17 April 2018

Financial Markets in brief – new regulation and other developments

There have been many developments in national and European financial markets regulation during the past month. We provide a brief overview of these developments, which include various FinTech publications, a consultation on the finalisation of Basel III and developments on the Insurance Distribution Directive, as well as Capital Markets Union proposals.

Highlighted publications

Act on transparency in financial markets supervision

The Act on transparency in financial markets supervision has been published in the Bulletin of Acts and Decrees and is expected to enter into force shortly. The Act introduces new powers for the Dutch financial markets supervisor (AFM) and the Dutch Central Bank (DNB). It includes the following measures:

  • supervisors will be granted more power to issue public warnings.
  • under certain conditions, the AFM and the DNB may immediately publish a warning or a decision related to an administrative sanction. Under normal circumstances, supervisors have to observe a waiting period.
  • under certain conditions, the DNB may publish the core figures of banks.

European bank supervisor publishes final guides on bank licensing and fintech bank licensing

The European Central Bank (ECB) has published its final guides to bank licensing and fintech bank licensing. The guides set out the application process and licensing requirements for banks in general, as well as for fintech banks, and intend to support common supervisory practices and to increase transparency.

FinTech publications of the European Commission and the European Banking Authority

The European Commission has published an Action Plan on FinTech setting out steps to enable innovative business models to scale up, support the uptake of new technologies, and increase cybersecurity and the integrity of the financial system. The steps include:

  • hosting an EU FinTech Laboratory
  • the development of a strategy on distributed ledger technology such as blockchain
  • a consultation on the promotion of the digitisation of information published by listed companies in Europe
  • workshops on information-sharing in relation to cybersecurity
  • best practices on regulatory sandboxes

In addition, the European Commission has published a Proposal for a Regulation on European Crowdfunding Services for Business.

The European Banking Authority (EBA) has published a Roadmap on FinTech. Amongst other things, it takes the mandates in the European Commission’s Action Plan on fintech into account, and sets out priorities for 2018/2019. The priorities include:

  • assessment of current authorisation and licensing approaches to fintech firms, and analysing regulatory sandboxes and innovation hubs
  • analysis of the impact on institutions’ business models and the prudential risks and opportunities arising from the use of fintech
  • promotion of best supervisory practices regarding cybersecurity
  • addressing consumer issues arising from fintech
  • identification and assessment of money laundering/terrorist financing risks

EBA will also establish a fintech Knowledge Hub.

Additional Capital Markets Union publications

In addition to the European Commission’s fintech publications, the European Commission has published a Communication on completing the Capital Markets Union by 2019 as well as the following legislative proposals:

Implementation of Directive amending bank creditor hierarchy

Following a consultation launched in December 2017, the bill amending the Bankruptcy Act to implement the directive amending the Bank Recovery and Resolution Directive (BRRD) as regards bank creditor hierarchy has been published. The Directive requires that member states create a new class of “non-preferred senior debt” eligible for bail-in.

Developments on the Insurance Distribution Directive

The Dutch Act implementing the Insurance Distribution Directive (IDD) has been published in the Bulletin of Acts and Decrees. It will enter into effect at a time to be determined by Royal Decree.

In addition, the Directive amending the IDD as regards the date of application of member states’ transposition measures was published in the Official Journal of the EU. By 1 July 2018, member states must adopt and publish the laws, regulations and administrative provisions necessary to comply with the IDD, and apply those measures from 1 October 2018 at the latest.

The Delegated Regulation postponing the application date of:

European Commission launches consultation on the finalisation of Basel III

The European Commission has launched an exploratory consultation on the outstanding Basel III post-crisis regulatory reforms agreed upon by the Basel Committee in December 2017. The aim is to gather views from interested parties on the impact that amendments may have on the EU banking sector, as well as the wider economy, and to highlight potential challenges in its implementation. The implementation of the agreed reforms in the EU would require amendments to banking regulation, including the CRR.

The consultation includes potential amendments to the standardised approach for credit risk (SA-CR), internal ratings-based (IRB) approaches for credit risk, minimum haircut floors for non-centrally cleared securities financing transactions (SFTs), the credit valuation adjustment (CVA) framework, as well as a new standardised approach for operational risk (SA-OR), and the replacement of the “Basel II” floor with an aggregate, more risk-sensitive output floor.

The Dutch bank supervisor publishes Q&As on Proprietary Traders

In November 2017, the Dutch Central bank (DNB) announced that it would amend the prudential regime for proprietary traders it considers “local firms” under the Capital Requirements Regulation (CRR). In March 2018, DNB published Q&As answering questions about the follow-up and transitional phase following the changes to the prudential regime. Among other things, the Q&As cover the following topics: capital requirements, capital buffer requirements, internal models, reporting obligations (FINREP and COREP), recovery plans, exemptions and exceptions, and the ICAAP and SREP process.

Consultation on public reporting by companies

The European Commission has launched a consultation on the reporting requirements for listed and non-listed companies. The current EU public reporting framework consists of a large number of directives and regulations, including the Accounting Directive, the IAS Regulation, the Transparency Directive and the Market Abuse Regulation. The Commission wants to assess whether this framework is still relevant to meet the intended objectives and whether it is effective, internally consistent, coherent with other EU policies, efficient and not unnecessarily burdensome. The consultation focuses on financial information (such as financial statements) and non-financial information (including the disclosure of relevant environmental and social information in accordance with the Non-Financial Reporting Directive). The consultation runs until 21 July.

Court of Justice interprets ne bis in idem principle in market abuse case

In a recent judgment concerning four Italian cases, the European Court of Justice has ruled that the ne bis in idem principle may be limited in order to protect the financial interests of the European Union and its financial markets. However, the principle of proportionality must be respected. If a criminal penalty itself punishes the offence in an effective, proportionate and dissuasive manner, bringing administrative procedures of a criminal nature for the same acts may exceed what is strictly necessary to protect the markets. The court explains that national legislation authorising a duplication of proceedings and penalties of a criminal nature must:

  • pursue an objective of general interest; the proceedings and penalties must pursue additional objectives
  • establish clear and precise rules, so that individuals can predict which acts or omissions are liable to be subject to a duplication of proceedings and penalties
  • ensure the proceedings are coordinated and limited to what is strictly necessary to, in this case, protect the financial markets.
  • ensure that the severity of all of the penalties imposed is limited to what is strictly necessary in relation to the seriousness of the offence concerned.

ESMA publishes technical advice under the Prospectus Regulation

The European Securities and Markets Authority (ESMA) has published the first part of its technical advice under the Prospectus Regulation. The advice will form the basis for the delegated acts which the European Commission is expected to adopt early next year.

The advice covers the format and content of prospectuses, the EU growth prospectus and the scrutiny and approval of prospectuses. The advice proposes a number of changes to the current prospectus regime, including:

  • ESMA wants to ease requirements for issuers and reduce costs and the administrative burden in using a prospectus. At the same time, ESMA proposes a number of additional disclosure requirements that, in ESMA’s opinion, are necessary for investor protection.
  • ESMA has developed the form and content of the Universal Registration Document, a new document for issuers of securities that are listed on a regulated market or multilateral trading facility. It will allow issuers to quickly offer securities to the market.
  • ESMA identifies the minimum disclosure requirements for the new EU Growth prospectus. A proportionate regime for SMEs is provided for.
  • ESMA proposes that standard criteria for scrutiny of the completeness, comprehensibility and consistency of the prospectus should be adopted. However, beyond these standard criteria, national competent authorities should have a certain level of flexibility.

ESMA based its advice on last year’s consultation. Responses to this consultation, including the response of De Brauw, are available on ESMA’s website.

Other publications

EC

 

EP

 

EBA

 

ESMA

 

EIOPA

 

ECB

 

Official Journal of the EU

 

MinFin

 

MinSZW

 

AFM

 

DNB

 

Other