knowledge | 9 March 2020 |

Financial Services Regulatory Update – February 2020 Round Up

 

Anti-Money Laundering and Terrorist Financing

February saw a number of developments regarding anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”). 

The EBA published:

  • a consultation on proposed revisions to the existing Guidelines on anti-money laundering and counter terrorist financing risk factors (here); 
  • a factsheet (here) on its new role in leading, coordinating and monitoring AML/CFT efforts across the EU financial sector, which includes the EBA's strategic objectives when carrying out this role; and 
  • a report on competent authorities' approaches to AML/CFT supervision of banks (here), which provides a summary of the findings of the first year of the review of the implementation of the EU's AML/CFT framework in Member States.

For its part, the European Commission published a roadmap for consultation on its action plan to enhance the EU’s AML framework (here).

Benchmarks

The Central Bank of Ireland (“CBI”) issued an Industry Letter on funds preparation with regard to interest rate benchmark reforms, to remind those responsible for the management of investment funds of their obligations to adequately prepare for the implementation of a number of on-going global benchmark reforms and any associated risks.

Central Securities Depositories Regulation

ESMA published a final report on draft regulatory technical standards (“RTS”) postponing the date of entry into force of Commission Delegated Regulation 2018/1229, which contains RTS on settlement discipline, to 1 February 2021 (here).  The draft RTS have been submitted to the European Commission for endorsement.

Climate Change Risks and Sustainable Finance

ESMA published its strategy on sustainable finance (here). The strategy details how ESMA will place sustainability at the core of its activities by embedding environmental, social and governance factors (“ESG”) in its work.

Christine Lagarde, ECB President, gave a speech on climate change and the financial sector (here).  Ms Lagarde mentioned that preparatory work is underway for a macroprudential stress test to assess climate-related risks, with the first results expected by the end of 2020.

Steven Maijoor, ESMA Chair, gave a speech on sustainable financial markets on 12 February 2020 (here). Mr Maijoor stated that ESMA will launch a public consultation on disclosure requirements by the end of Q1. He also mentioned the need for

  • more specific and harmonised corporate disclosure requirements; 
  • a new European standard for green bonds; 
  • the appropriate regulation and supervision of ESG rating agencies where ESG ratings are used for investment purposes. 
Consumer Protection

EIOPA launched a thematic review on consumer protection issues relating to mortgage life and other credit protection insurance sold through banks (here). The purpose of the review is to identify and assess the risks and the potential detriment that consumers face and take the necessary steps to address them.

Benchmarks

The Central Bank of Ireland (“CBI”) issued an Industry Letter on funds preparation with regard to interest rate benchmark reforms, to remind those responsible for the management of investment funds of their obligations to adequately prepare for the implementation of a number of on-going global benchmark reforms and any associated risks.

Diversity

The EBA published a report on the benchmarking of diversity practices in credit institutions and investment firms under Article 91(11) of the CRD IV Directive 2013/36 (here). 

Derville Rowland, Director General, Financial Conduct at the CBI gave a speech on the importance of diversity in the financial services sector (here). Among other things, the CBI expects regulated firms to show more ambition, including in targets and measures, build better pipelines of talent and identify and reduce barriers to change.

EIOPA

EIOPA published its Supervisory Convergence Plan for 2020 for the Insurance Sector (here), which provides an update of the EIOPA priorities regarding supervisory convergence practices. The plan includes three new priorities, namely supervisory technology, pension sector and cyber underwriting.

EIOPA also published its strategy on cyber underwriting (here) and its supervisory technology strategy (here).

Enforcement of Financial Information

ESMA published its amended Guidelines on the enforcement of financial information by competent authorities of EU Member States (here), which will become effective on 1 January 2022. The amendments, which are designed to harmonise the way national competent authorities (“NCAs”) enforce the financial disclosures of European issuers, mainly relate to:

  • NCAs methods for selecting the issuers whose financial information should be subject to examination (Guideline 5); and 
  • the procedures NCAs apply when they carry out such examination (Guideline 6). 
Fitness and Probity

The CBI published a notice of intention proposing to introduce three new Pre-Approval Controlled Functions (PCFs) and to split PCF-39 into six PCF roles aligned to the specific managerial functions set out in the CBI’s Fund Management Companies – Guidance 2016 (here).

One of the new PCFs is Chief Information Officer, which falls under the “General” category, while the other two fall under the “Banking” category, namely Head of Material Business Line and Head of Market and Risk.

Innovation Hub Update

The CBI published its Innovation Hub 2019 update (here).  According to the update, the majority of firms that have engaged with the Innovation Hub have been focusing on unbundling the financial services value chain, targeting individual core functions to create a more tailored and user-friendly digital experience.

Lobbying

The Department of Public Expenditure and Reform published the Second Statutory Review of the Regulation of Lobbying Act 2015 (here). The review does not recommend any changes to that Act, but recognises that greater guidance and clarification may be needed on specific areas of the Act, including regarding the definition of lobbying.

Markets In Financial Instruments

The European Commission consulted on a review of the regulatory framework for investment firms and market operators seeking evidence on areas of the existing framework that would benefit from targeted adjustments (here). Among other things, the Commission is considering potential changes to investor protection rules, potential actions to foster research coverage for small and medium-sized enterprises (SMEs), and the possible introduction of a new consolidated tape (eg an electronic system which combines real-time data from exchanges and consolidates this into a continuous live feed, providing price and volume data per financial instrument).

ESMA announced the launch of a common supervisory action (“CSA”) with national competent authorities relating to suitability requirements under the MiFID II Directive 2014/65 (here). The CSA will be carried out during 2020.

ESMA also published final reports: 

  • on the alignment of the derivatives trading obligation under the Markets in Financial Instruments Regulation 600/2014 with the changes to the scope of the clearing obligation under European Markets Infrastructure Regulation 648/2012 that were introduced by the EMIR Refit Regulation 2019/834 (here); 
  • containing technical advice to the European Commission on the effects of product intervention measures set out in MiFIR (here).
PRISM 

The CBI is currently reviewing the PRISM supervisory framework and has published a paper “PRISM Impact Review – Revised Prudential Impact Models”, which aims to inform the CBI’s stakeholders of the CBI’s thinking and its approach towards the revisions to prudential impact models (here).

The CBI will write to financial service providers included in the affected prudential impact models, providing information about individual financial service providers’ impact categorisation.

Prospectus Regulation

ESMA published updated its Q&As on Prospectus Regulation with two new Q&As relating to the length of the prospectus summary (here).

Securities Financing Transactions Regulation 2015/2365 (SFTR)

In January 2020 ESMA published its Guidelines, “Reporting under articles 4 and 12 SFTR”, which seemed to indicate that the requirement to report securities financing transactions (“SFTs”) applied to an SFT counterparty that is a non-EU alternative investment fund (“AIF”) managed by an EU Alternative Investment Fund Manager.  Subsequently, the European Commission and ESMA have each written to the Alternative Investment Management Association confirming that such a non-EU AIF is not subject to the SFTR reporting requirement, except in respect of SFTs concluded in the course of the operations of an EU branch of the non-EU AIF.

Outsourcing 

EIOPA published a final report setting out Guidelines on outsourcing to cloud service providers (here).

The guidelines provide guidance on how the provisions in the Solvency II Directive 2009/138, in the Solvency II Delegated Regulation 2015/35 and in EIOPA’s Guidelines on System of Governance need to be applied when outsourcing to cloud service providers. They will apply from 1 January 2021 to all cloud outsourcing arrangements entered into or amended on or after that date. Documentation requirements for cloud outsourcing arrangements relating to critical or important operational functions or activities should be implemented by 31 December 2022.

Selected Consultations/Discussion Papers Published

EIOPA - Discussion paper on the ongoing changes to the new interbank benchmark rates (here).  The closing date is 30 April 2020.

EIOPA - Consultation paper on implementing technical standards regarding the format of supervisory reporting and the cooperation and exchange of information between competent authorities for the Pan-European Personal Pension Product (here).  The closing date is 20 May 2020.

ESMA – Consultation on MiFIR report on systematic internalisers in non-equity instruments (here).  The closing date is 18 March 2020.

ESMA – Consultation on the transparency regime for equity and equity-like instruments, the double volume cap mechanism and the trading obligation for shares (here).  The closing date is 17 March 2020.

ISDA - Consultation on how to implement pre-cessation fallbacks in Derivatives (here).  The closing date is 25 March 2020. The consultation is not restricted to ISDA members.

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This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.

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