SCANNING JUNE 2018

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AML/CFT - 5AMLD published in OJEU

  • Background

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

    On 5 July 2016, the European Commission ("Commission") published its proposal to amend the 4AMLD (COM(2016) 450 final - the "Commission Proposal", available here).

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

    On 19 April 2018, based on the Agreement, the Parliament voted at 1st reading on a directive proposal amending the 4AMLD (the "Parliament Text", available here). The Parliament Text focused on enhancing transparency in various areas.

    On 14 May 2018, based on the Agreement and the Parliament Text, the Council adopted a directive proposal amending the 4AMLD (the "Council Text", available here). The main changes introduced by the 5AMLD involved: (i) broadening access to information on beneficial ownership, improving transparency in the ownership of companies and trusts; (ii) addressing risks linked to prepaid cards and virtual currencies; (iii) cooperation between FIUs; and (iv) improved checks on transactions involving high-risk 3rd countries.

    What's new?

    On 19 June 2018, the final 5AMLD was published in the Official Journal of the EU ("OJEU") as the Directive (EU) 2018/843 of the Parliament and of the Council (the "Final 5AMLD").

    The Final 5AMLD also amends Article 68 of the Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance ("Solvency II") and Article 56 of the Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms ("CRD IV") concerning exchange of information between authorities.

    The Final 5AMLD is available here.

    What's next?

    The Final 5AMLD shall enter into force on 9 July 2018 (the 20th day following that of its publication in the OJEU).

    Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Final 5AMLD by 10 January 2020.

  • BMR - ESMA updates its Q&As on BMR

  • Background

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

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

    What's new?

    On 24 May 2018, the ESMA updated its Q&As to include one new answer: the ESMA considers that prospectuses should include reference to ESMA register of administrators and benchmarks as follows:

    In relation to prospectuses approved on or after 1 January 2018:

    • Where the register already includes the relevant administrator by the time a prospectus under the Prospectus Directive 2003/71/EC or the UCITS Directive is published, such prospectus should include a reference to the fact that the administrator is listed in the register;
    • Where the register does not include the relevant administrator by the time a prospectus is published, the ESMA considers that such prospectus should include a statement to that effect. Moreover, prospectuses under the UCITS Directive should be updated at the first occasion once the relevant administrator is included in the register.

    In relation to prospectuses approved prior to 1 January 2018:

    • Prospectuses approved under the UCITS Directive should be updated at the first occasion or at the latest before 1 January 2019. If by then the relevant administrator is not included in the register, these prospectuses should be updated to include a statement to that effect.
    • Prospectuses approved under the Prospectus Directive 2003/71/EC are not required under BMR to be systematically updated by means of a supplement once the relevant administrator is included in the register.

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

    What's next?

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

  • CSDR - Commission publishes its draft Delegated Regulation supplementing CSDR with regard to RTS on settlement discipline

  • Background

    The Regulation (EU) No 909/2014 of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on improving securities settlement in the EU and on central securities depositories ("CSDs") applies since 1 January 2015 ("CSDR", available here).

    CSDR aims to improve the safety and efficiency of securities settlement, in particular, for cross-border transactions, by ensuring that buyers and sellers receive their securities and money on time and without risks. To achieve this objective, CSDR harmonises the timing and framework for securities settlement in the EU. It provides measures to prevent and address failures in the settlement of securities transactions ("settlement fails"), commonly referred to as settlement discipline measures.

    Articles 6(5) and 7(15) of the "CSDR" empower the European Commission (the "Commission") to adopt regulatory technical standards ("RTS") further specifying the settlement discipline measures: (i) to prevent settlement fails and (ii) to address settlement fails.

    To develop draft RTS, the European Securities and Markets Authority (the "ESMA") consulted its Securities and Markets Stakeholder Group and involved the members of the European System of Central Banks ("ESCB") as well as carried out 3 public consultations:

    • From 20 March 2014 to 22 May 2014, gathering comments to the initial discussion paper on draft technical standards for CSDR (ESMA/2014/299 - the "1st Consultation", available here);
    • From 18 December 2014 to 19 February 2015, on the first draft of the technical standards under CSDR (ESMA/2014/1563 - the 2nd Consultation", available here); and
    • From 30 June 2015 to 6 August 2015, focusing only on the specific issue of who should be responsible for the execution of buy-ins (i.e. obligatory delivery of financial instruments following settlement fails), (ESMA/2015/1065 - the "3rd Consultation", available here).

    On 1 February 2016, the ESMA submitted to the Commission for endorsement its final draft RTS (ESMA/2016/174, the "Final Draft RTS", available here with Annex IV, available here), containing details on: (i) measures for preventing settlement fails, through various processes and functionalities (automated matching, partial settlement, hold and release mechanism); (ii) measures for monitoring and addressing settlement fails (in particular the cash penalties mechanism and the buy-in process).

    What's new?

    On 25 May 2018, the Commission published its draft delegated Regulation (EU) …/… supplementing CSDR with regard to RTS on settlement discipline, including mandatory buy-ins (C(2018) 3097 final, the "Draft Delegated Regulation").

    Measures addressing settlement fails act as a deterrent and can thereby help to prevent settlement fails, hence Draft Delegated Regulation bundles the Commission’s empowerments of Article 6(5) and 17(15) of CSDR both in one single act. Different chapters of the Draft Regulation specify, notably:

    • Timing and content of communications between investment firms and their clients concerning trades that should be settled in the securities settlement systems operated by CSDs;
    • Several measures CSDs are required to take in order to limit the number of settlement fails and put in place systems that enable monitoring the number, value and length of settlement fails;
    • Requirement to report measures taken to improve settlement efficiency;
    • Harmonised rules for cash penalties management (to users that cause settlement fails) by CSDs;
    • Rules concerning details of mandatory buy-in and the various steps in the execution of its process;
    • Cases where a buy-in is considered not possible and its process is considered ineffective;
    • Contractual arrangements and procedures between parties in the settlement chain to incorporate the requirements of the buy-in process;
    • Entities responsible for conducting buy-ins and responsibilities of the different parties;
    • Calculation and payment of the cash compensation for failed buy-ins;
    • Timeframes for the launch of the buy-in process and the following delivery of financial instruments
    • Cases when CSDs may discontinue its services to users that cause settlement fails;
    • Settlement information that CSDs should provide to CCPs and trading venues.

    The Draft Delegated Regulation is available here with an Annex, available here.

    What's next?

    The Parliament and Council have 3 months to scrutinize Draft Delegated Regulation, after which it will be published in the Official Journal of the European Union ("OJEU"). The final Delegated Regulation is due to come into force 24 months after publication in the OJEU, expected to be September 2020, to allow CSDs to adjust their IT systems and contractual arrangements for the purpose of applying it.

  • CSDR - ESMA updates its Q&As

  • Background

    Regulation (EU) No 909/2014 on Central Securities Depositories (CSDR) entered into force on 17 September 2014 and aims to increase the safety and efficiency of securities settlement and settlement infrastructures.

    Commission Delegated Regulation (EU) 2017/392 (RTS on authorization, supervisory and operational requirements for central securities depositories) sets out prudential requirements for CSDs.

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

    What's new?

    On 30 May 2018, the ESMA has updated its Q&As on the implementation of the CSDR.

    The new question refers to the implementation of Article 82 of the RTS. According to Article 82(2) of the RTS on CSD Requirements, a CSD should be able to dispose of the financial instruments on the day when the decision to liquidate is taken.

    According to the ESMA, this requirement doesn’t entail that a CSD should liquidate these financial instruments on the same business day but that the CSD should be in a position to order a liquidation of the financial instrument.

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

    What's next?

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

  • EMIR - ESMA has issued final Guidelines on Anti-Procyclicality margin measures for CCPs under EMIR

  • Background

    Under the EMIR Regulation, Central Counterparties (CCPs) are required to adopt measures to prevent and control possible procyclical effects arising from their risk-management practices. More specifically, Article 41 of EMIR and Article 10 of the Commission Delegated Regulation (EU) No153/2013 (RTS) requires CCPs to monitor and revise if necessary the level of margins to reflect current market conditions and to make disclosure relating to their margin models. Such disclosures should allow market participants to anticipate margin procyclicality.

    The ESMA published a report on the review of EMIR on efficiency of margining requirements in August 2015. The Guidelines seek to address the findings in the report and to promote a consistent implementation of the relevant EMIR and RTS provisions on the anti-procyclicality margin measures to implement and the disclosure requirements. The ESMA published a Consultation Paper on 8th January 2018 and concluded the consultation on 28th February 2018.

    What's new?

    On 28 May 2018, the ESMA published its final Guidelines on anti-procyclicality margin measures for CCPs under EMIR.

    The new Guidelines require CCPs to regularly assess their margin procyclicality. In this respect, CCPs may define their own metrics - thus taking into account the characteristics of their product offering and membership. However, they are required to holistically assess the long/short-term stability and conservativeness of their margin requirements.

    The guidelines also require that the margin computation addresses all material risk factors.

    Additionally, the Guidelines detail the 3 options available when revising the level of margins. Those 3 options were already defined in Article 28 of RTS. In this respect, any CCPs that chooses to apply a margin buffer at least equal to 25% of the calculated margin (option 1) is required to maintain documented policies setting out the circumstances under which the buffer could be temporarily exhausted. Furthermore, any CCP that chooses to use a margin floor (option 3) cannot apply different weights to observations within the lookback period.

    Lastly, the Guidelines clarify the information about each margin model subject to disclosure requirements. CCPs are notably required to disclose the methodology and parameters used when applying the selected APC margin measures.

    The ESMA Guidelines can be found here.

    What's next?

    The future translation of the Guidelines in the official EU languages will give two months to the NCAs to notify ESMA whether they comply or intend to comply with the Guidelines.

  • EMIR - ESMA updates its Q&As

  • Background

    The EMIR Regulation entered into force on 16 August 2012 and lays down rules on OTC derivatives, Central Counterparties and Trade repositories.

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

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

    What's new?

    On 30 May 2018, the ESMA has updated its Q&As on the EMIR Regulation.

    A new set of questions has been added to detail the obligations of reporting of counterparties and CCPs to Trade Repositories (TRs) according to Article 9 of EMIR regulation. The new questions clarifies:

    • The reporting of the maturity of a derivative contract when maturity date falls on a weekend or bank holiday (Question 12);
    • The reporting of swaps on natural gas or electricity (Question 46);
    • The reporting of deliverable currencies (Question 47);
    • The reporting of the effective date of a derivative contract when it is not specified on the contract (Question 48).

    Additionally, a question has been modified to detail the obligations of reporting of Trade Repositories (TR) and access to data by competent authorities. Question 37 has been amended to clarify the reporting of derivatives in which the underlying is an index or a basket of indices before the adoption of the unique product identifier in the European Union.

    ESMA updated Q&As on the EMIR Regulation is available here.

    What's next?

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

  • EMIR - Parliament publishes its Report on the proposal for a regulation amending ESMA Regulation and EMIR as regards the authorisation of CCPs and recognition of 3rd country CCPs

  • Background

    The Regulation (EU) No 1095/2010 of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") established a European Supervisory Authority (European Securities and Markets Authority) on 1 January 2011 (the "ESMA Regulation", available here).

    The Regulation (EU) No 648/2012 of the Parliament and of the Council on OTC derivatives, central counterparties ("CCPs") and trade repositories ("TRs") applies since 16 August 2012 ("EMIR", available here). Between 2015 and 2016, the European Commission (the "Commission") carried out an extensive evaluation (the "Evaluation") of EMIR. This included:

    • Launching a public consultation (the "Consultation," related documents available here) and organizing a public hearing (the "Hearing", related documents available here) on the EMIR review;
    • Assessing EMIR rules as part of the call for evidence on the EU regulatory framework for financial services (the "Call for Evidence", related documents available here);
    • Publishing a general report on EMIR (the "Report on EMIR", available here), submitted by the Commission to the Parliament and the Council;
    • Issuing an inception impact assessment on possible EMIR amendments (the "Impact Assessment", available here) in the framework of the regulatory fitness and performance program ("REFIT").

    Following the Evaluation, on 4 May 2017, the Commission published its proposal for a regulation of the Parliament and of the Council amending EMIR as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a CCP, the registration and supervision of TRs and the requirements for TRs (COM(2017) 208 final - the "1st Proposal for a Regulation", available here). These proposed amendments to EMIR aimed to introduce simpler and more proportionate rules on OTC derivatives that would reduce costs and burdens for market participants, without compromising financial stability.

    On 4 May 2017, the Commission also published a communication, outlining further changes to EMIR and setting out its intentions on how to respond to new emerging challenges in derivatives clearing (COM(2017) 225 final - the "Communication on Further changes", available here).

    On 13 June 2017, the Commission published a proposal for a regulation of the Parliament and of the Council amending the ESMA Regulation and EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of 3rd-country CCPs (COM(2017) 331 final - the "2nd Proposal for a Regulation", available here). The proposed amendments aimed to enhance the supervision of 3rd country CCPs and make supervision of EU CCPs more coherent.

    What's new?

    On 25 May 2018, the Parliament acting in accordance with the ordinary legislative procedure, at the 1st reading adopted its position set out in a report on the 2nd Proposal for a Regulation (COM(2017)0331 - C8-0191/2017 - 2017/0136(COD), the "Report").

    The Report shows various amendments in form of deletions or highlighted additions throughout the text of the 2nd Proposal for a Regulation. The consolidated text, among other:

    • Emphasizes that the amendments are intended to facilitate long-term greater financial stability;
    • Supports enhancing the ESMA’s powers, which would need appropriate governance and funding;
    • Describes development of knowledgeable CCP Supervisory Committee;
    • Highlights that the ESMA shall take note of stress tests carried out by CCPs as part of their recovery and resolution arrangements;
    • States that national competent authorities ("CAs") would continue to exercise their existing responsibilities, however, there should be established division of competencies depending on decisions concerned (those for which CAs obtain previous consent of the ESMA, those for which CAs consult the ESMA and those for which CAs remain solely responsible);
    • Indicates that competencies expressed in the 2nd Proposal for a Regulation are destined to evolve as the role and capacities of the ESMA will develop;
    • Addresses cases of disputes between the ESMA and the CAs in which the Board of Supervisors could be requested to assess the proposed amendment or objection which cause disagreement;
    • Explains that relevant banks of issue should be consulted by ESMA or the CA on certain decisions, in particular if they relate to a CCP’s payment and settlement arrangement and related liquidity risk management procedures for transactions denominated in that central bank of issues currency.

    The Report is available here.

    What's next?

    The position expressed in the Report is to be forwarded to the Council, the Commission and the national parliaments.

  • GDPR - EDPB adopts Guidelines on derogations applicable to international data transfers

  • Background

    The Regulation (EU) 2016/679 of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on the protection of natural persons with regard to the processing of personal data and on the free movement of such data applies since 25 May 2018 (the "GDPR", available here). It repealed the Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data (the "DPD", available here). 

    Like the DPD, the GDPR prohibits the onward transfer of personal data to: (i) a country that has not been deemed to provide an adequate level of protection; and (ii) where the entity therein has committed to handle the personal data of European data subjects applying appropriate safeguards in accordance with Article 46 of the GDPR. For instance, organizations comply with Article 46 by implementing binding corporate rules or standard contractual clauses or by participating in a recognized certification mechanism. However, Article 49(1) of the GDPR provides for transfers to entities in a country without an adequate level of protection under a series of narrowly tailored exceptions (the "Derogations"):

    • Data subject has explicitly consented to the transfer, after having been informed of the risks;
    • Transfer is made from an open public register under certain conditions;
    • Transfer is necessary for:
      • Performance of a contract between the data subject and data controller;
      • Conclusion or performance of a contract concluded in the interest of the data subject;
      • Important reasons of public interest;
      • Establishment, exercise or defense of legal claims;
      • Protection of vital interests of (incapable of giving consent) data subjects or other persons; or
      • Purposes of compelling legitimate interests pursued by the data exporter, which are not overridden by the interests or rights and freedoms of the data subject.

    Article 70 of the GDPR in its paragraphs 1(j) and 1(e) states that the European Data Protection Board (the "EDPB") shall ensure consistent application of the GDPR and, among other, issue guidelines specifying the criteria and requirements for the personal data transfers on the basis of Article 49(1).

    From 12 February 2018 to 26 March 2018, the Article 29 Working Party, predecessor of the EDPB, conducted a public consultation on guidelines on Article 49 of the GDPR concerning Derogations relating to the transfer of personal data to 3rd countries" (wp262, the Draft Guidelines", available here).

    What's new?

    On 30 May 2018, during its 1st plenary meeting, the EDPB adopted the final guidelines 2/2018 on the Derogations applicable to international transfers under Article 49 of the GDPR (the "Final Guidelines"). They include changes made according to comments to the Draft Guidelines and:

    • Addressing the data subjects consent, focus on the specific elements required for it to be considered a valid legal ground for international data transfers to 3rd countries and international organizations;
      • Provide more clarity than the Draft Guidelines on obtaining specific and informed consent of a data subject at the time of the collection of the data and prior to the transfer;
      • Add an example for vital interests of data subject (considered unable to provide consent) after the natural disasters and in the context of sharing personal information for rescue operations;
    • Note that personal data may only be transferred under the Derogations if the transfer is occasional and not repetitive (the transfer "may happen more than once, but not regularly");
      • Add an example that a transfer could be considered occasional if a bank in the EU transfers data to a bank in a 3rd country to execute a client’s request for making a payment as long as this does not occur in the framework of a stable cooperation relationship between the 2 banks;
      • State that the Derogations may therefore not be used to legitimize data transfers where, for example, the data importer is granted direct access to a database on a general basis;
    • Stress the importance of evaluation by the EU/EAA data exporter if a transfer of personal data can be considered necessary for the specific purpose of the Derogation to be used;
      • Add an example when there can be a sufficient close and substantial connection between the data transfer and the purpose of the contract;
    • Note that a transfer in response to a decision from a non-EEA authority is only lawful if that transfer complies with the data transfer rules of the GDPR;
      • Where there is an international agreement (for instance, a mutual legal assistance treaty), the EDPB recommends that EU companies should generally refuse direct requests and refer the requesting non-EEA authority to the existing agreement;
    • State that an international agreement or convention recognizing a certain objective and providing for international cooperation to foster that objective can be an indicator when assessing the possible public interest Derogation as long as EU Member States are a party to that agreement;
    • Replace the term "controller" used in the Draft Guidelines to "exporter" in several places.

    The Final Guidelines are available here.

    What's next?

    The Final Guidelines will be reviewed and if necessary updated, based on the practical experience gained through the application of the GDPR.

    When applying Article 49, the data exporter transferring personal data to 3rd countries or international organizations must also meet the conditions of the other provisions of the GDPR, notably the principles relating to processing of personal data (Article 5) and lawfulness of processing (Article 6).

  • MIFID II/MiFIR - ESMA adopts product intervention measures on CFDs and binary options

  • Background

    The MiFID II Directive and the MiFIR Regulation encompass rules on governance, products, investor protection and information disclosure and are applicable since 3 January 2018.

    Under Article 40 of MiFIR Regulation, the ESMA is entitled to temporarily prohibit or restrict the marketing, distribution and sale of certain financial instruments or types of activity.

    What's new?

    On 1 June 2018, the ESMA has adopted two product intervention decisions in relation to contract for differences (CFDs) and binary options published in the Official Journal of the EU, and a Q&A document on these measures.

    The decision 2018/795 temporarily prohibits the marketing, distribution or sale of binary options to retail investors from 2 July 2018 for 3 months. The features of a binary option are clearly defined in Article 1 of the decision.

    The decision 2018/796 temporarily restricts the marketing, distribution or sale of contracts for differences to retail investors as from 1 August 2018 and for 3 months. The features of a contract for differences are clearly defines in Article 1. The restriction is limited to a number of circumstances defined in Article 2.

    In order to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of ESMA’s temporary product intervention measures on the marketing, distribution or sale of CFDs and binary options to retail clients, the ESMA also published a Q&A document explaining the main features of these measures.

    The ESMA decision 2018/795 is available here.

    The ESMA decision 2018/796 is available here.

    The ESMA Q&A on market structure topics under MiFID II and MiFIR is available here.

    What's next?

    Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

  • MiFID II/MiFIR - ESMA confirms the end of the temporary period for LEIs requirements

  • Background

    The Directive 2014/65/EU and Regulation (EU) No 600/2014 on markets in financial instruments ("MiFID II" available here and "MiFIR", available here) encompass rules on governance, products, investor protection and information disclosure.

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

    MiFIR introduces extensive requirements regarding the reporting of the Legal Entity Identifiers ("LEIs"), thus covering all clients of EU investment firms and any entity that has issued financial instruments traded on European trading venues. EU investment firms and trading venues are obliged to report the LEI of these entities regardless of where they are based and regardless of whether the entity is subject to LEI requirements in its own jurisdiction.

    On 20 December 2017, the ESMA issued a statement, thus temporarily allowing for a smooth introduction of the use of the LEIs. First, the statement provided for trading venues to report their own LEI codes instead of LEI codes of non-EU issuers that do not have their own LEI codes. Second, the statement provided the possibility for investment firms to provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf.

    What's new?

    On 20 June 2018, the ESMA issued a public statement, confirming that temporary provisions will not be further extended and cease in July 2018.

    Since 20 December 2017, the ESMA and the NCAs have been closely monitoring the use of LEIs and have observed a significant increase in the LEI coverage for both issuers and clients. There is therefore no need to further extend the initial six-month period granted to support the smooth introduction of the LEIs requirements.

    The ESMA public statement can be found here.

    What's next?

    First, reports for transactions executed between 3rd January and 2nd July 2018 will still be accepted even if the LEI issuance date is after the execution date. Investment firms are invited to contact their NCA directly for the specific details regarding this adjustment.

    Second, to ensure a high degree of supervisory convergence and the full application of MIFIR, ESMA and NCAs are coordinating the development of an appropriate and proportionate common supervisory action plan focused on compliance with the LEI reporting requirements.

  • MiFID II/MiFIR - ESMA publishes final guidelines on MiFID II suitability requirements

  • Background

    The MiFID II Directive and the MiFIR Regulation encompass rules on governance, products, investor protection and information disclosure. MiFID II and MiFIR, together with the Commission delegated acts as well as regulatory and implementing technical standards, are applicable since 3 January 2018.

    The assessment of suitability is one of the key requirements for investor protection and is set out in MiFID II and Commission Delegated Regulation (EU) 2017/565. The purpose of the Guidelines is to ensure a consistent and harmonized application of the requirements in the area of suitability. On 13th July 2017, ESMA published a Consultation Paper (CP) with proposed draft guidelines, which broaden the existing MiFID II guidelines on suitability.

    What's new?

    On 28 May 2018, the ESMA published its final Guidelines on suitability requirements under MiFID II.

    The required assessment of suitability already applies both to the provision of investment advice (whether independent or not) or to portfolio management and has to be performed against clients’ knowledge and experience, financial situation and investment objectives. MiFID II Delegated Regulation strengthens the suitability requirements and applies to situations where services are provided to retail clients and situations where services are provided to professional clients to the extent they are relevant.

    The Guidelines extend the requirements to structured deposits and detail the suitability requirements.

    The strengthened obligations that firms must comply with as detailed in the Guidelines are mainly relating to the following aspects:

    • Client information and firm’s responsibility on the suitability assessment.
    • Know your clients and products policies and procedures, including the main facts to take into account for proportionality and reliability of client information.
    • Policies and procedures to put in place to ensure a proper match of clients with suitable products, including the assessment of the possible investment alternatives, taking into account products’ cost and complexity.
    • Qualification of firm staff involved in material aspects of the suitability process.
    • Record-keeping of the suitability assessments.

    The ESMA Guidelines can be found here.

    What's next?

    The future translation of the Guidelines in the official EU languages will give two months to the NCAs to notify ESMA whether they comply or intend to comply with the Guidelines.

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

  • Background

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

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

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

    What's new?

    On 25 May 2018, the ESMA updated its Question and Answers (Q&As) document on investor protection issues regarding the implementation of MiFID II and MiFIR.

    This update includes 9 new questions.

    On best execution, the ESMA clarifies that a firm that regularly and consistently provides liquidity in an instrument would meet the definition of "other liquidity provider".

    Regarding client categorization, the ESMA confirms that a private individual investor may be allowed to waive some of the protections afforded by the conduct of business rules set in MiFID II by requesting to be treated as a professional client. Somehow, the ESMA specifies that investment firms should strictly refrain from implementing any form of practice that aims at incentivising, inducing or pressuring a private individual investor to request to be treated as professional client. The ESMA further clarifies how an investment firm should assess whether a private individual investor may be treated as a professional.

    On the provision of investment services and activities by third country firms, the ESMA considers that every communication means used such as press releases, advertising on internet, brochures, phone calls or face-to-face meetings should be considered to determine if the client or potential client has been subject to any solicitation, promotion or advertising in the Union on the firm’s investment services or activities or on financial instruments. The ESMA further specifies how «new categories of investment products or investment services» within the meaning of MiFID II and MiFIR should be understood.

    Regarding the provision by a UCITS management company or an alternative investment fund manager of investment services through a branch established in the host Member State, the ESMA clarifies that responsibilities of home and host Member States should be identified similarly to, and consistently with, the general framework established for the provision of activities pursued by UCITS management companies and AIFMs through branches as well as with the MiFID II framework regulating the supervision on the provision of investment services across the EU.

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

    What's next?

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

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

  • Background

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

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

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

    What's new?

    On 29 May 2018, the ESMA updated its Question and Answers (Q&As) document on transparency issues regarding the implementation of MiFID II and MiFIR.

    Three new questions have been added to the Q&As while one existing question has been updated, all relating to general aspects of the transparency issues under MiFID II and MiFIR.

    RFQ (Request-for-quote) system (update): the ESMA confirmed that trading venues are responsible for designing their RFQ systems in compliance with the pre-trade transparency requirements. The ESMA now specifies that the conclusion of a transaction is not a condition for the publication of pre-trade transparency. Therefore, pre-trade transparency should also apply where a quote provided on request, including actionable indications of interest, is not acted upon.

    Availability of data: the ESMA expects trading venues, APAs (Approved Publication Arrangement) and CTPs (Consolidated Tape Provider) to make post-trade data available free of charge 15 minutes after publication in an easily accessible manner for all potential users using a format that can be easily read, used and copied. Furthermore, trading venues, APAs and CTPs are required to ensure the non-discriminatory access to post-trade data, including data made available free of charge. The ESMA also provides additional specifications on this issue.

    Field "publication date and time": the ESMA also clarifies how this field should be populated in the case of the use of deferrals or for amendments to trade reports. For instance, the ESMA considers that the field ‘publication date and time’ should always refer to the effective date and time of the publication of the transaction. In the case of the use of deferrals, the field ‘publication date and time’ should be populated with the effective date of the publication of information on that transaction, i.e. after the lapse of the deferral.

    Voice trading system: the ESMA finally specifies how voice-trading systems should apply the pre-trade transparency requirements. Trading venues operating voice-trading systems should ensure that pre-trade information is promptly made public through electronic means on a continuous basis during normal trading hours. However, the ESMA clarifies that the conclusion of a transaction is not a condition for the publication of pre-trade transparency. Therefore, pre-trade transparency should also apply where a quote provided on request, including actionable indications of interest, is not acted upon.

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

    What's next?

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

  • Short Selling - ESMA updates its Q&As on SSR

  • Background

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

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

    What's new?

    On 28 May 2018, the ESMA has updated its questions and answers document on the Short selling Regulation.

    The ESMA clarifies, for uncovered short sales, which conditions have to be met in order to fulfill the requirement to have a locate arrangement under the SSR.

    The ESMA identifies three different categories of locate arrangement: ‘standard locate arrangements’, ‘standard same day locate arrangements’ and ‘easy to borrow or purchase arrangements’ for liquid shares or shares included in the main national equity index that are the underlying of derivatives traded on a trading venue.

    The ESMA further specifies that an "easy-to-borrow or purchase list" can be considered as an "easy to borrow or purchase confirmation" only where it is complemented for each share in the list with an assessment of:

    • The maximum amount of shares affected by the possible short sale;
    • The market conditions at the time of providing the list, including the liquidity of the shares concerned, and any other information available on the supply of the shares.

    For the above list to be used as an "easy to borrow or purchase confirmation" for subsequent short sales, the above assessment has to be reviewed to consider the relevant quantity and any a change in the market conditions.

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

    What's next?

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

  • Sustainable Finance - Commission issues 3 Regulation Proposals on financing sustainable growth

  • Background

    On 8 March 2018, the European Commission (the "Commission") unveiled its action plan entitled "Financing Sustainable Growth" (COM(2018) 97 final - the "Action Plan", available here), which has 3 main objectives:

    • Reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth;
    • Manage financial risks stemming from climate change, environmental degradation and social issues; and
    • Foster transparency and long-termism in financial and economic activity.

    In particular, the Action Plan shall address the following problems:

    • Institutional investors, asset managers, investment advisors and insurance distributors lack incentives to consider Environment, Social and Governance ("ESG") factors in their investment and advisory process;
    • End-investors face high search costs to identify what constitute sustainable investments and to assess the extent to which ESG factors are integrated in EU financial products (and hence to curb so-called "greenwashing").

    What's new?

    On 24 May 2018, based mostly on the Action Plan, the Commission published the following 3 legislative proposals on sustainable finance (altogether the "Proposals"):

    • Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment (COM(2018) 353 final - the "Framework Proposal", available here)
      • The Framework Proposal establishes the conditions and the framework to gradually create a unified classification system ("taxonomy") on what can be considered an environmentally sustainable economic activity;
      • It defines the 6 EU environmental objectives (i.e. climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; or protection of healthy ecosystems) to which economic activities will have to contribute to be considered eligible; and
      • As a second step, the Framework Proposal empowers the Commission to specify the qualitative and quantitative technical screening criteria for each economic activity.
    • Regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341 (COM(2018) 354 final - the "Disclosure Proposal", available here);
      • The Disclosure Proposal lays down harmonised rules on the transparency to be applied by "financial market participants" (e.g. UCITS management company or AIFM), insurance intermediaries which provide insurance advice with regard to insurance-based investment products ("IBIPs"), and investment firms which provide investment advice on the integration of sustainability risks in investment decision-making processes or advisory processes. It also tackles the transparency of financial products that have as their targets sustainable investment, including the reduction in carbon emissions;
      • Pre-contractual disclosures should include information on how the remuneration policies of financial market participants and financial advisors are consistent with the integration of sustainability risks and are in line, where relevant, with the sustainable investment targets of the financial products or services;
      • Financial market participants and financial advisors should be required to maintain on their websites information on how sustainability risks are integrated in their decision-making processes or advisory processes (that information should be kept up-to-date, and any review or change should be clearly explained);
      • Requirements to integrate ESG factors in investment decision-making processes or advisory processes, as part of their duties towards investors and beneficiaries, will be further specified through delegated acts adopted by the Commission.
    • Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1011 on low carbon benchmarks and positive carbon impact benchmarks (COM(2018) 355 final - the "Benchmarks’ Proposal" with "Annex", respectively available here and here).
      • The Benchmarks’ Proposal would introduce minimum standards for harmonising the methodology to be applied to 2 new categories of benchmarks, namely "low-carbon benchmark" and "positive carbon impact benchmark". While the underlying assets in a low-carbon benchmark should be selected with the aim of reducing carbon emissions of the index portfolio when compared to the parent index, a positive carbon impact benchmark should only comprise components whose emissions savings exceed their carbon emissions; and
      • Benchmark administrators should be required to disclose how their methodology takes into account the ESG factors for each benchmark or family of benchmarks that is promoted as pursuing ESG objectives. Such information should also be disclosed in the benchmark statement (the administrators of benchmarks that do not promote or take into account the ESG objectives, should not be subject to such disclosure obligation); and
      • The Commission should specify via delegated acts (i) the minimum content of the disclosure obligations that benchmark administrators that take into account the ESG objectives should be subject to, and (ii) the minimum standards for harmonisation of the methodology of low-carbon and positive carbon impact benchmarks, including the method for the calculation of carbon emissions and carbon savings associated with the underlying assets.

    Further information on the Proposals is available here.

    On 24 May 2018, the Commission services also launched 2 consultations, in order to ensure that investment firms (Ares(2018)2681500 - the "Consultation on MiFID II Suitability Requirements") and insurance distributors (Ares(2018)2681527 - the "Consultation on Distribution of IBIPs") integrate sustainability preferences into their suitability tests when offering advice to investors and that the products offered meet their clients’ needs.

    The Consultation on MiFID II Suitability Requirements is available here.

    The Consultation on Distribution of IBIPs is available here.

    What's next?

    Comments on the Consultations shall be submitted to the Commission services by 21 June 2018. The Commission should then invite the ESMA to include provisions on sustainability preferences in its guidelines on the suitability assessment (which should be updated by Q4 2018).

    The Proposals will be discussed by the European Parliament and the Council of the EU. The Action Plan includes a timetable for all actions that will be rolled out by Q2 2019.

  • UCITS - ESMA updates its Q&As

  • Background

    The UCITS Directive puts in place a comprehensive framework for the regulation of harmonised investment funds within Europe.  

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

    What's new?

    On 25 May 2018, the ESMA has updated its questions and answers document on the application of the UCITS Directive.

    The Q&As include one new answer by which the ESMA clarifies that the remuneration-related disclosure requirements under the UCITS Directive also apply to the staff of the delegate of a management company to whom investment management functions (including risk management) have been delegated.

    The ESMA further specifies that management companies can ensure compliance in one of the following two ways:

    • Where the delegate is subject to regulatory requirements on remuneration disclosure for its staff to whom investment management (including risk management) activities have been delegated that are equally as effective as those under the UCITS Directive, the management company should use the information disclosed by the delegate; or
    • In other cases, appropriate contractual arrangements should be put in place with the delegate allowing the management company to receive (and disclose in the annual report for the relevant UCITS that it manages) at least information on the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the management company, the investment company and, where relevant the UCITS itself to the identified staff of the delegate - and number of beneficiaries, and, where relevant, performance fee - which is linked to the delegated portfolio. The disclosure should be done on a prorated basis for the part of the UCITS’ assets which are managed by the identified staff within the delegate.

    The ESMA Q&As updated document on the UCITS Directive is available here.

    What's next?

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

  • BELGIUM

    Company Law - Publication of the draft law introducing the Belgian Code of Companies and Associations

  • Background

    On 5th June 2018, the Belgian Chamber of commercial law published on its website the draft law introducing the Code of Companies and Associations. This draft law aims to modernize and improve the concurrency of the Belgian company law in the European context, providing more flexibility and clarity to the current legislation.

    What's new?

    The main purposes of the draft law are the following:

    • Simplify the legislation: suppression of the distinction between civil and commercial companies, suppression of the public companies, limitation of the rules regarding listed companies, reduction of the number of company forms, reduction of the criminal law provisions;
    • Promote suppletive law and flexibility:
      • For SA companies: the rule of revocability ad nutum of the director becomes suppletive; the companies can chose either the two-tier or the one-tier system, or appoint only sole director, who may be protected against revocability; a double-right vote for faithful shareholders can be laid down in the articles of association of listed companies; multiple-right vote is permitted in non-listed companies.
      • For SRL companies (previously called SPRL): the capital requirement is removed; the shareholders rights are now defined by the articles of association or an agreement; some other rules become suppletive.
    • Follow the European regulation evolution, as regulate the transfer of the company’s main office for example.

    What's next?

    The entry into force of the Code of Companies and Associations is expected on 1st January 2019.

  • FRANCE

    GDPR - Implementation of GDPR in French law

  • Background

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

    The Regulation (EU) 2016/679 of the Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing the DPD entered into force on 24 May 2016 and is applicable since 25 May 2018 (the "GDPR", available here).

    Given that the GDPR contains multiple references to national laws, it was necessary for each Member State to adapt the new European obligations regarding personal data before 25 May 2018.

    As a consequence, the French Government submitted the bill n°2018-493 on the protection of personal data to the French Parliament on 14 December 2017.

    What's new?

    On 14 May 2018, the French Parliament definitively adopted the new bill on the protection of personal data (available here). This bill aims at adapting the EU regulation to the law n°78-17 of 6 January 1978 on Information, Technology, Data files and Civil Liberties. For this purpose, it adapts the new European legal framework composed with the Regulation (EU) 2016/679 and the Directive (EU) 2016/680 applicable since 25 May 2018.

    The French Government decided not to abrogate the existing law of 1978 but to adapt it. The objective is to strengthen the French legal framework whereby the modalities of GDPR application are exposed.

    Following the decision of the Conseil Constitutionnel on 12 June 2018 (available here), the law n°2018-493 was finally promulgated on 20 June 2018 (available here).

    What's next?

    GDPR applies since 25 May 2018 (i.e. GDPR is binding in its entirety and directly applicable in all EU Member States, notably in France).

    On 25 May 2018, the CNIL issued guidelines on how to be GDPR compliant (available here). If numerous formalities to the CNIL disappear, the responsibility of the entities involved is increased. In order to help them, the CNIL has issued some guidelines (available here).

  • LUXEMBOURG

    AIF Reporting - BCL issues circular 2018/241 on new statistical data collection for non-regulated alternative investment funds

  • Background

    The Regulation (EU) No 1073/2013 of the European Central Bank of 18 October 2013 concerning statistics on the assets and liabilities of investment funds (recast) applies since 1 January 2015 (the "Regulation ECB/2013/38", available here). It defines the statistical standards according to which investment funds shall report information on their assets and liabilities to the national central banks ("NCBs", e.g. in Luxembourg the "Banque centrale du Luxembourg" or "BCL").

    Against this background, the joint circular BCL 2014/237 - CSSF 14/588 on modification of the statistical data collection for money markets funds and non-MMF investment funds addresses all regulated investment funds, i.e. funds that must be authorised by the CSSF (the "Joint Circular", available here). However, the Regulation ECB/2013/38 also addresses non-regulated alternative investment funds ("AIFs"). Due to the recent development of such non-regulated AIFs (e.g. reserved alternative investment funds or "RAIFs"), the BCL considers that the data collection has become necessary "in order to comply with the coverage of the entirety of investment funds" as required by the Regulation ECB/2013/38.

    Moreover, the Regulation ECB/2013/38 is complemented by the "Guidelines ECB/2014/15" on monetary and financial statistics (available here), which set out the procedures to be followed by the BCL when reporting investment fund statistics to the ECB. Further information is provided in the non-legally binding.

    What's new?

    On 24 May 2018, the BCL published on its website the circular 2018/241 informing non-regulated AIFs of a new statistical data collection pursuant to the Regulation ECB/2013/38 and the Guidelines ECB/2014/15 (the "Circular 2018/241").

    In the Circular 2018/241, the BCL highlights the following points:

    • In order for the BCL to complete the list with information on non-regulated AIFs pursuant to the Guidelines ECB/2014/15, "every fund must fill in a form and submit it to the BCL. This transmission must include the latest balance sheet available";
    • In order to complete the "identifying data of non-regulated AIFs", they must provide the BCL with additional data within a week starting from their first day of activities, whether they expect to be subject to or exempt from the obligation to submit the statistical reporting;
    • The BCL may grant non-regulated AIFs a derogation from their monthly and quarterly reporting obligations if the total assets of non-regulated AIFs remain below a fixed threshold. For funds that include several compartments, the total assets taken into account are those of all compartments. The initial threshold is fixed at EUR 500 million; and
    • The non-regulated AIFs that benefit from a derogation must submit their annual balance sheet to the BCL within 15 days after the certification of the annual accounts.

    The Circular 2018/241 is available here in English and here in French.

    What's next?

    The new data collection will be implemented as a two-step process:

    1. The transmission of the filled-in form about the identifying data available on the BCL’s website (the "Form", available here in English and here in French) and of the latest available balance sheet before 31 May 2018 by email to the following address: reporting.opc@bcl.lu.
    2. For those funds not exempted by the BCL, the transmission of the quarterly report S 2.13 "Quarterly statistical balance sheet for non-MMF investment funds", of the monthly security-by-security report for the September 2018 reference period must be submitted before 26 October 2018. If applicable, the monthly report S 1.6 "Information on valuation effects on the balance sheet of non-MMF investment funds" for the October 2018 reference period must be submitted before 29 November 2018.

    If needed, the BCL will adjust the initial threshold (i.e. EUR 500 million) by means of a circular letter.

    Queries about the implementation of the Circular 2018/241 can be sent by email to the following BCL address: reporting.opc@bcl.lu.

  • AML/CFT - CSSF issues new sector specific questionnaires for conducting annual survey

  • Background

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

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

    On 26 April 2017, the bill 7128 transposing the 4AMLD, implementing the Regulation and modifying various Luxembourg legislations including the 2004 Law, was submitted to the Luxembourg Parliament for adoption (the "Bill", available here). On 14 February 2018, the adopted Bill was published in the Luxembourg Memorial A N°131 (the "4AMLD Transposition Law", available here only in French). The 4AMLD Transposition Law entered into force on 18 February 2018.

    On 20 April 2018, pursuant to the "ESAs’ Risk-Based Supervision Guidelines" (available here) and the international "FATF Recommendations" (available here), the CSSF informed professionals under its supervision that it would henceforth conduct an annual survey collecting standardised key information concerning money laundering and terrorist financing ("ML/TF") risks (the "Press Release 18/15", available here). To this end, the CSSF has elaborated new sector specific questionnaires supporting on the one hand, the identification of ML/FT risk factors most notably related to clients, countries and geographical areas, delivery or distribution channels, products and services of supervised entities and, on the other hand, the measures put in place to mitigate these risks.

    What's new?

    On 22 May 2018, based on the Press Release 18/15, the CSSF published on its website the relevant AML/CFT questionnaires for information purposes (the "Questionnaires").

    In particular, the Questionnaires are addressed to credit institutions, investment fund managers, payment institutions, electronic money institutions, investment firms and specialised professionals of the financial sector ("PFS").

    The Questionnaires are available here.

    The corresponding communiqué is available here (only in French).

    What's next?

    The CSSF highlights that the submission of the complete answer of the professional to the annual survey shall only be done via the electronic way indicated in the circular letter.

  • CSDR - Implementing Law on central securities depositories enters into force in Luxembourg

  • Background

    The Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories ("CSDs") entered into force on 17 September 2014 ("CSDR", available here).

    In accordance with Article 11(1) of CSDR, each EU Member State shall designate the competent authority responsible for carrying out the duties under CSDR for the authorisation and supervision of CSDs established in its territory and shall inform the ESMA thereof.

    On 21 July 2017, the ESMA published its updated list of competent authorities under Article 11 of CSDR (ESMA70-708036281-159 - the "List", available here). As indicated in the List, Luxembourg has not yet provided information in this regard.

    On 9 August 2017, the Luxembourg Minister of Finance submitted the bill 7165 implementing certain obligations of CSDR to the Luxembourg Parliament (the "Bill 7165", available here only in French). Without prejudice to the relevant missions of the ‘Banque Centrale du Luxembourg’ (e.g. under Article 12 of CSDR), the Bill 7165 designates the CSSF for carrying out the duties under CSDR for the authorisation and supervision of CSDs established in Luxembourg. In this context, the Bill 7165 defines the CSSF’s powers and penalties applicable to infringements of the relevant CSDR provisions.

    On 20 February 2018, the Luxembourg Conseil d’état ("CE") published its first opinion on the Bill 7165 (7165/02 - the "CE Opinion 1", available here only in French). On 24 April 2018, the CE issued its additional opinion on the Bill 7165 (7165/05 - the "CE Opinion 2", available here only in French). In the CE Opinion 2, the CE did not make any further formal objections to the Bill 7165.

    On 4 May 2018, the Luxembourg Finance and Budget Commission published its report on the Bill 7165 (7165/06 - the "Report", available here only in French).

    On 15 May 2018, the Luxembourg Parliament voted at first reading on the Bill 7165, and the CE was requested to waive the second constitutional vote.

    The legislative steps in relation to the Bill 7165 as amended are available here (only in French).

    What's new?

    On 8 June 2018, the Law of 6 June 2018 on CSDs and implementing Regulation (EU) No 909/2014 (CSDR) was published in the Mémorial A N°462 (the "Law of 6 June 2018").

    The Law of 6 June 2018 is available here (in French only).

    What's next?

    The Law of 6 June 2018 entered into force on 12 June 2018.

  • MiFID II/MiFIR - Implementation of the Directive 217/593/EU

  • Background

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

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

    The Delegated Directive was intended to be implemented by mean of the grand-ducal regulation concerning the protection of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (the "Draft Regulation", available here in French only).

    In particular, the Draft Regulation shall transpose the Delegated Directive, amend the 2007 Regulation on Official Listing, and repeal the 2007 Regulation on Organisational Requirements. The structure of the Draft Regulation is as follows:

    • Article 1 details the scope of application (i.e. it shall apply to Luxembourg credit institutions and investment firms, Luxembourg branches of credit institutions or investment firms authorised in another Member State in accordance with Article 35(4) of the LSF, management companies and alternative investment fund managers) and certain definitions;
    • Articles 2 to 7 contain provisions concerning the protection of financial instruments and funds belonging to clients;
    • Articles 8 and 9 set out rules in relation to product governance;
    • Articles 10 to 12 provide information on inducements’ rules;
    • Articles 13 to 29 modify relevant provisions to the 2007 Regulation on Official Listing; and
    • Articles 30 to 33 contain other specific and final provisions (including the repeal of the 2007 Regulation on Organisational Requirements).

    What's new?

    On 30 May 2018, the Delegated Directive has been implemented in Luxembourg in the Grand-Ducal Regulation of 30 May 2018, which was published in the Mémorial A447.

    The Grand-Ducal Regulation of 30 May 2018 is available here (in French only).

    What's next?

    The Grand-Ducal Regulation of 30 May 2018 will enter into force on 4 June 2018.

  • MiFID II/MiFIR - Implementation of the Directive 2014/65/EU and of the Regulation 600/2014/EU

  • Background

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

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

    On 3 July 2017, the Luxembourg bill 7157 was transmitted to the Luxembourg Parliament for adoption (the "Bill 7157", available here only in French). In this context, the Bill 7157 transposes MiFID II and Article 6 of the Delegated Directive (entitled ‘Inappropriate use of title transfer collateral arrangements’), implements MiFIR, and modifies inter alia the following Luxembourg laws:

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

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

    What's new?

    On 31 May 2018, the Bill 7157 was made into law and published in the Mémorial A446.

    The link to the law of 30 May 2018 is available here (only available in French).

    What's next?

    The law of 30 May 2018 will enter into force as from 4 June 2018.

  • SFTR - Law implementing Regulation (EU) 2015/2365 enters into force in Luxembourg

  • Background

    The Regulation (EU) 2015/2365 on transparency of securities financing transactions ("SFTs") and of reuse, and amending the Regulation (EU) No 648/2012 ("EMIR", available here), applies since 12 January 2016, subject to certain transitional provisions ("SFTR", available here). SFTR increases the transparency of SFTs as follows:

    • All SFTs, except those concluded with central banks, shall be reported to central databases known as trade repositories;
    • Information on the use of SFTs by investment funds shall be disclosed to investors in the regular reports and pre-investment documents issued by the funds; and
    • Minimum transparency conditions shall be met when collateral is reused, such as disclosure of the risks and the obligation to acquire prior consent.

    On 10 October 2017, the Luxembourg Minister of Finance submitted the bill 7194 implementing certain provisions of SFTR to the Luxembourg Parliament (the "Bill 7194", available here only in French). With reference to Article 16 of SFTR, the CSSF and the Commissariat aux Assurances ("CAA") shall have the necessary powers of control and investigation for the exercise of their respective tasks, within the limits defined by SFTR.

    On 20 December 2017, the opinion from the Luxembourg Chamber of Commerce on the Bill 7194 was published on the Luxembourg Parliament’s website (N° 7194/01 - the "Chamber Opinion", available here only in French).

    On 24 April 2018, the Luxembourg Conseil d’état ("CE") issued its opinion on the Bill 7194 (N° CE: 52.445 - the "CE Opinion", available here only in French). In this context, the CE expressed no formal objections to the Bill 7194 and suggested that some wording should be harmonised with the relevant ones of the Law of 23 December 2016 on market abuse.

    On 4 May 2018, the Luxembourg Finance and Budget Commission published its report on the Bill 7194 (N° 7194/03 - the "Report", available here only in French).

    On 15 May 2018, the Luxembourg Parliament voted at first reading on the Bill 7194, and the CE was requested to waive the second constitutional vote.

    The legislative steps in relation to the Bill 7194 are available here (only in French).

    What's new?

    On 8 June 2018, the Law of 6 June 2018 implementing Regulation (EU) 2015/2365 in Luxembourg was published in the Luxembourg Mémorial A N°463 (the "Law of 6 June 2018").

    The Law of 6 June 2018 is available here (only in French).

    What's next?

    The Law of 6 June 2018 entered into force on 12 June 2018.

  • TAX UPDATES

    GENERAL — AML/CFT - Two jurisdictions removed from EU list of non-cooperative jurisdictions

  • Background

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

    On 21 March 2018, guidelines have been adopted which marked the first step in stopping the transit of EU funds through non-cooperative tax jurisdictions.

    What's new?

    On 25 May 2018, the Council removed the Bahamas, Saint Kitts and Nevis from the EU’s list of non-cooperative tax jurisdictions as the jurisdictions took concrete actions in order to reform certain provisions of their tax legislation, which were assessed deficient by the EU tax expert.

    As a result, seven jurisdictions remain on the list of non-cooperative jurisdictions: American Samoa, Guam, Namibia, Palau, Samoa, Trinidad and Tobago and the US Virgin Islands.

    The link is available here.

    What's next?

    Whereas the list is revised at least once a year, the code of conduct group can recommend an update at any time.

  • BELGIUM — CRS - Publication of the list of jurisdictions and sending of the CRS files

  • Background

    In the context of the Common Reporting Standard (CRS), the Royal decree dated 13th June 2018 has been published on 20th June 2018, establishing the list of partner jurisdictions and the list of the other jurisdictions, which are subject to the reporting obligation.

    What's new?

    The publication of the Royal decree marks the opening of the MyMinfinPRO CRS portal (SPF Finances website), on which the Belgian financial institutions have to report the information for the year 2017.

    What's next?

    The Belgian financial institutions can send their CRS XML file to the SPF Finances until the 20th of July 2018.

  • LUXEMBOURG — CRS - Extension of the list of jurisdictions submitted to declaration with respect to Fiscal Year 2017

  • Background

    On 24 December 2015, the Luxembourg Parliament transposed in national law the Directive 2014/107/EU amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

    The new Rules have entered into force on 1 January 2016, with the first wave of requirements, in particular the on boarding of New Account Holders. The first reporting under Common Reporting Standard ("CRS") law was performed in June 2017 on 2016 financial account information.

    What's new?

    On 19 June 2018, the Administration des Contributions Directes ("ACD") published a news with respect of a Grand-Ducal regulation modifying the list of jurisdictions submitted to CRS.

    For the declarations related to Fiscal Year 2017 and onward, Hong Kong and Macao will be added on the list following the recent signature of the mutual agreement between competent authorities related to CRS between these two jurisdictions.

    Besides, the Bahamas will be removed from the list of jurisdiction submitted to CRS due to the non-reciprocal exchange of information under CRS with Luxembourg.

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

    What's next?

    In order to allow the declaring Luxembourgish Financial Institutions to perform the required reporting, an extension of the deadline has been granted until 31 August 2018 but only for the declarations related to Hong Kong and Macao.

  • LUXEMBOURG — Convention on Mutual Administrative Assistance in Tax Matters - Extension of Luxembourg’s network

  • Background

    The multilateral Convention on Mutual Administrative Assistance in Tax Matters was originally developed by the Organization for Economic Cooperation and Development ("OECD") and the Council of Europe in 1988.

    In April 2009, the G20 nations called for action "to make it easier for developing countries to secure the benefits of the new cooperative tax environment", including a multilateral approach for the exchange of information. In response, the OECD and the Council of Europe developed a Protocol amending the multilateral Convention on Mutual Administrative Assistance in Tax Matters to bring into line with the international standards on the exchange of information for tax purposes.

    The convention facilitates international co-operation for improved operation of national tax laws, while respecting the fundamental rights of taxpayer. The convention provides for all form of administrative co-operation between states in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion.

    What's new?

    On 15 June 2018, the Luxembourg’s Administration des Contributions Directes ("ACD") published an update on the new countries with which Luxembourg signed a Convention on Mutual Administrative Assistance. The countries in scope are the following: Azerbaijan, Bahamas, Bahrain, China, United Arab Emirates, Grenada, Indonesia, Romania and Uruguay.

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

    What's next?

    Luxembourg might sign additional conventions with new countries in the future.

  • LUXEMBOURG — FATCA - Non-authorized character and update of the rules with respect to declaration of the tax identification number

  • Background

    The Foreign Account Tax Compliance Act ("FATCA") is a US tax regulation that aims to detect tax evasion by US persons. Based on an intergovernmental agreement signed between the United States and Luxembourg, relevant provisions were introduced into Luxembourg law of 24 July 2014 ("FATCA Law").

    For entities that qualify as Foreign Financial Institutions ("FIs"), FATCA carries significant implications on processes, systems and business strategies. However, entities that are Non-Financial Foreign Entities ("NFFE") for FATCA purposes are also indirectly impacted because all FIs are legally required to identify their clients’ and investors’ FATCA status, generally using specific forms to be signed.

    FIs have certain obligations under the FATCA Law, including documentation of clients and investors as well as reporting. The first reporting on 2014 financial account information was due in Luxembourg at the end of August 2015. Non-compliance with the FATCA Law is subject to local penalties that can be significant.

    What's new?

    On 12 June 2018, the Luxembourg "Administration des Contributions Directes" ("ACD") clarified, further to a declaration made by the US Internal Revenue Service ("IRS") on 15 May 2018 which mentioned that a certain number of characters will not be authorized anymore starting from 28 March 2018, that these new restrictions are not applicable for FIs declaring in Luxembourg.

    The "DocReflds" still have to contain the character "underscore" as defined in the circular ECHA3 at the chapter "Convention de nommage des Reflds". If not, the file will be rejected.

    Moreover, in the case where a tax identification number ("TIN") could not be obtained after application of reasonable diligence rules under FATCA, the ACD accepts uniquely 9 capital letters <<A>> or the code <<#NTA001#>> for the field <TIN>. Consequently, it will not be possible anymore to download <TIN> with nine zeros.

    Besides, the ACD confirmed the application of the provisions of the note 2017-46 published by the IRS under www.irs.gov/pub/irs-drop/n-17-46.pdf. This note indicates that the American authorities have extended the possibility to disclose the identity of American persons having an unknown American TIN for the civil years 2017, 2018 and 2019 provided that (i) the date of birth of all the account holders and of any person having control, for which no TIN is disclosed, is provided; (ii) the missing NIF is asked annually for all the account holders; and (iii) prior sending the information related to the civil year 2017, to perform an electronic research in the information held by the FIs for all missing TIN required.

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

    What's next?

    The new guidance will have to be followed. In case of failure to meet these conditions, the US IRS may determine that the Luxembourg Reporting FIs has seriously breached its FATCA obligations (i.e. significant non-compliance).

  • This publication is produced by Legal and Compliance teams of CACEIS with the kind support of Communication teams and Group Business Development Support teams.

    Editors
    Gaëlle Kerboeuf, Group Head of Litigation and Legal Projects

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

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

    Design
    Yves Maisonneuve, CACEIS, Communications

    Photos credit
    CACEIS, Adobe Stock

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