SCANNING MAY 2019

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AML/CFT - Commission Delegated Regulation supplementing AMLD4 with RTS to mitigate ML/TF risk in certain 3rd countries enters into force on 3 June 2019

  • Background

    The directive (EU) 2015/849 of the European Parliament (the "Parliament") and of the Council on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing ("ML/TF") applies since 26 June 2017 ("AMLD4", available here).

    AMLD4 requires that credit and financial institutions (the "Obliged Entities") put in place anti-money laundering and countering the financing of terrorism ("AML/CFT") policies and procedures to effectively mitigate and manage risks. Where Obliged Entities are part of a group, such policies and procedures should be implemented at group level. Additional measures, including minimum action, are however required to be implemented at the level of the branches or majority-owned subsidiaries, when:

    • A 3rd country's law does not permit the implementation of group-wide AML/CFT policies and procedures (e.g. due to its data protection and bank secrecy laws); and
    • The competent authorities' (the "CAs") ability to supervise the group's compliance with AMLD4 is impeded, because the CAs do not have access to relevant information held at branches or majority-owned subsidiaries in 3rd countries.

    In accordance with Article 45 (6) of AMLD4, the European Supervisory Authorities (the "ESAs") shall develop draft regulatory technical standards (the "draft RTS") specifying the type of additional measures and the minimum action to be taken by branches or majority-owned subsidiaries in such 3rd countries.

    On 31 January 2019, in accordance with Article 45(7) of AMLD4, the European Commission (the "Commission") published a draft delegated regulation whereby it adopts the draft RTS (C(2019) 646 final — the "Draft Delegated Regulation", available here).

    What's new?

    On 14 May 2019, the Commission delegated regulation (EU) 2019/758 (the "Delegated Regulation 2019/758"), which supplements AMLD4 with the RTS which stipulate the minimum action and the type of additional measures branches or majority-owned subsidiaries of Obliged Entities must take in order to mitigate ML/TF risk in certain 3rd countries, was published in the OJEU.

    The Delegated Regulation 2019/758 is available here.

    What's next?

    The Delegated Regulation 2019/758 shall enter into force on the 20th day following that of its publication in the OJEU, i.e. 3 June 2019, and shall apply from 3 September 2019.

  • AML/CFT - Directive (EU) 2019/713 on combating fraud and counterfeiting of non-cash means of payment enters into force on 30 May 2019

  • Background

    The Council framework decision 2001/413/JHA on combating fraud and counterfeiting of non-cash means of payment (the "CFD", available here), which establishes minimum rules concerning the definition of criminal offences and sanctions related to fraud and counterfeiting of non-cash means of payment as well as the mechanisms for cross-border cooperation and exchange of information, entered into force on 2 June 2001. Member States ("MS") were required to bring into force the measures necessary to comply with the CFD by 2 June 2003.

    Evidence collected through the European Commission's (the "Commission") evaluation and stakeholder consultation confirmed the existence of significant challenges related to the implementation of the CFD (SWD(2017) 298 final, Annex 2 and 5, available here). Overall, it appeared that the CFD has not caught up with the technological developments of payment instruments, nor with the increasingly advanced techniques of non-cash fraud.

    On 13 September 2017, the Commission published a proposal for a directive of the European Parliament (the "Parliament") and of the Council on combating fraud and counterfeiting of non-cash means of payment and replacing the CFD (COM(2017) 489 final — the "Directive Proposal", available here). In comparison to the CFD, the Directive Proposal:

    • Expands the scope of offences: non-cash transactions carried out with any kind of payment instrument, whether physical such as bank cards, or virtual such as mobile payments, are included in the scope of offences;
    • Harmonises the rules on penalties: the new rules set minimum penalties ranging from 1 to 5 years;
    • Strengthens the protection of victims: victims of non-cash fraud will have better access to information, advice and support to limit consequences of identity theft;
    • Improves cross-border cooperation: dedicated national contact points and the involvement of Europol will improve exchange of information and cross-border cooperation; and
    • Improves reporting: financial institutions and other private entities will report on relevant crimes to law enforcement authorities.

    On 11 December 2018, the Commission, the Parliament and the Council respectively issued a press release (IP/18/6758 — the "PR1", available here; 20181211IPR21505 — the "PR2", available here; and 782/18 — the "PR3", available here) informing that the Council and the Parliament reached a political agreement (the "Political Agreement") on the Directive Proposal.

    On 13 March 2019, based on the Political Agreement, the Parliament Plenary voted at first reading on the following legislative resolution:

    • Parliament legislative resolution of 13 March 2019 on the proposal for a directive of the Parliament and of the Council on combating fraud and counterfeiting of non-cash means of payment and replacing the CFD (P8_TA-PROV(2019)0194 — the "Parliament's Adopted Directive", available here).

    On 9 April 2019, the Council voted in favour of the Parliament's position adopted at first reading (ST 8367 2019 INIT — the "Voting Result", available here).

    On 17 April 2019, the President of the Council and the President of the Parliament signed the text of the "Directive (EU) 2019/… of the European Parliament and of the Council […] on combating fraud and counterfeiting of non-cash means of payment and replacing the Council Framework Decision 2001/413/JHA" (the "Directive (EU) 2019/…", available here).

    What's new?

    On 10 May 2019, the directive (EU) 2019/713 of the Parliament and of the Council on combating fraud and counterfeiting of non-cash means of payment and replacing the CFD was published in the Official Journal of the EU (the "Directive 2019/713").

    The Directive 2019/713 is available here.

    What's next?

    The Directive 2019/713 will enter into force on the 20th day following that of its publication in the OJEU, i.e. 30 May 2019.

    By 31 August 2019, the Commission shall, in accordance with Article 18 of the Directive 2019/713, establish a detailed programme for monitoring the outputs, results and impacts of the Directive.

    By 31 May 2021, MS shall, in accordance with Article 20 of the Directive 2019/713, bring into force the laws, regulations and administrative provisions necessary to comply with the Directive. MS shall immediately inform the Commission thereof.

    By 31 May 2023, the Commission shall, in accordance with Article 21(1) of the Directive 2019/713, submit a report to the Parliament and to the Council, assessing the extent to which the MS have taken the necessary measures to comply with the Directive.

    By 31 May 2026, the Commission shall, in accordance with Article 21(2) of the Directive 2019/713, carry out an evaluation of the impact of the Directive on combating fraud and counterfeiting of non-cash means of payment, as well as on fundamental rights, and submit a report to the Parliament and to the Council.

  • Brexit - Council Decision (EU) 2019/642 on the Adapted Withdrawal Agreement published in the OJEU

  • Background

    On 29 March 2017, the United Kingdom (the "UK") notified the European Council (the "Council") of its intention to withdraw from the European Union ("EU") and the European Atomic Energy Community (the "Euratom") in accordance with Article 50 of the Treaty on EU (the "TEU", available here). In accordance with Article 106a of the treaty establishing Euratom (the "Euratom Treaty", available here), Article 50 TEU applies to Euratom. Article 50(3) TEU provides that the EU Treaties will cease to apply with respect to the concerned EU Member State ("MS") from the date of entry into force of the withdrawal agreement or, failing that, 2 years after the notification as referred to in Article 50(2) TEU, unless the Council in agreement with the concerned MS unanimously decide to extend this period (the "Brexit Period").

    On 22 May 2017, the Council of the EU authorised the European Commission (the "Commission") to open negotiations with the UK for an agreement setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the EU (the "Press Release", available here).

    On 11 January 2019, the Council of the EU adopted the decision (EU) 2019/274 (the "Decision 2019/274" is available here) on the signing, on behalf of the EU and of the Euratom, of the agreement on the withdrawal of the UK from the EU and the Euratom (the "Withdrawal Agreement"). On 19 February 2019, the final version of the text of the Withdrawal Agreement was published in the OJEU, as information from the Council (2019/C 66 I/01 — the "Final Withdrawal Agreement", available here).

    By the decision (EU) 2019/476 of 22 March 2019 (the "Decision 2019/476", available here), the Council, in agreement with the UK, decided to extend the Brexit period under Article 50(3) TEU until 22 May 2019 in the event that the House of Commons approved the Final Withdrawal Agreement by 29 March 2019, or, if that were not to be the case, until 12 April 2019. The House of Commons did not approve the Final Withdrawal Agreement by 29 March 2019.

    On 5 April 2019, the UK submitted another request to the Council for an extension of the Brexit period provided for in Article 50(3) TEU. On 11 April 2019, by the decision (EU) 2019/584 (the "Decision 2019/584", available here) the Council, in agreement with the UK, decided to further extend the Brexit period until 31 October 2019. As a consequence, the date of entry into force of the Final Withdrawal Agreement had to be adapted to reflect that period provided for in Article 50(3) TEU, as extended by the Council in agreement with the UK.

    What's new?

    On 25 April 2019, the decision (EU) 2019/642 of the Council of the EU amending its Decision 2019/274 (the "Decision 2019/642") was published in the OJEU, entering into force on the same date.

    Article 2 of the Decision 2019/642 states that "the text of the Agreement attached to Decision (EU) 2019/274 is replaced by the text of the adapted Agreement attached to this Decision" (2019/C 144 I/01 — the "Adapted Withdrawal Agreement").

    The Decision 2019/642 and the Adapted Withdrawal Agreement are respectively available here and here.

    What's next?

    Noteworthy is that under Article 50(3) TEU, the Adapted Withdrawal Agreement may enter into force on an earlier date, should the parties complete their respective ratification procedures before 31 October 2019. Consequently, the withdrawal should take place on the 1st day of the month following the completion of the ratification procedures or on 1 November 2019, whichever is the earliest.

    Moreover, Paragraph 6 of the preamble of the Decision 2019/642 states that, as indicated in Article 2(2) of the Decision 2019/584, the latter Decision will cease to apply on 31 May 2019 in the event that the UK has not held elections to the European Parliament in accordance with applicable EU law and has not ratified the Adapted Withdrawal Agreement by 22 May 2019.

  • CMU - Council to approve the European Parliament's Positions adopted at 1st reading on 1 Directive and 1 Regulation facilitating cross-border distribution of collective investment funds

  • Background

    On 12 March 2018, the European Commission (the "Commission") published the following directive and regulation proposals in relation to cross-border distribution of collective investment funds ("CIFs") (collectively referred to as the "Proposals"):

    • Proposal for a directive of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") amending the UCITS Directive and AIFMD with regard to cross-border distribution of CIFs (COM(2018) 92 final — the "Directive Proposal", available here); and
    • Proposal for a regulation of the Parliament and of the Council on facilitating cross-border distribution of CIFs and amending the EuVECA Regulation and the EuSEF Regulation (COM(2018) 110 final — the "Regulation Proposal", available here).

    On 5 February 2019, the Council and the Parliament reached a political agreement on the Proposals (the "Political Agreement", available here).

    On 16 April 2019, based on the Political Agreement, the Parliament Plenary voted at first reading on the following legislative resolutions (collectively referred to as the "Parliament's Adopted Proposals"):

    • Parliament legislative resolution of 16 April 2019 on the Directive Proposal (P8_TA-PROV(2019)0367 — the "Parliament's Adopted Directive", available here); and
    • Parliament legislative resolution of 16 April 2019 on the Regulation Proposal (P8_TA-PROV(2019)0368 — the "Parliament's Adopted Regulation", available here).

    What's new?

    On 2 May 2019, the General Secretariat of the Council issued an information note on the Parliament's Adopted Directive (ST 8424 2019 INIT — the "Note 1") and an information note on the Parliament's Adopted Regulation (ST 8426 2019 INIT — the "Note 2") to the Committee of Permanent Representatives (the "Coreper") of the Council (collectively referred to as the "Notes"). Given that the Parliament's Adopted Proposals reflect the Political Agreement, the Notes state that the Council should therefore be in a position to approve the Parliament's positions adopted at first reading.

    The Note 1 and the Note 2 are respectively available here and here.

    What's next?

    The Council shall vote on the Parliament's positions adopted at first reading in the coming weeks.

    It can be assumed that the final legislative acts shall be published in the OJEU (after technical and official linguistic review) by the end of Q3 2019.

  • CSDR - ESMA publishes translations of Guidelines on internalised settlement reporting

  • Background

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

    According to Article 9 of the CSDR, settlement internalisers shall report to the competent authorities ("CAs") of their place of establishment on a quarterly basis the aggregated volume and value of all securities transactions that they settle outside securities settlement systems. The CAs shall without delay transmit the information received to the European Securities and Markets Authority (the "ESMA") and shall inform the ESMA of any potential risk resulting from that settlement activity.

    The European Commission has adopted delegated and implementing acts to specify how the CAs and market participants shall comply with the obligations laid down in the CSDR (the "CSDR Delegated and Implementing Acts", available here). The Delegated and Implementing Acts include:

    • The Commission Delegated Regulation (EU) 2017/391 which further specifies the content of the internalised settlement reporting (the "Delegated Regulation 2017/391", available here); and
    • Commission Implementing Regulation (EU) 2017/393, which specifies the templates and procedures for the reporting and transmission of information on internalised settlement (the "Implementing Regulation 2017/393", available here).

    In order to ensure common, uniform and consistent application of Article 9 of the CSDR as well as the relevant provisions of the Delegated Regulation 2017/391 and the Implementing Regulation 2017/393, the ESMA decided to issue guidelines on internalised settlement reporting and on the exchange of information between the CAs and the ESMA regarding internalised settlement.

    From 10 July 2017 to 14 September 2017, the ESMA consulted on draft guidelines on internalised settlement reporting under Article 9 of the CSDR (ESMA70-151-457 — the "Consultation Paper", available here). The draft guidelines included in the Consultation Paper were intended to apply to CAs designated under Article 11 of the CSDR and to settlement internalisers as defined in Article 2(1)(11) of the CSDR. The ESMA has published its received 16 responses to the Consultation Paper (the "Responses", available here).

    On 28 March 2018, the ESMA published its final guidelines on internalised settlement reporting under Article 9 of the CSDR (ESMA70-151-1258 — the "Final Guidelines", available here). The Final Guidelines clarify the scope and process of internalised settlement reporting as well as the exchange of information between the ESMA and the CAs, who are to receive the data from reporting entities. The Final Guidelines address the following issues:

    • Scope of data to be reported by settlement internalisers;
    • Entities responsible for reporting to the CAs;
    • Data reporting parameters;
    • Process for the submission of internalised settlement reports by the CAs to the ESMA, based on the reports received by the CAs from settlement internalisers;
    • Process for the submission of the reports on potential risks resulting from internalised settlement activity by the CAs to the ESMA;
    • Access to data by the CAs; and
    • Scenarios diagrams and examples of reporting.

    What's new?

    On 30 April 2019, the ESMA published translations of the Final Guidelines in all EU official languages (ESMA70-151-367 — the "Translations").

    The Translations are available here.

    What's next?

    The Final Guidelines apply from 30 April 2019.

    The CAs to whom the Final Guidelines are addressed should comply by incorporating them into their national legal or supervisory frameworks as appropriate, including where particular guidelines are directed primarily at financial market participants. In this case, the CAs should ensure through their supervision that financial market participants comply with the guidelines.

    The CAs to whom the Final Guidelines are addressed must notify the ESMA whether they comply or intend to comply with them, with reasons for noncompliance, until 30 June 2019. In the absence of a response by this deadline, the CAs will be considered as non-compliant.

    Settlement internalisers are not required to report whether they comply with the Final Guidelines.

  • EMIR - Commission Delegated Regulation (EU) 2019/667 extending the dates of the deferred application of the clearing obligation for certain OTC derivative contracts entered into force on 30 April 2019

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here).

    The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in EMIR ("EMIR Delegated Acts", available here). The EMIR Delegated Acts include the following delegated regulations on the clearing obligation (altogether referred as the "3 Delegated Regulations"):

    • Commission delegated regulation (EU) 2015/2205 supplementing EMIR with regard to regulatory technical standards on the clearing obligation (available here);
    • Commission delegated regulation (EU) 2016/592 supplementing EMIR with regard to regulatory technical standards on the clearing obligation (available here); and
    • Commission delegated regulation (EU) 2016/1178 supplementing EMIR with regard to regulatory technical standards on the clearing obligation (available here).

    Article 3(1) of the 3 Delegated Regulations specify the dates from which the clearing obligation is to take effect for contracts pertaining to certain classes of OTC derivatives. The 3 Delegated Regulations provide for different dates depending on the category of counterparty to those contracts.

    Moreover, under Article 3(2) of the 3 Delegated Regulations, a deferred date of application of the clearing obligation (i.e. respectively 21 December 2018, 9 May 2019 and 9 July 2019) is foreseen for intragroup transactions satisfying certain conditions and where one of the counterparties is in a 3rd-country, in the absence of the relevant equivalent decision. To date, no implementing act on the equivalence of the legal, supervisory and enforcement framework of a 3rd-country under Article 13(2) of EMIR in respect of the clearing obligation has been adopted.

    What's new?

    On 29 April 2019, the Commission delegated regulation (EU) 2019/667 amending the 3 Delegated Regulations to extend the dates of deferred application of the clearing obligation for certain OTC derivative contracts was published in the OJEU (the "Delegated Regulation 2019/667"). The Delegated Regulation 2019/667 entered into force on 30 April 2019.

    For further information, the Delegated Regulation 2019/667 is available here.

    What's next?

    Articles 1 - 3 of the Delegated Regulation 2019/667 introduce a new harmonised deferred date of application of the clearing obligation for certain OTC derivative contracts under Article 3(2) of the 3 Delegated Regulations (i.e. 21 December 2020).

  • EMIR - European Commission adopts Implementing Decision recognising the legal, supervisory and enforcement arrangements of Japan for derivatives transactions as equivalent

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here).

    Article 13 (2) of EMIR empowers the European Commission (the "Commission") to adopt implementing acts whereby the legal, supervisory and enforcement arrangements of a 3rd-country are declared equivalent to the requirements laid down in Articles 4, 9, 10 and 11 of EMIR (i.e. equivalence decisions). This implies that counterparties which enter into a transaction within the scope of EMIR, where at least one of the counterparties is established in that 3rd-country, shall be deemed to have fulfilled those requirements by complying with the requirements set out in the 3rd-country's legal regime. Equivalence decisions contribute to the achievement of the overarching aim of EMIR, namely to reduce systemic risk and increase the transparency of derivatives markets by ensuring an internationally consistent application of the principles agreed with 3rd-countries and laid down by EMIR.

    More specifically, Article 11(1), (2) and (3) of EMIR lays down the valuation and dispute resolution obligations applicable to OTC derivative contracts not cleared by a CCP (i.e. operational risk mitigation techniques) as well as the obligations on the exchange of collateral (i.e. margins) between counterparties.

    On 26 February 2019, the Commission Services issued the "implementing decision (EU) .../... of XXX on the recognition of the legal, supervisory and enforcement arrangements of Japan for derivatives transactions supervised by the Japan Financial Services Agency as equivalent to the valuation, dispute resolution and margin requirements of Article 11 of [EMIR]" (Ref. Ares(2019)1302079 — the "Draft Implementing Decision", available here).

    What's new?

    On 25 April 2019, the Commission issued a press release (MEX/19/2268 — the "Press Release") informing that it has adopted the "implementing decision (EU) .../... of XXX on the recognition of the legal, supervisory and enforcement arrangements of Japan for derivatives transactions supervised by the Japan Financial Services Agency as equivalent to the valuation, dispute resolution and margin requirements of Article 11 of [EMIR]" (the "Implementing Decision").

    According to Article 1 of the Implementing Decision, the Commission shall consider as equivalent the legal, supervisory and enforcement arrangements of Japan for valuation and dispute resolution that are applied to transactions regulated as OTC derivatives by the Financial Services Agency of Japan ("JFSA") or OTC Commodity derivatives by the Japanese Ministry of Economy, Trade and Industry ("METI") and the Japanese Ministry of Agriculture, Forestry and Fisheries ("MAFF") and that are not cleared by a CCP, where:

    • At least one of the counterparties to those transactions is established in Japan and registered with the JFSA as a Financial Instrument Business Operator ("FIBO") or a Registered Financial Institution ("RFI").

    According to Article 2 of the Implementing Decision, the Commission shall consider as equivalent the legal, supervisory and enforcement arrangements of Japan for the exchange of collateral (i.e. margins) that are applied to transactions regulated as OTC derivatives by the JFSA or OTC Commodity derivatives by METI and MAFF and that are not cleared by a CCP, where the following conditions are satisfied:

    • At least one of the counterparties to those transactions is established in Japan and registered with the JFSA as a FIBO or a RFI and that counterparty is subject to the margin rules of Japan; and
    • Transactions are marked-to-market and variation margin is exchanged on a daily basis where the counterparties to those transactions, established in Japan, have an average total amount of the notional principal of OTC derivatives for a 1-year period from April 2 years before the year in which calculation is required (or 1 year if calculated in December) below JPY 300 billion.

    The Press Release is available here.

    The Implementing Decision is available here.

    What's next?

    The Implementing Decision shall enter into force on the 20th day following that of its publication in the OJEU, which should occur by end of Q3 2019/early Q4 2019.

  • EMIR Refit - Council approves the European Parliament's position adopted at 1st reading on amending Regulation (EU) No 648/2012 in relation to the clearing obligation

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here).

    On 4 May 2017, in the context of the regulatory fitness and performance programme ("Refit", available here), the European Commission (the "Commission") introduced a first set of amendments to EMIR (the "Amendments", available here) by means of a proposal for a regulation amending EMIR (the "Proposal", available here). The Amendments aim to introduce simpler and more proportionate rules on OTC derivatives that would reduce costs and burdens for market participants, without compromising financial stability. Against this background, two major changes are being made to the current system, namely:

    • The creation of a new categorisation of counterparties will allow financial counterparties whose OTC derivative positions do not exceed any of the clearing thresholds ("Small Financial Counterparties" or "SFCs") to be exempt from the clearing obligation; and
    • Non-financial counterparties whose positions exceed at least one of the clearing thresholds ("Non-Financial Counterparties+" or "NFC+") will be subject to the clearing obligation only for the derivatives belonging to the asset class for which the clearing threshold has been exceeded.

    On 5 February 2019, the Parliament and the Council reached a political agreement on the Amendments (the "Political Agreement", available here). The text of the Political Agreement, which was confirmed by the Committee of Permanent Representatives of the Council (the "Coreper") on 6 March 2019, is available here (the "Published EMIR Refit Text").

    On 18 April 2019, based on the Political Agreement, the Parliament Plenary voted at first reading on the following legislative resolution:

    • Parliament legislative resolution of 18 April 2019 on the 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 (P8_TA-PROV(2019)0437 — the "Parliament's Adopted Regulation", available here).

    On 6 May 2019, the General Secretariat of the Council issued a note to the Coreper on the Parliament's Adopted Regulation (ST 8748 2019 INIT — the "Note", available here). The Note states that the Parliament's Adopted Regulation reflects the Political Agreement and should therefore be acceptable to the Council. The Coreper was asked to suggest that the Council approves the Parliament's position adopted at first reading.

    What's new?

    On 14 May 2019, the Council voted in favour of the Parliament's position adopted at first reading (ST 9256 2019 INIT — the "Voting Result").

    The Voting Result is available here.

    What's next?

    Following the signature by the President of the Council and the President of the Parliament of the final text of the legislative act in the week of 20 May, it will enter into force on the 20th day after its publication in the OJEU.

  • GDPR - Council Decision authorising EU Member States to ratify the Protocol amending Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data published in the OJEU

  • Background

    The only legally binding multilateral agreement in the field of personal data protection is the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal data (ETS No. 108, the "Convention 108", available here). It was opened for signature in 1981 and it requires its parties to incorporate into their national laws the necessary measures to ensure respect for the human rights of all individuals with regard to personal data (the "Convention 108 Chart of Signatures", available here).

    The Convention 108 has been one of the main sources of inspiration for the development of the EU acquis in the area of data protection. Legislative documents regulating the collection and processing of personal Data in the EU include the European Parliament and the Council of the EU:

    • Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data which applies since 25 May 2018 (the "GDPR", available here); and
    • Directive (EU) 2016/680 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data for which the transposition period ended on 6 May 2018 (the "GDPD", available here).

    The development of technology and globalisation of information poses new challenges in the field of data protection, hence, on 18 May 2018, the Council of Europe Committee of Ministers adopted a protocol amending and modernising the Convention 108 (CETS No. 223 — the "Amending Protocol", available here and the "Explanatory Report", available here). It aims to widen the scope, significantly increase the level and improve the effectiveness of data protection afforded under the Convention 108. It introduces new rights, such as the right not to be subject to a decision significantly affecting the data subject based solely on automated processing, the right to object to the processing and the right to have a remedy in case of violation of an individual's rights.

    The text of the Amending Protocol is fully in line with the GDPR and the GDPD and provisions of the amended the Convention 108 coincide with the obligations in the GDPR and the GDPD, thereby excluding that the EU Member States are subject to different or conflicting obligations under EU and Council of Europe law.

    Under the Convention 108 only States are parties. The EU cannot sign or ratify the Amending Protocol.

    The Amending Protocol was opened for signature on 10 October 2019 (the "Amending Protocol's Chart of Signatures", available here).

    Article 3(2) of the Treaty on the Functioning of the EU (the "TFEU", available here) provides that the EU shall have exclusive competence for the conclusion of an international agreement, among other, insofar as its conclusion may affect common rules or alter their scope.

    According to Article 218 of the TFEU, agreements between the EU and international organisations shall be negotiated and concluded in accordance with the procedure where the Council of the EU, on a proposal by the negotiator, shall adopt a decision authorising the signing of the agreement. In the case of the negotiations on the modernisation of the Convention 108 and the conditions and modalities of accession of the EU to the modernised the Convention 108, the negotiator on the behalf of the EU was the European Commission (the "Commission").

    On 5 June 2018, the Commission published a proposal for a Council of the EU Decision authorising EU Member States to ratify, in the interest of the EU, the Amending Protocol insofar as its provisions fall within Union competence (COM(2018) 451 final the "Draft Decision", available here).

    What's new?

    On 2 May 2019, the Council decision (EU) 2019/682 authorising EU Member States to ratify, in the interest of the EU, the Protocol amending the Convention 108 was published in the Official Journal of the EU (the "Final Decision") .

    The Final Decision is available here.

    What's next?

    The Final Decision entered into force on 9 April 2019 and is addressed to the Member States.

    Given that the Convention 108 modernised with the Amending Protocol will contain largely similar safeguards as the GDPR and the GDPD, its entry into force will contribute to the promotion of EU data protection standards at global level, facilitate data flows between the EU and the non-EU parties to the Convention 108 and ensure compliance of EU Member States with their international obligations under the Convention 108.

  • Sustainable Finance - ESMA and EIOPA issue Technical Advice on integrating sustainability risks and factors in delegated acts under UCITS Directive, Solvency II, AIFMD, MiFID II and IDD

  • Background

    On 8 March 2018, following the adoption of the 2016 Paris agreement on climate change (the "Paris Agreement", available here) and the United Nations 2030 agenda for sustainable development (the "Sustainable Development Goals", also known as the "SDGs", available here), the European Commission (the "Commission") expressed in the "Action Plan: Financing Sustainable Growth" (COM(2018) 97 final — the "Action Plan", available here) its intention to clarify fiduciary duties and increase transparency in the field of sustainability risks and sustainable investment opportunities, with the aim to:

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

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

    • Proposal for a regulation of the European Parliament (the "Parliament") and of the Council on the establishment of a framework to facilitate sustainable investment (COM(2018) 353 final — the "Taxonomy Proposal", available here);
    • Proposal for a regulation of the 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); and
    • Proposal for a regulation of the 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", available here).

    On 24 July 2018, the European Insurance and Occupational Pensions Authority (the "EIOPA") and the European Securities and Markets Authority (the "ESMA") received a mandate from the Commission to provide technical advice to supplement the Proposals and to assist the Commission on potential amendments to, or introduction of, delegated acts under the directive 2009/65/EC (the "UCITS Directive", available here), the directive 2009/138/EC (the "Solvency II Directive", available here), the directive 2011/61/EU (the "AIFMD", available here), the directive 2014/65/EU (the "MiFID II", available here) and the directive 2016/97/EU (the "IDD", available here) with regard to the integration of sustainability risks and sustainability factors.

    On 28 November 2018, the EIOPA published a consultation paper on the draft technical advice on integrating sustainability risks and factors in the delegated acts under the Solvency II Directive and the IDD (EIOPA-BoS-18/483 — the "CP 1", available here).

    On 19 December 2018, the ESMA published two consultation papers on the draft technical advice on integrating sustainability risks and factors in the delegated acts under:

    • The MiFID II (ESMA35-43-1210 — the "CP 2", available here); and
    • The UCITS Directive and the AIFMD (ESMA34-45-688 — the "CP 3", available here).

    What's new?

    On 30 April 2019, the EIOPA published a final report on the technical advice to the Commission on integrating sustainability risks and factors in the delegated acts under the Solvency II Directive and the IDD (EIOPA-BoS-19/172 — the "Final Report 1").

    The technical advice in the Final Report 1, covers (i) as regards the Solvency II Directive: organisational requirements, operating conditions, risk management, and (ii) as regards the IDD: conflict of interests and product oversight and governance.

    On 30 April 2019, the ESMA published two final reports on the technical advice to the Commission on integrating sustainability risks and factors in:

    • The MiFID II (ESMA35-43-1737 — the "Final Report 2"); and
    • The UCITS Directive and the AIFMD (ESMA34-45-688 — the "Final Report 3").

    The topics in the Final Report 2 on which the Commission has requested the ESMA to provide technical advice, are organisational requirements, risk management, conflicts of interest, and product governance.

    The topics in the Final Report 3 on which the Commission has requested the ESMA to provide technical advice, are organisational requirements, operating conditions and risk management provisions set out in the UCITS and the AIFMD Level 2 frameworks.

    The Final Report 1, the Final Report 2 and the Final Report 3 are respectively available here, here, and here.

    What's next?

    Based on the technical advice published by the EIOPA and the ESMA, the Commission shall amendment and/or introduce delegated acts under the UCITS Directive, the Solvency II Directive, the AIFMD, the MiFID II and the IDD with regard to the integration of sustainability risks and sustainability factors.

  • BELGIUM

    AML/CFT - FSMA issues periodic questionnaire on the prevention of money laundering and financing terrorism

  • Background

    Replacing the Circular 2018_13 dated 9th August 2018, a new FSMA Circular 2019_10 on the mandatory periodic questionnaire regarding anti-money laundering and countering the financing of terrorism ("AML/CFT") has been published on 20th May 2019.

    Here avaialble the new FSMA Circular 2019_10

    As a reminder, this questionnaire allows FSMA to collect standardized information on the AML/CFT risks incurred by the relevant entities and assess the compliance and efficiency of their implemented mechanisms for combating it.

    What's new?

    The new circular contains the official deadline for the relevant entities to comply with their reporting obligation completing the periodic questionnaire.

    What's next?

    The new questionnaire will be available on the FiMiS platform on 3rd June 2019, and must be completed as soon as possible before 7th July 2019 (official deadline).

  • AIFMD/UCITS - FSMA issues a new checklist for application file to act as AIFM or as UCITS management company

  • Background

    On 10th May 2019, the FSMA published a Communication 2019_09 to inform of the release on its website of a checklist listing all the documents and information required to apply for authorization to act as an AIFM or as a UCITS management company.

    Here available the Communication 2019_09

    What's new?

    The checklist classifies in fifteen categories (e.g. shareholding, governance, AML) all required documents and questionnaires to be completed by the applicant and specifies when they should be provided: some documents should be submitted with the application file, other must be kept at disposal during twelve months, and the remaining should be available as from twelve months.

    What's next?

    All companies applying for authorization to act as an AIFM or as a UCITS management company must refer to this checklist to submit the application file to the FSMA.

  • FRANCE

    PACTE – The Law on Action Plan for Business Growth and Transformation was adopted on 11 May 2019

  • Background

    With the aims announced by the French president to transform the French economy system, help companies to grow and create more jobs as well as to put companies back in the centre of society, a first consultation phase was launched on the 23 October 2017 with 6 workgroups made up of parliamentarians and business leaders to brainstorm on an action plan for business growth and transformation (“PACTE”)

    It was followed on the 21st December 2017 by a public consultation regarding 31 PACTE proposals. Then after, a consultation phase took place until April 2018 with 38 unions organizations and professional federations.

    Those proposals and consultations resulted in the presentation of a PACTE bill in Parliament on September 2018 which was approved at its first reading in the French National Assembly on 9 October 2018 and adopted by the French Senate on 12 February 2019.

    What's new?

    The final text of the law regarding the PACTE was adopted on the 11 May 2019 and includes several measures along with regulatory and non-regulatory mechanisms as well as tax measures.

    In a nutshell the action plan includes:

    1. New rules of corporate governance notably to take greater consideration of social and environmental issues in companies’ management;

    2. The transposition of the shareholders rights directive II (“SRDII”) which have some impacts notably on the regulated conventions and the identification of shareholders;

    3. A regulatory framework for the new financing tools and their providers (Initial Coin Offering (“ICO”) and providers in digital assets management) as well as a reorientation of investments towards the economy (savings plan retirement, easing in private equity, opportunity for the French private equity funds (fonds commun de placement à risque) (“FCPR”) investing in digital assets);

    4. The implementation of measures to sustain and protect the French industrial networks (protection of strategic assets with a control of foreign investment, measures relating to merge operations).

    The final text of the PACTE is available here:

    https://www.legifrance.gouv.fr/affichLoiPreparation.do?idDocument=JORFDOLE000037080861&type=general&typeLoi=proj&legislature=15

    What's next?

    The regulatory and non-regulatory mechanisms as well as the tax measures included in the PACTE will be incorporated into the 2019 French finance bill.

    The French treasury and the AMF have launched consultations on the texts of application relating to providers on digital assets which are currently open.

  • LUXEMBOURG

    MCD/PSD2 - CSSF issues Circular 19/718 on updated JC Guidelines on complaints-handling for the securities and banking sectors

  • Background

    On 13 June 2014, the European Securities and Markets Authority (the "ESMA") and the European Banking Authority (the "EBA") issued their Joint Committee ("JC") final report on guidelines for complaints-handling for the securities and banking sectors (JC 2014 43 — the "JC Guidelines", available here). The JC Guidelines, which are addressed to authorities competent in their jurisdictions for supervising complaints-handling by firms, set out requirements in relation to firms' complaints management policy and function, their registration of complaints, their reporting to national competent authorities, and their assessment of, and responses to, the complaints.

    The initial JC Guidelines applied to complaints submitted by natural or legal persons to the following institutions:

    • Investment firms (as defined in Article 4(1)(1) of MiFID I, available here);
    • Management companies (as defined in Article 2(1)(b) of the UCITS Directive, available here) and investment companies that have not designated a management company (as referred to in Article 30 of the UCITS Directive);
    • External alternative investment fund managers (as defined in Article 5(1)(a) of AIFMD, available here) when providing services pursuant to Article 6(4) of AIFMD;
    • Credit institutions (as defined in Article 4(1) of CRR, available here);
    • Payment institutions (as defined in Article 4(4) of PSD1, available here); and
    • Electronic money institutions (as defined in Article 2(1) of EMD, available here).

    On 31 July 2018, the EBA issued an update to the JC Guidelines (the "Press Release", available here), which extends the scope of application to the following institutions established under PSD2 and MCD (JC 2018 35 — the "Updated JC Guidelines", available here in English and here in French):

    • Payment initiation service providers ("PISPs"), which provide only payment initiation services (as defined in Article 4(18) of PSD2, available here);
    • Account information service providers ("AISPs") benefiting from an exemption under Article 33 of PSD2, which provide only account information services (as defined in Article 4(19) of PSD2);
    • Credit intermediaries (as defined in Article 4(5) of the "Mortgage Credit Directive", also known as "MCD", available here); and
    • Non-credit institution creditors (as defined in Article 4(10) of MCD).

    What's new?

    On 30 April 2019, the CSSF issued its circular 19/718 informing professionals and entities subject to its supervision of the Updated JC Guidelines (the "Circular 19/718") which apply from 1 May 2019.

    The Circular 19/718 states that the Updated JC Guidelines extend the scope of application to the following institutions:

    • Real estate credit intermediaries and lenders other than institutions, as defined in Articles 4(5) and 4(10) of MCD; and
    • New payment institutions that provide only services payment initiation or account information within the meaning of Article 33 of PSD2.

    The Circular 19/718 is available here (only in French).

  • Securitisation Regulation - CSSF issues Circular 19/719 on EBA Guidelines on the STS criteria

  • Background

    The regulation (EU) 2017/2402 of the European Parliament (the "Parliament") and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised ("STS") securitisation applies since 1 January 2019 (the "STS Securitisation Regulation", available here).

    The STS Securitisation Regulation establishes two sets of criteria for the securitisation to be eligible as STS, one for non-asset-backed commercial paper ("non-ABCP") securitisation, and the other for ABCP securitisation. Articles 19(2) and 23(3) of the STS Securitisation Regulation require the European Banking Authority (the "EBA") to provide a harmonised interpretation and application of the criteria.

    From 20 April 2018 to 20 July 2018, the EBA carried out the following public consultations on the:

    • Draft Guidelines on the STS criteria applicable for non-ABCP securitisation (EBA/CP/2018/05 — the "Draft Guidelines on Non-ABCP Securitisation", available here), with the main objective to provide a single point of consistent interpretation of the criteria related to simplicity, standardisation and transparency, as set out in Articles 20, 21 and 22 of the STS Securitisation Regulation; and
    • Draft Guidelines on the STS criteria applicable for ABCP securitisation (EBA/CP/2018/04 — the "Draft Guidelines on ABCP Securitisation", available here) with the main objective to provide a single point of consistent interpretation of the transaction-level and programme-level criteria for ABCP securitisation, as set out in Articles 24 and 26 of the STS Securitisation Regulation.

    The Draft Guidelines on Non-ABCP Securitisation and the Draft Guidelines on ABCP Securitisation (altogether the "Draft Guidelines") were intended to clarify and ensure common understanding of all the STS criteria, including those related to the expertise of the originator and servicer, the underwriting of standards, exposures in default and credit impaired debtors, and predominant reliance on the sale of assets. The Draft Guidelines were also intended to be applied on a cross-sectoral basis throughout the EU.

    The EBA has published the responses received to its public consultations on the Draft Guidelines (the "Responses" on non-ABCP Securitisation, available here, and on ABCP Securitisation, available here). The Responses generally welcomed and supported the Draft Guidelines, the approach to the interpretation of the STS criteria and other aspects that the Draft Guidelines focused on.

    On 12 December 2018, the EBA published two final reports on the guidelines on:

    • The STS criteria for non-ABCP securitisation (EBA/GL/2018/09 — the "Guidelines on Non-ABCP Securitisation", available here); and
    • The STS criteria for ABCP securitisation (EBA/GL/2018/08 — the "Guidelines on ABCP Securitisation", available here).

    What's new?

    On 15 May 2019, the CSSF issued its circular 19/719 informing all originators, original lenders, sponsors, securitisation special purpose entities ("SSPEs"), investors and 3rd parties of the entry into force, on the same date, of the EBA Guidelines on Non-ABCP and ABCP Securitisation (the "Circular 19/719").

    The Circular 19/719 is available here (only in French).

  • HONG KONG

    Mutual Recognition of Funds (MRF) between the Netherlands and Hong Kong

  • Background

    The Securities and Futures Commission (SFC) and the Autoriteit Financiële Markten (AFM) signed a Memorandum of Understanding concerning Mutual Recognition of Covered Funds and Management Companies and related cooperation (Memorandum) on 15 May 2019.

    What's new?

    The Memorandum provides recognition of asset managers as well as a framework for mutual recognition of recognised funds to be offered to the public in both markets.

    The Dutch funds that are eligible for SFC authorization and/or have received SFC authorization under the MRF are denoted as “Recognised Dutch Funds”.

    What's next?

    MRF operates on the principles that, in respect of a Recognised Dutch Fund that has been approved by the AFM and is seeking approval or has received approval for offering to the public in Hong Kong:

    a) the Recognised Dutch Fund shall meet the eligibility requirements in accordance with this Circular and comply with all of the applicable requirements set out in this Circular (see below);

    b) the Recognised Dutch Fund shall remain approved by the AFM in the Netherlands and is allowed for public offering within the Netherlands;

    c) the Recognised Dutch Fund shall operate and be managed in accordance with the relevant laws and regulations in the Netherlands and its constitutive documents;

    d) the sale and distribution of units or shares of the Recognised Dutch Fund in Hong Kong shall comply with the applicable laws and regulations in Hong Kong;

    e) the Recognised Dutch Fund and the management company of a Recognised Dutch Fund (Dutch Management Company) shall comply with the additional rules released by the SFC in Hong Kong governing the authorization or approval, post-authorization and ongoing compliance, and the sale and distribution of the Recognised Dutch Fund in Hong Kong;

    f) the Dutch Management Company of the Recognised Dutch Fund shall ensure holders in both the Netherlands and Hong Kong receive fair treatment, including in respect of investor protection, exercise of rights, compensation and disclosure of information; and there must be no arrangements which provide an advantage for investors in Hong Kong and/or the Netherlands that would result in prejudice to investors in the other jurisdiction, and vice versa; and

    g) the ongoing disclosure of information on the Recognised Dutch Fund shall be made available to the investors in the Netherlands and Hong Kong at the same time (so far as is reasonably practicable given the different time zones and public holidays of the jurisdictions).

    Click here to download the document

    Supplementary document:
    Annex A - B

  • The Securities and Futures Commission (SFC) Updated Circular on Mutual Recognition of Funds (MRF) between the United Kingdom (UK) and Hong Kong

  • Background

    On 21 May 2019, the Securities and Futures Commission (SFC) updated circular on Mutual Recognition of Funds (MRF) between the United Kingdom (UK) and Hong Kong. The Securities and Futures Commission (SFC) and the Financial Conduct Authority (FCA) signed a Memorandum of Understanding concerning Mutual Recognition of Covered Funds and Covered Management Companies and related cooperation (Memorandum) on 8 October 2018 (as amended from time to time).

    What's new?

    UK Covered Funds applying for SFC authorisation must fall within one or more than one of the following fund types under the UT Code:

    a) General equity funds, bond funds, mixed funds and funds that invest in other schemes;

    b) Feeder funds, where underlying fund falls within one of the fund types in paragraphs 7(a), (c) and (d), and complies with the requirements in this circular;

    c) Unlisted index funds; or

    d) Passively managed index tracking exchange traded funds (ETFs).

    The SFC and FCA may consider extending the MRF to include other types of funds in future in accordance with the Memorandum.

    Home jurisdiction supervision

    The UK Covered Fund must, on an ongoing basis, remain authorised by the FCA for being offering to the public in the UK. The UK Covered Management Company of the UK Covered Fund must also remain authorised by the FCA and it must have permission under Part 4A of FSMA to carry on the regulated activity specified in article 51ZA of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended). Both the UK Covered Fund and its UK Covered Management Company must be subject to ongoing regulation and supervision by the FCA. [Amended]

    Breach

    Following SFC authorisation of a UK Covered Fund under Section 104 of the SFO, if a UK Covered Fund ceases to meet the requirements as set out in this circular, its UK Covered Management Company must notify the SFC immediately. The UK Covered Fund must not continue to be offered to the public in Hong Kong and must not accept subscriptions from new investors in Hong Kong, without SFC’s prior approval.

    What's next?

    The SFC encourages applicants to consult the Investment Products Division early for any clarification as to how the relevant requirements may apply and be complied with in light of their specific circumstances.

    The SFC may issue other circulars, frequently asked questions and other documents from time to time to provide practical guidance to the industry. Please refer to the SFC’s website.

    Applicants shall request the FCA to provide directly to the SFC a certificate confirming that the Eligibility Requirements listed in Annex B to this circular are met. The SFC will not take up the application if no such certificate is received from the FCA. Further details of the MRF application process for a UK Covered Fund seeking authorisation from the SFC are available from the SFC’s website.

    Click here to download the document

    Supplementary document:
    Annex A - B

  • 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, CACEIS Group Legal Manager - Projects & Regulatory Monitoring

    Permanent Editorial Committee
    Gaëlle Kerboeuf, CACEIS Group Legal Manager - Projects & Regulatory Monitoring
    Elisabeth Raisson, CACEIS Group Compliance
    Corinne Brand, CACEIS Group Communications Specialist
    Pauline Fieni, CACEIS Compliance and Regulatory Watch

    Support
    Michele Tuen, Head of Trustee and Legal (Hong Kong)
    Stefan Ullrich, Head of Legal (Germany)
    Fanny Pereira, Legal (France)
    Clément Nicolaizeau, Legal (France)
    Mireille Mol, Legal & Compliance (the Netherlands)
    Charles du Maisnil, Head Compliance, risk  and Legal (Belgium)
    Domitille Jeanson, Legal (Belgium)
    Jennifer Yeboah, Legal (Belgium)
    Isabella Guscetti, Legal & Compliance (Switzerland)
    Alessandra Cremonesi, Legal Fund Structuring (Switzerland)
    Robin Donagh, Legal Advisor (Ireland)
    Neil Coxhead, Managing Director (UK)
    Costanza Bucci, Legal & Compliance (Italy)
    Fernand Costinha, Head of Legal (Luxembourg)
    Gérald Stadelmann, Head of Legal (Luxcellence Luxembourg)

    Design
    CACEIS Group Communications

    Photos credit
    CACEIS, Adobe Stock

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