Financial Services Regulatory Update - June 2020 Round Up

On 19 June 2020, Commission Delegated Regulation (EU) 2020/855, which amends the list of high-risk third countries with strategic anti-money laundering and counter-terrorist financing deficiencies produced under Article 9(2) of the Fourth Money Laundering Directive was published in the EU’s Official Journal (here).

On 15 June 2020, the EBA issued a call (here) for input to understand the scale and drivers of “de-risking” at EU level and its impact on customers. This call aims primarily to understand why financial institutions choose to de-risk instead of managing the risks associated with certain sectors or customers.

On 30 June 2020, the European Commission published remarks made by Michel Barnier, the EU’s chief negotiator, in which he discusses the Brexit negotiations and their impact on financial services along with the EU’s ongoing process for the assessment of equivalence determinations relating to the UK (here).

On 10 June 2020, the CMU High-Level Forum published its final report (here) in which it makes 17 recommendations intended to move the CMU towards completion. The report sets out detailed provisions for each of the recommendations including amendments to specific legislation where appropriate, and the proposed timetable for delivering on each recommendation. The European Commission was seeking feedback on the report until 30 June 2020, and intends to publish an action plan on the CMU in Q4 2020.

On 18 June 2020, the EBA published final draft amending regulatory technical standards and implementing technical standards on passport notifications under Articles 35, 36 and 39 of the Capital Requirements Directive (here). In a related press release, ESMA states that the amendments particularly focus on:

• requesting the credit institution to indicate as accurately as possible the intended start date of each activity for which the notification is submitted, rather than just of the core business activities;
• increasing the granularity of the information on the financial plan to be notified in case of establishment of a branch; and
• providing additional information in case of termination of the branch.

On 25 June 2020, Commission Delegated Regulation (EU) 2020/866 amending Delegated Regulation (EU) 2016/101 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for prudent valuation under Article 105(14) of Regulation (EU) No 575/2013 was published in the EU’s Official Journal (here). The Delegated Regulation entered into force on 26 June 2020.

On 25 June 2020, the EBA published a final report on draft implementing technical standards (“ITS”) on public disclosure requirements for institutions under the Capital Requirements Regulation (here) and draft ITS on supervisory reporting requirements for institutions under the Capital Requirements Regulation (here).

On 5 June 2020, the Basel Committee on Banking Supervision (“BCBS”) published a set of FAQs on the Basel framework (here). The document sets out a number of FAQs that the BCBS has agreed to add to the Basel framework.

There were a number of COVID-19 related developments in June. Generally, this briefing does not deal with these developments, a number of which we have summarised elsewhere in the following briefing:

• COVID-19: Financial Services Round-Up for 1 June – 5 July 2020 (here)

The McCann FitzGerald website has a dedicated COVID-19 section containing FAQs, briefings and guidance on a range of legal and business issues that may need to be addressed (here).

On 2 June 2020, ESMA published a final report containing technical advice on the fair, reasonable, non-discriminatory and transparent (FRANDT) commercial terms for the provision of clearing services under Article 4(3a) of EMIR (here). The requirements aim to:

• facilitate comparability of the information disclosed;
• address the process of onboarding clearing clients;
• standardise the information disclosed to clients bilaterally; and
• encourage further standardisation of contractual terms.

In a related press release, ESMA states that it is aiming to strike a balance between improving clearing clients’ access to clearing services and ensuring such services are provided on FRANDT compliant terms, while ensuring the requirements are proportionate and within the mandate received.

The European Supervisory Authorities have published their 2019 annual reports along with their priorities for 2020 (here, here and here).

EIOPA has also published its 2019 supervisory activities report (here).

On 4 June 2020, ESMA published a supervisory briefing on the supervision of costs in UCITS and AIFs (here) in order to provide guidance to National Competent Authorities (“NCAs”) on the supervision of costs charged to investors by UCITS and/or AIFs and their management companies. The briefing is also intended to give market participants indications of NCAs’ expectations and compliant practices regarding the cost-related provisions of the UCITS Directive and AIFMD. See our related briefing here.

On 10 June 2020, the European Commission published a report assessing the scope and application of AIFMD (here). According to the report, the Commission is still assessing whether there is a need for any proposals, including amendments to AIFMD. The issues raised in the report might require more action to deepen the EU market for AIFs and to respond to technological developments to ensure that the AIFMD legal framework remains fit for purpose.

On 16 June 2020, the CBI published a statement setting out its expectations in relation to due diligence on-site visits by fund service providers to outsourcing service providers / delegates in the context of COVID-19. More information is available here.

On 22 June 2020, ESMA published the official translations of its guidelines on reporting to NCAs under Article 37 of the Regulation on money market funds (here). The guidelines will apply from two months after the date of their publication on ESMA's website in all EU official languages. NCAs must notify ESMA whether they comply, or intend to comply, with the guidelines within this two-month period.

On 29 June 2020, the European Commission published a report on the impact of the Interchange Fee Regulation (here).  The report concludes that the main objectives of the Regulation have been achieved but that further monitoring and reinforced data gathering are necessary in some areas, including those where only limited time has elapsed since the Regulation entered into force. The Commission has concluded that it would not be appropriate to propose any revision of the Regulation at this time.

On 2 June 2020, the EBA published a roadmap on investment firms relating to the EBA’s mandates under the Investment Firms Regulation and Investment Firms Directive (here).

On 4 June 2020, the EBA published a template and instructions for the 2020 EBA data collection exercise for investment firms (here). The purpose of the EBA’s data collection exercise is to assess the impact of draft RTS relating to prudential and remuneration requirements under the Investment Firms Regulation and the Investment Firms Directive.

Market Abuse

On 16 June 2020, the CBI issued a questionnaire to all issuers of equities on the regulated market of Euronext Dublin regarding compliance with their obligations under the Market Abuse Regulation and related and supporting legislation. The results of the questionnaire will be used to inform the CBI’s future supervisory work. The questionnaire follows a review by the CBI of the timeliness and nature of announcements made by various industry sectors on the impact of COVID-19. The CBI will issue a similar questionnaire to Euronext Dublin SME Growth Market participants later in 2020. More information is available here.

Markets in Financial Instruments

On 3 June 2020, ESMA published updated versions of its opinions on transparency and position limits for third-country trading venues under the MiFID II Directive (here).

On 5 June 2020, ESMA published final guidelines on certain aspects of the MiFID II compliance function requirements (here). The guidelines aim to establish consistent, efficient and effective supervisory practices and to ensure the common, uniform and consistent application of a number of aspects of the MiFID II compliance function. They are addressed to investment firms and credit institutions providing investment services and activities, investment firms and credit institutions selling or advising clients in relation to structured deposits, UCITS management companies and AIFMs when providing investment services and activities in accordance with the UCITS Directive and AIFMD.

The twelve guidelines cover:

• responsibilities of the compliance function. This includes guidelines on compliance risk assessment, monitoring and reporting obligations and advisory and assistance obligations;
• organisational requirements of the compliance function. This includes guidelines on effectiveness, skills, knowledge, expertise and authority, permanence and independence, and outsourcing of the compliance function; and
• competent authority review of the compliance function.

The guidelines replace the existing ESMA 2012 guidelines. The 2020 version includes a correlation table between it and the 2012 guidelines. The guidelines will now be translated into the EU’s official languages. The publication of the translations will trigger a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply with the guidelines.

The CBI has published Dear CEO letters on its expectations of investment firms when engaging in unregulated activities (here) and its thematic inspection to review firms’ compliance with the appropriateness requirements set out in MiFID II (here).

Moneylending

On 8 June 2020, the CBI published a press release announcing the publication of the following regulations - Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Licensed Moneylenders) Regulations 2020 (here).

The purpose of the new regulations is to strengthen protections for consumers of licensed moneylending services and to enhance professional standards in the sector. Under the new regulations, among other things:

• moneylenders will be required to include prominent, high cost warnings in all advertisements for moneylending loans with an APR over 23 per cent. The warning must also prompt consumers to consider alternatives;
• the regulations will limit the moneylenders’ contact with consumers and limit the offer and promotion of loans to consumers; and
• moneylenders will not be permitted to make an unsolicited offer to apply for credit to consumers who have recently made, or are nearing, full repayment of a moneylending loan. They will also be required to ensure that their marketing strategy is fair and reasonable.

The regulations will come into effect on 1 January 2021. The CBI states that in recognition of the financial effects of COVID-19 on people, the ‘high-cost warning’ requirement in respect of advertisements for moneylending loans with an APR in excess of 23% will come into effect on 1 September 2020.

The CBI has also published:

• Feedback Statement on Consultation Paper 118 (here)
• First edition of the Q&As on the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Licensed Moneylenders) Regulations 2020 (here)
• Updated FAQs for moneylenders (here)

The CBI has published a notice on the setting of a common threshold for the individual valuation of collateral used for non-performing exposures (“NPEs”) by an independent appraiser, as set out in the EBA Guidelines on management of non-performing and forborne exposures (here).

On 4 June 2020, the EBA published an opinion on obstacles to the provision of third party provider services under Article 32(c) of the RTS on strong customer authentication and common and secure communication supplementing the Revised Payment Services Directive (here).

The opinion addresses a number of issues regarding the interfaces provided by account servicing payment service providers (“ASPSPs”) to third party service providers (“TPPs”). It:

• Clarifies when mandatory redirection is an obstacle to the provision of TPPs' services and the authentication procedures that ASPSPs' interfaces are required to support.
• Clarifies a number of obstacles identified in the market, including requiring multiple SCAs, the manual entry of the International Bank Account Number (IBAN) in the ASPSPs' domain, or imposing additional checks of the consent given by the customer to the TPP.
• Explains that requiring re-authentication every 90 days for account information services in accordance with the RTS on SCA and CSC is not an obstacle.

EBA expects that competent authorities take the necessary actions to ensure compliance of the interfaces offered by ASPSPs with PSD2 and the RTS and, where obstacles are identified, to ensure that ASPSPs remove them within the shortest possible time.

On 4 June 2020, the European Commission published draft regulations to amend and correct Commission Delegated Regulations (EU) 2019/980 and (EU) 2019/979, which both supplement the EU Prospectus Regulation.

Commission Delegated Regulation (EU) 2019/980, supplements the Prospectus Regulation as regards the format, content, scrutiny and approval of the prospectus.  The draft delegated regulation (here) and accompanying Annexes (here) amend and correct various aspects of the Delegated Regulation.

Commission Delegated Regulation 2019/979 supplements the Prospectus Regulation with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal  The draft delegated regulation and accompanying annexes amend and correct various minor aspects of the RTS Regulation. See here and here.

On 18 June 2020, the EBA published its final draft RTS on criteria to identify all categories of staff whose professional activities have a material impact on an institution’s risk profile (here). In response to feedback received on the consultation, the EBA has revised the qualitative criteria to enhance the application of proportionality and has also revised the definition of managerial responsibility to take into account that institutions of different sizes have different layers of hierarchical levels.

The final draft RTS also provide clarification on how the criteria should be applied on a consolidated, sub-consolidated and individual basis. The EBA has added some flexibility in calculating the amount of remuneration for the application of the quantitative requirements.

The CBI has published the following guidance for retail intermediaries (here and here):

• Handbook of Prudential Requirements for Investment Intermediaries (12 June 2020)
• Guidance for Retail Intermediaries on the requirement to hold Professional Indemnity Insurance

On 5 June 2020, Commission Implementing Regulation (EU) 2020/744 of 4 June 2020 on amending Implementing Regulation (EU) 2016/1800 laying down implementing technical standards with regard to the allocation of credit assessments of external credit assessment institutions (“ECAIs”) to an objective scale of credit quality steps in accordance with Directive 2009/138/EC was published in the EU's Official Journal (here).

The European Commission has published FAQs on the work of the European Commission and the Technical Expert Group on Sustainable Finance on the EU Taxonomy and EU Green Bond Standard (here). The focus of the FAQs is on the final reports of the Technical Expert Group on Sustainable Finance on the EU Taxonomy and the EU Green Bond Standard, as well as on how the Commission intends to take the content of those reports forward.

On 22 June 2020, the Taxonomy Regulation (EU) 2020/852 was published in the EU's Official Journal (here) and entered into force on 12 July 2020. The Taxonomy Regulation essentially establishes the criteria for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment is environmentally sustainable. It is intended to create a common language that investors can use everywhere when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. The Commission will adopt delegated acts containing specific technical screening criteria to supplement the principles set out in the Taxonomy Regulation and determine which economic activities can qualify for each environmental objective. See our related briefing here.

• Basel Committee on Banking Supervision - Consultation on capital treatment of securitisations of non-performing loans (here).  The closing date is 23 August 2020.
• CBI – Consultation paper (CP131) on regulations for pre-emptive recovery planning for (re)insurers (here).  The closing date is 30 October 2020.
• Department of Finance – Consultation on national discretions in the Covered Bonds Directive (here).  The closing date is 17 August 2020.
• Department of Public Expenditure and Reform – Consultation on the transposition of Directive (EU) 2019/1937 of the European Parliament and the Council on the protection of persons who report breaches of Union law (here).  The closing date is 10 July 2020.
• EBA – Discussion paper on the application of early intervention measures in the EU under the Bank Recovery and Resolution Directive (here).  The closing date is 25 September 2020.
• EBA – Consultation on draft regulatory technical standards on the prudential treatment of software assets under Article 36 of the Capital Requirements Regulation (here).  The closing date is 9 July 2020.
• EBA – Consultation paper on draft regulatory technical standards on capital requirements of non-modellable risks under the Fundamental Review of the Trading Book (here).  The closing date is 4 September 2020.
• EBA – Various consultations on implementation of the new regulatory framework for investment firms (here).  The closing date is 4 September 2020.
• EBA – Discussion paper on the application of early intervention measures in the EU under the Bank Recovery and Resolution Directive (here).  The closing date is 26 June 2020.
• European Commission – Consultation on various delegated regulations and directives as part of EU’s action plan on sustainable finance (here, here, here, here, here and here).  The closing date is 6 July 2020.
• European Commission – Consultation on new consumer agenda (here).  The closing date is 6 October 2020.
• EIOPA – Discussion paper on the (re)insurance value chain and new business models arising from digitalisation (here).  The closing date is 7 September 2020.
• EIOPA – Discussion paper on methodological principles of insurance stress testing (here).  The closing date is 2 October 2020.
• ESMA – Consultation paper on draft guidelines on outsourcing to cloud service providers (here).  The closing date is 1 September 2020.
• European Commission – Consultation on Commission Delegated Regulation (EU) supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the criteria that ESMA should take into account to determine whether a central counterparty established in a third-country is systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States (here).  The closing date is 9 July 2020.
• European Commission – Commission Delegated Regulation (EU) supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to fees charged by the European Securities and Markets Authority to central counterparties established in third countries (here).  The closing date is 9 July 2020.
• European Commission – Commission Delegated Regulation (EU) supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the minimum elements to be assessed by ESMA when assessing third-country CCPs' requests for comparable compliance and the modalities and conditions of that assessment (here).  The closing date is 9 July 2020.
• European Commission – Consultation on the Digital Services Act package (here).  The closing date is 8 September 2020.
• European Payments Council – Consultation on a draft rulebook developed for its new Request-to-Pay scheme (here).  The closing date is 30 August 2020.
• Financial Stability Board – Consultation on evaluation of too-big-to-fail reforms for systemically important banks (here).  The closing date is 30 September 2020.
• IOSCO – Consultation on the use of artificial intelligence and machine learning by market intermediaries and asset managers (here).  The closing date is 26 October 2020.

McCann FitzGerald regularly publishes briefings on topics relevant to financial services regulation, among others. In addition to our wide range of briefings relating to COVID-19, referenced above, you may also be interested in the following briefings:

• Financial Services Regulatory Update – May 2020 Round Up (here)
• Brexit Post COVID-19: A 90 Second Update (here)
• Supervising Costs in UCITS and AIFs – in for a Penny, in for a Pound! (here)
• Amending Consumer Finance Contracts at a Distance:  Recent Decision of the Court of Justice of the European Union Prompts Pause for Thought (here)
• Reform of the ESAs – the “No-Action Letter” (here)
• EMIR Reporting – Check Your Compliance Calendar! (here)