any person who will direct the target undertaking, (c) the financial soundness of the proposed acquirer, (d) the sound and prudent management of the target undertaking following the acquisition and (e) suspicion that money laundering of terrorist financing is committed or attempted or that it may increase following the acquisition.

    Following public consultation, and considering the request of personal data in case of the application for authorisation and of notification of proposed acquisition of qualifying holdings, some recitals reminding the obligation to comply with the privacy regime have been added both in the RTS on information for authorisation and in the RTS on information for notification of proposed acquisition of qualifying holdings. Credit institutions, unlike other issuers of ARTs, do not require authorisation to issue ARTs but must notify its competent authority, and the white paper must be submitted to the competent authority for approval. 

    The RTS on the procedure for the approval of white papers for ARTs issued by credit institutions sets out the timeframes that credit institutions, competent authorities and the European Central Bank (ECB) or other central banks must follow during the procedure for the approval of a crypto-asset white paper.

  • ESMA updates its Q&A on MiCA

    CACEIS

  • On May 14 2024, the European Securities and Markets Authority (ESMA) updated its Q&A on Markets in Crypto-Assets Regulation (MiCA).

    The question is as follows:

    • Where should a CASP exchanging crypto-assets for funds or other crypto-assets publish the “firm price or method of determining the price of the crypto-assets" as required by Article 77(2) of MiCA?
      Where should they publish the “information about the transactions concluded by them, such as transaction volumes and prices”, as required by Article 77(4) of MiCA?
      Answer: CASPs providing the service of exchange of crypto-assets for funds or other crypto-assets should publish the information required under paragraphs 2 and 4 of Article 77 in a publicly available location (e.g. on their website) that is accessible to all without registration. The quotations published under Article 77(2) of MiCA should include all elements allowing a party to anticipate with certainty the price at which an exchange would be made. The information published under Article 77(4) on executed transactions should remain available for a sufficient period of time. The information would typically be expected to be available until midnight of the following business day. CASPs are strongly encouraged to align as much as possible with the format prescribed in the Commission Delegated Regulations on pre-trade and post-trade transparency and record keeping once these Regulations are finalised and made available.
  • EU publishes Delegated Regulation (EU) 2024/1503 supplementing MiCA by specifying the fees charged by EBA to issuers of significant asset-referenced tokens and issuers of significant e-money tokens

    CACEIS

  • On May 30 2024, the European Union published a Commission Delegated Regulation (EU) 2024/1503 supplementing Markets in Crypto-assets Regulation (MiCA) by specifying the fees charged by the European Banking Authority (EBA) to issuers of significant asset-referenced tokens and issuers of significant e-money tokens.

    An annual supervisory fee should be established to cover the actual and estimated costs to be incurred by the EBA when performing supervisory tasks in the context of Regulation (EU) 2023/1114, including its overheads. The annual supervisory fee should also cover the costs incurred by competent authorities to whom tasks are delegated by the EBA.

    The crypto-asset market is dynamic and often fast-evolving, therefore the estimate as to the number of issuers likely to fall within the scope of the EBA’s supervisory tasks is inherently uncertain. Additionally, the supervisory priorities may change from time to time in light of events. Against this backdrop, it is of the highest importance for the EBA, and the competent authorities to whom tasks may be delegated by the EBA, to have the necessary flexibility to estimate their likely expenditure from year-to-year, including the possibility to reassess the fees to be levied in relation to the EBA’s supervisory tasks from one year to another.

    Fees charged for the EBA’s activities related to issuers of significant asset referenced tokens (ARTs) and issuers of significant e-money tokens (EMTs) should be set at a level such as to avoid a deficit or a significant accumulation of surplus. Where a significant positive or negative budget result becomes recurrent, the level of the fees should be revised.

    The number of significant ARTs and significant EMTs under the supervision of the EBA will be identified only after the application of Titles III and IV of Regulation (EU) 2023/1114. It is therefore not possible to already determine fixed annual supervisory fees since neither the exact amount of supervision task expenditure nor the exact number of significant ARTs or significant EMTs will be known before the framework is fully established. Moreover, the number of issuers of significant tokens may change from time to time, and thus it is not possible to pre-determine the exact amount of fees in the delegated act.

    In line with the principle of annuality and the principle of full cost recovery, the annual supervisory fees should be calculated on the basis of the estimated direct and indirect costs to be incurred by the EBA to perform its supervisory tasks. The annual supervisory fees should be adjusted every year to match the estimated costs. At entity level, the annual supervisory fee should be calculated based on a fully proportionate approach.

    The Regulation enters into force on June 19 2024.

  • EU publishes Delegated Regulation (EU) 2024/1504 supplementing MiCA by specifying procedural rules for imposing fines or periodic penalty payments by EBA on issuers of significant ARTs and e-money tokens

    CACEIS

  • On May 30 2024, the European Union published a Commission Delegated Regulation (EU) 2024/1504 supplementing Markets in Crypto-assets Regulation (MiCA) by specifying the procedural rules for the exercise of the power to impose fines or periodic penalty payments by the European Banking Authority (EBA) on issuers of significant asset-referenced tokens and issuers of significant e-money tokens.

    In order to give the person subject to investigation of an alleged infringement set out in Annex V or VI to Regulation (EU) 2023/1114 the opportunity to be heard, that person should have the right to make written comments on the statement of findings of the investigation within a reasonable time limit of not less than four weeks before the investigation officer is to submit its findings to the EBA. The person subject to investigation should be allowed to be assisted by a counsel of their choice during the investigation. The investigation officer should consider whether, as a result of the submissions made by the person subject to investigation, it is necessary to amend the statement of findings before submitting it to the EBA.

    The EBA should check the completeness of the file submitted by the investigation officer based on a list of documents. To ensure that the person subject to investigation is able to adequately prepare their defence, before adopting a final decision with regard to fines or supervisory measures, the EBA should provide them with the right to provide further written comments.

    To ensure that a person subject to investigation cooperates, the EBA should be able to take certain coercive measures. When the EBA has taken a decision requiring a person subject to investigation to bring an infringement to an end or has requested them to supply complete information or to submit complete records, data or any other material, or has taken a decision to conduct an on-site inspection, it may impose periodic penalty payments in order to compel that person to comply with the decision taken. Before imposing periodic penalty payments, the EBA should provide the person subject to investigation with the opportunity to provide written submissions.

    As the investigation officer carries out their work independently, the EBA should not be bound by the file the investigation officer has prepared. However, to ensure that the person subject to the investigation is able to adequately prepare their defence, whether the EBA disagrees or, agrees with all or part of the findings of the investigation officer, they should be informed and be given the opportunity to respond.

    Where the EBA adopts an interim decision pursuant to Article 135(2) of Regulation (EU) 2023/1114, it should give the person subject to investigation the opportunity to be heard as soon as possible after adopting the interim decision and before a confirmatory decision is adopted. The procedure should nonetheless grant the right of the person subject to investigation to be heard in advance when the investigation is conducted by an investigation officer.

    The EBA’s power to impose a periodic penalty payment is to be exercised with due regard for the right to defence and is not to be maintained beyond the period necessary. Where the EBA decides to impose a periodic penalty payment, the person concerned should therefore be given the opportunity to be heard and any penalty payment should no longer be due as of the moment the person concerned complies with the decision the EBA has addressed to that person.

    The Regulation enters into force on June 19 2024.

  • EU publishes Delegated Regulation (EU) 2024/1506 supplementing MiCA by specifying certain criteria for classifying ARTs and e-money tokens as significant

    CACEIS

  • On May 30 2024, the European Union published Commission Delegated Regulation (EU) 2024/1506 supplementing Markets in Crypto-assets Regulation (MiCA) by specifying certain criteria for classifying asset-referenced tokens and e-money tokens as significant.

    Pursuant to Article 56(1) of MiCA, the criteria set out in Article 43(1) of that Regulation for classifying asset-referenced tokens as significant asset-referenced tokens are to apply also for classification of e-money tokens as significant e-money tokens. Therefore, it is necessary to further specify the criteria referred to in Article 43(1), points (e) and (f), of Regulation (EU) 2023/1114 also in relation to e-money tokens.

    To enable the European Banking Authority (EBA) to determine whether the activities of the issuer of the asset-referenced token or e-money token are significant on an international scale outside the Union, and whether asset-referenced tokens or e-money tokens or their issuers are to be considered to be interconnected with the financial system, it is necessary to distinguish between core and ancillary indicators for such determination. Core indicators should capture the most relevant elements of significant asset-referenced tokens or e-money tokens. Ancillary indicators should be assessed where the assessment of the core indicators by the EBA does not enable the EBA to determine conclusively that the criteria referred to in Article 43(1), points (e) and (f), of MiCA have been fulfilled. The outcome of the significance assessment should be subject to a holistic assessment of both types of indicators.

    As regards the assessment of the criterion of significance of the activities of the issuer on an international scale outside the Union, including the use of the asset-referenced token or e-money token for payments and remittances, as referred to in Article 43(1), point (e), of MiCA, the EBA should use core indicators relating to cross-border activities between the Union and third countries, the size of the token concerned, and the issuer’s activities at global level. Cross-border transactions, in particular those that are associated to uses as a means of exchange, are the transactions with the international dimension that are most likely to pose risks to financial stability, monetary policy transmission and monetary sovereignty of the Union. Those transactions also reflect the international activity of an issuer of an asset-referenced token or e-money token on international scale outside the Union in relation to their uses for payments and remittances. Therefore, the EBA should consider the indicators of the significance of the market share of value of cross-border transactions in an asset-referenced token or e-money token into and from the Union and the significance of the estimated market share of value of such transactions that are associated to uses of such tokens as a means of exchange. The indicator of the significance of the market share of value of cross-border transactions in an asset-referenced token or e-money token should be further divided in two separate sub-indicators relating to inflow transactions and outflow transactions, since the effects of each type of transaction on financial stability and monetary sovereignty can be different.

    To capture the non-cross border aspect of significance of an issuer’s activities on international scale, the EBA should also consider the core indicators on the global market capitalisation of an asset-referenced token or an e-money token, and on the global market capitalisation of all asset-referenced tokens and e-money tokens issued by the issuer. The market capitalisation on an international scale of a token should be understood to include the same token issued outside the Union to distinguish that capitalisation from the market capitalisation referred to in Article 43(1), point (b), of MiCA.

    As regards the assessment of the criterion of significance of the interconnectedness of asset-referenced tokens or e-money tokens or their issuers with the financial system, as referred to in Article 43(1), point (f), of MiCA, the indicators should capture direct and indirect interconnectedness of the tokens and their issuers with the financial system. Both a direct and an indirect interconnectedness could result in contagion effects in both directions, that is from issuers of asset-referenced tokens and e-money tokens to traditional financial system and vice versa. For that purpose, it is necessary to set out the core indicators of the significance of the share of non-deposit reserve assets that are financial instruments issued by financial institutions, and of the significance of the share of the issuer’s asset holdings relative to the total supply of specific financial instruments. In addition, the following ancillary indicators should be set out: the ownership structure of the issuer of an asset-referenced token or an e-money token, the concentration of custody of the issuer’s reserve assets, and portfolio overlap of the issuer’s reserve assets with the reserve assets of issuers of other asset-referenced tokens and e-money tokens.

    Assessing the significance of the share of non-deposit reserve assets that are financial instruments issued by financial institutions is key when assessing the issuer’s interconnectedness with the financial system. That core indicator should measure direct interconnections with the financial sector via the issuer’s reserve of assets. Distress in financial institutions the financial instruments of which are included in the reserve assets could affect the value of the reserve assets that back the token holders’ claims on the issuer to redeem the token. When assessing that indicator, the EBA should consider the sub-indicators of the share of non-deposit reserve assets that are financial instruments, of the share of non-deposit reserve assets that are derivatives in case of asset-referenced tokens, or of the share of covered bonds in case of e-money tokens. The share of non-deposit reserve assets that are derivatives and the share of covered bonds are necessary as sub-indicators since, on the one hand, counterparties of derivatives might be credit institutions and therefore a margin call on them could have significant effects on the financial system, and, on the other hand, a fire sale of covered bonds by the issuer could negatively impact the liquidity of credit institutions.

    The core indicator on the significance of the share of asset-referenced tokens or e-money tokens issuer’s asset holdings relative to the total supply of the specific financial instruments, including units of an undertaking for collective investment in transferable securities and sovereign bonds, should capture indirect interconnections between, on the one hand, issuers of asset-referenced tokens and e-money tokens and, on the other hand, the financial system. Such indirect connections could affect the traditional financial system, in particular where the issuer of an asset-referenced token or an e-money token is forced to fire sell its asset holdings because of financial distress. That sell-off could drive down the value of those assets and affect financial institutions indirectly via a decrease of the value of the assets those financial institutions hold.

    Issuers of asset-referenced tokens or e-money tokens can also be interconnected with the financial system through the ownership structure. That ancillary indicator should provide a complete view of the potential effects that financial distress could have in the financial system, not only from a purely financial stability risk perspective, but also in connection to reputational risks. Financial distress or critical events in the issuer of an asset-referenced token or e-money token could, via their link to the issuer through the ownership structure, have a significant effect in institutions that run other financial activities. When assessing that indicator, the EBA should focus on whether the issuer has a dispersed or concentrated ownership, whether natural or legal persons with qualifying holdings are financial institutions, and the complexity of the ownership structure.

    The Regulation enters into force on June 19 2024.

  • EU publishes Delegated Regulation (EU) 2024/1507 supplementing MiCA by specifying the criteria and factors to be taken into account by ESMA, EBA and NCAs in relation to their intervention powers

    CACEIS

  • On May 30 2024, the European Union published the Commission Delegated Regulation (EU) 2024/1507 supplementing MiCA by specifying the criteria and factors to be taken into account by ESMA, EBA and competent authorities in relation to their intervention powers.

    A list of criteria and factors to be taken into account by competent authorities, ESMA and the EBA in determining when there is a significant investor concern or threat to the orderly functioning and integrity of markets in crypto-assets or to the stability of the whole or part of the financial system of the Union or of at least one Member State should be established to ensure a consistent approach while permitting appropriate action to be taken where unforeseen adverse events or developments occur. The competent authorities, ESMA and the EBA should identify the criteria and factors that are relevant for a specific case, and then perform an assessment of those criteria and factors determined to be most relevant to that case. That should not prevent the competent authorities, ESMA and the EBA from using a temporary intervention power where only one of the factors or criteria leads to such a concern or threat.

    The provisions in this Regulation are closely linked, since they deal with the product intervention powers vested in the competent authorities, ESMA and the EBA.

    The Regulation enters into force on June 19 2024.

  • ESMA publishes final report on MiCA RTS on conflicts of interests (CoIs)

    CACEIS

  • On May 31 2024, the European Securities and Markets Authority (ESMA) published a Markets in Crypto Assets Regulation (MiCA) Regulatory Technical Standards (RTS) on conflicts of interests (CoIs).

    In the report ESMA sets out draft RTS on certain requirements in relation to conflicts of interest for crypto-asset service providers (CASPs) under MiCA, with a view to clarifying elements in relation to vertical integration of CASPs and to further align with the draft European Banking Authority (EBA) rules applicable to issuers of asset-referenced tokens (ARTs).

    The RTS also contain updates on:

    • requirements for the policies and procedures for the identification, prevention, management, and disclosure of conflicts of interest, considering the scale, the nature and the range of crypto-asset services provided, as well as 
    • details and methodology for the content of the disclosures of conflicts of interest.

    The final report has been sent to the European Commission and ESMA will provide further advice and technical guidance in this area if requested by the EC.  

  • Securitisation Regulation

    ESMA updates its Joint Committee Q&As relating to the Securitisation Regulation

    CACEIS

  • On May 3 2024, the European Securities and Markets Authority (ESMA) updated its Joint Committee Q&As relating to the Securitisation Regulation.

    This document contains answers to questions which fall outside the exclusive competence of either ESMA, EBA or EIOPA. The purpose of this document is to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of Regulation (EU) 2017/2402 (Securitisation Regulation). It does this by providing responses to questions asked by the public, financial market participants, competent authorities and other stakeholders.

    The questions contained in the update are as follows:

    • Can a retention holder under Article 6(3)(c) (so-called random selection) of the Securitisation Regulation transfer the retained exposure to a third party if the transfer occurs after crystallisation on the retention holder’s accounts of the losses associated with the relevant exposure?
    • Assuming an alternative investment fund (“AIF”) set up to disburse loans to be subsequently securitised acts as retention holder under Article 6(3) of the Securitisation Regulation, should it be resolved to voluntarily liquidate the relevant AIF, what would be the appropriate modality to continue to retain the relevant net economic interest? Would the retained net economic interest be distributed to AIF’s unit-holders, pro quota to their holdings, or would AIF’s liquidator be obliged to wait and complete the liquidation process only after the retention obligation has ceased to exist?
    • Certain U.S. Government agencies structure products whereby the credit risk associated with an exposure or a pool of exposures is tranched. If certain tranches are "wrapped" or guaranteed by the U.S. Government and protected against any losses, does this mean that these tranched structured products are not considered as pursuant to the definition of securitisation under Securitisation Regulation since payments in the scheme are not dependent upon the performance of the exposure or the pool of exposures?
  • EBA publishes Final Report on Guidelines on STS criteria for on-balance-sheet securitisation

    CACEIS

  • On May 27 2024, the European Banking Authority (EBA) published a final report on Guidelines on simple, transparent and standardised (STS) criteria for on-balance-sheet securitisation.

    The Guidelines have been developed according to Article 26e(2) of the Regulation (EU) 2017/2402 (Securitisation Regulation) as amended by Regulation (EU) 2021/557, as part of the Capital Markets Recovery Package. The mandate entitles the EBA, in close cooperation with ESMA and EIOPA, to produce guidelines and recommendations on the harmonised interpretation and application of the criteria related to simplicity, transparency, standardisation and additional specific criteria for on-balance-sheet securitisation.

    These Guidelines will ensure a harmonised interpretation of these STS criteria, in alignment with the EBA Guidelines for asset-backed commercial paper (ABCP) and non-asset-backed commercial paper (non-ABCP) securitisation. The Guidelines on the STS criteria for on-balance-sheet securitisations (OBS) provide a harmonised interpretation of the STS criteria and focus on clarifying those criteria with potential aspects of ambiguity. The Guidelines will ensure a common understanding as well as a harmonised implementation of the criteria throughout the Union.

    The Guidelines also include a limited set of targeted amendments to the Guidelines for non-ABCP securitisation and ABCP securitisation to ensure that the interpretation provided by the EBA is, where appropriate, the same and consistent across all three sets of guidelines.

    Similar to the Guidelines on STS criteria for ABCP securitisation and non-ABCP securitisation, these Guidelines aim to provide a single point of consistent interpretation of the STS criteria to the relevant stakeholders throughout the Union. The main objective of the guidelines is to provide a single point of consistent interpretation of those criteria and ensure a common understanding of them by originators, original lenders, securitisation special purpose entities (SSPEs), investors, competent authorities and third-party verification agents verifying STS compliance in accordance with Article 28 of the Securitisation Regulation, throughout the Union. The amending guidelines include a limited set of targeted amendments to the existing EBA guidelines on non-ABCP and ABCP securitisation respectively, for a specific number of these requirements, to ensure that the interpretation provided by the EBA is consistent across all three guidelines.

    These Guidelines will be applied on a cross-sectoral basis throughout the Union with the aim of facilitating the adoption of the STS criteria for OBS securitisation, which is one of the prerequisites for the preferential risk weight treatment under the CRR, supporting further lending to the real economy and thus contributing further to the objectives of the Capital Markets Union.

    The proposed guidelines were published for a three-month public consultation, from April to June 2023. Following their finalisation, they will be translated into the official EU languages and published on the EBA website.

  • Sustainable Finance / Green Finance

    EU publishes Directive 2024/1306 as regards the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings

    CACEIS

  • On May 8 2024, the European Union published the Directive (EU) 2024/1306 amending Directive 2013/34/EU as regards the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings.

    Sustainability reporting requirements play a key role in ensuring market transparency and in ensuring that undertakings are accountable for their impacts on people and on the environment. However, it is important to streamline those requirements, in order to ensure that they fulfil the purpose for which they were intended, and to limit the administrative burden.

    Directive 2013/34/EU requires the Commission to provide for sustainability reporting standards by means of delegated acts, by June 30 2024, specifying the information that undertakings are to report with regard to sustainability matters and the reporting areas specific to the sector in which an undertaking operates, in addition to the information that undertakings are already required to provide under Commission Delegated Regulation (EU) 2023/2772.

    Undertakings in the same sector are often exposed to similar sustainability-related risks, and they often have similar impacts on society and on the environment. Comparisons between undertakings in the same sector are especially valuable to investors and to other users of sustainability information. Sustainability reporting standards should therefore specify both information that undertakings in all sectors should disclose, and information that undertakings should disclose depending on their sector of activity. Sector-specific sustainability reporting standards are especially important in the case of sectors associated with high sustainability risks for, or impacts on, the environment, human rights and governance, including sectors listed in Sections A, B (including oil, gas, mining and coal) to H, K and L of Annex I to Regulation (EC) No 1893/2006 of the European Parliament and of the Council, and the relevant activities within those sectors. When adopting delegated acts containing sector-specific sustainability reporting standards, the Commission should ensure the information specified by those sustainability reporting standards is proportionate to the scale of the risks and impacts related to sustainability matters specific to each sector, taking account of the fact that the risks and impacts of some sectors are higher than those of other sectors. The Commission should also take account of the fact that not all activities within a particular sector are necessarily associated with high sustainability risks or impacts. For undertakings that operate in sectors particularly reliant on natural resources, sector-specific sustainability reporting standards would require the disclosure of nature-related impacts on and risks for biodiversity and ecosystems.

    Directive 2013/34/EU also requires the Commission to adopt, by June 30 2024, a delegated act to provide for sustainability reporting standards to be used for the disclosure of sustainability information concerning third-country undertakings with a net turnover above EUR 150 million in the Union and with either subsidiaries in the Union that are large undertakings or small and medium-sized undertakings with securities admitted to trading in the Union regulated markets, or with branches in the Union with a net turnover above EUR 40 million. This reporting requirement for certain third-country undertakings applies only as of the financial year 2028. Since the time limit for the adoption of the delegated acts containing the sustainability reporting standards that specify the information that undertakings are to report with regard to sustainability matters and the reporting areas specific to the sector in which an undertaking operates is to be postponed by two years, the time limit for the adoption of the sustainability reporting standards for certain third-country undertakings should also be postponed by two years.

    The Directive entered into force on May 28 2024.

  • EFRAG publishes Interoperability Guidance with IFRS Foundation

    CACEIS

  • On May 2 2024, the European Financial Reporting Advisory Group (EFRAG) published Interoperability Guidance with International Financial Reporting Standards (IFRS) Foundation.

    The IFRS Foundation and EFRAG have published guidance material to illustrate the high level of alignment achieved between the International Sustainability Standards Board's IFRS Sustainability Disclosure Standards and the European Sustainability Reporting Standards (ESRS) and how a company can apply both sets of standards, including detailed analysis of the alignment in climate-related disclosures. Having first worked during the development of the ISSB Standards and ESRS to deliver a high degree of alignment, the publication now provides practical support that explains how companies can efficiently comply with both sets of standards. 

    The document has been designed to reduce complexity, fragmentation and duplication for companies applying both the ISSB Standards and ESRS. As companies around the world are increasingly mandated to disclose sustainability-related information through the ISSB Standards and ESRS, EFRAG and the ISSB are committed to creating efficiencies where possible to advance transparency, comparability and accountability. Companies utilising this guidance will be better able to collect, govern and control decision-useful data once.

    The guidance:

    • describes the alignment of general requirements including on key concepts such as materiality, presentation and disclosures for sustainability topics other than climate;
    • provides information about the alignment of climate disclosures and what a company starting with either set of standards needs to know to enable compliance with both sets of standards.
  • ESMA publishes Final Report on Guidelines on Funds’ names using ESG or sustainability-related terms

    CACEIS

  • BACKGROUND

    ESMA consulted in November 2022 on guidelines for investment funds using ESG or sustainability-related terms in their names (ESMA34-472-373).

    The key elements consisted of a threshold for the use of ESG-related terms linked to the investments used to meet environmental or social characteristics or sustainability objectives in SFDR (80%) or to the share of sustainable investments for sustainability-related terms (50%) combined with exclusion criteria from the Paris-aligned Benchmarks (PAB) rules.

    The name of a fund is usually the first attribute investors see and, while investors are expected to look beyond the name itself and check in detail the fund’s documentation, the name can have a significant impact on their investment decisions. Investors are allocating an increasing proportion of their investments in sustainability strategies in order to use their capital to help sustainable purposes. Investors may reasonably expect funds with these names to invest in companies with policies, practices, or characteristics that are consistent with sustainability standards. Competitive market pressures create incentives for asset managers to include terminology in their funds’ names designed to attract investor assets, leading in certain instances to greenwashing, for example by making false claims about sustainability practices.

    WHAT'S NEW?

    On May 14 2024, the European Securities and Markets Authority (ESMA) published a final report on the Guidelines on funds’ names using environmental, social and governance (ESG) or sustainability-related terms.

    The objective of the Guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names, and to provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names.

    The Guidelines establish that to be able to use these terms, a minimum threshold of 80% of investments should be used to meet environmental, social characteristics or sustainable investment objectives.

    ESMA has recognised that the fossil fuel exclusions in PAB could unnecessarily penalise some funds using terms in their name that are not environmental or that focus on transition strategies. Therefore, the exclusion criteria of the Climate Transition Benchmark (CTB) are instead provided for terms that are transition-, social- and governance-related. CTB exclusions9 refer to (a) companies involved in any activities related to controversial weapons, (b) companies involved in the cultivation and production of tobacco, and (c) companies that benchmark administrators find in violation of the United Nations Global Compact (UNGC) principles or the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.

    ESMA has separated the terms related to social (S) and governance (G) from environmental (E) terms. The social and governance terms are included in the same group as the transition terms, allowing funds with those terms in their name to apply the CTB exclusions only. Environmental terms should still only be used by funds applying the PAB exclusions. The commonly used “ESG” and “SRI” abbreviations would still be considered environmental terms. 

    When using any “impact”-related word fund managers should ensure that the investments under the minimum proportion of investments are made with the intention to generate positive, measurable social or environmental impact alongside a financial return. When using any “transition”-related word fund managers should demonstrate that the investments are on a clear and measurable path to social or environmental transition.  

    ESMA has decided to remove the 50% threshold for sustainable investments.

    The Final Report also provides a summary of the responses ESMA received to its consultation paper and an explanation of the approach taken to address the comments received.

    WHAT'S NEXT?

    The Guidelines will be translated into all EU languages and will subsequently be published on ESMA’s website. They will start applying three months after that publication.

    Within two months of the date of publication of the Guidelines on ESMA’s website in all EU official languages, competent authorities to which these guidelines apply must notify ESMA whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the guidelines.

    The transitional period for funds existing before the application date will be six months after that date. Any new funds created after the application date should apply these Guidelines immediately in respect of those funds.

  • EU Council adopts CSDDD

    CACEIS

  • On May 24 2024, the Council of the European Union adopted the Corporate Sustainability Due Diligence Directive (CSDDD).

    The directive adopted introduces obligations for large companies regarding adverse impacts of their activities on human rights and environmental protection. It also lays down the liabilities linked to these obligations. The rules concern not only the companies’ operations, but also the activities of their subsidiaries, and those of their business partners along the companies’ chain of activities.

    The directive will affect companies of more than 1 000 employees with a turnover of more than €450 million, and their activities ranging from the upstream production of goods or the provision of services, to the downstream distribution, transport, or storage of products. Companies affected by the legislation adopted will have to take and implement a risk-based system to monitor, prevent or remedy human rights or environmental damages identified by the directive. 

    The directive requires companies to ensure that human rights and environmental obligations are respected along their chain of activities. If a violation of these obligations is identified, companies will have to take the appropriate measures to prevent, mitigate, bring to an end or minimise the adverse impacts arising for their own operations, those of their subsidiaries and those of their business partners in their chain of activities. Companies can be held liable for the damage caused and will have to provide full compensation.

    Companies affected by the directive will also have to adopt and put into effect a climate transition plan in line with the Paris agreement on climate change. 

    Following the Council’s approval of the European Parliament’s position, the legislative act has been adopted. This is the last step in the decision-making procedure. 

    After being signed by the President of the European Parliament and the President of the Council, the directive will be published in the Official Journal of the European Union and will enter into force on the twentieth day following its publication.

    Member states will have two years to implement the regulations and administrative procedures to comply with this legal text. The directive will apply depending on the size of the companies following this timeline: 

    • 3 years from the entry into force of the directive for companies with more than 5 000 employees and €1 500 million turnover.
    • 4 years from the entry into force for companies with more than 3 000 employees and €900 million turnover.
    • 5 years from the entry into force of the directive for companies with more than 1 000 employees and €450 million turnover.
  • EFRAG announces finalisation of three ESRS Implementation Guidance documents

    CACEIS

  • On May 31 2024, the European Financial Reporting Advisory Group (EFRAG) announced the finalisation of three European Sustainability Reporting Standards (ESRS) Implementation Guidance (IG) documents

    These publications were open for public feedback from December 22 2023 to February 2 2024, and they address the most challenging aspects of ESRS implementation:

    • EFRAG IG 1: Materiality Assessment
    • EFRAG IG 2: Value Chain
    • EFRAG IG 3: Detailed ESRS Datapoints and Accompanying Explanatory Note

    By prioritising these documents, EFRAG aims to support undertakings and other stakeholders in the implementation of the ESRS, helping them to focus on the aspects of the standards that are more relevant to them and illustrating the reporting requirements with practical language and frequently asked questions:

    • IG 1: Materiality Assessment Implementation Guidance (MAIG) provides an illustrative materiality assessment process for undertakings, and it develops the concept of impact and financial materiality with a number of examples, including how these two concepts interplay. It also contains FAQs on the double materiality assessment to provide practical implementation guidance on disclosing material impacts, risks and opportunities.
    • IG 2: Value Chain Implementation Guidance (VCIG) outlines the reporting requirements for the value chain from materiality assessment to policies and actions to metrics and targets. It illustrates the reporting boundary of the group for sustainability reporting, including the concept of operational control in environmental standards. The VCIG also includes FAQs for further information and a 'value chain map' summarising value chain implications per disclosure requirement across all ESRS. 
    • IG 3: List of ESRS Datapoints translates the complete ESRS Set 1 list of detailed requirements in each Disclosure Requirement and related Application Requirements in Excel format. The file contains additional information, such as the types of requirement (for example, quantitative or qualitative) or whether these are subject to transitional provisions. This list can form the basis for a data gap analysis or data collection exercise. 

    These documents provide essential guidance to ensure organisations effectively implement and comply with ESRS standards, promoting transparency and consistency in sustainability reporting.

  • EFRAG publishes new ESRS Q&A technical explanations

    CACEIS

  • On May 30 2024, the European Financial Reporting Advisory Group (EFRAG) published new European Sustainability Reporting Standards (ESRS) questions and answers (Q&A) technical explanations.

    EFRAG announces the release of 44 new Explanations and of the Compilation of Technical Explanations produced so far, which comprises multiple batches of explanations that were already published in February and March 2024, to assist stakeholders in the implementation of the ESRS via the EFRAG ESRS Q&A Platform.

    EFRAG released a compilation of 68 Explanations to respond to stakeholders’ technical questions on the ESRS, which includes 12 Explanations already released on February 5 2024 and 12 Explanations already released on March 1 2024.  

    These responses are provided as part of EFRAG’s role as a technical advisor to the European Commission and are expected to provide practical and timely support to preparers and others in the implementation of ESRS. The Explanations released today are grouped in chapters according to their nature (Cross-cutting, Environment, Social, or Governance) and their Disclosure Requirements, following the ESRS’ architecture.  

    EFRAG will continue releasing Explanations following its due process, including on engagement from both EFRAG’s Sustainability Reporting Board and Technical Expert Group in public discussions.  

  • BELGIUM

    Governance

    NBB publishes communication on exercise of external functions by managers and heads of independent control functions of regulated companies

    CACEIS

  • On May 29 2024, the National Bank of Belgium (NBB) published a communication on exercise of external functions by managers and heads of independent control functions of regulated companies.

    Prudential supervision laws provide that managers and heads of independent supervisory functions of financial institutions must devote the time necessary to the exercise of their duties within these institutions and consequently regulate their right to exercise other functions outside these institutions. This communication recalls the principles and scope of the legal and regulatory provisions relating to external functions and specifies their practical consequences.

    The supervisory laws applicable to the financial institutions covered by this communication provide that managers and heads of independent control functions must devote the time necessary to the exercise of their functions within these institutions and consequently regulate their right to exercise other functions outside these institutions.

    The framework for external functions is not new, but it has recently been reviewed following the entry into force of the law of June 27 2021, which extended its scope ratione personae to the heads of independent control functions of the financial institutions referred to in this communication.

    Taking this development into account, the NBB has recently updated its regulation on external functions. The former Bank Regulation of December 6 2011 was repealed and replaced by the Regulation of November 9 2021 on the exercise of external functions by directors and those responsible for an independent control function of regulated undertakings .

    The purpose of this communication is to recall the principles and scope of the legal and regulatory provisions relating to external functions and to specify their practical consequences.

  • BRAZIL

    Financial supervision

    ANBIMA issues Letters of Recommendation to self-regulation participants

    CACEIS

  • On May 2 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) issued letters of recommendation to self-regulation participants.

    Market supervision proposes measures on investment fund activities.

    ANBIMA have issued three letters of recommendation to institutions that follow their Code of Administration and Management of Third-Party Resources, in order to clarify procedures and certain conducts.

    In addition to offering instructions aimed at adjusting certain conducts in accordance with their Code of Procedures, one of the letters points to evidence of non-compliance identified in the activities of acquisition and monitoring of credit rights, while the others point to evidence related to the declassification of multimarket and fixed income investment funds.

    Letters of recommendation are proposed with the agreement of the supervisory bodies and then accepted by the self-regulatory institutions, as determined by the Code of Procedures.

  • CVM publishes Annual Circular Letter on performance of the independent accounting auditor

    CACEIS

  • On May 20 2024, the Comissão de Valores Mobiliários (CVM) published an Annual Circular Letter on the performance of the independent accounting auditor.

    The Superintendence of Accounting and Auditing Standards (SNC) of the CVM published the Circular Letter CVM/SNC/GNA 1/2024.

    The document is the Annual Official Letter of the technical area, sent to Independent Auditors with active registration with the CVM, and lists points related to registration with the CVM, performance in the securities market and the application of the professional standards of independent accounting auditing in the execution of the work.

    SNC's Annual Circular Letter is the result of the actions of supervision and maintenance of the auditors' register in recent years. In addition, it reflects the recommendations of the SNC for the points of attention identified in the conduct of the work.

    In this edition of the Annual Circular Letter, SNC addresses new issues, which had not been included in documents from previous years, including:

    • Assessment of qualification as an investment entity (FIPs);
    • Assessment of the classification of financial assets;
    • Sample selection criteria in the audit.
    • CVM Resolution 193.

    Recurring issues, but still relevant to this audience, are also presented, in an updated way, such as:

    • Registration as an Independent Auditor (articles 1 to 6-A of CVM Resolution 23);
    • Proof of audit activity (article 7 of CVM Resolution 23);
    • Registration update and Electronic Declaration of Compliance (art. 2, I and II of CVM Resolution 51);
    • Audit report and key audit matters.
  • BCB publishes Resolution No. 380 on deadlines for the submission of accounting documents to BCB

    CACEIS

  • On May 15 2024, the Banco Central do Brasil (BCB) published Resolution No. 380 on deadlines for the submission of accounting documents to the BCB.

    It establishes, temporarily, the deadlines for submission of accounting documents to the BCB by financial institutions and other institutions authorized to operate by the BCB that have headquarters or dependence in the municipalities affected by climatic events in the southern region of the country.

    The institutions mentioned in article 1 with headquarters in a municipality affected by climatic events in the southern region of the country must comply with the following deadlines for remittance to the BCB of the documents related to the base dates from April to June 2024:

    I - until the last business day of the month following the base date, in the case of Analytical Balance Sheets of which Treat:

    • Item I of article 2 of BCB Resolution No. 146, of September 28, 2021
    • Subparagraph "a" of item I of article 2-A of the Resolution BCB No. 146, of 2021
    • Subparagraph "a" of item I of article 2 of CMN Resolution No. 4,911, of May 27, 2021

    II - up to ninety days from the base date, in the case of Report of the Prudential Conglomerate on the base date of June 30 and

    III - up to forty-five days from the respective base date, for the other documents.

    Documents referred to in item I of the caput relating to the base date of April 2024 must be remitted to the Central Bank of Brazil by June 18, 2024.

    For the provisions in items II and III of the caput, the following applies:

    • Consolidated accounting documents, in the case of prudential conglomerate that contains an institution headquartered in the municipalities mentioned in the caput; and
    • The Combined Trial Balance of the Cooperative System, in the in the case of a cooperative system that contains an institution headquartered in the municipalities mentioned in the caput.

    Financial institutions and other institutions authorized to operate by the Central Bank of Brazil that have dependence in a municipality affected by climatic events that occurred in the region The south of the country must observe the following deadlines for remittance to the Central Bank of Brazil of the documents related to the base dates of April to June 2024:

    I - up to June 18, 2024, in the case of the Analytical Balance Sheet of these dependencies for the base date of April 2024;

    II - until the last day of the month following the respective base date, in the case of the Trial Balance Analytical Assets of these dependencies for the base date of May and June 2024; and

    III - up to forty and five days from the respective base date, in the case of Banking Statistics by dependency, where applicable.

    The Resolution entered into force on the date of its publication, May 15 2024.

  • BCB publishes Normative Instruction No. 470 on procedures regarding BCB Resolution that defines and consolidates the rules for the compulsory collection of savings deposits

    CACEIS

  • On May 16 2024, the Banco Central do Brasil (BCB) published the Normative Instruction No. 470 on procedures regarding BCB Resolution that defines and consolidates the rules for the compulsory collection of savings deposits.

    Normative instruction discloses procedures regarding BCB Resolution No. 188, of February 23, 2022, which defines and consolidates the rules for compulsory collection of funds from savings deposits.

    The Head of the Department of Banking and Payment Systems (Deban), in the exercise of the powers conferred on it by article 23, item I, item "a" of the Internal Regulations of the Central Bank of Brazil, annexed to the Resolution BCB No. 340, of September 21, 2023, and in view of the provisions of the Resolution BCB No. 188, of February 23, 2022, provides for procedures regarding compulsory payment on resources from savings deposits, as referred to in BCB Resolution No. 188, of February 23 2022.

    For the provision of information on the compulsory collection of funds of savings deposits, institutions shall observe the following:

    • Institutions participants of the Reservation Transfer System (STR) with access to by the National Financial System Network (RSFN) should use the RSFN.
    • Other institutions should use the STR-Web application.

    The following codes shall be used.
    Domain Dictionary associated with the RSFN:

    • STR  institutions participants with primary access by RSFN should use the message "RCO0002 - IF informs Statement", of the RCO Services Group, contained in the Catalog of Services of the National Financial System, filling in the fields: "CodRCO" with the code "7- Savings Deposits", and following the below Domain Dictionary codes:
    • 7001 – Free Savings Deposits
    • 7002 – APE - Saver Member Resources
    • 7005 – Free Savings Deposits
    • 7006 – APE - Saver Member Resources
    • 7011 – Rural Savings Deposits
    • 7015 – Rural Savings Deposits
    • 7021 – Peculio Savings Deposits
    • 7024 – Savings Deposits
    • 7101 – Free Savings Deposits of cooperatives that are members of the cooperative system and eligible for deduction for the state of public calamity DLG 36-2024
    • 7111 – Rural Savings Deposits of cooperatives that are part of the cooperative system and eligible for deduction for the state of public calamity DLG 36-2024

    For the purposes of the provided for in BCB Resolution No. 131, of August 20, 2021, Deban will monitor the conduct of the institutions with regard to the provision and delivery of within the established deadline of documents, data or information relating to the collections subjecting the institution and its managers to penalties, provided for in the regulations in force.

     In the case of a co-operative system organized at three levels in which the confederation is not the cooperative bank responsible for proving compliance with the as well as the collection and payment of financial costs, should contact Deban.

    The provisions in this Normative Instruction shall be observed from the calculation period starting on May 13 2024 and ending on May 17 2024, the adjustment of which It will take place on May 27 2024.

    The Normative Instruction BCB No. 240, of March 11, 2022, after the production of its effects in the calculation period starting on May 6 2024 and ending on May 6 2024 will be adjusted on May 20 2024.

    The regulation entered into force on the date of its publication, May 15 2024.

  • BCB publishes Resolution No. 382

    CACEIS

  • On May 22 2024, the Banco Central do Brasil (BCB) published the Resolution No. 382.

    It changes the Regulation of the Executive Management Committee (CEG) of the Platform Pilot Project of the Digital Real (RD Pilot) and the Regulation of the Pilot Project of the Real Digital (RD Pilot), Annexes I and II to the Resolution BCB No. 315, of April 27 2023.

    The Board of Directors of the BCB approved the Regulation of the Executive Management Committee (CEG) of the Real Platform Pilot Project Digital (RD Pilot), Annex I to BCB Resolution No. 315, of April 27 2023.

    The inclusion of other assets in the RD Pilot that are not subject to the regulatory competence of the BCB but to the participation of the regulatory body or entity responsible for the regulation of the asset in the composition of the CEG.

    The CEG shall, within 60 days from the date of completion of the activities covered in each phase of the RD Pilot; in accordance with the guidelines established for this pilot project by the BCB, to present to the Collegiate Board of Directors the final report of the respective phase of the RD Pilot and proposal for forwarding its subsequent activities.

    The RD Pilot is constituted by means of the adhesion, by its participants, to a cooperation agreement, including the BCB and other regulatory bodies or entities that participate in the RD Pilot, with the purpose of building a collaborative environment for testing and development of a platform with distributed ledger technology (DLT) for the Drex.

    Article 16, Paragraph 2:

    II - scalability of the solution technological, focused on retail applications of national scope;

    III - privacy of information used in the use cases, in compliance with the pertinent Brazilian legislation; and

    IV - governance of the implementation and management of contracts are linked to services related to the company's infrastructure. platform or the achievement of any tested use cases or business models in the RD Pilot.

    § 3A inclusion of assets in the RD Pilot platform that are not subject to the The regulatory competence of the Central Bank of Brazil is subject to the participation of the relevant regulatory body or body in the composition of the CEG, subject to the provisions of § 4 of article 3 of the Regulation of the CEG of the RD Pilot, Annex I to this Resolution.

    § 4 At the discretion of CEG, digital representations (tokens) of other assets not listed in § 1, including non-relevant assets. may be included in the RD Pilot platform, subject to the provisions of the in § 3." 

    Article 3: The following are hereby repealed:

    I - the sole paragraph of article 10 of the Regulation of the CEG of the RD Pilot, Annex I to BCB Resolution No. 315, of 2023; and

    II - the sole paragraph of article 6 of the RD Pilot Regulation, Annex II to BCB Resolution No. 315, of 2023.

    Article 4: This Resolution enters into force on the date of its publication, May 22 2024.

  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    ANBIMA sends Official Letter to CVM on Reassessment of PFEE rebate fence on retail funds

    CACEIS

  • On May 2 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) sent Official Letter to CVM on Reassessment of the PFEE rebate fence on retail funds.

    It is a consensus that the origin of the regulatory change on the subject in question comes from an absolutely legitimate desire of the CVM to reduce conflicts of interest, allowing the remuneration of all service providers, and in particular that of the distributor, to be transparent to the investor.

    It is understood that prohibiting performance fee rebates in funds intended for the general public may not adequately resolve the issue of conflict, leading to a loss-making situation for all market participants, including investors. This is because the reorganization of the commercial relationship between managers and distributors has already started one or more of the following movements: 

    • Tendency for the amount of funds for investors in general to decrease, representing a setback in the market evolution of recent years – catalyzed by the flexibilities regulatory measures – which sought to increasingly democratize investor access in general to new theses and types of investment funds. 
    • Reduction of managers' fixed revenue, which is essential for maintaining business since in commercial negotiations they will exchange a slice of the performance fee for a larger slice of recurring revenue from the administration fee (or, within the scope of the CVM Res 175 “distribution fee”); 
    • Increase in the entry barrier for new managers and concentration on the largest managers and;
    • The development of new structures to avoid loss of remuneration that will generate unnecessary operating costs and may reduce returns for investors.

    Considering the situations presented above, it is natural that distributors seek to maintain their average remuneration received in recent years by renegotiating their old management fee rebate for the new maximum distribution fee, in order to increase it to try to restore the revenue that he would lose over time, given the prohibition on remuneration paid to distributors as performance. 

    This movement can generate funds with higher total fixed costs for shareholders, since some managers, especially those called independent ones without their own distribution channels, will not have the margin to give up recurring revenue considering their internal costs, with the solution being to increase the rate administration. 

    Even in cases in which total fixed costs are maintained, the rearrangement of rates with a higher percentage of recurrence allocated to the distributor may affect the resource management market, as many may have difficulty maintaining the cost structure in this new scenario and thus leading to an increase in the entry barrier for new entrants and even a reduction in currently existing management houses, reducing diversification in the fund industry and product opportunities for the retail investor.

    Another possible development is the qualification of funds. Many investment funds, despite being aimed at the general public, have a majority of qualified investors in their liabilities. As the prohibition on remuneration is restricted to funds intended for investors in general, there may be a movement towards qualification of funds that are already predominantly invested by qualified investors. This trend could lead to a potential setback in the democratization of retail investor access to differentiated products, a consequence that goes against one of the CVM's main agendas in recent years.

    It is proposed to address fee transparency through provision of a tool through which potential investors of funds intended for the general public have access at any time, but especially at the time of decision of investment, to a real simulation of scenarios of remunerations to be received in a segregated manner to the manager, distributor and fiduciary administrator. 

    This way, this investor will have full transparency of the list of distributors and respective commercial relationships established, being able to compare and choose the best alternative. 

    The premises of this tool will be self-regulated at ANBIMA through the Code of Administration and Management of Third-Party Resources. Below are listed the points already discussed that we are important for the evolution of the project:

    • Standardization of the Template and Methodology;
    • Fixed scenarios;
    • Transparency of information.
    • More
    • ANBIMA sends Official Letter to CVM on Reassessment of PFEE rebate fence on retail funds
  • ANBIMA publishes Letter to CVM on proposal for informational transparency of service providers' remuneration rates within the scope of CVM Resolution 175

    CACEIS

  • On May 2 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) publishes letter to Comissão de Valores Mobiliários (CVM) on proposal for informational transparency of service providers' remuneration rates within the scope of CVM Resolution 175.

    The publication of RCVM 175 has just completed one year and, more than an extremely innovative and investor-oriented rule, it has brought to the market rich discussions and exchanges of knowledge of which we are very proud to be part. In 2024, the journey of market maturity and guidance in relation to the new regulatory framework for investment funds, including by strengthening our self-regulation is being continued.

    One of the main novelties of RCVM 175 is the segregated statement of the fees that remunerate the fund's service providers. Despite the understanding that the “global” fee for the Fund's service providers (equivalent to the concept of administration fee provided for under CVM Instruction 555) is the one that actually impacts the shareholder, we recognize that the regulator's determination to offer more transparency of the remuneration of each service provider in the fund is legitimate and empowers investors. Placing investors at the center of discussions is also part of the Association's strategic agenda and is among our priorities for 2024.

    After the publication of the new regulatory framework for funds, numerous statements of clarification from regulators were published with regard to the new dynamics of remuneration for fund providers.

    Below are some perceptions regarding the undesirable consequences arising from the new dynamics of remuneration for fund service providers, as currently provided for in RCVM 175 and related Circular Letters:

    • Proliferation of Subclasses: the dynamics of fee segregation currently provided for in RCVM 175, under which the management fee no longer communicates with the distribution fee, brings distortions in the application of subclasses, which will now be used for differentiation of the commercial agreements between managers and distributors, and not, as originally expected, to differentiate aspects of the same product, such as: different benchmarks, application and redemption deadlines and conditions, and/or manager remuneration.
    • Portability Process: another operational impact observed concerns portability between subclasses. Still under the CVM Instruction 555 regime, portability occurs through the mere registration change of the shareholders who go through this process, with the main beneficiaries being the simplicity of the process.
    • Complexity for the Investor: due to the proliferation of subclasses, the investor could be allocated to several different subclasses depending on the date of application depending on the volume distributed. Likewise, their position could be transferred to another subclass just to accommodate the receipt of new remuneration by the distributor, due to the change in the financial amount defined in the agreement.

    In view of the concerns raised and their adverse consequences, the proposal has been developed that allows to reconcile while preserving the essence of transparency required by the Regulator with a simplicity that is beneficial to investors and market participants. The proposal made at this time by the Association consists of making the opening of fees in the fund's corporate documents more flexible. (i.e., annex or appendix), creating space for service providers to make such information available in a segregated manner through so-called information transparency. 

    Finally, the use of the remuneration summary would be an alternative to the segregation of fees in the regulations (annex and appendices) as currently provided for in RCVM 175, with essential service providers being able to choose to maintain the segregation of fees in the Funds' operational and documents when they deem most appropriate to the specific case. 

  • ANBIMA signs 2 Terms of Commitment with asset managers

    CACEIS

  • On May 2 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) signed 2 terms of commitment with asset managers.

    Agreements cover the fulfillment of the percentage of certified professionals for FIP management.

    ANBIMA's Council on Regulation and Best Practices for the Continuing Certification Program accepted the proposals of Starboard and GEF Brazil for the fulfillment of the percentage of certified professionals in the two institutions. Both cases involve non-compliance with the certification rules for the management of FIPs (Equity Investment Funds). According to our Certification Code, 50% of the professionals of institutions that work with FIP management should have the CGE by March 2, 2023 and 100% by March 2 2024.

    The council agreed with the proposals put forward by the institutions. It was established that in addition to the commitment to obtain the required percentage of professionals with the certifications, the institutions will make financial disbursements that will be directed to the realization of events and educational actions promoted by the Association.

  • CVM publishes New Version of the Monthly Report for FIDC available in the Fundos.Net System

    CACEIS

  • On May 8 2024, the Comissão de Valores Mobiliários (CVM) published new version of the Monthly Report for Credit Rights Investment Funds (FIDC) available in the Fundos.Net System.

    The Superintendence of Securitization and Agribusiness (SSE) of the CVM published CVM/SSE Circular Letter 3/2024.

    The document informs that, as of June 1 2024, a new version of the Monthly Report for Credit Rights Investment Funds (FIDC) will be available in the Fundos.Net System. The goal is to improve the standardization of subclass and series information.

    Among the changes are the adjustments in the fields related to section X – Other information, item 1 – Number of quota holders (Senior Subclass, Subordinate Subclass/Subclass Type and Subordinate Subclass/Subclass Type/Series), which previously allowed free typing and now have pre-selected options.

    The content will be automatically replicated to the other items in Section X.

    Monthly Reports delivered as of June 1 2024 must comply with the new model.

    The series extinguished in previous months should continue to be reported in the subsequent periods with zero values, to preserve consistency.

  • ANBIMA publishes New Rules for funds that invest in crypto assets

    CACEIS

  • On May 21 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) publishes new rules for funds that invest in crypto assets.

    A public hearing is open to define minimum governance requirements for funds and managed portfolios that invest in cryptoassets, due to CVM Resolution 175, which enabled direct investment in these assets.

    ANBIMA suggests minimum due diligence to be followed by the managers and administrators of these portfolios, in addition to a standardization of governance information in line with international recommendations. Among the suggestions, ANBIMA proposed that managers maintain a policy that describes the area responsible for the investment decision and the criteria used to select cryptoassets, including procedures related to custody and the process of acquiring and monitoring these assets (known as know your token).

    In addition, seeking alignment in the disclosure of prices, we suggest a standardization for the pricing methodology of cryptoassets, which should be included in the pricing manuals of the institutions.

    The new standards, which are part of ANBIMA's Market Development Agenda in Action (our set of priorities for the year) will come into force on 1 October and the stock will have until June 30 2025 for adaptation. They will be in the Rules and Procedures for Administration and Management of Third-Party Resource Administration.

    The document will also undergo a language revision to facilitate the interpretation of the standards and standardize some nomenclatures. In addition, ANBIMA will review the texts of the Qualified Services, Distribution and Public Offerings codes, and their respective rules and procedures. Nothing changes in the current rules.

    The text of the Code of Administration and Management of Third-Party Resources will also be revised. In his case, there was also the adaptation to Law 14,754/23, which deals with the taxation of closed-end funds, published in December 2023. Due to the collection of come-quotas brought by the law, we excluded from the code the article that restricted amortization in classes of FIFs (financial investment funds) every 12 months.

    Comments can be sent until June 20 2024.

  • CVM publishes Circular Letter CVM/SIN 1/2024 on concentration limits for investments abroad

    CACEIS

  • On May 29 2024, the Comissão de Valores Mobiliários (CVM) published the Circular Letter CVM/SIN 1/2024 clarifing concentration limits for investment in assets abroad.

    The document seeks to provide clarifications on concentration limits for investment in assets abroad by Financial Investment Funds (FIFs) regulated by Normative Annex I of CVM Resolution 175.

    The technical area clarifies that the FIF quota class can invest directly in assets abroad, exceeding the limit of 20%, and receive investments from the general public, provided that it has the minimum apparatus described in items I to VI of paragraph 2, in addition to that established in paragraph 1 of article 43.

    The Official Letter also reinforces that the assets invested abroad must be shares or have the same level of risk and liquidity as the assets allowed for the class.

    The authorization of direct investment in assets abroad by retail FIFs, incorporated in Brazil and that cumulatively meet the requirements required by CVM Resolution 175 for investment vehicles abroad, constitutes an incentive to the structuring of funds in Brazil, reducing structuring and compliance costs.

  • Prospectus/Transparency

    CVM publishes CVM/PTE Ordinance No. 51/2024

    CACEIS

  • On May 23 2024, the Comissão de Valores Mobiliários (CVM) published the CVM/PTE Ordinance No. 51/2024.

    The chairman of the CVM, in the exercise of the powers conferred upon him by the CVM's Internal Regulations, approved by CVM Resolution No. 24, of March 5, 2021, approved the new Open Data Plan (PDA) of the CVM, pursuant to ANNEX A of this Ordinance and repealed the CVM/PTE/Nº ordinance No. 182, of December 20.

    The CVM, through this document, presents its most recent Open Data Plan (PDA), which will guide the activities of this Authority for opening, maintaining, monitoring and promoting the use of its databases until April 2026. The PDA aims to guide the actions of complementing and promoting the opening of the Autarchy's data, facilitating the access and use, by the citizen, of the information held by the CVM, as well as its exchange with other public bodies and entities. In this sense, the plan covers any data generated by the Autarchy or received by it in the exercise of its legal duties, as long as they are not under confidentiality or have some other access restriction.

    It should be noted that the first PDA-CVM was launched in 2016, through Ordinance CVM/PTE/No. 180, of 12/15/2016, in full alignment with the Open Data Policy of the Federal Executive Branch, established by Decree No. 8,777, of May 11, 2016, which aims, among other objectives, to improve the culture of public transparency, giving citizens access. to data produced or accumulated by the Public Administration. Since then, the Autarchy has increased its active transparency and the databases that are available to citizens on its open data portal.

    This plan also considers the principles and guidelines established by Resolution No. 3, of October 13, 2017, of the Steering Committee of the National Open Data Infrastructure (CGINDA), which approved standards on the preparation and publication of Open Data Plans; STL Normative Structure No. 4, of April 12, 2012, which created the National Open Data Infrastructure (INDA), the National Open Government Policy (Decree No. 10,160, of December 9, 2019), in addition to the parameters established in the e-government interoperability architecture and the e-Government vocabularies and ontologies.

    It should be noted that the PDA-CVM does not apply only to data generated by the Authority, but also to information received from capital market participants, forwarded voluntarily or in compliance with applicable legislation or regulations. In this sense, it should be noted that the law that established the CVM itself requires that the exercise of the Authority's powers must pursue some purposes (article 4, Law No. 6,385, of December 7, 1976), among them that of "ensuring public access to information about the securities traded and the companies that have issued them". This is a sensitive issue, as many third-party data involve personal information, and the rules of the General Data Protection Law (LGPD), Law No. 13,709, of August 14, 2018, are especially applicable.

    Thus, throughout its history, the Autarchy has always required market participants to forward periodic and occasional information. This documentary collection, together with the one produced by the CVM itself in the exercise of its duties, contains an important and often unique record of the activities carried out by the Commission in almost 50 years of existence, which observes, it should be noted, the guidelines and rules of the national policy on public and private archives (Law 11° 8.159, of January 3, 2002). Of course, not all information is intended for permanent safekeeping, some of which is deleted in accordance with the regulations applicable at any given time.

    General objectives are the following:

    Promote the openness of data at CVM, ensuring the principles of publicity, transparency and efficiency, according to the following guidelines:

    • Expansion of the number of open databases (amount of data);
    • Improvement of the quality of the data made available, in order to contribute to decision-making by public managers and encourage social control (data quality);
    • Commitment to the progressive expansion of data sharing with other federal public administration bodies, under the terms of Decree No. 10,046, of October 9 2019.

    This Ordinance entered into force on June 3 2024.

  • Risk management

    ANBIMA publishes new Due Diligence Questionnaire for Contracting Data Services

    CACEIS

  • On May 21 2024, the Brazilian Financial and Capital Markets Association (ANBIMA) published a new Due Diligence Questionnaire for Contracting Data Services.

    ANBIMA puts in public hearing their Rules and Procedures of Basic Duties, more specifically the part in which they deal with the requirements for hiring third parties for data processing or services for cloud storage.

    They have referenced in the document a new QDD (Due Diligence Questionnaire), which has questions related to the cybersecurity structure, policies, procedures, and controls.

    The objective is to help institutions understand and measure the risks associated with the provision of the service and to ensure a minimum standard in cybersecurity among the contracted companies.

    Comments on the text can be sent until May 31 2024.

  • Supervision

    BCB publishes Next Steps in the regulation of crypto assets and virtual asset service providers

    CACEIS

  • On May 20 2024, the Banco Central do Brasil (BCB) published next steps in the regulation of crypto assets and virtual asset service providers.

    The Central Bank decided to divide the process of regulating the market for the provision of virtual asset services in the country into phases. On the radar is the development of a second public consultation on the general rules of action of providers and the authorization processes of these entities.

    The regulatory competence attributed to the BCB through the Decree 11,563, of 2023open_in_new – preserving the attributions inherent to other bodies, such as the Brazilian Securities and Exchange Commission (CVM) and the Special Secretariat of the Federal Revenue Service of Brazil (RFB) – aims to reinforce the protection of investors in virtual assets, establishing rules that confer and require greater transparency in relation to the benefits and risks associated with these investments. In order to continue the regulation of the market for the provision of crypto-asset services in the country, the Central Bank decided to divide the process into phases.

    The initiative should go through processes of gradual review and sophistication, following the evolution of the understanding of regulators and the actions proposed by international organizations. At the same time, the Central Bank intends, with the support of regulatory bodies, such as the CVM, to deal with aspects related to specific virtual assets, which combine characteristics that combine the interest and competence of both authorities, as well as other government bodies.

    Next steps in the regulation of cryptocurrencies defined by the BCB as one of the priorities for the 2024 are the following:

    • Development of a second public consultation on the general rules of action of providers and authorisation in the second half of the year;
    • Establishment of internal planning in relation to the regulation of stablecoins, especially in the spheres of competence of the Central Bank over payments and the foreign exchange market;
    • Development and improvement of the complementary framework to receive entities (e.g.: performance of VASPs in the foreign exchange market, prudential regulation, provision of information to the Central Bank, accounting, tariffs, suitability, etc.).

    Based on this, the contributions will be used and the normative proposals will be closed at the end of 2024.

    It is also important to note that the regulation aims to preserve the stability of the National Financial System, according to the mandate of the Central Bank. It is in this area that the rules related to the Prevention of Money Laundering and Combating the Financing of Terrorism, the monitoring of suspicious activities and the discipline related to prudential aspects that providers and other authorized institutions develop, matter.

  • Sustainable Finance / Green Finance

    CVM launches public consultation for Technical Pronouncement regarding climate disclosures

    CACEIS

  • On May 13 2024, the Comissão de Valores Mobiliários (CVM) launched a public consultation for Technical Pronouncement regarding climate disclosures.

    The Superintendence of Accounting and Auditing Standards (SNC) of the Brazilian Securities and Exchange Commission (CVM) opens a public consultation for CBPS Technical Pronouncement No. 02 on Climate-Related Disclosures.

    CBPS Technical Pronouncement No. 02, issued by the Brazilian Committee on Sustainability Pronouncements (CBPS), is aligned with IFRS S2 on Climate-related Disclosures, a standard issued by the International Sustainability Standards Board (ISSB). Its adoption maintains the convergence of the normative acts issued by the CVM to international standards.

    The draft CVM Resolution will make CBPS Technical Pronouncement No. 02, issued by the Brazilian Committee for Sustainability Pronouncements (CBPS), mandatory for publicly-held companies.

    The proposal is for the Resolution to enter into force on January 1 2026. However, the early adoption of CBPS Technical Pronouncement No. 02 will be allowed, due to the exercise of the option established in article 1 of CVM Resolution 193, which provides for the preparation and disclosure of the report of financial information related to sustainability, based on the international standard issued by the ISSB.

    As this is the adoption of a Technical Pronouncement that maintains convergence with international standards, a regulatory impact analysis (RIA) was not carried out, pursuant to article 4, VI, of Decree 10,411/20.

  • COLOMBIA

    Foreign Exchange Market (FOREX, FX)

    Banco de la República publishes Regulatory Circular DCIP-83, Matter 10 on procedures applicable to foreign exchange operations

    CACEIS

  • On May 15 2024, the Banco de la República published the Regulatory Circular DCIP-83 of May 14, 2024, Matter 10 on procedures applicable to foreign exchange operations.

    The Circular DCIP-83 of the Department of International Exchange and Payments (DCIP) is amended and clarifies the procedure for the consolidation of external credits, the identification and registration of autonomous assets and fiduciary assignments in some foreign exchange operations and clearing accounts.

    It is addressed to the main office and branches of the Banco de la República, foreign exchange market intermediaries, natural and legal persons carrying out foreign exchange and international investment operations.

    Credit consolidation applies when several external credits reported and disbursed  independently are integrated into a new external credit report, the value of which will be the result from the sum of the balances of the credits that are consolidated, maintaining the same parts and conditions. The resident must present the External Credit Report granted to residents identifying the credits that are consolidated. The consolidation will result in the automatic cancellation of the consolidated credit reports and automatic disbursement of the new credit report external.

    In the case of autonomous assets, collective investment funds, capital funds private, consortia, temporary unions or fiduciary orders the operations that are channeled through these accounts must correspond to their own operations.

    When there is a fiduciary assignment, the entity must be registered as owner, as well as the trustee that manages it and all its resident trustors.

    When the account holder is an autonomous patrimony whose object and purpose is serve as a guarantee and/or source of continued payment of obligations acquired by its settlors, or by the autonomous assets constituted by them, he must be registered as owner to the autonomous assets that serve as guarantee and/or source of payment, identifying it with the NIT number or the PA code, and list in the fiduciary constituents section the resident settlors and the autonomous assets constituted by them.

  • Banco de la República reminds of June 30 deadline to update information on special exchange regime equity accounts related to hydrocarbon and mining

    CACEIS

  • On May 15 2024, the Banco de la República reminded that June 30 is the deadline to update the information on the equity accounts of the special exchange regime related to the hydrocarbon and mining sectors.

    The branches of foreign companies that are part of the special exchange regime that carry out activities of exploration and exploitation of oil, natural gas, coal, ferronickel or uranium and those that are exclusively dedicated to the provision of services inherent to the hydrocarbon sector must report annually to the Banco de la República the update of their equity accounts through the transmission of the "Asset Reconciliation Special Regime" through the Exchange Information System.

    For more information on this obligation, refer to Chapter 11 of the External Regulatory Circular DCIP-83.

  • FRANCE

    Directive on credit servicers and credit purchasers

    ACPR publishes Instructions and Forms for the approval of credit managers / L'ACPR publie les Instructions et Formulaires d'agrément des credit managers

    CACEIS

  • On May 23 2024, the Autorité de contrôle prudentiel et de résolution (ACPR) published instructions and forms for the approval of credit managers.

    Directive (EU) 2021/2167 of the European Parliament and of the Council of November 24, 2021 on credit managers and credit buyers was transposed into French law in December 2023. In this context, the ACPR has published on its website the instructions to follow and the forms to complete within the framework of this regulation.

    The following instructions and corresponding appendices have been created or modified to accommodate takes into account the requirements linked to this new regulation.

    • Instruction 2024-I-03 relating to requests for approval and declarations of credit managers;Instruction 2024-I-04 relating to the appointment or renewal of an effective manager or a member of a supervisory body;
    • Instruction 2024-I-05 relating to the withdrawal of approval, authorization or registration of financing companies, third-party financing companies, investment companies, payment institutions, account information service providers, electronic money institutions or credit managers;
    • Instruction 2024-I-06 relating to new prudential discounts for asset managers, credit institutions, branches of credit institutions from third countries, financing companies and credit buyers.

    Version française

    Le 23 mai 2024, l'Autorité de contrôle prudentiel et de résolution (ACPR) a publié les instructions et formulaires d'agrément des credit managers.

    La directive (UE) 2021/2167 du Parlement européen et du Conseil du 24 novembre 2021 relative aux gestionnaires de crédit et aux acheteurs de crédits a été transposée en droit français en décembre 2023. Dans ce cadre, l'ACPR a publié sur son site internet les instructions à suivre et les formulaires à remplir dans le cadre du présent règlement.

    Les instructions suivantes et les annexes correspondantes ont été créées ou modifiées pour tenir compte des exigences liées à cette nouvelle réglementation.

    • Instruction 2024-I-03 relative aux demandes d'agrément et aux déclarations des credit managers ;
    • Instruction 2024-I-04 relative à la nomination ou au renouvellement d'un dirigeant effectif ou d'un membre d'un organe de surveillance ;
    • Instruction 2024-I-05 relative au retrait d'agrément, d'agrément ou d'immatriculation des sociétés de financement, des sociétés de tiers financement, des sociétés d'investissement, des établissements de paiement, des prestataires de services d'information sur les comptes, les établissements de monnaie électronique ou les gestionnaires de crédit ;
    • Instruction 2024-I-06 relative aux nouvelles décotes prudentielles pour les gestionnaires d'actifs, les établissements de crédit, les succursales d'établissements de crédit de pays tiers, les sociétés de financement et les acheteurs de crédits.
  • FinTech / RegTech / BigTech / SupTech / Digital Economy

    France publishes Law no. 2024-449 aimed at securing and regulating the digital space / La France publie la loi no. 2024-449 visant à sécuriser et réguler l’espace numérique

    CACEIS

  • On May 22 2024, France published the Law no. 2024-449 of May 21, 2024 aimed at securing and regulating the digital space in the Legifrance (France's Official Journal).

    This law takes inspiration from, among other, the European regulations DSA (digital services regulation) and DMA (digital markets regulation) adopted by France in 2022 to put an end to the abuses of digital giants.

    One of its goals is to protect businesses in the following ways:

    • Restore commercial fairness by prohibiting digital giants from prioritizing their services on their platforms:
      To enable fair competition, the direct application of the Digital Markets Regulation (DMA) at European level will reopen the ability of European companies to enter digital economy markets.
    • Reduce business dependence on cloud providers:
      To change cloud provider, a company must now pay a fee representing 125% of its annual subscription cost. Also, to prevent companies from finding themselves in a situation of dependence, the law includes several measures, in particular the regulation of data transfer and migration costs and the one-year cap on cloud credits (commercial assets).

    Version française

    Le 22 mai 2024, la France a publié la loi n°. 2024-449 du 21 mai 2024 visant à sécuriser et réguler l'espace numérique à la Légifrance.

    Cette loi s'inspire, entre autres, des règlements européens DSA (régulation des services numériques) et DMA (régulation des marchés numériques) adoptés par la France en 2022 pour mettre fin aux dérives des géants du numérique.

    L'un de ses objectifs est de protéger les entreprises des manières suivantes :

     

    • Rétablir l’équité commerciale en interdisant aux géants du numérique de prioriser leurs services sur leurs plateformes :
      Pour permettre une concurrence loyale, l’application directe du règlement sur les marchés numériques (DMA) au niveau européen permettra aux entreprises européennes d’accéder aux marchés de l’économie numérique.
    • Réduire la dépendance des entreprises vis-à-vis des fournisseurs de cloud :
      Pour changer de fournisseur de cloud, une entreprise doit désormais s'acquitter d'une redevance représentant 125 % de son coût d'abonnement annuel. Aussi, pour éviter que les entreprises ne se retrouvent en situation de dépendance, la loi comprend plusieurs mesures, notamment l'encadrement des coûts de transfert et de migration des données et le plafonnement d'un an des crédits cloud (actifs commerciaux).

  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    AFG reminds investment management companies to complete AMF FRA RAC 2024 survey / L'AFG rappelle aux sociétés de gestion de répondre à l'enquête AMF FRA RAC 2024

    CACEIS

  • On May 30 2024, the Association Française de Gestion (AFG) reminded investment management companies to complete the FRA RAC 2024 survey.

    Each year, investment management companies must provide the AMF with:

    • Information relating to the control system used by your investment management company. This is known as the Annual Control Report (abbreviated to RAC in French).
    • Statistical information on headcount, accounting data, capital, and assets under management. This information is provided on the Annual Disclosure Sheet (abbreviated to FRA in French).

    The AMF provided additional guidance on the following aspects:

    • Questions T3-A-1 et T3-A-2

    Concerning the amount to be reported for gross assets, it is appropriate to report the amount including all collective management funds (UCITS and AIFs).

    • Questions T1-P.3.4

    This question can be ignored (fill in 0) or you can fill in the number of significant cyber threats.

    • Questions T1-P.3.5

    This question can be understood as “What was the number of non-major incidents according to DORA? ".

    Entities in scope have until June 13 2024 to submit their answers to the AMF.

    Version française

    Le 30 mai 2024, l'Association Française de Gestion (AFG) a rappelé aux sociétés de gestion de répondre à l'enquête FRA RAC 2024.

    Chaque année, les sociétés de gestion doivent fournir à l'AMF :

    • Les informations relatives au système de contrôle utilisé par votre société de gestion. C'est ce qu'on appelle le Rapport Annuel de Contrôle (en abrégé RAC en français).
    • Informations statistiques sur les effectifs, les données comptables, le capital et les actifs sous gestion. Ces informations sont fournies sur la Fiche d'Information Annuelle (en abrégé FRA en français).

    L’AMF a fourni des indications complémentaires sur les aspects suivants :

     

    • Questions T3-A-1 et T3-A-2

    Concernant le montant à déclarer pour l'actif brut, il convient de déclarer le montant incluant l'ensemble des fonds de gestion collective (OPCVM et FIA).

     

    • Questions T1-P.3.4

    Cette question peut être ignorée (remplissez 0) ou vous pouvez indiquer le nombre de cybermenaces significatives.

     

    • Questions T1-P.3.5

    Cette question peut être comprise comme « Quel était le nombre d’incidents non majeurs selon DORA ? ".

    Les entités concernées ont jusqu'au 13 juin 2024 pour soumettre leurs réponses à l'AMF.

  • AMF publishes publishes a research paper on French funds’ costs / L’AMF publie une étude sur les coûts des fonds français

    CACEIS

  • On May 31 2024, the Autorité des marchés financiers (AMF) publishef a research paper on French funds’ costs.

    The AMF analyzed the costs charged by French funds between 2017 and 2022, using a tool that extracts the fee tables presented in the Key Investor Information Documents (KIIDs).

    The AMF's knowledge of the costs associated with investing in financial products is still very patchy as there is no harmonized reporting of fees at the European level, and studies on the topic are essentially based on non-exhaustive information compiled by commercial data providers.

    The AMF has developed a computer program using various artificial intelligence techniques to extract the fee tables reported in the Key Investor Information Documents (KIIDs), and structure them in a usable database.

    The research paper documents the tool’s performance by comparing its output dataset with the information purchased from data vendors. Our extracted data proves consistent with the commercial databases, and the coverage of the French-domiciled funds market has been substantially improved.

    This original database is then used to analyze, both graphically and econometrically, the relationships between fee levels and fund characteristics (asset class, management style, ESG labels, target customer base, risk level, etc.) between 2017 and 2022.

    The study highlights a decline in ongoing fees and exit fees since 2017. Index funds and institutional funds are on average less expensive than their non-index or non-institutional equivalents, both in terms of ongoing fees and maximum entry fees. The average difference in ongoing fees is around 100 basis points for the former, and 30 basis points for the latter.

    Ongoing fees, maximum entry fees and maximum exit fees for employee savings funds are lower than for comparable funds not distributed via employee savings plans (average difference of around 50 basis points for each type of fee).

    ESG-labeled funds have lower ongoing and exit fees than non-labeled funds (average difference of around 15 basis points).

    All other things being equal, funds distributed via unit-linked insurance contracts have higher ongoing costs and entry fees than others (30 and 10 basis points respectively).

    Among bond and diversified funds, higher risk levels (as measured by the synthetic risk/return indicator - SRRI) are associated with higher ongoing costs, entry fees and exit fees. For instance, the average increase in ongoing costs per SRRI unit is around 20 basis points.

    The tool developed by the AMF improves the coverage of the French market, but is not yet exhaustive, as many regulatory documents are transmitted in a format that cannot be processed.

    Last, distribution costs as well as expenses associated with investment wrappers (stock savings plan, employee savings plan, employee retirement savings plan, unit-linked life insurance contracts) are not readily available. As a result, it is currently impossible to estimate the total cost of investing in a fund. This question is one of the topics under discussion within the Retail Investment Strategy.

    Version française

    Le 31 mai 2024, l’Autorité des marchés financiers (AMF) publie une étude sur les coûts des fonds français.

    L'AMF a analysé les frais facturés par les fonds français entre 2017 et 2022, à l'aide d'un outil qui extrait les grilles de frais présentées dans les documents d'informations clés pour l'investisseur (DICI).

    La connaissance par l'AMF des coûts liés à l'investissement dans les produits financiers est encore très fragmentaire, car il n'existe pas de reporting harmonisé des frais au niveau européen et les études sur le sujet s'appuient essentiellement sur des informations non exhaustives compilées par des fournisseurs de données commerciales.

    L’AMF a développé un programme informatique utilisant diverses techniques d’intelligence artificielle pour extraire les grilles de frais reportées dans les Documents d’informations clés pour l’investisseur (DICI) et les structurer dans une base de données exploitable.

    Le document de recherche documente les performances de l’outil en comparant son ensemble de données de sortie avec les informations achetées auprès des fournisseurs de données. Les données extraites s'avèrent cohérentes avec les bases de données commerciales et la couverture du marché des fonds domiciliés en France a été considérablement améliorée.

    Cette base de données originale permet ensuite d'analyser, tant graphiquement qu'économétriquement, les relations entre niveaux de frais et caractéristiques des fonds (classe d'actifs, style de gestion, labels ESG, clientèle cible, niveau de risque, etc.) entre 2017 et 2022.

    L’étude met en évidence une baisse des frais courants et des frais de sortie depuis 2017. Les fonds indiciels et institutionnels sont en moyenne moins chers que leurs équivalents non indiciels ou non institutionnels, tant en termes de frais courants que de frais d’entrée maximum. La différence moyenne entre les frais courants est d’environ 100 points de base pour les premiers et de 30 points de base pour les seconds.

    Les frais courants, les frais maximaux d'entrée et les frais maximaux de sortie des fonds d'épargne salariale sont inférieurs à ceux des fonds comparables non distribués via l'épargne salariale (différence moyenne de l'ordre de 50 points de base pour chaque type de frais).

    Les fonds labellisés ESG ont des frais courants et de sortie inférieurs à ceux des fonds non labellisés (différence moyenne d'environ 15 points de base).

    Toutes choses égales par ailleurs, les fonds distribués via des contrats d'assurance en unités de compte ont des frais courants et des frais d'entrée plus élevés que les autres (respectivement 30 et 10 points de base).

    Parmi les fonds obligataires et diversifiés, des niveaux de risque plus élevés (tels que mesurés par l'indicateur synthétique risque/rendement - SRRI) sont associés à des coûts courants, des frais d'entrée et des frais de sortie plus élevés. Par exemple, l’augmentation moyenne des coûts permanents par unité SRRI est d’environ 20 points de base.

    L'outil développé par l'AMF améliore la couverture du marché français, mais n'est pas encore exhaustif, car de nombreux documents réglementaires sont transmis dans un format non traitable.

    Enfin, les coûts de distribution ainsi que les dépenses liées aux enveloppes d'investissement (épargne en actions, épargne salariale, épargne retraite salariale, contrats d'assurance vie en unités de compte) ne sont pas facilement disponibles. Par conséquent, il est actuellement impossible d’estimer le coût total d’un investissement dans un fonds. Cette question est l’un des sujets en discussion dans le cadre de la stratégie d’investissement au détail.

  • Sustainable Finance / Green Finance

    France publishes Order modifying the v3 standard of the ISR label / La France publie un arrêté modifiant la norme v3 du label ISR

    CACEIS

  • On May 24 2024, France published an Order modifying the v3 standard of the ISR label.

    It only modifies Annex 2 of the ISR label reference system.

    The changes can be found on the following topics:

    • the objectives sought by the fund through the consideration of ESG criteria by issuers
    • issuer analysis and rating methodologies implemented by the portfolio management company
    • taking into account ESG criteria in the construction and life of the portfolio
    • the ESG voting and engagement policy with issuers
    • enhanced transparency
    • highlighting the monitoring of ESG performance of the fund's portfolio
    • the objectives sought by the mandate through the consideration of ESG criteria for issuers
    • the ESG engagement policy (dialogue and voting) with issuers
    • List of documents to be rovided by the candidating fund 
    • Use of derivative products 
    • Information to be provided regarding the importance of the ESG selection 
    • Information to be provided regarding the taking into account of climate challenges
    • Information to be provided regarding the initial investment universe
    • Exclusions
    • Information to be provided regarding the monitoring of the ESG performance 

    Version française

    Le 24 mai 2024, la France a publié un arrêté modifiant la norme v3 du label ISR.

    Elle modifie uniquement l’annexe 2 du référentiel du label ISR.

    Les modifications peuvent être trouvées sur les sujets suivants :

    • les objectifs recherchés par le fonds à travers la prise en compte des critères ESG par les émetteurs
    • les méthodologies d'analyse et de notation des émetteurs mises en œuvre par la société de gestion de portefeuille
    • prise en compte des critères ESG dans la construction et la vie du portefeuille
    • la politique de vote ESG et d'engagement auprès des émetteurs
    • transparence améliorée
    • mettre en avant le suivi de la performance ESG du portefeuille du fonds
    • les objectifs recherchés par le mandat à travers la prise en compte des critères ESG pour les émetteurs
    • la politique d'engagement ESG (dialogue et vote) avec les émetteurs
    • Liste des documents à fournir par le fonds candidat
    • Utilisation de produits dérivés
    • Informations à fournir sur l'importance de la sélection ESG
    • Informations à fournir concernant la prise en compte des enjeux climatiques
    • Informations à fournir sur l'univers d'investissement initial
    • Exclusions
    • Informations à fournir concernant le suivi de la performance ESG
  • GERMANY

    Artificial Intelligence Act (AIA)

    DSK published guidelines on AI and GDPR

    CACEIS

  • On May 6 2024, the coordinating body of the German data protection supervisory authorities published an orientation guide called "Artificial Intelligence and Data Protection".

    The conference of independent federal data protection supervisory authorities and the States (Data Protection Conference) presents guidance with data protection legal criteria for the selection and data protection-compliant use of AI applications. The orientation guide “Artificial Intelligence and Data Protection” is aimed at companies, authorities and other organizations. In the sense of Checklist, the paper serves as a guide, particularly for data protection law, responsible for selecting, implementing and using AI applications to use. The guidance will be further developed in the future and adapted to current ones adapted to developments.

    The guidance provides an overview of data protection criteria that need to be considered for GDPR-compliant use of AI applications, and can serve as a guide for selecting, implementing, and using AI applications in an organization.

    Key sections of the guidance include:

    • The need for caution when dealing with personal data.
    • Extra precaution for special categories of personal data like religious or philosophical beliefs, political affiliation, health data, genetic or biometric data.
    • Examination of the results for accuracy and discrimination.
    • Protecting employees and setting up company accounts.
    • Conducting a data protection impact assessment.
    • Determining responsibility.
    • Encouraging transparency around AI training and input history.

    However, it also stresses that it isn't a closed catalogue of requirements, and that applying the guidance will sometimes require additional resources. It also anticipates the guidance will need to be adjusted in the future to embrace new developments and relevant aspects related to AI and data protection.

  • Capital requirements / CRD / CRR / Basel III/IV

    BaFin publishes circular on minimum risk management requirements

    CACEIS

  • On May 29 2024, the Federal Financial Supervisory Authority (BaFin) published a circular on minimum risk management requirements.

    On the basis of Section 25a (1) of the German Banking Act (KWG), this circular provides a flexible and practical framework for the design of institutions' risk management. It also specifies the requirements of section 25a (3) of the German Banking Act (risk management at group level) and section 25b of the German Banking Act (outsourcing). Appropriate and effective risk management includes, in particular, the definition of strategies and the establishment of internal control procedures, taking into account risk-bearing capacity. The internal control procedures consist of the internal control system and the internal audit department. The internal control system includes, in particular:

    • Regulations on structural and procedural organisation,
    • Processes for identifying, assessing, controlling, monitoring and communicating risks (risk management and controlling processes), and
    • a risk controlling function and a compliance function.

    Risk management creates a basis for the proper performance of the supervisory body's functions and therefore also includes its appropriate involvement.

    The Circular also provides a qualitative framework for the implementation of relevant articles of Directive 2013/36/EU (Banking Directive – CRD IV) on the organisation and risk management of institutions. According to this provision, institutions must in particular establish appropriate management, management and control processes (robust governance arrangements), effective procedures for identifying, controlling, monitoring and communicating actual or potential risks, and appropriate internal control mechanisms. They must also have effective and comprehensive procedures and methodologies in place to ensure that there is sufficient internal capital to cover all material risks (Internal Capital Adequacy Assessment Process). The appropriateness and effectiveness of these procedures, methods and processes must be regularly assessed by the supervisory authority in accordance with Article 97 of the Banking Directive as part of the supervisory review and evaluation process. The Circular is therefore the regulatory framework for qualitative supervision in Germany, taking into account the principle of double proportionality. With regard to the methodologies for calculating the prudential capital requirements of the Banking Directive, the requirements of the Circular are neutral in that they can be complied with regardless of the method chosen.

    In the principle-oriented structure of MaRisk, the proper handling of the principle of proportionality by institutions also means that institutions take further precautions in individual cases beyond certain requirements explicitly formulated in the MaRisk, insofar as this is necessary to ensure the appropriateness and effectiveness of risk management. In this respect, institutions that are particularly large or whose business activities are characterised by particular complexity, internationality or particular risk exposure must take more far-reaching precautions in the area of risk management than less large institutions with less complex business activities that do not have exceptional risk exposure. The former institutions must also take responsibility for taking into account the contents of relevant publications on risk management by the Basel Committee on Banking Supervision and the Financial Stability Board in their considerations on the appropriate design of risk management.

    The circular also implements Article 16 of Directive 2014/65/EU (Markets in Financial Instruments Directive) via Section 80 (1) of the German Securities Trading Act (WpHG) in conjunction with Section 25a (1) of the German Banking Act (KWG), insofar as it applies equally to credit institutions and financial services institutions. This applies to the general organisational requirements pursuant to Art. 5, the requirements for risk management and internal auditing pursuant to Art. 7 and 8, the requirements for managing director responsibility pursuant to Art. 9 and for outsourcing pursuant to Art. 13 and 14 of Directive 2006/73/EC (Implementing Directive to the Markets in Financial Instruments Directive). These requirements serve to achieve the objective of the Markets in Financial Instruments Directive, which is to harmonise the financial markets in the European Union in the interest of cross-border financial services and a uniform basis for investor protection.

    The circular takes into account the heterogeneous structure of the institution and the diversity of its business activities. It contains numerous opening clauses that allow for simplified implementation depending on the size of the institutions, the main areas of business and the risk situation. In this respect, it can also be implemented flexibly, especially by smaller institutions. The Circular is open to the ongoing development of risk management processes and procedures, provided that they are in line with the objectives of the Circular. For these purposes, the Federal Financial Supervisory Authority will maintain an ongoing dialogue with practitioners.

  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    BaFin publishes Article on new rules for ELTIF

    CACEIS

  • On May 13 2024, the Federal Financial Supervisory Authority (BaFin) published an article on new rules for European Long-Term Investment Funds (ELTIF).

    The revised European Long-Term Investment Funds (ELTIF) Regulation, which came into force in January, is intended to make it easier for asset management companies (AIFMs) to offer investors long-term investment opportunities. For example, ELTIFs can invest in private equity (investments in unlisted companies), private debt (alternative debt financing) or long-term infrastructure projects, such as renewable energies. They thus open up an alternative, non-bank-based financing option for infrastructure projects, unlisted companies or listed small and medium-sized enterprises (SMEs).

    The legal basis of the ELTIFs is the Regulation (EU) 2015/760, which entered into force on December 9 2015. Since then, however, very few German Investment Management Companies (KVGs) have launched ELTIFs. The European legislator has reacted to this and significantly revised the ELTIF Regulation; the new version has been in force since January 10 2024.

    To encourage investment in securitised assets and more environmentally sustainable investments, the European legislator has expanded the list of assets eligible for an ELTIF. It now also includes, among other things, simple, transparent and standardised securitisations with long-term exposures and green bonds issued by qualifying portfolio companies in accordance with the ELTIF Regulation.

    In addition, it is now also possible to purchase shares in undertakings for collective investment in transferable securities (UCITS) and European alternative investment funds (EU-AIFs) managed by European alternative investment fund managers (EU-AIFMs). The condition is that these funds invest in investments eligible for ELTIFs and have not invested more than 10 percent of their assets in other funds. This extension allows providers of ELTIFs to also pursue fund of funds strategies.

    For investments in tangible assets, the previous threshold of ten million euros has been dropped. ELTIFs can now also purchase tangible assets with a lower value. This contributes to the diversification of investment portfolios and is intended to make investments in tangible assets more attractive.

    In the new version of the ELTIF Regulation, the legislator has also raised the investment and issuer limits and differentiated between ELTIFs, which can also be sold to private investors, and those that are only accessible to professional investors. The latter are not bound by the investment and issuer limits.

    The ELTIF Regulation is based on a closed-end fund structure. Exceptionally, however, an ELTIF can also be openly structured. In such a case, however, the following requirements must be met:

    • the redemption of the units may not take place before the expiry of the minimum holding period or before the investment limits apply;
    • the KVG must demonstrate to the competent supervisory authority that an appropriate redemption regime exists and that it has appropriate liquidity management tools that are compatible with a long-term investment strategy;
    • clear procedures and conditions must be defined for withdrawals;
    • redemptions must be limited to a percentage of the assets allowed for UCITS;
    • AIFMs should also treat investors fairly and, if necessary, also allow for a proportionate redemption.

    In some places, the ELTIF Regulation contains mandates for the European Securities and Markets Authority (ESMA) to draft regulatory technical standards. These standards are intended to further specify certain provisions of the ELTIF Regulation. They are issued by the European Commission.

    The regulatory standards primarily regulate the conditions for the redemption of shares in open-ended ELTIFs. Among other things, they set out criteria for determining the minimum holding period of the units in an ELTIF and regulate the requirements for redemption arrangements and liquidity management tools. In addition, they set out the criteria to help determine the percentage of liquid assets to restrict the redemption of shares in an ELTIF.

    BaFin is in intensive exchange with industry on the subject of ELTIFs. On its website, the financial supervisory authority has published a List of frequently asked questions on the subject of ELTIF, which will be continuously updated and supplemented.

  • BaFin updates Fact Sheet on sample modules for cost clauses of open-ended public investment funds

    CACEIS

  • On May 15 2024, the Federal Financial Supervisory Authority (BaFin) updated its fact sheet on sample modules for cost clauses of open-ended public investment funds (excluding special real estate funds).

    With the following cost modules, BaFin discloses its administrative practice in approving cost regulations in the investment terms and conditions of open-ended public investment funds (excluding special real estate funds). These are samples that meet the minimum regulatory requirements under the German Investment Code (KAGB).

    The sample modules specify the expenses as well as the remuneration due to the asset management company, third parties and the depositary, can be charged to the investment fund. Before approving investment terms and conditions, the BaFin examines with regard to cost regulations whether they contain the information required under section 162 (2) no. 11 KAGB on the method, amount and calculation of remuneration and reimbursement of expenses in a comprehensible manner. In addition, the asset management company may not violate its obligations under section 26 (1), (2) no. 2, (5) KAGB by means of the cost regulations. Under section 26(1), in the performance of its tasks, the asset management company shall act independently of the depositary and exclusively in the interest of the investors. Under section 26 (2) no. 2, the asset management company shall be obliged to act in the best interests of the investment funds it manages or the investors of those investment funds and the integrity of the market. Under section 26 (5), the asset management company must have appropriate procedures in place to avoid adverse effects on investor interests in the case of investment funds through unreasonable costs, fees and practices, taking into account the value of the investment fund and the investor structure.

    The investment company receives a yearly flat fee from the special assets, calculated as a certain percentage of the average net asset value during the accounting period. This fee covers various costs which are not separately charged to the fund, such as the remuneration for fund management, administration, and custody. The company is entitled to charge partial advances (for example, on a monthly basis) for this flat fee. If additional performance-based remuneration can be taken when choosing the flat fee, this is regulated according to the "Performance Fee" section. The document stipulates the maximum annual flat fee amount that can be charged. If remuneration and costs according to section III.1 and III.2 are charged in addition to a flat fee, the annual maximum amount must be determined accordingly. If the costs associated with initiating, preparing, and carrying out transactions, including payments made to third parties, exceed the revenues earned, these surplus costs will be borne by the company. The document further mentions specific expenses that are charged to the fund, such as standard bank account and custody fees, costs for printing and shipping legally required sales documents, costs for publishing annual and semi-annual reports, issue and redemption prices, and costs for the creation and use of a legally required data carrier. Lastly, it is mentioned that the company has a choice between two different arrangements (I.1.b and I.5.q), and the document includes editor's notes to provide further details on these arrangements

    The cost regulation is to be determined individually and exclusively in the Special Investment Conditions (§ 19 of the Model General Terms and Conditions agreed with the BVI).

  • Markets in financial instruments Directive and Regulation (MiFID II / MiFIR)

    BaFin updates its information sheet on the specialised procedure Transaction reporting (Article 26 of MiFIR) (29/05/2024)

    CACEIS

  • On May 29 2024, the Federal Financial Supervisory Authority (BaFin) updated its information sheet on the specialised procedure Transaction reporting (Article 26 of the Markets in Financial Instruments Regulation (MiFIR)).

    For the parties subject to the transaction reporting requirements specified in Article 26 MiFIR to comply with their reporting requirements, they must submit notifications to BaFin pursuant to Article 26 of the MiFIR by means of remote data transmission.

    The parties subject to the transaction reporting requirement are therefore obliged pursuant to Article 26 of the MiFIR to satisfy such reporting requirements either themselves or represented by a suitable party. Specifically for this purpose, BaFin has developed the electronic specialised procedure “Transaction reporting (Art. 26 MiFIR)” and makes this procedure available via the MVP Portal.

    If a firm wishes to submit reports as a suitable third party pursuant to Article 26 of the MiFIR, they will need prior approval as an approved reporting mechanism (ARM). Part of the procedure for approval as an ARM is the establishment of a technical connection to the MVP Portal's specialised procedure "Test Transaction reporting (Article 26 of the MiFIR)".

    The submission of transaction data under Article 26 of the MiFIR should be based on aggregated data. Submissions of single report files or high-frequent submissions per day with low numbers of reports in each file are not possible. The average number of reports per file should nearly reach the maximum file size. In this way a partial submission for one day is also possible in aggregated form.

  • Payment and Settlement Systems

    BVI publishes Article on T+1 settlement

    CACEIS

  • On May 16 2024, the German Investment Fund and Asset Managers Association (BVI) published an article on T+1 settlement.

    The settlement period for trading in US securities will be shortened by one day from T+2 to T+1 from May 28 2024, and Canada and Mexico will introduce this shortened settlement period on May 27 2024. If fund companies have not prepared, there is a risk that US securities transactions will either not be settled or not processed on time after this cut-off date. This can lead to restrictions and possibly penalties and thus additional costs for the funds.

    T+1 and T+2 describe how many days after trading a security must be in the buyer's custody account or the proceeds of the sale must be in the seller's account. The USA is now shortening this period from two to one day. Its goal is to increase efficiency in securities settlement, reduce settlement risk, and increase liquidity in the financial system.

    German open-ended mutual and special funds hold an average of 15 percent of the fund's assets in U.S. securities, and in equity funds the proportion is even more than 30 percent. So all fund companies are affected. They will have to change their business processes to avoid restrictions and possible penalties when trading US securities after May 28 2024.

    The changeover for fund companies is very complex because it affects the entire value chain from portfolio management to trading, the middle and back office to cooperation with depositaries. In the future, US securities transactions must be confirmed at the end of the trading day and transferred to settlement. Retail, middle and back offices only have a few hours left to do so. Foreign exchange liquidity management is a particular challenge, as transactions are processed in US dollars. In the future, buyers of US securities will have to make the funds available for settlement one day earlier than before. 

    Depending on the time zone, this could mean that the foreign exchange market has to become a pre-financing market. The transition also has an impact on securities lending: borrowers must ensure that acceptable collateral is available in a timely manner to collateralise the borrowed securities, and lenders must efficiently manage the receipt and return of collateral within the shortened settlement time.

  • Prudential Requirements for Investment Firms Directive & Regulation (IFD / IFR)

    BaFin publishes General Ruling on remuneration notifications for investment firms

    CACEIS

  • On May 27 2024, the Federal Financial Supervisory Authority (BaFin) published a general ruling on remuneration notifications for investment firms.

    The BaFin has issued a general decree regarding the remuneration notifications of investment firms  as of the reporting date of December 31 2023. The background to this is fundamentally revised guidelines from European Banking Supervision.

    Since June 2021, the disclosure obligations of investment firms on remuneration have been regulated in the Investment Firm Directive (IFD) and implemented in the German Securities Institutions Act (WpIG). Among other things, this involves the annual display of data on employees of investment firms who are income millionaires and who must be reported to the Deutsche Bundesbank.

    The European Banking Authority (EBA) specifies the notification obligations set out in the IFD in its guidelines on remuneration issued on December 31 2022. Large and medium-sized investment firms (investment institution) as well as the supervisory authorities must apply the following different EBA guidelines:

    • Large investment firms are required to comply with the guidelines for the comparison of remuneration practices, the gender pay gap and the approved higher maximum ratios under Directive 2013/36/EU (EBA/GL/2022/06). These guidelines replace the previous guidelines for the comparison of remuneration (EBA/GL/2014/08).
    • Medium-sized investment firms are subject to the guidelines for the comparison of remuneration practices and the gender pay gap in accordance with Directive (EU) 2019/2034 (EBA/GL/2022/07).
    • Large and medium-sized investment firms are required to comply with the guidelines on data collection for high-income persons in accordance with Directive 2013/36/EU and Directive (EU) 2019/2034 (EBA/GL/2022/08). These guidelines replace the guidelines on data collection for high-income persons (EBA/GL/2014/07).

    Small investment firms are not affected by the reporting obligations and the general ruling.

    National supervisory authorities are required to collect the information referred to in the guidelines from investment firms by 15 June 2024 and to pass it on to the EBA by July 31 2024.

    The investment firms must submit the reports in XBRL format (Extensible Business Reporting Language).

  • Sustainable Finance / Green Finance

    Bundesfinanzministerium publishes Discussion Draft of a law to promote investments by funds in renewable energies and infrastructure

    CACEIS

  • On May 21 2024, the Bundesfinanzministerium (Federal Ministry of Finance) published a discussion draft of a law to promote investments by funds in renewable energies and infrastructure.

    The draft is intended to enable the fund industry to channel urgently needed capital from private investors such as pension funds and private individuals into the financing of infrastructure projects within a secure legal framework. The Federal Ministry of Finance is thus planning to implement a protocol declaration by the government parliamentary groups on the Future Financing Act. They had agreed to take a holistic approach to measures for investment funds in renewable energy plants and to create regulations for the direct investment of investment funds in renewable energy plants or ground-mounted plants. To this end, both supervisory measures in the KAGB and accompanying tax regulations are to be adapted.

    The draft enables real estate funds to construct and operate so-called rooftop systems without restriction, both under regulatory and tax law, as well as to make investments in infrastructure project companies whose business object is limited to renewable energies – as an addition of up to 15 percent of the fund's value. A direct acquisition of land for the operation of renewable energy plants is no longer planned. In addition, the draft also creates legal certainty in tax law for investments in infrastructure project companies.

    More specifically, in KAGB, changes in sections 1 and 231 are detailed:

    • The words "necessary for the management of real estate" in section 1, paragraph 19, number 22, are being replaced with the words "mentioned in § 231 paragraph 3".
    • Section 231 is being amended by adding a new number 8 which includes elaboration on participation in infrastructure project companies.

    The new laws described are to be implemented from January 1 2025 and apply to income received by an investment fund after December 31 2024.

    The amendments are proposed to come into force the day after their announcement.

  • GUERNSEY

    Financial supervision

    GFSC publishes 2024 Intermediary Annual Return Reminder

    CACEIS

  • On May 29 2024, the Guernsey Financial Services Commission (GFSC) published 2024 Intermediary Annual Return Reminder.

    The Commission wishes to remind all firms responsible for one or more collective investment scheme that the Intermediary Annual Return for 2024 (the "Intermediary Return") is due for submission by May 31 2024.

  • HONG KONG

    Cross-border activities

    HKMA publishes circular on Provision of Southbound Scheme Services under Cross-boundary Wealth Management Connect Pilot Scheme by Authorized Institutions incorporated outside Hong Kong

    CACEIS

  • On May 31 2024, the Hong Kong Monetary Authority (HKMA) published a circular on Provision of Southbound Scheme Services under Cross-boundary Wealth Management Connect Pilot Scheme by Authorized Institutions (AIs) incorporated outside Hong Kong.

    The HKMA takes the view that a bank incorporated outside Hong Kong that aims to undertake retail business in Hong Kong should operate in the form of a locally incorporated subsidiary. This is to enable the HKMA to have an effective and direct supervisory handle on various aspects of a retail bank’s operation (especially its capital adequacy ratio) for corresponding protection to the retail depositors.

    In view of the unique features of the Cross-boundary WMC, which are different from that of traditional retail banking business in terms of policy background, target customers and risks posed to effective supervision, the HKMA considers that non-locally incorporated AIs engaging in private banking business may (through their respective Hong Kong branches) also provide Southbound Scheme services under Cross-boundary WMC to customers not meeting the monetary threshold for “private banking customers”, subject to the following requirements taking into account the circumstances:

    • The non-locally incorporated AI can only accept such customers under Southbound Scheme services that are provided by the AI together with its head office as the Mainland partner bank. Such customers could not be taken up from other Mainland partner banks;
    • Relevant potential Southbound Scheme customers have to be referred by the head office of the non-locally incorporated AI;
    • For each non-locally incorporated AI, the number of such customers under the Southbound Scheme should not exceed 1,000 customers, and the AI should have related controls to comply with such limit;
    • Such non-locally incorporated AIs cannot market retail banking business (including Southbound Scheme) in Hong Kong;
    • Such non-locally incorporated AIs should comply with those applicable investor protection measures for retail banking customers as required by the HKMA for those Southbound Scheme customers not meeting the monetary threshold for “private banking customers”, and put in place adequate systems, internal control measures and operating procedures for compliance with the requirements stipulated in the HKMA’s Cross-boundary WMC Guidance; and
    • Non-locally incorporated AIs that intend to provide Southbound Scheme services to such customers should notify the HKMA in advance.
  • Depositor protection rules

    Hong Kong publishes Deposit Protection Scheme (Amendment) Bill 2024

    CACEIS

  • On May 3 2024, Hong Kong published the Deposit Protection Scheme (Amendment) Bill 2024.

    The object of this Bill is to amend the Deposit Protection Scheme Ordinance (Cap. 581) (Cap. 581) and the Deposit Protection Scheme (Representation on Scheme Membership and Protection of Financial Products under Scheme) Rules (Cap. 581 sub. leg. A) (Cap. 581A) to provide for the following enhancements to the Deposit Protection Scheme:

    • to raise the deposit protection limit for depositors; 
    • to adjust the build-up levy mechanism; 
    • to enhance the protection of depositors in the event of bank mergers or acquisitions; and 
    • to improve the regulation of the representation on Scheme membership and the protection of financial products under the Scheme.

    Currently, the deposit protection limit under the Scheme for a person in respect of the deposits the person maintains with a Scheme member (being a licensed bank) is HK$500,000. Clauses 4(2) and (4), 7, 11(2) and 16(3) raise the deposit protection limit from HK$500,000 to HK$800,000 (see the amended sections 27 and 38 of, and amended section 1 of Schedule 4 to, Cap. 581 and also amended section 4 of Cap. 581A).

    In this connection, clause 20(4) amends the Schedule to Cap. 581A, replacing the existing Membership Sign with a new Membership Sign to show the raised deposit protection limit of HK$800,000.

    Since the launch of the Scheme, Scheme members have been paying a build-up levy, which contributes to the target fund size (equivalent to 0.25% of the total protected deposits). Both the terms build-up levy and target fund size are defined in section 1(1) of Schedule 4 to Cap. 581. To ensure the new target fund size can be reached within a reasonable time, a technical amendment is proposed such that the circumstance under which the build-up levy can be charged again to cover the case where the deposit protection limit is raised. To this end, clause 11(3) amends the definition of specified amendment in section 3(9) of Schedule 4 to Cap. 581 to cater for the new deposit protection limit.

    Clause 5 adds new sections 27A, 27B and 27C to Part 5 of Cap. 581. The new section 27A provides for the definitions and interpretation for that section and the new sections 27B and 27C (including the meaning of material date and qualifying arrangement). The new section 27B provides that, in the case of a qualifying arrangement that involves 2 or more Scheme members, every person who has maintained protected deposits with them is eligible for an enhanced deposit protection limit (up to $800,000 for the resulting Scheme member and for each transferor). Enhanced protection is provided for a period of 6 months beginning on the material date of the qualifying arrangement. This period can be lengthened if a time deposit is involved and its original maturity date falls after the expiry of the period.

    The new section 27C requires each of the Scheme members involved in a qualifying arrangement to inform the depositors affected by the qualifying arrangement and the Hong Kong Deposit Protection Board about the qualifying arrangement on or before the material date. If a Scheme member fails to notify the Board, each of its directors and chief executives commits an offence.

    Clause 8 amends section 50 of Cap. 581 so that the defence is also available to an offence under the new section 27C(3). Clause 9 adds a new section 50A to Cap. 581 providing for the burden and standard of proof for the defence of reasonable excuse applicable to certain offences created in Cap. 581.

    Section 35(b) of Cap. 581 provides that where an estimate is made under section 27(4)(d) of Cap. 581 for the amount of compensation payable to a depositor of a failed Scheme member, the amount is not to exceed the amount prescribed in section 27(1) or (2) of Cap. 581. Clause 6 adds a non-legislative note at the end of section 35(b) of Cap. 581 for providing more information to statute readers (that is, the amount of compensation under section 27(1) or (2) of Cap. 581 is subject to the specified provisions as defined by section 27(3) of Cap. 581). The status of the note is provided in the new section 2(5) of Cap. 581 (clause 3).

    Under the existing section 3 of Cap. 581A, Scheme members are required to display a Membership Sign at their relevant places of business. Clause 15 adds a new section 3A to Cap. 581A, requiring the Scheme members to also display a simplified Membership Sign at their electronic banking platforms. The simplified Membership Sign must comply with certain specifications, contain specified information and be embedded with a hyperlink to the home page of the website of the Board or to the materials containing information about the Scheme as specified by the Board. If the new section 3A is contravened, the concerned Scheme member commits an offence under section 8 of Cap. 581A (as amended by clause 19).

    Subject to subsection (3), this Ordinance comes into operation on January 1 2025.

    Part 1 and sections 4(2) and (4), 7, 10, 11, 14(3), 16(3), 17, 18 and 20(4) come into operation on October1 2024.

  • FinTech / RegTech / BigTech / SupTech / Digital Economy

    SFC publishes Statement on end of non-contravention period for virtual asset trading platforms

    CACEIS

  • On May 28 2024, the Securities and Futures Commission (SFC) published a statement on end of non-contravention period for virtual asset trading platforms (VATPs).

    The SFC wishes to remind the public that the non-contravention period for VATPs operating in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (AMLO) will come to an end on June 1 2024. All VATPs operating in Hong Kong must be either licensed by the SFC, or “deemed-to-be-licensed” VATP applicants under the AMLO. It is a criminal offence to operate a VATP in Hong Kong in breach of the AMLO, and the SFC will take all appropriate actions against any breaches of the law.

    Investors are urged to trade virtual assets only on SFC-licensed VATPs. They should check the “List of licensed virtual asset trading platforms” on the SFC’s website to ascertain whether the VATP they are dealing with is formally licensed by the SFC.

    In addition, investors are reminded that deemed-to-be-licensed VATP applicants are not formally licensed by the SFC. These applicants have been operating in Hong Kong since before the new VATP licensing regime under the AMLO. While they have undertaken to enhance their policies, procedures, systems and controls to comply with the SFC’s regulatory requirements, they still need to demonstrate the actual implementation and effectiveness of these measures to the SFC’s satisfaction.

    Deemed-to-be-licensed VATP applicants (and their ultimate owners) must fully comply with all of the SFC’s regulatory requirements and licensing conditions. The SFC does not expect these applicants to actively market their services or onboard new retail clients prior to demonstrating the actual implementation and effectiveness of their policies, procedures, systems and controls to the satisfaction of the SFC and being formally licensed.

    The SFC also reminds all VATPs and their ultimate owners to comply with all applicable laws and regulations, including but without limitation, preventing Mainland Chinese residents from accessing any of their virtual asset-related services, and to take all necessary measures to procure the VATPs’ controlling entities and related parties to do the same.

    The deeming arrangement serves to strike a balance between protecting investors and facilitating market development. As such, it is only a temporary arrangement whereby any non-compliance with key regulatory requirements for investor protection will result in the SFC’s swift refusal of the licence application of a deemed-to-be-licensed applicant.

    In the coming months, whilst the deemed-to-be-licensed VATP applicants pursue their applications, the SFC will conduct on-site inspections to ascertain their compliance with the SFC’s regulatory requirements, with a particular focus on their safeguarding of client assets and know-your-client processes. 

  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    SFC publishes Revised Circular on streamlined requirements for eligible ETFs adopting a master-feeder structure

    CACEIS

  • On May 16 2024, the Securities and Futures Commission (SFC) published a revised circular on streamlined requirements for eligible exchange-traded funds (ETFs) adopting a master-feeder structure.

    The SFC’s revised circular allows SFC-authorised feeder ETFs under master-feeder structure to invest in overseas-listed master ETFs – including actively managed ETFs – from different markets under streamlined requirements provided certain conditions are met.

    Assets under management (AUM) of the global ETF market continued to grow and reached US$12.7 trillion at the end of the first quarter of 2024. In particular, the growth of actively managed ETFs has significantly outpaced that of the overall ETF market over the past five years. In Asia-Pacific, actively managed ETFs have been growing rapidly with their AUM growth in the region reaching 82% in 2023, whereas their market share in Hong Kong soared to 13% at the end of 2023 from 1% at the end of 2019.

    Against this backdrop, product issuers recently expressed to the SFC their strong interest in bringing well-established actively managed ETFs from overseas to Hong Kong, potentially through the route of a master-feeder fund structure and taking advantage of the Hong Kong ETF market’s strong turnover growth.

    Having considered the potential benefits of actively managed ETFs to investors and to facilitate Hong Kong ETF market’s growth, the SFC considers it appropriate to extend the existing streamlined requirements for master ETFs to actively managed ETFs. The SFC will also broaden the types of schemes that are eligible for the streamlined requirements provided that they have satisfactory safeguards in place and demonstrable benefits to the Hong Kong market.

    Under the streamlined requirements, with immediate effect, master ETFs:

    • will cover both passively and actively managed ETFs without the SFC authorisation;
    • will not confine to specific types of schemes so long as they have a sizable AUM with a good track record; and
    • must be schemes with satisfactory safeguards and measures in place to provide substantially comparable investor protection as ETFs authorised by the SFC.
  • SFC publishes Circular to management companies of SFC-authorised REITs on treasury units of SFC-authorised REIT

    CACEIS

  • On May 24 2024, the Securities and Futures Commission (SFC) published a Circular to management companies of SFC-authorised Real Estate Investment Trusts (REIT) on treasury units of SFC-authorised REITs.

    In accordance with the SFC’s Circular dated January 31 2008, SFC-authorised REITs may repurchase their own units on The Stock Exchange of Hong Kong Limited (Exchange) subject to similar requirements applicable to listed companies under the Rules Governing the Listing of Securities on the Exchange (Listing Rules).

    The SFC noted that the Exchange has recently announced various amendments to the Listing Rules relating to treasury shares (Listing Rules Amendments) following a public consultation. Details of the Listing Rules Amendments are set out in the consultation conclusions paper issued by the Exchange in April 2024.

    The Listing Rules Amendments are introduced mainly to remove the requirement to cancel repurchased shares and adopt a framework to govern the resale of treasury shares. The Listing Rules Amendments will come into effect on June 11 2024. It has been the SFC’s long-established policy to regulate REITs in the same manner as listed issuers in view of their similarities in terms of economic nature and investors’ interests.

    Accordingly, in line with the Circular and the Listing Rules Amendments, SFC-authorised REITs may hold repurchased units in treasury and resell them, subject to similar requirements as applicable to treasury shares of listed companies under the Listing Rules Amendments. These include requirements on conducting resale on a pre-emptive basis or with a shareholders’ mandate, disclosure and reporting requirements, imposition of a moratorium period after resale or repurchase, voting and dealing restrictions as well as lock-up requirements.

    In particular, REIT managers should note the following in relation to an SFC-authorised REIT:

    • Under 12.2 of the Code on REITs (REIT Code), a REIT may issue new units during the financial year which does not increase its total number of units outstanding at the end of the previous financial year by more than 20% (issue mandate). In line with the Listing Rules Amendments, the number of units repurchased by a REIT in the year under a repurchase mandate and held in treasury (Relevant Treasury Units) may be added to such issue mandate limit. As the issue mandate is not subject to unitholders’ approval, no separate unitholders’ approval would be required for the resale of the Relevant Treasury Units in the year. Both the issue mandate limit and the repurchase mandate limit should be calculated based on the number of issued units of a REIT excluding any treasury units held by the REIT at any given time
    • Treasury units shall not be regarded as outstanding and shall be excluded from a REIT’s issued or voting units for the purposes of 9.9(c) and (h) of the REIT Code, as well as for various other purposes in line with the Listing Rules Amendments (e.g. public float, market capitalisation, mandate limits and size tests for transactions). Also, treasury units shall not be entitled to unitholders’ rights including distribution and voting rights.
    • Any changes in the number of treasury units of REITs should be reported in the next-day disclosure returns and monthly returns in accordance with the requirements under Appendix E3 to the Listing Rules.

    REIT managers intending to hold and/or resell treasury units under the new framework should review and update the constitutive documents, compliance manuals and/or other relevant documents of their REITs where appropriate. Where amendments to the constitutive documents are required, REIT managers should ascertain whether unitholders’ approval would be required in compliance with 9.6 of the REIT Code.

    REIT managers should satisfy themselves that a proposed purchase of units, holding, sale or transfer of treasury units complies with all applicable requirements set out or referred to in this Circular.

  • Securities

    SFC updates Outline of Part XV of the Securities and Futures Ordinance (Cap.571) - Disclosure of Interests

    CACEIS

  • On May 24 2024, the Securities and Futures Commission (SFC) updated the Outline of Part XV of the Securities and Futures Ordinance (Cap.571) - Disclosure of Interests.

    This outline is intended to be a practical guide to the situations in which a notice will have to be filed under Part XV of the SFO. However, it is not a code, a guideline, or an exhaustive examination of Part XV nor can it be relied upon as an authoritative legal opinion on the contents of Part XV. The disclosure obligations depend upon the facts in each case and you should seek detailed legal advice if you are in doubt.

    The paragraph that is revised in the lates edition is 5.9.1 – 3:

    Under Rule 10.06(5) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Rule 13.14 of the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited, listed corporations may, following any repurchase of its own shares, elect to hold the shares in treasury rather than cancel those shares, subject to the laws of their places of incorporation and their constitutional documents.

  • Sustainable Finance / Green Finance

    HKMA publishes Hong Kong Taxonomy for Sustainable Finance

    CACEIS

  • On May 3 2024, the Hong Kong Monetary Authority (HKMA) published a Hong Kong Taxonomy for Sustainable Finance.

    The HKMA has been developing a green classification framework for adoption in the local market. A discussion paper was released in May 2023 to gather feedback from stakeholders on a prototype of the framework.  Respondents welcome the development of the prototype and consider that it could provide a clearer definition of green products, enhance interoperability and help reduce greenwashing risks.

    Based on consultation feedback, the prototype was fine-tuned and published as the Hong Kong Taxonomy. Currently, it encompasses 12 economic activities under four sectors namely power generation, transportation, construction, and water and waste management. As steered by the Green and Sustainable Finance Cross-Agency Steering Group, the development has been guided by the principles of interoperability, comparability and inclusiveness. It also facilitates easy navigation among the Common Ground Taxonomy, China’s Green Bond Endorsed Projects Catalogue and the European Union’s Taxonomy for Sustainable Activities. It will serve as a pivotal tool to raise awareness about green finance, promote common understanding on green activities, facilitate green finance flows, and provide a foundation for further applications. We encourage the financial sector to use the Hong Kong Taxonomy to assess the greenness of projects and assets when labelling and developing products, as well as making disclosures.

    A consultation report was also published to summarise the feedback received, together with responses and recommendations on future work. In addition, to facilitate users to understand and apply the Hong Kong Taxonomy, a supplemental guidance was prepared to provide background information, illustrative use cases, and responses to frequently asked questions.

    The Hong Kong Taxonomy is a living document. For the next step, the HKMA will seek to expand the coverage of the taxonomy to include more sectors and activities, including transition activities. The HKMA will also continue the collaboration with relevant stakeholders to promote its application and enhancement, contributing to the sustainable development in Hong Kong and the world.

    Separately, the HKMA will be launching the beta version of a cloud-based platform shortly for banks to assess the potential impact of physical risks on residential and commercial buildings in Hong Kong under different climate scenarios. The platform is part of the HKMA’s efforts to help the banking sector address issues related to data and analytical tools and build up capabilities in climate risk management.

  • SFC publishes Press Release welcoming an industry-led public Consultation on voluntary Code of Conduct for ESG ratings and data products providers

    CACEIS

  • On May 17 2024, the Securities and Futures Commission (SFC) published a press release welcoming an industry-led public consultation on voluntary code of conduct (VCoC) for environmental, social and governance (ESG) ratings and data products providers.

    The initiative to develop the proposed VCoC is supported and sponsored by the SFC. Led by the International Capital Market Association (ICMA), the Hong Kong ESG Ratings and Data Products Providers VCoC Working Group (VCWG) modelled the draft VCoC on international best practices recommended by the International Organization of Securities Commissions (IOSCO).

    The draft VCoC is interoperable as it is consistent with the expectations introduced in other major jurisdictions.

    The draft VCoC also includes a self-attestation document to provide information on adherence to the code by the providers in a structured format. This will facilitate end users, such as SFC-licensed intermediaries, to compare the conduct of ESG ratings and data products providers during their due diligence and ongoing assessment processes.

    The one-month public consultation ends on June 17 2024.

  • IRELAND

    Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    CBI publishes Notice of Intention in relation to ESMA Guidelines on stress test scenarios for MMFs

    CACEIS

  • On May 3 2024, the Central Bank of Ireland (CBI) published a Notice of Intention in relation to the application of the ESMA Guidelines on stress test scenarios under the Regulation (EU) 2017/1131 of the European Parliament and of the Council of June 14 2017 on money market funds (MMF Regulation) (ESMA50-43599798-9011).

    The Guidelines apply to NCAs, MMFs and managers of MMFs as defined in the Regulation.

    The Guidelines apply in relation to Article 28 of the MMF Regulation and establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs in accordance with that Article. ESMA has noted that these Guidelines will be updated at least every year taking into account the latest market developments.

    The notice sets out that the CBI expects full compliance with the Guidelines from May 6 2024 and will, in due course, consult on the incorporation of a provision in the CBI UCITS Regulations and AIF Rulebook that all managers of MMFs adhere to the Guidelines.

  • ITALY

    Artificial intelligence

    Governo Italiano Presidenza del Consiglio dei Ministri publishes Press release on provisions and delegation to the Government on artificial intelligence

    CACEIS

  • On May 23 2024, the Governo Italiano Presidenza del Consiglio dei Ministri published a Press release on provisions and delegation to the Government on artificial intelligence.

    The Council of Ministers, on the proposal of President Giorgia Meloni and Minister of Justice Carlo Nordio, approved, with the provision of the request to the Chambers of Deputies to prompt scheduling in compliance with the regulations of the two branches of Parliament, a bill for the introduction of provisions and delegation to the Government on artificial intelligence.

    The bill identifies regulatory criteria capable of rebalancing the relationship between the opportunities offered by new technologies and the risks related to their misuse, underuse or harmful use. In addition, it introduces rules of principle and sectoral provisions that, on the one hand, promote the use of new technologies to improve citizens' living conditions and social cohesion and, on the other hand, provide risk management solutions based on a human-centric vision.

    The bill does not overlap with the European Regulation on Artificial Intelligence approved on 13 March by the European Parliament, soon to be issued, but accompanies the regulatory framework in those areas of domestic law, taking into account that the regulation is set on an architecture of risks related to the use of artificial intelligence (AI).

    The rules intervene in five areas: 

    • The national strategy;
    • The national authorities;
    • Promotion actions;
    • The protection of copyright; and 
    • Criminal sanctions. 

    It is also envisaged that the government will be delegated to adapt the national legal system to the EU Regulation in matters such as the literacy of citizens in the field of AI (both in school and university courses) and the training by professional associations for professionals and operators. The delegation also concerns the reorganisation in criminal matters to adapt offences and penalties to the unlawful use of AI systems.

    The rules provide that the life cycle of artificial intelligence systems and models must be based on respect for the fundamental rights and freedoms of the Italian and European legal system as well as on the principles of transparency, proportionality, security, including economic enhancement of data, protection of personal data, confidentiality, robustness, accuracy, non-discrimination, gender equality and sustainability. 

    In addition, the principles that characterize development and above all the concrete application are specified, respecting the autonomy and decision-making power of man, the prevention of damage, knowability, and explainability. It is established that the use of artificial intelligence must not jeopardize the democratic life of the country and its institutions. It introduces the need for cybersecurity compliance throughout the life cycle of artificial intelligence systems and models. It ensures that people with disabilities have full access to artificial intelligence systems without discrimination.

    The use of AI systems in the media must be without prejudice to the principles of freedom and pluralism, freedom of expression and the right to objectivity, completeness, impartiality and fairness of information.

    In terms of economic development, AI is promoted in productive sectors by the State and public authorities, to improve productivity and launch new economic activities for social welfare, in compliance with the general principle of competition in the market, the use and availability of high-quality data. It is expected that the State and other public authorities will address the e-procurement platforms of public administrations.

    National security and defence provisions. Activities carried out for national security purposes, for national cybersecurity as well as those carried out for defence purposes by the armed forces and police forces are excluded from the scope of the measure.

  • Banking supervision

    Banca d'Italia updates Circular no. 285 on Supervisory provisions for banks

    CACEIS

  • On May 9 2024, the Banca d'Italia updated the Circular no. 285 of December 17 2013 on Supervisory provisions for banks.

    With this update of Circular no. 285/2013, Chapter I is amended, of Part One, Title II, which contains the provisions regarding "Capital reserves".

    The new provisions implement the EBA Guidelines of December 20 2023 (EBA/GL/ 2023/10) amending the EBA/GL/2020/14 Guidelines on the specification of systemically important indicators and related disclosures. In compliance with the Provision of July 9 2019 (Regulation governing the adoption of acts of a regulatory nature or of general content of the Bank of Italy in the exercise of supervisory functions, pursuant to article 23 of the law of December 28 2005, no. 262), a public consultation is not foreseen for the new regulation nor has an impact analysis been carried out since: 

    • A consultation has already been carried out by the EBA and the results of the related cost/benefit analysis have supported the issuing of the new Guidelines;
    • The amendments to Circular no. 285 limit themselves to implementing the contents of the guidelines in accordance of the EBA.

    The EBA methodology for identifying Global Systemically Important Banks (G-SIBs) closely follows the approach of the Basel Committee on Banking Supervision ( BCBS) which, in January 2023, has published a new template for banks participating in the annual identification exercise.

    To ensure consistency with international standards, the Guidelines align the information that banks must provide to the competent or designated national authority for the purposes of the identification exercise to that required by the Basel Committee.

    Furthermore, the new version of the EBA Guidelines introduces specific clarifications regarding the use of some items relating to assets and liabilities outstanding between the different countries of the Banking Union. In particular, the Guidelines specify that such data must not be considered simply as memorandum and ancillary items but must be fully used by the supervisory authorities (competent or designated) to assess the systemic importance of banks and, as such, must be subject to disclosure.

    The new Guidelines apply from May 20 2024. This update does not introduce new administrative procedures nor modifies existing ones. The provisions of this update came into force on May 9 2024.

  • Eurosystem Collateral Management System (ECMS)

    Banca d'Italia publishes Circular on supervisory provisions for banks

    CACEIS

  • On May 2 2024, the Banca d'Italia updated the Circular no. 285 of December 17 2013 on supervisory provisions for banks.

    Art. Article 49 of the Consolidated Law on Banking confers on the Bank of Italy the power to authorise banks to issue cashier's cheques and other cheques similar or comparable to them. It is also envisaged that the Bank of Italy will determine the amount, composition and methods of payment of the security that issuing banks are required to provide against the circulation of cheques. In relation to the importance of the instrument and the need to preserve the regular circulation of cashier's cheques, the issuance of such cheques is allowed to banks with adequate organisational structures.  There is also a provision of minimum capital requirement. The irregular issuance of cashier's cheques is sanctioned pursuant to art. 144 of the UPC and may lead to the suspension or revocation of the authorisation. These provisions set out the amount of the security and define its composition, valuation rules and payment arrangements in line with the provisions of the framework for eligible collateral against Eurosystem credit operations.

    The matter is regulated by the following articles of the UPC: 

    • Article 49(1), which confers on the Bank of Italy the power to authorise banks to issue cashier's cheques and other cheques similar or comparable to them; 
    • Article 49(2), which confers on the Bank of Italy the power to determine the amount, composition and methods for the payment of the security which banks are required to lodge with the Bank of Italy in respect of the circulation of the cheques referred to in paragraph 1 of the same article;  
    • Guideline (EU) 2016/65 of the European Central Bank of 18 November 2015 on haircuts applied in the implementation of the Eurosystem monetary policy framework (ECB/2015/35); 
    • Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (General Documentation Guideline) (ECB/2014/60), as subsequently amended and supplemented.

    These provisions shall apply to banks authorised in Italy and to branches in Italy of Community banks.

    Banks that meet the following requirements may be authorised to issue cashier's checks:

    • Organisational structures and internal controls capable of ensuring the proper management of the payment instrument; 
    • Own funds of not less than EUR 25 million. 

    Authorisation to issue cashier's cheques shall be issued or refused within 180 days of receipt by the Bank of Italy of the application. Cheques which are similar or comparable to cashier's cheques are subject to the same rules as cashier's cheques. The security is made up of debt securities equal to 20% of the outstanding cheques deposited with the Bank of Italy. Marketable assets eligible to secure Eurosystem credit operations provided for in Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework, as subsequently amended and supplemented, may be deposited as collateral. Authorised banks may entrust the issuance of cashier's cheques to correspondent banks as representatives of the issuing bank. In this case, it is left to the negotiation autonomy of the parties to define the methods of managing the relationship, without prejudice, of course, to compliance with the regulations on bank drafts.

  • JERSEY

    Consumer protection

    JFSC publishes Feedback from examination of independent financial advisers’ investment services to vulnerable persons

    CACEIS

  • On May 7 2024, the Jersey Financial Services Commission (JFSC) published feedback from examination of independent financial advisers’ investment services to vulnerable persons

    During the second quarter of 2023, JFSC assessed the extent to which supervised persons holding a class D investment business licence had complied with their regulatory obligations in terms of their provision of investment services to vulnerable persons. 

    The JFSC’s guidance note on the provision of investment services to vulnerable persons under the Code of Practice for investment business explains that there is no set definition of a vulnerable person. However, a vulnerable person can be considered as an individual whose personal circumstances, or characteristics could leave them vulnerable to have their finances placed at risk. This is specifically relevant where a registered person is acting without appropriate care, or diligence.

    The vulnerable person thematic examination considered the conduct of supervised persons against the investment business code. This particularly applies to Principle 2 of the Investment Business Code that requires supervised persons to have the highest regard for the interests of their clients. Paragraph 2.5 of the Investment Business Code specifically requires supervised persons to identify and ensure that appropriate protection is given to a vulnerable client. Identifying a vulnerable person, or a potentially vulnerable person, and the reason for their vulnerability is essential for a supervised person to be able to tailor its processes and meet its obligations. By having in place adequate and effective systems and controls, including policies and procedures to protect vulnerable customers, supervised persons are expected to prove they are observing the investment business code and giving due consideration to the guidance note.

    JFSC examined a total of 69 customer files across six supervised persons as part of the vulnerable person thematic examination. Information was requested from those six supervised persons covering a review period of April 1 2022 to March 31 2023.

    Some of the areas for improvement JFSC identified include:

    • being able to demonstrate consideration of our vulnerable persons guidance note;
    • consistency around identifying vulnerable persons;
    • policies and procedures related to conflicts of interest;
    • training for employees on how to identify and support vulnerable persons.

    JFSC feedback also identifies good practice including:

    • having a clear, comprehensive definition of a vulnerable person, which is specific to the supervised person’s business;
    • adapting service provision to the particular needs of the vulnerable person;
    • using real-life anonymised examples within policies and procedures to guide employees in identifying vulnerable persons and applying appropriate safeguarding measures.
  • Cryptoasset / Cryptocurrency / Virtual Currency

    JFSC announces Government of Jersey publishes Virtual Asset Service Provider National Risk Assessment

    CACEIS

  • On May 17 2024, the Jersey Financial Services Commission (JFSC) announced the Government of Jersey published the Virtual Asset Service Provider National Risk Assessment.

    This follows the VASP risk overview completed in 2022.

    One area of financial services, which is defined by the Financial Action Task Force but is not yet a major part of the Jersey industry, is the virtual asset service providers (VASPs). 

    Anyone undertaking a VASP activity in Jersey is subject to the full anti-money laundering, combating the financing of terrorism & countering proliferation financing (AML/ CFT/ CPF) regulatory framework including registration with the JFSC. 

    The registration process began in 2016 for businesses offering exchange services between virtual assets (VA) and fiat currencies (virtual currency exchange businesses (VCEBs)) and has subsequently been extended to all VASPs.  

    Since the VASP risk overview was completed in 2022, the virtual asset sector worldwide has grown. The profile of Jersey VASPs has seen several changes, but the absolute number of registered persons has remained small: from 2022 to early 2024 the sector grew from three registered persons to ten, although not all of those were operational at the time this assessment was completed.

    The VASP National Risk Assessment includes:

    • esidual risk and recommended actions;
    • Threats;
    • Vulnerabilities;
    • Status of recommended actions relating to VASPs in other published risk documents.

    The VASP National Risk Assessment forms part of Jersey’s continuous risk assessment work, including:

    • National Risk Assessment: Money Laundering - update (2023)
    • National Risk Assessment: Legal Persons and Arrangements (2023)
    • National Risk Assessments: Terrorist Financing (2021 and 2023)
    • National Risk Assessment: Non-Profit Organisations (2021)
    • National Risk Assessment: Money Laundering (2020)
  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    JFSC announces Deadline for collective investment funds and fund services business revocations

    CACEIS

  • On May 21 2024, the Jersey Financial Services Commission (JFSC) announced deadline for collective investment funds and fund services business revocations.

    Collective investment funds (CIF) and fund services business (FSB) revocations should be submitted by Friday June 7 2024.

    This includes:

    • Revocation of certificates
    • Ceasing to act non-domiciled fund notifications
    • Jersey private fund (JPF), CIF or FSB licence revocation requests

    All relevant documentation necessary for a certificate or licence notification must be submitted through myJFSC.

    Where the ceasing fund is a JPF, notice must also be submitted through myJFSC and the online JPF Notification Form.

  • LUXEMBOURG

    Anti-money laundering / Combating the financing of terrorism (AML / CFT)

    Chambre des députés - Luxembourg publishes Bill amending the amended law of 10 August 2018 on the organization of the AED / Chambre des députés - Luxembourg publie le projet de loi modifiant la loi modifiée du 10 août 2018 portant organisation de l'AED

    CACEIS

  • On May 14 2024, the Chambre des députés - Luxembourg published a Bill amending the amended Law of August 10 2018 on the organization of the Registration, Domains and VAT Administration (AED).

    According to assessments by the Council of Europe and the Financial Action Task Force (FATF), the staff involved in AML/CFT in Luxembourg should be reinforced. In this context, the deputies of the Finance Committee took an interest in Bill 8340.

    A new separate AML/CFT control office must be set up within the AED. This new structure will specialize in AML/CFT and in monitoring the application of international financial sanctions. This is what Bill 8340 provides.

    The objective of the proposed legislative text is to comply with certain recommendations made both by the Council of Europe in the context of its evaluation in 2021/2022 and by the FATF in its mutual evaluation of Luxembourg in 2022/2023.

    Adaptations to the text were adopted by the deputies in order to submit them to the Council of State.

    Version française

    Le 14 mai 2024, la Chambre des députés - Luxembourg a publié un projet de loi modifiant la loi modifiée du 10 août 2018 portant organisation de l'enregistrement, des domaines et de l'administration de la TVA (AED).

    Selon les évaluations du Conseil de l'Europe et du Groupe d'action financière (GAFI), le personnel impliqué dans la LBC/FT au Luxembourg devrait être renforcé. Dans ce contexte, les députés de la Commission des Finances se sont intéressés au projet de loi 8340.

    Un nouveau bureau de contrôle LAB/CFT distinct doit être créé au sein de l'AED. Cette nouvelle structure sera spécialisée dans la LBC/FT et dans le contrôle de l'application des sanctions financières internationales. C'est ce que prévoit le projet de loi 8340.

    L'objectif du texte législatif proposé est de se conformer à certaines recommandations formulées tant par le Conseil de l'Europe dans le cadre de son évaluation en 2021/2022 que par le GAFI dans son évaluation mutuelle du Luxembourg en 2022/2023.

    Des adaptations du texte ont été adoptées par les députés afin de les soumettre au Conseil d'Etat.

  • CSSF informs of AML/CFT 2024 Conference dedicated to Investment Companies in the Financial Sector

    CACEIS

  • On May 14 2024, the Commission de Surveillance du secteur financier (CSSF) informed of the AML/CFT 2024 Conference dedicated to Investment Companies in the Financial Sector.

    The Conference was held online on April 23 2024 highlighting key takeawyas from AML/CFT investment firms’ supervision, results of the FATF’s Mutual Evaluation 2023, findings, typologies and best practices by the FIU.

    The AML/CFT risk self-assessmentmain show an insufficient description of the mitigation measures, irregular review, and insufficient focus on the TF aspect.

    The Customer risk assessment show that not all risk factors mentioned in Article 3 (2a) of the AML/CFT Law are covered (customers, countries, products, services, transactions, delivery channel), inadequate due diligence measures, particularly for clients linked to high risk countries or PEPs, inappropriate frequency of the periodic review of client files, and an absence of or insufficient documented analysis.

    The Name screening process show ncomplete client databases, a delay in treatment of hits, no 4-eyes principle on analysis of hits, insufficient formalisation of analysis, and no controls performed on updating TFS lists immediately in screening tools.

    The Transaction monitoring process found an absence of transaction monitoring, the source of wealth and source of funds not sufficiently established, no clear understanding of the purpose and rationale of the business relationship, staff not performing coherence checks or recognising red flags, an absence of the 4-eyes principle, and no or insufficient formalisation/documentation of analysis.

    The Cooperation with the authorities assessment show an absence of or delayed report to the Financial Intelligence Unit (FIU) or Ministry of Finance (MoF) Reports driven by adverse media before analysing if there are grounds for suspicion, poor quality of the reports sent to the FIU, and no awareness of the obligation to report to the Ministry of Finance regarding TFS measures.

    Version française

    Le 14 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a informé de la Conférence AML/CFT 2024 dédiée aux Sociétés d'Investissement du Secteur Financier.

    La conférence s'est tenue en ligne le 23 avril 2024 et a mis en lumière les principaux points à retenir de la surveillance des entreprises d'investissement en matière de LBC/FT, les résultats de l'évaluation mutuelle 2023 du GAFI, les conclusions, les typologies et les meilleures pratiques de la CRF.

    L’auto-évaluation des risques de LBC/FT montre principalement une description insuffisante des mesures d’atténuation, un examen irrégulier et une attention insuffisante portée à l’aspect FT.

    L'évaluation du risque client montre que tous les facteurs de risque mentionnés à l'article 3 (2a) de la loi LAB/CFT ne sont pas couverts (clients, pays, produits, services, transactions, canal de livraison), des mesures de vigilance insuffisantes, notamment pour les clients liés à pays ou PPE à haut risque, fréquence inappropriée de l’examen périodique des dossiers clients et absence ou insuffisance d’analyse documentée.

    Le processus de filtrage des noms montre des bases de données clients incomplètes, un retard dans le traitement des hits, pas de principe des 4 yeux sur l'analyse des hits, une formalisation insuffisante de l'analyse et aucun contrôle effectué sur la mise à jour immédiate des listes TFS dans les outils de filtrage.

    Le processus de suivi des transactions a révélé une absence de suivi des transactions, une source de richesse et une source de fonds insuffisamment établies, une compréhension claire de l'objet et de la justification de la relation commerciale, un personnel qui n'effectuait pas de contrôles de cohérence ou ne reconnaissait pas les signaux d'alarme, une absence de Principe des 4 yeux, et formalisation/documentation de l’analyse inexistante ou insuffisante.

    L'évaluation de la coopération avec les autorités montre une absence ou un retard de communication à la Cellule de renseignement financier (CRF) ou au ministère des Finances (MoF). Des rapports émanant de médias défavorables avant d'analyser s'il existe des motifs de suspicion, une mauvaise qualité des rapports envoyés à la CRF, et aucune connaissance de l’obligation de rendre compte au ministère des Finances des mesures TFS.

  • Capital requirements / CRD / CRR / Basel III/IV

    CSSF updates FAQ on Circular CSSF 22/824 on Loan Origination and Monitoring / La CSSF met à jour la FAQ relative à la circulaire CSSF 22/824 sur l’origination et le suivi des prêts

    CACEIS

  • On May 16 2024, the Commission de Surveillance du secteur financier (CSSF) updated its FAQ related to the provisions of Circular CSSF 22/824 concerning the application of the EBA Guidelines on Loan Origination and Monitoring (EBA/GL/2020/06).

    The update relates to question 2: What are CSSF expectations regarding interest rate increase scenarios for a robust sensitivity analysis for all variable/revisable interest rate loan agreements financing retail residential immovable properties?

    In the answer, the CSSF expects that banks stress all retail residential immovable properties loans with variable rates or with revisable ones for which the fixed rate duration is not long enough to effectively mitigate rollover risk and thus protect the consumer.

    Given the current stage of business cycle, the minimum expected margin is temporarily reduced to 100bps. From January 1 2025 onwards, the CSSF expects banks to have returned once again to the current market practice of considering a 200bps interest rate increase in their sensitivity analyses.

    Version française

    Le 16 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a mis à jour sa FAQ relative aux dispositions de la circulaire CSSF 22/824 concernant l'application des lignes directrices de l'ABE sur l'origination et le suivi des prêts (EBA/GL/2020/06).

    La mise à jour concerne la question 2 : Quelles sont les attentes de la CSSF concernant les scénarios de hausse des taux d’intérêt pour une analyse de sensibilité robuste pour tous les contrats de prêt à taux d’intérêt variable/révisable finançant des immeubles résidentiels commerciaux ?

    Dans sa réponse, la CSSF attend que les banques mettent l’accent sur tous les prêts immobiliers résidentiels commerciaux à taux variable ou révisable pour lesquels la durée du taux fixe n’est pas suffisamment longue pour atténuer efficacement le risque de refinancement et ainsi protéger le consommateur.

    Compte tenu du stade actuel du cycle économique, la marge minimale attendue est temporairement réduite à 100 points de base. À compter du 1er janvier 2025, la CSSF s’attend à ce que les banques reviennent à la pratique actuelle du marché consistant à considérer une hausse des taux d’intérêt de 200 points de base dans leurs analyses de sensibilité.

  • Consumer protection

    CSSF reminds of PRIIPs KID review for 2024 / La CSSF rappelle la révision des PRIIPs KID pour 2024

    CACEIS

  • On May 28 2024, the Commission de Surveillance du secteur financier (CSSF) reminded of the PRIIPs KID review.

    Since January 1 2023 UCITS available to retail investors qualify as PRIIPs for which a KID is required pursuant to the PRIIPs Regulation. The CSSF hereby reminds Luxembourg UCITS and UCITS management companies of this requirement for the year 2024.

    Reference is also made to the guidance specifically provided in this context by the ESAs in their consolidated Q&As on the KID (see, in particular, question 8 of Section VII (Past performance)) and the CSSF in its FAQ concerning the Luxembourg Law of December 17 2010 relating to undertakings for collective investment.

    Version française

    Le 28 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a rappelé l'examen du KID du PRIIPs.

    Depuis le 1er janvier 2023, les OPCVM accessibles aux investisseurs particuliers sont éligibles aux PRIIP pour lesquels un KID est requis en application du Règlement PRIIPs. La CSSF rappelle cette exigence aux OPCVM et sociétés de gestion d’OPCVM luxembourgeoises pour l’année 2024.

    Il est également fait référence aux orientations spécifiquement fournies dans ce contexte par les AES dans leurs Q&A consolidées sur le KID (voir notamment la question 8 de la Section VII (Performances passées)) et la CSSF dans sa FAQ concernant la loi luxembourgeoise du décembre 17 2010 relative aux organismes de placement collectif.

  • Cryptoasset / Cryptocurrency / Virtual Currency

    Chambre des députés - Luxembourg publishes Bill 8387 transposing MiCA, ELTIFs and European Green Bonds Regulations / Chambre des députés - Luxembourg publie le projet de loi 8387 transposant les directives MiCA, ELTIFs et obligations vertes européennes

    CACEIS

  • On May 21 2024, the Chambre des députés - Luxembourg published the Draft Bill 8387 transposing MiCA, TFR, ELTIFs and European Green Bonds.

    Regulation (EU) 2023/1114 (MiCA) on crypto-asset markets, and amending the regulations (EU) No. 1093/2010 and (EU) No. 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 establishes a harmonized legal framework in the EU for the issue, public offering, admission to trading and provision of services related to crypto-assets.

    Parliament Regulation (EU) 2023/1113 (TFR) on information accompanying transfers of funds and of certain crypto-assets and amending Directive (EU) 2015/849 which replaces and extends the existing rules on information accompanying the transfers of funds to transfers of crypto-assets (“travel rule”) throughout the EU. The implementation of TFR is supplemented by the transposition of a series of amendments to Directive (EU) 2015/849 relating to the AMLD which aim to align regulations on fight against money laundering and terrorist financing with the new terminology resulting from the MiCA regulation and in particular to replace the references to virtual assets and virtual asset service providers by those for crypto-assets and CASPs.

    Regulation (EU) 2023/606 amends Regulation (EU) 2015/760 as regards concerns requirements relating to investment policies and operating conditions ELTIFs and the definition of assets eligible for investment, obligations regarding portfolio composition and diversification and borrowing cash and other provisions of the fund statutes.

    Parliament Regulation (EU) 2023/2631 on European green bonds and the publication of optional information for bonds marketed as sustainable bonds on the environmental plan and for sustainability obligations.

    This Draft Bill also sets the CSSF as the competent supervisory authority and highlights possible sanctions and actions to be undertaken by said authority in case of breach. It will be applicable for financial sector participants and enter into force on December 30 2024.

    Version française

    Le 21 mai 2024, la Chambre des députés - Luxembourg a publié le projet de loi 8387 transposant MiCA, TFR, ELTIF et European Green Bonds.

    Règlement (UE) 2023/1114 (MiCA) relatif aux marchés de crypto-actifs, et modifiant les règlements (UE) n° 1093/2010 et (UE) n° 1095/2010 et les directives 2013/36/UE et (UE) 2019/ La loi de 1937 établit un cadre juridique harmonisé au sein de l’UE pour l’émission, l’offre publique, l’admission à la négociation et la fourniture de services liés aux crypto-actifs.

    Règlement (UE) 2023/1113 (TFR) du Parlement concernant les informations accompagnant les transferts de fonds et de certains crypto-actifs et modifiant la directive (UE) 2015/849 qui remplace et étend les règles existantes relatives aux informations accompagnant les transferts de fonds aux transferts de crypto. -actifs (« règle de voyage ») dans toute l’UE. La mise en œuvre du TFR est complétée par la transposition d'une série d'amendements à la directive (UE) 2015/849 relative à l'AMLD qui visent à aligner la réglementation en matière de lutte contre le blanchiment d'argent et le financement du terrorisme avec la nouvelle terminologie issue du règlement MiCA et en notamment de remplacer les références aux actifs virtuels et aux prestataires de services d’actifs virtuels par celles aux crypto-actifs et aux CASP.

    Le règlement (UE) 2023/606 modifie le règlement (UE) 2015/760 en ce qui concerne les exigences relatives aux politiques d'investissement et aux conditions de fonctionnement des ELTIF et la définition des actifs éligibles à l'investissement, les obligations en matière de composition et de diversification du portefeuille et d'emprunt de liquidités et d'autres dispositions du statuts du fonds.

    Règlement (UE) 2023/2631 du Parlement relatif aux obligations vertes européennes et à la publication d'informations facultatives pour les obligations commercialisées comme obligations durables sur le plan environnemental et pour les obligations de durabilité.

    Ce projet de loi définit également la CSSF comme autorité de contrôle compétente et met en avant les sanctions possibles et les actions à entreprendre par ladite autorité en cas de manquement. Il sera applicable aux acteurs du secteur financier et entrera en vigueur le 30 décembre 2024.

  • Governance

    CSSF informs on new eDesk procedure regarding the EBA benchmarking exercise on Gender Pay Gap exercise / La CSSF informe sur la nouvelle procédure eDesk concernant l’exercice de benchmarking de l’ABE sur l’exercice Gender Pay Gap

    CACEIS

  • On May 15 2024, the Commission de Surveillance du secteur financier (CSSF) published a press release on the new eDesk procedure regarding the EBA benchmarking exercise on Gender Pay Gap (GPG) exercise.

    From May 15 2024, the CSSF will start collecting “GPG” reports from credit institutions and non-SNI IFR investment firms (“non-SNI IFR IF”), on behalf of the EBA. The purpose of this reporting is to collect information on the gender pay gap of credit institutions and non-SNI IFR IF, as required by Articles 38-10 and 38-24 (1) of the Law of April 5 1993 on the financial sector (“LFS”) as amended.

    This data collection exercise takes place every three years starting in 2024 with regard to financial year 2023. It concerns a sample of credit institutions and non-SNI IFR IF. The reporting is in XBRL format (see taxonomy established by the EBA). The report regarding financial year 2023 must be submitted through one of the following means by June 15 2024 COB:

    • XBRL file deposit in the dedicated eDesk procedure GPG; or
    • Via an API solution (S3 protocol), allowing for automation.

    A user guide providing details on how to fill in and submit the report is available on eDesk.

    Version française

    Le 15 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a publié un communiqué de presse sur la nouvelle procédure eDesk relative à l'exercice de benchmarking de l'ABE sur l'exercice Gender Pay Gap (GPG).

    A compter du 15 mai 2024, la CSSF commencera à collecter les déclarations « GPG » auprès des établissements de crédit et des entreprises d'investissement non SNI IFR (« non-SNI IFR IF »), pour le compte de l'ABE. Ce reporting a pour objet de collecter des informations sur l'écart salarial entre hommes et femmes dans les établissements de crédit et les FI IFR non SNI, comme l'exigent les articles 38-10 et 38-24 (1) de la loi du 5 avril 1993 relative au secteur financier ( « LFS ») tel que modifié.

    Cet exercice de collecte de données a lieu tous les trois ans à compter de 2024 au titre de l’exercice 2023. Il concerne un échantillon d’établissements de crédit et IF IFR non SNI. Le reporting est au format XBRL (voir taxonomie établie par l'EBA). Le rapport relatif à l’exercice 2023 doit être déposé par l’un des moyens suivants avant le 15 juin 2024 COB :

    • Dépôt de fichiers XBRL dans la procédure eDesk dédiée GPG ; ou
    • Via une solution API (protocole S3), permettant une automatisation.

    Un guide de l'utilisateur fournissant des détails sur la manière de remplir et de soumettre le rapport est disponible sur eDesk.

  • CSSF continues controls in the area of diversity within the management body of credit institutions / La CSSF poursuit ses contrôles en matière de diversité au sein de l'organe de direction des établissements de crédit

    CACEIS

  • On May 15 2024, the Commission de Surveillance du secteur financier (CSSF) publishes review of policies promoting diversity within the management body of credit institutions.

    The findings from the CSSF diversity requirements questionnaire indicated shortcomings in the understanding and implementation of the regulations on diversity. For this reason, the CSSF decided to conduct a series on check which, in turn, confirmed the existence of significant issues in relation to the application of the legal and regulatory requirements on diversity in the management body.

    Main pitfalls encountered by the CSSF:

    • There is a lack of knowledge or understanding of the applicable legal and regulatory provisions on diversity.
    • The policies communicated do not contain sufficient undertakings and detailed measures on the basis of which a real impact on diversity within the management body could be observed in the short or medium term.
    • The qualitative objectives set by the diversity policies reviewed are not sufficiently concrete.
    • Diversity policies often focus exclusively on the provisions applicable to members of the management body. However, it is crucial to also implement the requirements applicable to members of staff, including measures aimed at career planning and equal treatment and opportunities.

    In this review, the CSSF provides guidelines on the proper implementation of the diversity guidelines.

    Version française

    Le 15 mai 2024, la Commission de Surveillance du secteur financier (CSSF) publie un bilan des politiques favorisant la diversité au sein de l'organe de direction des établissements de crédit.

    Les résultats du questionnaire de la CSSF sur les exigences en matière de diversité ont révélé des lacunes dans la compréhension et la mise en œuvre de la réglementation en matière de diversité. C'est pourquoi la CSSF a décidé de mener une série de contrôles qui ont, à leur tour, confirmé l'existence d'enjeux significatifs quant à l'application des exigences légales et réglementaires en matière de diversité au sein de l'organe de direction.

    Principaux écueils rencontrés par la CSSF :

    • Il existe un manque de connaissance ou de compréhension des dispositions légales et réglementaires applicables en matière de diversité.
    • Les politiques communiquées ne contiennent pas suffisamment d'engagements et de mesures détaillées sur la base desquelles un réel impact sur la diversité au sein de l'organe de direction pourrait être observé à court ou moyen terme.
    • Les objectifs qualitatifs fixés par les politiques de diversité examinées ne sont pas suffisamment concrets.
    • Les politiques de diversité se concentrent souvent exclusivement sur les dispositions applicables aux membres de l'organe de direction. Toutefois, il est crucial de mettre également en œuvre les exigences applicables aux membres du personnel, notamment des mesures visant à la planification de carrière et à l'égalité de traitement et des chances.

    Dans cette revue, la CSSF fournit des lignes directrices sur la bonne mise en œuvre des lignes directrices en matière de diversité.

    • More
    • CSSF continues controls in the area of diversity within the management body of credit institutions
  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    CSSF relays FCA and HM Treasury jointly issued Roadmap to implementing the Overseas Funds Regime / La CSSF relaye la feuille de route publiée conjointement par la FCA et le Trésor britannique pour la mise en œuvre du régime des fonds étrangers

    CACEIS

  • On May 2 2024, the Commission de Surveillance du secteur financier (CSSF) relayed the FCA and HM Treasury jointly issued roadmap to implementing the Overseas Funds Regime.

    This roadmap aims to explain how the Overseas Funds Regime (OFR) is intended to be opened to European Economic Area (EEA) funds authorised under Directive 2009/65/EC, as amended, following the UK Government’s decision to grant equivalence in relation to those funds (with the exception of money market funds).

    As a reminder, the OFR is meant to replace the current Temporary Marketing Permissions Regime once it expires. The CSSF invites Luxembourg domiciled UCITS and management companies to closely monitor any implications deriving therefrom with a view to ensuring a smooth continuity of their marketing activities towards UK investors.

    Version française

    Le 2 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a relayé la feuille de route publiée conjointement par la FCA et le Trésor britannique pour la mise en œuvre du régime des fonds étrangers.

    Cette feuille de route vise à expliquer comment le régime des fonds étrangers (OFR) devrait être ouvert aux fonds de l'Espace économique européen (EEE) autorisés en vertu de la directive 2009/65/CE, telle que modifiée, suite à la décision du gouvernement britannique d'accorder l'équivalence à ceux-ci. fonds (à l’exception des fonds monétaires).

    Pour rappel, l'OFR est destiné à remplacer le régime actuel d'autorisations de commercialisation temporaires une fois celui-ci expiré. La CSSF invite les OPCVM et sociétés de gestion domiciliés au Luxembourg à suivre de près toutes les implications qui en découlent en vue d'assurer une bonne continuité de leurs activités de commercialisation auprès des investisseurs britanniques.

  • CSSF announces CSSF-ALFI Webinar on new Circular CSSF 24/856 on NAV calculation errors / La CSSF annonce un webinaire CSSF-ALFI sur la nouvelle circulaire CSSF 24/856 relative aux erreurs de calcul de NAV

    CACEIS

  • On 16 May 2024, the Commission de Surveillance du secteur financier (CSSF) announced a CSSF-ALFI Webinar on the new Circular CSSF 24/856 reforming Circular CSSF 02/77 on NAV calculation errors and investment breaches at the level of UCIs on 6 June 2024 at 10.30 CEST.

    The objective of the webinar is to present the new circular and to outline the main changes. The presentation will be followed by a Q&A session during which the CSSF will answer questions raised by the participants.

    The invitation to the webinar is addressed exclusively to professionals acting on behalf of entities managing or administrating Luxembourg UCIs supervised by the CSSF. These include:

    • Board Members/Conducting Officers of authorised IFMs
    • Board Members/Conducting Officers of self-managed UCIs
    • Board Members/Conducting Officers of registered AIFMs
    • Board Members of UCIs
    • Compliance Officers and Risk Managers of IFMs, UCI administrators and depositories

    Invitations to the webinar have been sent out by ALFI, with participation being on an invitation basis only.

    Version française

    Le 16 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a annoncé un webinaire CSSF-ALFI sur la nouvelle circulaire CSSF 24/856 réformant la circulaire CSSF 02/77 relative aux erreurs de calcul de la VNI et aux manquements en matière d'investissement au niveau des OPC le 6 juin. 2024 à 10h30 CEST.

    L'objectif du webinaire est de présenter la nouvelle circulaire et d'en souligner les principaux changements. La présentation sera suivie d'une session de questions/réponses au cours de laquelle la CSSF répondra aux questions soulevées par les participants.

    L'invitation au webinaire s'adresse exclusivement aux professionnels agissant pour le compte d'entités gérant ou administrant des OPC luxembourgeois supervisés par la CSSF. Ceux-ci inclus:

    • Membres du conseil d'administration/dirigeants des GFI agréés
    • Administrateurs / Dirigeants d'OPC autogérés
    • Membres du conseil d'administration/dirigeants des gestionnaires enregistrés
    • Administrateurs des OPC
    • Compliance Officers et Risk Managers des GFI, administrateurs d'OPC et dépositaires

    Les invitations au webinaire ont été envoyées par l'ALFI, la participation se faisant uniquement sur invitation.

  • Risk management

    CSSF updates on non-profit organisations and the fight against terrorism financing / Le point sur les organisations à but non lucratif et la lutte contre le financement du terrorisme

    CACEIS

  • On May 30 2024, the Commission de Surveillance du secteur financier (CSSF) updated on non-profit organisations (NPOs) and the fight against terrorism financing (TF).

    In Luxembourg, the vertical risk assessments, published by the Ministry of Justice in 2022, apprehend the level of exposure to TF risk of certain NPOs as high on the basis of the characteristics and activities of these NPOs. With regard to Luxembourg NPOs that could be at risk, reference is made mainly to NPOs that carry out development and humanitarian projects abroad.

    Due to the current international geopolitical context (see e.g. the CSSF's AML/CFT press release of October 25 2023), it has become even more risky for illegal financing networks to exploit the weaknesses of certain NPOs, in particular the fact that they are not directly subject to the obligations under AML/CFT legislation.

    As a result, the implementation of an appropriate risk-based approach should lead financial institutions to target these higher-risk NPOs and apply appropriate mitigation measures to them, while ensuring that they do not stigmatize all NPOs. The application of risk mitigation measures should not undermine the financial inclusion of NPOs, which could then turn to unregulated and unsupervised financial services, further increasing the risk of abuse for TF purposes.

    The FATF therefore adopted, during the October 2023 plenary meeting, amendments to Recommendation 8 concerning NPOs, in order to provide a framework for enhanced protection against potential abuses for TF7 purposes. In order to take account of these amendments, the FATF has also updated its Best Practice Guide to Combating the Abuse of NPOs (which also includes examples of bad practices). In parallel, the FATF assessment methodology has also been adapted, as decided at the February 2024 plenary meeting, to reflect these recent changes for the next FATF assessments under Round 5.

    A non-exhaustive list of indicators that financial institutions could consider in order to determine whether they are faced with a TF risk situation through the abusive intermediary of an NPO has been drawn up:

    Indicators related to funding methods/frequencies:

    • difficulties in tracing the origin or destination of the funds
    • donations, mainly in cash
    • unexplained increase in deposits and transaction activity
    • large and unusual withdrawals (in particular following a refusal to make a transfer abroad)
    • transactions containing terms/symbols associated with violent, racist and/or terrorist ideologies

    Geographical factors:

    • sending funds to multiple entities in high-risk country(ies)
    • appointment of a third party as an account agent who sends funds to high-risk countries (including as a result of a fundraising campaign)
    • absence of domestic donors and presence of donors located in high-risk countries
    • transmission of resources or activities in an area known to have a substantial presence of terrorists
    • links with conflict zones or neighbouring regions (e.g. transfers to a local association that is supposed to carry out the NPO's missions)
    • remittances from/to entities operating in areas known for terrorist activities

    Reputation-related indicators:

    • existence of reliable information indicating a link to third parties supporting or participating in terrorist activities
    • receiving funds from entities suspected of supporting terrorist activities
    • receipt of funds from suspected terrorists [or "listed persons", i.e. persons included on TF financial sanctions lists

    Indicators related to control:

    • lack of information on the objective, and if applicable the final beneficiaries of the activities, of the NPO
    • failure to account for the end-use of all resources; lack of legal status (under national or other jurisdictional law)

    Other indicators:

    • disappearance of the NPO's online and/or social media presence (in particular following the use of crowdfunding to solicit donations)
    • use of falsified or contradictory documents
    • sharing premises with an organisation suspected of supporting terrorist activities; etc.

    In conclusion, on the basis of their risk-based approach, financial institutions apply appropriate and proportionate mitigation measures to NPOs that they have identified as being exposed to TF risk, while ensuring that they do not stigmatise all players in the sector, and that they do not practice "de-risking" that would undermine the financial inclusion of NPOs, and transparency.

    Version française

    Le 30 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a fait un point sur les organisations à but non lucratif (OBNL) et la lutte contre le financement du terrorisme (FT).

    Au Luxembourg, les évaluations des risques verticaux, publiées par le Ministère de la Justice en 2022, appréhendent le niveau d'exposition au risque FT de certaines ASBL comme élevé sur la base des caractéristiques et des activités de ces ASBL. Concernant les OBNL luxembourgeoises qui pourraient être à risque, il est fait référence principalement aux OBNL qui réalisent des projets de développement et humanitaires à l’étranger.

    En raison du contexte géopolitique international actuel (voir par exemple le communiqué de presse LBC/FT de la CSSF du 25 octobre 2023), il est devenu encore plus risqué pour les réseaux de financement illégaux d'exploiter les faiblesses de certaines OBNL, notamment le fait qu'elles ne sont pas directement soumis aux obligations prévues par la législation LAB/CFT.

    En conséquence, la mise en œuvre d’une approche appropriée basée sur les risques devrait conduire les institutions financières à cibler ces OBNL à plus haut risque et à leur appliquer des mesures d’atténuation appropriées, tout en veillant à ce qu’elles ne stigmatisent pas l’ensemble des OBNL. L’application de mesures d’atténuation des risques ne devrait pas compromettre l’inclusion financière des OBNL, qui pourraient alors se tourner vers des services financiers non réglementés et non supervisés, augmentant encore le risque d’abus à des fins de FT.

    Le GAFI a donc adopté, lors de la réunion plénière d’octobre 2023, des amendements à la Recommandation 8 concernant les OBNL, afin d’encadrer une protection renforcée contre d’éventuels abus aux fins de TF7. Afin de tenir compte de ces amendements, le GAFI a également mis à jour son Guide des meilleures pratiques pour lutter contre les abus envers les OBNL (qui comprend également des exemples de mauvaises pratiques). En parallèle, la méthodologie d'évaluation du GAFI a également été adaptée, comme décidé lors de la réunion plénière de février 2024, pour refléter ces récents changements pour les prochaines évaluations du GAFI dans le cadre du Round 5.

    Une liste non exhaustive d’indicateurs que les institutions financières pourraient considérer afin de déterminer si elles sont confrontées à une situation de risque de FT par l’intermédiaire abusif d’un OBNL a été établie :

    Indicateurs liés aux modes/fréquences de financement :

    • difficultés à retrouver l'origine ou la destination des fonds
    • des dons, principalement en espèces
    • augmentation inexpliquée des dépôts et de l'activité des transactions
    • des retraits importants et inhabituels (notamment suite à un refus d'effectuer un virement à l'étranger)
    • transactions contenant des termes/symboles associés à des idéologies violentes, racistes et/ou terroristes

    Facteurs géographiques :

    • envoyer des fonds à plusieurs entités dans des pays à haut risque
    • désignation d'un tiers en tant qu'agent de compte qui envoie des fonds vers des pays à risque (y compris à la suite d'une campagne de collecte de fonds)
    • absence de donateurs nationaux et présence de donateurs situés dans des pays à risque
    • transmission de ressources ou d'activités dans une zone connue pour avoir une présence importante de terroristes
    • des liens avec des zones de conflits ou des régions voisines (ex : transferts vers une association locale censée assurer les missions de l'ASBL)
    • transferts de fonds depuis/vers des entités opérant dans des zones connues pour leurs activités terroristes

    Indicateurs liés à la réputation :

    • existence d'informations fiables indiquant un lien avec des tiers soutenant ou participant à des activités terroristes
    • recevoir des fonds d'entités soupçonnées de soutenir des activités terroristes
    • réception de fonds provenant de terroristes présumés [ou de « personnes répertoriées », c'est-à-dire de personnes inscrites sur les listes de sanctions financières contre le FT

    Indicateurs liés au contrôle :

    • manque d'informations sur l'objectif, et le cas échéant les bénéficiaires finaux des activités, de l'OBNL
    • l'incapacité à rendre compte de l'utilisation finale de toutes les ressources ; absence de statut juridique (en vertu du droit national ou d'un autre droit juridictionnel)

    Autres indicateurs :

    • disparition de la présence en ligne et/ou sur les réseaux sociaux de l'OBNL (notamment suite au recours au financement participatif pour solliciter des dons)
    • utilisation de documents falsifiés ou contradictoires
    • partager des locaux avec une organisation soupçonnée de soutenir des activités terroristes ; etc.

    En conclusion, sur la base de leur approche fondée sur les risques, les institutions financières appliquent des mesures d'atténuation appropriées et proportionnées aux OBNL qu'elles ont identifiés comme étant exposés au risque de FT, tout en veillant à ne pas stigmatiser tous les acteurs du secteur, et à ce qu'elles ne pratiquez pas de « réduction des risques » qui nuirait à l’inclusion financière des OBNL et à la transparence.

    • More
  • CSSF updates declarations of honour for natural and legal persons / La CSSF met à jour les déclarations sur l’honneur des personnes physiques et morales

    CACEIS

  • On May 22 2024, the Commission de Surveillance du secteur financier (CSSF) updated its declarations of honour for natural and legal persons.

    This follows an adaptation of the CSSF administrative practice as regards the assessment of professional standing and experience, but it does not concern the procedures or declarations of honour to be submitted as part of the supervision of credit institutions.

    The CSSF made the following adjustments to the declarations of honour:

    1. The declaration of honour must be signed, dated and submitted either in paper form bearing a handwritten signature or in electronic form bearing a qualified electronic signature within the meaning of Regulation (EU) No 910/2014 authenticating the declarant.

    2. The content of certain elements of information to be provided in the declarations of honour was clarified.

    3. The declarant must, in particular, declare the following:

    • never having exercised nor currently exercising a significant function or influence in an entity which has been subject or which currently is subject to a criminal procedure or sanction;
    • having submitted the extracts of the criminal records issued by the competent authorities of each of the countries of residence of the last five years preceding the signature of the declaration of honour, or, where applicable, that no criminal record can be delivered for one or several countries of residence concerned;
    • that the documents transmitted or to be transmitted to the CSSF include complete, sincere and accurate information and that are up to date at the time of the submission to the CSSF;
    • that the copies of the documents submitted to the CSSF are in all respects true copies of and identical to the original documents.

    4. The content of the declarations of honour for natural persons and for legal persons was harmonised.

    The CSSF will no longer require original versions or certified copies of documents to be submitted with the declaration of honour, except in exceptional circumstances and the declarant to submit an updated version of the documentation at the end of the assessment procedure, where no change has occurred in the meantime.

    The CSSF reiterates that the declarant is required to inform the CSSF of any change or evolution of the information provided as part of the declaration of honour.

    The new versions are applicable as of July 1 2024.

    Version française

    Le 22 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a mis à jour ses déclarations sur l'honneur des personnes physiques et morales.

    Cela fait suite à une adaptation de la pratique administrative de la CSSF en matière d’évaluation de la situation professionnelle et de l’expérience, mais cela ne concerne pas les démarches ou déclarations sur l’honneur à présenter dans le cadre de la surveillance des établissements de crédit.

    La CSSF a apporté les adaptations suivantes aux déclarations sur l’honneur :

    1. La déclaration sur l'honneur doit être signée, datée et présentée soit sous forme papier portant une signature manuscrite, soit sous forme électronique portant une signature électronique qualifiée au sens du règlement (UE) n° 910/2014 authentifiant le déclarant.

    2. Le contenu de certains éléments d'information à fournir dans les déclarations sur l'honneur a été clarifié.

    3. Le déclarant doit notamment déclarer ce qui suit :

    • n'avoir jamais exercé ni n'exercer actuellement de fonction ou d'influence notable dans une entité qui a fait ou qui fait actuellement l'objet d'une procédure ou d'une sanction pénale ;
    • avoir présenté les extraits de casier judiciaire délivrés par les autorités compétentes de chacun des pays de résidence des cinq dernières années précédant la signature de la déclaration sur l'honneur, ou, le cas échéant, qu'aucun casier judiciaire ne peut être délivré pour un ou plusieurs pays de résidence concernés ;
    • que les documents transmis ou à transmettre à la CSSF comportent des informations complètes, sincères et exactes et qui sont à jour au moment de leur soumission à la CSSF ;
    • que les copies des documents soumis à la CSSF sont en tous points des copies conformes et identiques aux documents originaux.

    4. Le contenu des déclarations sur l'honneur pour les personnes physiques et pour les personnes morales a été harmonisé.

    La CSSF n'exigera plus que des versions originales ou des copies certifiées conformes des documents soient présentées avec la déclaration sur l'honneur, sauf circonstances exceptionnelles et que le déclarant soumette une version mise à jour de la documentation à la fin de la procédure d'évaluation, lorsqu'aucun changement n'est intervenu. en attendant.

    La CSSF rappelle que le déclarant est tenu d'informer la CSSF de tout changement ou évolution des informations fournies dans le cadre de la déclaration sur l'honneur.

    Les nouvelles versions sont applicables à compter du 1er juillet 2024.

  • Sustainable Finance / Green Finance

    CSSF informs on ESMA's Final Report on Guidelines on funds’ names using ESG terms / La CSSF informe sur le rapport final de l'ESMA sur les lignes directrices sur les noms de fonds utilisant des termes ESG

    CACEIS

  • On May 15 2024, the Commission de Surveillance du secteur financier (CSSF) published a press release on ESMA's Final Report on Guidelines on funds’ names using ESG or sustainability-related terms.

    In this Final Report, ESMA provides an overview of the feedback received on the related ESMA consultation, which ran from November 18 2022 to February 20 2023, and explains how this feedback has been considered. The Final Report also contains the final Guidelines on funds’ names. These Guidelines apply to UCITS management companies (as well as UCITS which have not designated a UCITS management company), AIFMs including internally managed AIFs, EuVECA, EuSEF and ELTIF and Money Market Fund managers.

    The purpose of the Guidelines is to specify the circumstances where the fund names using ESG or sustainability-related terms are unfair, unclear or misleading. Investment fund managers and internally managed funds (IFMs) that include ESG or sustainability-related terms in the names of the UCITS and AIFs they manage must comply with the requirements included in the Guidelines.

    The CSSF draws the attention of market participants to the fact that the Guidelines apply to IFMs managing UCITS or AIFs, irrespective of whether they are disclosing under Articles 6, 8 or 9 of SFDR. IFMs are thus expected to carry out a self-assessment of the applicability of the Guidelines to the products they manage and to ensure compliance of fund names with these Guidelines.

    The Guidelines will apply three months after the date of their publication on ESMA’s website in all EU official languages. IFMs of any new funds created after the date of application of the Guidelines, should apply these Guidelines immediately in respect of those funds. IFMs of funds existing before the date of application of the Guidelines should comply with the Guidelines with respect to those funds at the latest 6 months after the date of application of the Guidelines.

    Version française

    Le 15 mai 2024, la Commission de Surveillance du secteur financier (CSSF) a publié un communiqué de presse sur le rapport final de l'ESMA sur les lignes directrices sur les noms de fonds utilisant des termes ESG ou liés au développement durable.

    Dans ce rapport final, l'ESMA donne un aperçu des commentaires reçus lors de la consultation connexe de l'ESMA, qui s'est déroulée du 18 novembre 2022 au 20 février 2023, et explique comment ces commentaires ont été pris en compte. Le rapport final contient également les lignes directrices finales sur les noms des fonds. Les présentes Orientations s'appliquent aux sociétés de gestion d'OPCVM (ainsi qu'aux OPCVM qui n'ont pas désigné de société de gestion d'OPCVM), aux gestionnaires de fonds alternatifs, y compris les FIA gérés en interne, aux EuVECA, EuSEF et ELTIF et aux gestionnaires de fonds monétaires.

    L’objectif des lignes directrices est de préciser les circonstances dans lesquelles les noms de fonds utilisant des termes ESG ou liés au développement durable sont injustes, peu clairs ou trompeurs. Les gestionnaires de fonds d'investissement et les fonds gérés en interne (GFI) qui incluent des termes ESG ou liés au développement durable dans les noms des OPCVM et des FIA qu'ils gèrent doivent se conformer aux exigences incluses dans les lignes directrices.

    La CSSF attire l’attention des acteurs du marché sur le fait que les Orientations s’appliquent aux GFI gérant des OPCVM ou des FIA, qu’ils fassent de la publicité au titre des articles 6, 8 ou 9 du SFDR. Il est donc attendu des GFI qu'ils procèdent à une auto-évaluation de l'applicabilité des Directives aux produits qu'ils gèrent et qu'ils veillent à la conformité des noms de fonds avec ces Directives.

    Les lignes directrices s’appliqueront trois mois après la date de leur publication sur le site Internet de l’ESMA dans toutes les langues officielles de l’UE. Les GFI de tout nouveau fonds créé après la date d’application des Orientations doivent immédiatement appliquer ces Orientations à l’égard de ces fonds. Les GFI de fonds existant avant la date d’application des Orientations doivent se conformer aux Orientations en ce qui concerne ces fonds au plus tard 6 mois après la date d’application des Orientations.

  • SPAIN

    Financial supervision

    CNVM publishes Consultation for the amendment of several Circulars

    CACEIS

  • On May 20 2024, the Comisión Nacional del Mercado de Valores (CNMV) published a Consultation for the amendment of several Circulars on accounting, conduct of business standards and the protection of customer assets, and to stanardise the information of various entity types.

    Accounting: Amendments of Circular 1/2021 to:

    • Keep the scope of application for national financial advisory firms that are legal entities. obligations are established to submit information to the CNMV, specifically audited annual accounts and models of reserved statements, aimed at facilitating the performance of the appropriate supervision of such entities.
    • Advance the data the CNMV could request through individual requests to new service providers of crypto-assets without a licence to provide other financial services is disclosed beforehand. The data shall be the audited annual accounts and the models of reserved statements. 
    • Introduce amendments to the models of reserved statements of investment firms and their consolidated groups in order to make the supervision of these entities more effective.
    • Change the breakdowns of the reserved statements of closed-ended collective investment undertakings (CECIU).
    • Establish a common reserved statement on the prevention of money laundering and terrorist financing to be reported by investment firms, national financial advisory firms (legal persons), collective investment undertakings, CECIUand crypto-asset service providers.

    Confidential information on the monitoring of rules of conduct: Amendment of Circular 1/2010 to:

    • Anticipate the models of reserved statements that the CNMV could request by individual request from crypto-asset service providers. 
    • Incorporate changes to the confidential information that entities providing investment and ancillary services and activities have been submitting. The objective of the update is to allow the reporting currently carried out by financial advisory firms (including Spanish firms) to be aligned with that of the rest of the investment firms and to improve the information reported by the rest of the entities, considering supervisory experience (last amended in 2018).

    Protection of client’s assets: Amendment of Circular 5/2009 (CAPR) to:

    • Include in the scope of application of the CAPR currently in force for credit institutions and investment firms the custody activities and portfolio management for crypto-assets with the power of disposal, if they are carried out, and, in the case of CECIU, the portfolio management activities for crypto-assets with the power of disposal.
    • Include in its scope of application CECIUproviding custody and administration services of shares and units of collective investment, or discretionary and individualised management of portfolios of securities or crypto-assets with the power of disposal.
    • For crypto-asset service providers that provide custody and administration services or portfolio management services with the power of disposal or holding client funds, as well as electronic money institutions that provide crypto-asset custody and administration services, the Circular includes the possibility of the CNMV requesting the submission of the CAPR by means of individual requirements.

    Other provisions: 

    • Amendments of Circular 1/2018  to clarify two specific aspects of the warning regarding the existence of a relevant difference in the estimate of the current value of certain financial instruments. 
    • Modification of the content of the independent expert's report that must be drafted and submitted to the CNMV by national financial advisory firms that are natural persons to adjust the independent expert's reviews to the content of the confidential information that national financial advisory firms that are legal persons must submit to the CNMV.

    The consultation is open until June 30 2024. 

  • FinTech / RegTech / BigTech / SupTech / Digital Economy

    CNMV publishes FAQs on financial instruments based on DLT

    CACEIS

  • On May 29 2024, the Comisión Nacional del Mercado de Valores (CNMV) published frequently asked questions and answers (FAQs) on financial instruments based on Distributed Ledger Technologies (DLTs).

    The questions are as follows:

    • What is Distributed Ledger Technology or "TRD"?
    • What is a crypto asset?
    • What are distributed ledger technology-based financial instruments or DLT-based financial instruments?
    • On what criteria should crypto-assets be classified as DLT Financial Instruments?
    • What is the difference between DLT Financial Instruments and other financial instruments? Does it imply different rights?
    • Can DLT-based financial instruments be issued in Spain with full legal certainty?
    • What is the legal status of marketable securities represented by DLT systems?
    • Is it possible to represent only part of an issue of marketable securities using DLT-based systems?
    • Where are marketable securities represented by DLT systems registered? How is your record kept?
    • Who is required to appoint the ERIR and when?
    • What are the functions of the ERIR with respect to marketable securities represented by DLT systems?
    • Does the ERIR need administrative authorization? Is it a regulated entity?
    • Is there an official registration of ERIR?
    • Does the ERIR have any responsibility to investors?
    • In the event that Article 36(1) of the LMVSI, relating to the obligation of an investment firm to intervene in the placement of certain issues, applies to an issue of transferable securities represented by DLT systems, could the ERIR itself perform the function described in that paragraph to be performed by an investment firm?
    • How are marketable securities represented by systems based on TRD?
    • Are holders listed in the DLT system under which the marketable securities were issued considered to be the legitimate holders of those securities? Are the rightful owners always the ultimate beneficiaries of the securities?
    • If shares represented by DLT systems are acquired, when is ownership transferred?
    • Can limited rights in rem, pledges or other encumbrances be created on marketable securities represented by DLT systems?
    • How can rights to marketable securities represented by DLT systems be accredited?
    • What happens if an ERIR is declared insolvent?
    • Is the form of representation reversible by DLT-based systems?
    • Can there be listed and unlisted DLT Financial Instruments?
    • What type of DLT Financial Instruments can be traded on trading venues and what is their regulatory framework?
    • Is it safe to invest in DLT Based Financial Instruments?
    • What is the contingency plan that every ERIR must have?
    • Who and how are financial instruments represented in DLT systems safeguarded?
  • Sustainable Finance / Green Finance

    Government publishes consultation on draft law transposing CSRD

    CACEIS

  • On May 10 2024, the Spanish Government published a consultation on draft law transposing the Corporate Sustainability Reporting Directive (CSRD).

    The Directive (EU) 2022/2464 (CSRD) replaces Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings as regards the disclosure of non-financial information by certain large undertakings and certain groups of undertakings, and introduced an obligation to submit information concerning, at least, environmental and social issues, personnel, respect for human rights and the fight against corruption and bribery.

    In Spain, this obligation was incorporated into domestic law through Law 11/2018, of December 28 2018, amending the Commercial Code, the revised text of the Capital Companies Law approved by Royal Legislative Decree 1/2010, of July 2 2010, and Law 22/2015, of July 20 2015. of Auditing of Accounts, in matters of non-financial information and diversity. Law 11/2018, of December 28 2018, does not limit itself to transposing the directive in its condition of minimums, but defines a broader scope of application, regulates in more detail the content of the statement of non-financial information and requires its verification by an independent provider of verification services, thus exercising the option provided for in the directive. It also requires that the presentation of non-financial information be carried out in accordance with national, European or international frameworks.

    The Commission report of April 21 2021 on the review clauses of Directives 2013/34/EU of 22 June 2013, 2014/95/EU of October 22 2014 and 2013/50/EU of October 22 2013 and on the related fitness check on the European Union framework on the publication of information by undertakings, identified problems with regard to the effectiveness of Directive 2014/95/EU of October 22 2014. In its conclusions, the report indicates that many companies do not report meaningful information on all important sustainability-related issues and notes the limited comparability, reliability and accessibility of the information presented, as well as the limited scope of application.

    The new Directive 2022/2464, of December 14 2022, introduces important new features with regard to obliged entities, the content of sustainability information, the rules according to which the information must be prepared, its presentation format, the requirement for the verification of such information and the regulation of the essential aspects of this verification. In addition, the term "non-financial information" is replaced by "sustainability information", which includes environmental, social and governance factors.

    One of the main objectives of Directive 2022/2464 of December 14 2022 is to extend the scope of the obligation to report sustainability to include all companies and groups of companies that meet the definition of large, regardless of whether they are listed or not. This obligation also extends to small and medium-sized enterprises (SMEs), but only in the event that they have issued securities admitted to trading on a regulated secondary market in the European Union, with micro-enterprises being excluded in any case. However, obligated SMEs will have a series of facilities, such as: a reduced content, specific rules with which to submit this information and an additional period to prepare for this new requirement.

    On the other hand, due to the increasing need for sustainability reporting and the key role played by insurers and reinsurers and credit institutions in the transition to a sustainable economic and financial system, through their lending, investment and underwriting activities, it is necessary to extend the sustainability reporting requirements to these entities.

    With regard to the exemption from reporting sustainability information for subsidiaries, certain requirements are laid down to ensure that the information is easily accessible to users and regulates the case where the parent undertaking is not subject to the law of a Member State and does not belong to the European Economic Area. Large listed companies are also prohibited from taking advantage of this exemption.

    It is important to note that the exemption from the presentation of consolidated sustainability information operates independently from the exemption from the preparation of the consolidated annual accounts and the management report, and the requirements for this purpose must be met in each case.

    This sustainability information should be part of the management report, and located in a specific section of the report. As a novelty, all obliged undertakings will be required to prepare their management report in the electronic reporting format specified in Article 3 of Commission Delegated Regulation (EU) 2019/815 of December 17 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards relating to the specification of an electronic format Unique reporting process. In addition, they must label sustainability information in accordance with the provisions of the aforementioned Regulation. With this new obligation, progress is being made towards the digitisation of data at the level of the European Union.

    The consultation ends on May 25 2024.

  • SWITZERLAND

    Anti-money laundering / Combating the financing of terrorism (AML / CFT)

    Swiss Federal Council adopts Dispatch on Draft Law to strengthen the fight against money laundering / Le Conseil fédéral adopte un message sur un projet de loi visant à renforcer la lutte contre le blanchiment d'argent

    CACEIS

  • On May 22 2024, the Der Bundesrat / Le Conseil fédéral adopted a dispatch on a draft law to strengthen the fight against money laundering.

    The main elements of the bill are as follows:

    This provides for the introduction of a federal register (transparency register) to which companies and other legal entities will have to announce the identity of their beneficial owners. Associations and foundations, as well as other forms of companies such as single-shareholder companies and limited liability companies (LLCs), among others, will be subject to a simplified notification procedure. This register will make it possible for the prosecution authorities to determine more quickly and reliably who is actually behind a legal structure. This will prevent legal entities from being used in Switzerland for money laundering or asset concealment. The register, which will not be public, will be maintained by the Federal Department of Justice and Police, with the aim of making use of the existing infrastructure and the know-how of the commercial register authorities. As a result of the consultation, the draft law was amended to improve its consistency with anti-money laundering legislation, to further simplify data entry and to strengthen data protection.

    Certain advisory activities (including legal matters) that pose a high risk of money laundering will be subject to due diligence obligations under anti-money laundering legislation. The bill thus takes up a proposal that had already been examined in 2019 by Parliament. This will include the structuring of companies and real estate transactions. The professional secrecy of lawyers and notaries will be the subject of specific provisions aimed at ensuring that it is respected. In the light of the views gathered during the consultation, it will not be the responsibility of the regional bar associations but of the self-regulatory organisations (SROs) subject to anti-money laundering legislation to ensure that the lawyers concerned fulfil their due diligence obligations.

    The bill also provides for a range of other measures to strengthen the fight against money laundering. These include measures against circumvention or violation of sanctions based on the Embargo Act. In addition, cash payments of more than CHF 15,000 in precious metals trading will continue to be possible, but will be subject to certain due diligence obligations. With regard to the trade in real estate, the due diligence obligations will apply to all cash payments, regardless of their amount. In the face of the criticism that has been made in this regard in the context of the consultation, there will be no reform of the system of sanctions imposed by SROs.

    Submitted for consultation between August and November 2023, the bill received a mostly positive reception. On the other hand, it has aroused the scepticism of the groups of professionals who will be subject by virtue of their advisory activity.

    The bill will be submitted to the Federal Chambers. As for the entry into force, it should take place in 2026 at the earliest. The measures are in line with the Financial Action Task Force (FATF) international standards on combating money laundering and terrorist financing, as well as the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

    What effects will the change in legislation have on SMEs?

    In general, all companies and legal entities present in Switzerland are required to declare the identity of their beneficial owners to the Federal Transparency Register. Most of them, which mainly include single-shareholder companies, limited liability companies, foundations or associations, will be subject to a simplified notification procedure, provided that their beneficial owners are already registered in the commercial register. According to the regulatory impact assessment carried out by an external representative, the new law will entail a small additional workload for the actors concerned, which will hardly be felt at the level of the company itself: it is estimated that, for the vast majority of companies, this workload will represent about twenty minutes in the first year. It should be a few minutes in the following years.

    Version française

    Le 22 mai 2024, le Der Bundesrat / Le Conseil fédéral a adopté un message sur un projet de loi visant à renforcer la lutte contre le blanchiment d'argent.

    Les principaux éléments du projet de loi sont les suivants :

    Celui-ci prévoit l'introduction d'un registre fédéral (registre de transparence) auquel les sociétés et autres personnes morales devront annoncer l'identité de leurs bénéficiaires effectifs. Les associations et fondations, ainsi que d'autres formes de sociétés telles que les sociétés à actionnariat unique et les sociétés à responsabilité limitée (SARL), entre autres, seront soumises à une procédure de notification simplifiée. Ce registre permettra aux autorités judiciaires de déterminer plus rapidement et de manière plus fiable qui se cache réellement derrière une structure juridique. Cela empêchera que des personnes morales soient utilisées en Suisse à des fins de blanchiment d'argent ou de dissimulation d'avoirs. Le registre, qui ne sera pas public, sera tenu par le Département fédéral de justice et police, dans le but d'utiliser l'infrastructure existante et le savoir-faire des autorités du registre du commerce. À la suite de la consultation, le projet de loi a été modifié afin d'améliorer sa cohérence avec la législation anti-blanchiment d'argent, de simplifier davantage la saisie des données et de renforcer la protection des données.

    Certaines activités de conseil (y compris les questions juridiques) qui présentent un risque élevé de blanchiment d'argent seront soumises à des obligations de diligence raisonnable en vertu de la législation anti-blanchiment d'argent. Le projet de loi reprend ainsi une proposition qui avait déjà été examinée en 2019 par le Parlement. Cela inclura la structuration d’entreprises et les transactions immobilières. Le secret professionnel des avocats et notaires fera l'objet de dispositions spécifiques visant à assurer son respect. À la lumière des avis recueillis lors de la consultation, il n'incombera pas aux barreaux régionaux mais aux organismes d'autorégulation (OAR) soumis à la législation anti-blanchiment de s'assurer que les avocats concernés remplissent leurs obligations de diligence. .

    Le projet de loi prévoit également une série d'autres mesures visant à renforcer la lutte contre le blanchiment d'argent. Il s'agit notamment de mesures contre le contournement ou la violation des sanctions fondées sur la loi sur l'embargo. En outre, les paiements en espèces de plus de 15 000 CHF dans le négoce de métaux précieux resteront possibles, mais seront soumis à certaines obligations de diligence. En ce qui concerne les transactions immobilières, les obligations de diligence s'appliqueront à tous les paiements en espèces, quel que soit leur montant. Face aux critiques formulées à cet égard dans le cadre de la consultation, il n'y aura pas de réforme du système de sanctions imposées par les OAR.

    Soumis en consultation entre août et novembre 2023, le projet de loi a reçu un accueil majoritairement positif. En revanche, elle a suscité le scepticisme des groupes de professionnels qui y seront soumis en raison de leur activité de conseil.

    Le projet de loi sera soumis aux Chambres fédérales. Quant à l’entrée en vigueur, elle devrait intervenir au plus tôt en 2026. Les mesures sont conformes aux normes internationales du Groupe d'action financière (GAFI) sur la lutte contre le blanchiment d'argent et le financement du terrorisme, ainsi qu'aux recommandations du Forum mondial sur la transparence et l'échange d'informations à des fins fiscales.

    Quels effets le changement de législation aura-t-il sur les PME ?

    De manière générale, toutes les sociétés et personnes morales présentes en Suisse sont tenues de déclarer l'identité de leurs bénéficiaires effectifs au Registre fédéral de transparence. La plupart d'entre elles, qui comprennent principalement des sociétés unipersonnelles, des sociétés à responsabilité limitée, des fondations ou des associations, seront soumises à une procédure de notification simplifiée, à condition que leurs ayants droit économiques soient déjà inscrits au registre du commerce. Selon l'analyse d'impact réglementaire réalisée par un représentant externe, la nouvelle loi entraînera une petite charge de travail supplémentaire pour les acteurs concernés, qui ne se fera guère sentir au niveau de l'entreprise elle-même : on estime que, pour la grande majorité des entreprises, cette charge de travail représentera une vingtaine de minutes la première année. Cela devrait prendre quelques minutes dans les années à venir.

  • Investor protection / Consumer protection

    FINMA launches Consultation on new circular on rules of conduct under FinSA / La FINMA lance une consultation sur une nouvelle circulaire relative aux règles de conduite selon la LSFin

    CACEIS

  • On May 15 2024, the Eidgenössische Finanzmarktaufsicht (FINMA) launched a consultation on a new circular on rules of conduct under FinSA.

    The Financial Services Act (FinSA) has been in force since the beginning of 2020. FINMA has identified a need for action due to the inconsistent implementation of FinSA requirements among supervised institutions. Questions of practice and interpretation repeatedly arise with regard to rules of conduct under the FinSA.

    FINMA is now setting out its supervisory practice on key aspects of interpretation in the circular. This will create transparency and legal certainty as well as a comparable level of investor protection among the supervised institutions. The circular specifies the way in which clients are to be provided with information so that they can make informed investment decisions. For example, clients should be informed about the type of financial service, the risks associated with the financial instruments or financial services and the compensation from third parties. FINMA will now conduct a public consultation on the draft circular up to July 15 2024.

    Conduct Rules and Organization:

    A. Duty to Inform (Art. 8 FIDLEG, Art. 7 FIDLEV)

    Nature of Financial Service:

    • Financial service providers must clearly indicate and document the type of investment advisory service (transaction-based or portfolio-based) provided to clients, using suitable means such as written contracts or equivalent statements.
    • Risks Associated with Financial Instruments:
    • Providers must inform clients about the risks related to contracts for difference, including:
    • The proportion of clients losing money and potential margin calls.
    • Margin requirements and the potential for unlimited loss.
    • Lever effect, margin mechanics, counterparty and market risk (including slippage).

    B. Appropriateness and Suitability Assessment (Art. 11–12 FIDLEG, Art. 16–17 FIDLEV):

    • Financial service providers must gather all necessary information to conduct proper appropriateness and suitability assessments, including clients' knowledge and experience for each relevant investment category. The detail of inquiries should match the complexity and risk profile of the potential investments.

    C. Use of Clients’ Financial Instruments / Securities Lending (Art. 19 FIDLEG):

    Documentation must include:

    • Whether the provider acts as a counterparty or agent.
    • Transfer of ownership of securities to the counterparty and related claims.
    • Client risks in the event of counterparty bankruptcy.
    • Transfer of property and participation rights to the counterparty.
    • Client risk for value depreciation.

    Immediate termination rights for clients.

    Client option to exclude specific securities from lending.

    D. Conflicts of Interest (Art. 8 para. 2 let. b and c in conjunction with Art. 25 FIDLEG, Art. 10 and 24–28 FIDLEV):

    Clients must be informed about conflicts of interest, especially those involving the provider’s own financial instruments. If only the provider's instruments are considered, this and the associated risks must be disclosed. For external instruments, appropriate measures to avoid conflicts of interest must be implemented.

    E. Third-Party Compensation / Retrocessions (Art. 26 FIDLEG, Art. 29 FIDLEV):

    Compensation information in contracts must be highlighted and accessible. If exact amounts cannot be determined before service provision, the provider must inform clients about compensation ranges for different product classes and strategies. Actual compensation amounts must be disclosed to clients upon request, free of charge.

    Version française

    Le 15 mai 2024, l'Eidgenössische Finanzmarktaufsicht (FINMA) a lancé une consultation sur une nouvelle circulaire relative aux règles de conduite dans le cadre de la LSFin.

    La Loi sur les services financiers (LSFin) est en vigueur depuis début 2020. La FINMA a identifié la nécessité d'agir en raison de la mise en œuvre incohérente des exigences de la LSFin parmi les assujettis. Des questions de pratique et d’interprétation se posent à plusieurs reprises en ce qui concerne les règles de conduite de la LSFin.

    La FINMA expose désormais dans la circulaire sa pratique de surveillance sur les principaux aspects de l'interprétation. Cela créera de la transparence et de la sécurité juridique ainsi qu'un niveau comparable de protection des investisseurs parmi les institutions surveillées. La circulaire précise la manière dont les clients doivent être informés afin qu'ils puissent prendre des décisions d'investissement éclairées. Par exemple, les clients doivent être informés du type de service financier, des risques associés aux instruments financiers ou aux services financiers et à la rémunération des tiers. La FINMA mènera désormais une consultation publique sur le projet de circulaire jusqu'au 15 juillet 2024.

    Règles de conduite et organisation :

    A. Devoir d'information (art. 8 FIDLEG, art. 7 FIDLEV)

    Nature du service financier :

    • Les prestataires de services financiers doivent clairement indiquer et documenter le type de service de conseil en investissement (basé sur des transactions ou sur un portefeuille) fourni aux clients, en utilisant des moyens appropriés tels que des contrats écrits ou des déclarations équivalentes.
    • Risques associés aux instruments financiers.
    • Les prestataires doivent informer les clients sur les risques liés aux contrats sur différence, notamment.
    • La proportion de clients perdant de l'argent et les appels de marge potentiels.
    • Exigences de marge et potentiel de perte illimitée.
    • Effet de levier, mécanique de marge, risque de contrepartie et de marché (dont slippage).

    B. B. Évaluation de la pertinence et de l’adéquation (Art. 11-12 FIDLEG, Art. 16-17 FIDLEV) :

    • Les prestataires de services financiers doivent rassembler toutes les informations nécessaires pour procéder à des évaluations appropriées de pertinence et d'adéquation, y compris les connaissances et l'expérience des clients pour chaque catégorie d'investissement pertinente. Le détail des demandes doit correspondre à la complexité et au profil de risque des investissements potentiels.

    C. Utilisation des instruments financiers des clients / Prêt de titres (Art. 19 FIDLEG) :

    La documentation doit inclure :

    • Si le fournisseur agit en tant que contrepartie ou agent.
    • Transfert de propriété des titres à la contrepartie et créances y afférentes.
    • Risques clients en cas de faillite de la contrepartie.
    • Transfert des droits de propriété et de participation à la contrepartie.
    • Risque client de dépréciation de valeur.

    Droits de résiliation immédiate pour les clients.

    Option client pour exclure des titres spécifiques du prêt.

    D. Conflits d'intérêts (art. 8, al. 2, let. b et c en liaison avec l'art. 25 FIDLEG, art. 10 et 24 à 28 FIDLEV) :

    • Les clients doivent être informés des conflits d’intérêts, notamment ceux impliquant les propres instruments financiers du prestataire. Si seuls les instruments du fournisseur sont pris en compte, ceux-ci ainsi que les risques associés doivent être divulgués. Pour les instruments externes, des mesures appropriées doivent être mises en œuvre pour éviter les conflits d’intérêts.

    E. Indemnisation de tiers / Rétrocessions (Art. 26 FIDLEG, Art. 29 FIDLEV) :

    • Les informations sur la rémunération dans les contrats doivent être mises en évidence et accessibles. Si les montants exacts ne peuvent être déterminés avant la fourniture du service, le prestataire doit informer les clients des fourchettes de rémunération pour les différentes classes de produits et stratégies. Les montants réels de la rémunération doivent être divulgués gratuitement aux clients sur demande.
  • UNITED KINGDOM

    Consumer protection

    FCA publishes Letters to CEOs on implementing the Consumer Duty for closed products and services

    CACEIS

  • On May 16 2024, the Financial Conduct Authority (FCA) published letters to CEOs on implementing the Consumer Duty for closed products and services.

    Firms must review closed products and services against all aspects of the Duty before July 31 2024 and then on an ongoing basis. Boards will need to satisfy themselves that their firms have prepared adequately for the July 31 2024 implementation deadline.

    The letters are addressed to the CEOs or Directors of: 

    • Retail banking firms.
    • Life insurance firms.
    • Consumer finance firms.
    • Consumer investment firms.
    • Asset management firms.
    • All other firms.

    The letters set out:

    • The application of the Duty to closed products and services.
    • Priority issues that are particularly acute or widespread in closed products and services.
    • Action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services. These set out more specific objectives, tailored to the type of firm the letter addresses.  (The FCA reminds firms that its website gives examples of good and poor practices for open products and services.)
    • A reminder, in Annex 1 to the letters, of the definition of closed products and services and an overview of the rules.

    The priority areas highlighted in the letters, for firms to consider before the deadline for implementation, are:

    • Gaps in firms’ customer data.
    • Fair value.
    • Treatment of consumers with characteristics of vulnerability.
    • Gone-away or disengaged customers.
    • Vested contractual rights.

    The FCA expects firms’ senior management to carefully consider the contents of this letter and take steps to ensure their firm is compliant with the Duty by the deadline. The FCA understands firms in some sectors may have no or very few customers with closed products and services, but the FCA is circulating this letter widely to help firms consider broader distribution chains.

  • European Market Infrastructure Regulation (EMIR)

    FCA publishes its Page on UK EMIR reporting questions and answers

    CACEIS

  • On May 2 2024, the Financial Conduct Authority (FCA) published its page on UK European Market Infrastructure Regulation (EMIR) reporting questions and answers.

    This guidance is in the form of questions and answers (Q&As) grouped into topics. The Q&As are applicable from 30 September 2024 in line with the majority of the new requirements.

    Under Article 9 of UK EMIR, the Bank of England (BoE) and the FCA share responsibility for derivatives reporting. The BoE is responsible for central counterparties (CCPs) and the FCA is responsible for all other counterparties in addition to trade repositories (TRs). 

    The Q&As should be read in conjunction with the FCA/Bank of England Policy Statement (PS23/2) and the supporting documentation below (new requirements):

    • The FCA Standards Instrument
    • The technical specification documents: XML schemas under UK EMIR (applicable from 30 September 2024), Incoming messages to TRs, Outgoing messages from TRs 
    • UK EMIR Validation Rules (applicable from 30 September 2024),
    • The European Market Infrastructure Regulation Rules (EMIRR) for TRs.

    These Q&As apply in relation to the new requirements applicable from September 30 2024. Reporting counterparties should take a pragmatic approach in considering the application of these new Q&As alongside any existing guidance, including circumstances where the new Q&As may supersede them. In due course, and as part of the programme of repealing and replacing assimilated law, we intend to review existing guidance and consider where it remains relevant.

    From September 30 2024 all newly entered or modified derivative trades at both trade and position level will need to comply with the new requirements.

    For derivative trades entered into before September 30 2024, there will be a 6-month transition period for entities responsible for reporting to update those outstanding derivative reports to the new requirements. This ends on March 31 2025.

    This set of Q&As relates to the arrangements for transitioning to the updated derivative reporting framework under UK EMIR during the period from September 30 2024 to March 31 2025.

  • Financial supervision

    FCA publishes Market Watch 79

    CACEIS

  • On May 9 2024, the Financial Conduct Authority (FCA) published Market Watch 79.

    In this Market Watch, the FCA discusses: 

    • failures of market abuse surveillance caused by issues with factors such as data and automated alert logic;
    • the FCA’s recent peer review of firms’ testing of front-running surveillance models.

    Under the Market Abuse Regulation (UK MAR), firms must identify and report instances of potential market abuse. 

    A firm must have effective arrangements, systems and procedures in place to detect and report suspicious activity. These should be appropriate and proportionate to the scale, size and nature of their business activities.

    While it is for each firm to assess what is appropriate and proportionate in the context of their specific business, some of the observations in this Market Watch may be useful.

    Where UK MAR refers to firms’ systems, arrangements and procedures for market monitoring and surveillance, this includes how firms govern, implement, test, review and rectify issues with the functioning of the technical systems which they use to deliver market monitoring and surveillance arrangements.

    There are various factors that affect the effective operation of a firm’s market abuse surveillance function. The FCA has covered many of these in previous editions of Market Watch.

    Over the past few years, the FCA has become aware of problems with surveillance alerts not working as intended and assumed by the firm. Sometimes, this has come about because of faulty implementation. At others, bugs have inadvertently been introduced when making changes. In other cases, for various reasons, all the required data for successful monitoring has not been ingested.

    In the FCA's experience, the impact of these failures varies.

    • An entire section of a firm’s activity, such as a segment of business sent to a particular exchange, might not be monitored;
    • An alert scenario could be partially effective, generating alerts, but not for all instances where it is intended to;
    • An alert scenario for a specific type of market abuse could be completely ineffective, with alert generation impossible, due to inadequate testing before and after implementation.

    Sometimes, firms identify and remediate these issues in a few weeks, or less. On other occasions, the discovery takes several months. In some extreme cases, the FCA has seen firms unaware of faults for 2 years or more.

    Firms use a variety of methods to undertake market abuse surveillance. In the FCA's experience, failures can occur with both third-party systems and those designed in-house.

    To help firms understand the types of issue they may face, the FCA offers some examples of malfunctions the FCA has observed. The FCA then discusses its 2023 peer review of surveillance model testing, where the FCA's findings may be valuable to firms aiming to mitigate the risks of surveillance failures. 

    In 2023 the FCA undertook an assessment of how investment firms review their automated surveillance models. Specifically, the FCA looked at the frequency and methods used by 9 investment banks to test the efficacy of their client order front running models.  

    The participating firms had differing approaches to testing, touching on several areas. These included:

    • the breadth of the testing;
    • its frequency;
    • the degree to which it constituted a formalised process;
    • the governance arrangements around it.

    While the FCA acknowledges this review has limitations – in looking only at 1 alert scenario and covering 9 firms – the FCA encourages all firms that undertake market abuse surveillance to study the FCA's observations and consider whether modifying their testing arrangements would be useful. 

    Most firms the FCA reviewed had formal procedures describing:

    • the frequency of testing;
    • which elements of the model were subject to review;
    • the form of the review;

    The remainder had no formal process or a semi-formalised process.

    Most firms undertook an annual test of some type. The different types of testing were:

    • parameter calibration;
    • model logic;
    • model code;
    • data (comprehensiveness and accuracy).

    Approximately half the firms focused their reviews mainly on parameter calibration.

    Some firms used a risk-based approach, where the frequency of testing varied depending on the inherent risk of the relevant market abuse type. Also, calibration testing was sometimes/in many cases split from reviews of logic, coding and data, with the former generally more frequent.

    Market abuse surveillance across industry can take many forms. It is often challenging and complex.

    Appropriate tailoring of alert models, which the FCA encourages for an effective overall surveillance programme, may increase the associated operational risk at alert level.

    Testing by the second line and internal audit may help firms gain comfort about the effectiveness of their monitoring.

    The FCA's observations indicate that not all firms have been allocating adequate focus and resource to governance arrangements. Some firms have complex governance arrangements where approvals and validations go through multiple steps, taking significant time. Firms should consider whether intricacy and volume in governance necessarily delivers timely, efficient and effective outcomes.

    Firms need a vigilant approach to proactively guard against surveillance failures and mitigate relevant risks. This is particularly relevant in light of likely future innovation within surveillance functions. Developments such as the use of artificial intelligence will need to be accompanied by governance that keeps pace and remains effective.

    The FCA encourages firms to review the issues discussed in this Market Watch and consider whether their arrangements are adequate or need improvement.  

  • UK Government publishes Joint Statement from the EU-UK Financial Regulatory Forum

    CACEIS

  • On May 24 2024, the UK Government published a joint statement from the EU-UK Financial Regulatory Forum.

    The second meeting of the Joint EU-UK Financial Regulatory Forum (the Forum) between the European Union (EU) and the United Kingdom of Great Britain and Northern Ireland (UK) took place in Brussels on May 22 2024.

    The meeting was co-chaired by the European Commission Director General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) and the HM Treasury (HMT) Director General for Financial Services. Participants attended from the European Central Bank (ECB), the European Supervisory Authorities (EBA, ESMA, EIOPA), the EU Single Resolution Board (SRB), the Bank of England (the Bank), and the Financial Conduct Authority (FCA).

    In light of the shared objectives of preserving financial stability, market integrity, and the protection of investors and consumers, both sides emphasised the benefit and importance of structured regulatory cooperation between the EU and the UK. The discussion focused around 6 main areas, namely: (i) regulatory and market developments and financial stability outlook, (ii) banking and anti-money laundering (AML), (iii) sustainable finance (iv) capital markets (v) asset management, and (vi) digital finance and artificial intelligence (AI).

    The Forum took stock of the current economic outlook, including risks related to ongoing geopolitical challenges. Both sides condemned Russia’s war of aggression against Ukraine and expressed deep concern about the crisis in the Middle East.

    Participants discussed the outlook for financial stability, noting that while the EU and UK financial sectors remain resilient, some risks, including around commercial real estate and geopolitical tensions, warrant continued close monitoring. The European Commission provided a general overview of the state of play of financial services legislative files ahead of the end of the current legislature. UK participants updated on the implementation of the Smarter Regulatory Framework for financial services which aims to replace assimilated law.

    On banking, participants discussed the importance of timely Basel III implementation globally. UK authorities provided an update on the UK’s Strong & Simple framework. Both sides noted the importance of international standards in maintaining confidence in the banking system. There was also a discussion on resolution where the EU participants updated on the review of the EU’s crisis management and deposit insurance framework. Similarly, UK participants updated on the UK’s special resolution regime consultation on enhancing resolution for small banks and elaborated on the lessons for resolution and deposit insurance from the March 2023 turmoil.

    On AML, both sides emphasised the importance of close cooperation, including within the Financial Action Task Force, to raise the bar globally. The EU updated on the swift progress made on AML reforms. The EU’s AML package introduces, inter alia, detailed and directly applicable rules at Union level, as well as a new EU Anti-Money Laundering Authority (AMLA) which will act as the centre of the Union’s integrated supervisory system involving AMLA and all national authorities and will support and coordinate the work of the Financial Intelligence Units. The UK updated on work to further improve the effectiveness of the UK regime, including on potential options for supervisory reform in the UK and the consultation on improvements to the AML rules set out in the UK Money Laundering Regulations.

    On sustainable finance, participants agreed on the importance of progressing multilateral efforts to support an orderly transition to net zero, including participation in the G20 Sustainable Finance Working Group and the International Platform on Sustainable Finance. Both sides exchanged views on recent developments in sustainable finance, including on sustainability disclosures and transition finance. Both sides noted that, inter alia, the work of international standard setters, the work of the Network for Greening the Financial System, and sustainability-related financial risks should be reflected in the management of financial sector activities. Both sides noted the importance of ensuring the interoperability of standards, including on disclosure requirements. They reaffirmed their support for the work of the International Sustainability Standards Board (ISSB) and for the swift implementation or use of ISSB standards. They also discussed the need for international coordination to ensure interoperability and promote consistency in sustainable finance standards and recommendations.

    Participants had a useful exchange on the shortening of the settlement cycle (T+1). The respective authorities discussed the work currently being done by ESMA and by the UK Accelerated Settlement Technical Group, noting that outputs are expected by the end of this year. Both sides noted the need to continue to follow international developments closely. While each jurisdiction is making its own assessment on the way forward, both sides agreed to continue to discuss how the EU and the UK might coordinate on the timing of any move within the European continent, including discussing this at the next Forum. Participants also exchanged views on securitisation.

    Participants discussed the vulnerabilities in the non-bank financial intermediation (NBFI) sector and exchanged views on the ongoing work in multilateral fora. Both sides noted the ongoing cooperation in the Financial Stability Board’s (FSB) working group on leverage, co-chaired by the ECB and FCA, and welcomed the recent FSB consultation report on liquidity preparedness for margin and collateral calls. Participants also recognised the role that enhanced transparency can play in improving authorities’ and market participants’ ability to identify and manage risks in the NBFI sector. Both sides discussed global standards to enhance resilience in the funds sector.

    The European Commission provided an update on its recent report on the macroprudential review for credit institutions and noted the targeted consultation on macroprudential policies for non-banks which was launched on May 22 2024. The UK participants provided an update on enacting the UK’s equivalence decision for UCITS funds domiciled in the European Economic Area (EEA), including in EU member states, under its Overseas Funds Regime (OFR).

    In an exploratory exchange of views on the regulatory, supervisory, and financial stability implications of AI, both sides noted the rapid uptake and evolution of AI use in the financial sector and agreed to work together in international fora to further understanding of stability risks. Participants on the EU side noted the recent EU AI Innovation Package and the EU AI Act which aim to foster the development, use and uptake of AI. Similarly, the UK outlined its principles-based approach to regulating AI, as reaffirmed by UK Government’s recent response to the AI White Paper. Both sides acknowledged a shared interest in continuing close engagement on digital innovation, both bilaterally and in multilateral fora.

  • FinTech / RegTech / BigTech / SupTech / Digital Economy

    UK Government publishes Press Release on leading tech firms investing over £2 billion in the UK in one week

    CACEIS

  • On May 10 2024, the UK Government published a press release on leading tech firms investing over £2 billion in the UK in one week.

    The Chancellor has welcomed the “safe bet” world leading tech and AI companies are making in Britain, as over £2 billion of investment in the UK has been secured in a single week. 

    Supporting more than 1,300 skilled jobs, Siemens Healthineers have today announced that they are investing £250 million to design and manufacture superconducting magnets for MRI scanners at a new Siemens Healthineers facility in North Oxfordshire. 

    This comes as world leading AI firm CoreWeave are also investing £1 billion in the UK, as well as confirming their new European Headquarters will be based in the capital. 

    These two UK data centres will be opened in 2024, with a further expansion planned in 2025, helping secure the necessary processing power for machine learning and AI, graphics and rendering, life sciences and real-time streaming. This £2 billion investment also follows Scale AI, the data infrastructure company for AI, selecting London as the location for its first European headquarters.  

    Wayve announced they had secured over $1.05 billion to develop the next generation of AI-powered self-driving vehicles in the UK.  Founded in the UK in 2017, Wayve is a home-grown British success story and a testament to the UK’s global leadership in creating the economic and regulatory conditions for start-ups in the AI and self-driving vehicle industries to grow and thrive. 

    The UK accounts for around half of all AI private capital investment in Europe and hundreds more AI companies are starting up in the UK every year, growing our economy and creating highly-skilled, well-paid jobs. The AI sector employs more than 50,000 people in the UK and contributes more than £3.7 billion to our economy every year. By 2035, our AI market is forecast to grow to over $1 trillion. 

    Taken together, these investments cement the UK’s position as a world leader in the AI and tech industry and builds on our strong record of attracting the best and biggest investments from world leading AI companies. 

  • FCA publishes new webpage on operational resilience, insights and observations for firms

    CACEIS

  • On May 28 2024, the Financial Conduct Authority (FCA) published a new webpage on operational resilience, insights and observations for firms.

    On this page, the FCA provides observations and insights on the preparations firms have made towards complying with PS21/3: Building operational resilience as the end of the transition period approaches on 31 March 2025.  

    The observations and insights are split into the following key areas:

    • Important business services.
    • Impact tolerance.
    • Mapping and third parties.
    • Scenario testing.
    • Vulnerabilities and remediation.
    • Response and recovery plans.
    • Governance and self-assessment.
    • Embedding operational resilience.
    • Horizon scanning (to establish an understanding of new and emerging risks and the proximity of impact).

    The FCA highlights the following points:

    • All firms are expected to be resilient and provide services for their customers when needed.
    • Ahead of the March 31 2025 deadline, firms must ensure they can remain within impact tolerance in severe but plausible scenarios for any identified important business services, and have their plans approved by their Board in good time.
    • Important business services, impact tolerances and mapping should be reviewed on at least an annual basis, or if there is a material change to the firm’s business or the market it operates in.
    • Changes to important business services, impact tolerances and mapping should be clearly identified in each firm’s self-assessment, along with any rationale.
    • Scenario testing underpins a firm’s evidence for how it will remain within impact tolerances for severe but plausible scenarios for its important business services. It should become part of business as usual and be reviewed on a regular basis as evidence of the firm’s operational resilience.
  • Investment Funds / Collective Investment Schemes (CIS) / Asset Management

    FCA publishes Roadmap to implementing the Overseas Funds Regime

    CACEIS

  • BACKGROUND

    This document is issued jointly by HM Treasury and the FCA to explain how the OFR is intended to be opened to European Economic Area (EEA) funds authorised under the UCITS (Undertakings for Collective Investment in Transferable Securities) Directive, following the Government’s decision to grant equivalence in relation to those funds (excluding money-market funds). 

    In the Financial Services Act 2021, the Government legislated for a new Overseas Funds Regime to create a more streamlined process for overseas investment funds to be sold to UK retail investors.

    In October 2022, the Government confirmed that it had begun an assessment of the states in the EEA, including the European Union (EU) member states, under the OFR. This was the first assessment conducted under the OFR, in recognition of the importance of funds domiciled in these countries to UK markets and UK investor choice. The assessment focused on the regulation of collective investment undertakings authorised under the UCITS Directive, but did not assess UCITS authorised as money-market funds.

    In January 2024, the Government announced that it had found the EEA states, including the EU member states, equivalent under the OFR in relation to UCITS funds. Since UCITS authorised as money-market funds were not in scope of the Government’s assessment, they are not in scope of the Government’s equivalence determination either.

    The Government has also announced the intention to extend the existing Temporary Marketing Permissions Regime (TMPR), meaning that funds recognised under the TMPR can continue to be marketed to UK retail customers until the end of 2026 (subject to the laying and commencement of the necessary legislation).

    The OFR roadmap gives the key stages of the process, so that operators of EEA UCITS that wish to use the OFR as a gateway to the UK market can prepare. The timelines are subject to change. Any updates to this information will be published on the Government and FCA websites.

    WHAT'S NEW?

    On May 1 2024, the Financial Conduct Authority (FCA) published a roadmap to implementing the Overseas Funds Regime (OFR). 

    This document sets out the timeline and next steps for legislating for this decision and for EEA UCITS to apply to the FCA for recognition under the OFR.

    The Government announced in January 2024 that it did not intend to impose any additional requirements on EEA UCITS as part of this equivalence decision. However, the Government recognised the need to consult further on whether the UK Sustainability Disclosure Requirements (SDR) and labelling regime should be extended to include funds recognised under the OFR. This document sets out the intended timelines for this consultation and for the implementation of any requirements which may be applied following it.

    Funds recognised under the OFR will need to comply with certain other legislative and regulatory requirements, such as the UK’s retail point-of-sale disclosure requirements. The FCA is working to finalise the rules for OFR funds proposed in CP23/26 on Implementing the Overseas Funds Regime.

    WHAT'S NEXT?

    The FCA will publish additional information alongside this document, including the ‘landing slots’ for funds that will be transitioning from the TMPR.

  • UK publishes Local Authorities (Capital Finance and Accounting) (England) (Amendment) (No. 2) Regulations 2024

    CACEIS

  • On May 3 2024, the United Kingdom published the Local Authorities (Capital Finance and Accounting) (England) (Amendment) (No. 2) Regulations 2024.

    The Regulations are coming into force on June 1 2024.

    The Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 (S.I. 2003/3146) (2003 Regulations) make provision for capital finance and accounts under Part 1 of the Local Government Act 2003 (c. 26) (2003 Act). 

    Regulation 25 of the 2003 Regulations provides for expenditure which is, and which is not, to be treated as capital expenditure for the purposes of Chapter 1 of Part 1 of the 2003 Act. Since 2004, regulation 25 has excluded local authority investments in money market funds from treatment as capital expenditure in local authority accounts. 

    Regulation 30K of the 2003 Regulations provides for specific accounting treatment for fair value gains and losses of local authority investments in pooled investment funds, including money market funds. Regulations 25 and 30K were amended by the Local Government (Miscellaneous Amendments) (EU Exit) Regulations 2018 (S.I. 2018/1386) and the Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2019 (S.I. 2019/396) to provide that investments in certain collective investment schemes (UCITS) were to be treated in the same way as money market funds for the purposes of regulations 25 and 30K.

    These Regulations make amendments to the 2003 Regulations which are consequential on the Financial Services Act 2021 (c. 22). Regulation 2(2)(b) amends the definition of “relevant period” to reflect the extension of the temporary marketing permissions regime. Regulation 2(2)(c) amends the definition of “relevant UCITS” to give effect to the new regime for the recognition of overseas funds (including certain UCITS) introduced by the Financial Services Act 2021.

    Regulation 2(2)(a), (3) and (4) revokes the definition of “money market funds” and remove references to this term in the 2003 Regulations, on the basis that it is redundant (as in all cases a money market fund to which regulation 25(3) and 30K(1) applied would also be a “relevant UCITS”).

  • UK publishes Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024

    CACEIS

  • On May 13 2024, the United Kingdom published the Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024.

    These Regulations are made in exercise of the powers conferred by section 271A of the Financial Services and Markets Act 2000 (c. 8). This provides that the Treasury may approve a country or territory in relation to a specified description of collective investment scheme which is authorised in a country or territory outside the United Kingdom. These schemes are then considered to be recognised schemes once certain conditions are met, including that the operator of the scheme has applied to the Financial Conduct Authority (FCA) for recognition of the scheme and the FCA has made an order granting the application.

    These Regulations set out the Treasury’s approval of each EEA state in relation to collective investment schemes that are undertakings for collective investment in transferable securities (UCITS) authorised in an EEA state, including sub-funds of such schemes, except for UCITS, or sub-funds of UCITS, that are money market funds.

    The Regulations are coming into force on July 16 2024.

  • FCA publishes speech on its agenda for UK asset management

    CACEIS

  • On May 23 2024, the Financial Conduct Authority (FCA) published a speech on its agenda for UK asset management.

    A good understanding of the FCA's approach is particularly important at a time where the relationship between regulation and the FCA's new secondary competitiveness and growth objective has attracted a lot of interest. 

    Design choices have taken on far greater significance given that the FCA is now able to review assimilated EU law. The FCA is working hard to ensure that feedback from all stakeholders, including input from the soon-to-be established Cost Benefit Analysis (CBA) Panel, will inform approaches to rule making to underpin the healthy development of UK financial services for years to come. 

    Nowhere is this more important than when designing regulation for the asset management sector. Buy-side firms play a vital role in securing the financial wellbeing of millions of people whilst making decisions that are essential to capital formation in the interests of the wider UK economy. 

    The speech discusses the following topics:

    Smarter Regulatory Framework

    Last year the FCA published a Discussion Paper which set out the FCA's initial ideas for reform. It will probably come as no surprise that respondents indicated they wanted the FCA to remain broadly aligned with EU rules, and that was especially true for retail funds, where the undertakings for collective investment in transferable securities (UCITS) framework is seen to offer an established, generally applicable baseline. However, some saw considerable benefit in making the regime far more proportionate for alternative managers, and the FCAs agree this is where there is the greatest potential for reform. The Alternative Investment Fund Managers Directive (AIFMD) regime was developed mostly for funds with professional investors. But in practice it covers a broad range of fund management including hedge funds and private equity firms, but also some retail funds and managers of investment trusts. The FCA wants to set clear and coherent requirements proportionate to the risks posed by specific business models, recognising that institutional investors have different abilities to manage those risks for themselves. The FCA of course wants the UK regime to continue to support high standards and to be interoperable internationally. And the FCA fully recognises the importance of stability, predictability and proportionality, and will only pursue reform where there are clear benefits of doing so.

    Private finance, NBFI and valuations

    Whist the FCA works on streamlining the requirements for alternative funds, it is critical that there is sufficient confidence in the quality of an asset management sector where a vast array of different business models straddle both public and private markets.The level of risk involved really depends on what part of the NBFI sector the FCA is referring to, but a common theme is that regulators need to think about what tools and data they need to oversee these activities more effectively, as well as the private markets in which many of them participate. NBFI regulation should be a global effort to improve the data needed to enable regulators to spot risks in these markets and supervise them credibly. While values are ultimately crystallised on exit, there is the potential for inflated values to support borrowing, avoid covenant breaches, and support fund performance and therefore fundraising. Where liquidity is provided to investors this can also result in unfair redemption prices.These risks cut across all FCA objectives, and it is for this reason the FCA is undertaking domestic supervisory work in relation to valuations. The FCA also co-leads an important workstream on leverage in the non-banking sector for the global Financial Stability Board (FSB).

    Retail investments

    Moving from wholesale to retail markets, it would be remiss of me not to talk about packaged retail and insurance-based investment products (PRIIPs). The FCA certainly welcomes a revocation of the PRIIPs regulation, which has resulted in some instances of cost disclosure not reflecting the true costs of an investment. The FCA wants to ensure that any replacement regime gives investors sufficient and meaningful information to inform their decision making. The FCA looks forward to consulting on a new regime that is proportionate and tailored to the market and products here in the UK, and which allows firms to design a more engaging consumer journey. Together with the FCA's work on the advice-guidance boundary, the FCA thinks that this has the potential to fundamentally re-set how consumers engage with financial products.

    Sustainability disclosure requirements (SDR)

    Investors want to put their money to good use – the FCA's research shows over 80% of consumers want their money to do good, as well as deliver a return. The UK’s new disclosure and labelling regime is all about creating a system which supports confident investing for those who want to do right for the people and the planet. It's also about consumers knowing that controls are in place to ensure that firms’ sustainability claims are true. The FCA recognises that many firms are subject to global sustainability disclosure requirements, especially in the EU. So, at every stage of forming the FCA's new rules, the FCA has sought to create international interoperability.

    We’re continuing to work with other jurisdictions to demonstrate that it is possible to introduce rules that protect consumers but also help the market to grow. Encouraging international consistency is at the forefront of the FCA's discussions, so we’ll continue to engage with the FCA's international counterparts as they develop similar rules, as well as continuing to engage with HM Treasury (HMT) as it considers extending the disclosure and labelling regime to overseas funds. Ultimately, the FCA wants to see a level playing field for all firms operating across the UK market to maximise the benefits of the regime for consumers. The FCA aims for all schemes that are marketed to UK investors to be subject to the same requirements.

    Innovation

    The FCA's discussion paper also touched on the opportunities presented by technology. One special area of focus for the FCA has been on fund tokenisation. Asset managers continue to explore commercial uses for fund tokenisation and there is growing industry interest in the benefits of this technology. The FCA is an observer on the industry-led Technology Working Group of the government’s Asset Management Taskforce, which is considering how to implement tokenisaton in the UK. The Working Group published its interim report in November last year, which set out how firms can develop models within existing legal and regulatory frameworks. While the report covering the first phrase did not identify any obvious or significant barriers to adoption in FCA rules, the FCA wrote to firms to set out the FCA's own view to help them develop their own models. Further developments, as were set out in the group’s second report, are of course more complex. the FCA will therefore keep the FCA's Handbook under review for any changes that may be required to keep pace with this initiative.

    At every point in the FCA's decision-making process, the FCA considers the options that could advance the FCA's primary operational objectives and weigh up which of them could advance growth and competitiveness.

  • Markets in financial instruments Directive and Regulation (MiFID II / MiFIR)

    UK publishes Markets in Financial Instruments (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2024

    CACEIS

  • On May 13 2024, the United Kingdom published the Markets in Financial Instruments (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2024.

    These Regulations set out the Treasury’s equivalence determination in respect of the regulatory framework that applies to the list in the Schedule of the designated contract markets and swap execution facilities in the United States of America that are regulated by the Commodity Futures Trading Commission (CFTC). The recognition procedure outlined in Article 28 under Regulation (EU) 600/2014 establishes a framework for financial and certain non-financial entities to engage in transactions in derivatives subject to the obligation to be traded on the venues described in Article 28(1) of the Regulation, recognised as regulated to an equivalent standard to that applying in the UK. This procedure, along with the subsequent equivalence decision, serves to enhance the transparency of derivatives trading, particularly in cases where trading occurs on venues located in third countries.

    Regulation 2 sets out the Treasury’s determination that the regulatory framework in relation to designated contract markets and swap execution facilities is equivalent to the United Kingdom’s framework.

    Regulation 3 revokes an existing equivalence decision of the UK Markets in Financial Instruments Regulation, for the United States of America CFTC. This is to reflect changes in the list of designated contract markets and swap execution facilities since the equivalence decision.

    The Regulations came into force on June 4 2024.

  • Pension Schemes

    FRC publishes Technical Actuarial Standards for collective money purchase pensions

    CACEIS

  • On May 24 2024, the Financial Reporting Council (FRC) published technical actuarial standards for collective money purchase pensions.

    This follows a consultation to ensure developments in this emerging area of work are proportionately reflected. TAS 310 allows for the different considerations for actuarial work in relation to collective money purchase pension schemes, compared to defined benefit or defined contribution pensions.

    The development of collective money purchase pension schemes is an important addition to the current range of pension options available in the UK. TAS 310’s introduction will maintain trust in collective money purchase schemes and address the risks to pension scheme members, reflecting the FRC’s commitment to high-quality actuarial work as the market develops.

    The new Standard includes requirements in relation to assumptions and modelling, as well as the provision of advice on assessments of scheme soundness, scheme valuations and setting actuarial factors.

  • Securitisation Regulation

    UK publishes Securitisation (Amendment) Regulations 2024

    CACEIS

  • On May 24 2024, the United Kingdom publishes the Securitisation (Amendment) Regulations 2024.

    The following provisions come into force on May 23 2024:

    • regulation 2(2);
    • paragraph 10(3) of Schedule 2, and regulation 3 so far as relating to that provision.

    The remaining provisions of these Regulations come into force on November 1 2024.

    These Regulations amend the Securitisation Regulations 2024 (S.I. 2024/102) and make amendments of other legislation in connection with those Regulations.

    Regulation 2(2) inserts in the Securitisation Regulations 2024 an express reference to November 1 2024 as the main commencement day.

    Regulation 2(5) inserts in the Securitisation Regulations 2024 a new regulation 8A which restates with modifications Article 4 of Regulation (EU) 2017/2402 of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised 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 (EU Securitisation Regulation 2017). Regulations 2(4), (8) and (10) make amendments related to the new regulation 8A. Regulation 2(6) inserts in regulation 13 of the Securitisation Regulations 2024 (which relates to overseas STS securitisations) a provision which restates paragraph 7 of Article 28A of the EU Securitisation Regulation 2017 (as inserted by Schedule 2 to the Financial Services and Markets Act 2023), so far as it relates to due-diligence assessments by occupational pension schemes.

    Regulation 2(7) and (11) insert in the Securitisation Regulations 2024 new regulations 32A to 32D and Schedule A1 which together restate with modifications Article 5 of the EU Securitisation Regulation 2017 so far as it relates to investment in securitisations by occupational pension schemes.

    Regulation 2(9) inserts in the Securitisation Regulations 2024 a new regulation 36A which imposes supervision and enforcement duties on the Pensions Regulator in relation to investment in securitisations by occupational pension schemes. This restates the existing duty of the Pensions Regulator under Article 29(1)(d) of the EU Securitisation Regulation 2017

    Regulation 2(10) inserts in the Securitisation Regulations 2024 a provision preserving in relation to existing securitisations the existing law about due diligence by occupational pension schemes.

    Schedule 2 contains other amendments of legislation. The amendments are connected with the Securitisation Regulations 2024 or the revocation of the EU Securitisation Regulation 2017 by the Financial Services and Markets Act 2023. Paragraph 10(2) of Schedule 2 corrects a defect in paragraph 12 of Schedule 1 to the Securitisation Regulations 2024.

  • Sustainable Finance / Green Finance

    UK Government publishes Implementation Update for 2024 on sustainability disclosure requirements

    CACEIS

  • On May 16 2024, the UK Government published an implementation update for 2024 on sustainability disclosure requirements (SDR).

    Mobilising Green Investment: 2023 Green Finance Strategy (2023) set out the UK Government’s long-term strategy to ensure investors and consumers can access the information they need to inform capital allocation in line with their sustainability preferences or goals. Central to this strategy is our plan for economy wide SDR, as first set out in Greening Finance: A Roadmap to Sustainable Investing (2021). Building on global best practice and leading standards, SDR is a framework to facilitate and streamline the flow of robust, decision useful information between corporates, consumers and investors and capital markets.

    Financial markets are global, and international interoperability is a key principle of the UK’s approach to SDR. The 2023 Green Finance Strategy contained a commitment to provide an SDR implementation update to reflect the rapid development of international standards. Following last year’s launch of the International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB) baseline standards, this document provides that update, setting out next steps on SDR and how industry can engage with the development of the different components.

    The Government aims to make the UK-endorsed ISSB standards available in Q1 2025. The endorsement process will assess the standards and, subject to a positive endorsement decision, will conclude with the publication of UK-endorsed standards. These will be known as UK Sustainability Reporting Standards.

    Subject to a positive endorsement decision by the UK Government, and following a consultation process, the Financial Conduct Authority (FCA) will be able to use the UK Sustainability Reporting Standards to introduce requirements for UK-listed companies to report sustainability-related information.

    Subject to a positive endorsement decision, the Government will also decide on disclosure requirements against UK Sustainability Reporting Standards for UK companies that do not fall within the FCA’s regulatory perimeter. That decision will take into account a number of factors, including costs for reporting companies and benefits for investors that may wish to use this information.

    The Government expects a decision regarding future requirements to be taken in Q2 2025. At that time, the Government will also consider whether to create exemptions from pre-existing requirements in the Companies Act 2006 for those companies that choose to use the standards on a voluntary basis. Any decision that the Government takes on these matters will involve consultation and will require Parliamentary approval for the introduction of any new legislation. As a result, any changes that may be introduced would be effective no earlier than accounting periods beginning on or after January 1 2026. Given the overlap between IFRS S2 and the TPT Disclosure Framework, the FCA plans, through its consultation on implementing UK-endorsed ISSB standards, to consult on strengthening its expectations for transition plan disclosures with reference to the TPT Disclosure Framework.

    Given the important role of transition planning across the economy, the Government will consult shortly on how the UK’s largest companies can most effectively disclose their transition plans, meeting a key commitment of last year’s Green Finance Strategy.

    In January 2024, the Government announced that it intends to consult on whether to broaden the scope of SDR to include funds under the Overseas Funds Regime. The Government intends to issue this consultation in Q3 2024.

  • INTERNATIONAL

    Derivative Financial Instruments (Derivatives)

    ISDA publishes Press Release on SIMM Phase 5 and 6 License Agreement

    CACEIS

  • On May 28 2024, the International Swaps and Derivatives Association (ISDA) published a press release on the ISDA Standard Initial Margin Model (SIMM) Phase 5 and 6 License Agreement.

    Firms which are either directly or indirectly subject to global regulatory requirements for the calculation and exchange of regulatory initial margin (IM), may opt to use the ISDA SIMM either directly, through their counterparty or their vendor, provided they have executed a licensed agreement with ISDA. Firms which first became subject to regulatory IM requirements on or after September 1 2021, may obtain a no-fee license for use of ISDA SIMM by completing the required information and accepting the standard license agreement. Establishing an account on isda.org is required to complete the agreement.

  • International Financial Reporting Standards (IFRS)

    IASB publishes narrow-scope amendments to classification and measurement requirements for financial instruments

    CACEIS

  • On May 30 2024, the International Accounting Standards Board (IASB) published a narrow-scope amendments to classification and measurement requirements for financial instruments.

    The IASB sued amendments to the classification and measurement requirements in IFRS 9 Financial Instruments. The amendments will address diversity in accounting practice by making the requirements more understandable and consistent. Read Amendments to the Classification and Measurement of Financial Instruments—Amendments to IFRS 9 and IFRS 7.

    These amendments respond to feedback from the 2022 Post-implementation Review of the Accounting Standard and clarify the requirements in areas where stakeholders have raised concerns, or where new issues have emerged since IFRS 9 was issued.

    These include:

    • Clarifying the classification of financial assets with environmental, social and corporate governance (ESG) and similar features—ESG-linked features in loans could affect whether the loans are measured at amortised cost or fair value. Stakeholders asked how to determine how such loans should be measured based on the characteristics of the contractual cash flows. To resolve any potential diversity in practice, the amendments clarify how the contractual cash flows on such loans should be assessed.
    • Settlement of liabilities through electronic payment systems—stakeholders highlighted challenges in applying the derecognition requirements in IFRS 9 to the settlement of a financial asset or a financial liability via electronic cash transfers. The amendments clarify the date on which a financial asset or financial liability is derecognised. The IASB also decided to develop an accounting policy option to allow a company to derecognise a financial liability before it delivers cash on the settlement date if specified criteria are met.

    With these amendments, the IASB has also introduced additional disclosure requirements to enhance transparency for investors regarding investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contingent features, for example features tied to ESG-linked targets.

    The amendments are effective for annual reporting periods beginning on or after January 1 2026.

  • CONTACTS

    This publication is produced by the Projects & Regulatory Monitoring teams as well as experts from the Legal Department and the Compliance Department of CACEIS entities, together with the close support of the Communications Department.

    Editors
    Gaëlle Kerboeuf, Group General Secretary, Legal Department
    Marie Marion, Group Head of Transversal Functions, Compliance Department

    Permanent Editorial Committee
    Gaëlle Kerboeuf, Group General Secretary, Legal Department
    Marie Marion, Group Head of Transversal Functions, Compliance Department
    Corinne Brand, Group Communications Manager

    Local
    François Honnay, Head of Legal and Compliance (Belgium)
    Fanny Thomas, Legal Supervisor (France)
    Aude Levant, Group Compliance
    Yves Gaveau, Senior Expert Veille réglementaire AdF
    Stefan Ullrich, Head of Legal (Germany) 
    Robin Donagh, Legal Advisor (Ireland)
    Costanza Bucci, Head of Legal & Compliance (Italy)
    Luciana Vertulli, Compliance Officer (Italy) 
    Fernand Costinha, Head of Legal (Luxembourg)
    Julien Fetick, Senior Financial Lawyer (Luxembourg)
    Gérald Stadelmann, Head of Legal (Luxcellence Luxembourg)
    Alessandra Cremonesi, Head of Legal (Switzerland)
    Sarah Anderson, Head of Legal (UK)
    Olga Kitenge, Legal, Risk & Compliance (UK)
    Chelsea Chan, Head of Trustee and Legal (Hong Kong)
    Henk Brink (The Netherlands)
    Beatriz Sanchez Jete, Compliance (Spain)
    Arrate Okerantza Elejalde, Legal (Spain)
    Jessica Silva, Compliance (Brazil)
    Luiz Fernando Silva, Compliance (Brazil)
    Libia Andrea Carvajal, Compliance (Colombia)
    Daiana Garcia, Compliance (Colombia)
    Karim Martínez, Compliance (Mexico)
    Edgar Zugasti, Compliance (Mexico)

    Design
    CACEIS Group Communications

    Photos credit
    CACEIS, Adobe Stock

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    Information importante – Une usurpation de l'identité de CACEIS est en cours avec une offre frauduleuse portant sur un compte à terme. CACEIS n'est pas à l'origine de cette offre et ne propose pas d'offre de placement ou d'investissement. CACEIS appelle à la vigilance afin d'éviter d’être cible de ce type de fraudes.
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