13 July 2017

Financial Markets in brief – new regulation and other developments

There have been many developments in national and European financial markets regulation over the past month. Among other things, the Prospectus Regulation and new guidelines on anti-money laundering, and countering the financing of terrorism have been published. In this article we provide a brief overview of these and other developments.

Highlighted publications

Reader’s guides on market soundings
The AFM has published two reader’s guides for market participants that are involved in a market sounding process. One is intended for disclosing market participants, the other for persons receiving markets soundings. Both guides contain information on the practical process and corresponding regulations.

Final guidelines on anti-money laundering and countering the financing of terrorism
The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA) published its final guidelines on anti-money laundering and countering the financing of terrorism. These guidelines are the standard to which EU credit and financial institutions will be held by the competent authorities when assessing whether their money laundering and terrorism-financing risk assessment and management systems and controls are adequate. They provide guidance on the factors that credit and financial institutions must consider when assessing the money laundering and terrorism-financing risk associated with a particular business relationship or transaction. Also, they outline how credit and financial institutions can adjust the extent of their customer due diligence measures to mitigate their money laundering and terrorism-financing risk.

The next steps towards the Capital Markets Union
The European Commission has recently presented the next steps it will take to complete the Capital Markets Union. These steps include legislative proposals:

  • for a regulation on a pan-European personal pension product to help people finance their retirement;
  • for an EU framework on covered bonds to help banks finance their lending activity; and
  • on securities law to increase legal certainty on securities ownership in the cross-border context.

In addition to these proposals, announced in the 2015 Capital Markets Union Actions Plan, the Commission announced new steps it intends to take, including:

  • strengthening the powers of ESMA;
  • creating a lighter regulatory regime for SME listings on public markets;
  • reviewing the prudential treatment of investment firms;
  • assessing the case for an EU licensing and passporting framework for FinTech activities;
  • taking measures to support secondary markets for non-performing loans and to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs; and
  • facilitating the cross-border distribution and supervision of UCITS and alternative investment funds.

Prospectus Regulation published
The Prospectus Regulation has been published and will enter into force on 20 July 2017. Most provisions will apply from 21 July 2019. However, two exemption provisions which are particularly relevant for share issuers will enter into effect immediately; see our article in the April 2017 In context.

The Prospectus Regulation includes the following changes:

  • No EU prospectus will be required for offers of securities to the public below EUR 1 million. Member states will also be able to set higher thresholds for their domestic markets; here the threshold will be raised from EUR 5 million to EUR 8 million.
  • An EU growth prospectus will be created for SMEs, mid-caps admitted to an SME Growth market or small issuances by non-listed companies.
  • An alleviated corporate bond prospectus will be available for admission to wholesale debt markets.
  • Frequent participants in the capital markets will have a frequent issuer regime that they can activate once an opportunity to raise funds arises. This will halve approval times from ten days to five.
  • There will be a lighter prospectus regime for issuers already listed on a public market that want to issue additional shares or raise debt.
  • Prospectus summaries will become shorter and the language used must be easier to understand for investors.
  • No more paper prospectuses will be required, unless a potential investor explicitly requests a printed version.
  • ESMA will operate a free and searchable online prospectus database.

Implementing regulation
The European Securities and Markets Authority (ESMA) has published the following consultation papers on the Prospectus Regulation:

  • Draft technical advice on format and content of the prospectus

ESMA proposes largely maintaining the existing regime, while suggesting a number of changes to reduce the burden and costs on issuers. Among other things, ESMA proposes removing the requirement for a report by auditors or independent accountants on profit forecasts. ESMA has also developed draft requirements for the new Universal Registration Document (URD).

  • Draft technical advice on content and format of the EU growth prospectus

ESMA has developed draft technical advice on the format and content of the EU growth prospectus for Small and Medium Enterprises. It identifies the minimum disclosure requirements, their order of presentation, and the format and content of the specific summary. The proposal consists of a schedule containing information on the registration document, and a separate schedule for information concerning the securities. Both schedules can be used for equity and non-equity issuance. ESMA aims to reduce the length and complexity of prospectus content.

  • Draft technical advice on scrutiny and approval of the prospectus

ESMA proposes that standard criteria for scrutiny of the completeness, comprehensibility and consistency of the prospectus are adopted. Beyond these standard criteria, ESMA proposes affording national competent authorities a certain level of flexibility.

The consultations closes on 28 September 2017.

Implementation of the Market Abuse Regulation
The Dutch Decree implementing the Market Abuse Regulation entered into force on 12 July. This decree finalises the implementation of the European Market Abuse Regulation (MAR) in the Netherlands. It amends a number of decrees, including the Market Abuse Decree and the Decree on Administrative Fines in the Financial Sector.

Market Abuse Decree
As it is a regulation, the MAR has direct effect. Therefore, the new implementing decree has removed several market abuse provisions from the Dutch Market Abuse Decree. It also implements two member state options:

  • the reason for delays in disclosing inside information need only be provided to the Dutch financial markets supervisor (AFM) on its request
  • issuers and market participants do not have to make transaction information public; it is sufficient for the AFM to include this information in its public register.

Decree on Administrative Fines in the Financial Sector
The Dutch Decree on Administrative Fines in the Financial Sector has now been updated. This will allow the AFM to impose the maximum fines for violations of the MAR, as well as the turnover related fines. See our article in the March 2017 In context.

ESMA Q&As
ESMA has updated its Q&A document on the Market Abuse Regulation. It includes a new question on the definition of “closely associated person”.

Other publications

EC

EP

EBA

ESMA

EIOPA

ECB

Official Journal EU

MinFin

MinSZW

AFM

DNB

Other