European Regulatory Update - January 2017
European Regulatory Summary – January 2017
As Brexit becomes more of a reality, the government, government agencies, regulators, and businesses are preparing to roll out their Brexit strategies. The European Commission has launched a consultation on the Capital Markets Union and adopted an equivalence regime for non-EU CCPs and trading venues. The European Securities and Markets Authority (ESMA) has issued several publications relating to data reporting. The European Insurance and Occupational Pensions Authority (EIOPA) has issued publications on matters relating to the Solvency Capital Requirements and long term guarantee (LTG) measures.
The UK House of Commons Treasury Select Committee (TSC) is asking for written submissions on transitional arrangements as part of its inquiry into the UK’s future economic relationship with the EU. Click here to access the document published.
The House of Lords EU Financial Affairs Sub-Committee published a report on the implications of Brexit for the UK’s financial services sector. The report discussed a range of issues, including automatic ‘passporting’ rights, free movement of labour and ‘fintech’. It concluded that a better evidence base was needed to assess the impact of losing ‘passporting’ rights, and that it would be to the EU’s advantage if the UK retained a concentration of activity in financial services after Brexit. It also called on the UK Government to “pursue an early announcement on a transitional period”. Click here to access the report.
Capital Markets Union (CMU)
The European Commission has launched a consultation to seek feedback on how the current capital markets union (CMU) programme can be updated and completed so that it represents a strong policy framework for the development of capital markets, building on the initiatives that the Commission has presented so far. Click here to find out more.
EBA published discussion paper on investment firms’ prudential regime
The European Banking Authority (EBA) has published a discussion paper on designing a new prudential regime for investment firms. This was in response to a call for advice from the European Commission. The capital requirements are intended to ensure the continuity of the provision of services by ensuring that investment firms can absorb a degree of loss, have appropriate liquidity measures, and have enough own funds and liquid assets to wind down in an orderly fashion. Click here for the paper.
ESMA publishes MiFIR Q&A regarding data reporting
The purpose of this document is to promote common supervisory approaches and practices in the application of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) in relation to regulatory data reporting. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of MiFID II and MiFIR on:
• Legal Entity Identifiers (LEI) of the issuer; and
• Date and time of the request of admission and admission
Click here to access the Q&A
ESMA issues briefing on transaction reporting requirements under MiFID II
The European Securities and Markets Authority (ESMA) published guidelines for transaction reporting under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) in December 2016. Additionally, ESMA released technical requirements and templates further detailing the relevant reporting requirements under MIFID II and MIFIR. Click here to access the template.
ESMA proposes new digital format for issuers’ financial reporting
The European Securities and Markets Authority (ESMA) has published a feedback statement setting out the digital format which issuers in the European Union (EU) must use to report their company information from 1 January 2020. It concludes that Inline XBRL is the most suitable technology to meet the EU requirement for issuers to report their annual financial reports in a single electronic format because it enables both machine and human readability in one document. Click here to access the feedback statement.
ESMA prepares for MiFID II commodity derivatives regime
The European Securities and Markets Authority (ESMA) has published a new questions and answers (Q&A) document on commodity derivatives topics under the revised Markets in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). MiFID II applies from 3 Jan 2018. The purpose of this Q&A is to promote common supervisory approaches and practices in the application of MiFID II and its implementing measures for commodity derivatives topics. In particular, the Q&A clarifies a number of points relating to the position limits and ancillary activities requirements. Click here to access the Q&A.
Adoption of “equivalence” decisions for CCPs and trading venues in 10 non-EU jurisdictions
On 16 December 2016, the European Commission determined that India, Brazil, New Zealand, Japan (for Commodities), United Arab Emirates and Dubai International Financial Centre have regulatory regimes for central counterparties (CCPs) equivalent to that in the European Union. The Commission has determined also that the rules governing certain trading venues in Australia, Canada, Japan and Singapore can be deemed equivalent to those in the EU. Click here to access the press release.
EBA and ESMA call to clarify margin requirements between CRR and EMIR
The European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) have jointly published a report on the functioning of the Capital Requirements Regulation (EU) No 575/2013 (CRR) with the European Market Infrastructure Regulation (EU) No 648/2012 (EMIR). The report calls for the requirements for credit, market, and counterparty credit risk in the CRR to be clarified. This clarification should ensure that only risks not covered already by specific financial resources for activities not related to clearing are to be covered by CRR requirements. This exclusion should also be extended to activities covered by interoperability arrangements. Click here to access the report.
The EBA published a report on the cyclicality of banks’ risk-based capital requirements.
It found that, at an aggregate level, there is no strong evidence of risk-based capital requirements having had an impact on the EU economic cycle. Banks’ loan supply after the financial crisis of 2008 appeared to be driven by broader macroeconomic and financial factors. The The European Banking Authority (EBA) concluded that there were no grounds to move away from a risk-sensitive capital framework. Click here to access the report.
Minimum requirement for own funds and eligible liabilities (MREL)
The European Banking Authority (EBA) published a report on the implementation and design of the minimum requirement for own funds and eligible liabilities (MREL). The report summarises how MREL has been implemented in the EU and makes a number of recommendations, including requiring resolution authorities proactively to monitor the maturity profile of MREL-eligible instruments and giving them powers to require firms to change the maturity profile of their MREL stack. The report also contained an updated impact assessment, with the upper range of the aggregate shortfall lowered from EUR 790 billion to EUR 276 billion. Click here to access the report.
Discussion Paper: Solvency Capital Requirement (SCR) standard formula under Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) has published a discussion paper which focused on the Solvency Capital Requirement (SCR) standard formula under Solvency II, with the aim of achieving more proportionality in the supervisory regime through possible simplifications in the SCR formula. In particular, the discussion paper posed specific questions about the risk margin, e.g. whether there is evidence indicating that the methods and assumptions for the risk margin calculation are no longer appropriate in view of a changed market environment. Click here to access the report.
Report on long-term guarantee (LTG) measures and measures on equity risk
The European Insurance and Occupational Pensions Authority (EIOPA) submitted its first annual report on long-term guarantee (LTG) measures and measures on equity risk. In analysing the impact of the matching adjustment, volatility adjustment, transitional measures on the risk-free interest rates, and transitional measures on technical provisions, EIOPA concluded that the LTG measures have a significant impact on the own funds and capital requirements of insurers. Removing the measures would result on average in a reduction of the Solvency Capital Requirement ratio by 72%, from 193% to 121%, at the EEA level. In several countries the average solvency ratios of undertakings without the use of the measures would fall below 100%. Click here to access the report.