European regulatory news Q2 2021

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AIFMD / UCITS V DIRECTIVE

27/05 – ESMA publishes guidance on funds’ marketing communications

The ESMA has published the final report on its Guidelines under the Regulation on cross-border distribution of funds. The Guidelines specify the requirements that funds’ marketing communications must meet. The purpose of the Guidelines is to clarify the requirements that funds’ marketing communications must meet, which is to: (i) be identifiable as such; (ii) describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner; and (iii) contain clear, fair and not misleading information, taking into account the on-line aspects of marketing communications.

28/05 – ESMA updates its opinion on reporting information under AIFMD

The ESMA has updated the Opinion named “Collection of information for the effective monitoring of systemic risk under Article 24(5), first sub-paragraph, of the AIFMD”, in the context of AIFMD reporting. This opinion provides details on a set of additional information that, in ESMA view, NCAs could require AIFMs to report on a periodic basis pursuant to Article 24(5), first sub-paragraph of the AIFMD. In particular, the updates aim at providing clarifications to three risk measures (Value-at-Risk, Net FX delta and Net commodity delta) already included in the Opinion in the section “Information on risk measures”. ESMA has complemented the Opinion with three new Q&As. The new Q&As provide clarification on the reporting of three risk measures included in the AIFMD: Net DV01, NET CS01, Net Equity Delta.

BANKING & PRUDENTIAL REGULATION

26/05 – CRA – ESMA consults on disclosure requirements for initial reviews and preliminary ratings

The CRA Regulation includes a number of provisions that are designed to provide greater clarity to market participants as to whether entities or debt instruments have been subject to an initial review or a preliminary rating by CRAs before receiving a credit rating. The objective of these provisions is to mitigate against the effects of ratings shopping through greater transparency. The purpose of this Consultation Paper is to propose guidance that will address inconsistencies in the interpretation of these provisions. ESMA will consider the responses it receives in Q3 2021 and expects to publish a final report by end of Q4 2021.

BREXIT

29/04 – EU-UK trade and cooperation agreement: Council adopts decision on conclusion

The Council has adopted a decision on the conclusion of the EU-UK trade and cooperation agreement. This is the last step for the EU in the ratification of the agreement. The UK will now be notified of the finalisation of the internal EU procedures. Following this, the agreements and accompanying texts will be published in the Official Journal of the EU before the end of this month. On 1 May 2021, both agreements will enter into force.

CMU

21/04 – EU Commission consults on EU strategy for retail investors

The CMU Action Plan announced the Commission’s intention to propose a retail investment strategy for the first half year of 2022, that should seek to ensure that retail investors can take full advantage of capital markets and that rules are coherent across legal instruments. As set out in the CMU Action Plan, a retail investor should benefit from: (i) adequate protection, (ii) bias-free advice and fair treatment, (iii) open markets with a variety of competitive and cost-efficient financial services and products, and (iv) transparent, comparable and understandable product information. Feedback period is open between 20 April 2021 and 18 May 2021.

04/06 – PEPP – Commission Delegated Regulations supplementing regulation (EU) 2019/1238 published in Official Journal

Commission Delegated Regulation 2021/895 of 24 February with regard to product intervention, and Commission Delegated Regulation 2021/896 of 24 February 2021 with regard to additional information for the purposes of the convergence of supervisory reporting have been published. Commission Implementing Regulation 2021/897 of 4 March 2021 laying down implementing technical standards for the application of Regulation (EU) 2019/1238 with regard to the format of supervisory reporting to the competent authorityhas also been been published in the Official Journal of June 4, 2021. They will enter into force on June 20, 2021.

DIGITAL FINANCE

21/04 – Artificial Intelligence – EU adopts AI approach

The Commission proposes today new rules and actions aiming to turn Europe into the global hub for trustworthy Artificial Intelligence (AI). The combination of the first-ever legal framework on AI and a new Coordinated Plan with Member States will guarantee the safety and fundamental rights of people and businesses, while strengthening AI uptake, investment and innovation across the EU. New rules on Machinery will complement this approach by adapting safety rules to increase users’ trust in the new, versatile generation of products.

26/04 – AI – EU commission launches a consultation on ethical and legal requirements 

Following the release on 21 April by the European Commission of a new draft Regulation on Artificial Intelligence, the EC opens also a consultation for feedback for a minimum period of 8 weeks. All feedback received will be summarised by the EC and presented to the European Parliament and Council with the aim of feeding into the legislative debate.

28/05 – Council agreement secures EU financing of high performance computing

High Performance Computing (HPC) refers to computing systems (“supercomputers”) with extremely high computational power that are able to solve hugely complex and demanding problems. It enables key technologies like artificial intelligence, data analytics and cybersecurity, to exploit the enormous potential of the big data economy. The draft regulation, which replaces the existing one, has been aligned to the EU’s multiannual financial framework for the years 2021-2027, thus making it possible for the joint undertaking to use funding from EU programmes. In addition, it takes into account recent technological developments, such as quantum computing.

03/06 – Data Act – EC launches public consultations on the data act

The European Commission has opened the feedback period for the Data Act. The regulatory proposal aims to foster data sharing among businesses, as well as between governments and companies, by clarifying legal liabilities of responsible data usage and removing barriers hindering data share. The initiative also reviews the legal protection of databases from the perspective of machine-generated data and IoT. The consultation will collect information on the following: (i) business-to-government data sharing for the public interest, (ii) business-to-business data sharing, (iii) tools for data sharing: Smart Contracts, (iv) clarifying rights on non-personal Internet of Things data stemming from professional use, (v) improving portability for business users of cloud services, (vi) complementing the portability right under Article 20 GDPR, (vii) Intellectual Property Rights – Protection of Databases, (viii) safeguards for non-personal data in international context. The “Have your say” on the Inception Impact Assessment is open until 25 June, and the public consultation is open until 3 September.

EMIR

28/04 – EU commission launches a consultation on the extension of the transitional provisions related to own funds requirements for exposures to CCPs

This initiative exceptionally extends by 12 months (until 28 June 2022) the transitional periods during which institutions can treat exposures to a third-country central counterparty (CCP) that has not been recognised in accordance with Regulation (EU) No 648/2012 as if they were exposures to a recognised CCP. The extension will enable the Commission to finalise its assessments of CCPs equivalence and institutions to properly prepare for the end of the current transitional periods. Feedback period: 28 April 2021 – 26 May 2021.

06/05 – Pension scheme arrangements – exemption from clearing obligation (1-year extension)

Under EU rules (Regulation 648/2012), entities can receive a temporary exemption from their central clearing obligation for pension scheme arrangements, given its potential impact on pensioners’ retirement incomes. The Commission may extend the temporary exemption twice, each time for a maximum of 1 year, as is the case with this initiative.

06/05 – Commission Delegated Regulation supplementing EMIR with regard to rules of procedure for penalties imposed on third-country CCPs or related third parties is published in the Official Journal

Commission Delegated Regulation (EU) 2021/731 has been published in the Official Journal of May 6, 2021. This regulation specifies further the rules of procedure regarding fines and periodic penalty payments to be imposed by ESMA on third-country CCPs or related third parties to whom those CCPs have outsourced operational functions or activities subject to ESMA’s investigation and enforcement proceedings, including rules on the right of defence and limitation periods. This Regulation entered into force on May 7, 2021.

28/05 – ESMA consults on guidelines for data transfer between trade repositories under EMIR and SFTR

The ESMA launched a consultation on amendments to its Guidelines on data transfer between Trade Repositories (TRs) under EMIR, as well as on Guidelines regarding data transfer between TRs under SFTR. The new set of Guidelines establishes the framework for data transfer of SFTs between TRs under SFTR. The Consultation Paper also proposes changes to the current Guidelines on data transfer between TRs under EMIR, with a view to maintaining access to historical data for regulatory authorities and ensuring a high degree of data quality as well as a competitive TR environment. Next steps: the closing date for responses is 27 August 2021. ESMA will consider the responses to this consultation with a view to finalising the proposed Guidelines and will publish a final report by Q1-2022.

02/06 – The EU commission specifies commercial terms for clearing services for OTC derivatives

The Commission has adopted a Delegated Regulation specifying the conditions under which commercial terms for clearing services for OTC derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent (‘FRANDT’). To facilitate access to clearing for clients, especially those that have a limited volume of activity in the OTC derivatives market, clearing members and clients which provide clearing services (‘clearing service providers’) must provide those services on FRANDT terms provided for in Article 4(3a) of the EMIR Regulation (EU) No 648/2012. The Delegated Regulation will now be subject to the scrutiny of the European Parliament and of the Council. The Delegated Regulation will start to apply six months from its entry into force in relation to new clients. Commercial terms in contracts with existing clients will have to be brought in line with the requirements laid down in the Delegated Regulation within 12 months from its entry into force.

EU

22/04 – ECB stays on hold, pledges flexibility

The European Central Bank has kept its policy stance unchanged and pledged flexibility in its fight against economic damage caused by the coronavirus pandemic. “At today’s meeting, the Governing Council decided to reconfirm its very accommodative monetary policy stance,” the central bank said in a statement.

11/05 – EC consults on an EU strategy for retail investors

The Commission is preparing a retail investment strategy for the first half of 2022. In line with the Commission’s stated objective of ‘an economy that works for people’, the Commission is seeking to ensure that a legal framework for retail investments is suitably adapted to the profile and needs of consumers, helps ensure improved market outcomes, empowers retail investors and enhances their participation in the capital markets.

18/05 – EU Commission consults on EU financial system – Supervisory Data Strategy

This strategy, announced in the Commission’s digital finance strategy adopted in September 2020, aims to improve the collection of supervisory data (i.e. data reported to EU and national authorities for the supervision of the financial system) and make it fit for the future. Better data collection will: (i) help to ensure the integrity and stability of the EU’s financial system by enabling proactive and effective data-driven supervision; and (ii) reduce the cost and burden associated with reporting. The roadmap feedback period is : 18 May 2021 – 15 June 2021.

03/06 – EBA published its 2020 annual report

The EBA published its 2020 Annual Report, which provides a detailed account of all the work the Authority achieved in the past year and anticipates the key areas of focus in the coming year. The Annual Report presents the ad-hoc activities the EBA undertook to mitigate the impact of COVID-19 on the EU banking sector. The 2020 Annual Report also lies down the strategic priorities area for 2021, which include the review of the stress-testing framework, implementation of the mandates in the domain of AML/CFT, financial innovation and sustainable finance.

MIFID 2 / MIFIR

12/05 – ESMA consults on its MiFID II/MiFIR annual report

ESMA launched a consultation seeking input from market participants on its MiFIDII /MiFIR Annual Review Report under Commission Delegated Regulation (EU) 2017/583 (RTS 2). The consultation closes on 11 June 2021.

06/05 – ESMA updates its opinion on ancillary activity calculations

The ESMA published an updated Opinion on ancillary activity calculations. The opinion provides the estimation of the market size of commodity derivatives and emission allowances for 2020.

26/05 – ESMA consults on commodity derivatives technical standards as part of MiFID II recovery package

The ESMA launches a consultation, as part of the post-Covid MiFID II Recovery Package, seeking input from market participants on its draft Technical Standards for commodity derivatives. ESMA’s proposals relates to the application of position limits to commodity derivatives. The consultation forms part of ESMA’s mandates under of the MiFID II Recovery Package, a set of measures aimed at supporting the recovery from the severe economic shock caused by the Covid-19 pandemic. The consultation closes on 23 July 2021.

27/05 – EU commission launches a consultation on its delegated act on the ancillary activity exemption

The changes are triggered by the amended Ancillary Activity Exemption under Directive (EU) 2021/338 and correspond to the deletion of the Overall Market Size Test and the introduction of a new de-minimis Threshold Test. The draft delegated act does not require changes to the established calculation methodology of the current Trading Test and Capital Employed Test. Feedback period: 27 May 2021 – 24 June 2021.  Adoption of the delegated act is planned for the second quarter of 2021.

02/06 – MIFID/MIFIR – ESMA publishes final report on the MiFID II/MiFIR obligations on market data

The ESMA has published its Final Report on Guidelines on the MiFID II/MiFIR obligations on market data. The Final Report sets out guidelines on the requirements to publish market data on a reasonable commercial basis and to make market data available free of charge 15 minutes after publication. The Guidelines, by providing clarity for market participants, will ensure better and uniform application of these MiFID II/MiFIR obligations. The guidelines apply to national competent authorities, trading venues, approved publication arrangements, consolidated tape providers and systematic internalisers. Next steps: the application date for the Guidelines is set on 1 January 2022 to allow for an adequate period of implementation by market participants.

PROSPECTUS

07/05 – ESMA updates its Q&As relating to the prospectus regulation

ESMA has updated its Q&As on the Prospectus Regulation with three new Q&As. The Q&As provide clarifications on the following aspects: (i) the application of Article 4(1) of the CRA Regulation to credit rating disclosure in prospectuses; (ii) how to determine home Member State in the context of global depository receipts over shares; and (iii) the publication of supplements to prospectuses when new audited annual financial information is published by a non-equity issuer.

SECURITISATION

14/05 – ECB Banking Supervision announces its decision to supervise securitisation requirements for banks

The European Central Bank announced its decision to start ensuring that the banks it directly supervises comply with the requirements for risk retention, transparency and resecuritisation, which are set out under Articles 6 to 8 of the EU Securitisation Regulation (SECR). The decision follows recent amendments to the Regulation which provide that risk retention, transparency and the ban of resecuritisation requirements are prudential in nature and therefore should be supervised by competent prudential supervisory authorities.

17/05 – ESAs’ report on the implementation and functioning of the securitisation regulation

The Joint Committee of the ESAs published its analysis of the implementation and the functioning of the SECR, including recommendations on how to address initial inconsistencies and challenges, which may affect the efficiency of the current securitisation regime. The Report is meant to provide guidance to the European Commission in the context of its review of the functioning of the SECR. It also provides initial inputs to the ongoing discussion on the efficiency of the securitisation framework given the role that securitisation could play in the recovery post the Covid-19 pandemic.

27/05 – ESMA consults on synthetic securitisations RTS and amendments to STS templates

ESMA published a Consultation Paper on draft RTS implementing the amended SECR. The amended SECR requires that certain securitisations meeting pre-defined simple, transparent and standardised (STS) requirements must be reported using standardised templates for STS notification published on ESMA’s website. Next steps: the consultation is open until 20 August 2021. The draft RTS and ITS will be submitted to the European Commission for endorsement by 10 October 2021.

SFTR

25/05 – ESMA publishes guidelines on the calculation of positions under SFTR

The ESMA publishes the Final Report on Guidelines on the calculation of positions in SFTs by Trade Repositories (TRs) under SFTR. The purpose of the Guidelines is to ensure that a uniform methodology is used under EMIR and SFTR, while taking into account the specificities of SFT Reporting. Consistency in position calculation produces high-quality position data, which is necessary for the assessment of systemic risks to financial stability. The Guidelines will apply from 31 January 2022.

28/05 – ESMA consults on guidelines for data transfer between trade repositories under EMIR and SFTR

The ESMA launched a consultation on amendments to its Guidelines on data transfer between Trade Repositories (TRs) under EMIR, as well as on Guidelines regarding data transfer between TRs under SFTR. The new set of Guidelines establishes the framework for data transfer of SFTs between TRs under SFTR. The Consultation Paper also proposes changes to the current Guidelines on data transfer between TRs under EMIR, with a view to maintaining access to historical data for regulatory authorities and ensuring a high degree of data quality as well as a competitive TR environment. Next steps: the closing date for responses is 27 August 2021. ESMA will consider the responses to this consultation with a view to finalising the proposed Guidelines and will publish a final report by Q1-2022.

SHORT-SELLING REGULATION

13/05 – ESMA proposes lowering the reporting threshold for net short positions to 0.1% on a permanent basis

This opinion provides ESMA’s view to lower the 0.2% notification threshold set out in Article 5(2) of Short Selling Regulation n°236/2012 on the basis of: (i) additional transparency of net short positions for Competent Authorities deemed essential by ESMA; (ii) financial market developments that first became evident in the COVID-19 pandemic; and (iii) additional structural changes in financial markets.

SUSTAINABLE FINANCE

21/04 – Sustainable Finance and EU Taxonomy: Commission takes further steps to channel money towards sustainable activities

The European Commission has adopted a comprehensive package of measures to help improve the flow of money towards sustainable activities across the EU. The package is comprised of: (i) the EU Taxonomy Climate Delegated Act, which aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU’s environmental objectives; (ii) a proposal for a Corporate Sustainability Reporting Directive (CSRD), which aims to improve the flow of sustainability information in the corporate world; and (iii) six amending Delegated Acts on fiduciary duties, investment and insurance advice will ensure that financial firms, e.g. advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients.

26/04 – EU commission opens feedback period on proposed Directive

On 21 April 2021, the Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the NFRD. This adopted act is open for feedback for a minimum period of 8 weeks (26 April 2021 – 25 June 2021). All feedback received will be summarised by the European Commission and presented to the European Parliament and Council with the aim of feeding into the legislative debate.

07/05 – Taxonomy: Commission launches call for public feedback on the disclosure obligations in respect the article 8 of the taxonomy regulation

The Commission published a call for public feedback on the content, methodology and presentation of information that large financial and non-financial undertakings should disclose concerning their environmentally sustainable economic activities. Article 8 of the Taxonomy Regulation aims to increase transparency in the market, and prevent greenwashing by providing information to investors about the environmental alignment of economic activities of financial and non-financial undertakings.

28/05 – BMR update of the Q&A on eu climate transition benchmarks, EU Paris-aligned benchmarks and sustainability-related disclosures for benchmarks

After the adoption of the European Commission’s Delegated Acts (DAs) on ESG Benchmark requirements, ESMA has now provided guidance on interpretive issues relating to the said DAs.