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EU Regulatory Research

EU Regulatory Research

EU Regulatory Update


ESAs Launch Consultation on Technical Standards Regarding the Reporting of Intra-group Transactions and Risk Concentration for Financial Conglomerates

On 22 May, the Joint Council of the European Supervisory Authorities (“ESAs”) launched a consultation on draft implementing technical standards (“ITS”) regarding the reporting of intra-group transactions and risk concentration for financial conglomerates. The draft ITS aim to establish a “single framework of requirements for the reporting of intra-group transactions and risk concentration by financial conglomerates subject to supplementary supervision in the European Union” and provide, among other things, “one single set of templates and a single embedded dictionary using common definitions and a single set of instructions to fill in the templates.” The consultation period closes on 15 August 2019.

FSB Launches Evaluation of Too-Big-to-Fail Reforms

On 23 May, the Financial Stability Board (“FSB”) launched a consultation to assess whether the too-big-to-fail reforms implemented after the financial crisis are “reducing the systemic and moral hazard risks associated with systemically important banks (“SIBs”).” The FSB is requesting feedback regarding, among other things: (i) the extent that too-big-to-fail reforms are achieving their objectives as described in the a terms of reference published by the FSB; (ii) the types of too-big-to-fail policies (e.g., higher loss absorbency, more intensive supervision, resolution and resolvability) that have had an impact on SIBs and how these policies have affected SIBs; and (iii) the “broader effects of these reforms on financial system resilience and structure, the functioning of financial markets, global financial integration, or the cost and availability of financing.” The consultation period closes on 21 June 2019.

IOSCO Publishes First Annual Work Program to Enhance Efficacy of its Work

On 25 May, the International Organization of Securities Commissions (“IOSCO”) published its first annual work program regarding enhancing the efficacy of its work. IOSCO indicated that it intends to work on five broad focus areas that were approved by IOSCO’s Board in late 2016 to guide IOSCO´s work: (i) “[s]trengthening the structural resilience of capital markets”; (ii) “[a]ddressing data gaps and information sharing issues”; (iii) “[a]pplying new insights into investor protection and investor education”; (iv) “[a]nalyzing the role of securities markets in capital-raising and sustainability issues, and the related role of securities regulation”; and (v) “[e]xamining the role of regulation in financial technology and automation.” In addition, IOSCO identified five priorities for 2019, including: (i) crypto-assets; (ii) artificial intelligence and machine learning; (iii) market fragmentation; (iv) passive investing and index providers; and (v) retail distribution and digitalization. 

IOSCO Publishes Consultation Paper on Key Considerations for Regulating Crypto-asset Trading Platforms

On 28 May, IOSCO published a consultation paper regarding the issues associated with crypto-asset trading platforms (“CTPs”) and the key considerations to consider in addressing these issues. In particular, IOSCO is seeking feedback regarding: (i) access to CTPs; (ii) safeguarding participant assets; (iii) conflicts of interest; (iv) operations of CTPs; (v) market integrity; (vi) price discovery; and (vii) technology development. The consultation period closes on 29 July 2019.

FSB Publishes Peer Review of Implementation of the LEI

On 28 May, the FSB published a peer review of the implementation of the Legal Entity Identifier (“LEI”). The report indicates that while “[m]ost FSB jurisdictions have implemented rules mandating LEI use in at least one area” and that “widespread coverage has already been achieved in over-the-counter (“OTC”) derivatives and securities markets . . . the LEI has far to go to meet the G20’s objective [as] coverage is too low outside securities and derivatives markets to effectively support new industry or regulatory uses . . . [and] adoption also remains uneven across jurisdictions, with coverage concentrated in Canada, the EU and the United States.” Consequentially, the peer review provides four sets of recommendations to FSB member jurisdictions, the FSB itself, relevant standard setting bodies and international organizations, and the LEI Regulatory Oversight Committee and Global LEI Foundation.

IOSCO Publishes 2019 Priorities and Workplan

On 30 May, IOSCO published a press release setting out its 2019 priorities and workplan as discussed in its annual meeting. Among other things, IOSCO’s board agreed to: (i) “publish a consultation report on crypto-asset trading platforms, in response to a G20 request”: (ii) “publish an IOSCO report on Market Fragmentation and Cross Border Regulation, in response to a G20 request, which would analyze how some financial markets may have experienced fragmentation in whole or in part due to regulation”; (iii) to conduct further work on distributed ledger technology, ethics in artificial intelligence and machine learning, as well as assisting emerging markets with FinTech matters; (iv) provide guidance to members in determining whether to sign an administrative arrangement facilitating cooperation and exchange of enforcement and supervisory information following the adoption of the European General Data Protection Regulation (EU/2016/679); and (v) “publish a Task Force report that examines how IOSCO members are applying existing cyber standards or guidance in their respective regulatory regimes and identifies potential gaps in the application of these standards that may need to be addressed.”

FSB Publishes Report on Market Fragmentation

On 4 June, the FSB published a report on market fragmentation and tools that could be used to address such issue. The report focuses on trading and clearing of over-the-counter (“OTC”) derivatives across borders, banks’ cross-border management of capital and liquidity, and the sharing of data and other information internationally.  The report examines a number of examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation and establishes approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, and help to mitigate any negative effects of market fragmentation on financial stability.

IOSCO Publishes Report on Market Fragmentation

On 4 June, IOSCO published a report that “examines instances of regulatory-driven fragmentation in wholesale securities and derivatives markets and considers what actions regulators can take to minimize its adverse effects.” The report notes that despite international efforts to address market fragmentation, “some challenges remain and strengthening cooperation between regulatory authorities could further assist in addressing effects on the financial system stemming from market fragmentation.” Consequentially, the report sets forth a number of proposed measures, including those relating to: (i) “foster[ing] further mutual understanding of one another’s legislative frameworks”; (ii) “deepen[ing] existing regulatory and supervisory cooperation”; and (iii) “consider[ing] whether there are any good or sound practices which can be identified regarding deference tools, without changing the existing legislative requirements or frameworks that authorities have in place.”


ESMA Issues Statement Regarding Application of the Trading Obligation for Share in a No-Deal Brexit

On 29 May, EMSA issued a public statement further considering the impact of a no-deal Brexit on the trading obligation for shares (“STO”) under Article 23 of the Markets in Financial Instruments Regulation (EU) 600/2014 (“MiFIR”) and in the absence of an equivalence decision in respect of the UK by the European Commission. ESMA noted that it had issued guidance on 19 March 2019 that would have applied the STO to 14 shares with UK International Securities Identification Numbers (“ISINs”). According to the 29 May 2019 statement, ESMA, “after careful consideration, and in coordination with the EC . . . concluded that an approach to the STO based only on the ISIN of the share would be more likely to minimise any such risk of disruption in the interest of orderly markets.” Consequentially, ESMA indicated that it would not apply the STO to the 14 UK ISINs included in its previous guidance.


European Parliament Decides not to Object to Delegated Regulations Regarding Conflicts of Interests in EuSEFs and EuVECAs

On 11 and 15 May, the European Parliament indicated in the procedural files, available here and here, of the following delegated regulations that they have decided not to object to them:

o    Commission Delegated Regulation (C(2019) 669) supplementing Regulation (EU) No 346/2013 of the European Parliament and of the Council with regard to conflicts of interest, social impact measurement and information to investors in the area of European social entrepreneurship funds (“EuSEF”); and

o    Commission Delegated Regulation (C(2019) 664) Regulation (EU) No 345/2013 of the European Parliament and of the Council with regard to conflicts of interest in the area of European venture capital funds (“EuVECAs”).

ESMA Publishes Updated Q&As Related to the Application of AIFMD and UCITS

On 4 June, ESMA published updated Q&As regarding the application of the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) (“UCITS”) and the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”). The updated Q&A document provides clarification for both directives regarding: (i) the “distinction between depositary functions and mere supporting tasks that are not subject to the delegation requirements set out in the AIFMD and UCITS Directive”; (ii) the “delegation of safekeeping functions”; (iii) “performance of depositary functions where there are branches in other Member States”; (iv) “supervision of depositary functions in case of branches in other Member States”; and (v) the “delegation of depositary functions to another legal entity within the same group.”


EIOPA Publishes Technical Advice to the European Commission Regarding Sustainable Finance in Solvency II and IDD

On 30 April, the European Insurance and Occupational Pensions Authority (“EIOPA”) published technical advice to the European Commission regarding the integration of sustainability risks and factors relating to risk management, investment strategy, stewardship and product oversight into the delegated acts under Solvency II (2009/138/EC) and the Insurance Distribution Directive (EU/2016/97) (“IDD”).

EIOPA Publishes Report Regarding Big Data Analytics in Motor and Health Insurance

On 8 May, EIOPA published a report reviewing the use of big data analytics (“BDA”) in motor and health insurance. Key findings from the report include: (i) “[t]raditional data sources such as demographic data or exposure data are increasingly combined (not replaced) with new sources like online media data or telematics data”; (ii) “BDA tools such as such as artificial intelligence or machine learning are already actively used by 31% of firms, and another 24% are at a proof of concept stage”; and (iii) “[c]loud computing services, which reportedly represent a key enabler of agility and data analytics, are already used by 33% of insurance firms, with a further 32% saying they will be moving to the cloud over the next three years.” The report also concluded that “there is no evidence as yet that an increasing granularity of risk assessments is causing exclusion issues for high-risk consumers, although firms expect the impact of BDA to increase in the years to come.”

European Commission Adopts IDD Delegated Regulation

On 13 May, the European Commission adopted Commission Delegated Regulation (C(2019) 3448) amending the Insurance Distribution Directive (EU/2016/97) (“IDD”) with regard to regulatory technical standards adapting the base euro amounts for professional indemnity insurance and for financial capacity of insurance and reinsurance intermediaries.

EIOPA Publishes Ultimate Forward Rate for 2020

On 21 May, EIOPA published the calculation of the Ultimate Forward Rate (“UFR”) for 2020. According to the press release, the applicable UFR for the Euro as of as of 1 January 2020 will be 3.75%.

Council of EU Invites COREPER to Confirm Agreement on PEPP

On 24 and 29 May, the Council of the EU invited its Permanent Representatives Committee (“COREPER”) to: (i) confirm its agreement to the position adopted by the European Parliament at first reading on 4 April 2019 on the proposal for a regulation on a pan-European Personal Pension Product (“PEPP”) (2017/0143(COD)); (ii) suggest that the Council approve the European Parliament’s position as an “A” item at a forthcoming meeting, with the Netherlands voting against the proposal; and (iii) decide that statements from the Czech Republic and Netherlands contained in the addendum be added to the minutes of that forthcoming meeting. If the Council approves the European Parliament’s position, the regulation will be adopted and published in the Official Journal. 

EIOPA Publishes Consultation Paper on Draft Opinion on Sustainability under Solvency II

On 3 June, EIOPA published a consultation paper regarding a draft opinion on sustainability under Solvency II. The consultation is seeking feedback regarding the integration of “sustainability risks, in particular those related to climate change, in the investment and underwriting practices of (re)insurers.” The consultation period closes on 26 July 2019 


ESMA Publishes Technical Advice to the European Commission Regarding Sustainable Finance in MiFID II, UCITS, and AIFMD

On 30 April, the European Securities and Markets Authority (“ESMA”) published two sets of technical advice to the European Commission regarding the integration of sustainability risks and factors relating to environmental, social and good governance considerations with regards to investment firms and investment funds into: (i) the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) (“UCITS”) and the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”); and (ii) the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID II”).

EMIR Refit

On 6 May, the Council of the EU invited COREPER to confirm its agreement to and suggest that the Council approve the position adopted by the European Parliament at first reading on 18 April 2019 regarding 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”). If the Council approves the European Parliament’s positions, the legislative proposal will be adopted and published in the Official Journal after being signed by the President of the European Parliament and the President of the Council.

On 14 May, the Council of the EU adopted the text of the EMIR Refit. The regulation was then signed on 20 May 2019 and will enter into force 20 days after its publication in the Official Journal.

ESMA Publishes Request for Technical Advice from European Commission Regarding the Application of MAR to Certain Manager’s Transactions

On 14 May, ESMA published a letter (dated 20 March 2019) from Olivier Guersent, Director General of the Financial Services and Capital Markets Union of the European Commission, to Steven Maijoor, Chairman of ESMA, formally requesting that ESMA provide technical advice on the report to be submitted by the European Commission to the European Parliament by 3 July 2019 under Article 38 of the Market Abuse Regulation (EU/596/2013) (“MAR”) regarding the application of MAR and the transactions of managers in certain specific circumstances. According to the letter, Article 38 requires the European Commission to report on, at a minimum: (i) the “appropriateness of introducing common rules on the need for all Member States to provide for administrative sanctions for insider dealing and market manipulation”; (ii) “whether the definition of inside information is sufficient to cover all information relevant for competent authorities to effectively combat market abuse”; (iii) the “appropriateness of the conditions under which the prohibition on trading is mandated”; (iv) the “possibility of establishing a Union framework for cross-market order book surveillance in relation to market abuse”; and (v) the “scope of application of the benchmark provisions.” 

European Commission Clarifies Treatment of Bonds under PRIIPS Regulation

On 14 May, the European Commission sent a letter to the Chairman of the ESAs responding to a request from the ESAs on 19 July 2018 to clarify and provide guidance on the treatment of bonds under the Packaged Retail and Insurance-Based Investment Products Regulation (EU/1286/214) (“PRIIPs Regulation”). The European Commission indicated that due to the requirement under Article 4 of the PRIIPs Regulation, “categories of bonds that could seem to fall outside the scope of the PRIlPs Regulation could still be based on contractual terms and conditions that would qualify those bonds as PRIPs.” Consequentially, the European Commission stated that it was necessary to assess on a case-by-case basis “whether the terms and conditions of the bond provide for different payments depending on a variety of pay-out events” and that it would be “neither feasible nor prudent to agree ex-ante and in abstract terms whether some categories of bonds fall under the PRIlPs Regulation or not.”

ISDA Publishes Two Consultations Regarding Benchmark Fallbacks

On 16 May, the International Swaps and Derivatives Association (“ISDA”) launched two consultations on benchmark fallbacks regarding: (i) adjustments that would apply to fallback rates in the event certain interbank offered rates (“IBORs”) are permanently discontinued, which sets out options for adjustments that will apply to the relevant risk-free rates (“RFRs”) if fallbacks are triggered for derivatives referencing US dollar LIBOR, Hong Kong’s HIBOR and Canada’s CDOR; and (ii) pre-cessation issues for LIBOR and certain other IBORs, which seeks comments on how derivatives contracts should address a regulatory announcement that LIBOR or certain other IBORs categorized as critical benchmarks under the EU Benchmarks Regulation are no longer representative of an underlying market. The consultation periods for both consultations closes on 12 July 2019. 

ESAs Publishes Amended Technical Standard on the Mapping of the ECAIs

On 20 May, the ESAs published a second report containing amendment to the ITS amending implementing Regulation (EU/2016/1799) on the mapping of credit assessments of External Credit Assessment Institutions (“ECAIs”) for credit risk under the Capital Requirements Regulation (EU/575/2013) (“CRR”). According to the press release, the amendments “reflects the outcome of a monitoring exercise on the adequacy of the mappings, based on the additional quantitative and qualitative information collected after the original Implementing Regulation entered into force.” Specifically, the ESAs proposed to “change the [credit quality steps (“CQS”)] allocation for two ECAIs, and . . . introduce new credit rating scales for ten ECAIs,” as well as “address the mappings of CRAs recently registered in accordance to the CRA Regulation and that are related to previously mapped ECAIs.” 

ESMA Establishes Coordination Network on Sustainability

On 23 May, ESMA launched its Coordination Network on Sustainability (“CNS”) and appointed Ana María Martínez-Pina Garcia, current Vice-Chair of the Comisión Nacional del Mercado de Valores, to chair the CNS for two years with immediate effect. According to the press release, the CNS aims to “foster the coordination of national competent authorities’ [] work on sustainability” and will be “responsible for the development of policy in this area with a strategic view on issues related to integrating sustainability considerations into financial regulation.” 

ESMA Publishes Updated Q&As Related to the Benchmarks Regulation

On 23 May, ESMA published updated Q&As regarding the Benchmarks Regulation (EU/2016/2011). The updated Q&A document includes new Q&As regarding: (i) the information to be included in the ESMA register of administrators of benchmarks; (ii) the determination of the Member State of reference; and (iii) the role of IOSCO’s principles and of external audit in the recognition of 3rd country administrators.

ESMA Publishes Updated Q&As Related to the Benchmarks Regulation

On 23 May, ESMA published updated Q&As on the Central Securities Depository Regulation (EU) 909/2014 (“CSDR”). The new Q&As clarify certain aspects regarding the internalised settlement reporting requirements, including clarifying that: (i) “in the case of internalised settlement instructions that require matching, a settlement internaliser should only include matched internalised settlement instructions in the reports”; (ii) a “settlement internaliser should take into account the working days in the country where it is established and, if applicable, any additional days where the settlement internaliser is open for business”; and (iii) “internalised settlement instructions received after the end of the quarter, for settlement in a previous quarter, should be included in the report for the quarter during which the instructions are submitted, and that previously submitted reports should not be updated in such cases.” 

ESMA Publishes Consultation Regarding Indices and Recognized Exchanges under the CRR

On 24 May, ESMA published a consultation paper proposing amendments to Commission Implementing Regulation (EU) 2016/1646 specifying the main indices and recognized exchanges under the CRR. ESMA notes that “[a]s there is no legislative procedure, other than amending the ITS [for updating the list of main indices and recognized exchanges], ESMA is now proposing to update the legislative text to take into account relevant amendments to the list of main indices and recognised exchanges since the publication of the original ITS.” In addition, ESMA is proposing the use of a new methodology that can be applied to EU and non-EU indices, which would qualify an index as a main index if it passes one of two tests as set out in the consultation: (i) a test aimed at “capturing indices composed predominantly by medium and large cap stocks”; and (ii) test aimed at “indices composed predominantly of small cap stocks . . . as long as all the components of the index are sufficiently liquid.” The consultation period closes on 5 July 2019. 

ESMA Launches Call for Evidence on Position Limits in Commodity Derivatives

On 24 May, ESMA launched a call for evidence on position limits and position management in commodity derivatives as required by the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID II”). The call for evidence is seeking comments regarding the “impact of position limits on liquidity, market abuse and orderly pricing and settlement conditions in commodity derivatives markets,” and ESMA is also requesting feedback regarding stakeholder experience on the application of the MiFID II position limit and position management provisions, including explaining how “trading in commodity derivatives may have been impacted, either positively or negatively, by this new regime and provide thoughts for potential amendments.” The consultation period closes on 5 July 2019. 

ESMA Publishes Opinion on Ancillary Activity Calculations

On 27 May, ESMA published its latest opinion on the ancillary activity calculations, which provides the estimation of the market size of commodity derivatives and emission allowances for the year 2018. According to the press release, market participants, under the MiFID II, are “required to measure their own activity against total market sizes in commodity derivatives . . . [and] “[t]hese sizes are important to enable market participants to assess whether they exceed the ancillary activity thresholds in MiFID II and consequently would have to apply for authorisation as an investment firm.” 

ESMA Publishes Updated Q&As Related to the Securitization Regulation

On 27 May, ESMA published updated Q&As on the Securitization Regulation (Regulation 2017/2402). The updated Q&As provide clarification on different aspects of the templates contained in ESMA’s draft technical standards on disclosure requirements, such as how several specific fields in the templates should be completed. 

ESMA Launches Consultation on Future Reporting Guidelines under SFTR

On 27 May, ESMA launched a consultation on draft guidelines regarding how to report securities financing transactions (“SFTs”) under the Securities Financing Transactions Regulation (EU) 2015/2365 (“STFR”). According to ESMA, the guidelines establish general principles that apply to SFT reporting that aim to provide clarity with respect to the following elements: (i) the number of reportable SFTs; (ii) the population of reporting fields for different types of SFTs; (iii) the approach used to link SFT collateral with SFT loans; (iv) the population of reporting fields for margin data; (v) the population of reporting fields for reuse, reinvestment and funding sources data; (vi) the management by counterparties of feedback from TRs, namely in the case of rejection of reported data and reconciliation breaks; and (vii) the provision of access to data to authorities by trade repositories. The consultation period closes on 29 July 2019. 

ESMA Launches Consultation on Periodic Reporting Rules for Trade Repositories

On 27 May, ESMA launched a consultation on guidelines regarding periodic information and notification of material changes to be submitted to ESMA by trade repositories. According to ESMA, the guidelines aim to clarify the format and frequency of the different categories of information which ESMA expects to receive in its role as supervisor of trade repositories in relation to EMIR and SFTR. This will be accomplished by, among other things, (i) establishing reporting schedules for trade repositories; (ii) establishing reporting calendars for trade repositories based on reporting schedules; (iii) standardizing reporting templates, channels and naming conventions; and (iv) providing additional reporting clarifications in areas where ESMA has identified a supervisory need. The consultation period closes on 27 August 2019. 

ESMA Launches Three Consultations under EMIR 2.2

On 28 May, ESMA launched three consultations under the 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 (“TC-CCPs”) (“EMIR 2.2”) regarding tiering, comparable compliance, and fees. The consultation period for all three consultations closes on 29 July 2019

o    Tiering: This consultation paper “details the different indicators that can be used to specify the criteria ESMA has to consider in the assessment of a TC-CCP and provides insight as to what information ESMA may analyse to determine the systemic relevance of TC-CCPs.”

o    Comparable Compliance: This consultation paper “discusses what and how ESMA should assess to apply comparable compliance and proposes the minimum elements to be considered in its assessment as well as the modalities and conditions to carry out this assessment.”

o    Fees: This consultation paper “examines the determination of one-off recognition fees and the fees for Tier 1 and Tier 2 TC-CCPs, in addition to how comparable compliance will be reflected in the annual fees.”

European Commission Adopts Delegated Regulation Supplementing the Securitization Regulation

On 28 May, the European Commission adopted Commission Delegated Regulation (C(2019) 3785) supplementing the Securitization Regulation with regards to regulatory technical standards on the homogeneity of the underlying exposures in securitization. According to the regulation, “homogeneity is one of crucial requirements for securitisation to be assessed as simple, transparent and standardised (“STS”) and to be eligible for more risk-sensitive risk weights under the new EU securitisation framework” and the Commission Delegated Regulation defines the conditions for the homogeneity of underlying exposures for both non-asset back commercial paper (“ABCP”) and ABCP securitization. 

ESMA Publishes Updated Q&As Related to EMIR Refit

On 28 May, ESMA published updated Q&As on the implementation of the new framework introduced by the EMIR Refit. The updated Q&As provide clarification regarding: (i) the clearing obligation for financial and non-financial counterparties; (ii) the procedure for notifying when a counterparty exceeds or ceases to exceed the clearing thresholds; (iii) how counterparties should report derivatives novations; and (iv) the purpose of applying the clearing obligation and all types of novations of derivative contracts that are covered. 

ESMA Publishes Updated Q&As Related to MiFID II/MiFIR Investor Protection and Intermediaries

On 29 May, ESMA published updated Q&As on the implementation of investor protection topics under MiFID II/ MiFIR. The updated Q&As provide clarification regarding best execution and information on costs and charges.

ESMA Publishes Supervisory Briefing Regarding the Commodity Derivatives Pre-trade Transparency Regime

On 3 June, ESMA published a supervisory briefing regarding the commodity derivatives pre-trade transparency regime, which clarified that NCAs “should ensure that trading venues do not operate trading functionalities which allow the formalisation of negotiated trades in the absence of a compliant waiver.” Specifically, the briefing provides a three-step timetable for the enforcement of pre-trade transparency regime: (i) “NCAs should gather information on the plans of each relevant trading venue to comply with the pre-trade transparency requirements, and ESMA should assess those plans [this phase is already complete]”; (ii) “NCAs should make sure that all the relevant trading venues either operate under a compliant pre-trade waiver or are pre-trade transparent . . . by the end of 2019”; and (iii) “NCAs should take supervisory measures in case of non-compliance, starting from 1 January 2020.”

ESMA Launches Common Supervisory Action with NCAs on Appropriateness Rules under MiFID II

On 3 June, ESMA announced the launch of a common supervisory action (“CSA”) with NCAs regarding the application of the MiFID II requirements on the assessment of appropriateness, which require firms to determine whether an investment product or service is appropriate for a client. ESMA indicated that the CSA will use the MiFID II Supervisory Briefing on appropriateness ESMA published on 4 April 2019 as a basis for the exercise and participating NCAs will assess the application of the appropriateness requirements by a sample of investment firms under their supervision. 

ESMA Publishes Updated Q&As Related to Transparency Issues

On 3 June, ESMA published updated Q&As on transparency issues under MiFID II/ MiFIR. The updated Q&As provide clarification regarding: (i) the mandatory systematic internaliser (“SI”) regime; (ii) the voluntary SI regime; and (iii) quoting obligation for SI in non-trading on a trading venue in the EU instruments. 

FSB Publishes User Guide on the Overnight Risk-free Rates

On 4 June, the FSB published a user guide on the overnight risk-free rates (“RFRs”), which are benchmarks that can be used as alternative benchmarks for the existing key interbank offered rates (“IBORs”) in the unsecured lending markets. The guide provides an overview of RFRs, details of how they are calculated, and how overnight RFRs can be used in cash products.

IOSCO Publishes Final Report on Emerging Markets and Role of Securities Regulators with Regards to Sustainable Finance

On 5 June, IOSCO published a final report regarding sustainable finance in emerging markets and the role of securities regulators. The report “explores the trends and challenges that influence the development of sustainable finance in emerging capital markets” and provides “10 recommendations for emerging market member jurisdictions to consider when issuing regulations or guidance regarding sustainable financial instruments.” These recommendations relate to: (i) “[i]ntegration by issuers and regulated entities of [environmental, social and governance (“ESG”)]-specific issues in their overall risk assessment and governance (Recommendation 1)”; (ii) [i]ntegration by the institutional investors of ESG-specific issues into their investment analysis, strategies and overall governance (Recommendation 2)”; (iii) “ESG-specific disclosures, reporting and data quality (Recommendation 3)”; (iv) “[d]efinition and taxonomy of sustainable instruments (Recommendation 4)”; (v) “[s]pecific requirements regarding sustainable instruments (Recommendations 5 to 9)”; and (vi) “[b]uilding capacity and expertise for ESG issues (Recommendation 10).” 

IOSCO and CPMI Publish Discussion Paper Regarding CCP Default Management Auctions

On 5 June, IOSCO and the Committee for Payments and Market Infrastructures (“CPMI”) jointly published a discussion paper regarding central counterparty (“CCP”) default management auctions. In particular, the discussion paper focuses on and requests feedback regarding five key aspects of a CCP’s default management auctions, which include: (i) governance; (ii) considerations for a successful default management auction; (iii) operational considerations; (iv) client participation; and (v) default of a common participant across multiple CCPs. The consultation period closes on 9 August 2019. 


FSB Publishes Progress Report Regarding Cyber Incident Response and Recovery

On 28 May, the FSB publishedprogress report regarding its work on developing effective practices for financial institutions’ response to, and recovery from, a cyber incident. The report primarily describes the initiatives of the FSB’s working group on Cyber Incident Response and Recovery (“CIRR”) in developing a “toolkit of effective practices to assist financial institutions, as well as for supervisors and other relevant authorities, in supporting financial institutions, before, during and after a cyber incident.” The report indicates that the development of the toolkit will progress in two phases: (i) the first phase continuing until October 2019 and “focus[ing] on identifying and developing effective practices”; and (ii) the second phase “will likely commence during the last quarter of [2019] and will focus on [the] drafting of the toolkit,” with a subsequent public consultation to be conducted in early 2020.

FSB Publishes Report Regarding Regulation of Crypto-Assets

On 31 May, the FSB published a report regarding the work being undertaken regarding the regulation of crypto-assets and the regulatory approaches and potential gaps identified. The report notes that the Basel Committee on Banking Supervision (“BCBS”), CPMI, IOSCO, Financial Action Task Force (“FATF”), the Organization for Economic Co-operation and Development (“OECD”), and the FSB are all undertaking significant work to cover important aspects of crypto-asset risks within their respective mandates. With regards to potential gaps, the report notes that gaps may arise “where such assets are outside the perimeter of market regulators and payment system oversight” and “from the absence of international standards or recommendations”

FSB Publishes Report Regarding Decentralized Financial Technologies and Implications for Financial Stability

On 6 June, the FSB published a report regarding decentralized financial technologies and implications for financial stability. The report identified a number of potential benefits and risks for financial stability.  The benefits highlighted include: (i) reducing the concentration of service providers; (ii) “reduc[ing] the reliance on existing intermediaries to channel short-term funding into lending”; (iii) being more “resilient to cyber risk than highly centralised systems, particularly in terms of the integrity of their record-keeping and service availability.”  The risk identified include: (i) the creation of new forms of concentration risks as “many activities in larger DLT systems . . . remain concentrated in a relatively small set of or entities”; (ii) the emergence of greater procyclicality, especially in the supply of credit; (iii) “diffused or unclear responsibility and accountability”; (iv) the rise of challenges relating to recovery and resolution; and (v) other operational and legal risks.


o    21 June: FSB consultation closes on evaluation of too-big-to-fail reforms.

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

o    5 July: ESMA consultation closes on amendments to the main indices and recognized exchanges under the CRR.

o    5 July: ESMA call for evidence closes on position limits and position management in commodity derivatives.

o    12 July: Two ISDA consultations closes on benchmark fallbacks regarding: (i) adjustments that would apply to fallback rates in the event certain interbank offered rates are permanently discontinued; and (ii) pre-cessation issues for LIBOR and certain other IBORs.

o    26 July: EIOPA consultation closes regarding its draft opinion on sustainability under Solvency II.

o    29 July: IOSCO consultation closes on key considerations for regulating crypto-asset trading platforms.

o    29 July: ESMA consultation closes on draft guidelines regarding how to report securities financing transactions under the STFR.

o    29 July: Three ESMA consultations close on EMIR 2.2 tiering, comparable compliance, and fee.

Ianthe Zabel
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