regulatory insights no. 13 - state street corporation...mifid ii: the final countdown feature...

Regulatory Insights

State Street’s quarterly overview of important legislative and regulatory developments in the European Union

Issue No. 13

ContentsForeword 1

Feature Article 4MiFID II: The Final Countdown 4

Europe 6MiFID II Level 2 Measures 6Prospectus Regulation 8EBA Discussion Paper on FinTech 9EBA Stress-Testing Methodology 10ESMA Opinion on Asset Segregation and CSD Delegation Rules 11ESMA Consultation on Guidelines on Settlement Internalisation Reporting

Under CSDR 13ESMA Principles on Supervisory Convergence and Sectoral Opinions 14ESMA Consultation on the MMF Regulation 16Market Infrastructure: EMIR Review, Supervision of Central Counterparties

and Recovery and Resolution 17Investment Firms’ Review 20PRIIPs 21Anti-Money Laundering 22Risk Reduction Measures 23Work Programme for the Estonian Presidency of the Council of the EU 25Tax Transparency 27CMU Mid-Term Review 28Financial Reporting Update: Impact of IFRS 9 29PEPP 30

Channel Islands 31Proposed Revision to Guernsey’s AML Legal and Regulatory Framework 31

France 33Register of Beneficial Owners 33

Germany 35BaFin Circular 3/2017 (GW) on Video Identification Process 35BaFin General Administrative Act Pursuant to German Securities

Trading Act (WpHG) on Contracts for Difference 36BaFin Circular 5/2017 (GW) on Appropriate Business-related Security Systems 37

II REGULATORY INSIGHTS NO. 13

Ireland 38Irish Implementation of the Requirement of ESMA Opinion

“Share Classes of UCITS” 38Central Bank Guidance on Fund Administrator Outsourcing 39Central Bank Discussion Paper on ETFs 40Financial Reporting Update: Irish Companies (Accounting) Act 2017 42

Italy 43AMLD IV 43

Luxembourg 45Circular CSSF 17/654 on IT Outsourcing Relying on Cloud Computing

Infrastructure 45Update of Circular CSSF 12/552 on Central Administration, Internal Governance

and Risk Management 46Circular CSSF 17/656 on Administrative and Accounting Organisation for

IT Outsourcing 47Circular CSSF 17/657 on Administrative and Accounting Organisation for

IT Outsourcing and PFS 47

Switzerland 48Swiss Financial Market Infrastructure Act (FMIA, FinfraG) 48

United Kingdom 51FCA Retirement Outcomes Review 51UK FCA Asset Management Study 53MiFID II 54Recovery Planning 55FCA Review of Property Funds and Liquidity Risks 56Benchmarks 57

Abbreviations 58

European Regulatory Timeline 61

III REGULATORY INSIGHTS NO. 13

Welcome to State Street’s Regulatory Insights newsletter, our quarterly overview of important legislative and regulatory developments in the European Union (EU).

Since our last update*, political events have dominated the financial services landscape. The month of June saw elections in both the United Kingdom (UK) and France. The outcomes of these two elections could not have been more different. While Emmanuel Macron won the French Presidency and secured a strong parliamentary majority which should enable him to pursue his reform agenda, Prime Minister May’s hope of coming out of the early elections with a strong mandate did not materialise. Instead, she ended up with a minority government, supported by the Northern Irish Democratic Unionist Party (DUP). This outcome has increased political uncertainty in the UK – and is the polar opposite to what Prime Minister May intended to achieve when she called the election. Given the deep disagreements that have surfaced within her government on the type of Brexit that the government should pursue, the prospect of a disorderly Brexit is now much more real.

Nonetheless, Brexit negotiations began on 19 June. Negotiations will follow the two-phased approach as set out by the EU. Phase 1 will focus on three issues: the exit bill, citizens’ rights and the Irish border. Phase 2 will focus on the future relationship between the UK and the EU.

The EU has made it clear that it will not engage in Phase 2 of the negotiations until there is sufficient progress on Phase 1. But negotiations have got off to a slow start and it now seems unlikely that there will be sufficient progress to move to Phase 2 by October, as originally planned.

Recently, the UK government started publishing a series of Brexit-related position papers on issues such as cross border civil-judicial cooperation, the exchange and protection of personal data and enforcement/dispute resolution. It was hoped that these papers would facilitate faster negotiations and that enough progress would be made for Phase 2 of the negotiations to begin. However, the latest round of negotiations did not result in any significant progress on key issues under Phase 1 of the negotiations.

Foreword

*State Street Regulatory Insights No. 12 was published in May 2017.

1 REGULATORY INSIGHTS NO. 13

The concept of a transition period has gained momentum over the last weeks. However, the duration of such a transition period and what it would look like in terms of access to the EU remains unclear. Different models are being considered, for example a customs union, a model similar to the Norwegian model, etc. From a financial services perspective, it is important that the transition period is designed to avoid a possible cliff edge effect in March 2019.

In parallel, Brexit related legislative and regulatory work has started. In the UK, the government published its draft European Union (Withdrawal) Bill on 13 July. The Bill proposes the transposition of directly applicable EU law into UK law while the 1972 European Communities Act is being simultaneously repealed. This is a key element of the UK’s departure from the EU and is one of the most significant legislative initiatives that the UK has ever undertaken.

At European level, the European Securities Market Authority (ESMA) has issued its much anticipated sector-specific opinions in the context of Brexit. The opinions focus on Markets in Financial Instruments Directive (MiFID) investment firms, investment management (Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers (AIFMs)) and secondary markets. They cover key issues such as outsourcing and delegation.

The opinions are a follow-up to a cross-sectoral opinion issued by ESMA in May. They set out guidance for national competent authorities (NCAs) focusing on the development of a consistent approach to the relocation of entities, activities and functions from the UK. While the industry continues to digest the details of the opinions, it is clear that they will play an important role when regulators assess firms’ Brexit plans. It also remains to be seen what effect these guidelines will have on general requirements around outsourcing and delegation in the future.

Lastly, 14 July 2017 was the deadline to respond to the UK Prudential Regulation Authority’s (PRA) request to UK financial services firms, conducting cross-border business between the EU and the UK, for an update on their Brexit planning. The PRA also sought an assurance that the implications of an adverse “no deal” Brexit scenario has been considered. State Street was among the 401 firms who submitted their responses to the PRA. Further details on the PRA’s findings are expected in September.


While it is clear that Brexit has been the dominant topic since our last update, there have been other significant developments on the regulatory front. To name a few: the European Market Infrastructure Regulation (EMIR) review, containing controversial elements such as the location of clearing of euro denominated contracts, was launched. Work continues on the Risk Reduction Measures (RRM) aimed at finalising and amending prudential as well as recovery and resolution requirements for banks in the EU. A European Commission proposal on a Pan-European Pension Plan (PEPP) and MiFID II/Markets in Financial Instrument Regulation (MiFIR) Level 2 measures, including national transposition measures in the UK, Germany and Italy was published and there was further consultation on settlement discipline in the context of the Central Securities Depository Regulation (CSDR) with the European Banking Authority (EBA). In the UK, the Financial Conduct Authority (FCA) engaged in consultations on FinTech and the regulatory approach towards it.

In summary, while the pace of new regulatory initiatives has thankfully slowed down somewhat, the political and regulatory environment remains eventful. As always, we hope that this publication is a helpful aid in navigating the environment and provides you with a useful overview of key developments over the last months.

DR. SVEN S. KASPER

Senior Vice President Head of Regulatory, Industry and Government Affairs for EMEA State Street


MiFID II: The Final CountdownFeature Article

The financial industry will change profoundly with the arrival of MiFID II – one of the most significant EU post-financial crisis regulatory initiatives. While implementation is scheduled for 2018, financial institutions are already adjusting their business models as they grapple with the impending changes.

Designed to increase investor protection, the regulation will include new disclosure requirements linked to costs and charges, new conditions for the design and distribution of financial instruments and increased pre- and post-trade transparency requirements across equity, equity-like and non-equity asset types.

Impact on ResearchOne of its requirements garnering significant attention amongst both the media and industry figures is the unbundling of research fees and trading costs.

Currently the market for research does not function like a textbook model. On the one hand, there are elements of a “perfect” market. It is one of the few where the consumer decides what they pay based on the value they think they’ve received.

On the other, research pricing is often highly opaque and only applies to certain consumers (equity managers); or it is distributed en masse (whether recipients want to receive it or not).

The MiFID II requirements around research and inducements seek in some way to retain elements of a perfect market, while reducing some of its imperfections.

For example, Research Payment Accounts (RPAs) look set to replace Commission Sharing Agreements, meaning research consumers will retain some ability to “set” prices, although budgets will need to be agreed upfront.

It also brings with it a much broader definition of what constitutes research, at least as a potential inducement, and enforces the unbundling of research costs for all asset managers, not just those in the equity space.

This is creating a number of challenges for both research providers and asset managers alike, but ones that can be overcome, and help the industry move towards a more “perfect” market for research.


59%

believe pre- and post-trade transparency

will have the greatest impact

73%

concerned about the challenges presented

by MiFID II

Pre- and Post-trade TransparencyAccording to earlier analysis, 73 percent of asset managers are concerned about the challenges presented by MiFID II, and more than half (59 percent) believe pre- and post-trade transparency will have the greatest impact on their firms1.

MiFID II supports a shift to electronic platforms, and is also expected to push more trading onto regulated trading venues – beneficial to all financial institutions and a welcome move for modern day trading.

However, venues will need to ensure they have effective safeguards and systems in place to ensure they remain compliant and controlled.

For example, for those institutions that fall under the MiFID II regime, “financial instruments”2 can only be traded on multi-lateral trading facilities (MTFs) for foreign exchange. At SSGM we recently received approval from the FCA for our FX Connect and Currenex platforms to operate as MTFs in order to be compliant with MiFID II when it comes into effect.

What to do?There are certain MiFID II requirements which have caused substantial discussion and in some cases concern amongst market participants, many of which relate not only to the impact they might have on trading, but also on achieving compliance.

Research and data requirements are evolving fast in response to MiFID II, making separating the signal from the noise a significant challenge. This regulation has also given all financial institutions the opportunity to re-assess what they should be building into their business models, not an insignificant undertaking.

With MiFID II set firmly on the horizon now is the time to find the solutions, tools, and partnerships needed in order to comply.

RAJEN SHAH

Senior Vice President EMEA Head of State Street Global Markets

1 Regulatory Readiness Pulse Survey was conducted in August 2016. The survey was conducted by Oxford Economics on behalf of State Street. 100 global respondents, consisting of 50 hedge funds and 50 asset managers.

2 Financial instruments don’t include FX instruments which either (a) settle T+2 or less or (b) greater than T+2 when the “means of payment” exclusion.


MiFID II Level 2 MeasuresEurope

As the application date of MiFID II approaches (3 January 2018), there has been a flurry of recent activity from ESMA around Level 2 and Level 3 measures, including delegated acts, ESMA opinions, Implementing Technical Standards (ITS) and updated Q&As.

The most important of these measures is, arguably, ESMA’s consultation, launched on 19 June 2017 on the draft Regulatory Technical Standards (RTS). This specifies the trading obligations for derivatives under the MiFIR. The consultation proposes a revised approach to the overall liquidity assessment. This will be used to determine if derivatives should be subject to the trading obligation. Currently, it is envisaged that it will apply only to specific classes of interest rates and credit derivatives, when the respective trading obligations come into force. The deadline for comments was 31 July 2017, with ESMA expected to submit the final draft RTS to the European Commission in early autumn 2017.

On 6 July 2017, ESMA also issued an opinion on market size calculations for the “ancillary activity” test.

Under MiFID II, persons may be exempt where the activity is an ancillary activity to their main business, provided certain conditions are met. Facilitating the calculation of market size and activity is essential to ascertaining the size of trading activity per market participant. This will help to determine if an activity is ancillary and, ultimately, whether a market participant falls within the scope of MiFID II. The opinion is particularly relevant for non-financial and commodity firms.

Separately, on 20 June 2017, the European Commission launched a consultation on a draft Delegated Regulation amending the previous MiFID II Delegated Regulation on the definition of a “systematic internaliser”. The European Commission states that it is necessary to further specify the definition of systematic internalisers in light of alleged questionable practices by industries seeking to exploit the ambiguity around the notion of “trading on own account when executing client orders”.


Europe

The European Commission hopes that providing further clarity on the definition will help to address these industry practices and prevent any risk of circumvention of the MiFID II rules. Stakeholders had until 18 July to submit their comments.

On 13 July 2017, ESMA also launched a consultation on proposed guidelines on specific elements of the MiFID II suitability requirements. These requirements were introduced as part of the measures to enhance investor protection and seek to ensure that firms are acting in the best interests of their clients. The draft guidelines are intended to implement certain provisions within the MiFID II framework. They also provide clarifications, where necessary to the previous guidelines, published in 2012. The consultation will seek to update the guidelines in the context of recent relevant developments, for example the increasing use of robo-advice in the advisory market. The deadline for comments to the consultation is 13 October 2017. ESMA is expected to publish its final report in the first half of 2018.

A number of additional MiFID II measures have also been published: The list below is not exhaustive, but it outlines the most relevant and important developments:

• On 31 May 2017, ESMA published a set of opinions on transparency and position limit regimes for instruments traded on non-EU trading venues

• On 31 May 2017 and 7 July 2017, ESMA provided separate updates on its Q&As on MiFID II market structure, commodity derivatives and transparency

• On 6 June and 10 July 2017, ESMA updated its Q&As on investor protection issues

• On 9 June, the European Commission published a report on pre- and post-trade transparency exemptions for third-country central banks and other entities under MiFIR

• On 10 June 2017, the ITS relating to supervisory activities were published in the OJEU

• On 12 June 2017, the European Commission adopted a Delegated Regulation on the exemption of specific activities for central banks of certain third countries from pre- and post-trade transparency requirements


Europe

• On 13 June 2017, the ITS relating to a trading venue whose operations are of substantial importance in a host Member State was published in OJEU

• On 21 June 2017, the ITS on the format and timing of position reports by investment firms and market operators of trading venues under MiFID II was published in the Official Journal of the EU (OJEU)

• On 11 July 2017, the European Commission published a Delegated Regulation, setting out an exhaustive list of information to be provided by proposed acquirers of a qualifying holding in an investment firm

• On 28 August 2017, the European Commission adopted a delegated act to amend “a loophole” in MiFID II, in order to restrict large banks that fall into scope of being a Systematic Internaliser from being able to engage, on a regular basis, in the internal or external matching of trades via matched principal trading or other risk-less back-to-back transactions outside of a trading venue

Prospectus RegulationThe Prospectus Regulation was published in the OJEU.

On 30 June 2017, the Prospectus Regulation was published in the OJEU. It replaces the current Directive.

The Prospectus Regulation is a core element of the European Commission’s Capital Markets Union project. It aims to simplify information for investors, and to significantly overhaul securities disclosure requirements.

The Regulation will apply from 21 July 2019, with the exception of certain requirements which will apply from 21 July 2018.


Europe

EBA Discussion Paper on FinTechIn August, the EBA published a Discussion Paper on FinTech. The Discussion Paper is the first stock-taking exercise that the EBA has undertaken on FinTech and it will lay the groundwork for future initiatives.

The six areas the Paper identifies where further work should be undertaken are:

• Authorisation and sandboxing regimes

• The impact on the prudential and operational risks of credit institutions, electronic money institutions and payment institutions

• The impact on the business models of these institutions

• Consumer protection and retail conduct of business issues

• The impact on the resolution of financial firms

• The impact on anti-money laundering and countering the financing of terrorism

The proposed actions are based on a stakeholder mapping exercise, conducted by the EBA in spring 2017, on the financial services offered, and financial innovations applied, by FinTech firms in the EU and their associated regulatory treatment.

The EBA will hold a public hearing on FinTech on 4 October and will accept comments on the discussion paper until 6 November.


Europe

EBA Stress-Testing MethodologyThe EBA has published the draft methodology for its 2018 EU-wide stress test.

The objective of the EU-wide stress tests exercise is to provide a uniform framework for regulators and industry participants to compare and assess the resilience of EU banks in stressed market conditions, with a particular focus on their ability to meet relevant capital requirements.

The 2018 exercise is expected to cover 70% of the EU banking sector, with a majority of sampled banks falling under the jurisdiction of the Single Supervisory Mechanism (SSM). The stress test results will inform the EBA’s Supervisory Review and Evaluation Process (SREP), which aim to ensure that institutions have adequate arrangements and processes, as well as capital and liquidity, in place to cover the risks to which they may be exposed.

The EBA states that the proposed methodology is a continuation of the approach taken for the previous 2016 exercise. It has been adjusted for any lessons learned and will also take into account the implementation of the Ninth International Financial Reporting Standard (IFRS 9).

The EBA requests feedback from banks on the draft methodology. This may be taken into account when the final methodology is published. It is anticipated that the methodology will be published at the beginning of 2018 and that the results will be available by mid-2018.


Europe

ESMA Opinion on Asset Segregation and CSD Delegation RulesESMA has issued an Opinion on asset segregation. This outlines recommended legislative clarifications for EU policymakers on rules under the AIFM and UCITS Directives, as well as the application of depositary delegation rules to Central Securities Depositories (CSDs).

On 20 July 2017, ESMA published its Opinion, which proposes amendments for the introduction of minimum-level asset segregation requirements across the EU. The Opinion is the latest step in ESMA’s ongoing work on asset segregation, which started with its initial consultation in 2014.

In the Opinion, ESMA states that its objective is to facilitate the development of an EU-wide framework, applicable to both AIFs and UCITS funds, with a particular focus on the protection of investors’ assets. It appears that ESMA has taken on board the feedback from the industry, largely building on current market practices and avoiding overly-prescriptive requirements which could have resulted in significantly higher operational complexity and costs, without necessarily minimising the risks of loss.

Firstly, ESMA has sought to align insolvency-related provisions under the UCITS Directive and the Alternative Investment Fund Managers Directive (AIFMD). The Opinion includes a recommendation that EU policymakers consider replicating various provisions under the UCITS Directive within the AIFMD framework. This would ensure that a fund’s assets would remain unavailable for distribution among, or realisation for the benefit of creditors, in the event of the insolvency of the depositary or a third-party to which the safekeeping of assets has been delegated. This could be done, for example, by obtaining relevant legal advice. ESMA believes that this would help to harmonise the protection of such assets for investors across Member States.

In terms of asset segregation requirements, the Opinion proposes further legislative clarifications at the depositary, delegate and sub-delegate levels. ESMA recommends minor changes to provisions under the AIFMD and UCITS frameworks for the depositary (or “first”) level, to ensure the appropriate registration of financial instruments in the depositary’s books and records.


Europe

At the delegate (or “second”) level, the Opinion proposes legislative changes that would introduce certain minimum requirements, including the requirement for at least three different segregated accounts per depositary, as follows:

• Own assets of the delegate

• Own assets of the depositary

• Assets of a depositary’s clients

The Opinion also permits the use of omnibus accounts at the delegate level, subject to additional conditions. The conditions include ensuring that assets are not available for distribution to the creditors of the failed entity, that there are accurate accounting and reconciliation systems, a restricted re-use of securities and a written contract between the depositary and the delegate, outlining the various rights of the depositary and the respective rights to be agreed between the delegate and the sub-delegate. ESMA has proposed similar legislative changes at the “third and further levels” (i.e. the sub-delegate level), adjusting for the delegate and sub-delegate relationships.

In addition, the Opinion includes recommendations on various clarifications for the application of depositary delegation rules to CSDs. ESMA has differentiated between an “issuer CSD” and an “investor CSD”. In the case of an issuer CSD, the depository delegation rules will not apply. However, where the CSD is acting as an investor, the delegation rules will apply. This includes the application of segregation requirements, due diligence obligations and a strict liability regime. ESMA also states that it may reconsider this proposal if further legislative changes are introduced in the CSD Regulation framework, providing for a harmonised liability regime for CSDs at EU level.

The Opinion outcomes are largely expected to be welcomed by the industry, given the broad alignment with current segregation and risk review practices. It is now up to EU policymakers to take on board and act on ESMA’s suggested changes. It is likely that the topic of asset segregation will be revisited in the upcoming AIFMD review, which is expected to be completed by mid-2019.


Europe

ESMA Consultation on Guidelines on Settlement Internalisation Reporting Under CSDRIn July, ESMA published a consultation on the guidelines on internalised settlement reporting for CSDR.

In accordance with CSDR, settlement internalisers must report the aggregated volume and value of all the securities transactions that they settle outside securities settlement systems to the NCAs of their establishment, on a quarterly basis. NCAs must then transmit this information to ESMA and inform them of any potential risk resulting from that settlement activity. Previously published CSDR Level 2 measures gave further specifics on the content of the internalised settlement reporting as well as templates and procedures for reporting and transmitting information. ESMA has decided to issue guidelines to ensure the implementation of relevant provisions.

The guidelines aim to clarify the reporting architecture and exchange of information between ESMA and NCAs and specifically cover:

• The scope of the data to be reported by settlement internalisers – the scope includes intra-group transactions, while primary market operations are out of scope

• The types of transactions and operations that should or should not be included

• The entities responsible for reporting

• The data reporting parameters

• The process for the submission of the reports

The deadline for submitting contributions to ESMA was 14 September 2017 and ESMA will consider the feedback with a view to finalising the guidelines by Q1 in 2018.


Europe

ESMA Principles on Supervisory Convergence and Sectoral OpinionsOn 31 May 2017, ESMA published its opinion which sets out the “general principles to support supervisory convergence in the context of Brexit”.

ESMA felt this was a necessary step, given the increased requests from UK financial market participants seeking to relocate activities to the EU. The opinion is addressed to NCAs and seeks to ensure that they follow a consistent approach when dealing with firms relocating from the UK, in order to avoid a regulatory “race-to-the-bottom”.

The opinion establishes nine general principles on the authorisation and ongoing supervision of such firms. The opinion is based on the assumption that the UK will become a third country, following the conclusion of the Article 50 negotiations.

Some of the key points include:

• There will be no automatic recognition of existing authorisations

• Outsourcing or delegation arrangements from entities authorised within the EU to third-country entities should be strictly framed and consistently supervised (certain key functions cannot be outsourced or delegated outside of the EU)

• The regulators of NCAs must ensure that where activities have been outsourced or delegated, this must not prevent them from conducting their supervisory and enforcement role, including on-site inspections. (This topic has been politically sensitive in the past)

In addition, the ESMA has emphasised that relocation requests which essentially seek to establish “letter-box” entities (where the sole purpose is to benefit from an EU passport with all substantial activities or functions still performed in a third-country jurisdiction) should be rejected.


Europe

The ESMA followed up its general principles and issued three separate “sectoral” opinions providing guidance for national regulators in the context of Brexit.

On 13 July 2017, the ESMA issued its much anticipated sector specific opinions in the context of Brexit, following up on its previous general “cross-sectoral” opinion. The three opinions relate to investment firms, investment management and secondary markets. They also address, in more granular detail, politically charged issues in the context of Brexit negotiations, such as delegation and outsourcing.

The opinions appear to introduce substantive changes, which could create a significant departure from some current industry practices. Some of the key elements include:

• There must be clear and objective reasoning for adopting outsourcing and delegation arrangements. There must also be evidence that the financial benefits outweigh the costs of performing the delegated function internally. This also applies for arrangements within the same corporate group

• Where delegation or outsourcing of a function(s) has been permitted, it should not be done to the extent that it “exceeds by a substantial margin” the functions performed internally

• Where an entity has been authorised in an EU Member State, the persons effectively directing the business, including its senior management and/or key function holders, should be based within that Member State, with the entity’s governing/management body having effective decision-making powers. This applies even where it is part of a larger corporate group

• There will be additional scrutiny for investment firms who use another non-EU party to place or execute client orders

• Where the portfolio management or risk management of funds has been delegated to a non-EU entity, the non-EU entity must either be subject to remuneration requirements as effective as those in force within the EU, or there must be contractual arrangements to ensure there is no circumvention of the EU remuneration rules

As noted, the opinion is directed towards EU NCAs. While an opinion is legally non-binding, it is expected that all NCAs will adhere to the principles. In addition to the sector specific opinions, ESMA may use other supervisory convergence tools, including the provision of Q&As and peer reviews.


Europe

ESMA Consultation on the MMF RegulationOn 24 May 2017, ESMA launched its consultation on Level 2 measures under the Money Market Funds Regulation (MMFR).

The consultation includes the following proposals:

• Technical advice on: the specification of liquidity requirements, applicable to certain assets received by a Money Market Fund (MMF) as part of a re-purchase agreement; and the credit quality requirements applicable to assets received by a MMF, as part of a re-purchase agreement, when those assets are issued or guaranteed by a third country

• Technical advice on the criteria for the validation of the credit quality assessment methodologies that MMF managers must use when establishing internal credit quality assessment procedures – and also the meaning of the term “material change”, which would oblige them to undertake a new credit quality assessment

• Draft ITS which establish a reporting template, containing all the information that managers of MMFs must submit to the relevant competent authority

• Guidelines which seek to establish common reference parameters for the stress test scenarios to be included in the stress tests, which managers of MMFs are required to conduct

Across its various proposals, ESMA has made reference to existing provisions both within the EU framework – primarily contained in the UCITS Directive and AIFMD – and at international level, through the Financial Stability Board (FSB) and the United States’ MMF reforms. This approach is likely to be welcomed by industry.

The deadline for comments to the ESMA consultation was 7 August 2017. The technical advice is expected to be transmitted to the European Commission in early autumn. The ITS on the reporting template must be transmitted before November 2017. The guidelines on stress testing are expected to be published by the end of the year.

Separately, the MMF Regulation was published in the OJEU on 30 June 2017. This means that new funds will need to be compliant with the provisions of the MMFR by 21 July 2018. For existing funds, there is a further 6-month implementation period, as prescribed by Article 44 of the Regulation. They must comply on or before 21 January 2019.


Europe

Market Infrastructure: EMIR Review, Supervision of Central Counterparties and Recovery and ResolutionIn May 2017, the European Commission adopted a proposal for a regulation amending EMIR. Overall, the European Commission concluded that the framework functions well. The purpose of the regulation is to make amendments in a limited number of areas, while maintaining all key elements of the framework.

Specifically, the European Commission has recommended:

• Streamlining reporting requirements for all counterparties

• Targeting changes for non-financial counterparties (NFCs), so that they will have to clear only the asset classes for which they have breached the clearing threshold – as well as proposing new clearing thresholds for small financial counterparties

• Extending the scope to include Central Securities Depositories (CSDs); Securitisation Special Purpose Entities (SSPEs) and Alternative Investment Funds (AIFs) registered under national law as financial counterparties under EMIR

• Providing three more years of transitional exemption from the clearing obligation for pension funds, until a viable technical solution to enable the participation of pension scheme arrangements (PSAs) in central clearing is found

• Removing frontloading requirements

The EMIR review proposal was accompanied by a Communication on the European Commission’s planned response to the challenges emerging for critical financial markets’ infrastructures in light of the UK’s departure from the EU.

The review proposal will now be subject to the formal EU legislative process.


Europe

The European Commission also proposes a new framework for the supervision of Central Counterparties (CCPs) operating in the EU, while initial discussions have begun on the proposed regulation on CCP recovery and resolution.

On 13 June 2017, the European Commission supplemented its suggested amendments to EMIR with an additional legislative proposal, which will introduce an enhanced approach to supervision of EU and third-country CCPs. The proposal includes a new supervisory mechanism for CCPs that would be established within the ESMA, (the CCP “Executive Session”), which would be responsible for promoting more coherent, consistent and robust supervision of CCPs operating in the EU.

A key aim of the amendments is to ensure further supervisory convergence and closer cooperation between NCAs and central banks responsible for EU currencies. The most notable proposals for EU CCPs relate to authorisation, prudential requirements and dispute resolution arrangements.

The new framework would also see a major overhaul of the way in which third-country CCPs are supervised, through the introduction of a “two-tier” system:

• Tier 1 or “non-systemically important” CCPs would continue to operate under the existing equivalence regime

• Tier 2 or “systemically important” CCPs would only be permitted to provide clearing services or activities in the EU if they are compliant with the relevant prudential requirements for EU CCPs and subject to additional conditions

The determination of whether a third-country CCP is “systemically important” will be based on the following criteria:

• The nature, size and complexity of the CCP’s business

• The impact of the CCP’s failure or disruption on the broader EU financial system and stability

• Its clearing membership structure

• Its relationship and interdependencies with other financial market infrastructures


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The proposal also grants ESMA the power to determine – in agreement with the relevant EU central bank(s) – that the risks posed by a third-country CCP to the EU’s financial stability are of such magnitude that they cannot be addressed through the recognition process. The ESMA, again in agreement with the relevant EU central banks, has the power in such cases to recommend to the European Commission, that the CCP should not be recognised. If the CCP is not recognised and subsequently plans to provide clearing services in the EU, it will have to be authorised and established in a Member State. This proposal was introduced due to concerns within the EU, including the European Central Bank, that it would not have full oversight of a clearing house handling large volumes of euro-denominated derivatives in a post-Brexit United Kingdom (UK).

The new provisions on the recognition of third-country CCPs will apply fully once the European Commission’s delegated act, which will further specify the criteria for systemically important CCPs, enters into force. ESMA will then have one year to review third-country CCP recognition decisions adopted before the new provisions enter into force and to determine if those CCPs are “systemically important”.

There are currently 45 CCPs operating in the EU, of which 28 are third-country CCPs offering their services based on recognition under the EMIR’s equivalence provisions. These will continue to be recognised as Tier 1 CCPs unless and until they are determined otherwise.

Separately, on the proposed CCP recovery and resolution regulation (CCPR/R), both co-legislators have started their preliminary discussions. In the European Parliament, the co-rapporteurs, Kay Swinburne and Jakob von Weizsacker met with the representatives of the other political groups (the so-called “shadow rapporteurs”) for the second time in early July. The European Parliament is aiming to hold a vote on their final report in January 2018.

In a markedly different approach to their predecessors, the Estonian Presidency is hoping to reach a general agreement in the European Council by the end of 2017.

The European Council Working Group met again on 17 July, with the discussion focusing on high-profile topics such as the “no-creditor-worse-off” principle and the use of variation margin gain haircutting as a resolution tool.

Despite the ambitious timelines set by both the European Council and the European Parliament, it is likely that discussions on the EMIR Review, particularly on euroclearing will have an impact on further negotiations and progress on the CCPR/R.


Europe

Investment Firms’ ReviewThe EBA held a public hearing on the ongoing review of investment firms which seeks to develop a new prudential framework for MiFID investment firms. It presented its preliminary policy recommendations in order to collect initial feedback from industry stakeholders.

In June 2016, the European Commission mandated the EBA to provide technical advice on the design of a new prudential regime for investment firms. The regime will apply to all non-bank firms undertaking investment services and activities regulated under the MiFID. Accordingly, the EBA held a public hearing in London on 3 July 2017, and gave an update on the “state of play” of its advice on the new regime.

The existing suite of prudential rules applicable to EU investment firms are set out in the Capital Requirements Directive IV and Capital Requirements Regulation (together known as CRD IV) However, CRD IV is primarily intended for banks. This means that the regime can be “overly burdensome” for some non-bank investment firms and cannot address their specific risks, according to the EBA. Therefore, the purpose of the European Commission’s review is to assess whether more targeted rules are necessary.

As requested by the European Commission in its “Call for Advice”, the EBA hearing focused on a number of areas that could form the new prudential regime. It unveiled 58 potential policy options which build on responses to the EBA’s earlier discussion paper, published in November 2016. These are:

• Firm categorisation: firms are expected to be categorised as either Class 1 (large or systemic investment firms), Class 2 (other non-systemic investment firms) or Class 3 (small and non-interconnected investment firms)

• Setting out the level of initial capital needed for firm authorisation, which will be based on class type

• Liquidity requirements, including the extension of the liquidity coverage ratio (LCR) to all Class 1 investment firms, although this does not extend to the Net Stable Funding Ratio (NSFR)

• Simplified reporting requirements for Class 2 and Class 3 investment firms

• Remuneration and governance: while Class 1 investment firms would be required to meet the full requirements of the CRD, Class 2 and Class 3 investment firms would be subject to more proportionate requirements


Europe

The EBA is expected to submit a final report containing its technical advice on the new prudential regime to the European Commission in September 2017. The Commission intends to issue a legislative proposal on the new prudential regime by the end of the year.

PRIIPsIn June, the European Commission published guidelines to accompany the Package Retail and Insurance-Based Investment Products (PRIIPs) Regulation. The purpose of the guidelines is to clarify what was (or wasn’t) intended in the Level 1 text. The guidelines will facilitate implementation and compliance with the regulation at national level by smoothing out potential interpretation differences throughout the EU.

Topics covered include:

• Products covered by the Regulation

• PRIIPs made available at no cost to retail investors

• Multi-option PRIIPs

• Insurance-based investment products with PRIIPs and non-PRIIPs as underlying investment options

• The definition of “PRIIP manufacturer”

• Use of Key Investor Information Document (KIID) by UCITS

The guidelines were formally adopted in July and the European Supervisory Authorities (ESA) have issued a first set of Q&As.


Europe

Anti-Money LaunderingESA published final guidelines for financial institutions to consider when assessing risks in relation to money laundering and terrorist financing.

On 26 June 2017, the ESA (comprised of EBA, ESMA and EIOPA) published a final report containing risk factor guidelines on Anti-Money Laundering and Counter Terrorism Financing (AML/CTF). These guidelines follow on from their public consultation on the issue in October 2015.

The guidelines specify the factors that financial institutions should consider when assessing money laundering and terrorist financing risks associated with a business relationship or occasional transaction. They also outline the extent to which financial institutions should adjust their customer due diligence measures to appropriately mitigate identified risks.

The guidelines will apply from 26 June 2018, but the ESAs will ensure that they remain current in light of evolving risks in this area.

Alongside the AML/CTF risk factor guidelines, the ESAs jointly issued draft RTS. These set out the criteria which should be used to determine if and when non-EU payment service providers and electronic money issuers should appoint a “central contact point” to support the fight against money laundering and terrorist financing. They outline the functions the central contact point should perform when mediating between competent authorities and the institution.

Payment service providers and electronic money issuers with a head office in an EU Member State can operate establishments (agents or distributors) in another Member State. Such establishments will be required to comply with the AML/CTF regimes of their host Member State, even if they are not an obliged entity themselves. The proposed RTS aim to facilitate more effective oversight of AML/CTF risks and establish consistent risk-based supervisory practices across the EU. This is in order to reduce any regulatory arbitrage, and to provide legal certainty where these entities provide services on a cross-border basis.

The draft RTS have been submitted to the European Commission, who now have three months to adopt them or seek additional amendments.


Europe

Risk Reduction MeasuresEU institutions make progress on “fast-track” measures, although negotiations between the European Council and European Parliament are not likely to start until autumn.

On 23 November 2016, the European Commission launched a package of reforms for the EU’s capital and liquidity standards, together referred to as the “risk reduction measures”, to address outstanding issues in the European banking sector and to ensure it is consistent with international standards. The European Commission’s proposals made targeted amendments to existing EU legislation, including revisions to the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD) and the Bank Recovery and Resolution Directive (BRRD).

Certain elements of the package of reforms have more pressing deadlines. This is to avoid potential “cliff-edge” effects and also to give EU banks sufficient time to meet international requirements (i.e. the FSB’s total loss-absorbing capacity (TLAC) rules).

Given the enormity of the task and the politically sensitive nature of some proposals, there was a risk that the negotiations would not be finalised in time to address concerns around timing. With this in mind, the co-legislators agreed to focus on a number of specific provisions of the package, which would be progressed on a “fast track” basis and treated as standalone amendments. These included:

• The phasing-in of the application of the ninth IFRS

• The “grandfathering” of the large exposures exemption for exposures to EU sovereign debt denominated in the currency of any other Member State

• The introduction of the Bank Creditor Hierarchy Directive (BCH), which covers the ranking of unsecured debt instruments in insolvency proceedings, and is related to the wider implementation of TLAC

Despite challenging meetings amongst Member States in the European Council, the Maltese Presidency was able to reach a general agreement on all the “fast track measures”, which were endorsed by Finance Ministers on 16 June 2017.


Europe

The European Parliament adopted a different approach and chose to separate the issues. German MEP, Peter Simon led the work on the IFRS 9 and large exposures proposals and Swedish MEP Gunnar Hokmark, led the Parliament’s efforts on proposed amendments to the BCH. On 11 July 2017, the European Parliament’s Economic and Monetary Affairs (ECON) Committee agreed its position on the IFRS and large exposures proposals and endorsed opening negotiations with the European Council. However, the ECON Committee is not expected to vote on amendments to the BCH until the end of September.

In terms of next steps, trialogue negotiations on the IFRS 9 and large exposure proposals are due to start in early September, with separate negotiations on the BCH due to start once the European Parliament has adopted its position. With no major differences apparent between the positions of the co-legislators, it is possible that an agreement could be reached by the end of the year.

Separately, the Estonian Presidency of the Council has indicated, at least initially, that it will also seek to progress other provisions within the RRM.


Europe

Work Programme for the Estonian Presidency of the Council of the EUThe Estonian Presidency published its updated 2017 work programme, outlining regulatory priorities during its term at the head of the Council of the EU.

In June, the Estonian Presidency published its work programme, which sets out the high-level objectives and priorities of their Presidency term (1 July 2017 to 31 December 2017). The priorities are broadly focused on the following areas:

• An open and innovative European economy

• A safe and secure Europe

• Digital Europe

• An inclusive and sustainable Europe

In addition to its overarching work programme, the Estonian Presidency also published specific programmes for the work of the Economic and Financial Affairs Council (ECOFIN) and the Justice and Home Affairs Council (JHA).

Focusing specifically on the ECOFIN priorities, the Estonian Presidency will seek to: encourage economic growth, through the removal of existing barriers; further enhance the competitiveness and safety of the EU tax environment; and develop an EU-level budget that is sufficient to meet the EU’s priorities. The work of the ECOFIN will be divided into five areas:

• The Banking Union and the Capital Markets Union

• Taxation

• The EU budget

• The economic management of Europe

• The future financing of the EU and the Economic and Monetary Union (EMU)


Europe

The Estonian Presidency has stated its intention to proceed with the RRP for the Banking Union, and has set itself ambitious targets. The Presidency hopes to deliver political agreement with the European Parliament on the more urgent elements of the RRM being negotiated under the so-called “fast track” procedure. This includes the scope of large exposures exemptions, creditor hierarchy and the transition to IFRS 9 (see Financial Reporting Update: Impact of IFRS 9 on page 29).

The Estonians aim to reach a general approach within the Council on the other parts of the package, which have been stuck so far in negotiations, with many elements still being finalised at the Basel-level (NSFR, leverage ratio calculation etc). In addition, they aim to lay the foundations for the establishment of a European Deposit Insurance Scheme (EDIS). This has been a very controversial topic in the past.

The Presidency intends to continue its work on various CMU proposals, including those arising from the review of EMIR (see Market Infrastructure: EMIR Review, Supervision of Central Counterparties and Recovery and Resolution on page 17). This could be very important in the context of Brexit negotiations.

On taxation, the Estonian Presidency aims to continue discussions on the proposal for a Council Directive on a Common Corporate Tax Base (CCTB). The purpose of this is to embed a harmonised system for calculating companies’ taxable profits in the EU. It includes an assessment of the impact of CCTB on tax revenues, competitiveness and the attractiveness of tax systems.

Separately, the Estonian Presidency will initiate discussions on the European Commission’s White Paper on the future of the EU (published in March 2017). This will contribute to the possible exchange of views in the European Council in December 2017.


Europe

Tax TransparencyThe European Commission has proposed new transparency rules for intermediaries involved in the design of tax planning schemes for their clients.

On 21 June 2017, the European Commission proposed tough new transparency rules, including amendments to the EU Council Directive on administrative cooperation in the field of taxation (Council Directive 2011/16/EU), which would extend its scope to cover the mandatory exchange of information on reportable cross-border arrangements. This forms part of the European Commission’s strategy to combat tax evasion and aggressive tax planning as well as the broader EU implementation of international recommendations to prevent “base erosion and profit shifting” for tax avoidance purposes.

The new provisions would oblige intermediaries such as firms, banks, lawyers, tax advisors and accountants who design, market or implement tax schemes to report any cross-border arrangements that contain one or more key distinguishing characteristics, (referred to as “hallmarks”) to the tax authorities.

They cover arrangements which involve a cross-border payment to a recipient resident in a no-tax country; arrangements in a jurisdiction with an inadequate anti-money laundering regime, set up to avoid reporting income; or arrangements which fail to comply with EU or international transfer pricing guidelines. The new provisions would require national tax authorities to automatically exchange such information, obtained from intermediaries, with other tax authorities across the EU.

The new reporting requirements are expected to enter into force on 1 January 2019, following consultation with the European Parliament and after adoption by the European Council.


Europe

CMU Mid-Term ReviewIn June, the mid-term review of the CMU initiative was adopted by the European Commission.

The purpose of the review is to:

• Progress the delivery of the original CMU action plan, recalibrate policy measures where needed and consider whether new measures should be adopted as part of the initiative

• Strengthen the powers of ESMA to promote the effectiveness of consistent supervision across the EU and beyond, with a review of the European Supervisory Authorities (ESAs ) in Q3 2017 and potential targeted amendments to sectoral legislation

• Deliver a more proportionate regulatory environment for small and medium sized enterprises (SMEs) listing on public markets (the impact assessment process will begin in Q2 2018)

• Review the prudential treatment of investment firms (Q4 2017)

• Assess the case for an EU licensing and passporting framework for FinTech activities (Q4 2017)

• Outline measures to support secondary markets for non-performing loans (NPLs) in Q4 2017; explore legislative initiatives

to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs (Q1 2018); and ensure follow-up to the recommendations of the High Level Expert Group on Sustainable Finance (Q1 2018)

• Facilitate the cross-border distribution and supervision of UCITS and AIFs in Q1 2018

• Provide guidance on existing EU rules for the treatment of cross-border EU investments and an adequate framework for the amicable resolution of investment disputes (Q3 2017)

• Propose a comprehensive EU strategy to explore measures to support local and regional capital market development (Q2 2018)

The European Commission will also propose legislative action on some of the outstanding priorities of the 2015 Action Plan, including:

• A pan-European personal pension product (published June 2017)

• An EU framework on covered bonds (Q1 2018)

• Securities law to increase legal certainty on securities ownership in a cross-border context (Q4 2017)


Europe

Financial Reporting Update: Impact of IFRS 9IFRS 9, which replaces International Accounting Standard 39 Financial Instruments: Recognition and Measurement (IAS 39), was adopted into EU law on 22 November 2016 and is effective for annual periods on or after 1 January 2018 with earlier application permitted.

IFRS 9 has retained the fair value option under IAS 39 but revised the classification criteria for financial assets and introduced new requirements in relation to impairment, hedge accounting and embedded derivatives.

ClassificationIFRS 9 has revised the number of classification categories to amortised cost and fair value through profit or loss of fair value through other comprehensive income (FVTPL). IAS 39 had classified financial instruments as fair value through profit or loss, held to maturity, loans and receivables or available for sale. The impact of IFRS 9 is not expected to be significant for fund financial statement reporting as the vast majority of financial assets are currently carried at FVTPL under IAS 39.

IFRS 9 introduces amortised cost as a classification model for debt financial assets based on the business model of the entity (i.e. held to collect contractual cash flows) and meeting the specific requirements of a special “solely payments of principal and interest” (SPPI) test. Debt financial assets held in a business model where performance is evaluated on a fair value basis must be classified as FVTPL even when the SPPI test is met.

Financial liabilities are classified as amortised cost except those already classified as FVTPL (i.e. derivative instruments).

ImpairmentIFRS 9 introduces a single expected loss impairment model and is applied to all financial instruments classified as amortised cost or fair value through other comprehensive income. The amount of expected credit loss is updated at each reporting date to reflect changes in credit risk since initial recognition, even if there is no credit event.


Europe

Hedge AccountingIFRS 9 provides entities with an accounting policy choice – to apply the hedge accounting requirements of IFRS 9, or continue to apply the existing hedge accounting requirements in IAS 39. IFRS 9 aligns hedge accounting more closely with risk management.

Embedded DerivativesIFRS 9 removes the requirement to separate embedded derivatives from financial asset host contracts. Separation of embedded derivatives has been retained for financial liabilities (subject to certain criteria being met).

PEPPIn June, the European Commission published a proposal for a regulation on a pan-European Personal Pension Product (PEPP) as part of the Capital Markets Union (CMU) initiative.

The objective of the PEPP is to extend both choice and coverage for private pension provision in the EU. The proposal sets out the standard features of PEPPs across the EU.

The objective of the proposal is to ensure that PEPPs can be offered by a broad range of providers, such as insurance companies, banks, occupational pension funds, investment firms and asset managers. These products should complement existing state-based occupational and national personal pensions and act as a third pillar offering across the EU. The proposed regulation will be subject to the formal EU legislative process.


Proposed Revision to Guernsey’s AML Legal and Regulatory Framework

Channel Islands

The Guernsey Financial Services Commission has issued draft revision proposals to Guernsey’s Proceeds of Crime Legal and Regulatory framework.

The revisions will further amend the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999; the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007; and the rules and guidance contained in the Handbook on Countering Financial Crime and Terrorist Financing.

The purpose of the revisions is to ensure that Guernsey’s AML/CTF framework refers to the 2012 standards issued by the Financial Action Task Force and addresses recommendations made by MONEYVAL, following its mutual evaluation of Guernsey. The results of the evaluation were published in January 2016.

The revisions include changes to the following:

• Enhanced risk assessments; the introduction of the role of a Financial Crime Reporting Officer (FCRO) and a Financial Crime Compliance Officer (FCCO), instead of a Money Laundering Reporting Officer (MLRO)

• Enhanced transparency on beneficial ownership

• The introduction of a new concept of additional Customer Due Diligence (ACDD) to supplement the existing enhanced Customer Due Diligence (ECDD)

• Enhanced guidance on Politically Exposed Persons (PEP)

• Detailed guidance on the AML treatment of Collective Investment Schemes


Channel Islands

Industry consultation on the proposed revisions were open until 31 July 2017, so that the legal changes and the new Handbook on Countering Financial Crime and Terrorist Financing is expected to be issued in autumn 2017 and come into effect by 31 December 2017.


Register of Beneficial OwnersDecree No. 2017-1094 of 12 June 2017 on the Beneficial Ownership Register Defined in Article L. 561-2-2 of the Monetary and Financial Code was released by the French Ministry of Economy and Finance and entered into force on 1 August 2017. Legal entities registered before that date will have until 1 April 2018 to send their list of beneficial owners.

Regulatory OriginThe EU’s Fourth Anti-Money Laundering Directive (AMLD IV) was transposed into French law by Order No. 2016-1635 of 1 December 2016 which aims to strengthen the French framework for anti-money laundering and the fight against terrorist financing. This Order modifies the Monetary and Financial Code and the Commercial Code to create the Beneficial Ownership Register. The present Decree provides specifications regarding this register.

ScopeThe register is intended to list all the individuals who ultimately control (either directly or indirectly) a legal entity and all the people for whom a deal is made or an activity is conducted.

The scope of the legal entities concerned includes: companies and Economic Interest Groupings (EIG) whose head office is located in a French department, commercial companies whose head office is not in a French department but are at least established in one of the French departments and all the other legal entities that have to be registered in France.

France


TimelineThe legal entities in scope will have to send their list of beneficial owners to the Registry of the Commercial Court no later than 1 April 2018 if they registered before 1 August 2017 and, upon registration if they registered on or after 1 August 2017.

The data to be provided includes the name of each beneficial owner, any commonly used name or alias, date and place of birth, citizenship, personal address, nature of control over the entity and the date from which beneficial ownership commenced.

AccessThe register of beneficial owners is not public and access to the register is limited to a list of approved persons set out in the Decree. Applications for access must be made to the Commercial Court (specifically, the “greffe du tribunal de commerce”). Applicants that are not specifically in the list set out in the Decree must demonstrate a legitimate need to access the register on the grounds of ensuring compliance with customer AML/CTF due diligence requirements.

France


BaFin Circular 3/2017 (GW) on Video Identification Process

Germany

On 10 April 2017, the German Financial Supervisory Authority (BaFin) published its new Circular 3/2017 Money Laundering (GW), Video Identification Process.

The Circular defines the scope of application of the video identification process as well as the respective organisational and staff requirements.

The Circular repeals the suspended Circular 4/2016 (GW) from 10 June 2016. Reference transactions and research in social networks for information given by identified persons are no longer required under the new Circular.

The Circular entered into force on 15 June 2017 and replaces No. III of the BaFin Circular 1/2014 (GW) – Suspicious transaction report under Section 11, 14 of the German Anti-Money Laundering Act (GwG).


BaFin General Administrative Act Pursuant to German Securities Trading Act (WpHG) on Contracts for DifferenceOn 8 May 2017, the BaFin published a General Administrative Act pursuant to Section 4b (1) WpHG regarding Contracts for Difference (CFDs).

Under this administrative act, BaFin orders the limitation of marketing, distribution and sale of financial CFDs as defined under the terms of Section 2 (2) no. 3 WpHG.

The marketing, distribution and sale of CFDs to retail clients under the terms of Section 31a (3) WpHG shall be prohibited insofar as they may give rise to an additional payment obligation (i.e. margin call).

The General Administrative Act entered into force one day after the public announcement. The limitation was implemented on 10 August 2017.

Germany


Germany

BaFin Circular 5/2017 (GW) on Appropriate Business-related Security SystemsOn 24 May 2017, the BaFin published its Circular 5/2017 (GW) – appropriate business-related security systems within the meaning of Section 25h (1) sentence 1 of the German Banking Act KWG.

According to Section 25h (1) KWG, credit institutions shall have appropriate risk management systems and apply procedures and principles for the prevention of “other criminal offences” which could put the institution’s assets at risk. For this purpose, they shall establish and update appropriate business and customer-related security systems and conduct corresponding controls.

According to Circular 5/2017 (GW), “appropriate business-related security systems” require, in particular, the documentation and storage of correspondence (chats, messages, etc.) of employees, via the chat function of the communication programmes of trading platforms (i.e. Bloomberg, Reuters, etc.) if they relate to transactions on the respective trading platform and/or business relations with the parties involved in such transactions.

For documentation and storage purposes, all the correspondence in question must be recorded for an appropriate period of time which shall not be less than 10 years. The deletion of existing correspondence is no longer permitted within this period.


Irish Implementation of the Requirement of ESMA Opinion “Share Classes of UCITS”

Ireland

On 28 June, further to the ESMA opinion “Share Classes of UCITS”, the Central Bank of Ireland (CBI) issued two additional UCITS Q&As to clarify its requirements.

The Q&As outlined the following requirements:

• UCITS with one or more share classes which do not comply entirely with the principles set out in the ESMA Opinion are not required to make any amendments to such share classes. However, any such share classes should be closed for investment by new investors on or before 30 July 2017 and for additional investment by existing investors is 30 July 2018

• UCITS which employ derivatives in order to engage in currency hedging at the level of the share class must determine if they meet with the provisions of the ESMA Opinion as reflected in the CBI’s guidance “UCITS and AIF Share Class Hedging”. If they don’t and if the UCITS intends to continue to offer these share classes to investors, the UCITS should make any necessary amendments at the earliest opportunity. Amendments to the UCITS’ documentation should be made at the time of the next update

The CBI also issued updated guidance on UCITS and AIF Share Classes to give effect to the requirements of the Opinion over and above those previously imposed on Irish authorised UCITS, as contained in Regulation 26 of the Central Bank UCITS Regulations, and previously issued Central Bank guidance on UCITS Share Classes.


Central Bank Guidance on Fund Administrator OutsourcingNew guidance issued on 3 July 2017 supersedes the letter issued to industry in March on the outsourcing of fund administration activities.

Below is a summary of the key requirements contained in the guidance:

• Core management functions shall not be outsourced and the fund administrator must continue to exercise adequate and effective control and decision making. The outsourcing should not impair the ability of internal governance – such as the compliance and internal audit functions – to oversee and review the arrangement

• A formal Outsourcing Governance Committee should be considered, along with the adoption of an outsourcing policy and a log of all outsourcing arrangements

• A fund administrator is required to evaluate the performance of an outsourcing service provider on an ongoing basis, to include periodic due diligence related visits

• A risk assessment process is advisable and the fund administrator should have adequate internal controls in place and the necessary expertise to manage the risks associated with the outsourcing arrangement and to ensure compliance with the CBI

• Business continuity plans should be reviewed and tested on at least an annual basis and take back/resilience testing should be undertaken on outsourced activities

• Appropriate training on and access to Irish regulatory requirements should be in place at the outsourced service provider

• Pre-approval of any outsourcing arrangement must be sought from the CBI

• At a minimum, the oversight and control of the shareholder register must be maintained by the administrator, along with the release of the final dealing NAV, subject to limited exceptions as granted by the CBI

• The CBI requirements apply equally to both intra-group and external outsourcing arrangements

Ireland


Ireland

Central Bank Discussion Paper on ETFsExchange Traded Funds (ETFs) have more than four trillion US dollars in assets globally as of April 2017 and Ireland is the largest European centre for ETFs. On 15 May, the CBI issued a discussion paper on ETFs in order to garner information and opinions on ETFs. This will assist the CBI in engaging and contributing to broader discussions on ETFs with other supervisory bodies.

Responses to the questions and general observations on the discussion paper had to be provided by 11 August 2017.

The Discussion Paper is structured around four key themes and highlights discussion points identified from a review of the relevant literature, from discussions with international regulatory colleagues and from the CBI’s own supervisory experience.

ETF DealingThe first focus is on the unique primary dealing and secondary trading arrangements which are an inherent part of the design of ETFs. The Discussion Paper elaborates on a number of potential discussion points relating to this key feature of ETFs. It discusses the extent to which reliance can be placed on the disclosure of facts concerning the ETF’s arrangements to provide appropriate degrees of protection for investors and discusses how these dealing and trading arrangements are likely to operate in stressed market conditions.

Distinctive ETF Risk FactorsThe second focus is on the assessment of the risks inherent in the ETF structure. The Discussion Paper looks at the connections between authorised participants and other interested parties. It also reviews synthetic ETFs – in particular counterparty and collateral risk issues.

Particular types and Features of ETFsAs ETFs continue to grow in popularity, so does the range of different types of ETFs. The third focus of the paper is on some of the alternative types of ETFs, notably leveraged and inverse ETFs, and active ETFs. The discussion of active ETFs highlights the debate on how to achieve the right level of transparency.


Ireland

ETFs and Market LiquidityThe Discussion Paper reviews a range of studies on market liquidity of assets held by ETFs and identifies complexities, which appear to suggest that the impact of ETFs on market liquidity can vary significantly over different time horizons and in relation to different assets. However, the matter is complicated by the need to differentiate between the impact of the ETF structure and the impact of the passive investment strategies characteristic of many, but not all, ETFs (although not solely ETFs). The CBI notes that, given the increasing importance of market liquidity for regulators, this complex topic requires substantial further academic work (particularly in a European context). Feedback from industry on their experiences is also important to regulators in understanding these impacts.


Ireland

Financial Reporting Update: Irish Companies (Accounting) Act 2017The Companies (Accounting) Act 2017 came into force on 9 June 2017.

The Act has had a limited impact to financial statement disclosure; however, sections 86 and 100 of the Act introduce an additional filing requirement with the Companies Registration Office (CRO):

• A requirement for all UCITS public limited company (PLCs)* and Part 24 Investment companies to annually file the following documents with the CRO within 11 months of the year-end date:

– The statutory financial statements of the company for the financial year

– The directors’ report for the financial year

• The statutory Auditors’ report on those financial statements and the Directors’ report

The Act introduces beneficial reliefs for micro and small companies, none of which can be applied to a company regulated by the CBI.

The Act will be effective for reporting periods beginning on or after 1 January 2017. The new CRO filing requirement will apply to 31 December 2017 annual financial statements onwards.

* Note – The CRO filing requirement applies to PLCs only. Other structures such as Irish Collective Asset-Management Vehicles (ICAVs), Unit Trusts, Investment Limited Partnerships (ILPs) etc. are not impacted by this new filing requirement.


AMLD IVItaly

In June 2017, Legislative Decree No. 90 of 25 May 2017 (the AML Decree) – implementing Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLD IV) – was published. The AML Decree entered into force on 4 July 2017. The AML Decree amends Legislative Decree No. 231 of 21 November 2007 on the prevention of money laundering and terrorist financing, as well as the Legislative Decree No. 109 of 22 June 2007 on counter-terrorist financing.

The new AML Decree amends the current legal framework which, in line with AMLD IV, strengthens the risk-based approach principle. This means that the entities subject to this new legislation will need to perform a more in-depth assessment of the actual money laundering and terrorist financing risks associated with the customer and/or the business relationship/transaction and calibrate the CDD accordingly.

The AML Decree introduces, among other things, the following changes to the existing legal framework:

• The new concept of risk assessments means that entities in scope must adopt appropriate procedures to identify and assess the risks of money laundering and terrorist financing. They must take into account risk factors relating to types of customers, geographic areas, services and products offered and delivery channels. The risk assessment must be documented, kept up-to-date and made available to the competent authorities


• Under the terms of the Decree, the “Archivio Unico Informatico” (AML Database) the maintenance of the AML Database is no longer a requirement. Data and information need now only be kept in a transparent and clear record-keeping system, which permits prompt and complete access by the competent authorities, as required

• There is a new duty for entities to communicate information on their beneficial owners to the relevant Companies Register. A specific decree on this point will be issued within 12 months of the date that the AML Decree comes into force

• ECDD must be applied in cases of PEPs. The definition of PEP includes people who held a PEP position within the last 12 months and those who are entrusted with local functions (for example members of a regional council, a regional president, mayors of communities with a population greater than 15,000, etc.)

• The secondary measures implementing the AML provisions, which were repealed by the AML Decree, will remain in force until 31 March 2018. The competent authorities (such as the Bank of Italy) are responsible for enacting the new secondary measures

Italy


Circular CSSF 17/654 on IT Outsourcing Relying on Cloud Computing Infrastructure

Luxembourg

Circular CSSF 17/654 clarifies the regulatory framework applicable to IT outsourcing relying on a cloud computing infrastructure, provided by an external provider.

This circular applies to financial professionals including credit institutions, investment firms, specialised Professionals in the Financial Sector (PFS), support PFSs, and payment institutions, and electronic money institutions. Circular CSSF 17/654 entered into force on 17 May 2017.

The main points of Circular CSSF 17/654 include:

• The circular re-affirms that the Commission de Surveillance du Secteur Financier (CSSF) considers that cloud computing is a form of outsourcing and provides a definition of cloud computing based on those of authoritative international organistions

• The appointment of a Cloud Officer is mandatory


Update of Circular CSSF 12/552 on Central Administration, Internal Governance and Risk Management

Luxembourg

Circular CSSF 17/654 updates Circular 12/552 on central administration, internal governance and risk management.

The Circular is applicable to all credit institutions, investment firms and professionals performing lending operations. It entered into force on 17 May 2017. The Circular integrates the introduction of Circular 17/654 on cloud computing and paves the way for Bill of Law 7024.

The main points of attention of the Circular include:

• Re-affirming that the board of directors’ guiding principles shall address outsourcing, including IT outsourcing arrangements, which may or may not be based on cloud computing

• Requiring institutions to implement a security monitoring process so that they are informed promptly of new vulnerabilities, and a patch management procedure allowing timely correction of significant vulnerabilities. The internal audit function should assess these as part of the multi-year audit plan

• Allowing the outsourcing of IT systems management/operations to any IT provider abroad (past circulars required these services to be sourced from a parent group entity) provided that the IT systems do not include any readable confidential data on customers. The Circular also refers to the institution’s legal obligations on customer consent and notification. This paves the way for changes foreseen in Bill of Law 7024 and emphasises the need to comply with personal data protection regulations

• Increasing requirements on confidentiality and integrity of data and systems. For outsourcing arrangements, access to data and systems shall be managed according to the “need to know” and “least privilege” principle


Circular CSSF 17/656 on Administrative and Accounting Organisation for IT OutsourcingCircular CSSF 17/656 replaces Circular 05/178 on IT outsourcing.

This harmonises the requirements for outsourcing across the financial sector and clarifies IT outsourcing requirements for support. The circular applies to all electronic money institutions, payment institutions and professionals in the financial sector other than investment firms. It entered into force on 17 May 2017.

Luxembourg

Circular CSSF 17/657 on Administrative and Accounting Organisation for IT Outsourcing and PFSCircular CSSF 17/657 updates Circular 06/240 and focuses mainly on administrative and accounting organisation, IT outsourcing and details on services provided under the status of support PFS.

The circular applies to all credit institutions and other professionals in the financial sector. The circular entered into force on 17 May 2017.

Circular 17/657 reflects the multiple legal and regulatory changes since the last update to Circular 06/240 in 2013, particularly the changes introduced by Circulars 17/654, 17/655 and 17/656. One of the footnotes clarifies that only production systems should contain confidential data and that development and testing systems should not contain this data.


Swiss Financial Market Infrastructure Act (FMIA, FinfraG)

Switzerland

The Financial Markets Infrastructure Act (FMIA), also known as “Finanzmarkt-infrastrukturgesetz” (FinfraG) is the Financial Market Infrastructure Act regulating derivatives trading. FMIA entered into force 1 January 2016. FMIA is the equivalent of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in the United States and EMIR in the EU. As is the case with these other legislative measures, FMIA includes a definition of what activities and entities are in scope and then sets out requirements relating to central clearing, trade reporting and risk mitigation techniques to be adopted for non-centrally cleared derivatives.

The FMIA and its Ordinance define derivatives as financial contracts whose value depends on one or more underlying instruments. Spot transactions, transactions related to electricity and gas, as well as cash-settled transactions relating to climatic variables, freight rates, inflation rates, or those triggered in the event of a default or termination event are explicitly exempt.

FMIA applies to financial counterparties (FCs) and non-financial counterparties (NFCs), which are further subdivided into large (FC+/NFC+) or small (FC–/NFC-) based on the volumes and types of derivative trading in which the entity engages. The term FC includes, amongst others, financial entities such as banks, insurance companies, fund management companies, asset managers, collective investment schemes and pension schemes.


Differences based on Derivate Rules and Counterparty

Duty EMIR FMIAFC NFC+ NFC- FC+ FC- NFC+ NFC-

Clearing l l l l l l l

Margin l l l l l l l

Reporting l l l l l l l

Risk Mitigation (RM) Confirmations l l l l l l l

RM Portfolio Reconciliation l l l l l l l

RM Portfolio Compression l l l l l l l

RM Dispute Resolution l l l l l l l

RM Daily Valuation l l l l l l l

Portfolio Trading l l l l l l l

FMIA defines and specifies the different obligations. The duty to fulfil an obligation depends on the qualification of a counterparty and/or the derivative.

Central ClearingFC+ and NFC+ must provide appropriate collateral in the form of an initial and variation margin, as well as a default fund contribution to the central counterparty (CCP) for specified types of derivatives. FC- and NFC- are only required to provide collateral where certain thresholds are exceeded. The duty to clear derivatives transactions via authorised or recognised CCPs applies from the point at which the Swiss Financial Market Supervisory Authority (FINMA) has approved the CCP and published the clearing duty for the derivative category in question, though FINMA has not approved any CCP to date.

Reporting to Trade Repositary (TR)On 3 April 2017, FINMA announced that it approves and recognises SIX Securities Services as a TR, triggering the transition periods for the obligation on counterparties to report all trading in derivatives to a TR. The transition dates are as follows:

• 1 October 2017 if the counterparty is a CCP or FC+

• 1 January 2018 if the counterparty is FC- or NFC+

• 1 April 2018 in all other cases, subject to an exemption from reporting for all transactions between two NFC-s

Switzerland


Switzerland

Risk MitigationAll non-centrally cleared derivative transactions are subject to the risk mitigation techniques of portfolio reconciliation, dispute resolution, portfolio compression, valuation of outstanding transactions and collateral exchange duties unless the transaction is between two NFC-.

The contracting parties are obliged to have written agreements in place regulating risk mitigation. Counterparties can avail of the FMIA model agreement, published by the Swiss Bankers Association (SBA) and the International Swaps and Derivatives Association (ISDA), which allows counterparties to agree on their risk mitigation duties under both EMIR and FMIA.

Comparing and Contrasting FMIA and EMIR

There are a number of differences between FMIA and EMIR in reporting and scope. Unlike EMIR, which has only one category of FC, FMIA recognises two subcategories, FC+ and FC- and exempts FC- from certain obligations otherwise imposed on FC+ for central clearing, margining and daily valuation of non-centrally cleared derivatives. The scope of products subject to FMIA and EMIR also differ, with the FMIA exempting additional structured products and limiting FX forwards to the trade reporting obligation only. While EMIR imposes trade reporting obligations on both counterparties, FMIA limits reporting to one of the counterparties to a transaction.


United Kingdom

FCA Retirement Outcomes ReviewIn July, the FCA published its interim Retirement Outcomes Review report which looks at how the retirement income market has responded to the April 2015 “pension freedoms”. The Review found that consumers generally welcomed the pension freedoms and over one million defined contribution pension pots have been accessed since the reforms.

Key findings of the Review include: detailing how drawdown is much more popular than annuities; people are moving money from pensions to savings due to lack of trust in pensions; people are generally following the path of least resistance when choosing products, i.e. not shopping around; and many consumers are making decisions without formal advice. Further to this the FCA found that there has been a withdrawal of providers from the annuity market and there has been only limited innovation in drawdown products.

The FCA is proposing a number of structural remedies, including consumer protections, easier access to savings, and improved disclosure. The remedies are focussed on four key areas:

Additional protections for consumers who buy drawdown without advice, similar to protections already in place for automatic enrolment

These include:

• Default investment pathways for consumers who do not or cannot engage with their investment decisions

• A charge cap for the default investment pathways

• Extending the role of Independent Governance Committees (IGCs) to ensure that decumulation products – including default investment pathways – are appropriate and provide value for money


Proposals to enable consumers to access some of their savings early without having to move the rest into a drawdown product

For example:

• The decision to access tax-free cash early should be ‘decoupled’ from the decision about what to do with the remainder of the pot

• The FCA will explore whether either pension scheme providers’ contractual terms or the existing legislative framework prevent consumers from accessing part of their savings in their accumulation products without having to move into drawdown

Proposals to make it easier to compare and shop around for drawdown products

These include:

• Facilitating the introduction of drawdown comparison tools

• Promoting the use of a summary cost metrics

Tools and services to help consumers make good choices, primarily by building on existing practices

These include:

• Reviewing the effectiveness of communications sent to consumers before and when they access their pension pots

• Reviewing the effectiveness of mechanisms to encourage consumers to make use of the free guidance available from Pension Wise, the Pensions Advisory Service and their successor body

• Increasing consumer awareness of enhanced annuities

The FCA business plan which is due to be published later this year will set out a regulatory approach to implementing these remedies.

United Kingdom


United Kingdom

UK FCA Asset Management StudyThe FCA has published the final findings of its asset management market study.

The proposed remedies cover three key areas:

Protection for investors who are not well placed to find better value for money. This will be achieved by:

• Strengthening the duty on fund managers to act in the best interests of investors and using the Senior Managers’ Regime to bring individual focus and accountability

• Obliging fund managers to appoint a minimum of two independent directors to their boards

• Introducing technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds

Increase competition in the asset management sector by:

• Supporting the disclosure of a single, all-in-fee to investors

• Supporting the consistent and standardised disclosure of costs and charges to institutional investors

• Recommending that the Department for Work and Pensions removes barriers to pension scheme consolidation and pooling

• Creating a working group to focus on how to make fund objectives more useful and to consult on how benchmarks are used and performance is reported

Improve the effectiveness of intermediaries by:

• Launching a market study into investment platforms

• Seeking views on rejecting the undertakings of the three largest investment consultants in lieu of a market investigation reference regarding the institutional advice market to the Competition and Markets Authority

• Recommending that HM Treasury considers bringing investment consultants into the FCA’s regulatory perimeter

The implementation of the remedies will take place across a number of phases and some of the measures not requiring consultation are now being taken forward. The FCA has also published a consultation paper, focusing on the remedies related to governance and technical changes to promote fairness for investors.


United Kingdom

MiFID IIThe Financial Conduct Authority (FCA) published its policy statement on the implementation of the final rules under MiFID II.

On 3 July 2017, the FCA published its policy statement on the implementation of the MiFID II. This sets out the final rules of MiFID II, and also covers the “near-final” rules on markets and organisational requirements, which were published in March 2017.

The policy statement builds on the feedback received from previous MiFID II consultations – five in total. While the FCA has followed through with its initial proposals in the majority of areas, it has made significant policy changes in others. The FCA has highlighted several important provisions including:

• Inducements in relation to research: These provisions have been extended. They will now apply to collective portfolio managers, as well as investment firms subject to MiFID II

• Client categorisation: The criteria outlined for local authorities who wish to opt up to professional client status have been relaxed

• Best execution: Contrary to the proposals set out in the consultation, best execution rules in MiFID II will not be applied to AIFMs

The FCA has recognised that, in certain areas, the final rules go beyond the “minimum requirements” set out in the MiFID II legislation. This is either where the FCA has:

• Extended the scope of the rules

• Gone above the minimum standards to achieve consistency with the existing UK regulatory framework

• Set rules above the minimum standards based on the new discretionary policy

Although the FCA recognises that this approach is likely to result in additional costs, it is of the view that these will be outweighed by the additional benefits of higher investor protection and market integrity.

The policy statement was accompanied by a further consultation on a select set of “residual” issues, which the FCA has been unable to consult on, to date. This includes proposals that will bring recognised investment exchanges operating as a multilateral trading facility (MTFs) and as an organised trading facility (OTFs) into the scope of the Financial Services Compensation Scheme (FSCS), given that MiFID II requires them to adhere to an investor compensation scheme. The deadline for commenting on the consultation was 7 September 2017.


United Kingdom

Recovery PlanningThe Prudential Regulatory Authority (PRA) launched a consultation, updating its expectations of firms’ recovery plans.

On 21 June 2017, the Prudential Regulation Authority (PRA) published a consultation paper on recovery planning, which sets out additional expectations of firms. The consultation paper proposes a new supervisory statement to replace the current statement (SS18/13 – Recovery Planning). It also includes a proposal to update the PRA’s expectations on the approach to recovery planning where a group contains a ring-fenced body.

The proposed changes are relevant for UK banks, building societies, PRA-designated investment firms and qualifying parent undertakings to which the PRA Rulebook’s Recovery Planning Part applies. Among other things they relate to:

• The key components and considerations of firms’ recovery plans

• Recovery planning for UK subsidiaries of non-EU banks

The consultation closes on 21 September 2017 and the PRA intends to publish a final policy statement in the second half of 2017.


United Kingdom

FCA Review of Property Funds and Liquidity RisksThe Financial Conduct Authority (FCA) published its findings of its review of suspended property funds, following the UK referendum.

On 20 July 2017, the FCA published the findings of its review into fund suspensions and pricing adjustments, following the UK’s vote to leave the EU.

In the immediate aftermath of the UK referendum in June 2016, a number of daily-dealing property funds and, subsequently a number of unit-linked funds, were forced to impose temporary measures on investor redemptions, as assets could not be realised quickly enough to meet redemption demand. The temporary measures included the suspension of dealing and the application of pricing adjustments.

Overall, the FCA found that the use of suspensions, deferrals and other liquidity management tools were effective mechanisms that helped prevent market uncertainty escalating, although the quality of liquidity management varied between funds.

The FCA’s statement also included sector-specific comments, covering authorised fund managers, depositaries, platform providers and other related sectors. A key observation by the FCA was the poor communication, or, in some cases, lack of engagement, both between market actors and end-investors.

The FCA will consider the findings of the review alongside responses to its February 2017 discussion paper on illiquid assets and open-ended investment funds. The FCA’s response to that discussion paper, including whether the current regulatory regime may need to be revised, will be summarised in a feedback statement in due course.


United Kingdom

BenchmarksThe FCA publishes consultation on the changes to its Handbook, in line with the EU Benchmarks Regulation.

On 22 June 2017, the FCA published a consultation paper on proposed changes to the Handbook, in light of the EU Benchmarks Regulation, which will apply from 1 January 2018. The Benchmarks Regulation is the EU policymakers’ response to the various concerns and investigations involving indices, most notably in the case of the London Interbank Offered Rate (LIBOR).

The changes primarily involve the removal of domestic provisions rules which will be replaced by the incoming Benchmarks Regulation. It is expected that some of the key proposals in the consultation will have impacts on the wider regulatory framework, including the Approved Persons Regime (APR) and Senior Managers Regime (SMR), notifications of suspected manipulation and possibly on prudential requirements.

The consultation primarily concerns benchmark administrators and contributors. The deadline for comments was 22 August 2017.

Separately, at a speech in July 2017, Andrew Bailey, the Head of the Financial Conduct Authority (FCA), indicated that he expects industry to move away from LIBOR and start using alternative benchmarks by the end of 2021. Mr Bailey described the current situation as “unsustainable”, noting the significant reduction in the underlying activity on which LIBOR is based, resulting in it being increasingly reliant on estimates. This is contrary to the regulators’ objective of ensuring – benchmarks are based primarily on actual transactions. The FCA has worked with contributors to LIBOR, who have agreed to voluntarily supply data to the administrator until that date.


AbbreviationsACDD Additional Customer Due Diligence AIF Alternative Investment Fund AIFM Alternative Investment Fund Manager AIFMD Alternative Investment Fund Managers Directive AML/CTF Anti-Money Laundering and Counter Terrorist Financing APR Approved Persons Regime BaFin German Financial Supervisory Authority BCH Bank Creditor Hierarchy Directive BRRD Bank Recovery and Resolution Directive CBI Central Bank of Ireland CP CounterpartyCCP Central Counterparty CCPR/R Central Counterparty Recovery and Resolution RegulationCCTB Council Directive on a Common Corporate Tax Base CFD Contracts for Difference CMU Capital Markets Union CRD Capital Requirements Directive CRD IV Together known as the Capital Requirements Directive IV

and Capital Requirements Regulation CRO Companies Registration Office CRR Capital Requirements Regulation CSD Central Securities Depositories CSDR Central Securities Depository Regulation CSSF Supervisory Authority of the Luxembourg Financial Sector

(Commission de Surveillance du Secteur Financier)DUP Democratic Unionist Party EBA European Banking Authority ECDD Enhanced Customer Due Diligence ECOFIN Economic and Financial Affairs Council ECON European Parliament’s Economic and Monetary Affairs CommitteeEDIS European Deposit Insurance Scheme EIG Economic Interest Groupings EMIR European Market Infrastructure Regulation EMU Economic and Monetary Union ESMA European Securities Market Authority ETF Exchange Traded Fund EU European Union FC Financial CounterpartyFCA Financial Conduct Authority FCRO Financial Crime Reporting Officer


FINMA Swiss Financial Market Supervisory Authority FMIA The Swiss Financial Markets Infrastructure Act also known as

‘Finanzmarktinfrastrukturgesetz’ FSB Financial Stability Board FSCS Financial Services Compensation Scheme FVTPL Fair Value Through Other Comprehensive IncomeIAS 39 Financial Instruments: Recognition and Measurement 39ICAV Irish Collective Asset-Management Vehicle IFRS 9 Ninth International Financial Reporting Standard IGC Independent Governance CommitteeILP Investment Limited Partnership ISDA International Swaps and Derivatives Association ITS Implementing Technical Standard JHA Justice and Home Affairs Council KIID Key Investor Information Document LCR Liquidity Coverage Ratio LIBOR The London Interbank Offered Rate MiFID Markets in Financial Instruments Directive MiFIR Markets in Financial Instruments Regulation MMF Money Market Fund MMFR Money Market Funds Regulation MTF Multilateral Trading Facility NCA National Competent AuthorityNFC Non-Financial Counterparty NPL Non-Performing LoanNSFR Net Stable Funding Ratio OJEU Official Journal of the European Union OTF Organised Trading Facility PEPP Pan-European Pension Plan PFS Professionals in the Financial Sector PLC Public Limited Company PRA UK Prudential Regulation Authority PRIIPs Package Retail and Insurance-Based Investment Products PSA Pension Scheme Arrangement RPA Research Payment Account RRM Risk Reduction Measures RTS Regulatory Technical StandardSBA Swiss Bankers Association SME Small and Medium Sized Enterprise SMR Senior Managers Regime SPPI Solely Payments of Principal and InterestSREP Supervisory Review and Evaluation Process


w

SSM Single Supervisory Mechanism SSPE Securitisation Special Purpose EntityTLAC Total Loss Absorbing Capacity TR Trade Repositary UCITS Undertakings for Collective Investment in Transferable Securities UK United Kingdom


European Regulatory Timeline

2015/Q1 2016/Q1 2017/Q1 2018/Q1Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q42019/Q1

Publication in Official Journal



Text published in Official Journal

Political agreement on Level 1 text reached

Application date for settlementinternalisation reporting

Level 2 rules on settlement internalisation and CSD requirementsLevel 2 rules on prudential requirements for CSDs

Level 2 rules on settlement discipline Estimated application date forsettlement discipline rules

Application date extended to Jan 2018

Application date

Application date

Political agreement onLevel 1 text reached

Political agreement on Level 1 text

Application date

Application date

Level 2 technical standards published

Application date

Delegated Acts and RTS published

Member Statetransposition date

Application date fornew funds

Application date forexisting funds

Consultation on draft rules on Key Information Document

Final Level 2 rules on the Key Information Document


Political agreement on Level 1text reached

Estimated application date for phase-in of reporting requirements

Application date for rules on reuse

Application date for transparency requirements

Discussion paper on draft Level 2 rules

Application date


AMLD IV

IORP II

MiFID II/MIFIR

MMFs

PRIIPs

SFTR

Shareholders Rights Directive

Data Protection

CSDR

Benchmarks

Completed milestones

Future milestones

Application date


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EuropeSven Kasper +44 20 3395 3723 [email protected]

Rayhan Oddud +44 20 3395 3395 [email protected]

Francis Wood +44 20 3395 3437 [email protected]

Channel IslandsRussell Turner +44 1534 609508 [email protected]

FranceAngdy Ma +33 44 45 43 37 [email protected]

GermanyInes Cieslok +49 69 667745 104 [email protected]

IrelandMary McCarthy +353 1 776 8411 [email protected]

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ItalyAlberta Castoldi +39 02 3211 7135 [email protected]

Stefano Scribanis +39 02 3211 7347 [email protected]

LuxembourgAngdy Ma +33 44 45 43 37 [email protected]

SwitzerlandSchabo Hanno +41 44 560 5400 [email protected]

United KingdomJeanette Harper +44 131 315 5186 [email protected]

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