European Commission consultation on the operations of the ESAs

On 21 March 2017, the European Commission published a consultation paper on the operations of the European Supervisory Authorities (ESAs) (that is, ESMA, EIOPA and the EBA). The consultation considers the tasks and powers of the ESAs in terms of:

  • Optimising existing tasks and powers.
  • New powers for specific prudential tasks.
  • Direct supervisory powers in capital markets (including whether ESMA's direct supervisory powers should be extended as part of establishing the capital markets union).

The consultation also explores:

  • Governance of the ESAs.
  • Adaptions to the supervisory architecture.
  • Funding of the ESAs.

The consultation closes on 16 May 2017.

EuVECA Regulation and EuSEF Regulation

On 22 March 2017, the European Parliament published a press release announcing that its Economic and Monetary Affairs Committee (ECON) adopted a draft report on the European Commission's proposed Regulation amending the European Venture Capital Funds Regulation (Regulation 345/2013) (EuVECA Regulation) and the European Social Entrepreneurship Funds Regulation (Regulation 346/2013) (EuSEF Regulation). The revisions arise from the unsatisfactory uptake of both types of funds, and propose to:

  • extend the range of managers eligible to set up and manage EuVECA and EuSEF funds (to all managers authorised as AIFMs)
  • extend the range of companies that can be invested in by EuVECA to “small mid-caps” (unlisted companies with up to 499 employees)
  • make the cross border marketing of the funds easier and cheaper.

The MEPs also adopted some targeted amendments to the Commission proposal so as to facilitate investment in EuSEF funds which:

  • changed the definition of positive social impact of the qualifying investment from narrow: “social impact on marginalised and vulnerable groups” to the broader: “services and goods generating social return”.
  • lowered minimum investment in EuSEF from €100 000 to €50 000 in order to remove a barrier for smaller investors.
  • set an initial capital requirement for both types of funds at €30 000 and they agreed that own funds should always amount to at least one eighth of the fixed costs from the preceding year.
  • enhanced the supervisory role of ESMA.

The committee also adopted a mandate to open three-party negotiations on the final shape of the rules.

European Parliament to consider MMF Regulation at 3 to 6 April 2017 plenary session

On 16 March 2017, the European Parliament updated its procedure file on the proposed Regulation on Money Market Funds (MMF Regulation) to reflect that the EU Parliament will consider the proposed MMF Regulation during its plenary session from 3 to 6 April 2017.

European Commission CMU report on addressing national barriers to capital flows

On 27 February 2017, the European Commission published a report as part of its capital markets union (CMU) initiative on addressing national barriers to capital flows. The report was republished to correct inaccuracies. The report notes (among other things)

  • Barriers to the cross-border distribution of investment funds. The expert group highlighted disparities in national rules concerning the marketing of funds (particularly in relation to pre-marketing and reverse solicitation), administrative arrangements imposed on UCITS and AIFs and regulatory fees for cross-border marketing. The Commission requests member states to review their national rules on marketing and to take further steps to map administrative arrangements, with a view to eliminating unnecessary administrative burdens by 2019. It also calls on member states to ensure that all fund notification-related fees are published in a comprehensive and user-friendly manner on a single website. The Commission will consider the merits of a single public domain for fee-related information in the form of a comparative website or a central repository. The Commission suggests a deadline of the fourth quarter of 2017 for all of these steps.
  • Residence and location requirements imposed on the managers of financial market players. The Commission invites member states to remove residence requirements on managers of companies in the financial sector residing in the EU where they are not justified, suitable or proportionate. It suggests a deadline of the fourth quarter of 2017 for this step.

The report contains a proposed roadmap of actions relating to national barriers to capital flows. The Commission envisages that this will be a living document that will need to be updated with additional action to be taken before 2019 on barriers that may need to be identified in a second stage.

European Commission assessment of EU equivalence decisions in financial services policy

On 27 February 2017, the European Commission published a draft staff working document that contains an assessment of EU equivalence decisions in financial services policy, considers the EU financial services legislation that contain equivalence provisions and summarises how EU equivalence works. Equivalence has been the subject of increased scrutiny since the UK's Brexit vote in June 2016. The staff working document

  • finds that existing equivalence provisions, developed individually for each specific act, are not always coherent as to the need to assess both the regulatory and the supervisory framework to the same degree. Moreover, they are unclear as to what the role of the ESAs should be in equivalence assessments.
  • Importantly, the document concludes that the more recent approach of integrating into equivalence the monitoring and enforcement of third countries' on-going compliance with the equivalence criteria set out in the relevant EU legislation and the equivalence decisions has proven appropriate, especially as the number of equivalence decisions increases. The Commission notes that monitoring should concern relevant market developments as well as legal requirements and supervision. For example, a significant increase in the exposure of EU markets to an equivalent third country in the relevant sector would normally imply a need for a renewed assessment by the Commission. It considers that the ESAs are well placed, in line with their mandate, to engage in specific monitoring tasks relating to their area of activity.

The Commission concludes that equivalence determinations are an essential part of the EU regulatory toolkit for financial services. They underpin the international activities of EU financial intermediaries and in some cases allow non-EU intermediaries to operate in the EU. They also facilitate cross-border regulation and supervision. The careful risk calibration behind the approach also fosters competition and efficiency in EU markets through proportionate equivalence assessments focussing on risks and proper enforcement arrangements.

Key information document for PRIIPs

On 8 March 2017, the European Commission adopted a Delegated Regulation, including Annexes 1 to 7, supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards (RTS) regarding the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide KIDs. (This is a revised version of the Delegated Regulation that the Commission adopted in June 2016, which the European Parliament rejected in September 2016). The Council of the EU and the European Parliament will consider the Delegated Regulation and if neither of them object, it will enter into force twenty days after it is published in the Official Journal of the EU. It applies from 1 January 2018.

The PRIIPs regime will impact QIAIFs which do not limit investor eligibility to MiFID professional clients and will also impact RIAIFs. It is likely to also impact some UCITS, notwithstanding that Article 14(2) of the Delegated Regulation applies until 31 December 2019. Under article 14(2), as a derogation from Article 14(1), PRIIP manufacturers may use a UCITS KIID to provide specific information for the purposes of Articles 11 to 13 of the Delegated Regulation, where at least one of the underlying investment options referred to in Article 14(1) is a UCITS or non-UCITS fund referred to in Article 32 of the PRIIPs Regulation.

Anti- Money Laundering/ Combating the Financing of Terror/ Corruption

The European Parliament updated its legislative procedure file on the proposed Fifth Money Laundering Directive (5AMLD). On 10 March 2017, the European Parliament published a report on 5AMLD. This report was adopted by the Parliament's Economic and Monetary Affairs Committee (ECON) and its Civil Liberties, Justice and Home Affairs Committee (LIBE) on 28 February 2017. The report contains a draft Parliament legislative resolution, together with opinions from the Committee on Development (DEVE), the Committee on international trade (INTA) and the Committee on Legal Affairs (JURI). The press release announcing adoption of the report stated that the Parliament must now give the go-ahead in its March plenary session for MEPs to start trialogue discussions with the Council of the EU and the European Commission.