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EU Regulatory Research

EU Regulatory Research

EU Regulatory Update


Financial Stability Board Report on Financial Regulatory Reform

On 3 July, the Financial Stability Board (“FSB”) published, ahead of the G20 Leader’s Summit on 7-8 July, (i) a letter from FSB Chair Mark Carney to the G20 Leaders, (ii) the FSB’s third annual report to the G20 on the “implementation and effects of the G20 Financial Regulatory Reforms,” and (iii) a Framework for Post-Implementation Evaluation of the Effects of the G20 Financial Regulatory Reforms.

  • FSB Chair Letter to G20 Leaders: FSB Chair Carney highlighted the need to: (i) operationalize January 2017 FSB “recommendations to address the structural vulnerabilities associated with asset management,” emphasizing that “open-ended funds with ‘run risks’ have grown particularly rapidly”; (ii) finalize “improvements to the transparency of OTC derivatives markets”; and (iii) further address misconduct in the financial industry by “break[ing] over-reliance on ex post fines.” Carney indicated that particular focus should be given to FinTech and cyber risk issues going forward.
  • 3rd Annual Report on Implementation and Effects of the G20 Financial Regulatory Reforms: The report indicated that “implementation progress continues but is uneven across four core areas”: (i) “building resilient financial institutions”; (ii) “ending too-big-too-fail”; (iii) “making derivatives markets safer”; and (iv) “transforming shadow banking into resilient market-based finance.” With respect to the derivatives market, the report noted that, of 24 FSB member jurisdictions: (i) “comprehensive trade reporting requirements are in force in nineteen”; (ii) seventeen “have comprehensive central clearing frameworks in force”; and (iii) half have implemented platform trading frameworks. With respect to shadow banking, the report found that reforms are being implemented but remain “at a relatively early stage.” The report called upon authorities to monitor a number of areas, including: (i) “[m]antaining an open and integrated global financial system”; (ii) issues relating to “[m]arket liquidity”; and (iii) the “[e]ffects of the reforms on emerging market and developing economies.”

Financial Conglomerates Directive – Staff Working Document on FICOD

On 18 July, the European Commission published a staff working document on the “supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate” under the Financial Conglomerates Directive (2002/87/EC, as amended by 2011/89/EU) (“FICOD”) and two Delegated Regulations: (i) Commission Delegated Regulation (342/2014/EU) of 21 January 2014 on the “uniform conditions of application of the calculation methods for determining the amount of capital required at the level of the financial conglomerate” and (ii) Commission Delegated Regulation (2015/2303/EU) of 28 July 2015 on risk concentration and intra-group transactions. As the Executive Summary explains, the “purpose of this Staff Working Document is to assess the effectiveness, efficiency, coherence, relevance and EU-added value of [the FICOD] initiatives and financial conglomerates.” The Staff’s initial conclusion is, as the Summary reports, that “FICOD has, in general, functioned well and there is no evidence of failures of financial institutions which could have been perceived as due to the weaknesses in FICOD provisions” and that “[o]verall, FICOD remains a useful supervisory tool.”

Financial Stability Board Report on Compensation Standards

On 4 July, the FSB published its fifth progress report on the “implementation of the FSB Principles for Sound Compensation Practices and their Implementation Standards” (“P&S”), which “aim to reduce incentives for excessive risk-taking that may arise from the structure of compensation schemes in significant financial institutions.” Among other things, the report indicated that: (i) “[p]rogress on implementing and embedding the P&S for the insurance sector lags behind that for banking organisations”; (ii) most IOSCO members that participated in a 2017 survey conducted by IOSCO have “adopted … compensation related regulation for firms in the securities sector, especially for collective investment schemes/mutual funds/asset management firms”; and (iii) “industry participants and IOSCO members are, in general, of the view that there is no direct link between compensation practices in the asset management sector and financial stability.” In response to these findings, the report indicated that: (i) the FSB “will finalise by end-2017 its supplementary guidance to the P&S on the use of compensation tools to address misconduct”; (ii) the FSB will “by end-2017…develop recommendations for consultation on the consistent national reporting and data collection by national supervisors on the use of compensation tools to address misconduct risk in significant financial institutions”; and (iii) “the FSB, through [its Compensation Monitoring Contact Group], will explore ways to assess the effectiveness of aligning compensation policies and approaches with risk after these have been implemented.”


Financial Stability Board Report on Shadow Banking

On 3 July, the FSB published, ahead of the G20 Leader’s Summit on 7-8 July, an assessment of “shadow banking activities, risks and the adequacy of post-crisis policy tools to address financial stability concerns.” Among other things, the report indicated that: (i) the “aspects of the shadow banking activities generally considered to have made the financial system most vulnerable and that contributed to the financial crisis have declined significantly and are generally no longer considered to pose financial stability risks”; (ii) policies have been implemented to reduce liquidity mismatches, maturity mismatches, and leverage in the shadow banking system; (iii) policies aimed at addressing “incentive problems and opaqueness associated with securitization” have been advanced; (iv) “while some of the more vulnerable aspects of shadow banking have shrunk from pre-crisis levels, others have grown or remain relatively large,”; (v) the “size and considerable growth of collective investment vehicles, where accompanied by significant liquidity transformation, could prove disruptive in market stress”; and (vi) “[a]t present, the FSB has not identified other new financial stability risks from shadow banking that would warrant additional regulatory action at global level.” The report also indicated that FSB members have agreed to take several steps to address shadow banking issues, including: (i) conducting a “follow-up peer review on the implementation of the FSB policy framework in 2020”; (ii) “assess[ing] the data availability and mak[ing] improvements to its annual monitoring exercise as appropriate in 2018”; and (iii) “[c]omplet[ing] the remaining policy development at the international level and implement[ing] the agreed policy recommendations to reduce risks and arbitrage opportunities across jurisdictions and sectors.”

Good Practices in Liquidity Risk Management for Funds

On 6 July, IOSCO published two consultation papers aimed at addressing “structural vulnerabilities arising from asset management activities.” The consultation period for the two papers closes on 18 September 2017.

Reducing Barriers to Cross-Border Distribution of Investment Funds

On 21 June, the European Commission published for consultation an inception impact assessment on “reducing barriers to cross-border distribution of investment funds” under the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”) and Undertakings for the Collective Investment in Transferable Securities Directive (2014/91/EU) (“UCITS V”). The European Commission requested feedback with respect to actions it could take to address regulatory barriers for the cross-border distribution of investment funds within several policy areas the Commission is currently considering, including: (i) marketing; (ii) administrative requirements; (iii) regulatory fees; (iv) notification requirements; and (v) online distribution. The consultation period closed on 20 July 2017.

  • Marketing: The Commission is considering the “harmonisation of national marketing requirements and practices, harmonisation of what constitutes marketing, [and] sharing of best practices between Member States.”
  • Administrative Requirements: The Commission is considering “prohibit[ing] requirements in national legislation to appoint local agents in the host Member State, or prescribe[ing] conditions under which local agent may be required.” Additionally, the Commission could seek to “harmonise national disclosure requirements.” 
  • Regulatory Fees: The Commission is considering “creating a central repository for information on regulatory fees, and introducing a principle of proportionality between the fee and supervisory work undertaken.”
  • Notification Requirements: The Commission is considering “simplify[ing] the process for updating notifications under the marketing passport, establish[ing] a central hub for notifications, [and] amend[ing] criteria for when updating notification is required.” Additionally, the Commission could seek to “harmonise procedures and/or conditions for de-registration.” 
  • Online Distribution: The Commission is considering “providing clarity over application of marketing rules for online distribution, [and] taking steps to address other barriers including national implementation of anti-money laundering rules and know-your-customer requirements.”

AIFMD & UCITS – ESMA Opinion on Asset Segregation and Application of Depository Rules

On 20 July, ESMA published an Opinion to the European Commission, the Council of the EU, and the European Parliament regarding “asset segregation and application of depositary delegation rules” to central securities depositories (‘CSDs’) under AIFMD and the Undertakings for the Collective Investment in Transferable Securities (“UCITS”) Directive. The Opinion sets out ESMA’s views regarding: (i) the “optimal approach to asset segregation” under the AIFMD and UCITS Directive frameworks; and (ii) “how the depositary delegation rules should apply to [CSDs].”

AIFMD & UCITS Directives - Q&As

On 11 July, ESMA published updated Q&As on the application of the AIFMD and UCITS V.

  • The updated AIFMD Q&As include new questions and answers regarding: (i) how Alternative Investment Fund Managers (“AIFMs”) should “convert the total value of assets under management into Euro”; (ii) how, “in a situation where an AIF purchases a loan in the secondary market,” should the AIF “measure its exposure in relation to that loan”; and (iii) the currency in which the alternative investment fund’s NAV should be reported.
  • The updated UCITS Q&As include new questions and answers regarding: (i) “issuer concentration”; and (ii) “group links, independence and cooling-off periods.”


IAIS - Consultation on Insurance Core Principles

On 30 June, the International Association of Insurance Supervisors (“IAIS”) launched a consultation on several draft revised Insurance Core Principles (“ICPs”), including: (i) ICP 1, on “objectives, powers, and responsibilities of the supervisor”; (ii) ICP 2, on the operational independence, accountability and transparency of supervisors; (iii) ICP 18, on “requirements for the conduct of insurance intermediaries”; and (iv) ICP 19 on requirements “that insurers and intermediaries, in their conduct of insurance business, treat customers fairly.” The consultation period closes on 29 August 2017.

IAIS – Consultation on Product Oversight in Inclusive Insurance

On 29 June, IAIS published for consultation a draft “Application Paper on Product Oversight on Inclusive Insurance.” The application paper aims to “provide guidance to supervisors, regulators and policymakers when considering, designing and implementing regulations and supervisory practices on product oversight in inclusive insurance markets.” Among other things, the paper recommends that jurisdictions adopt a “risk based” approach in product oversight, such that supervisors focus on “identifying, mitigating, and adopting measures against risks arising out of products to the customers.” The consultation period closes on 30 July 2017.

IAIS – Insurance Capital Standards Version 1.0 for Extended Field Testing

On 21 July, IAIS published a report titled “Risk-based Global Insurance Capital Standard Version 1.0 for Extended Field Testing.” The Insurance Capital Standard (“ICS”) was announced in 2013 in response to the request by the FSB to establish “a comprehensive group-wide supervisory and regulatory framework for Internationally Active Insurance Groups (“IAIGs”).” The report “explains the rationale for the design and calibration of the ICS components,” which include valuation, capital resources, and capital requirements,and, “where relevant, the various options being considered” for “extended field testing,” which will entail “extended data requests on technical and policy issues that the IAIS will be seeking to resolve for ICS Version 2.0.” The IAIS notes that “[w]hile field testing remains a voluntary exercise, the IAIS aims for all potential IAIGs to be involved in field testing as the ICS project further develops towards ICS Version 2.0.” IAIS indicated that the 2017 field testing process will close and the discussion of ICS Version 2.0 will begin in September 2017.

Pan-European Personal Pensions Product

On 29 June, the European Commission published a proposal for a regulation on establishing a Pan-European Personal Pensions Product (“PEPP”), as well as a recommendation on the tax treatment of personal pension products, including the PEPP. The proposal indicates that: (i) the PEPP framework will establish a “complementary voluntary scheme alongside national regimes” and national pensions rather than supersede or replace national initiatives; (ii) the PEPP framework will allow a wide range of institutions to offer PEPPs, including “banks, insurers, asset managers, occupational pension funds, [and] investment firms”; (iii) PEPPs could be “provided online…and would not require a network of branches”; (iv) PEPP manufacturers must provide a “PEPP key information document” to PEPP consumers prior to the distribution of the PEPP as well as produce a “PEPP Benefit Statement” throughout the lifetime of the PEPP; and (v) PEPPs will be portable such that “PEPP savers who change their domicile by moving to another Member State… are entitled to keep all the advantages and incentives connected with continuous investment in the same PEPP.” The European Commission also indicated that to “encourage Member States to grant tax relief on the PEPP, the Commission has adopted a Recommendation on the tax treatment of personal pension products, including the [PEPP].” The proposal will now be considered by the European Parliament and Council of the EU. If adopted, the Regulation will become effective 20 days after publication in the Official Journal.

Solvency II – Consultation on First Set of Advice on Solvency II

On 4 July, EIOPA published a consultation paper on “EIOPA’s first set of advice to the European Commission on specific items in the Solvency II Delegated Regulation.” The consultation paper includes “EIOPA’s advice on a number of items that are in the scope of the European Commission call for advice,” including: (i) “simplified calculations”; (ii) “reducing reliance on external credit ratings in the standard formula”; (iii) “exposure guaranteed by a third-party and exposures to regional governments and local authorities”; (iv) “risk-mitigation techniques”; (v) “undertaking specific parameters”; (vi) “look-through approach on investment related vehicles”; and (vii) “information on loss-absorbing capacity of deferred taxes.” The consultation period closes on 31 August 2017 and EIOPA intends to finalize its advice in October 2017.

Solvency II - EIOPA Publishes Solvency II Statistics

On 28 June, EIOPA published its first set of “statistics based on quantitative Solvency II reporting from insurance undertakings and groups in the [EU] and the European Economic Area.” As noted by EIOPA, “the statistics contain aggregated country level information about the balance sheet, own funds, capital requirements, premiums, claims and expenses and refer to the latest information available at the extraction date.”

Solvency II – Draft Amendments to ITS on Reporting and Disclosure

On 17 July, EIOPA published draft amendments to the European Commission’s implementing technical standards (“ITS”) on reporting and disclosure. The draft amendments are located under the “DPM and Taxonomy 2.2.0” section on EIOPA’s Reporting Format webpage.

Insurance Distribution Directive – European Commission Consultation on Draft Delegated Regulation

On 20 July, the European Commission published for consultation a draft Commission Delegated Regulation supplementing the EU’s 2016 Insurance Distribution Directive (“IDD”) regarding “information requirements and conduct of business rules applicable to the distribution of insurance-based investment products.” The European Commission notes that the “IDD contains specific provisions on preventing and managing conflicts of interests, disclosing costs and charges for the customers, accepting commissions and other third party payments (inducements) and providing investment-related advice.” The European Commission is seeking feedback on the draft regulation through 17 August 2017.

Harmonized Recovery and Resolution Framework for Insurers and Reinsurers

On 5 July, EIOPA published an opinion on “the Harmonisation of Recovery and Resolution Frameworks for (Re)Insurers Across the Member States.” EIOPA expressed its view that “a minimum degree of harmonisation in the field of recovery and resolution for insurers would contribute to achieving policyholder protection, as well as maintaining financial stability in the EU,” such as providing a “definition of a common approach to the fundamental elements of recovery and resolution (e.g. objectives for resolution and resolution powers) which the national frameworks should address.” EIOPA listed four “building blocks” of a harmonized recovery and resolution framework: (i) preparation and planning of recovery plans and resolution plans; (ii) “a common set of early intervention powers for [National Supervisory Authorities]” that enable intervention at a sufficiently early stage and are streamlined with Solvency II; (iii) the designation of “an authority responsible for the resolution of insurers” within each member state with clearly established objectives, conditions, and powers related to resolution; and (iv) “cross-border cooperation and coordination.” EIOPA indicated that it will continue to monitor progress made in these areas by member states and that it “plans to continue with its work in the field of recovery and resolution for insurers,” specifically regarding: (i) “the potential harmonisation of resolution funding”; and (ii) “the potential harmonisation of insurance guarantee schemes (IGSs).”

ESA – Consultation on Amendments to Technical Standards on the Mapping of ECAIs

On 18 July, the Joint Committee of the European Supervisory Authorities (“ESAs”) published a consultation paper on “draft implementing technical standards amending Implementing Regulation (EU) 2016/1800 on the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with [the Solvency II] Directive (2009/138/EC).” The amendments to the Implementing Regulation were proposed to reflect the “withdrawn registration of one credit rating agency (“CRA”)” and the recognition of “five additional CRAs.” The consultation period closes on 18 September 2017 and a public hearing on the draft standards will be held in London on 4 September 2017.

Packaged Retail and Insurance-based Investment Products (“PRIIPs”) Regulation – European Commission Guidelines

On 4 July, the European Commission published guidelines on the application of Regulation (1286/2014/EU) on key information documents (“KIDs”) to the PRIIPs Regulation. Regulation 1286/2014 sets out “uniform rules on the format and content of the KID . . . to be drawn up by PRIIP manufacturers and on the provision of the KID to retail investors by PRIIP manufacturers and those selling, or advising on, those products.” The guidelines provide clarification and interpretation regarding certain definitions and provisions contained within Regulation 1286/2014, such as, among others: (i) the “products covered by Regulation 1286/2014”; (ii) the application of the regulation to “multi-option PRIIPs”; and (iii) the “use of KIDs by UCITS.”

PRIIPS Regulation – Q&As on KID Requirements

On 4 July, the joint committee of the ESAs published the first set of Q&As regarding the KID requirements under the PRIIPs Regulation. As noted by the press release, the Q&As cover questions regarding the “presentation, content and review of the KID, including the methodologies underpinning the risk, reward and costs information.” 


FSB Publishes Report on Reforms to OTC Derivatives

On 29 June, the FSB published, ahead of the G20 Leader’s Summit on 7-8 July, three reports regarding the reforms to the OTC derivatives market.

  • Review of OTC derivatives market reforms: Effectiveness and broader effects of the reforms: This report provided a broad overview of the effectiveness and effects of the OTC derivatives markets reforms. The FSB noted, however, that the review “should not be regarded as a final assessment, given that reforms are still being implemented” and indicated that a “Derivatives Assessment Team, convened by the OTC Derivatives Coordination Group . . . will undertake a review of the incentives for central clearing arising from the interaction of margin requirements for derivatives and a number of other requirements” during 2017-2018.
  • OTC Derivatives Market Reforms: Twelfth Progress Report on Implementation: This report provides a more detailed discussion of measures FSB member jurisdictions have taken since 2016 with regards to: (i) “trade reporting”; (iii) “central clearing”; (iii) “margin requirements for non-centrally cleared derivatives” (“NCCDs”); (iv) “capital requirements for NCCDs”; (v) “platform trading”; and (vi) “cross-border issues.” The FSB indicated that it will “continue to monitor and report on OTC derivatives reform implementation progress, including the effects of OTC derivatives reforms over time.”
  • Progress report on FSB members’ plans to address legal barriers to reporting and accessing OTC derivatives trade data: This report describes progress made by FSB member jurisdictions in “removing legal barriers to fully reporting, and to authorities appropriately accessing, trade reports about [OTC] derivatives transactions.” The FSB indicated that they will “continue to monitor progress and will publish, ahead of the G20 Leaders’ Summit in Argentina in 2018, a report on the extent to which member jurisdictions have met their commitments to remove barriers.”

Harmonization of OTC Derivatives Data Elements

On 27 June, CPMI and IOSCO published for consultation a report titled “harmonisation of critical OTC derivatives data elements (other than UTI and UPI) - third batch.” The report provides a third set of key OTC derivatives data elements to be reported to trade repositories and: (i) specifies their “‘definitions’, containing the definition, format, and list of allowable values”; and (ii) “provide[s] cross-references for identifying dependencies between data elements.” The release indicates that respondents should provide comments and suggestions on the consultative report by 30 August 2017.

BCBS and IOSCO consultation on Short-Term Securitisation

On 6 July, the BCBS and IOSCO jointly published a consultative document on “criteria for identifying simple, transparent and comparable short-term securitisations.” In addition, the BCBS published a consultative document on “capital treatment for simple, transparent and comparable short-term securitisation” to set out “additional guidance and requirements for…applying preferential capital treatment for banks acting as investors and sponsors” with respect to short-term securitisations. The consultation period for both documents closes on 5 October 2017.

Financial Stability Board Report on Misconduct in the Financial Sector

On 4 July, the FSB published a progress report on “reducing misconduct risks in the financial sector.” The report sets out the recent actions taken and recommended by the FSB and other authorities with regards to: (i) “measures to strengthen financial institution governance”; (ii) “actions directed at authorities’ capacity to address misconduct risk”; and (iii) “actions directed at improving market structures and practices.”

ESMA Actions Regarding Contracts for Differences, Binary Options, and other Speculative Products

On 29 June, ESMA published a public statement on its “preparatory work…in relation to [contracts for differences (‘CFDs’)], binary options and other speculative products.” ESMA indicated that it is concerned with the risk that such products continue to pose to retail investors, despite its recent “monitoring and supervisory convergence work in this area.” As such, ESMA indicated that it is currently in the “process of discussing the possible use of its product intervention powers under Article 40 of MiFIR,” including the use of “leverage limits, guaranteed limits on client losses, and / or restrictions on the marketing and distribution of these products.” ESMA noted that the use of such intervention measure “must be approved by the ESMA Board of Supervisors and can only come into effect from 3 January 2018 at the earliest.”

MiFID II/MiFIR – ESMA Publishes Transparency Calculations

On 6 July, ESMA issued an Opinion containing interim transitional transparency calculations (“TTC”) for non-equity instruments, other than bonds, under MiFID II/MiFIR. As noted by the press release, MiFID II/MiFIR imposes “transparency requirements for bonds, structured finance products, emission allowances and derivatives with powers for national competent authorities (‘NCAs’) to waive or defer transparency obligations if instruments do not have a liquid market or if an order or transaction exceeds a certain size.” ESMA also published a set of FAQs on the TTC on 7 July.

MiFID II/MiFIR – Proposed Acquirer of a Qualifying Holding in an Investment Firm

On 11 July, the European Commission adopted a Commission Delegated Regulation supplementing MiFID II/MiFIR with regards to “an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm.” Under MiFID II/MiFIR, “an exhaustive list of information should be required from a proposed acquirer of a qualifying holding in an investment firm at the time of the initial notification to enable competent authorities to carry out the assessment of the proposed acquisition.” The Delegated Regulation will enter into force twelve days after its publication in the Official Journal.

On 11 July, the European Commission adopted an Implementing Regulation setting out implementing technical standards regarding the “standard forms, templates and procedures for the consultation process between relevant competent authorities in relation to the notification of a proposed acquisition of a qualifying holding in an investment firm” under MiFID II/MiFIR. The Implementing Regulation will enter into force twelve days after its publication in the Official Journal.

MiFID II/MiFIR – Q&As on Market Structure, Commodity Derivatives, Data Reporting, and Investor Protection

On 7 July, ESMA published updated sets of Q&As on the implementation of MiFID II/MiFIR regarding market structure, commodity derivatives, and data reporting.

  • Market Structure: The updated Q&As include new answers regarding: (i) “multilateral and bilateral system”; (ii) “direct Electronic Access and algorithmic trading”; and (iii) access to CCPs and trading venues.
  • Commodity Derivatives: the updated Q&As include one new answer regarding position limits and position reporting.
  • Data Reporting: the updated Q&As include new answers regarding: (i) reporting details and data fields for “total issued nominal amount” and “quantity”; (ii) “reference data for financial instruments”; (iii) “transaction reporting”; and (iv) “order record keeping.”

On 10 July, ESMA published an updated set of Q&As on the implementation of MiFID II/MiFIR regarding investor protection. The updated Q&As include new answers regarding: (i) “best execution”; and (ii) “recording of telephone conversations and electronic communications.”

MiFID II – ESMA Publishes Opinion on Ancillary Activity for Commodity Derivatives

On 6 July, ESMA provided a non-substantive updated on an Opinion, published on 30 June 2017, estimating the overall market sizes for commodity derivatives to assist market participants in determining whether their activities are considered “ancillary…to their main business” under MiFID II.

MiFID II – EBA Launches Consultation on Prudential Framework for Investment Firms

On 6 July, the European Banking Authority (“EBA”) launched a supplementary data collection of information regarding investment firms in response to the European Commission’s Call for Advice on the new prudential framework for MiFID investment firms. The EBA notes that “many valuable improvements have been made to the original proposals” and thus EBA “decided to carry out a supplementary data collection that would allow for a complete calibration of all the relevant aspects of the new prudential regime and a final impact assessment of its proposal on regulatory capital requirements.” The response period closes on 3 August 2017.

MiFID II – Reporting of Circuit Breakers’ Parameters by NCAs to ESMA

On 17 July, ESMA published a report on the “reporting of circuit breakers’ parameters by [national competent authorities (‘NCAs’)] to ESMA.” Under MiFID II, trading venues must “report the parameters for halting trading and any material changes to those parameters to their NCA in a consistent and comparable manner, and that the NCA shall in turn report them to ESMA.” The report sets out “a common standard and procedure for NCAs to adhere to in reporting the parameters to halt or constrain trading used by the trading venues under their jurisdiction to ESMA.”

MiFID II – ESMA Launces Consultation on Suitability Requirements

On 13 July, ESMA published a consultation paper on draft “Guidelines on certain aspects of the MiFID II Suitability Requirement.” Under MiFID II, “investment firms providing investment advice or portfolio management have to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients.” This consultation paper sets out the draft guidelines on certain aspects of the MiFID II suitability requirements, including, among others, those regarding: (i) “information to clients about the purpose of suitability assessment”; (ii) “arrangements necessary to understand clients”; (iii) the “extent of information to be collected from clients”; (iv) the “reliability of client information”; (v) “updating client information”; (vi) “arrangements necessary to understand investment products”; (vii) “arrangements necessary to ensure the suitability of an investment”; and (viii) “record-keeping.” The consultation period closes on 13 October 2017 and ESMA intends to publish a final report and final guidelines in Q1 or Q2 of 2018.

EMIR – Delegated Regulation on EMIR

On 29 June, the European Commission adopted a Delegated Regulation amending Commission Delegated Regulation (151/2013/EU) supplementing EMIR with regards to information trade repositories must publish on OTC derivatives positions and access to the detail of derivatives contracts trade repositories must give to certain specified entities. This Delegated Regulation amends regulatory technical standards adopted by the EU in December 2012, setting out: (i) “common provisions for the operational standards for aggregation and comparison of data, including common output formats”; and (ii) “common provisions for the operational standards for access to data, including data exchange procedures between TRs and the competent authorities listed in Article 81(3) EMIR.”

EMIR – Regulatory Technical Standards on Publication of Derivatives Information by Trade Repositories

On 10 July 2017, ESMA issued a report containing its final regulatory technical standards (“RTS”) on “data to be made publically available by [trade repositories] under Article 81 of EMIR.” As the release explains, the report sets out “several additional requirements to better specify and enhance the data made publicly available by trade repositories and to allow the publication of certain aggregate figures for market participants that are required by EU regulations, such as MiFID II and the Benchmarks Regulation.” ESMA has sent its final RTS to the European Commission, and the European Commission has three months to decide whether to endorse the standards.

Prospectus Regulation – ESMA Consultation Papers

On 6 July, ESMA published three consultation papers containing draft technical advice on the Prospectus Regulation (2017/1129/EU). The consultation period for all three papers closes on 28 September 2017 and ESMA intends to deliver the final technical advice to the European Commission by 31 March 2018.

  • Consultation Paper on the Format and Content of the Prospectus: The consultation paper addresses: (i) “the format and content of the prospectus, bases prospectus and final terms”; (ii) “the content of the new universal registration document” (“URD”); and (iii) “the content of the secondary issuance regime.”
  • Consultation on EU Growth prospectus: The consultation paper addresses: (i) “the format of the EU Growth prospectus” for small and emerging companies; (ii) “the content of the specific registration document and the specific securities note of the EU Growth prospectus”; and (iii) “the proposal for the specific summary of the EU Growth prospectus.” 
  • Consultation Paper on Scrutiny and Approval: The consultation paper addresses: (i) “the delegated acts on scrutiny of the prospectus”; (ii) “the delegated acts to be adopted in relation to approval of the prospectus”; (iii) the delegated act regarding the scrutiny and approval of URDs; and (iv) the “delegated acts on the conditions for losing the status of frequent issuer.”

Market Abuse Regulation – Q&As on Closely Related Persons

On 6 July, ESMA published an updated set of Q&As on the implementation of the Market Abuse Regulation (596/2014/EU) (“MAR”). The updated Q&As includes a new Q&A on “closely associated persons under Article 3(1)(26)(d) of MAR” with respect to the reference of “the managerial responsibilities of which are discharged.”

Short Selling Regulation – ESMA Consultation Paper

On 7 July, ESMA published a consultation paper evaluating certain elements of the EU’s March 2012 Short Selling Regulation (“SSR”) (236/2012/EU) to solicit feedback from market participants regarding technical advice ESMA intends to provide to the European Commission on the SSR . ESMA is seeking the “views of market participants on the three main elements of the Commission mandate” it received on 19 January 2017 to assist ESMA in preparing its technical advice, including: (i) “[e]xemption for market making activities”; (ii) “[s]hort term restrictions on short selling in case of a significant decline in prices”; (iii) “[t]ransparency of net short positions and reporting requirements.” The consultation period closes on 4 September 2017 and ESMA intends to delivery its final advice to the European Commission by 31 December 2017.

Transparency Directive – ESMA Q&As

On 12 July, ESMA published an updated set of Q&As on the implementation of its “guidelines on Alternative Performance Measures” (“APMs”) under the Transparency Directive (2004/109/EC). The updated Q&As includes four new answers regarding: (i) “[i]nterim financial statements; (ii) the “[c]oncept of Prominence” as included in the APMs Guidelines; (iii) “[c]ompliance by reference”; and (iv) the “[d]efinition of an APM.”


Benchmarks Regulation – Consultation on Draft Delegated Regulations

On 22 June, the European Commissions published for consultation four draft Commission Delegated Regulations supplementing the Benchmarks Regulation (2016/1011/EU). The consultation period closes on 20 July 2017.

  • Commission Delegated Regulation (Ares(2017) 3137243) specifies “technical elements of the definitions laid down in paragraph 1 of Article 3 of the [Benchmarks] Regulation,” including the definitions of “making available to the public” and “administering the arrangements for determining a benchmark.”
  • Commission Delegated Regulation (Ares(2017) 3137220) sets out “a non-exhaustive list of conditions to be taken into account by a national competent authority when considering the permission to use an existing benchmark which does not meet the requirements of the Benchmark Regulation.”
  • Commission Delegated Regulation (Ares(2017) 3137130) sets out how criteria of Article 20(1)(c)(iii) are “to be applied to assess the potential impact of the discontinuity or unreliability of the benchmark on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in one or more Member States.”
  • Commission Delegated Regulation (Ares(2017) 3137091) specifies “how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed.”

Benchmarks Regulation – Q&As on Transitional Provisions

On 5 July, ESMA published new Q&As on the transitional provisions under the Benchmarks Regulation. The new Q&As include two sets of questions and answers regarding what types of benchmarks can be provided by EU index providers during the transitional period after the applicability date of the Benchmarks Regulation.


Implementation of PFMIs

On 14 July, CPMI and IOSCO published their fourth update on implementation monitoring of the PFMI. Among other things, the report indicated that “participating jurisdictions have continued to make progress since the previous update in completing the process of adopting legislation, regulations and/or policies that will enable them to implement the PFMI.” As the report explained, “[w]hile there is generally a high degree of implementation of the PFMI across jurisdictions, a few jurisdictions are still rated ‘1’ for certain FMI types and have not yet started the implementation process.” Based on these findings, the CPMI and IOSCO urged “all jurisdictions not yet rated ‘4’ for all FMI types…to take the necessary steps to move towards full implementation as quickly as possible.”

CSDR – ESMA Consultation on Guidelines Regarding Internalized Settlement Reporting

On 10 July, ESMA published a consultation paper on internalized settlement reporting under the Central Securities Depositories Regulation (909/2014/EU) (“CSDR”). The consultation paper sets out guidelines on the “reporting architecture and exchange of information between ESMA and the competent authorities regarding internalised settlement” under the CSDR. The consultation period closes on 14 September 2017 and intends to finalize the guidelines by Q1 of 2018.

CSDR – ESMA Guidelines on Supervisory Cooperation

On 11 July, ESMA published guidelines on cooperation between competent authorities under the Central Securities Depositories Regulation (909/2014/EU) (“CSDR”). ESMA indicated that the guidelines “apply in relation to the cooperation requirements applicable to competent authorities when involved in the procedure for granting authorisation to an applicant [central securities depository (‘CSD’)]” and “in the procedure relating to the provision of services [by a CSD] in another Member State” under certain provisions of the CSDR.

Draft Guidance on Stress Testing of CCPs

On 28 June, the Committee on Payments and Market Infrastructures (“CPMI”) and IOSCO published for consultation a “framework for supervisory stress tests for central counterparties” (“CCPs”). The framework sets out matters authorities should consider when designing and conducting supervisory stress tests (“SST”) concerning the impact of stress events on multiple CCPs. According to its cover note, the consultation is seeking feedback regarding: (i) the “[o]bjective and purpose of the multi-CCP tests”; (ii) the “[s]cope and frequency of the SST exercises”; (iii) the “[i]nvolvement of CCPs and other stakeholders” in the SST process; (iv) “[i]nformation sharing, data collection and data protection”; (v) the “[t]echnical content of the framework”; and (vi) the “[u]se of SST results and disclosures.” The consultation period closes on 22 September 2017.

CCP Resilience, Recovery, and Resolvability

On 5 July, the FSB, CPMI, IOSCO, and the Basel Committee on Banking Supervision (“BCBS”) jointly published three guidance documents and two reports as part of their joint workplan established in 2015 on CCP resilience, recovery, and resolvability.

  • Resilience of CCPs: Further guidance on the PFMI – Final Report: This document provides further guidance on the “principles and key considerations in the Principles for financial market infrastructures” (“PFMI”) regarding “five key aspects of a CCP’s financial risk-management framework,” including: (i) governance; (ii) credit and liquidity stress testing; (iii) credit exposure coverage”; (iv) “efforts to implement and maintain margin systems”; and (v) CCP contribution of its financial resources to cover losses.
  • Recovery of financial market infrastructures - Revised report: This document provides further guidance on the principles and key considerations regarding recovery plan development for financial market infrastructures (“FMIs”) and regulatory authorities.
  • Guidance on Central Counterparty Resolution and Resolution Planning: This document provides guidance regarding the implementation of the FSB Key Attributes of Effective Resolution Regimes for Financial Institution and FMI resolution framework set forth by the FSB.
  • Analysis of Central Clearing Interdependencies: This report was produced by the Study Group on Central Clearing Interdependencies “to globally map interconnections between CCPs, clearing members, and other financial entities that provide financial services that are critical to the operations and viability of CCPs” and is “aimed at providing a comprehensive overview of the connections between different aspects of the central clearing system while also focusing, where possible, on the types of connections that could lead to potential contagion.”
  • Chairs’ Report on the Implementation of the Joint Workplan for Strengthening the Resilience, Recovery and Resolvability of Central Counterparties: This report describes how a 2015 workplan related to “CCP resilience, recovery planning, resolution and resolution planning, and analysis of central clearing interdependencies” has been implemented and sets out the next set of actions to be taken by the global regulators, including: (i) the “continued monitoring of implementation of the principles in the PFMI regarding resilience and recovery of CCPs, and finalisation of the framework on supervisory stress testing for CCPs”; (ii) the “implementation of the Key Attributes consistent with [FSB] expectations regarding CCP resolution and resolution planning”; (iii) “additional analysis of central clearing interdependencies to assess whether the key findings are stable over time”; and (iv) “further work to assess incentives to clear centrally arising from the interaction of post-crisis reforms.


Financial Stability Implications of FinTech

On 27 June, the FSB published a report titled “Financial Stability Implications from FinTech.” Based on findings from literature, discussions with stakeholders, and “a stocktake of regulatory approaches to FinTech,” the FSB indicated that there are currently no “compelling financial stability risks from emerging FinTech innovations,” but identified three priority areas for international cooperation and seven areas that warrant authorities’ attention.

  • Priority Areas for International Cooperation: The FSB indicated that international entities and national authorities should aim to increase cooperation with regards to: (i) “[m]anaging operational risks from third-party service providers,” such as risks stemming from “cloud computing and data services”; (ii) “[m]itigating cyber risks”; and (iii) “monitoring macrofinancial risks,” such as risk emerging from “[s]ystemic importance and procyclicality.”
  • Other Areas That Warrant Authorities’ Attention: Other areas identified by the FSB as warranting authorities’ attention include: (i) “[c]ross-border legal issues and regulatory arrangements,” such as “the legal validity and enforceability of smart contracts and other applications of the distributed ledger technology”; (ii) “[g]overnance and disclosure frameworks for big data analytics”; (iii) “[a]ssessing the regulatory perimeter and updating it on a timely basis”; (iv) “[s]hared learning with a diverse set of private sector parties,” such as through “regulatory sandboxes and accelerators and innovation hubs”; (v) “[f]urther developing open lines of communication across relevant authorities”; (vi) “[b]uilding staff capacity in new areas of required expertise; and (vii) “[s]tudying alternative configurations of digital currencies.”  


  • 30 July: International Association of Insurance Supervisors consultation on product oversight in inclusive insurance closes.
  • 31 July: International Association of Insurance Supervisors consultation on ICP 13: Reinsurance and Other Forms of Risk Transfer closes.
  • 31 July: ESMA consultation on draft RTS for the trading obligation of derivatives under MiFIR closes.
  • 3 August: EBA supplementary data collection of information regarding investment firms in response to the European Commission’s Call for Advice on the new prudential framework for MiFID investment firms closes.
  • 17 August: European Commission consultation on a Commission Delegation Regulation (Ares(2017) 3670050) regarding information requirements and conduct of business rules applicable to the distribution of insurance-based investment products closes.
  • 29 August: International Association of Insurance Supervisors consultation on four Insurance Core Principles closes.
  • 30 August: CPMI and IOSCO consultation on harmonisation of critical OTC derivatives data elements closes.
  • 31 August: EIOPA consultation on EIOPA’s first set of advice to the European Commission on specific items in the Solvency II Delegated Regulation closes.


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