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.
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 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
- Questions and Answers on the Implementation of the Regulation NO 648/2012 on OTC derivatives, central counterparties and trade repositories (updated version)
- Final report of draft technical standards under Article 10a(8) of Markets in Financial Instruments Directive on the assessment of acquisitions and increase in qualifying holdings in investment firms
- Guidelines on sound remuneration policies under the AIFMD
- Second set of advice on EMIR equivalence
- Technical Advice to the Commission on procedural rules to impose fines and periodic penalty payments to Trade Repositories
European Banking Association – publications
- EBA, ESMA and EIOPA publish final Report on mechanistic references to credit ratings in the ESA’s guidelines and recommendations
- Key features of the 2014 EU-wide stress test
- Final draft technical standards on own funds requirements for investment firms
- Recommendation on the use of the Legal Entity Identifier (LEI) for supervisory purposes
Basel Committee on Banking Supervision – publications
- Guidance for Supervisors on Market-Based Indicators of Liquidity
- Liquidity coverage ratio disclosure standards, Basel Committee on Banking Supervision
- Basel III: the Net Stable Funding Ratio – consultative document
- Amendments to Basel III’s leverage
- A sound capital planning process: fundamental elements
- Consultative paper on revised good practices for supervisory colleges
- Sound management of risks related to money laundering and financing of terrorism
International Organization of Securities Commissions – publications
- Proposed Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions Revised LMA Standard Terms & Conditions for Par and Distressed Trade Transaction
Loan Market Association – publications
- Notes on LIBOR transitions
- Revised LMA standard terms & conditions for par and distressed trade transaction
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