4.1  Proposed Regulation on CCP recovery and resolution: ECON draft report

On 27 September 2017, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published a draft report on the proposed Regulation on a framework for the recovery and resolution of central counterparties (CCPs). The draft report contains a European Parliament legislative resolution which sets out suggested amendments to the proposed Regulation.

The explanatory statement to the report says that it improves the legal protection for the resolution authority should a decision is taken to accelerate the move from recovery of a CCP to its resolution. The report says that during resolution, the resolution authority must have full discretion to use the resolution tools that it believes to be most effective in order to achieve the resolution objectives in a timely manner, while addressing systemic problems and protecting taxpayers.

For this, the report says it is important that all tools, including those in the CCP rulebook, remain at the disposal of the resolution authority, while remaining as transparent and equitable as possible. During recovery and resolution planning, supervisory and resolution authorities should ensure that incentives are properly aligned while protecting the interests of those who do not have a say over the operational management of CCPs. This means protecting the tax payer and the general public from systemic risk, but it also means ensuring adequate protection for clients of clearing members and indirect clients. This needs to be recognised within the resolution colleges, the resolution committee within the European Securities and Markets Authority, and in the general transparency requirements.

4.2  EMIR and MiFIR: European Commission adopts Delegated Regulations on indirect clearing arrangements

On 22 September 2017, the European Commission adopted two Delegated Regulations setting out regulatory technical standards (RTS) relating to indirect clearing arrangements for over-the-counter (OTC) derivatives and exchange-traded derivatives (ETDs) under Regulation on OTC derivatives, central counterparties and trade repositories (known as EMIR) and the Markets in Financial Instruments Regulation (MiFIR):

The Delegated Regulations aim to:

  • simplify and clarify the requirements that relate the management of the default of a client providing indirect clearing services;
  • adapt account structures in order to rationalise the offering of indirect clearing services;
  • allow indirect clearing services to be provided in chains going beyond the client of a direct client, provided that appropriate and equivalent protection is ensured throughout the chain;
  • set out homogeneous requirements for indirect clearing arrangements relating to both OTC and ETD derivatives.

The Council of the European Union and the European Parliament must now consider the Delegated Regulations. If neither of them objects, the Delegated Regulations will enter into force on the twentieth day following that of their publication in the Official Journal of the European Union. Both Delegated Regulations will apply from 3 January 2018.

4.3  MiFID II: European Commission adopts amending Delegated Regulation on RTS on consolidated tape for non-equity products

On 26 September 2017, the European Commission published the text of a Delegated Regulation it has adopted amending Delegated Regulation (EU) 2017/571 which supplements the MiFID II Directive with regard to regulatory technical standards (RTS) on the authorisation, organisational requirements and the publication of transactions for data reporting services providers.

The amending Delegated Regulation specifies the provisions relating to the scope of the consolidated tape for bonds, structured finance products, emission allowances and derivatives.

The Council of the European Union and the European Parliament must now consider the Delegated Regulation. If neither of them objects, the Delegated Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

The Delegated Regulation will apply from 3 January 2018, except for Article 15a(4) which applies from 1 January 2019 and Articles 14(2), 15(1), (2) and (3), and 20(b) which apply from 3 September 2019.

4.4 Insurance and reinsurance prudential measures: EU and US sign bilateral agreement

On 22 September 2017, the European Commission and the US published a joint statement giving the information that, on 22 September 2017 they were due to sign a bilateral agreement on prudential insurance and reinsurance measures. A set of frequently asked questions on the agreement has also been published.

The agreement addresses three areas of prudential insurance oversight: reinsurance, group supervision and the exchange of insurance information between supervisors. The agreement also encourages insurance supervisory authorities in the US and the EU to continue to exchange supervisory information on insurers and reinsurers that operate in the two markets. To support such information exchange between supervisory authorities, the agreement includes model information sharing memorandum of understanding provisions.

4.5 Materiality assessment for changes to counterparty credit risk models: ECB guide

On 25 September 2017, the European Central Bank (ECB) published the ECB guide on materiality assessment for changes or extensions to counterparty credit risk models.

The guide indicates how the ECB intends to interpret the existing legal framework. It assists significant institutions directly supervised by the ECB in their self-assessment of the materiality of changes and extensions to internal models used to calculate counterparty credit and credit valuation adjustment risks of a business partner, drawing as much as possible on the approaches already defined by the European Banking Authority for other risk types.

Under the Capital Requirements Regulation, financial institutions can use the internal model method for counterparty credit risk and the advanced method for credit valuation adjustment risk when calculating capital requirements. These internal models focus on over-the-counter derivatives contracts and securities finance transactions because, for these products, the exposure is calculated in a different way than for a traditional loan, where the exposure is, to a large extent, fixed. The output of these models is one input factor in the calculation of the Pillar-1 capital requirements of a bank. Changes and extensions to both methods require supervisory approval when such changes or extensions are deemed material.

The ECB consulted on the guide in December 2016 and it has published a feedback statement which presents an overall assessment of the comments received and aims to address the most relevant issues raised in them. Amendments to the ECB guide have been made as a result of the comments.

4.6 Proposed Regulation on CCP recovery and resolution: ECB opinion

On 25 September 2017, the European Central Bank (ECB) published an opinion on the proposed Regulation on a framework for the recovery and resolution of central counterparties (CCPs).

In the opinion, the ECB states that it strongly supports the European Commission's initiative to establish a dedicated EU framework for the recovery and resolution of CCPs, however it considers that there are a number of areas where it believes that the proposed Regulation could be improved. Details of these are given in the opinion.

4.7 TARGET2: ECB amending guideline

On 27 September 2017, the European Central Bank (ECB) published a guideline of 22 September 2017 amending guideline ECB/2012/27 on a trans-European automated real-time gross settlement express transfer system (TARGET2).

The amending guideline clarifies certain aspects of guideline ECB/2012/27 following completion of the TARGET2-Securities migration plan in September 2017 and implementation of a new ancillary system settlement procedure.

4.8 Revised Wire Transfer Regulation: Joint Committee of the ESAs final guidelines

On 22 September 2017, the Joint Committee of the European Supervisory Authorities (ESAs) (that is, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) published final joint guidelines under Article 25 of the revised Wire Transfer Regulation (revised WTR) on the measures payment service providers (PSPs) should take to detect missing or incomplete information on the payer or the payee, and the procedures they should put in place to manage a transfer of funds lacking the required information.

Article 25 of the revised WTR requires the ESAs to issue guidelines to competent authorities and PSPs on the measures PSPs and intermediary PSPs should take to comply with the revised WTR and in particular in relation to the implementation of Articles 7, 8, 11 and 12.

The ESAs consulted on the guidelines in April 2017 and say that respondents welcomed the guidelines and agreed that they clarified regulatory expectations. Some respondents were confused about the application of the risk-based approach to anti-money laundering and countering the financing of terrorism in the fund transfers context and several changes have been made to the structure of the guidelines in response to this feedback to foster a better understanding of the risk-based approach. The final guidelines outline the feedback to the consultation paper.

Competent authorities and PSPs should comply with the guidelines six months from the date of the publication of the official translations of the guidelines.

4.9 CRD IV: EBA final guidelines on internal governance

On 26 September 2017, the European Banking Authority (EBA) published a final report containing its guidelines on internal governance under the CRD IV Directive.

The EBA says that weaknesses in corporate governance in a number of institutions have contributed to excessive and imprudent risk-taking in the banking sector, which has led to the failure of individual institutions and systemic problems in Member States and globally. In order to address the potentially detrimental effects of poorly designed corporate governance arrangements on the sound management of risk, and to take into account the new requirements introduced in CRD IV in this area, the EBA has updated its guidelines on internal governance, which were originally published in September 2011.

The guidelines cover:

  • proportionality;
  • the role and composition of the management body and committees;
  • the governance framework;
  • risk culture and business conduct;
  • the internal control framework and mechanisms;
  • business continuity management; and
  • transparency.

The EBA consulted on the guidelines in October 2016 and section 5.2 of the report summarises the key points and other comments arising from the consultation, the analysis and discussion triggered by these comments, and the actions taken to address them if deemed necessary. Changes to the draft guidelines have been incorporated as a result of the responses received

The guidelines will enter into force on 30 June 2018. The EBA's September 2011 guidelines will be repealed on the same date.

4.10 CRD IV and MiFID II: joint EBA and ESMA guidelines on the assessment of the suitability of members of the management body and key function holders

On 26 September 2017, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published a final report containing their joint guidelines on the assessment of the suitability of members of the management body and key function holders under the Capital Requirements Directive (CRD IV) and the Markets in Financial Instruments Directive (MiFID II). A related annex containing a template for the assessment of collective suitability has also been published.

CRD IV and MiFID II include measures to remedy weaknesses identified during the financial crisis regarding the functioning and composition of the management body within credit institutions and investment firms and the qualifications of their members. When appointing members of the management body, institutions should ensure that the members have the reputation, knowledge, experience and skills necessary to safeguard proper and prudent management of the institution.

The joint guidelines specify the notions which are to be considered in the selection process:

  • sufficient time commitment;
  • adequate collective knowledge, skills and experience;
  • honesty, integrity and independence of mind;
  • adequate human and financial resources for induction and training of members of the management body; and
  • diversity.

The guidelines say that the members of the management body should have sufficient time to cover all the necessary subjects in depth, in particular the establishment of business and risk strategies and the management of the main risks. The management body, collectively, should possess adequate knowledge, skills and experience to understand the institution's activities, including the main risks. In this respect, the guidelines provide a non-mandatory tool, covering all relevant areas of knowledge and experience that should facilitate the assessment of its collective suitability.

The guidelines also provide further guidance on the scope of assessments to be made, the assessment process for institutions and competent authorities, and related policies. They provide for the heads of internal control functions and the Chief Financial Officer, when they are not members of the management body, to be always considered as key function holders, and therefore, subject to the institutions' assessment.

The EBA and ESMA consulted on the guidelines in October 2016 and section 5.2 of the report summarises the key points and other comments arising from the consultation, the analysis and discussion triggered by these comments and the actions taken to address them if deemed necessary. Changes to the draft guidelines have been incorporated as a result of the responses received.

The guidelines will enter into force on 30 June 2018. The EBA's existing guidelines, which were published in November 2012, will be repealed at the same time.

4.11 CRD IV: EBA consults on draft amendments to ITS on supervisory disclosure

On 22 September 2017, the European Banking Authority (EBA) published a consultation paper on draft implementing technical standards amending Commission Implementing Regulation (EU) No 650/2014 on the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities in accordance with Article 143(3) of the CRD IV Directive. Links to five draft annexes are given on this EBA webpage (see column on right hand side of page).

The EBA says that since the adoption of Commission Implementing Regulation (EU) No 650/2014 the EU supervisory landscape has changed and new regulations and guidelines affecting also supervisory disclosure have been enacted. The consultation paper puts forward the draft ITS that amend Commission Implementing Regulation (EU) No 650/2014 in order to take into account those changes to the EU legal framework in particular:

  • the Delegated Regulation on the liquidity coverage ratio;
  • the EBA guidelines on the supervisory review and evaluation process;
  • the establishment of the single supervisory mechanism.

The EBA will hold a public hearing on the amendments on 17 November 2017. Comments on the consultation paper are requested by 22 December 2017.

4.12 IDD: EIOPA survey to gather data with regard to Q&As on interpretation and application

On 25 September 2017, the European Insurance and Occupational Pensions Authority (EIOPA) announced the publication of a survey to gather data from market participants to inform its work on developing a set of questions and answers (Q&As) on the interpretation and application of the Insurance Distribution Directive (IDD) and its implementing measures.

EIOPA says that it has already received some questions from individual stakeholders and it is very likely that issues regarding the consistent application of the IDD and the need for co-ordination between national competent authorities (NCAs) will continue to emerge, before and after the IDD is transposed into national laws.

With this in mind, EIOPA thinks that it would be helpful for it and NCAs to be able to provide more clarity in the future to market participants on the application of the IDD requirements. This will in turn help to promote common supervisory approaches and practices, particularly as regards conduct of business topics.

The Q&As will have no binding force in law and will not be subject to a "comply or explain" process. However, their application will be rigorously scrutinised and challenged by EIOPA and NCAs given their practical significance to achieve a level-playing field.

In order to facilitate its preparatory work, EIOPA would like to collect questions from external stakeholders to build up a suitable evidence base for its work. The intention is to gather and group questions and run these through a filtering process, at the end of which Q&As may be produced and published. There is, therefore, no guarantee at this stage that questions submitted will each receive an individually published answer, as questions submitted will first need to be carefully analysed and assessed by EIOPA and NCAs.

The questionnaire is structured mainly around the Commission Delegated Regulations which were adopted by the Commission on 21 September 2017, but EIOPA says there is also scope for questions to be posed regarding the Level 1 text EIOPA's work will focus initially on the Delegated Regulations, but future work may also address the Implementing Regulation regarding the insurance product information document.

EIOPA invites stakeholders to participate in the survey and to comment on the questions raised by 11 October 2017.

4.13 CSDR: ESMA publishes practical guidance on recognition of third country CSDs

On 26 September 2017, the European Securities and Markets Authority (ESMA) published practical guidance for the recognition of third-country central securities depository (CSD) under Article 25 of the Regulation on improving securities settlement and regulating CSDs (CSDR).

The guidance covers the following:

  • communications with ESMA prior to submitting an application for recognition;
  • the timeframe for submission of an application;
  • submission of an application, including format, number of copies, language and information to be provided;
  • ESMA's acknowledgement of receipt of the application;
  • deadlines;
  • assessment of completeness, requests for additional information and notification of completeness;
  • ESMA's examination of the application;
  • ESMA's decision on the registration application;
  • publication on ESMA's website.

4.14 CSDR: ESMA template for CSD register notifications

On 28 September 2017, the European Securities and Markets Authority (ESMA) published a template for central securities depository (CSD) register notifications under the Regulation on improving securities settlement and regulating CSDs (CSDR).

The template contains the following three tables:

  • EU CSDs authorised under Article 16 or Article 54 of the CSDR: general information;
  • EU CSDs authorised under Article 16 or Article 54 of the CSDR: additional information on each CSD;
  • entities allowed to record book entries into securities accounts maintained by CSDs (Article 31 of the CSDR).

National competent authorities must complete the template with the requested information.The information provided will be published by ESMA in accordance with Article 21(3) and Article 58(2) of the CSDR. 

4.15 MiFID II: ESMA guidelines on suitability assessment for management body

On 28 September 2017, the European Securities and Markets Authority (ESMA) published a final report together with guidelines on the management body of market operators and data reporting services providers under Article 45(9) and Article 63(2) of the MiFID II Directive and Article 16 of the ESMA Regulation.

Guidelines based on Article 45(9) for market operators and Article 63(2) for data reporting services providers of the MiFID II Directive clarify the requirements applicable to members of the management bodies of market operators or data reporting services providers (DSRPs). Guidelines based on Article 16 of the ESMA Regulation clarify how information is to be recorded by market operators or DRSPs in order to make it available to the competent authorities for the exercise of their supervisory duties. The guidelines apply from 3 January 2018.

Competent authorities to which these guidelines apply must notify ESMA whether they comply or intend to comply with the guidelines, with reasons for non-compliance, within two months of the date of publication of the guidelines by ESMA in all EU official languages. In the absence of a response by this deadline, competent authorities will be considered as non-compliant.

ESMA consulted on the guidelines in October 2016 and the final report sets out the feedback statement to the consultation paper. It describes how the responses to the consultation were taken into consideration when drafting the final guidelines, describes any material changes to the guidelines and explains the reasons for this in light of the feedback received.

4.16 MiFID II: ESMA and NCAs agree work plan on pre-trade transparency waivers and position limits

On 28 September 2017, the European Securities and Markets Authority (ESMA), together with the national competent authorities (NCAs), announced the publication of an updated joint work plan for the opinions on pre-trade transparency waivers and position limits that must be issued under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) (together known as MiFID II).

In view of the large number of opinions to be issued, about 700 for pre-trade transparency waivers and 110 for position limits, and in order to avoid processing bottlenecks, the work plan presents a pragmatic approach for ensuring the implementation of the MiFID II/MiFIR waivers and position limits as of 3 January 2018 pending the issuance of the opinions.

The work plan contains information on the following:

  • opinions on pre-trade transparency waivers: under MiFIR, NCAs have to submit pre-trade transparency waivers to ESMA, which subsequently needs to issue opinions on the compatibility of pre-trade transparency waivers with MiFIR and Commission Delegated Regulations (EU) 2017/5871 and (EU) 2017/5832 of 14 July 2016. MiFIR does not include transitional provisions for the issuance of ESMA opinions. ESMA had initially envisaged reviewing the equity and non-equity waivers notified by NCAs by the end of 2017. However, due to the high number and complexity of pre-trade transparency waivers that need to be submitted and assessed, it has decided to prioritise its work on equity waivers and intends to finalise the opinions on those waivers by the end of 2017. ESMA also aims to finalise as many opinions on non-equity waivers as possible before 3 January 2018. However, it is unlikely to be in a position to issue opinions on a majority of waiver notifications. Pending an ESMA opinion, all NCAs have therefore committed to grant the requested waivers based on their own compliance assessment only and subject to one of certain conditions specified in the updated work plan. In order to ensure supervisory convergence, ESMA intends to publish questions and answers (Q&As) addressing the key issues identified in the non-equity waiver notifications received. Waivers notified to ESMA that miss out essential information allowing for a compliance assessment under MiFIR, or not complying with the Q&As, will not be eligible for the process set out in the updated work plan;
  • opinions on positions limits for commodity derivatives: under MiFID II, ESMA must publish opinions on the position limits notified by NCAs for commodity derivative contracts, the compatibility of the limits proposed with MiFID II and the methodology set out in the Commission Delegated Regulation (EU) 2017/591 of 1 December 2016.No transitional provisions are foreseen in that area under MiFID II. Given the complexity and the timing of position limit notifications, ESMA and NCAs have agreed that it will not be possible to finalise and publish all the position limit opinions for liquid commodity derivative contracts by the end of 2017. However, they recognise that it is important for market participants to know limits sufficiently far in advance of 3 January 2018 to apply for appropriate exemptions, enter positions with confidence or reduce positions which would not be permissible under the regime without damaging markets. Therefore, ESMA and NCAs have agreed that NCAs will publish limits ahead of ESMA's opinions. Those limits will enter into force, and be monitored by NCAs, on 3 January 2018. Following the issuance of opinions, all NCAs have agreed to modify the position limits in accordance with the opinion, or provide ESMA with a justification for why the change is not necessary;
  • lead time for market participants: for both pre-trade transparency waivers and/or position limits, where NCAs would amend their initial decision after ESMA has issued a non-compliant opinion, market participants will be given sufficient lead-time to adapt to the revised trading environment.