European regulation: latest trends

In the context of a year filled with challenges, Head of Public Affairs, BNP Paribas Securities Services, Haroun Boucheta, looks at 3 key regulatory trends in the securities services industry.

In the last few months, several challenges – especially the ones linked to the Covid-19 crisis – have had a profound impact on the financial industry. This crisis will, without a doubt, impact future operating models and force the industry to consider new ways of working.

Various regulatory developments have also contributed in reshaping the securities services industry. With the recent crisis and its impact on financial markets, some of the main regulatory trends that had emerged during the past few years have since then been modified or, in some cases, have accelerated.

In this context, we believe that securities services players should anticipate the following three major regulatory trends:

Covid-19 mitigation: delays and flexibility have been granted thanks to advocacy actions

During the Covid-19 crisis, authorities and regulators have granted delays and flexibility to help market participants manage the crisis and ensure service continuity to their clients. Several significant regulatory improvements are worth highlighting.

At the international level, the Basel III implementation was postponed by one year to January 1st 2023. In addition, a one-year extension was granted for the final two implementation phases of the margin requirements for non-centrally cleared derivatives. In Europe, this will give more time for the European Commission to propose the European implementation of Basel III, and it will certainly encourage EU institutions (European Parliament, Council of the European Union and Commission) to adapt the new framework taking into account European specificities.    

At the European level, ESMA extended the response date for all ongoing consultations but also postponed a number of requirements. Notably, reporting requirement deadlines under SFTR and MMFR were moved respectively to July 2020 and September 2020.

Finally, at the national level, some countries, notably France, Germany, Ireland, Spain, United Kingdom, Italy and Luxembourg, granted emergency measures and flexibility.

We believe this is a key trend that is not limited solely to the Covid-19 context. Authorities and regulators have proven that they can quickly react on the regulatory front in order to tackle potentially negative effects stemming from a crisis or a major market event.

To reboost EU growth, a targeted review of regulation is necessary

The European Commission (EC) is working together with the National Competent Authorities to develop new growth strategies by improving regulation through targeted reviews aimed at easing regulatory compliance for market participants and clients.

Some quick fix reforms, especially on MiFID (MiFID II/R review) and CSDR (CSDR review), are currently being discussed. We also anticipate a legislative proposal from the European Commission on a review of AIFMD in 2021 following the consultation published on 22 October 2020 by the EC.

In addition, the EC also announced specific measures to revitalise EU growth through several initiatives:

  • A “European Green Deal”, through notably a renewed sustainable finance strategy (Q3 2020),
  • “A Europe Fit For the Digital Age”, through notably a Digital Services Act (Q4 2020) and a legislative proposal on crypto-assets (Q3 2020),
  • “An Economy That Works For People”, through a new action plan on the Capital Markets Union (Q3 2020) and the review of the Capital Requirements legislation (Q2 2020)

We should anticipate potentially less flexible approaches from authorities on equivalence & international cooperation

Thirdly, we anticipate that in the fourth quarter of 2020 and in 2021, issues around equivalence, international agreements and cooperation could be important. Due to Brexit , but also given ongoing discussions between the EU and other jurisdictions on a number of important issues, authorities and regulators may increase regulatory requirements not only in the context of provision of services by third-country players, but also regarding access to financial markets infrastructures.

Even with the EC granting temporary equivalence recognition (from the end of the transition period until 30 June 2022) for the UK CCPs and with ESMA announcing that UK CCPs will be recognised as third-country CCPs, we believe there remains a number of open issues that will need to be managed in the coming months.