10 April 2014

Financial markets in brief – new regulation and publications

There have been many developments in national and European financial markets regulation during the past month. Supervisory authorities have published a large number of consultation documents, draft rules and other information since the last edition of In context. We provide an overview of this news, signal important court decisions and also list relevant articles in international legal journals.

Dutch regulation 

Implementation Bill CRR en CRD IV

The Minister of Finance has sent a memorandum in reply to the report to the Second Chamber. In the memorandum he answers questions on, among other things, the scope of the European legislation, the impact of the implementation on crowdfunding and credit unions, the way the various buffers will be implemented into Dutch legislation, and the powers of the European Central Bank and the national competent authorities.

He also answers questions on the remuneration policy. He explains that the Netherlands is adopting the lowest bonus cap (i.e. 20%) of all EU member states. The Minister expects the relevant Bill on the remuneration policy to be sent to the Second Chamber before the summer. Expectations are that it will take effect on 1 January 2015.

The memorandum of alterations, which was also published, contains mostly technical amendments. In an accompanying overview the Minister lists the implementing and delegating acts which the European Commission can adopt. Finally, it appears from an overview of urgent bills that the intended date for the implementation bill to enter into force is 1 July 2014. 

Decree on disclosure requirements of the Capital Requirements Directive

The Ministry of Finance is holding a consultation on the implementation of Articles 89 and 90 of the Capital Requirements Directive until 16 April. Article 89 lists the information which an institution has to disclose annually. Article 90 says that institutions shall disclose in their annual report among the key indicators their return on assets, calculated as their net profit divided by their total balance sheet.

 

Consultation on the Amendment Decree Financial Markets 2015

The Ministry of Finance is currently holding a consultation on the draft Amendment Decree Financial Markets 2015.

  • The introduction of further rules for covered bonds.
  • An exception to the ban on commissions for advising clients in mortgage arrears
  • Rules in preparation for Solvency II
  • Amendments to the competence requirements
  • Rules for the cooperation between the Dutch Central Bank and the AFM regarding EMIR
  • Explanation of the indicators for reporting unusual transactions
  • Amendment of the BES Financial Markets Decree in order to ensure that commissions are proportionate to the work performed

The consultation runs until 11 April. The Amendment Decree is expected to enter into force on 1 January 2015.

 

Consultation on the implementation of the Directive on ratings

The Ministry of Finance is holding a consultation on the implementation of the EU rules to reduce overreliance on ratings. The consultation runs until 11 April. The Directive must be implemented by 21 December 2014.

 

Consultation on Implementing Decree of the Banking Act

The Dutch Central Bank (DNB) will be given powers to obtain certain information from government organisations, companies, professionals, institutions and legal entities. DNB needs the information for statistical purposes and economic analyses. It will also allow DNB to meet information requests of international organisations.

The new powers of the supervisors will be included in the Dutch Banking Act. Further regulations will be laid down in the Implementing Decree of the Banking Act, on which the Ministry of Finance is holding a consultation until 18 April.

 

Disciplinary rules for all bank employees

Disciplinary rules will be introduced in the banking sector. In addition, the Council of Ministers has decided that the banker’s oath (or promise) will have to be taken by all bank employees. Currently the oath has to be taken by policy makers and members of the supervisory body in the financial undertaking.

The proposal will be included in the draft Financial Markets Amendment Bill 2015. The text of the bill and the advice of the Council of State will be made public when the bill is introduced in the Second Chamber.

 

Dutch supervisors 

Exploratory study on the use of credit ratings

The AFM concludes from an exploratory study that the use of credit ratings is still widespread. However, it rarely is the only source for investment decision-making. 

Marketing fees covered by ban on commissions

Marketing fees, which investment firms pay or receive when publishing advertisements on their websites or in magazines, are covered by the ban on commissions. On its website the AFM explains that the ban applies to both investment firms and financial services providers. A Q&A list on this subject is available of the AFM website.

Public debate on use of big data in banking

The AFM calls on all banks to launch a public debate on the use of customer data (big data). The reactions to a recent initiative to sell these data show that this is a relevant and sensitive development.

AFM requests information with a view to supervisory levies

The AFM will request financial undertakings to provide information on their basis of levies in the coming weeks. The AFM needs this information in order to calculate the supervisory levies for 2014.

The levy per company is composed of a base rate, a variable rate or a combination of these two rates. The amount of the variable rate depends on the number of employees. The rates for 2014 will be published early in June.

European regulation 

Technical standards for own funds requirements for institutions

The Delegated Regulation supplementing the Capital Requirements Regulation with regard to regulatory technical standards for own funds requirements for institutions entered into force on 3 April.
Delegated Regulation to identify categories of staff whose professional activities have a material impact on an institution’s risk profile

The European Commission has published qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile. These categories of staff have to comply with EU rules on variable remuneration (including bonuses). The criteria apply at group, parent

company and subsidiary levels, including institutions established in offshore financial centres. The European Parliament and the Council have one month (i.e. until 4 April) to exercise their right of objection, with the possibility to extend this period for a further two months at their initiative.

European Parliament toughens up anti-money laundering rules

The European Parliament wants the ultimate owners of companies and trusts to be listed in public registers in EU countries. The draft law would also require banks, auditors, lawyers, real estate agents and casinos, among others, to be more vigilant about suspicious transactions made by their clients. The definitive text of the draft regulation is expected to be voted on after the European elections.

Omnibus II Directive adopted by European Parliament

The European Parliament has adopted in plenary session the Omnibus II Directive that completes the Solvency II Directive and finalises the new framework for insurance regulation and supervision in the EU. The Omnibus II Directive regulates, among other things, the transitional measures in connection with the introduction of Solvency II, the role of the European Insurance and Occupational Pensions Authority (EIOPA) and the treatment of insurers’ long-term products

The European Parliament and the Council agreed that the Solvency II Directive (including the amendments introduced by Omnibus II) should apply as of 1 January 2016. After its adoption by the European Parliament, the Directive will need to be formally adopted by the Council and be published in the Official Journal. It will enter into force the day after publication.
Agreement on single resolution mechanism

The European Parliament and the Council have reached a provisional agreement on the proposed Single Resolution Mechanism for the Banking Union (SRM). Amendments to the original proposal include:

  • The ECB supervisor will trigger the whole process, being responsible for deciding whether a bank is on the brink of failing.
  • The Commission will adopt draft resolution schemes, action plans drawn up to address a specific case of a failing bank. The Council will be involved only at the Commission’s express request.
  • The time for decisions to be taken on the establishment of a resolution scheme was reduced.
  • A system will be established, before the regulation enters into force, which will enable the bank-financed single resolution fund to borrow.
  • Rapid mutualisation of the “national compartment” setup of the fund. 40% is to be mutualised in first year, 20% in second year, the rest equally over a further 6 years

It is expected that the European Parliament will vote on this legislation in plenary session in April, while the Council will formally adopt it afterwards. The SRM would enter into force on 1 January 2015, whereas bail-in and resolution functions would apply from 1 January 2016, as specified under the Bank Recovery and Resolution Directive.
Regulatory Technical Standards to implement the single banking rule book

The European Commission has adopted a package of Regulatory Technical Standards (RTS) needed to implement important provisions of the Capital Requirements Regulation and Directive. The nine RTS define the ways in which competent authorities and market participants must, inter alia, handle disclosures linked to securitisation instruments, measure potential losses from derivative positions and counterparty failure, as well as specifying the types of instruments that can be used for paying bonuses.

The European Parliament and the Council have one month to exercise their right of objection, with the possibility to extend this period for a further two months at their initiative. Following the expiry of this objection period, the RTS will be published in the Official Journal of the European Union and will enter into force on the 20th day following the date of their publication. Their provisions will be directly applicable from the date of entry into force.
European Commission proposes measures on long-term financing

The European Commission has proposed measures to improve long-term financing of the European economy:

  • a proposal to revise the rules for occupational pension funds to support the further development of an important type of long-term investor in the EU
  • a communication on crowdfunding to offer alternative financing options for SMEs

The measures build on the 2013 Green Paper on long-term financing. The Commission intends to publish further proposals in the near future, including a review of the Shareholders’ Rights Directive.
Agreement on Key Information Document covering retail investments

The European Parliament and the Council have reached agreement on a mandatory “Key Information Document” to be supplied to retail consumers who wish to invest their savings. The proposed rules require the financial services industry to provide basic information about their investment products, the risk and return that can be expected as well as the overall aggregate cost that will arise in making the investment.

It is expected that the European Parliament will vote on this legislation in plenary session in April, followed by formal adoption by the Council.

 

European and international supervisors 

ECB publishes manual for asset quality review

128 banks will be subject to the asset quality review which the national competent authorities will carry out in the next few months. In order to provide guidance to the national competent authorities, the European Central Bank recently published a manual for asset quality review. The results of the assessment will be published in October, together with the results of the stress test.

ESMA – publications

EBA – publications

EIOPA – publications

Basel Committee on Banking Supervision – publications

IOSCO – publications