Financial Services Regulatory Update – May 2024 Round Up

Council of the EU approves CS3D

On 24 May 2024, the Council of the EU gave its final approval to the Corporate Sustainability Due Diligence Directive (the “CS3D” or “CSDDD”) (see here).

The CS3D introduces new obligations for in-scope companies to identify and, where necessary, prevent, end, or mitigate adverse impacts of their activities on human rights and on the environment. The rules concern not only the companies’ operations, but also the activities of their subsidiaries, and those of their business partners along the companies’ chain of activities.

The CS3D now awaits publication in the Official Journal of the EU, after which it will enter into force. Following its entry into force, EU Member States will have two years to transpose the CS3D, with substantive requirements to apply in accordance with the phase-in timeline from 2027.

For an overview of the CS3D, see our previous briefing here.

Council of the EU approves CRD VI and CRR III

On 30 May 2024, the Council of the EU gave its final approval to the following texts implementing Basel III reforms into EU law:

• a Regulation amending the Capital Requirements Regulation (“CRR”) as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor (to be known as “CRR III”) (final text here); and
• a Directive amending the Capital Requirements Directive (“CRD”) as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (to be known as “CRD VI”) (final text here).

The texts await publication in the Official Journal of the EU. The provisions of CRR III will apply (with certain exceptions) from 1 January 2025. EU Member States will be required to apply measures transposing the CRD VI within 18 months after its entry into force.

ECB Guidance on Effective Risk Data Aggregation and Risk Reporting

On 3 May 2024, the European Central Bank (the “ECB”) published final guidance (here) for banks on effective risk data aggregation and risk reporting (“RDARR”). With the guide, the ECB seeks to assist banks in strengthening RDARR capabilities, and to specify and reinforce supervisory expectations, in the light of the principles of the Basel Committee on Banking Supervision (the “BCBS”) for effective RDARR.

The ECB has also published a feedback statement (here) to its earlier consultation on the guide (when it was in draft form).

Findings of EIOPA Peer Review on Prudent Person Principle

On 2 May 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) published the findings (here) of its peer review on the supervision of the “Prudent Person Principle” under the Solvency II Directive. The review focused primarily on the supervision of insurers’ investments in non-traditional and complex assets, including derivatives, and the use of such assets in unit-linked and index-linked contracts.

The Prudent Person Principle requires (re)insurance undertakings to invest only in assets whose risks can be properly understood, monitored and managed, keeping in mind the best interests of policyholders, and the overall security, liquidity and profitability of insurers’ portfolios.

Following the peer review, EIOPA has issued “recommended actions” (detailed in EIOPA’s report) to a number of national competent authorities (“NCAs”), including to the Central Bank of Ireland (the “CBI”). Within a year from the publication of the report, EIOPA may contact the NCAs to monitor progress in relation to the implementation of the recommended actions.

European Commission Request for Advice on Review of Solvency II Framework

On 9 May 2024, the European Commission published a formal request (here) for technical advice, delivered to EIOPA, on the review of certain items contained in Delegated Regulation (EU) 2015/35 supplementing the Solvency II Directive.

The European Commission seeks technical advice on:
(i)    the methodology to be used when classifying undertakings as small and non-complex, and the conditions for granting or withdrawing supervisory approval for proportionality measures to be used by undertakings not classified as small and non-complex undertakings;
(ii)    the standard formula capital requirements for exposures to central counterparties (“CCPs”) when they become direct clearing members; and
(iii)    the standard formula capital requirements for investments in crypto-assets.

EIOPA’s technical advice is to be delivered to the European Commission by 31 January 2025 in relation to items (i) and (ii), and by 30 June 2025 in relation to item (iii).

Guidance on Authorisation as a MiFID Investment Firm

On 2 May 2024, the CBI published guidance documentation in relation to the process and requirements for establishing an investment firm in Ireland, in accordance with the European Union (Markets in Financial Instruments) Regulations 2017 (the “MiFID Regulations”):

• Authorisation Guidance Note on Completing an Application Form for Authorisation as a MiFID Investment Firm (here);
• Authorisation Guidance Note for MiFID Investment Firm: Preliminary Meeting Pre-Application Presentation (here); and
• Authorisation Guidance Note for MiFID Investment Firms: Key Facts Document (here).

For a detailed overview of CBI authorisation requirements, see our recent briefing, “Ireland as a Location for MiFID Investment Firms 2024” (here).

ESMA publishes Draft RTS pursuant to Mandate under MiFIR Review

On 21 May 2024, the European Securities and Markets Authority (“ESMA”) launched a consultation (here) on draft RTS that have been developed in accordance with ESMA’s mandate under Regulation (EU) 2024/791 amending the Markets in Financial Instruments Regulation (“MiFIR”) (amending Regulation known as the “MiFIR Review”).

The draft RTS relate to:
(i) pre- and post-trade transparency requirements for non-equity instruments under Articles 9, 11 and 20 of the MiFIR Review;
(ii) the mandate under Article 13 of the MiFIR Review in relation to the obligation to make pre-and post-trade data available on a reasonable commercial basis; and
(iii) the mandate under Article 27 of the MiFIR Review on the obligation to supply instrument reference data.

ESMA’s consultation runs until 28 August 2024, after which ESMA will submit finalised draft standards to the European Commission in Q4 2024.

ESMA consults on Draft Technical Standards regarding CTP Selection Criteria

On 23 May 2024, ESMA published a consultation paper (here) on draft technical standards related to consolidated tape providers (“CTPs”) and data reporting service providers (“DRSPs”) under the MiFIR Review.

The MiFIR review, which entered into force on 28 March 2024, changes, among other provisions, MiFIR provisions concerning the establishment of CTPs, and relating to DRSPs. ESMA was mandated by the European Commission to develop draft technical standards, and to periodically organise competitive CTP selection procedures. ESMA is now seeking input on its proposed technical standards and its first reflections regarding the CTP selection criteria.

The consultation paper contains ESMA’s considerations on technical standards concerning: (i) the input and output data requirements of CTPs; (ii) the revenue redistribution scheme for the equity CTP; (iii) the synchronisation of business clocks; and (iv) the authorisation and organisational requirements for DRSPs.

ESMA’s consultation runs until 28 August 2024, after which ESMA submit the draft RTS to the European Commission for endorsement by the legislative deadline of 29 December 2024.

ESMA consults on Proposed Amendments to MiFID II Technical Standards relating to Commodity Derivatives

On 23 May 2024, ESMA launched a consultation (here) on proposed changes to technical standards under the Markets in Financial Instruments Directive (“MiFID II”).

Directive (EU) 2024/790 was published in the Official Journal of the EU in March 2024, amending MiFID II (the “amending Directive”). The amending Directive introduces changes, applicable as of 29 September 2025, to some of the MiFID II provisions regarding commodity derivatives, among other provisions.

The changes to MiFID II require revision of the RTS on position management controls (contained under Delegated Regulation (EU) 2022/1299), Implementing Regulation (EU) 2017/1093, and the provision on position reporting under Delegated Regulation (EU) 2017/565.

ESMA’s consultation, which runs until 23 August 2024, addresses all key changes to the technical standards, linked to the MiFID II review, for commodity derivatives and seeks stakeholders’ views on the proposed amendments.

ESMA Report on 2023 CSA and Mystery Shopping Exercise

On 27 May 2024, ESMA published a report (here) on its 2023 common supervisory action (“CSA”) and the accompanying mystery shopping exercise on marketing disclosure rules under MiFID II. In the report, ESMA identifies several areas for improvement by investment firms, such as the need for marketing communications to be clearly identified as such, and to contain a clear and balanced presentation of risks and benefits.

Interpretative Notice on Transitional Arrangements in the light of MiFIR Review

On 2 May 2024, a Commission Notice (here) on the MiFIR Review was published in the Official Journal of the EU.

The MiFIR Review amended MiFIR as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising the trading obligations and prohibiting receiving payment for order flow. Certain elements of the new rules, however, are to be phased in over the coming years, and require the adoption of delegated acts to become fully operational. The transitional regime laid down in Article 54(3) MiFIR sets out that existing Delegated Regulations remain applicable until the new ones enter into force.

The Commission Notice provides clarity to market participants on transitional arrangements, under MiFIR, pending the adoption and entry into force of amending delegated acts.

ESMA Final Guidelines on ESG Fund Names

On 14 May 2024, ESMA published final guidelines (here) on funds’ names using ESG or sustainability-related terms. ESMA’s guidelines seek to ensure that ESG and sustainability-related terms in funds’ names are supported in a material way by evidence of sustainability characteristics, or objectives that are reflected fairly and consistently in the funds’ investment objectives and policy documents.

The guidelines will be translated into all EU languages, and will subsequently be published on ESMA’s website. They will start applying three months after that publication.

Fund managers of new funds will be expected to comply with the guidelines in respect of those funds from the date of application of the guidelines. Fund managers of funds existing before the date of application will be expected to comply with the guidelines in respect of those funds from six months after the date of application.

For more information, see our briefing here.

ESMA Call for Evidence on Review of UCITS Eligible Assets Directive

On 7 May 2024, ESMA launched a call for evidence (here) on the review of the UCITS Eligible Assets Directive (the “UCITS EAD”).

The UCITS EAD was adopted in 2007, with the aim of establishing a common understanding of the criteria for assets eligible for investment by UCITS funds. Since 2007, however, financial markets have evolved considerably, leading to a degree of uncertainty as to the extent to which modern financial instruments can be accommodated within the definitions provided under the UCITS EAD.

In this context, the European Commission has mandated ESMA to carry out an assessment of the implementation of the UCITS EAD across EU Member States, and to provide a set of recommendations as to how the Directive could be revised to keep it in line with market developments.

ESMA’s call for evidence runs until 7 August 2024. Feedback received will inform the technical advice that ESMA will deliver to the European Commission by 31 October 2024.

For more information, see our recent briefing here.

CBI Notice regarding ESMA Guidelines on Stress Test Scenarios under the MMF Regulation

The CBI has published a Notice of Intention (here), dated 2 May 2024, regarding the application of ESMA guidelines on stress test scenarios under the Money Market Fund (“MMF”) Regulation. ESMA’s guidelines (here) apply to competent authorities, MMFs and managers of MMFs as of 6 May 2024.

According to the CBI, it will, in due course, consult on the incorporation of a provision in the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019, and in the Alternative Investment Fund (“AIF”) Rulebook, stipulating that all managers of MMFs adhere to ESMA’s guidelines.

In the meantime, the CBI expects full compliance with ESMA’s guidelines, as of the date of application of 6 May 2024.

Council of the EU approves AI Act

On 21 May 2024, the Council of the EU gave final approval to the EU Artificial Intelligence (“AI”) Act (see here). The new law aims to foster the development and uptake of safe and trustworthy AI systems across the EU single market (by both private and public sector actors). The new rules follow a “risk-based” approach, whereby the higher the risk of harm to society, the stricter the rules.

The AI Act awaits publication in the Official Journal of the EU; it will enter into force twenty days later. Most provisions are expressed to apply two years after entry into force, with exceptions for certain provisions.

For a detailed overview of the EU AI Act, see our recent briefing here.

Department of Enterprise consults on Irish Implementation of the AI Act

Following final approval of the EU AI Act, the Department of Enterprise, Trade and Employment has launched a consultation (here) on its domestic implementation. The Department’s consultation is intended to inform Ireland’s approach to implementing the AI Act, particularly in relation to the configuration of national competent authorities required for implementation. Submissions can be made up until the deadline of 16 July 2024.

For more information on the consultation on Ireland’s implementation of the AI Act, see our recent briefing here.

Delegated Regulations under DORA published in Official Journal

On 30 May 2024, the following Delegated Regulations supplementing the Digital Operational Resilience Act (“DORA”) were published in the Official Journal of the EU:

• Delegated Regulation (EU) 2024/1502 (here) supplementing DORA by specifying the criteria for the designation of ICT third-party service providers as critical for financial entities; and
• Delegated Regulation (EU) 2024/1505 (here) supplementing DORA by determining the amount of the oversight fees to be charged by the lead overseer to critical ICT third-party service providers and the way in which those fees are to be paid.

The Delegated Regulations enter into force on 19 June 2024. DORA has a date of application of 17 January 2025. For more information on DORA, see our briefings here and here.

Council of the EU approves AML Package

On 30 May 2024, the Council of the EU gave its final approval to a package of measures designed to protect the EU financial system against money laundering and the financing of terrorism (see here).

The new anti-money laundering and countering the financing of terrorism (“AML/CFT”) measures comprise:

• a Sixth Money Laundering Directive (“MLD6”) (final text here);
• a new AML Regulation (here); and
• a new Regulation establishing the new EU Anti-Money Laundering Authority (“AMLA”), which is to be based in Frankfurt (here).

Following their final approval, the texts await publication in the Official Journal of the EU.

After its entry into force, EU Member States will have two years to transpose certain provisions of MLD6, and three years for the remaining provisions.

The AML Regulation will apply on an EU-wide basis three years after entry into force.

The AMLA will begin operations in Frankfurt in mid-2025.

EBA to collect Information on Natural Persons through EuReCa

As of May 2024, supervisors in the EU will be able to report the names of natural persons to EuReCA, the EU central database on AML/CFT, established by the EBA.

EuReCA contains information on serious AML/CFT deficiencies in individual financial institutions that have been identified by EU supervisors. It also contains information on the measures taken by supervisors to address those deficiencies.

If a serious deficiency or measure is linked to a natural person (i.e. a customer or a beneficial owner), supervisors will be able to report this information to EuReCA. Supervisors may also report the name of a member of the management body or a key function holder in a financial institution. According to the EBA’s press release (here), this measure will help further strengthen EU AML/CFT capabilities.

EBA Final Guidelines on STS Criteria for On-Balance-Sheet Securitisation

On 27 May 2024, the EBA published final guidelines (here) on the criteria related to simplicity, standardisation and transparency and additional specific criteria for on-balance-sheet securitisations (the “STS criteria”). According to the EBA, the final guidelines will ensure a harmonised interpretation of the STS criteria, in alignment with previously-issued EBA guidelines regarding asset-backed commercial paper (“ABCP”) (here) and non-asset-backed commercial paper (“non-ABCP”) (here) securitisation.

ECB Opinion on PSD3 and PSR Proposals

The EBA has issued its Opinion (here), dated 30 April 2024, on the proposals for a revised Payment Services Directive (to be called the “PSD3”) and for a new Payment Services Regulation (to be called the “PSR”). The ECB broadly welcomes the proposals, which aim to help further develop an EU-wide market for payment services, particularly in the context of digitalisation and the rapidly developing retail payment landscape. In the Opinion, however, the EBA proposes some amendments to the legislative texts.

Revised Date for the Entry into Force of EPC Payment Scheme Rulebooks

On 16 May 2024, the Payment Scheme Management Board of the European Payments Council (“EPC”) announced via press release (here) that it has decided to revise the entry-into-force dates of the 2025 rulebooks for the SEPA credit transfer, SEPA instant credit transfer, SEPA direct debit core, SEPA direct debit B2B, and one-leg out instant credit transfer schemes. The version 1.0 of the verification of payee (“VOP”) scheme will enter into force at the same time.

The entry-into-force date of all five 2025 EPC payment scheme rulebooks and of version 1.0 of the VOP scheme rulebook will be Sunday 5 October 2025. This date has been chosen to allow payment service providers (“PSPs”) to comply with the implementation deadlines set out under the new EU Instant Payments Regulation.

Delegated Regulations under MiCA published in Official Journal

On 30 May 2024, the following Delegated Regulations supplementing the Markets in Crypto-Assets Regulation (“MiCA”) were published in the Official Journal of the EU:

• Delegated Regulation (EU) 2024/1503 (here) supplementing MiCA by specifying the fees charged by the EBA to issuers of significant asset-referenced tokens (“ARTs”) and issuers of significant e-money tokens (“EMTs”);
• Delegated Regulation (EU) 2024/1504 (here) supplementing MiCA by specifying the procedural rules for the exercise of the power to impose fines or periodic penalty payments by the EBA on issuers of significant ARTs and issuers of significant EMTs;
• Delegated Regulation (EU) 2024/1506 (here) supplementing MiCA by specifying certain criteria for classifying ARTs and EMTs as significant; and
• Delegated Regulation (EU) 2024/1507 (here) supplementing MiCA by specifying the criteria and factors to be taken into account by ESMA, the EBA and competent authorities in relation to their intervention powers.

The Delegated Regulations enter into force on 19 June 2024, in advance of the application of the provisions under MiCA in respect of ARTs and EMTs from 30 June 2024.

Final Draft RTS on Conflict of Interest Rules under MiCA

On 31 May 2024, ESMA published a final report (here) containing draft RTS under MiCA on requirements for crypto-asset service providers (“CASPs”) in relation to conflicts of interest.

The draft RTS set out requirements in relation to:

(i) policies and procedures for the identification, prevention, management, and disclosure of conflicts of interest, considering the scale, the nature and the range of crypto-asset services provided; and

(ii) details and methodology for the content of the disclosures of conflicts of interest.

The draft RTS have been sent to the European Commission for endorsement.

Final Draft Technical Standards under MiCA

On 7 May 2024, the EBA published three sets of final draft RTS and one set of final draft ITS under the MiCA, which relate to MiCA’s provisions relating to ARTs:

(i) draft RTS on information for assessment of a proposed acquisition of qualifying holdings in issuers of ARTs under article 42(4) MiCA (here);

(ii) draft RTS on the procedure for the approval of white papers of ARTs issued by credit institutions under article 17(8) MiCA (here); and

(iii) draft RTS and ITS on information for authorisation as issuers of ARTs under article 18(6) and (7) MiCA (here).

The draft standards will be submitted to the European Commission for endorsement, after which they will be subject to scrutiny by the European Parliament and the Council of the EU, before being published in the Official Journal of the EU.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Bank for International Settlements (“BIS”): Committee on Payments and Market Infrastructures (“CPMI”) – CPMI Work Programme 2024-25 (here)

Banking and Payments Federation Ireland (“BPFI”) – BPFI Policy Recommendations 2024-2029 (here)

BCBS – Report on the Digitalisation of Finance (here)

CBI – Annual Report 2023 and Annual Performance Statement 2023-2024 (here)

CBI – “The Case for the Digital Euro and Eurosystem Developments” (remarks by Anne Marie McKiernan, Director of Financial Operations at the BPFI) (here)

Council of the EU – Council Conclusions on the Future of the Single Market (here)

Council of the EU – The Future of EU Digital Policy (here)

EBA – Consultation on Draft Guidelines on Acquisition, Development and Construction Exposures to Residential Property under Article 126a CRR (here) (consultation runs until 19 August 2024)

EBA – Consultation on Draft RTS on Equivalent Mechanism for Unfinished Property under Article 124(12) CRR (here) (consultation runs until 13 August 2024)

EBA – Report on Virtual IBANs (here)

ECB – Financial Stability Review: May 2024 (here)

EIOPA – Supervisory Activities 2023 (here)

ESMA – Building More Effective and Attractive Capital Markets in the EU: Position Paper (here)

ESMA – Statement on Good Practices in relation to Pre-Close Calls (here)

ESMA – Statistics on Securities and Markets: May 2024 (here)

Eurogroup – High Level Roadmap for Follow-Up to the Eurogroup Statement on the Future of the CMU (here)

European Supervisory Authorities (the “ESAs”) – Update on Risks and Vulnerabilities in the EU Financial System (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review (incorporating link to updated ISDA OTC Derivatives Compliance Calendar): May 2024 (here)

Irish Funds – Annual Review 2023 (here)

You may also be interested in:

McCann FitzGerald regularly publishes briefings on topics relevant to financial services briefings, among others. You may be interested in the following briefings:

• Big Data, Big Change: The new AI Act has Big Implications for the Financial Services Sector (here)
• Breach of EU Sanctions to constitute an “EU crime”: EU Council gives Green Light to New Draft Sanctions Offences Directive (here)
• Call for Evidence on the Review of the UCITS Eligible Assets Directive (here)
• Delving into DORA: ICT Contractual Arrangements (here)
• EMIR 3: Update on Implementation (here)
• ESMA issues Final Guidelines on ESG Fund Names (here)
• European Court gives guidance to national courts on the assessment of non-material damage where the GDPR has been infringed (here)
• European Mandating of Building Energy Performance: EPBD Recast Adopted (here)
• Guidance on Age Assurance (here)
• Ireland as a Location for Crowdfunding Service Providers 2024 (here)
• Ireland as a Location for MiFID Investment Firms 2024 (here)
• Ireland as a Location for Payment Institutions 2024 (here)
• Judicial Review applications now “made” when papers filed rather than when ex parte application is heard (here)
• Levies for Regulated Entities in Ireland 2024 (here)
• Preparations for Domestic Implementation of the AI Act (here)
• SAYE It Again: Revival of the Save As You Earn Scheme (here)
• The Representative Actions Act 2023 is commenced; next step is the designation of Qualified Entities to bring the actions (here)