9 June 2017

Key Regulatory Topics: Weekly Update - 2 June 2017 – 8 June 2017


ESMA publishes official translations of Guidelines under CSDR

On 8 June, ESMA published the official EU language versions of two sets of Guidelines under the CSDR. The first Guideline, ESMA70-151-294 aims at ensuring CSDs define and apply clear and effective rules and procedures to manage the default of any of their participants. The second Guideline, ESMA70-151-298, specifies the risks to be taken into account by a CCP or a trading venue when carrying out a comprehensive risk assessment following a request for access to the transaction feed of the CCP or of the trading venue. National Competent Authorities (NCAs) to which these Guidelines apply must notify ESMA whether they comply or intend to comply with the Guidelines within two months.

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European Commission mid-term review of CMU action plan: financial services aspects

On 8 June, the European Commission published a communication on the mid-term review of the CMU action plan (COM (2017) 292). The purpose of the mid-term review is to set out an additional set of actions that complement the initiatives set out in the Commission's original action plan for the CMU that have not yet been completed. Among other things, the Commission intends to: Amend the Solvency II Delegated Regulation ((EU) 2015/35) to review the prudential treatment of private equity and privately placed debt; Give ESMA additional powers to promote the effectiveness of consistent supervision across the EU; Adopt a legislative proposal on a new prudential framework for investment firms; Assess the case for an EU licensing and passporting framework for FinTech activities; Publish an impact assessment on a possible legislative proposal to facilitate the cross-border distribution and supervision of UCITS and alternative investment funds (AIFs). The Commission intends to establish the foundations of the CMU by 2019.

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CCPs – Seventh Implementing Regulation extending transitional periods related to own fund requirements for CCP exposures published in OJ

On 7 June, EC Implementing Regulation ((EU) 2017/954) on the extension of the transitional periods related to own funds requirements for exposures to CCPs, set out in the CRR and EMIR, was published in the OJ. The Implementing Regulation, which was adopted by the EC on 6 June, will enter into force three days after publication in the OJ (that is, 10 June).

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CMU – EC staff Working Document on initiatives to tackle information barriers in SME funding market

On 6 June, the EC published a staff working document (SWD (2017) 229 final) addressing information barriers in the SME funding market in the context of the CMU. Key findings include: the lack of financial knowledge by SMEs and the lack of a recognised source of business finance advice for SMEs able to guide them through the complexities of bank and non-bank finance and help them secure access to the most appropriate form(s) of finance hampers the use of financing options by SMEs; the lack of standardised, verifiable and accessible financial information about SMEs represents a significant barrier for alternative finance providers to invest into/lend to European SMEs; improving the availability of SME credit and financial information for (alternative) investors and lenders is essential to support their access to a broader range of funding options; the alternative forms of finance are growing rapidly; and addressing the information barriers in the SME funding market requires a mix of policy responses. To help address the limited understanding of SMEs with regard to their financing opportunities, the EACB, together with four other European banking associations, has published a set of high-level principles regarding the communication between SMEs and banks around declined credit applications. The aim of the principles is to ensure that the feedback given by banks to their SME clients is sufficient for them to understand the reasons behind the bank's decision process regarding a credit application.

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CMU – FIA letter to EC opposing forced relocation of euro-denominated derivatives clearing

On 6 June, the Futures Industry Association (FIA) published a letter addressed to Vice–President Valdis Dombrovskis, setting out its concerns about the potential approach of forced relocation of euro-denominated derivatives clearing to the EU, which was outlined by the EC in its May communication on certain challenges for critical financial market infrastructures and for further developing the CMU. The FIA states that relocation would be the most disruptive and expensive approach to overseeing third-country CCPs, without improving the oversight of this activity. It opposes relocation due to "grave concerns" that such a policy would: fragment the euro-denominated derivatives markets; weaken the stability of the EU; and raise costs for end users.

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Benchmark Regulation – ESMA publishes methodological framework for selection of supervised entities for mandatory contribution to critical benchmarks

On 2 June, ESMA published a methodological framework (ESMA70-143-5) on the selection of supervised entities for mandatory contribution under Article 23(7) of the Benchmarks Regulation. ESMA explains that it has developed the framework to help NCAs in their selection of supervised entities to be compelled to contribute input data to critical benchmarks should its representativeness become at risk at some point in the future. ESMA advises that the EC’s list of critical benchmarks includes only the EURIBOR. However, other IBOR benchmarks or the EONIA might be considered to qualify as critical in the future. Selection of the supervised entities is to be made on the basis of the size of a supervised entity's actual and potential participation in the market that the benchmark intends to measure. The framework sets out criteria on how to measure this. Publication of the framework does not imply any immediate need to use compulsory powers. However, as part of the implementation of the Benchmarks Regulation, ESMA stresses that it is important for NCAs of the administrators to develop their compulsion powers for critical benchmarks. It considers that better supervisory convergence is achieved if the general principles are agreed upfront between NCAs of administrators and contributors. This should minimise the potential future divergence of supervisory practices, and prevent potential future disputes.

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Benchmark Regulation – ESMA final report on final draft RTS on co-operation arrangements

On 2 June, ESMA published its final report (ESMA70-145-81) (dated 1 June) on draft RTS on co-operation arrangements with third countries under the Benchmarks Regulation. This final set of draft RTS specifies the minimum content for co-operation arrangements between ESMA and NCAs in third countries that have been designated as equivalent under the Benchmarks Regulation. ESMA explains that the draft RTS will enhance the negotiation of relevant arrangements, allowing for the use of third-country benchmarks soon after an equivalence decision has been adopted. The draft RTS will also ensure convergence on co-operation arrangements entered into by EU NCAs and third-country NCAs when they supervise administrators that apply for recognition in the EU. The co-operation arrangements will contribute to limiting risks for financial markets. ESMA has submitted the final draft RTS to the EC, who has three months to decide whether to endorse the technical standards. The draft EC Delegated Regulation (set out in section 3 of the report), which contains the final draft RTS, states that it will enter into force 20 days after the date of publication in the OJ. The Benchmark Regulation will apply from 1 January 2018.

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CSDR – ESMA updates Q&As on implementation

On 2 June, ESMA published an updated version of its Q&As on practical questions regarding the implementation of the CSDR. In a related press release, ESMA explains that it has updated the Q&As to include new answers relating to: CSDs’ investment policy; access to CSDs; and conditions relating to provision of services in another member state.

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PRA updates remuneration policy templates and tables: June 2017

On 6 June, the PRA updated its RPS templates and tables. The RPS templates allow firms to record remuneration policies, practices and procedures and assess compliance with the rules in the Remuneration Part of the PRA Rulebook. The PRA advises that, with the exception of RPS annex 1 (malus), RPS table 7 (malus) and RPS table 8 (MRTs: exclusions), its RPS tables and templates have been updated to reflect submission deadlines and document references. The other changes the PRA has made are: an amendment to question (D.i) within the RPS template for firms in proportionality level one, relating to the identification of material business units (MBUs) and additional notes on buy-outs within the notes section of the RPS tables. The PRA has also updated RPS table 8 (MRTs: exclusions) to reflect the submission deadline prescribed under the EBA guidelines on sound remuneration policies under CRD IV. The PRA refers to the Delegated Regulation setting out regulatory technical standards (RTS) on criteria to identify categories of staff whose professional activities have a material impact on the risk profile of firms (that is. MRTs) (Regulation 604/2014).

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Customer access to banking – BBA publishes principles to improve customer access

On 2 June, the BBA published principles to improve customer access. The principles have been developed by the BBA's third party access working party to improve customer access under the vulnerability taskforce principle 5 (easy for friends and family to support). The principles relate to legal instruments for third-party access, including guardianship and intervention orders, court of protection orders, and enduring and lasting powers of attorney. There are six principles, together with detailed guidance on what banks should do to comply with each principle. A number of the UK's biggest high street banks and building societies have agreed to implement the principles. Most aim to fully implement the principles by May 2018.

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Deposit insurance scheme – BCBS speech about design of optimal deposit insurance system

On 2 June, the BCBS published a speech, given by Stefan Ingves, BCBS Chair, on designing an optimal deposit insurance system. In his speech, Mr Ingves states that while deposit insurance systems are key to financial stability, their design differs vastly across jurisdictions. He considers that although an optimal framework may be difficult to achieve in reality, it is important to identify the endpoint and strive to get as close to it as possible. He considers three key challenges related to developing optimal deposit insurance schemes, namely; the interaction between the deposit insurance scheme and the resolution framework; the relationship between deposit insurance schemes and public guarantees; and issues relating to cross-border banking.

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AML – BCBS finalises revised guidelines on correspondent banking

On 7 June, the BCBS published an updated version of its guidelines (BCBS405) on sound management of risks related to money laundering and financing of terrorism. The revised guidelines include the final revisions to the guidelines on correspondent banking, in Annex II, which the BCBS consulted on in November 2016. The guidelines also include revisions to the general guide to account opening in Annex IV. The amendments to the guidelines are in response to growing concerns that banks are withdrawing from correspondent banking to avoid certain risks. The revised guidelines aim to ensure that banks conduct correspondent banking business with the best possible understanding of the applicable rules on AML and CFT. In particular, an accompanying press release states that it is important for banks to recognise that not all correspondent banking relationships bear the same level of risk. The BCBS' guidance includes a list of risk indicators that correspondent banks should consider in their risk assessment of money laundering and financing of terrorism associated with correspondent banking.

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FCA Market Watch issue 52

On 2 June, the FCA published issue 52 of Market Watch, its newsletter on market conduct and transaction reporting issues; focussing here on dividend arbitrage. The FCA explains that the intention of dividend arbitrage is to place shares in alternative tax jurisdictions around dividend dates, with a view to minimising withholding taxes (WHT) or generating WHT reclaims. The FCA recently reviewed the activities of some firms engaged in dividend arbitrage, considering the activities of a number of inter-dealer brokers, settlement agents and custodians involved in trading EU equities around ex-dividend dates. The aim of the review was to assess whether any aspect of this trading represented potential market abuse, and whether custodians issuing tax vouchers, or shareholders making reclaims for the repayment of WHT deducted from dividends at source, had received that net dividend and were entitled as shareholders to receive the WHT reclaim. The FCA advises firms to consider the points raised in issue 52 and the processes that they must follow in monitoring existing business, taking on new business and accepting new clients. If, when reviewing its processes, a firm identifies any areas of concern, the FCA expects it to conduct an assessment and also to consider whether it should disclose details under principle 11.

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FINTECH – ESMA response to EC consultation

On 7 June, ESMA published its response to the EC’s consultation on FinTech, which was published in March. ESMA welcomes the EC’s initiative to take stock of the EU's FinTech industry. ESMA’s response focuses on: artificial intelligence and big data analytics for automated advice and businesses; crowdfunding; Reg Tech; outsourcing and cloud computing; distributed ledger technology; role of regulation and supervisors; and role of industry: standards and interoperability.

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Please see the Prudential Regulation section for updates on Solvency II.


MiFID II – ESMA updates Q&As on investor protection

On 6 June, ESMA published an updated version of its Q&As on investor protection topics under the MiFID II and MiFIR. ESMA has added 14 new Q&As covering: information on costs and charges; post-sale reporting; and appropriateness.

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MiFID II – ESMA speech on implementation

On 7 June, ESMA published a speech by Steven Maijoor, ESMA Chair, on, among other things, preparation for the implementation of the MiFID II and the MiFIR. Mr Maijoor begins by summarising some of the work undertaken by ESMA relating to the implementation of MiFID II. He goes on to state that: ESMA is currently working on opinions on pre-trade transparency waivers for equity instruments, and will soon start working on ESMA opinions on position limits and waivers for non-equity instruments; ESMA has made significant progress over the last months with the implementation of its IT projects, which will be crucial for the successful implementation of MiFID II; ESMA intends to publish the transitional calculations for non-equity instruments specifying the large in scale (LIS) and size specific to the financial instrument (SSTI) thresholds for all instruments, and the liquidity status of all instruments except bonds, at the beginning of July; and ESMA is currently finalising a consultation paper on the trading obligation for derivatives. It expects to publish this in the coming weeks and intends to deliver the draft regulatory technical standards to the EC in early autumn. The transposition date for MiFID II is 3 January 2018.

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MiFID II – EC Implementing Regulation on position reporting by investment firms and market operators of trading venues published in OJ

On 7 June, EC Implementing Regulation (EU) 2017/953 laying down ITS with regard to the format and the timing of position reports by investment firms and market operators of trading venues under the MiFID II was published in the OJ. The EC adopted the Implementing Regulation on 6 June. It enters into force on 27 June (that is, 20 days after publication in the OJ) and applies from 3 January 2018.

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MiFID II – ESMA final report on product governance guidelines

On 2 June, ESMA published its final report (ESMA35-43-620) on guidelines on product governance requirements under the MiFID II. The guidelines, set out in Annex IV to the final report, aim to promote greater convergence in the implementation and application of the MiFID II requirements on product governance. The guidelines mainly address the target market assessment, as this aspect was identified as the most important for ensuring a consistent application of Articles 16(3) and 24(2) of MiFID II and Articles 9 and 10 of the EC Delegated Directive supplementing MiFID II. The guidelines will apply from 3 January 2018. They will be translated into the official EU languages and published on ESMA’s website. The publication of the translations in all official languages of the EU will trigger a two-month period during which NCAs must notify ESMA whether they comply or intend to comply with the guidelines.

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EBA: PAD: New Annex: Union standardised terms and definitions for services linked to a payment account

On 5 June, the EBA published a new annex to the draft Commission Delegated Regulation supplementing Directive 2014/92/EU setting out technical standards for the Union standardised terminology for the most representative services linked to a payment account.

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European Commission adopts Delegated Regulation amending Solvency II Delegated Regulation on infrastructure corporates

On 8 June, the European Commission adopted a Delegated Regulation amending the Solvency II Delegated Regulation ((EU) 2015/35) concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (C(2017)3673 final). An impact assessment and executive summary have been published alongside the Delegated Regulation. The amendments made by the amending Delegated Regulation will reduce the capital charges attached to investments by insurance companies in infrastructure corporates. This will remove regulatory barriers to investment opportunities in infrastructure that fulfil a number of criteria and are considered as having a better risk profile. The next step will be for the Council of the EU and the European Parliament to consider the amending Delegated Regulation. If neither the Council nor the Parliament object to the amending Delegated Regulation, it will be published in the Official Journal of the EU (OJ). It will enter into force on the date following its publication in the OJ and will apply from that date.

Commission delegated document

Commission staff working document

Executive summary of the impact assessment

BCBS updates FAQs on Basel III LCR framework

On 8 June, the BCBS published an updated version (dated June 2017) of its FAQs on the Basel III LCR framework (BCBS406).The BCBS first published the FAQs in April 2014.The FAQs have been updated to include new answers and updated versions of existing answers, with the changes highlighted in italics.

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EBA draft methodology and templates for 2018 EU-wide stress test

On 7 June, the EBA published the draft methodological note and templates for its 2018 EU-wide stress test. The 2018 EU-wide stress test will be carried out at the highest level of consolidation on a sample of 49 banks, 35 of which will fall under the jurisdiction of the single supervisory mechanism (SSM). This represents 70% of the EU banking sector. The aim of the stress test is to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks and the EU banking system to shocks, and to challenge the capital position of EU banks. The stress test will be primarily focused on the impact of risk drivers on banks' solvency, with banks stress testing a common set of risks. For banks starting to report under IFRS 9 in 2017, the test takes into account the impact of the implementation of IFRS 9 on 1 January 2018. The EBA intends to publish the final methodology at the start of 2018 (at the same time that the stress test exercise is launched) and to publish the results of the stress test in "mid-year 2018".

Draft Methodological Note

Draft templates

ECON draft report on proposed Regulation amending CRR as regards transitional period for mitigating impact on own funds of introduction of IFRS 9

On 8 June, the ECON published its draft report (dated 6 June 2017) on the proposed Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (CRR) as regards the transitional period for mitigating the impact on own funds of the introduction of International Financial Reporting Standard 9 (IFRS 9) and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states (PE605.934v01-00). The European Commission's November 2016 legislative proposal for a Regulation amending the CRR (CRR II) contained transitional provisions relating to IFRS 9 and the large exposures treatment of certain public sector exposures. The explanatory statement to the draft report explains that the Presidency of the Council of the EU proposed that these provisions should be split from the rest of the November 2016 proposed amendments to CRR and dealt with in a separate draft Regulation "to allow for a timely entering into force of these transitional provisions". The European Parliament's Conference of Presidents approved the proposed split in May 2017. The draft report contains a European Parliament legislative resolution on the Regulation, the text of which sets out suggested amendments to the proposed CRR II that reflect the splitting out of the transitional provisions into a separate Regulation. The report states that the remainder of CRR II will be covered in a separate ECON report.

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CRR – EBA final report on guidelines on disclosure requirements for EU banking sector

On 7 June, the EBA published an updated final report (EBA/GL/2016/11, version 2) containing amended guidelines on regulatory disclosure requirements under Part Eight of the CRR. The original report was published in December 2016 following an update of the Pillar 3 requirements by the BCBS.

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SSM – ECB consultation on review of SSM supervisory fees

On 2 June, the ECB published a consultation paper on a review of the ECB regulation on supervisory fees, together with related FAQs. The ECB regulation on supervisory fees, adopted in October 2014, obliges the ECB to carry out a review by 2017. The review will focus on the methodology and criteria for calculating the annual supervisory fee that is levied on each bank and group that the ECB supervises under the SSM. The aim of the consultation is to gather feedback from interested parties with a view to assessing possible improvements, in preparation for the review. Responses will provide the ECB with important insights for preparing, if considered appropriate, a formal update to the regulation. The deadline for comments is 20 July. The ECB also plans to consult NCAs via the Supervisory Board and other established fora. The outcome of the review will be published in 2018.

Consultation paper


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