ADVERTISING FINANCIAL SERVICES AND PRODUCTS Updated Code The Advertising Standards Authority for Ireland issued the 7th Edition of its Code of Standards for Advertising and Marketing Communications in Ireland. Minor changes were made to the section on Financial Services and Products (now at Section 13). AIFMD Updated CBI Q&A The Central Bank published the 18th Edition of its AIFMD Q&A. Question ID 1100 was revised and new questions ID1101 and ID1102 were added in relation to the guidance on Umbrella funds – cash accounts holding subscription, redemption and dividend monies (see ‘Umbrella Funds’ below). Sound Remuneration Policies On 31 March 2016, ESMA published its Final Report on Guidelines on Sound Remuneration Policies under the UCITS V Directive and the AIFMD. The guidelines will apply from 1 January 2017. Updated ESMA Q&A On 5 April 2016, ESMA published its updated AIFMD Q&A. Question 3 on page 7 is new, confirming that if an EU AIF decides to offer additional fund units to investors, and the offer is limited to the investors already invested in the AIF, the AIFM does not have to submit a new notification to the national competent authority in accordance with Article 31(2) of AIFMD. BANKING UNION Single Resolution Mechanism On 30 March 2016, a Commission Delegated Regulation setting out general principles and criteria for the investment strategy and rules for the administration of the Single Resolution Fund established by the Single Resolution Mechanism Regulation was published in the Official Journal. It applies retrospectively from 1 January 2016. Single Supervisory Mechanism The ECB published its list of significant supervised entities (i.e. those who are directly supervised by it) as of 1 January 2016. Irish entities on that list are AIB (including AIB Mortgage Bank, EBS Limited and EBS Mortgage Finance), permanent tsb Group Holdings plc (including permanent tsb plc), The Governor and Company of the Bank of Ireland (including Bank of Ireland Mortgage Bank) and Ulster Bank Ireland Limited. Bank Recovery and Resolution Directive The EBA published its final Guidelines on the provision of information in KEY CONTACT For further information please speak to your usual Arthur Cox contact or: ORLA O’CONNOR PARTNER +353 1 618 0521 firstname.lastname@example.org This document contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate. ROBERT CAIN PARTNER +353 1 618 1146 email@example.com 2 | ARTHUR COX FINANCIAL REGULATORY REGBRIEF (MARCH-APRIL 2016) summary or collective form the purposes of Article 84(3) BRRD, giving guidance on how confidential information should be provided in summary or collective form and defining the principle-based factors (i.e. number of institutions, specific patterns and context of disclosure) for ensuring that when information is disclosed in such summary or collective form, individual institutions or entities cannot be identified. SI 202/2016 - European Union (Bank Recovery and Resolution) Resolution Fund Levy Regulations 2016 has been published, setting out the 2016 levies for BRRD institutions not separately covered by the Single Resolution Mechanism. Bank stress tests The EBA launched its 2016 stress test for EU banks, designed to provide supervisors, banks and other market participants with a common framework to compare and assess the resilience of EU banks to economic shocks. For further detail, see the EBA’s FAQ. The tests will be conducted on a sample of 51 EU banks covering 70% of the EU banking sector and results are expected to be published early in Q3 2016. Both AIB and Bank of Ireland are in scope. BENCHMARK REGULATION Adopted by European Parliament The European Parliament adopted the Benchmark Regulation on 28 April 2016 and it is scheduled to be considered by the EU Council this week. Once it is approved, it will be published in the Official Journal - some provisions will come into effect immediately, with the remainder coming into effect 18 months later. CAPITAL MARKETS UNION Status Report The European Commission published its first Status Report on its progress towards establishing a Capital Markets Union. It signalled that it would shortly be: » issuing a public consultation aimed at understanding where and why the cross-border distribution of funds is being inhibited; » assessing whether a coordinated approach to loan origination by funds is needed; and » publishing a report on crowdfunding in the EU. Crowdfunding The report on crowdfunding was subsequently published and the Commission noted in its press release that while crowdfunding remains relatively small area, it has the potential to be a key source of financing for SMEs over the long term if appropriately regulated to support growth and protect investors. The Commission intends to keep developments under review, and meet twice each year with regulators and representatives of the crowdfunding sector, to ensure that it can respond quickly if steps are needed to support regulatory convergence. CRD IV Remuneration report On 30 March 2016, the EBA published a Report combining the benchmarking of remuneration practices in the EU and aggregated data on the remuneration of EU institutions’ staff who received, in total, ≥€1 million in 2014. Among the key findings were that there is now a higher overlap of the population of high earners with that of staff identified as having a material impact on the institution’s risk profile and the supervisory framework for remuneration practices is still not sufficiently harmonised. Options and discretions On 24 March 2016, ECB Regulation (EU) 2016/445 on the exercise of options and discretions available at EU law under CRD IV was published in the Official Journal. The ECB has also published a related Guide on options and discretions available in Union law. DEBT MANAGEMENT Authorisation process The Central Bank issued an update on its authorisation process for debt management firms, noting that it has formally refused 9 applications, it is targeting firms at an early stage post-authorisation to ensure that they establish a “positive, consumer-focused and compliant culture” from the outset, and its third inspection in this sector since the authorisation regime began in 2013 has highlighted issues regarding how some firms assess information on the circumstances of individual consumers. EMIR Equivalence re central counterparties On 16 March 2016, Commission Implementing Decision (EU) 2016/377 on the equivalence of the US regulatory framework for central counterparties (CCPs) authorised and supervised by the Commodity Futures and Trading Commission to the requirements of EMIR was published in the Official Journal and came into force on 5 April 2016. Updated ESMA Q&A On 4 April 2016, ESMA published its updated EMIR Q&A. The only change to the previous version was a new question and answer on the population of the “clearing obligation” field in trade reports (TR Question 42). Clearing of credit derivative contracts On 19 April 2016, Commission Delegated Regulation (EU) 2016/592 containing regulatory technical standards (RTS) on the clearing obligation for certain credit derivative contracts under EMIR was published in the Official Journal. It specifies the classes of credit default swap OTC derivatives subject to the EMIR clearing obligation, the 4 different categories of counterparty subject to that obligation, the dates from which that obligation will take effect for the different categories of counterparty and the minimum remaining maturity for the different categories of counterparty for the purposes of the frontloading requirement. It came into force on 9 May 2016. Liquidation period On 21 April 2016, the Commission adopted a Delegated Regulation amending EMIR Delegated Regulation 153/2013 on the time horizons for the liquidation period to be considered for different classes of financial instruments. 3 | ARTHUR COX FINANCIAL REGULATORY REGBRIEF (MARCH-APRIL 2016) The new Delegated Regulation will make it possible for CCPs to margin on a one day basis, provided certain criteria are met (including a requirement that margins are collected on a gross basis for clients’ accounts). The Delegated Regulation is now being considered by the EU Council and European Parliament. Stress tests for CCPs On 29 April 2016, ESMA published the results of its first EU-wide stress test for CCPs. The report assesses the system of EU CCPs as resilient to the stress scenarios used to model extreme but plausible market developments. ESMA has identified potential shortcomings and made some recommendations addressed to national competent authorities to conduct the necessary supervisory follow-up. These relate to the assessment of creditworthiness of clearing members considering exposures to other CCPs and the revision of CCPs’ price shocks used in their stress test methodologies. ESMA also published a related Q&A. FINANCIAL SERVICES OMBUDSMAN Dedicated dispute resolution service The FSO’s office announced that it is Raising the Bar on Consumer Protection by introducing a dedicated Dispute Resolution Service to resolve disputes at an early stage and with minimum formality. Annual review 2015 The FSO also published its Annual Review 2015. Key points to note are that: » the FSO received 4,872 complaints in 2015; » 822 complaints were settled without the need for an adjudication or formal finding; and » 1,206 complaints were closed by way of formal adjudication and finding. 12% of complaints were upheld, 23% were partly upheld and 65% were not upheld. FUND SERVICE PROVIDERS Investor money regime The start date for the investor money regime for fund service providers holding investor money in collection accounts has been extended from 1 April 2016 to 1 July 2016. INSURANCE Legal and regulatory updates For recent legal and regulatory developments of relevance to the insurance sector, see the Insurance Regulatory Update (March 2016) and the Insurance Regulatory Update (April 2016) issued by our Insurance Group. INVESTMENT FIRMS Conflicts of interest The Central Bank wrote to all investment firms following its completion of a themed inspection into the identification and management processes for conflicts of interest in investment firms. This letter outlined that, to identify and manage conflicts of interest, a strong culture of compliance is essential to ensure that the best interest of the client is not negatively impacted. INVESTMENT FUNDS Expansion of Global Exchange Market The Irish Stock Exchange’s Global Exchange Market expanded to include the listing of investment funds. For further details, see the Press Release and Rules for Investment Funds. Loan origination ESMA published an opinion setting out its view on a potential European framework for loan origination by investment funds. For further information, read the Client Briefing issued by our Asset Management and Investment Funds Group. KEY INFORMATION DOCUMENT Proposed Level 2 measures The Joint Committee of the European Supervisory Authorities (ESMA, EBA, EIOPA) has finalised its proposals for Level 2 measures on the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). The draft RTS include a mandatory template and have been submitted to the Commission for endorsement. They are expected to enter into force on 31 December 2016. Delay requested The European Banking Federation, Insurance Europe, the European Fund and Asset Management Association and the European Structured Investment Products Association wrote to the European Commissioner for Financial Stability, Financial Services, and Capital Markets Union on 27 April 2016 looking for a 1 year delay to the application of the PRIIPs KID regulation on the basis that, if the final RTS are not officially published until Q3 2016, the timeframe for both manufacturers and distributors to comply with the deadline to provide the KID will be extremely short, and manufacturers will face considerable operational challenges to provide the KID to retail investors. MIFID Speculative products ESMA published a new Q&A on the provision of contracts for difference and other speculative products to retail investors under MiFID. Investment advice ESMA published a peer review on how national regulators assess compliance with MiFID’s suitability requirements when firms provide investment advice to retail clients. It found that while most national regulators have a good understanding of the investment advice market in their jurisdictions and regularly review the distribution methods and business models of investment firms, there is scope to improve, in particular as only limited supervision is performed to verify whether clients are receiving investment advice in practice or just have the perception that they are receiving advice. MIFID II Safeguards (Client Financial Instruments/ Funds), Product Governance and Inducements The Commission adopted a Delegated Directive in these areas. For further information, read our recent Client Briefing. 4 | ARTHUR COX FINANCIAL REGULATORY REGBRIEF (MARCH-APRIL 2016) Timing update, organisational requirements, operating conditions and defined terms For an update on the MiFID II implementation delay, and details of the Commission’s draft Delegated Regulation on organisational requirements and operating conditions for investment firms and defined terms under MiFID II, read our recent Client Briefing. Level 2 measures returned by Commission to ESMA The Commission returned the draft Level 2 measures on non-equity transparency, the ancillary activity exemption, and position limits for commodity derivatives to ESMA, explaining that these were not acceptable, in particular as regards position limits. Exchange-traded derivatives ESMA confirmed that it does not see a need to temporarily exclude exchangetraded derivatives (ETDs) from nondiscriminatory access to CCPs and the trading venues that will be introduced by MiFID II. The Markets in Financial Instruments Regulation, which forms part of MiFID II, obliges ESMA to assess whether ETDs should be exempted for a period of 30 months from the nondiscriminatory access provisions. Knowledge and competence ESMA published translations of its Guidelines for the Assessment of Knowledge and Competence under MiFID II. MONEY MARKET FUNDS Status report The Commission published a Briefing on the measures it has proposed to improve the stability and liquidity of money market funds and the current status of the legislative process. MORTGAGE CREDIT DIRECTIVE Directive transposed into Irish law The Irish regulations transposing the Mortgage Credit Directive (MCD) into Irish law came into effect on 21 March 2016. We will shortly be published a briefing on this topic. Calculating benchmark rates The EBA has specified (see pages 16- 18) the formula to be used by creditors when calculating the benchmark rate under the MCD for use in the illustrative examples in the European Standardised Information Sheet for variable rate mortgages. Mortgage Credit Intermediaries The Central Bank has clarified what the MCD means for those who might be “mortgage credit intermediaries” and what form of authorisation they will require. MORTGAGES Mortgage arrears Our recent Client Briefing, Resolving the Mortgage Arrears Crisis (Vol 1/2016), highlights recent legal developments, caselaw trends and statistics in this area. Review of mortgage rules In his opening remarks at the launch of the Central Bank’s Annual Report 2015, Governor Philip Lane discussed the introduction, in early 2015, of the mortgage rules on loan-to-value and loan-to-income ratios and noted that the first review of these rules will take place in November 2016 and that the Central Bank will be inviting written submissions on the impact of these rules. Tracker mortgages The Central Bank issued an Update on Examination of Tracker Mortgage issues - Information for Consumers, noting that lenders have delivered plans to the Central Bank which are now being reviewed, work is expected to continue throughout 2016 and conclude in 2017, lenders must now begin to identify any customers who may have been impacted by the lender’s failure to honour a customer’s contractual entitlements or its failure to comply with the regulatory requirements regarding disclosure and transparency of information, and the Central Bank expects lenders to communicate with all impacted customers in a timely and clear way. PAYMENTS Credit transfer scheme On 3 May 2016, the European Payments Council published a Q&A in relation to the Single Euro Payments Area (SEPA) instant credit transfer scheme, explaining its key features and providing information on the clearing and settlement layer of the scheme. Irish SEPA Regulations amended The Irish SEPA Regulations have been amended to: » designate the Competition and Consumer Protection Commission as a competent authority in respect of certain breaches of the payment accessibility provisions of Article 9 of the EU SEPA Regulation; and » ensure that breaches of the Irish or EU SEPA Regulations by entities supervised by the Central Bank can be prosecuted under its Administrative Sanctions Regime. RETAIL INTERMEDIARIES Results of targeted inspection The Central Bank announced that its targeted inspection of intermediaries that were not compliant with minimum reporting requirements resulted in the majority of firms either becoming compliant or revoking their authorisations. The inspection consisted of intensive engagement with 325 retail intermediaries that had failed to submit annual returns, including unannounced on-site visits to 127 firms over a 14-week period. 134 firms sought voluntary revocation of their authorisations, 171 firms are meeting reporting obligations and the Central Bank intends to use further supervisory powers in relation to the remaining 20 firms. SECURITIES FINANCING TRANSACTIONS Information about reuse ICMA, ISDA, ISLA and others have published an information statement (and related press release) that can be used by market participants to comply with Article 15 of the Securities Financing Transactions Regulation and inform their 5 | ARTHUR COX FINANCIAL REGULATORY REGBRIEF (MARCH-APRIL 2016) Dublin +353 1 618 0000 firstname.lastname@example.org Belfast +44 28 9023 0007 email@example.com London +44 207 832 0200 firstname.lastname@example.org New York +1 212 782 3294 email@example.com Silicon Valley +1 650 943 2330 firstname.lastname@example.org arthurcox.com counterparties of the general risks and consequences that may be involved if the counterparty consents to a right of use of collateral in a security collateral arrangement or concludes a title transfer collateral arrangement. For further details on the Securities Financing Transactions Regulation, read our recent Client Briefing. STRUCTURED FINANCE INSTRUMENTS Website for reporting On 27 April 2016, ESMA gave an update on the requirement under the Credit Rating Agencies Regulation for issuers, originators and sponsor entities to report information on structured finance instruments (SFIs) to ESMA. ESMA is responsible under Article 8b of the Credit Rating Agencies Regulation for setting up a website on which SFI-related information will be published. It must issue technical instructions by 1 July 2016 to enable reporting entities to submit data files to the website as the reporting obligation begins on 1 January 2017. However, in light of various issues (in particular, issues regarding funding for the website) it appears that neither deadline will be met and reporting entities will not be able to report. ESMA indicated that the proposed securitisation regulation (part of the Capital Markets Union package) should clarify future reporting obligations in relation to SFIs. UCITS Updated Central Bank Q&A The Central Bank has published the 12th Edition of its UCITS Q&A. Question ID1057 has been amended and new questions ID1060 and ID1061 have been added in relation to the Central Bank’s updated guidance on Umbrella funds – cash accounts holding subscription, redemption and dividend monies (see ‘Umbrella Funds’ below). New Question ID1062 in relation to the Securities Financing Transactions Regulation was also added. Updated ESMA Q&A On 5 April 2016, ESMA published its updated UCITS Q&A. Question 2 on page 7 is new, confirming that a UCITS cannot invest in a UCITS feeder fund. UCITS share classes On 6 April 2016, ESMA published a Discussion Paper on UCITS share classes. The UCITS Directive recognises the possibility that UCITS can offer different share classes to investors but it does not prescribe whether, and to what extent, share classes of a given UCITS can differ from one another. This discussion paper seeks stakeholders’ views on ESMA’s current thinking with respect to the development of a framework for UCITS share classes throughout the EU. The paper describes the nature of share classes, the reasons for their existence, and the key elements of share classes. The consultation closes on 6 June 2016. ESMA expects to take further steps in this area by the end of this year. UCITS V UCITS V transposed The UCITS V Directive has been transposed into Irish law. Depositaries Commission Delegated Regulation (EU) 2016/438 will apply from 13 October 2016. It sets out minimum requirements for the contract between the management company or the investment company and the depositary, obligations on the depositary relating to oversight, due diligence, segregation and insolvency protection, the conditions and circumstances in which financial instruments held in custody are considered to be lost and independence requirements for management companies, investment companies, depositaries and third parties to whom the safekeeping function has been delegated. Remuneration As mentioned in the ‘AIFMD’ section above, ESMA has published its Final Report on Guidelines on Sound Remuneration Policies under the UCITS V Directive and the AIFMD. The guidelines will apply from 1 January 2017. UMBRELLA FUNDS Central Bank guidance The Central Bank has published guidance on Umbrella funds – cash accounts holding subscription, redemption and dividend monies. The guidance applies to the holding of cash assets of umbrella funds in a single account at the level of an umbrella fund in the name of the investment fund, the fund management company on behalf of the investment fund or the depositary.