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EU Regulatory Research

EU Regulatory Research

EU Regulatory Update


International Financial Systems

On 10 February, European Commission Vice President Dombrovskis delivered aspeech stressing the importance of international regulatory cooperation. Highlighting the 2016 U.S.-EU equivalence determination for CCPs and the January 2017 covered agreement for prudential insurance and re-insurance matters, he said that such agreements are “mutually beneficial because properly managed financial integration makes our system stronger, keeps our companies competitive, and supports investment and high quality service across different markets.” He cautioned against proposals in the U.S. to revise or repeal post-crisis regulations, noting that the Commission is “sensitive” to such proposals and warning that “[l]ax regulation in one country can create conditions for inadequate regulation and contagion throughout the world.” He stated the EU will “uphold the reforms introduced to protect financial stability in Europe” and is prepared to “take the necessary measures to protect and strengthen these achievements.”

Re-hypothecation of Client Assets and Collateral Re-use

On 25 January, the FSB published two reports on the re-hypothecation of client assets and collateral re-use.

o    The first report, Re-Hypothecation and Collateral Re-Use: Potential Financial Stability Issues, Market Evolution and Regulatory Approaches, sets out the definition of re-hypothecation and collateral re-use and describes the current regulatory approaches to re-hypothecation. The report concludes that there is no immediate case for harmonizing the different regulatory approaches, but encourages jurisdictions to implement principles established under Recommendation 7 of the FSB’s policy framework for Addressing Shadow Banking Risk in Securities Lendings and Repo, which was published in August 2013.

o    The second report, Non-Cash Collateral Re-use: Measure and Metrics, finalizes the metrics used to measure non-cash collateral re-use in securities financing transactions that authorities will monitor for financial stability purposes. The FSB intends to collect national aggregated data related to non-cash collateral re-use from FSB members in January 2020.


Opinion on Share Classes

On 30 January, ESMA published an opinion under UCITS V on the extent to which different types of units or shares of a UCITS fund can differ from one another. In its opinion, ESMA sets out four high-level principles which UCITS should follow when establishing share classes: (i) share classes of the same fund should have a common investment objective reflected by a common pool of assets; (ii) UCITS management companies should implement appropriate procedures to minimize the risk that features that are specific to one share class could adversely impact other share classes of the same fund; (iii) UCITS managers should pre-determine all features of the share class before the fund is established; and (iv) UCITS managers should disclose the differences between share classes of the same fund to investors when they have a choice between two or more classes. Noting that the opinion will have an adverse impact on investment fund markets, ESMA indicated that share classes established prior to 30 January 2017 may continue to exist, but be closed to new investors by 30 July 2017 and be closed to additional investment by existing investors by 30 July 2018.

Loan Funds

On 20 February, IOSCO published a final report on the findings of its survey examining how the market for loan funds has evolved across various jurisdictions. The report focuses on loan originating funds and loan participating funds and identifies the risks associated with these funds, including liquidity risk, credit risk, systemic risk, and regulatory arbitrage, and analyses how regulators are addressing these risks. IOSCO concludes that many jurisdictions consider their rules to be sufficient to address these risks, and that further work on these rules is not required at this stage. IOSCO indicated that it will continue to monitor the loan fund sector.


IAIS Global Insurance Market Report

On 1 February, the IAIS published its 2016 Global Insurance Market Report. The report indicates that, while continuing to remain well-functioning and stable, the insurance and re-insurance sector operates in an increasingly difficult macroeconomic and financial environment characterized by weak global demand, low inflation rates, low interest rates, and bursts of volatility. The report made the following key findings: (i) non-life (re)insurance continues to be subject to soft market conditions, with competition especially strong in the re-insurance market; (ii) the prolonged low interest rate environment remains a source of vulnerability for life insurers, especially in Europe; and (iii) life insurers are under pressure to improve their expense management and to reduce costs. The report concludes that, from a macroprudential supervisory perspective, insurers must ensure that they are responding adequately to the accumulation of risks and structural changes that are a source of potential vulnerability.

Insurance Distribution Directive

On 7 February, EIOPA published draft implementing technical standards (ITS) on the standardized presentation format for the Insurance Product Information Document (IPID) under the Insurance Distribution Directive (IDD). The IPID is a pre-contractual document drafted by the manufacturer of a non-life insurance product designed to present consumers with relevant information to allow consumers to compare different products offerings and to make informed decisions about whether to purchase a product. The draft ITS proposes a standardized presentation format for IPIDs, with the key features of each product presented in a simple Q&A format. The draft ITS also takes into account how information will be presented via digital media, and allows the layout of the information to adjust to the small screens of a mobile device. EIOPA submitted the final ITS and its impact assessment to the European Commission on 23 February 2017.

On 2 February, EIOPA published a consultation paper containing draft guidelines on complex insurance-based investment products (IBIPs) under the IDD. Under the IDD, insurance intermediaries must assess the suitability or appropriateness of an IBIP for the customer as part of the sales process. The guidelines outline circumstances in which IBIPs may be sold without a suitability or appropriateness assessment, such as when an IBIP is determined to be non-complex. The consultation period closes on 28 April 2017.  

On 1 February, EIOPA published a final report containing technical advice submitted to the European Commission on possible delegated acts supplementing the IDD. The technical advice covers: (i) product oversight and governance; (ii) conflicts of interest; (iii) inducements; and (iv) suitability and appropriateness of IBIPs. 

Collaboration of Insurance Supervisory Authorities

On 16 February, EIOPA published a decision setting minimum standards and providing considerations for the collaboration of insurance supervisory authorities under Solvency II. The decision strengthens the cooperation between national authorities, especially in relation to cross-border activities, authorizations, supervision and recovery plans, exchange of quantitative data, and complaints-handling systems using EIOPA’s database. The decision will enter into force on 1 May 2017.

Single Programming Document for 2017-2019

On 30 January, EIOPA published its final Single Programming Document for 2017-2019 and its Annual Work Programme for 2017. EIOPA indicated that it continues to focus on three strategic priorities: (i) enhancing supervisory convergence through the development and maintenance of a common supervisory reporting and data framework; (ii) reinforcing preventative consumer protection through the enforcement of the IDD; and (iii) preserving financial stability through Solvency II. 

Consumer Protection

On 16 February, EIOPA Chair Bernardino delivered a speech on EIOPA’s role in consumer protection. Chair Bernardino focused on three matters: (i) EIOPA’s strategy to strengthen business conduct supervision; (ii) EIOPA’s activities that contribute to consumer protection; and (iii) challenges of a digital era.

o    Strengthening Business Conduct Supervision: Chair Bernardino indicated that EIOPA is currently utilizing a number of tools to strengthen business conduct supervision, including thematic reviews to target specific problematic financial activities or products in the insurance and pensions markets. He indicated that EIOPA intends to implement retail risk indicators to gather information on emerging risks to consumer protection and publish annual consumer trends reports and ad hoc surveys to provide a snapshot of existing cases of problematic financial activities or products.

o    Activities That Contribute to Consumer Protection: Chair Bernardino referenced the IDD and IPID as projects that contribute significantly to consumer protection.

o    Challenges of a Digital Era: Chair Bernardino noted that while there are potential risks associated with the use of big data, automated advice tools, telematics, and digitalization in general, such developments also can bring a number of benefits to insurers and consumers, including better personalized products and services and enhanced internal processes for detecting fraudulent activities. He indicated that EIOPA intends to organize several roundtables dedicated to “Insurtech” in 2017, with the first roundtable planned for the end of April 2017.

European Insurance Industry in a Digital Era

On 25 January, EIOPA Chair Bernardino delivered a speech on the future of the European insurance industry in the digital era. Chair Bernardino focused on three matters, including: (i) the implications of digitalization for the insurance sector, such as Insurtech; (ii) EIOPA’s efforts to create a common European supervisory culture, while preserving regulatory certainty; and (iii) promoting a strong risk culture, recognizing the benefits of Solvency II public disclosure, and developing a consumer-centric culture.

o    Implications of Digitalization: Chair Bernardino noted that the implementation of the IDD and the IPID, as well as organizing roundtables dedicated to “Insurtech” will aid EIOPA in developing and utilizing FinTech innovations to ensure benefits for both insurers and investors.

o    European Supervisory Culture: Chair Bernardino highlighted supervisory convergence and a common European supervisory culture as key priorities for EIOPA in the next three years. He indicated that EIOPA intends to develop a risk-based culture that: (i) aims to ensure strong but fair supervision; (ii) is based on a forward-looking approach to risk; (iii) takes into account that is it “always better to prevent than repair”; (iv) prioritises dialogue with market participants; and (v) promotes early awareness and supervisory action. He also stressed the importance of regulatory certainty and urged that the review of Solvency II follow the structured process envisaged in the legislative texts.

o    Preserving Financial Stability and Enhancing Consumer Protection: Chair Bernardino highlighted the risk management, disclosure, and governance requirements of Solvency II as crucial elements of consumer protection and financial stability. He encouraged insurers to embrace opportunities to engage with stakeholders and stressed the importance of moving towards a more consumer-centric culture.

EU Insurance Regulation

On 1 February, European Commission Vice President Dombrovskis delivered aspeech providing updates on Solvency II, the IDD, and FinTech.

o    Solvency II: Vice President Dombrovskis indicated that the European Commission: (i) is currently in the process of finalizing risk calibrations for investments in infrastructure corporates; (ii) is currently conducting an impact assessment of Solvency II, and intends to present an amendment to the Solvency II delegated act in the coming months; (iii) has requested technical advice from EIOPA on simplified calculation methods for insurers in their reporting to the Commission, which the Commission intends to build upon to review relevant parts of the Solvency II delegated act by the end of 2018; and (iv) will review the efficiency of Solvency II’s long-term guarantee measures and transitional provisions in 2020.

o    IDD: Vice President Dombrovskis indicated that the Commission intends to finalize delegated acts relating to the IDD by Fall 2017.

o    FinTech: Vice President Dombrovskis noted the establishment of the Commission’s FinTech Task Force and indicated that the Commission is currently working on a FinTech action plan based on the responses it received from a Green Paper consultation in 2016.

Risk-Free Interest Rate Term Structures

On 28 February, EIOPA published an updated technical document of the methodology to derive the risk-free interest rate structures. The technical document sets out the risk-free interest rate term structures that underpin the calculation of liabilities by insurance and re-insurance undertakings.

Solvency II Q&As

On 21 February, EIOPA published three sets of Q&As relating to Solvency II:

o    Q&As regarding the templates for the submission of information to the supervisory authorities.

o    Q&As regarding the procedures, formats and templates of the solvency and financial condition repor.

o    Q&As on EIOPA guidelines on the loss-absorbing capacity of technical provisions and deferred taxes.


Variation Margin Requirements

On 23 February, the Joint Committee of the European Supervisory Authorities (ESAs) published a statement in response to industry requests relating to operational challenges in meeting the 1 March 2017 deadline for exchanging variation margin under EMIR (including this letter from industry associationsrequesting a six-month transition period until September 2017). The ESAs point out that the deadline is part of a globally agreed framework, which has already been postponed once. They state that neither they nor national authorities have any power to “disapply directly applicable EU legislation” or issue “no-action” letters, such as those issued by the U.S. CFTC. Although the deadline still stands, the ESAs expect national authorities to apply their risk-based supervisory powers in their day-to-day enforcement of the legislation, with a case-by-case assessment of the degree of compliance and progress.

o    IOSCO also issued a statement stating that it expects all affected parties to make every effort to fulfil the necessary variation margin requirements by the prescribed deadlines. At the same time, IOSCO stated that members should consider taking “appropriate measures . . . to ensure fair and orderly markets” during the introduction of variation margin requirements.

On 20 January, the European Commission published a Delegated Regulationunder EMIR making a correction to an earlier Delegated Regulation regarding risk-mitigation techniques for OTC derivative contracts not cleared by a CCP. The correcting regulation adds two new paragraphs specifying the phase-in provisions on variation margin requirements for intra-group transactions in a way that is analogous to initial margin requirements. Unless the European Parliament objects, the correcting regulation will apply from 4 January 2017.

Position Limits

On 15 February, the European Parliament officially adopted the MiFID regulatory technical standards (RTS) on position limits for commodity derivatives.

On 9 February, ESMA published a revision of draft ITS on position limits reporting under MiFID II. ESMA removed the requirement that the positions be reported gross so that national authorities can net and aggregate positions. ESMA also inserted provisions requiring positions from buy and sell trades spread between different delivery dates, commodities, or as a result of other complex strategies to be reported on a disaggregated basis unless the combination of the products is traded as a single financial instrument under an International Securities Identification Number and the positions are subject to a specific limit. ESMA set the date of application as 3 January 2018. 

Package Orders

On 28 February, ESMA published its final report on draft RTS regarding the treatment of package orders under MiFID II and MiFIR. ESMA indicated that it will continue to pursue a methodology based on qualitative criteria for determining package orders for which there is a liquid market as proposed in its consultation paper published on 10 November 2016. This approach will allow ESMA to identify package orders that are liquid as a whole based on general criteria, such as whether the package orders are traded on a trading venue or available for clearing, as well as criteria specific to an asset class, such as those regarding interest rate derivatives, equity derivatives, credit derivatives, and commodity derivatives. In addition, ESMA indicated that it will provide guidance on the application of the Systematic Internalizer (SI) obligations and the application of pre- and post-trade transparency for package orders by issuing Q&As in the future.

PRIIPs Regulation

On 10 February, the Joint Committee of the ESAs published a consultation paperon draft technical advice on the procedure for determining whether a packaged retail and insurance-based investment product (PRIIP) targets specific environmental or social objectives under the PRIIPs Regulation. The ESAs found that while existing product oversight and governance requirements set by the relevant PRIIPs legislation, such as MiFID II and the IDD, are sufficient for PRIIPs in general, additional guidance in interpreting the existing rules is required for PRIIPs with environmental or social objectives. The consultation period closes on 23 March 2017 and the final technical advice must be submitted to the Commission by 30 April 2017.

Capital Markets Union

On 20 January, the European Commission launched a public consultation, and issued relevant Q&As, on the mid-term review of the Capital Markets Union (CMU). The consultation offers stakeholders an opportunity to provide targeted input on the actions put forward in the CMU action plan covering six policy areas, including: (i) financing for innovation, start-ups, and non-listed companies; (ii) making it easier for companies to enter and raise capital on public markets; (iii) investing for long-term, infrastructure, and sustainable investment; (iv) fostering retail investment and innovation; (v) strengthening bank capacity to support the wider economy; and (vi) facilitating cross-border investment. The Commission states that it does not envisage fundamental changes to the conception or strategic focus of the CMU action plan, but rather targeted changes to update and reframe the programme of actions. The consultation period closes on 17 March 2017 and the Commission intends to hold a public hearing on 11 April 2017 to present the preliminary results. The Commission will present its full mid-term review of the CMU in June 2017.

CCP Resolution and Resolution Planning

On 1 February, the FSB published for consultation draft guidance on CCP resolution and resolution planning. The draft guidance builds on the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions and follows adiscussion note released in August 2016. The draft guidance sets forth considerations for national authorities when developing frameworks for resolving failing CCPs, including: (i) the overall objective of CCP resolution and resolution planning; (ii) the powers that resolution authorities should be granted to maintain the continuity of critical CCP functions, return the CCP to a matched book, and address non-default losses; (iii) potential indicators of circumstances that could lead to a determination to trigger resolution; (iv) the treatment of equity of exiting CCP owners in resolution; (v) the application of the “no creditor worse off” safeguard and determination of the insolvency counterfactual, which is the amount creditors and equity holders would have received if the CCP was liquidated; (vi) the assessment of the adequacy of financial resources in resolution; (vii) a CCP’s resolution plan and resolvability assessments; and (viii) the cross-border cooperation and enforcement of resolution actions. The consultation period closes on 13 March 2017 and the FSB intends to finalize the guidance by June 2017, ahead of the G20 Leader’s Summit.

CCP Stress Tests

On 1 February, ESMA published the framework for its 2017 stress test exercise for EU CCPs. The exercise covers 17 EU CCPs and will include all products currently cleared by these CCPs to assess their resilience and safety. The exercise will test: (i) credit stress and the CCPs’ ability to absorb losses under a combination of market price shocks and default scenarios; (ii) liquidity stress and the sufficiency of CCPs’ liquid resources under price shocks and other scenarios; and (iii) reverse credit stress, including by increasing the number of defaulting entities and level of shocks with a view to identifying when resources are exhausted. ESMA also will conduct additional analysis on the concentration and inter-connectedness of the CCPs. ESMA will publish the results of the exercise in Q4 2017.

Unique Transaction Identifier

On 28 February, IOSCO published a report providing guidance to authorities on setting rules for assigning uniform global unique transaction identifiers (UTIs) to OTC derivatives transactions. The report produces technical guidance to authorities on the definition, format, and usage of the UTI and covers topics that include: (i) the circumstances in which a UTI should be used; (ii) the impact life cycle events should have on the UTI and when a life cycle event should or should not cause a new UTI to be used; (iii) which entity, or entities, should be responsible for generating UTIs; and (iv) when UTIs should be generated. In addition, IOSCO intends to publish guidance on the harmonization of the unique product identifiers and other critical OTC derivatives data elements.


On 27 January, ESMA published a letter sent to the European Commission on certain aspects of the Commission’s review of EMIR and enforcement powers over credit rating agencies under the CRA Regulation. Among other matters, ESMA identified several enhancements that would aid ESMA in its regulation of trade repositories, including: (i) strengthening ESMA’s sanctioning powers and the level of fines ESMA can impose; (ii) enhancement of ESMA’s supervisory tools; (iii) inclusion of additional requirements related to data quality and data access; and (iv) further specification of certain reporting requirements. Additionally, ESMA requested enhancements in its ability to regulate credit rating agencies under the CRA Regulation, including: (i) raising the upper limits of fines that can be imposed; (ii) expanding the types of enforcement decisions that can be adopted by ESMA; (iii) removing the requirement for ESMA to obtain judicial authorization at national levels for on-site inspections; (iv) allowing ESMA to oppose certain material changes to the conditions of registration; (v) requiring credit rating agencies to submit further periodic information to ESMA and sanctioning them for failure to do so; and (vi) the simplification or clarification of ESMA’s supervisory procedures for credit rating agencies.   

On 31 January, ESMA published a consultation paper containing proposed guidelines on the transfer of data between trade repositories authorized under EMIR. The guidelines are intended to establish high-level principles for trade repository participants, reporting entities, counterparties, and CCPs to cover circumstances where the transfer of data is necessary due to the withdrawal of registration of a trade repository and circumstances where the transfer is done on a voluntary basis under normal market conditions. The consultation period closes on 31 March 2017 and ESMA expects to publish final guidelines by Q2/Q3 of 2017.

Role and Performance of the ESAs

On 8 February, ESMA Chair Maijoor delivered a speech reviewing the role and performance of the ESAs, focusing on improvements ESMA has identified to assist it in its role, supervisory convergence, and the third country regulatory regime. Chair Maijoor identified a number of improvements that could be made to assist ESMA in performing its functions, including: (i) improving the process and timing of the creation of draft technical standards; (ii) granting ESMA the authority to impose higher fines on supervised entities; (iii) overhauling the third country framework and replacing the current patchwork of arrangements from various legislative texts; and (iv) granting ESMA the authority to charge fees to third country entities requiring recognition to cover the resources employed by ESMA in its assessments.

EMIR, Benchmarks Regulation, and “Third Country” Arrangements

On 23 January, ESMA Chair Maijoor delivered a speech on reforms to OTC derivatives markets and benchmarks, and “third country” arrangements.

o    EMIR and OTC Derivatives Markets: Citing various consultations conducted by ESMA and the European Commission, Chair Maijoor noted that while EMIR has been able to deliver on its promises, there are amendments to EMIR that could lead to a more effective and efficient implementation of the framework. These amendments include: (i) strengthening EMSA’s sanctioning powers and increasing the level of fines ESMA can impose on trade repositories; (ii) introducing a mechanism that allows the suspension of the clearing obligation to respond to market conditions; and (iii) reviewing the application of EMIR to non-financial counterparties to include only the most significant counterparties while reducing the compliance burdens for smaller non-financial counterparties.

o    Benchmarks Regulation: Chair Maijoor noted that benchmarks will continue to be a priority for supervisors, although he recognized that significant steps have been taken to increase the integrity and reliability of benchmarks, including the implementation of technical standards under the Benchmarks Regulation, IOSCO’s adoption of the principles for financial benchmarks, and the FSB’s establishment of its Official Sector Steering Group.   

o    Redesigning “Third Country” Arrangements: Chair Maijoor raised two concerns regarding the “equivalence” mechanism and third country arrangements: (i) the fact that third country CCPs have benefited from the EU’s equivalence system while EU CCPs are still required to be authorized in the third country jurisdictions; and (ii) the need for sufficient assurance that risks of third country infrastructures’ activities in the EU are adequately addressed by the home country regulator.  

ESMA: 2016 Annual Report and 2017 Work Programme

On 3 February 2017, ESMA published its 2016 Annual Report and 2017 Work Programme covering its supervision of credit rating agencies, trade repositories, and third country CCPs. Key supervisory topics for 2017 include: (i) with respect to trade repositories, reviewing data quality and access by authorities, technology trends and internal controls, and strategy and governance; (ii) with respect to credit rating agencies, reviewing quality of credit ratings, IT and internal controls, strategy and governance, and risk assessment and effective use of data; and (iii) with respect to third country CCPs, assessing the 21 pending applications for recognition as third country CCPs, reviewing the classes of OTC derivatives cleared by recognized third party CCPs, and finalizing the risk-based analysis framework in relation to third country CCP activity in the EU.

On 9 February, ESMA published its 2017 Supervisory Convergence Work Programme that sets out its proposals for the promotion of sound, efficient, and consistent supervision across the EU. ESMA indicated that its priorities for 2017 include: (i) the implementation of MiFID II and MiFIR, including underlying IT projects; (ii) improving data collection and the quality of data collected by national authorities; (iii) promoting investor protection in the context of cross-border provision of services; and (iv) promoting convergence in the supervision of EU CCPs. In addition, ESMA indicated that it will continue to promote working methods that encourage supervisory convergence, including: (i) facilitating day-to-day contacts between the national authorities through the discussion of “live” cases, supervisory briefings, and workshops; (ii) ensuring that national authorities perform follow-up activities where they have identified non-compliance or deficiencies; and (iii) providing remediation for breaches of EU law.

On 27 January, ESMA published its 2017 Regulatory Work Programme for 2017. The work set out in the programme relates to:

o    Benchmark Regulation: adoption of technical measures by 1 April.

o    Credit Rating Agencies: adoption of RTS by 31 December.

o    EMIR: adoption of discretionary RTS.

o    Market Abuse Regulation: adoption of technical measures, with the deadline to be confirmed.

o    MiFID: adoption of RTS by 28 February 2017 and 30 June 2017.

o    Prospectus Directive: technical measures 12 months after entry into force.

o    European Long-Term Investment Funds: adoption of RTS, with deadline to be confirmed.

o    Securities Financing Transaction Regulation: adoption of RTS by 31 March 2017.

o    STS Securitisation: adoption of technical measures, with deadline to be confirmed.

o    Transparency Directive: adoption of RTS by 31 December.


On 2 February, ESMA published updated Q&As on MiFIR data reporting.

On 31 January, ESMA published updated Q&As on MiFID II and MiFIRtransparency and market structure topics.


On 2 February, ESMA published an updated version of its Q&As on EMIR to add information on the transition to the revised technical standards on reporting, which will become applicable on 1 November 2017.

Market Abuse Q&As

On 27 January, ESMA published updated Q&As on the Market Abuse Regulation and a new set of Q&As containing six questions on its June 2015 guidelines on alternative performance measures for listed issuers.

Use of Systematic Internalizers

On 14 February, ESMA published a letter to the European Commission that raised concerns over the potential establishment of a network of SIs, which are investment firms that trade on their own account on an organized and systematic basis outside a trading venue. Several market participants notified ESMA that certain investment firms might be seeking to establish a separate network of interconnected SIs and other liquidity providers to trade off-venue, thus evading the trading venue requirements of MiFID II. ESMA indicated that it will monitor the situation and may clarify the scope of SIs’ permitted activities through issuing Q&As, as well as asking the Commission to determine whether further delegated acts are necessary to clarify the definition of SIs. 

Transparency Directive

On 3 February, ESMA published a practical guide to national rules across the European Economic Area related to the Transparency Directive. The Transparency Directive requires investors to notify issuers when they acquire or dispose of shares such that their total voting rights exceed certain thresholds. The first part of the practical guide provides a country-by-country summary of national requirements regarding the notifications of major holdings in accordance with the Transparency Directive. The second part presents information on rules and practices, such as applicable notification thresholds and deadlines, in a series of tables, enabling market participants to compare rules across different jurisdictions. ESMA indicated that it will continue to update the practical guide as necessary.


On 8 February, IOSCO published a research report on FinTech and securities market regulation. The report analyses the opportunities and risks that FinTech innovations present to investors, securities markets, and regulators, focusing on: (i) financing platforms; (ii) retail trading and investment platforms; (iii) institutional trading platforms; and (iv) distributed ledger technology (DLT), including blockchain technology and shared ledgers. The report highlights the opportunities that result from the growth of FinTech, including: (i) greater inclusion of modern financial technologies; (ii) greater investor choice and diversification; (iii) easier comparability of investment information, and (iv) “greater accessibility by previously underserved segments of modern portfolio theory-based investment at lower cost.” The report also identifies certain risks relating to unlicensed cross-border activity, disruptions resulting from programming errors, cybersecurity, and anti-money laundering and fraud control.

On 7 February, ESMA published a report on DLT and its application to the securities market. The report covers the potential benefits of DLT, key challenges, constraints, and risks facing the implementation of DLT, and DLT’s interaction with existing EU securities regulation. ESMA concluded it was too early to fully appreciate the changes that DLT could bring and the regulatory response that may be needed, because the technology is still evolving. ESMA did not identify any major impediments in the EU regulatory framework that would prevent the emergence of DLT in the short term, although ESMA indicated that broader legal issues, such as corporate law, contract law, insolvency law, and competition law, may impact its development.

On 18 January, the ESMA Senior Risk Analysis Officer of the Innovation and Products Team stated that ESMA has taken a principle-based “wait and see” approach to FinTech regulation. He said that the agency will not place restrictions that could risk stifling a potentially useful product or service, but would actively seek to better understand the innovations and regulate it accordingly. He stressed that the framework needs to remain flexible and adaptive to market events, and illustrated his ideas with reference to “robo-advice,” artificial intelligence, big data, and DLT.


o    28 February: EIOPA consultation on the potential harmonization of recovery and resolution frameworks for insurers closes.

o    3 March: EIOPA consultation on the Solvency Capital Requirements standard formula closes.

o    13 March: FSB consultation on CCP resolution and resolution planning closes.

o    17 March: European Commission consultation on the Capital Market Union action plan closes.

o    17 March: European Supervisory Authority consultation on the use of Big Data by financial institutions closes.

o    31 March: ESMA consultation on guidelines for portability between trade repositories closes. 

Ianthe Zabel
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