There have been many developments in national and European financial markets regulation during the past two months. We provide a brief overview of these developments, which include the Dutch financial markets supervisor’s priorities for 2019, contingency measures for a no-deal Brexit, and a bill implementing the Prospectus Regulation.
Agenda for the financial sector
The Dutch Minister of Finance has published an overview of measures he intends to take to create a stable, honest and innovative financial sector. His agenda includes:
Dutch financial markets supervisor sets out its priorities for 2019
The Netherlands Authority for the Financial Markets (AFM) has published its priorities for 2019. Based on the significant trends and risks in the financial sector identified in the recent AFM report, it will focus on:
To prepare for a potential no-deal Brexit scenario, a number of contingency measures for the financial sector have been proposed or put in place, including:
Dutch Minister of Finance
European Securities and Markets Authority
Bill implementing the Prospectus Regulation
A bill implementing the Prospectus Regulation was recently submitted to the Dutch Parliament.
Because the regulation has direct effect, most articles concerning prospectuses will be removed from the Dutch Financial Markets Supervision Act. Only four articles will remain, which include the responsibility for the information in the prospectus and the national regime for exempted offers of securities to the public. Also, the AFM will be granted the necessary powers under the Prospectus Regulation.
In anticipation of the Prospectus Regulation, the Netherlands raised the exemption limit for offers of securities to the public from EUR 2.5 million to EUR 5 million last year.
EU Banking Reform package
In December 2018, we reported on the provisional political agreement reached by the Council of the EU and the European Parliament on certain aspects of the EU Banking Reform Package. On 25 January 2019, the Council of the EU published a note including the legal text of this provisional agreement.
AFM policy rule on information
The AFM has revised a policy rule (in Dutch) which sets out the criteria the supervisor applies when assessing the information financial institutions provide to their clients. In particular, the AFM explains the rules for advertisements.
Preliminary agreement reached on further extension of the temporary exemption of pension funds from the clearing obligation
In 2017, we reported on a proposal to amend EMIR aimed at improving the functioning of the derivatives market in the EU. Until 17 August 2018, pension funds were exempted from the clearing obligation under EMIR. Part of the proposal includes an extension of the exemption of pension funds from central clearing. As the proposal was not adopted before the exemption had expired, the European supervisor ESMA called upon national supervisors not to enforce the clearing obligation, as it was expected that the legislative process would be finalised soon. The Dutch Central Bank and the AFM confirmed that they would adhere to ESMA’s advice. On 5 February 2019, the Council of the EU announced that a preliminary agreement had been reached by the Romanian presidency of the Council and the European Parliament. It will be submitted to EU ambassadors for endorsement, and will then undergo a legal linguistic revision. Subsequently, the European Parliament and the Council of the EU will be called on to adopt the proposal at first reading.
The Minister will also investigate whether the Dutch definition of a security can be brought in line with the broader definition used in European legislation. This will allow the financial market supervisors to bring specific cryptos under the scope of their supervision.
ESMA advice on ICOs and Crypto-Assets
The European supervisor ESMA has published its advice on initial coin offerings and crypto-assets.
Where crypto-assets qualify as transferable securities or other types of financial instruments, EU financial rules – including the Prospectus Directive, the Transparency Directive and the Market Abuse Directive – are likely to apply to the issuer and firms providing investments services. However, ESMA believes that certain aspects of the new instruments should be clarified. Moreover, EU rules do not address the risks specific to the underlying technology of the crypto-assets. Therefore, ESMA believes that additional Level I measures, complemented by Level 2 technical standards, are required.
Where crypto-assets do not qualify as financial instruments, ESMA is concerned about the risks that these instruments represent to investor protection. It believes that the anti-money laundering requirements, as well as appropriate disclosure requirements, should apply to all crypto-assets and related activities.
FATF amends Glossary and Recommendations to include virtual assets
Finally, the Financial Action Task Force has decided to include new definitions of “virtual assets” and “virtual asset service providers” in their Glossary. As a result, the FATF Recommendations will apply in the case of financial activities involving virtual assets, and jurisdictions must ensure that virtual asset service providers are subject to anti-money laundering regulation (such as conducting customer due diligence including ongoing monitoring, record-keeping, and reporting of suspicious transactions). The providers must be licensed or registered and subject to monitoring to ensure compliance.
ESMA publishes list of prospectus thresholds
The Prospectus Regulation allows member states to raise the threshold for having to publish a prospectus to EUR 8 million. In the Netherlands, the threshold has been raised to EUR 5 million. ESMA recently published a list of the thresholds applicable in the various member states.
European Single Resolution Board publishes 2018 MREL policy for the most complex banking groups
Following the publication by the Single Resolution Board (SRB) of the first part of its 2018 policy statement on the minimum requirement for own funds and eligible liabilities (MREL) for less complex banks in November 2018, the SRB has now published the second part about the plans for the most complex banking groups. To prepare for future regulatory changes pursuant to the EU Banking Reform Package (see above), the SRB is raising the bar in terms of banks’ resolvability and MREL. As soon as the reform package is finalised, the SRB will review its policy for MREL setting for further updates in 2019.
Qualification of a warranty or a subscription as an insurance policy
Following a consultation launched in June 2018, the Dutch Central Bank has now published its final version of a Q&A setting out when a warranty in a purchase agreement qualifies as an insurance policy, together with a feedback statement:
The Dutch Central Bank indicates that it deems that a warranty qualifies as an insurance policy if, according to generally accepted views, it qualifies as such.
In addition, the Dutch Central Bank has launched a consultation on a draft Q&A setting out when a subscription qualifies as an insurance policy. The qualifications are almost identical to those for warranties in a purchase agreement. Feedback must be given by 15 February 2019.
European Central Bank publishes a consolidated guide for bank licence applications
In March 2018, the ECB published its guide to assessments of bank licence applications, setting out the application process and licensing requirements for banks. In January 2019, the ECB published Part 2 of the guide about its supervisory expectations on capital requirements and the programme of operations. A consolidated guide containing both parts was also published. The consolidated guide, which is not legally binding in nature, is aimed at enhancing transparency of the procedure and criteria applied by the ECB when it assesses licence applications.
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