Financial Services Regulatory Update – May 2023 Round Up

EU Retail Investment Package

On 24 May 2023, the European Commission published its proposals regarding a new retail investment package (here) designed to improve safeguards for retail investors in EU capital markets. The package consists of two legislative proposals:

• a proposed Directive (here) amending the UCITS Directive, the Solvency II Directive, the AIFMD, the MiFID II Directive, and the Insurance Distribution Directive as regards EU rules for protecting retail investors; and
• a proposed Regulation (here) amending the Regulation on key information documents (“KIDs”) for packaged retail and insurance-based investment products (“PRIIPs Regulation”) as regards the modernisation of KIDs.

The Commission is inviting feedback on the new retail investment package by 3 August 2023. 

Our briefing (here) provides further detail.

Brexit –Regulatory Cooperation between the EU and UK in Financial Services

On 17 May 2023, the European Commission announced that it had adopted a draft memorandum of understanding (“MoU”) on UK-EU regulatory cooperation in financial services (here). 

The aim of the MoU is to outline a post-Brexit framework for voluntary regulatory cooperation between the EU and UK with regard to financial services, and to establish a Joint UK-EU Financial Regulatory Forum. Final endorsement of the MoU is required by the Council of the EU before the MoU can be signed by the Commission on behalf of the EU.

For more information, please see our related briefing (here), as well as our dedicated Brexit hub (here).

ESAP – Provisional Agreement of EU Institutions

On 23 May 2023, negotiators from the EU Council and the European Parliament announced (here) that they have reached a provisional agreement on proposals regarding the creation of a European Single Access Point (“ESAP”) through which competent authorities would be able to access centralised bank account registries.

A note comparing the institutions’ various positions prior to negotiations was previously issued (here).

As of 6 June 2023, the European Parliament confirmed via press release (here) that it has reached a political agreement with the Council of the EU. Once officially adopted by the European Parliament and the Council, the legislation can be published in the Official Journal and be entered into force.

CBI Annual Report 2022 

On 24 May 2023, the Central Bank of Ireland (“CBI”) published its annual report for 2022 (here). The report outlines some of the key achievements of the CBI in the past year, reiterates the CBI’s key priorities for the year ahead, and contains a 2022-23 performance statement.

For more information, please see our related briefing (here).

Revised Consumer Credit Directive

On 2 May 2023, the Council of the EU published a note (here) detailing the political agreement it has reached with the European Parliament on the proposal for a Directive to revise and replace the existing Consumer Credit Directive. 

The revised Directive aims to modernise and enhance protection for consumers applying for credit, and to promote fair and transparent practices in the consumer credit industry.

Updated Q&As – Crowdfunding Regulation

On 26 May 2023, ESMA published an update to its Q&A document (here) on Regulation (EU) 2020/1503 on European crowdfunding service providers for business (“ECSPR” or “Crowdfunding Regulation”). 

ESMA has updated the sections regarding: (i) the use of special purpose vehicles (“SPVs”); and (ii) authorisation and supervision of crowdfunding service providers (“CSPs”).

Draft RTS – Benchmarks Regulation

On 30 May 2023, ESMA published a final report (here) in which it proposes draft amending RTS under the Benchmarks Regulation regarding the information to be provided by EU benchmarks administrators in applications for authorisation and registration. Following their publication, the draft RTS will be submitted to the European Commission, which will have three months to make a decision regarding endorsement.

RTS – CCP Recovery and Resolution Regulation

On 3 May 2023, the European Commission adopted separate Delegated Regulations containing the following regulatory technical standards (“RTS”) supplementing the Central Counterparty (“CCP”) Recovery and Resolution Regulation (“CCPRRR”):

• RTS on safeguards for clients and indirect clients (here), specifying the conditions under which compensation, cash equivalent of such compensation or any proceeds that are due pursuant to Article 63(1) of the CCPRR are to be passed on to clients and indirect clients and the conditions under which passing on is to be considered proportionate; and
• RTS on valuation of CCPs’ assets and liabilities in resolution (here), specifying the circumstances in which a person is deemed to be independent from the resolution authority and from the CCP, the methodology for assessing the value of assets and liabilities of a CCP, the separation of the valuations, the methodology for calculating the buffer for additional losses to be included in provisional valuations, and the methodology for carrying out the valuation for the application of the ‘no creditor worse off’ principle.

The Delegated Regulations await publication in the Official Journal, and will enter into force on the twentieth day following their publication.

Inclusion of Climate Risk Component in 2023 ESMA Stress Test of CCPs

The European Securities and Markets Authority (“ESMA”) has published a final report (here) outlining the framework for its fifth stress test exercise for central counterparties (“CCPs”), including the exercise’s scope, detailed methodology, expected deliverables, and an implementation plan.

The European Market Infrastructure Regulation (“EMIR”) requires ESMA to carry out a CCP stress test at least annually. This year’s exercise is expected to be finalised in H1 2024. 

For the first time, this year’s stress test exercise will include a climate risk component which will assess the degree to which CCPs are affected both by the transition to a carbon-neutral economy and by physical risks emanating from climate change.

RTS – Sustainability Disclosures for STS Securitisations

On 25 May 2023, the Joint Committee of the European Supervisory Authorities (“ESAs”) published a final report (here) containing draft regulatory technical standards (“RTS”) under the Securitisation Regulation.

 The final draft RTS provide a specification for the content, methodologies and presentation of sustainability-related disclosures in respect of simple, transparent and standardised (“STS”) securitisations. Following publication, the RTS will be submitted to the European Commission which will have three months to make a decision regarding endorsement.

Updated Q&As – SFDR

On 18 May 2023, the Joint Committee of the ESAs published revised consolidated Q&As (here) on the Sustainable Finance Disclosure Regulation (“SFDR”) and on Delegated Regulation under SFDR.

CRD – EU Institutions’ Positions on Reform Proposals

On 5 May 2023, the Council of the EU published documents outlining the respective positions of the European Commission, the Parliament and of the Council, in advance of trilogue negotiations, on the following proposals:

• the proposed Directive (“CRD VI”) amending the CRD IV Directive as regards supervisory powers, sanctions, third-country branches and ESG risks (information note here); and
• the proposed Regulation (“CRR III”) amending the Capital Requirements Regulation (“CRR”) as regards requirements for credit risk, credit valuation adjustment (“CVA”) risk, operational risk, market risk and the output floor (information note here).

Single Resolution Board Updates MREL Policy

On 15 May 2023, the Single Resolution Board (“SRB”) published an updated version (here) of its policy for the minimum requirement for own funds and eligible liabilities (“MREL”). The changes to the policy relate to chapter 4 regarding internal MREL for non-resolution entities:

• the size threshold for those subsidiaries for which the SRB will set internal MREL has been reduced to €5 billion (from €10 billion); and
• the SRB now has the discretion to set internal MREL for certain intermediate financial holding companies not subject to prudential requirements after a case-by-case assessment, where it is deemed instrumental for the sound execution of the resolution strategy.

These changes reflect amendments to the CRR that were made by Regulation (EU) 2022/2036, which was published in the Official Journal in October 2022. A marked-up version of the policy shows the updates highlighted in red text (here).

CBI Survey on Digitalisation in Insurance

On 26 May 2023, the CBI published a report (here) on the impact of digitalisation on the insurance industry, based upon the results of a 2022 survey. 

The report finds that the Irish insurance sector is at a relatively early stage with regards to the digitalisation of its business models, and that change appears to be taking place in an incremental, rather than transformational, fashion. However, according to the CBI, it remains essential that firms adopt a clear strategy and robust oversight mechanisms to manage nascent risks associated with digitalisation.

ITS – Solvency II Directive

On 5 May 2023, the European Commission published in the Official Journal the following Regulations containing implementing technical standards (“ITS”) supplementing the Solvency II Directive:

• Commission Implementing Regulation (EU) 2023/894 on ITS concerning the templates for the submission by insurance and reinsurance undertakings to their supervisory authorities of information necessary for their supervision (here);
• Commission Implementing Regulation (EU) 2023/895 on ITS concerning the procedures, formats and templates for the disclosure by insurance and reinsurance undertakings of their report on their solvency and financial condition (here).

Following their entry into force, the above Regulations shall apply from 31 December 2023.

Additionally, on 17 May 2023, Commission Implementing Regulation (EU) 2023/967 was published in the Official Journal (here). This Implementing Regulation lays down technical information to be used by (re)insurers when calculating technical provisions and basic own funds, to be reported under the Solvency II Directive with reference dates from 31 March 2023 until 29 June 2023 (that is, Q2 2023). 

The above Implementing Regulation will enter into force on 18 May 2023 and applies since 31 March 2023.

MiFIR – Amended Transparency Calculation Rules

On 31 May 2023, ESMA issued a press release (here) confirming that amended rules for transparency calculations under the Markets in Financial Instruments Regulation (“MiFIR”) will apply from 5 June 2023. The amended rules, issued under delegated legislation in January 2023, will have an impact on transparency calculations in relation to equity, equity-like and non-equity instruments.

RTS – Investment Firms Directive

On 17 May 2023, the European Commission adopted a Delegated Regulation on RTS on specific liquidity measurement under the Investment Firms Directive (“IFD”) (here).

Additionally, on 25 May 2023, the European Commission adopted Delegated Regulation (here) containing RTS supplementing the IFD as regards the measurement of risks or elements of risks not sufficiently covered by the own funds requirements set out in Parts Three and Four of the IFD, and the indicative qualitative metrics for the amounts of additional own funds.

RTS – Investment Firms Regulation

On 12 May 2023, the European Banking Authority (“EBA”) published a final report (here) containing draft RTS on the scope and methods of consolidation of an investment firm group under Article 7(5) of the Investment Firms Regulation (“IFR”). 

The IFR applies to investment firm groups on a consolidated basis (with the exception of the provisions on liquidity). The RTS outline the scope of the consolidation, the methods of the consolidation, the methodology for calculating consolidated own funds requirements, and the rules applicable for minority interest and additional Tier 1 and Tier 2 instruments issued by subsidiaries in the context of prudential consolidation.

RTS – MiFID

On 16 May 2023, Commission Delegated Regulation (EU) 2023/960 amending Delegated Regulation (EU) 2017/588 (“RTS 11”), which contains RTS supplementing the Markets in Financial Instruments Directive (“MiFID”) II Directive, was published in the Official Journal (here). 

The Delegated Regulation amends RTS 11 regarding the annual application date of the calculations of the average daily number of transactions for shares, depository receipts and exchange-traded funds for the purposes of the tick size procedure. 

The Delegated Regulation came into force on 5 June 2023.

RTS – MiFIR

On 16 May 2023, Commission Delegated Regulation (EU) 2023/945 (here) and Commission Delegated Regulation (EU) 2023/944 (here) were published in the Official Journal. 

The Delegated Regulations, which relate to transparency requirements applicable to transactions in equity instruments and non-equity instruments respectively, entered into force on 5 June 2023. 

ESMA Opinion –  Undue Costs of UCITS and AIFs

On 17 May 2023, ESMA published an opinion (here) on undue costs of UCITS and alternative investment funds (“AIFs”). The opinion contains suggested amendments to Article 14 of the UCITS Directive and to Article 12 of the Alternative Investment Fund Managers Directive (“AIFMD”) to introduce the concept of undue costs into the legislation. 

Under the amended legislation, management companies and AIFMs would be obliged to act in a manner that would prevent undue costs being charged to a fund. Investors and managers would be required to develop a pricing process. ESMA states that it believes that the European Commission should clarify the eligibility of costs in light of the list of costs set out in Delegated Regulation (EU) 2017/653 regarding the PRIIPS KID. 

Draft RTS – ELTIF Regulation

On 23 May 2023, ESMA published a consultation paper (here) on draft RTS under the Regulation on European Long-Term Investment Funds (“ELTIF Regulation”) as amended by Regulation (EU) 2023/606. ESMA states that the RTS will outline the way in which the new requirements of the revised ELTIF Regulation will apply, in particular the sections on the redemption policy and matching mechanism. ESMA seeks input on:

• the circumstances in which the life of an ELTIF is considered compatible with the life-cycles of each of the individual assets, along with different features of the redemption policy of the ELTIF; 
• the circumstances for using the matching mechanism (i.e., the possibility of full or partial matching of transfer requests of units or shares of the ELTIF by existing ELTIF investors with transfer requests by potential investors, before the end of the life of the ELTIF); and 
• Costs disclosure.

The deadline for feedback on the proposals is 24 August 2023.

Our briefing (here) provides further detail on the revised ELTIF Regulation.

Updated Q&As – AIFMD

On 26 May 2023, ESMA published an update to its Q&A document (here) regarding the application of AIFMD. The new version confirms that non-EU AIFMs are not able to carry out pre-marketing activities pursuant to AIFMD.

Updated Q&As – PRIIPs KID

On 18 May 2023, the ESAs published a set of updated consolidated Q&A document (here) on KID requirements under the PRIIPs Regulation and related Delegated Acts.

Recognition of Third-Country CCPs

On 2 May 2023, the ESMA issued a press release (here) announcing its recognition of four new third-country central counterparties (“TC-CCPs”) under EMIR. The newly recognised TC-CCPs are:

• Bursa Malaysia Derivatives Clearing Berhad (Malaysia);
• Taiwan Futures Exchange Corporation (Taiwan);
• Cámara de Riesgo Central de Contraparte de Colombia S.A. (Colombia); and
• Tel-Aviv Stock Exchange Clearing House Ltd (Israel).

Corrigendum to ITS under EMIR

On 11 May 2023, a corrigendum to Implementing Regulation (EU) 2022/1860, which sets out ITS under EMIR regarding standards, formats, frequency and methods and arrangements for reporting, was published in the Official Journal (here).

The corrigendum corrects the Implementing Regulation by inserting the date of application of the ITS (29 April 2024) into Article 10 (which concerns the date by which derivative contracts are to be reported).

Digital Euro Project

On 26 May 2023, the European Central Bank (“ECB”) published two reports in relation to the investigation phase of the digital euro project: 
(i)    a report on the prototyping exercise (here); and 
(ii)    a market research outcome report (here). 

The findings of both reports will inform the conclusions of the investigation phase of the digital euro project, ahead of the Governing Council of the ECB deciding in autumn 2023 whether or not to proceed to the preparation phase, which would see the development and testing of a digital euro.

AML Package – Positions of EU Institutions

On 15 May 2023, the Council of the EU published information notes containing tables comparing the negotiating positions taken by the European Commission, the Council and the European Parliament ahead of the start of trilogue negotiations on the following pieces of proposed legislation:

•    the proposed Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“AML Regulation”) (information note here);
•    the proposed Directive on the mechanisms to be put in place by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive (EU) 2015/849 (“MLD6”) (information note here); and
•    the proposed Regulation establishing the Anti-Money Laundering Authority (“AMLA Regulation”) (information note here).

Amendments to List of High Risk Countries

On 17 May 2023, the European Commission adopted a Delegated Regulation (here) amending the list of high-risk third countries with strategic AML/CFT deficiencies, produced under Article 9(2) of the Fourth Money Laundering Directive (“MLD4”).

This Delegated Regulation will amend the Annex to Delegated Regulation (EU) 2016/1675, adding Nigeria and South Africa to the list and removing Cambodia and Morocco. The Delegated Regulation awaits scrutiny by the Council of the EU and by the European Parliament.

CBI Notice Clarifying PSR/EMR Requirements

On 25 May 2023, the CBI issued a notice (here) in respect of the format of the audit required to ensure compliance with safeguarding requirements under the Payment Services Regulations (“PSR”) and Electronic Money Regulations (“EMR”). 

Each registered payment and electronic money institution (“PI/EMI”) is required to furnish the CBI with a report in the stipulated format by 31 October 2023.

Council Position – Instant Payments Proposal

On 22 May 2023, the Council of the EU announced (here) that it has adopted a position on the proposed Regulation amending the Single Euro Payments Area Regulation and the Cross-Border Payments Regulation as regards instant credit transfers in euro (here). 

The Council highlights that instant payments will allow money to be transferred within ten seconds, across EU member states and outside business hours.  According to the Council, the new rules will improve the strategic autonomy of the European economic and financial sector as it will reduce EU firms’ reliance on non-EU financial institutions and infrastructures.  For payment services providers (“PSPs”) outside the Eurozone area, there will be a phased implementation.

Now that the Council has agreed its approach to the proposed Regulation, trilogue negotiations will begin with the European Parliament in order to agree on a final version.

Revised SRTP Scheme Rulebook

On 31 May 2023, the European Payments Council (“EPC”) published an updated version of its SEPA Request-to-Pay (“SRTP”) scheme rulebook (version 3.1, here), in addition to a clarification paper (here). 

The updated rulebook will be effective from 30 November 2023.

MiCA Regulation and Recast Revised WTR

On 16 May 2023, the Council of the EU adopted the proposed Regulation on markets in crypto-assets (“MiCA”) and the proposed Regulation on information accompanying transfers of funds and certain crypto-assets (“recast revised WTR”).

MiCA and the recast revised WTR have now been published in the Official Journal (here) and (here). MiCA will apply 18 months after the date of its entry into force, save for requirements relating to asset-referenced tokens and e-money tokens which will apply 12 months after entry into force. The recast revised WTR will apply from the same date as MiCA.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Basel Committee on Banking Supervision (“BCBS”), Committee on Payments and Market Infrastructure (“CPMI”) and International Organization of Securities Commissions (“IOSCO”) – Report on Margin Dynamics in Centrally Cleared Commodities Markets in 2022 (here)

CBI – Annual Report 2022 and Annual Performance Statement 2022-2023 (here)

CBI – “The evolving crypto landscape - towards the implementation of MiCA” – Remarks by Gerry Cross, Director of Financial Regulation, Policy and Risk at the CBI (here)

EBA – Consultation Paper – Draft RTS and ITS regarding the Functioning of Supervisory Colleges under the Capital Requirements Directive (“CRD”) IV (here)

EBA – Consultation Paper – Proposed Changes to ML/TF Risk Factors Guidelines (here)

EBA – Peer Review Report excluding Transactions with Non-Financial Counterparties established in a Third Country from Credit Valuation Adjustment Risk (here)

EBA – Progress Report on Greenwashing Monitoring and Supervision (here)

EBA – Report on the Convergence of Supervisory Practices in 2022 (here)    

EBA – Report on the Impact and Relative Calibration of the New Standardised Approaches to Calculate the Exposure Values of Derivative Transactions under the Counterparty Credit Risk Framework (here)

ECB – Annual Report 2022 (here)

ECB – Annual Report 2022 on Sanctioning Activities in the SSM (here)

ECB – Financial Stability Review: May 2023 (here)

ECB – Guide on Qualifying Holding Procedures (Final Version) (here)

ESAs – Annual Report 2022 (here)

ESAs – Consultation Paper – Draft ITS on the Mapping of External Credit Institutions’ Assessments under the CRR (here)

ESAs – Discussion Paper on Delegated Acts under DORA specifying Criteria for Critical ICT Third-Party Service Providers and for Determining Oversight Fees (here)

ESMA – “ESMA’s role in enabling the transition to a low carbon economy” – Remarks by Natasha Cazenave, Executive Directive of ESMA (here)

ESMA – Final Report on CSA with National Competent Authorities on the Supervision of Asset Valuation Rules under the UCITS Directive and AIFMD (here)

ESMA – Final Report on Market Outages (here)

ESMA – Progress Report on Greenwashing: Response to the European Commission’s request for input on “greenwashing risks and the supervision of sustainable finance policies (here)

European Commission – Report on the Application of the Payment Accounts Directive on the Comparability of Fees related to Payment Accounts, Payment Account Switching and Access to Payment Accounts with Basic Features (here)

European Insurance and Occupational Pensions Authority (“EIOPA”) – Advice to the European Commission on Greenwashing (Progress Report) (here)

European Systemic Risk Board (“ESRB”) – Report on the Systemic Implications of, and Policy Options for, Crypto-Assets and Decentralised Finance (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review - ‘A compendium of links to new documents, research papers, press releases and comment letters published by ISDA in May 2023’ (here)

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