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EU Regulatory Research

EU Regulatory Update



FSB Publishes Peer Review on Bank Resolution Planning

On 29 April, the Financial Stability Board (“FSB”) published a report titled “thematic review on bank resolution planning.” The report is part of a series of peer reviews regarding the implementation of the FSB’s key attributes of effective resolution regimes for financial institutions (“Key Attributes”) and evaluates the implementation by FSB jurisdictions of the resolution planning standards set out in the Key Attributes. The report indicates that while bank resolution planning frameworks have been adopted in most FSB jurisdictions, “important work remains to ensure that bank resolution plans can be put fully into effect.” As such, the report recommends: (i) FSB jurisdictions should take further steps to adopt and operationalize their resolution planning framework, such as requiring banks to take measures to improve their resolvability, developing playbooks for executing resolution strategies, and advancing work on resolution funding and valuation; (ii) FSB should undertake work to support member authorities’ resolution planning for banks other than G-SIBs that could be systemic in failure; (iii) FSB, working with relevant authorities, should promote sharing bank resolution planning experiences and practices in enhancing cooperation and information-sharing arrangements.

FSB Plenary Meeting

On 26 April, the FSB held a plenary meeting to discuss vulnerabilities in the global financial system and its 2019 work programme. Among other things, the plenary discussed: (i) current vulnerabilities in the global financial system, such as Brexit and financial institutions’ exposure to riskier credit instruments like leveraged loans, directly and through collateralized loan obligations; (ii) a new initiative by the FSB to develop a surveillance framework regarding vulnerabilities in the global financial system; (iii) a draft report that looked at examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation; (iii) a review of the implementation of the total-loss absorbing capacity standard; (iv) financial innovation and risk arising from crypto-currencies; (v) response to and recovery from a cyber incident; and (vi) concerns regarding the decline in correspondent banking relationships.

ISDA Publishes Letter to FSB Regarding Fallbacks for Derivatives Referencing Key IBORs

On 10 April, the International Swap Dealer Association (“ISDA”) published a letter it sent to Andrew Bailer, CEO of the UK Financial Conduct Authority, John Williams, the President and CEO of the Federal Reserve Bank of New York, and the Co-Chairs of the FSB Official Sector Group regarding the status of ISDA’s work to “implement more robust fallbacks for derivatives referencing key interbank offered rates (‘IBORs’).” After noting a successful year in 2018, the letter indicates that key milestones for 2019 include: (i) “supplemental consultations on term and spread adjustments for additional key IBORs”; (ii) “selection of a vendor to publish those adjustments”; (iii) “launch of amendments” to the IBOR Fallbacks for 2006 ISDA Definitions; and (iv) “launch of a protocol to include the amendments in existing derivative transactions.”


European Commission Launches Consultation on the Distance Marketing of Financial Services Directive

On 9 April, the European Commission launched a consultation on whether the Distance Marketing of Financial Services Directive (2022/65/EC) continues to be fit for purpose, especially in light of the increasingly digital nature of the retail financial sector. The Directive aims to ensure that retail investors are provided details about a financial service and the financial service provider before concluding a distance contract across the EU. The consultation period closes on 2 July 2019.

European Parliament Adopts European System of Financial Supervision Omnibus Proposal

On 16 April, the European Parliament adopted at first reading the compromise texts of the omnibus proposal on the European System of Financial Supervision (“ESFS”), which comprises the European Systemic Risk Board (“ESRB”), the European Banking Authority (“EBA”), the European Securities and Markets Authority (“ESMA”) and the European Insurance and Occupational Pensions Authority (“EIOPA”). The omnibus proposal aims to strengthen the ESFS and to improve the mandates, governance and funding of the EBA, ESMA, EIOPA and ESRB and includes:

  • proposal for a regulation to amend Regulation (EU) No. 1092/2010 on European Union macroprudential oversight of the financial system and establishing a European Systemic Risk Board;

  • proposal for a directive to amend Directive 2014/65/EU on markets in financial instruments and Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (“Solvency II”); and

  • proposal for a regulation to amend the regulations establishing the European Supervisory Authorities (“ESAs”) and other financial markets regulations.


European Parliament Adopts Protection for Whistleblowers Directive

On 16 April, the European Parliament adopted at first reading the text of a proposal for a directive on the protection of persons reporting breaches of EU law. The proposed directive would, among other things: (i) establish new rules allowing whistleblowers to disclose information either internally to the legal entity concerned, or externally to national competent authorities or relevant EU institutions; and (ii) establish safeguards to prevent whistleblowers from being subject to, or facing threats of being subject to, suspension, demotion, intimidation, withheld training, transfer, or other forms of retaliation.


NGFS Publishes Report Regarding Climate Change as a Source of Financial Risk

On 17 April, the Network for Greening the Financial System (“NGFS”), a group of central banks and supervisors, published a report focusing on climate-related risks as a source of financial risk. The report issued four recommendations for central banks and supervisors, which included: (i) integrating climate-related risks into financial stability monitoring and micro-supervision; (ii) integrating sustainability factors into own-portfolio management; (iii) bridging data gaps; and (iv) building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing. The report included two recommendations for policymakers: (i) achieving robust and internationally consistent climate and environment-related disclosure; and (ii) supporting the development of a taxonomy of economic activities. The NGFS also announced that they will prepare a number of technical documents relating to this topic over the next year.


European Parliament Adopts Cross-Border Distribution of Collective Investment Funds

On 16 April, the European Parliament adopted at first reading the compromise text of a proposal for a Directive amending the Undertakings for the Collective Investments in Transferable Securities (“UCITS”) Directive (2009/65/EC) (“UCITS IV”) and the Alternative Investment Fund Managers (“AIFMs”) Directive (2011/61/EU) (“AIFMD”) in relation to cross-border distribution of collective investment funds.  The proposal aims to remove restrictions on the free movement of units and shares of collective investment undertakings. The European Parliament also adopted the proposal for a Regulation on facilitating cross-border distribution of collective investment funds and amending the European venture capital funds Regulation (EU) 345/2013 (“EuVECA”) and the European social entrepreneurship funds Regulation (EU) 346/2016 (“EuSEF”).  The proposal establishes additional rules and procedures concerning UCITS and AIFMs, such as rules requiring ESMA to develop draft technical standards regarding the marketing of collective investment undertakings. Collectively, the proposals aim to coordinate the conditions for fund managers operating in the EU market and facilitate the cross-border distribution of the funds managed by them.

European Parliament Adopts Prudential and Supervisory Requirements for Investment Firms

On 16 April, the European Parliament adopted at first reading the compromise text of a proposed Investment Firms Directive (“IFD”) (2017/0358 (COD)) and Investment Firms Regulation (“IFR”) (2017/0359 (COD)), which set out new prudential requirements and supervisory arrangements for investment firms. The IFD amends the Capital Requirements Directive (2013/36/EU) (“CRD IV”) and the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID II”), and the IFR amends the Capital Requirements Regulation (EU) 575/2013 (“CRR”), the Markets in Financial Instruments Regulation (EU) 600/2014 (“MiFIR”) and the Regulation (EU) 1093/2010 establishing the EBA. Until now, investment firms have been subject to the same capital, liquidity and risk management requirements as banks. According to the proposals, the requirements applicable to investment firms would be differentiated according to firms’ size, nature and complexity.  The proposals also aim to strengthen the equivalence regime that would apply to third-country investment firms and grant additional powers to the European Commission, such as assessing capital requirements applicable to firms providing bank-like services and having the authority to apply specific operational conditions to an equivalence decision to ensure that ESMA and national competent authorities have the requisite tools to monitor the activities of third-country firms.


EIOPA Publishes 2018 Insurance Stress Test Recommendations

On 26 April, EIOPA published a report containing its recommendations addressed to national competent authorities based on the findings of its 2018 insurance stress tests. The report states that “on aggregate the insurance sector is sufficiently capitalised to absorb the combination of shocks prescribed” in the scenarios that were tested. The report, however, also states that the test results “confirm the significant sensitivity to market shocks for the European insurance sector with [insurance] [g]roups (“Groups”) being vulnerable not only to low yields and longevity risk, but also to a sudden and abrupt reversal of risk premia, combined with an instantaneous shock to lapse rates and claims inflation.” As such, EIOPA recommended that national competent authorities: (i) “strengthen supervision of the Groups identified as facing greater exposure to Yield Curve Up and/or Yield Curve Down scenarios”; (ii) “carefully review and, where necessary, challenge the capital and risk management strategies of the affected Groups”; (iii) “evaluate the potential management actions to be implemented by the affected Groups”; (iv) “further contribute to enhance the stress test process”; and (v) “enhance cooperation and information exchange with other relevant Authorities.”

EIOPA Publishes 2018 Supervisory Activities and 2019 Priorities Report

On 26 April, EIOPA published its 2018 supervisory activities and 2019 priorities report. EIOPA’s main focus in 2018 was on supervisor convergence, which it worked towards through: (i) building common benchmarks for supervisory practices; (ii) peer reviewing national practices; and (iii) conducting its own independent assessment of the insurance supervisory framework. Going forward, EIOPA’s 2019 priorities include: (i) the “practical implementation of the common supervisory culture and the further development of supervisory tools”; (ii) evaluating the “risk to the internal market and the level playing field which may lead to supervisory arbitrage”; and (iii) supervising emerging risks, such as those relating to cybersecurity, InsurTech, and Brexit.

Council of the EU Publishes Compromise Text and Indicates It Can Approve European Parliament’s Position on the PEPP

On 9 April, the Council of the EU wrote an information note to its Permanent Representative Committee (“COREPER”) regarding the proposal for a regulation on a pan-European Personal Pension Product (COM(2017) 343) (“PEPP”). The information note indicated that the compromise text and position adopted by the European Parliament at first reading “reflects what had been previously agreed between the institutions” and that “the Council should therefore be in a position to approve the Parliament's position.

EIOPA Publishes Supervisory Statement Regarding the Application of Proportionality to the Solvency Capital Requirement under Solvency II

On 11 April, EIOPA published a supervisory statement regarding the application of proportionality to the solvency capital requirement (“SCR”) calculation under Solvency II. EIOPA indicated that it has identified “potential divergences in the supervisory practices concerning the supervision of the SCR calculation of immaterial sub-modules” and recommends more consistent implementation of the proportionality principle to the supervision of the SCR calculation.



On 18 April, the European Parliament adopted the agreement on the proposal for a regulation amending the European Market Infrastructure Regulation (EU) 648/2012 (“EMIR”) regarding the agreement on the clearing obligation, reporting requirements and risk-mitigation techniques for OTC derivatives, and trade repositories (“EMIR Refit”). Among other things, the agreement will: (i) extend by another two years the temporary exemption from the clearing obligation of pension scheme arrangements; (ii) introduce a new category of “small financial counterparties” which will be exempted from the obligation to clear their transactions through a central counterparty (“CCP”), while remaining subject to risk mitigation obligations; (iii) streamline existing rules on reporting obligations to improve the quality of the data reported and to make the supervision more effective; and (iv) increase access to clearing by removing existing unnecessary obstacles, such as introducing an obligation on clearing brokers to provide services on fair, reasonable, non-discriminatory and transparent commercial terms ("FRAND") by ensuring there is transparency with regards to fees as well as unbiased and rational contractual arrangements. The Council of the EU must formally approve the agreement before the regulation is adopted and published in the Official Journal. The regulation will become effective 20 days after its publication. 

On 18 April, the European Parliament adopted the final text of a proposal for a regulation amending the Regulation establishing a European Supervisory Authority and EMIR regarding the procedures and authorities involved for the authorization of CCPs and requirements for the recognition of third-country CCPs (“EMIR 2.2”). Among other things, the final text of the proposal: (i) seeks the creation of a CCP Executive Session within ESMA that will enhance the coordination between supervisory authorities and central banks; (ii) focuses on the accountability and independence of members of the CCP Executive Session as well as the functions of ESMA’s Executive Director; and (iii) envisages the introduction of a tier system that categorises third-country CCPs according to their systemic importance to the European market. The Council of the EU must formally approve the agreement before the regulation is adopted and published in the Official Journal. The regulation will become effective 20 days after its publication.

ESMA Updates Publication Schedule for Transparency Calculations

On 26 April, ESMA issued a statement indicating that it will publish the transparency calculations for May and June in the following days in light of the extension of Article 50(3) in relation to a new potential no-deal Brexit date of 31 October 2019.

o   On 1 May 2019, ESMA published another statement indicating that it has decided to delay the publication of the quarterly systematic internalisers determinations for equity instruments and bonds, which were scheduled to be published on 30 April 2019, due to technical issues. ESMA indicated that such determinations will now be published before 10 May 2019.

o   On 1 May 2019, ESMA also began making available data regarding the third quarterly liquidity assessment for bonds that are available for trading on EU trading venues as of the end of December.

o   The data regarding the double volume cap continues to be scheduled for publication on 8 May 2019. 

MiFID/MiFIR Position Limits

On 30 April, ESMA published five opinions on position limits regarding commodity derivatives under MiFID II/MiFIR. The opinions agree on proposed position limits regarding: (i) Belgian Power Baseload Futures; (ii) EEX Dutch Power Baseload Futures; (iii) Phelix DEAT OTF Base Futures; (iv) Phelix DE Power Peak Futures; and (v) Phelix DEAT Power Peak Futures.

Recognition of Equivalence of Japan Financial Services Agency Under EMIR

On 25 April, the European Commission adopted an implementing act recognising that the legal, supervisory and enforcement arrangements of Japan for derivatives transactions supervised by the Japan Financial Services Agency are equivalent to the valuation, dispute resolution and margin requirements of Article 11 of EMIR. The decision becomes applicable 20 days after its publication in the Official Journal.

ESMA Renews Restriction on Contracts for Difference Offered to Retail Investors

On 30 April, ESMA published a press release stating that it agreed on 17 April 2019 to renew the restriction on the marketing, distribution or sale of contracts for difference (“CFDs”) to retail clients until 1 August 2019.  This agreement extends the restriction, which has been in place since 1 August 2018, for a further three months.

ESMA Publishes Updated Q&As on MiFID II/MiFIR

On 9 April, ESMA updated its Q&As regarding data reporting under MiFID II/MiFIR. The Q&As provide: (i) clarifications to the requirements for submission of reference data under MiFIR relating to reporting obligations for trading venues operating on the basis of a specified list of instruments; and (ii) new Q&As regarding how operators of trading venue(s) should report instrument reference data.


ESAs Publish Joint Advice Regarding FinTech

On 10 April, the Joint Committee of the ESAs published two pieces of Joint Advice in response to requests made by the European Commission in its 8 March 2018 FinTech Action Plan:

  • Joint Advice on the Need for Legislative Improvements Relating to Information and CommunicationTechnology (“ICT”) Risk Management Requirements in the EU Financial Sector: This Advice presented a number of proposals aimed at: (i) “promoting stronger operational resilience and harmonisation in the EU financial sector by applying changes to their respective sectoral legislation”; (ii) “streamlining aspects of the incident reporting frameworks across the financial sector”; and (iii) using “legislative solutions [to establish] an appropriate oversight framework to monitor the activities of critical third party service providers.”

  • Joint Advice on the Costs and Benefits of a Coherent Cyber Resilience Testing Framework for Significant Market Participants and Infrastructures Within the EU Financial Sector: This advice examined the costs and benefits of establishing a uniform cyber resilience testing framework across the EU and concluded that although there are “clear benefits of such a framework . . . [there are currently] significant differences across and within financial sectors as regards [to] the maturity level of cybersecurity.” As such, the advice recommends that in the short-term, the EU should “focus on achieving a minimum level of cyber-resilience across the sectors, proportionate to the needs and characteristics of the relevant entities.”  In the long-term, the advice states that the ESAs will aim to ensure that there is a “sufficient cyber maturity level of identified cross-sector entities.”

FSB Publishes Directory of Crypto-Asset Regulators

On 5 April 2019, the Financial Stability Board (“FSB”) published a directory of crypto-asset regulators to provide information on the “relevant regulators and other authorities in FSB jurisdictions and international bodies who are dealing with crypto-asset issues, and the aspects covered by them.”


  • 2 July: European Commission consultation closes on the Distance Marketing of Financial Services Directive

Ianthe Zabel
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