There have been many developments in national and European financial markets regulation during the past month. Supervisory authorities have published a large number of consultation documents, draft rules and other information since the last edition of In context. We provide an overview of this news, signal important court decisions and also list relevant articles in international legal journals.

Dutch regulation

Implementation of Capital Requirements Directive and Regulation (CRD IV)

A bill implementing the Capital Requirements Directive and the Capital Requirements Regulation was submitted to the Second Chamber in January. Implementation of CRD IV was due by 1 January 2014. The bill is expected to take effect in about six months’ time.

More information on the implementation of CRD IV can be found in the legal alert (in Dutch) which De Brauw published in January.

European regulation

European Parliament approves criminal sanctions for market abuse

The European Parliament has approved the European Commission’s proposal for a directive obliging member states to provide for criminal sanctions for insider dealing and market manipulation. The Directive contains definitions of insider dealing and market manipulation. When committed intentionally, both should be regarded as criminal conduct. Manipulation of benchmarks is a criminal offence as well.

Member states have to ensure that the criminal sanctions they impose are effective and proportionate and provide an adequate deterrent: for example, maximum sanction levels of at least four years’ imprisonment for market manipulation are provided. In addition, criminal sanctions will have to be imposed for inciting, aiding and abetting market abuse or attempted market abuse. The Directive is expected to be published in June. Member states will have two years after the Directive enters into force to transpose the new rules into national law.

Political agreement on the new Regulation on insider dealing and market manipulation was reached in September 2013. This Regulation is designed to strengthen supervisors’ investigative and sanctioning powers, help fight market abuse in the commodities and derivatives markets, and promote that regulation keeps up with market developments.

Reporting requirement for derivatives transactions

As from 12 February 2014, every party to a derivative contract has to report the details of the transaction to a Trade Repository. All new derivatives transactions and all transactions entered into after 16 August 2012 will have to be reported, irrespective of whether the transactions have been or are entered into on an exchange. A list of registered Trade Repositories can be found on the AFM website.

The obligation is a result of the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR). More information on the reporting obligation can be found in the legal alert we published in December.

Structural reform of European banking sector proposed

As from 1 January 2017, banks will no longer be allowed to engage in proprietary trading. The European Commission adopted a proposal for a regulation to this effect in January 2014. The regulation also grants supervisors the power to require the separation of certain trading activities when they deem that the activity identified threatens the financial stability of the bank in question or of the European Union.

The proposal focuses on European banks deemed to be of global systemic importance or those exceeding certain thresholds (too big to fail banks).

To prevent banks from attempting to circumvent these rules by shifting parts of their activities to the less-regulated shadow banking sector, the proposal is accompanied by measures aimed at increasing the transparency of certain transactions in this sector.

Additional transition period for Single Euro Payments Area

The European Parliament has approved an additional transition period for the SEPA migration. Although the deadline for migration remains 1 February, payments that differ from a SEPA format can continue to be accepted until 1 August 2014. The reason for the measure is that not all market parties are ready for the introduction of the new international bank account numbers.

MiFID II agreement reached between European Parliament and Council
The European Parliament and the Council of Ministers have reached an agreement on updated rules for markets in financial instruments (MiFID II). ESMA will hold consultations about some aspects of the new directive and regulation. The new rules are expected to enter into force by the end of 2016.

European and international supervisors

ESMA powers under short selling regulation are compatible with EU law

The power of the European Securities and Markets Authority to adopt emergency measures on the financial markets of the member states in order to regulate or prohibit short selling is compatible with EU law. This was confirmed by the Court of Justice in an action brought before the Court by the United Kingdom.

The Court found that the short selling regulation does not confer any autonomous power on ESMA that goes beyond the powers granted to that authority when it was created. The Court also pointed out that the exercise of the powers laid down in that provision is circumscribed by various conditions and criteria which limit ESMA’s discretion.

ESMA publishes updated Q&A on the Prospectus Directive

ESMA has updated its Q&A on prospectuses. Two new questions have been included, relating to:

  • the Applicable Registration Document schedule where a listed issuer proposes to issue convertible or exchangeable debt securities where the underlying securities are the issuer’s shares
  • the format for the individual summary relating to several securities

Other ESMA publications

European Banking Association – publications

Basel Committee on Banking Supervision – publications

International Organization of Securities Commissions – publications

Loan Market Association – publications

International publications

Board of Appeal of the European Supervisory Authorities

  • 10 January 2014, Board of Appeal of the European Supervisory Authorities (Board of Appeal dismisses appeal made by a refused CRA-applicant against ESMA) (link)

Capital Markets Law Journal

  • Capital controls and the resolution of failed cross-border banks: the case of Iceland / Fridrik M. Baldursson and Richard Portes – CMLJ, vol. 9, no. 1