EU Regulatory Research
ESMA Work Programmes
On 9 February, ESMA published its 2018 risk assessment work programme. According to the work programme, ESMA will in 2018 focus on: (i) “completing the necessary technical infrastructure” for the Alternative Investment Fund Managers Directive (“AIFMD”), the Markets in Financial Instruments Directive (“MiFID II”) and the Markets in Financial Instruments Regulation (“MiFIR”), and the European Market Infrastructure Regulation (“EMIR”); (ii) “enhanc[ing] its risk monitoring capacities [and] generating market descriptive statistics as well as sophisticated risk indicators and metrics on the basis of new proprietary data”; (iii) “continu[ing] to pursue in-depth analyses around key topics, including market and fund liquidity, fund leverage, and the impact of innovation especially in the areas of market infrastructures and investment advice”; and (iv) “continu[ing] its impact assessment activities, complementing the regulatory work programme, and . . . further enhance[ing] its stress testing work, aiming at successively more sophisticated Unionwide tests on CCPs in future years, and focusing on developing ESMA’s approach to investment fund stress testing.”
On 7 February, ESMA published its 2018 supervisory convergence work programme. According to the work programme, ESMA will in 2018 focus on: (i) “ensuring that MiFID II/MiFIR are applied in a sound, efficient and consistent manner across the EU”; (ii) “improving data quality to ensure efficient reporting under various requirements set by EU legislation”; (iii) “ensuring supervisory convergence in the context of the UK’s decision to withdraw from the EU”; (iv) “safeguarding the free movement of services in the EU through adequate investor protection in the context of cross-border provision of services”; and (v) “monitoring developments in financial innovation, in particular through the analysis of emerging and existing instruments, platforms and technology.”
On 1 February, ESMA published its 2018 regulatory work programme. The regulatory work programme sets out the proposed technical standards or advice to be adopted, including those relating to: (i) the Prospectus Regulation; (ii) the Simple, Transparent, and Standardized Securitization Regulation; (iii) the European Social Entrepreneurship Funds Regulation (“EuSEF”); (iv) the European Venture Capital Funds Regulation (EuVECA); (v) the Regulation on European Long-term Investment Funds (“ELTIFs”); (vi) the Securities Financing Transaction Regulation (“SFTR”)”; (vii) MiFID II/MiFIR; (viii) the Benchmarks Regulation; (ix) the Market Abuse Regulation (“MAR”); (x) the Central Securities Depository Regulation (“CSDR”) (xi) EMIR; and (xii) the Recovery and Resolution Regulation.
European Systemic Risk Board Publishes Report on Leverage and Liquidity in Investment Funds
On 14 February, the European Systemic Risk Board (“ESRB”) published a document of recommendations regarding “systemic risks related to liquidity mismatches and the use of leverage in investment funds.” The report concludes that while “there is evidence that the current regulatory framework provides for effective risk management by investment funds at the microprudential level . . . their efficacy from a macroprudential perspective is largely untested.” To address this gap, the report provides several recommendations in five areas where there is a need for further legislative changes or ESMA guidance, including: (i) “liquidity management tools for redemption”; (ii) “additional provisions to reduce the likelihood of excessive liquidity mismatches”; (iii) stress testing; (iv) UCITS reporting; and (v) Article 25 of AIFMD regarding macroprudential leverage limits. The ESRB also published two accompanying Annexes, available here and here, containing the compliance criteria and the economic rational and assessment for the recommendations.
AIFMD - European Commission Launches Survey on Functioning of AIFMD
On 8 February, the European Commission launched a survey aimed at gathering the views of stakeholders on the functioning of the AIFMD. The survey was launched as part of the European Commission’s “research on how the AIFMD has worked in practice and to what extent its objectives have been met” and requested comments regarding: (i) the AIFMD’s requirements; (ii) the stakeholder’s experience in applying these requirements; and (iii) the market impact of the AIFMD.
On 12 February, EIOPA published a decision of its Board of Supervisors on the annual market and credit risk modelling comparative study to be performed in relation to Article 133(4) of the Solvency II Directive and as highlighted in EIOPA’s opinion on the preparation of internal models applications (dated 14 April 2015). The decision establishes the scope, process, and format of the study to ensure that there is “consistent and regular collection of information in order to allow the performance of such comparative studies.” The decision entered into force on 13 February 2018.
Insurance Distribution Directive
On 14 February, the Council of the EU confirmed their approval of the proposal for a Directive (COM(2017) 792 final) to delay the application date of the Insurance Distribution Directive (EU/201/2358) (“IDD”) by seven months to 1 October 2018. According to the Council’s press release, “given that the European Parliament and the Council are not expected to adopt the amending directive before March 2018, the delay will apply retroactively from 23 February .”
On 7 February, the European Parliament decided not to raise objections to the proposal for an amending Delegated Regulation (C(2017) 8681 final) to delay the application date of two IDD Delegated Regulations, (EU) 2017/2358 and (EU) 2017/2359, by seven months to 1 October 2018.
EIOPA Publishes Paper on Systemic Risk and Macro-Prudential Policy in the Insurance Sector
On 6 February, EIOPA published “the first in a series of papers with the aim of contributing to the debate on systemic risk and macroprudential policy” in the insurance sector. The paper explains that it “aims at identifying and analysing the sources of systemic risk in insurance from a conceptual point of view” and: (i) outlines the relevant lessons learned from the financial crisis; (ii) discusses the “social dimension of macroprudential policy and financial stability”; (iii) examines the sources of systemic risk in the insurance industry; and (iv) analyses the potential need and scope of a macroprudential framework for the insurance sector.
ESMA Launches Interactive Single Rulebook
On 14 February, ESMA launched its Interactive Single Rulebook, which the Rulebook’s webpage explains is an “on-line tool that aims at providing a comprehensive overview of and easy access to all level 2 and level 3 measures adopted in relation to a given level 1 text.” According to the press release, the Rulebook currently includes the Level 1 text of the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive, with links to all relevant Level 2 and Level 3 measures available on ESMA’s website. ESMA next intends to incorporate the level 1 text of the Credit Rating Agencies Regulation (“CRA Regulation”) and MiFID II/MiFIR.
ECON Publishes Two Draft Reports on Proposed Regulations Regarding the Recovery and Resolution of CCPs
On 2 February, the European Parliament Committee on Economic and Monetary Affairs (“ECON”) published two draft reports (dated 31 January 2018) regarding the recovery and resolution of CCPs:
- A draft report (2017/0136(COD)) on a proposal for a Regulation regarding “the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs” that amends EMIR and Regulation (EU) No 1095/2010 establishing ESMA.
- A draft report (2016/0365(COD)) on a proposal for a Regulation regarding a “framework for the recovery and resolution of central counterparties” that amends Regulation (EU) No 1095/2010 establishing ESMA, EMIR, and the SFTR.
ESMA Publishes Final Guidelines on CCP Conflict of Interest Management
On 7 February, ESMA published its final guidelines on CCP conflict of interest management. As explained in the document, the final guidelines follow the consultation paper published in June 2017 and highlight amendments ESMA has made to the guidelines, including: (i) more clearly defining certain aspects of the scope of the guidelines; (ii) amending certain requirements regarding the safeguarding of confidential information; (iii) introducing a qualitative element for consideration when restricting the risk of conflicts of interest from board members and executive directors; (iv) amending the prescriptiveness of the rule regarding remuneration and acceptance of gifts; and (v) clarifying certain elements of the requirement for a CCP’s board of directors to have oversight of the CCP’s conflicts of interest.
IOSCO Publishes Consultation Report on Proposed Policy Measures to Protect Investors of OTC Leveraged Products
On 13 February, IOSCO published a consultation report on proposed policy measures to protect retail investors offered over-the-counter (“OTC”) leveraged products. According to the press release, the report recommends that its member jurisdictions adopt, and provides guidance regarding the adoption of: (i) “a licensing requirement for all firms that sell the relevant products to retail investors either domestically or on a cross-border basis”; (ii) “leverage limits or minimum margin requirements”; (iii) “measures to address the risk of investors losing more than their initial investment”; (iv) “measures to improve the disclosure of risks of the products, including profit and loss ratios”; (v) “other focused requirements to enhance the quality of pricing and order execution”; and “measures to restrict the sale, distribution and marketing of the products with a view to addressing mis-selling risk.” The consultation period closes on 27 April 2018.
ESMA Publishes Final Implementing Technical Standards on Supervisory Cooperation in Market Abuse Investigation
On 6 February, ESMA published its final implementing technical standards (“ITSs”) on supervisory cooperation in market abuse investigation in accordance with Articles 24 and 25 of the Market Abuse Regulation (596/2014/EU). As explained by the press release, the final ITSs “clarify how national competent authorities . . . and ESMA should cooperate with each other as well as with other EU authorities, entities and public bodies in the field of market abuse.”
MiFID II/MiFIR – ESMA Updates Q&As on Transparency Topics
On 7 February, ESMA updated its Q&As on transparency issues under MiFID II/MiFIR. The updated Q&As contain two new Q&As regarding pre-trade transparency waivers, which cover: (i) “pre-arranged/negotiated transactions for non-equity instruments”; and (ii) “minimum size of orders held in an order management facility for non-equity financial instruments.”
EMIR – ESMA Updates Q&As on the Implementation of EMIR
Benchmarks Regulation – ESMA Updates Q&As on the Implementation of the Benchmarks Regulation
On 5 February, ESMA updated its Q&As on the implementation of the Benchmarks Regulation. According to the press release, the updated Q&As include two revised Q&As regarding: (i) “how the threshold in the exemption under Article 2(2)(g) of BMR should be calculated . . . [for] commodity benchmarks”; and (ii) “clarification of the cases in which a benchmark is used to measure the performance of an investment fund.”
Short Selling Regulation – ESMA Updates Q&As on the Implementation of the Short Selling Regulation
On 5 February, ESMA updated its Q&As on the implementation of the Short Selling Regulation (236/2012/EU). The updated Q&As contain one revised Q&A regarding uncovered short sales and “covering a short sale with claims to as yet unissued shares (subscription rights, convertible bonds).”
CSDR – ESMA Updates Q&As on the Implementation of the CSDR
On 6 February, ESMA updated its Q&As on the implementation of the CSDR. According to the press release, the updated Q&As contain four new Q&As regarding whether: (i) “a CSD intending to provide data reporting services listed in Section D of Annex I to MIFID II as ancillary services [should] comply with the relevant requirements set out in MIFID II”; (ii) “a CSD [can] share its risk monitoring committees (Article 48 of the RTS on CSD Requirements) with other entities of the same group”; (iii) “risk monitoring committees of CSDs belonging to the same group [can] have identical memberships”; and (iv) “TARGET2-Securities (T2S) qualify as a critical service provider within the meaning of Article 68 of the RTS on CSD Requirements.”
o 9 March: ESMA consultation on draft RTS for the new Prospectus Regulation ((EU) 2017/1129) closes.
o 15 March: European Banking Authority consultation on the implementation in the EU of the international revised market risk and counterparty credit risk frameworks closes.
o 27 March: IOSCO consultation on proposed policy measures to protect investors of OTC leveraged products closes.
o 4 April: IOSCO consultation on proposed guidance regarding conflicts of interest and associated conduct risks during the equity capital raising process closes.