regulatory monitoring july 2020 - allen & overy

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Regulatory monitoring Newsletter

July 2020

Regulatory monitoring | 2020

© Allen & Overy LLP 2020

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Contents

1. Banking supervisory law ...................................................................... 8

1.1 Prudential regulation ...................................................................................................................... 8

(a) General ................................................................................................................... 8

BMF: Law to reduce risks and strengthen proportionality in the banking sector

(Gesetz zur Reduzierung von Risiken und zur Stärkung der Proportionalität im

Bankensektor) ........................................................................................................ 8

BCBS: Eighteenth progress report on adoption of the Basel regulatory

framework .............................................................................................................. 8

(b) Solvency/Own funds issues ................................................................................... 8

EBA: Draft RTS on requirements that an internal methodology or external

sources used under the internal default risk model are to fulfil for estimating

default probabilities and losses given default under Article 325bp(12) of the

CRR2 ..................................................................................................................... 8

ECB: Guideline (EU) 2020/978 on the exercise of the discretion under Article

178(2)(d) of the CRR by national competent authorities in relation to less

significant institutions with regard to the threshold for assessing the materiality

of credit obligations past due ................................................................................. 9

EBA: Guidelines on the treatment of structural FX under Article 352(2) of the

CRR ....................................................................................................................... 9

BCBS: Final revisions to the credit valuation adjustment risk framework ........... 9

ESRB: Recommendation amending 2015 Recommendation on EU

macroprudential policy framework ...................................................................... 10

(c) Securitisation ....................................................................................................... 10

ESMA: Guidelines on securitisation repository data completeness and

consistency thresholds ......................................................................................... 10

(d) Authorisation and passporting ............................................................................. 10

BB: Update on its leaflet on the granting of a licence to provide financial

services pursuant to Section 32(1) of the German Banking Act (Merkblatt über

die Erteilung einer Erlaubnis zum Erbringen von Finanzdienstleistungen gemäß

§ 32 Abs. 1 KWG) ................................................................................................ 10

(e) Cyber security ...................................................................................................... 11

EC: Inception impact assessment and public consultation on revision of NIS

Directive on cybersecurity ................................................................................... 11

(f) Remuneration ....................................................................................................... 11

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EBA: Report on benchmarking of remuneration practices at the European Union

level (2017 and 2018 data) and data on high earners (2018 data) ....................... 11

(g) Internal governance/“Authorised Persons Regime” ............................................ 12

EBA and ESMA: Consultation to revise joint guidelines for assessing the

suitability of members of the management body and key function holders ........ 12

(h) Large exposures/Limits to shadow banking entities ............................................ 12

EBA: Draft RTS on the determination of indirect exposures to underlying clients

of derivatives and credit default derivatives under Article 390(9) CRR2 ........... 12

EBA: Draft Guidelines specifying the conditions for the application of the

alternative treatment of institutions’ exposures related to “tri-party repurchase

agreements” set out in Article 403(3) of the CRR for large exposures purposes 12

(i) Notifications ......................................................................................................... 13

BaFin: Notification form for the submission of netting notices from 1 October 13

(j) Supervisory reporting .......................................................................................... 13

EBA: Study on looking into ways to reduce reporting costs ............................... 13

(k) FinTech ................................................................................................................ 13

EC: Communication to EP on the proposed Regulation on European

crowdfunding service providers (ECSP) and the proposed Directive making

amendments to MiFID II relating to crowdfunding ............................................. 13

Council of the EU: Adopting new rules for crowdfunding platforms ................. 14

(l) Sustainable finance .............................................................................................. 14

EC: Roadmap on the obligation for certain companies to publish non-financial

information ........................................................................................................... 14

EC: Delegated Regulations supplementing BMR on sustainable finance issues 14

FSB: Stocktake of Financial Authorities’ Experience in Including Physical and

Transition Climate Risks as Part of Their Financial Stability Monitoring .......... 15

1.2 Recovery and resolution ............................................................................................................... 15

SRB: Operational guidance for operational continuity in resolution and FMI

contingency plans ................................................................................................ 15

EBA: Technical standards on impracticability of contractual recognition of bail-

in .......................................................................................................................... 16

EBA: Consultations on technical standards under the BRRD ............................. 16

1.3 Stress tests/Macroprudential topics .............................................................................................. 16

EBA: Update on the 2021 EU-wide stress test timeline, sample and potential

future changes to its framework ........................................................................... 16

AFS: Report on financial stability ....................................................................... 17



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2. Covid-19 ............................................................................................... 18

ECB: Recommendation on dividend distributions during the COVID-19

pandemic and repealing Recommendation ECB/2020/19 ................................... 18

ECB: Analysis on banking sector resilience to stress caused by coronavirus ..... 18

ECB: Update on the FAQs on its supervisory measures in reaction to the

coronavirus ........................................................................................................... 18

EC: Commission Delegated Directive (EU) .../… amending delegated directive

(EU) 2017/593 as regards the regime for research on small and mid-cap issuers

and on fixed-income instruments to help the recovery from the COVID-19

pandemic .............................................................................................................. 19

EC: Legislative proposal amending MiFID and consultation on amendments to

MiFID delegated Directive .................................................................................. 19

EC: Legislative proposal amending the Securitisation Regulation ..................... 19

EC: Report on the creation of a specific framework for simple, transparent and

standardised synthetic securitisation, limited to balance-sheet synthetic

securitisation ........................................................................................................ 19

EC: Legislative proposal amending the CRR ...................................................... 20

EBA: Guidelines on the pragmatic 2020 supervisory review and evaluation

process in light of the COVID‐19 crisis .............................................................. 20

EC: Best practices for relief measures in the context of Covid-19 ...................... 20

EBA: Statement on resolution planning in light of the Covid-19 pandemic ....... 20

ESMA: Public statement on the external support within the meaning of Article

35 of the MMF Regulation .................................................................................. 21

EBA: Report on the implementation of selected COVID-19 policies ................. 21

ECB: Supervision Blog: ‘Supervising the new normal’ ...................................... 21

FSB: Report on the financial stability implications of COVID-19 and policy

measures taken ..................................................................................................... 22

FSB: Statement on the impact of COVID-19 on global benchmark reform ....... 22

3. Brexit ..................................................................................................... 23

EBA: Calling on financial institutions to finalise preparations for the end of the

transitional arrangements between the EU and UK ............................................. 23

ESMA: Telling market participants to continue preparations for the end of the

UK transition period ............................................................................................ 23

EPC: Getting ready for the end of the transition period ...................................... 23

EC: Communication on readiness at the end of the transition period between the

European Union and the United Kingdom .......................................................... 23

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4. Market regulation/Conduct rules ..................................................... 25

4.1 Benchmarks .................................................................................................................................. 25

EC: Legislative proposal amending the Benchmarks Regulation (BMR)

addresses LIBOR cessation risks ......................................................................... 25

ECB: Public consultation on the publication by the ECB of compounded term

rates using the €STR ............................................................................................ 25

ECB: Report on preparations for benchmark rate reforms .................................. 25

FSB and BCBS: Supervisory recommendations for benchmark transition ......... 26

4.2 MiFID/MiFIR ............................................................................................................................... 26

ESMA: Opinion on determining third-country trading venues for the purpose of

transparency under MiFID II/MiFIR ................................................................... 26

ESMA: MiFID II/MiFIR Annual Report under Commission Delegated

Regulation (EU) 2017/583 (RTS 2) ..................................................................... 26

ESMA: Opinion on waivers from pre-trade transparency ................................... 27

ESMA: First Review Reports on the MiFIR transparency regime ...................... 27

ESMA: Second report on sanctions under MiFID II ........................................... 27

ESMA: Updated opinion on ancillary activity calculations ................................ 27

ESMA: Update on its MiFID II and MiFIR transparency topics Q&As ............. 28

ESMA: Update on its Q&A on MiFIR data reporting ......................................... 28

4.3 Capital markets union ................................................................................................................... 28

EC: Timing for its work on the Capital Markets Union (CMU) ......................... 28

EC: Capital Markets Union (CMU) for people and businesses – new action plan

............................................................................................................................. 28

4.4 Consumer protection rules ............................................................................................................ 29

EC: Consumer credit agreements – review of EU rules ...................................... 29

4.5 Packaged retail and insurance-based investment products (PRIIPs) ............................................ 29

ESAs: Outcome of ESA review of the PRIIPs Delegated Regulation ................ 29

4.6 Securities financing transactions .................................................................................................. 29

ESMA: Consultation on calculation of positions under SFTR ............................ 29

4.7 Short selling .................................................................................................................................. 30

ESMA Decision (EU) 2020/1123 renewing the temporary requirement to natural

or legal persons who have net short positions to temporarily lower the

notification thresholds of net short positions in relation to the issued share capital

of companies whose shares are admitted to trading on a regulated market to

notify the competent authorities above a certain threshold in accordance with

point (a) of Article 28(1) of the Short Selling Regulation ................................... 30



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4.8 Transparency requirements/Shareholder requirements ................................................................ 30

ESMA: ESEF Reporting Manual ......................................................................... 30

5. Market infrastructure .......................................................................... 31

5.1 Custody rules ................................................................................................................................ 31

ESMA: Preparing a new RTS to further postpone CSDR settlement discipline . 31

ESMA: Updated CSDR Q&As ............................................................................ 31

5.2 EMIR ............................................................................................................................................ 31

EC: Set of Regulations with regard to Central Counterparties ............................ 31

ESMA: Report on the third EU-wide CCP Stress Test ....................................... 32

ESMA: Letter to EC on draft Commission Delegated Regulation supplementing

EMIR on fees charged by ESMA to third-country CCPs .................................... 32

ESMA: Updated Q&A on the implementation of the Regulation (EU) No

648/2012 on OTC derivatives, central counterparties and trade repositories

(EMIR) ................................................................................................................. 32

6. Anti-money laundering ...................................................................... 33

EP: New measures to stop money laundering and terrorist financing ................. 33

EC: Extending deadline for feedback on AML and CTF Action Plan ................ 33

FATF: 12-Month review of the Revised FATF Standards on virtual assets and

VASPs .................................................................................................................. 33

BCBS: Guidelines on sound management of risks related to money laundering

and financing of terrorism .................................................................................... 33

FATF: Report to the G20 Finance Ministers and Central Bank Governors on so-

called stablecoins ................................................................................................. 34

7. Payments .............................................................................................. 35

7.1 Payment supervisory law .............................................................................................................. 35

EC: Bank charges for cross-border payments in the EU ..................................... 35

CPMI: Enhancing cross-border payments: building blocks of a global roadmap

............................................................................................................................. 35

7.2 Bank accounts/Payment services .................................................................................................. 36

EC: Decision on interpretation of Payments Account Directive (PAD) in

conjunction with the EU Anti-Money Laundering Directive (AMLD) ............... 36

8. Institutional supervisory framework ................................................ 37

ECB: Organisational changes to strengthen banking supervision ....................... 37

ECB: Guide on the supervisory approach to consolidation in the banking sector

............................................................................................................................. 37

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9. Investment funds ................................................................................ 38

ESMA: Translations for guidelines on liquidity stress testing in UCITS and

AIFS ..................................................................................................................... 38

10. Contacts ................................................................................................ 39



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1. Banking supervisory law

1.1 Prudential regulation

(a) General

(i) Germany

BMF: Law to reduce risks and strengthen proportionality in the banking sector (Gesetz zur Reduzierung von Risiken und zur Stärkung der Proportionalität im Bankensektor)

Status: Draft

The German Ministry of Finance (Bundesfinanzministerium – BMF) published the government draft law to reduce risks and strengthen proportionality in the banking sector (Gesetz zur Reduzierung von Risiken und zur Stärkung der Proportionalität im Bankensektor, called Risikoreduzierungsgesetz – RiG). The Risk Reduction Act serves to implement Directives (EU) 2019/878 (CRD V) and (EU) 2019/879 (BRRD II) and contains measures to further reduce risks in the banking sector and to strengthen proportionality. To achieve this goal, the capital and liquidity requirements for banks are being strengthened in line with international standards. This is intended to ensure that banks are better protected during periods of stress. In addition, an international standard on loss buffers will be implemented to make bank resolution credible and protect taxpayers.

A compare version will be available soon.

Date of publication: 29/07/2020

(ii) International

BCBS: Eighteenth progress report on adoption of the Basel regulatory framework

Status: Final

BCBS issued the eighteenth progress report on adoption of the Basel regulatory framework. The progress report sets out the adoption status of Basel III standards for each Committee member jurisdiction as of end-May 2020. It includes the Basel III post-crisis reforms published by BCBS in December 2017 and the finalised minimum capital requirements for market risk in January 2019. According to the announcement made by Governors and Heads of Supervision in March 2020, these reforms will take effect from 1 January 2023. Since the previous report, published in October 2019, member jurisdictions have made further progress in adopting the Basel III standards. In addition, members have taken a wide range of measures to respond to the financial stability priorities arising from the Covid-19 pandemic.


(b) Solvency/Own funds issues

(i) EU

EBA: Draft RTS on requirements that an internal methodology or external sources used under the internal

default risk model are to fulfil for estimating default probabilities and losses given default under

Article 325bp(12) of the CRR2

Status: Consultation

Deadline for the submission of comments: 22/10/2020

The EBA launched a consultation on the draft RTS on requirements that an internal methodology or external sources used under the internal default risk model are to fulfil for estimating default probabilities and losses given default under Article 325bp(12) of Regulation (EU) No 575/2013 (as amended byCRR2). Institutions using the internal model approach (IMA) to

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compute own funds’ requirements for market risk are required to compute additional own funds’ requirements using an internal default risk model for their positions in traded debt and equity instruments included in IMA trading desks. These draft RTS clarify the requirements to be met for the estimation of PDs and LGDs under the default risk model. In particular, the draft RTS specify that any internal methodology used to calculate PDs and LGDs under the default risk model should meet all

requirements applied to the internal ratings‐based approach. In addition, these RTS specify the requirements that external sources are to fulfil for their use under the default risk model, thus reflecting similar qualitative requirements as those applicable to an internal methodology.


ECB: Guideline (EU) 2020/978 on the exercise of the discretion under Article 178(2)(d) of the CRR by

national competent authorities in relation to less significant institutions with regard to the threshold for

assessing the materiality of credit obligations past due

Status: Published in the OJ

Guideline (EU) 2020/978 of the ECB on the exercise of the discretion under Article 178(2)(d) of the CRR by NCAs in relation to less significant institutions with regard to the threshold for assessing the materiality of credit obligations past due, was published in the OJ. The materiality threshold refers to the point at which a bank decides a debtor is in default of its loan. The new definition specifies how national supervisors should exercise their discretion in this regard. The new guideline for less significant banks, published today, is aligned with the threshold defined in the ECB regulation for significant banks. The alignment of the materiality threshold for credit obligations past due for all banks, regardless of whether they are supervised directly by the ECB or by national supervisors, contributes to the consistent application of supervisory standards to both significant and less significant credit institutions. This Guideline shall take effect on the day of its notification to the NCAs of the participating Member States and the NCAs shall comply with this Guideline no later than 31 December 2020.


EBA: Guidelines on the treatment of structural FX under Article 352(2) of the CRR

Status: Final

The EBA published a final report of its Guidelines on the treatment of structural FX (Foreign Exchange) under Article 352(2) of the CRR. The structural FX provision, as laid down in Article 352(2) of the CRR, allows competent authorities to authorise, on an ad hoc basis, the exclusion of FX-risk positions of a ‘structural nature’, provided they have been engaged on purpose to function as a hedge of the capital ratio(s). Specifically, the Guidelines are deemed to set objective criteria that competent authorities should consider for the purpose of assessing whether the conditions set out in Article 352(2) for receiving the permission are met, while granting a balanced degree of flexibility. In order to harmonise practices among EU jurisdictions, several technical details have been included as part of these Guidelines. The Guidelines will be applicable from 1 January 2022.


(ii) International

BCBS: Final revisions to the credit valuation adjustment risk framework

Status: Final

The BCBS published an updated standard for the regulatory capital treatment of credit valuation adjustment (CVA) risk for derivatives and securities financing transactions. The revisions for the regulatory capital treatment of CVA risk include: (i) recalibrated risk weights; (ii) different treatment of certain client cleared derivatives; and (iii) an overall recalibration of the standardised and basic approach. The amendments proposed in the consultation document have been made with the aim of aligning the relevant parts of the CVA risk framework with the final market risk standard and capital requirements for bank exposures to central counterparties.




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ESRB: Recommendation amending 2015 Recommendation on EU macroprudential policy framework


Recommendation ESRB/2020/9 (dated 2 June 2020) amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of, and voluntary reciprocity for, macroprudential policy measures was published in the OJ. In response to Eesti Pank’s decision of 6 April to reduce the level of the systemic risk buffer rate to 0%, with effect from 1 May, the General Board of the ESRB has decided to exclude the Estonian measure from the list of macroprudential policy measures which are recommended to be reciprocated under Recommendation ESRB/2015/2.


(c) Securitisation

(i) EU

ESMA: Guidelines on securitisation repository data completeness and consistency thresholds

Status: Final

ESMA published a final report comprising guidelines on securitisation repository data completeness and consistency thresholds. The Guidelines aim to ensure consistent application of the requirement to be “sufficiently representative” under Article 4(2)(d) of the draft Securitisation Repository Operational Standards Delegated Regulation. This report provides an overview of the feedback received from stakeholders during the consultation (issued on 17 January) as well as the ESMA response to that feedback, together with the final version of the Guidelines. Among other things, ESMA has provided further clarity on: (i) ESMA’s view on the scope of application of the Guidelines; and (ii) the guiding principles used for future revisions of the thresholds. The Guidelines in Annex I will be translated into all official languages of the EU and published on ESMA’s website. ESMA will consider these Guidelines for the purpose of its supervision as of 1 January 2021.


(d) Authorisation and passporting

(i) Germany

BB: Update on its leaflet on the granting of a licence to provide financial services pursuant to Section 32(1)

of the German Banking Act (Merkblatt über die Erteilung einer Erlaubnis zum Erbringen von Finanzdienstleistungen gemäß § 32 Abs. 1 KWG)

Status: Final

The German Central Bank (Bundesbank – BB) published an update on its leaflet on the granting of a licence to provide financial services pursuant to Section 32(1) of the German Banking Act (Kreditwesengesetz – KWG). The leaflet covers: (i) financial services subject to authorisation; (ii) exceptions; (iii) licensing of investment firms as defined by MiFID II; (iv) admission of companies domiciled abroad; (v) fees/levy; and (vi) the Compensatory Fund of Securities Trading Companies (Entschädigungseinrichtung der Wertpapierhandelsunternehmen – EdW).


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(e) Cyber security

(i) EU

EC: Inception impact assessment and public consultation on revision of NIS Directive on cybersecurity


Deadline for the submission of comments: 13/08/2020 and 02/10/2020

The EC launched a public consultation and on 25 June on its inception impact assessment on its review of Directive (EU) 2016/1148 concerning measures for a high common level of security of network and information systems across the Union (the NIS Directive). The review will assess the effectiveness, efficiency, coherence, relevance and EU added value of the NIS Directive taking into account the constantly evolving technological and threat landscape. It will pay attention to the impact of the NIS Directive on increasing the levels of cybersecurity across the Union, in particular on the level of national cybersecurity capabilities and the capacity to mitigate growing security threats to network and information systems used to provide essential services in key sectors. The review aims to tackle the varied implementation of the NIS Directive, which has led to significant fragmentation, undermined the level playing field for some operators and left critical and vulnerable societal and economic activities outside its scope. The EC notes that Covid-19 and the resulting sudden growth in demand for internet-based solutions has emphasised even more the need for a state of the art cybersecurity. The impact assessment states that the likely end proposal is a legislative measure. The deadline for comments on the inception impact assessment is 13 August. The deadline for comments on the public consultation is 2 October.

Inception Impact Assessment

Public consultation


(f) Remuneration

(i) EU

EBA: Report on benchmarking of remuneration practices at the European Union level (2017 and 2018 data)

and data on high earners (2018 data)

Status: Final

The EBA published a report on benchmarking of remuneration practices in EU banks for 2017/18 and high earners’ data for 2018. The report’s findings include: (i) the number of high earners in EU banks receiving a remuneration of more than EUR 1 million increased slightly by 1.58% compared to 2017 and by 44.09% compared to 2010; and (ii) that the average ratio of variable to fixed remuneration for all high earners increased from 127% in 2014 to 139% in 2018, with the observed remuneration levels of high earners reaching up to EUR 39m. As in previous years, the report shows that remuneration practices within institutions were not sufficiently harmonised. In particular, the application of deferral and pay out in instruments differed significantly across Member States and institutions. The EBA notes that this is mainly due to differences in the national implementation of CRD that in many cases allow for waivers of these provisions when certain criteria are met. Following the amendments of CRD, which will apply as of the end of 2020, a higher degree of harmonisation is expected.




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(g) Internal governance/“Authorised Persons Regime”

(i) EU

EBA and ESMA: Consultation to revise joint guidelines for assessing the suitability of members of the

management body and key function holders



The EBA and ESMA published a consultation paper on revising their joint guidelines on the assessment of the suitability of members of the management body and key function holders in accordance with CRD IV and MiFID II. The proposed changes reflect the amendments introduced by CRD V and the Investment Firms Directive (IFD) relating to the assessment of the suitability of members of the management body. The regulators have also published a track changed version showing their proposed revisions to the guidelines.


(h) Large exposures/Limits to shadow banking entities

(i) EU

EBA: Draft RTS on the determination of indirect exposures to underlying clients of derivatives and credit

default derivatives under Article 390(9) CRR2



The EBA published a consultation on draft RTS which specify how institutions should determine exposures arising from derivative and credit derivative contracts not entered directly into with a client but whose underlying debt or equity instrument was issued by a client. The draft RTS propose a methodology for the calculation of indirect exposures for different categories of derivative contracts and credit derivative contracts with a single underlying debt or equity instrument, namely: (i) options on debt and equity instruments; (ii) credit derivative contracts; and (iii) other derivatives which have an underlying debt or equity instrument. In addition, the draft RTS provide a separate methodology for the calculation of exposures stemming from contracts with multiple underlying reference names. The proposed methodologies are expected to be easy to implement and applicable by all institutions in a standardised manner.


EBA: Draft Guidelines specifying the conditions for the application of the alternative treatment of

institutions’ exposures related to “tri-party repurchase agreements” set out in Article 403(3) of the CRR for

large exposures purposes



The EBA began consulting on guidelines detailing the three conditions institutions should comply with when they decide to make use of the alternative treatment with regard to tri-party repurchase agreements facilitated by a tri-party agent. Under the alternative treatment, institutions can replace the total amount of the institution’s exposure to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent, with the full amount of the limits that the institution would instruct the tri-party agent to apply to securities issued by the collateral issuer. To conduct such a replacement, institutions must verify that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits instructed by the institution and the NCA must not have expressed to the institution any material concerns. Another condition is that the sum of the limit instructed by the institution to the tri-party agent, and any other exposures of the institution to the collateral issuer does not exceed that set out in the CRR. The Guidelines specify the conditions and frequency for determining, monitoring and revising the limits that the institution would instruct the tri-party agent to observe. The Guidelines will apply from June 2021.


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(i) Notifications

(i) Germany

BaFin: Notification form for the submission of netting notices from 1 October

Status: Final

BaFin published a notification form for the submission of netting notices. Less Significant Institutions (LSIs), non-CRR institutions for which the CRR is to be applied accordingly under section 1a of the German Banking Act (Kreditwesengesetz – KWG), and institutions pursuant to Article 4(1) No. 3 in conjunction with No. 2 of the CRR must use it towards BaFin from 1 October 2020. With the notification form, BaFin wants to ensure synchronisation with the ECB notification procedure for Significant Institutions (SIs). In the same way as the ECB handles SIs, BaFin requires institutions to provide the required confirmations via the notification form. Contrary to the draft submitted for consultation in January 2020, the indication of the type of contracting party is no longer part of the notification form.


(j) Supervisory reporting

(i) EU

EBA: Study on looking into ways to reduce reporting costs

Status: Final

The EBA launched a questionnaire addressed to all European banks and a call for case studies to collect evidence on reporting costs as well as industry views on ways to reduce such costs and make the supervisory reporting more efficient. The cost of compliance study focuses on: (i) understanding the actual reporting costs incurred by institutions in relation to supervisory reporting, and in particular in relation to the EBA implementing technical standards (ITS) on supervisory reporting; (ii) assessing the effects of a reduction of some specific reporting requirements on costs and supervisory effectiveness; and (iii) assessing whether the reporting costs were proportionate with regard to the benefits delivered. The final report to be developed by the EBA will include recommendations on how to reduce reporting costs by looking at both technological improvements and reducing some reporting requirements, where the costs outweigh the benefits. Responses to the qualitative questions are expected by 1 October, while responses to the quantitative questions as well as the submission of case studies are expected by 31 October.

Explanatory note to cost of compliance study

General introduction to the cost of compliance exercise

Introduction to the online questionnaire

Cost of compliance study – online questionnaire

Cost of compliance study – case studies note


(k) FinTech

(i) EU

EC: Communication to EP on the proposed Regulation on European crowdfunding service providers

(ECSP) and the proposed Directive making amendments to MiFID II relating to crowdfunding

Status: Final

The EC published a Communication to the EP on the proposed ECSP Regulation and Directive amending MiFID II in respect of crowdfunding. The EC expresses a positive opinion on the position adopted by the Council in first reading, as the text remains in line with the proposal’s original objectives. Moreover, the position fully reflects the outcome of inter-institutional



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negotiations. The EC also states that the EP’s adoption of the agreed text in the second reading will mark an important milestone towards delivering on the shared objectives of improving access to finance for small and medium businesses, including start-ups and scale-up companies, which should help the EU economy to recover more rapidly from the current crisis.


Council of the EU: Adopting new rules for crowdfunding platforms

Status: Final

The Council of the EU announced that it has adopted at first reading, new rules to improve the way crowdfunding platforms operate across the EU: (i) the proposed Regulation on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937; and (ii) the proposed Directive amending MiFID II, relating to crowdfunding. The new framework is part of the capital markets union’s project which aims at providing an easier access to new financing sources. The new rules will cover crowdfunding campaigns of up to EUR 5m over a 12-month period. Larger operations will be regulated by MiFID and the prospectus regulation. Reward- and donation-based crowdfunding fall outside the rules’ scope since they cannot be regarded as financial services. The regulation now needs to be adopted by the EP at second reading before it can be published in the OJ and enter into force.

Text of the crowdfunding directive, 8 July 2020

Text of the crowdfunding regulation, 8 July 2020


(l) Sustainable finance

(i) EU

EC: Roadmap on the obligation for certain companies to publish non-financial information



The EC published a consultation on a roadmap for an initiative to supplement the Taxonomy Regulation, specifically on the obligation for certain companies to publish non-financial information. The initiative (likely to be a Commission Delegated Act) will propose methodologies and indicators to help undertakings determine the extent to which their economic activities can be considered environmentally sustainable according to the EU taxonomy. The EC intends to adopt the delegated regulation in the second quarter of 2021.


EC: Delegated Regulations supplementing BMR on sustainable finance issues

Status: Adopted by EC

The EC published the adopted texts of three Commission Delegated Regulations supplementing the Benchmarks Regulation (BMR) on the following sustainable finance issues: (i) setting out the explanation required to be included in the benchmark statement about how environmental; social and governance factors are reflected in each benchmark provided and published; (ii) lay down the minimum content of the explanation of how the key elements of the benchmark methodology reflect environmental, social and governance factors for each benchmark, with the exception of interest rate and foreign exchange benchmarks, as well as the standard format to be used.; and (iii) setting out the minimum standards that EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks should meet in order to be labelled as such, and laying down the transparency

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requirements on the methodology for both benchmarks. If neither the Council of the EU nor the EP objects, the regulations will be published in the OJ and enter into force 20 days later.

Commission Delegated Regulation (i)

Commission Delegated Regulation (ii)

Commission Delegated Regulation (iii)


(ii) International

FSB: Stocktake of Financial Authorities’ Experience in Including Physical and Transition Climate Risks as

Part of Their Financial Stability Monitoring

Status: Final

The FSB published a stocktake considering financial authorities’ experience of including climate-related risks in financial stability monitoring. Its findings include: (i) around three-quarters of survey respondents consider, or are planning to consider, climate-related risks as part of their financial stability monitoring; (ii) authorities also consider the implications of these risks for financial institutions with climate-related credit and market risks faced by banks and insurers appearing more advanced than that of other risks, or of risks faced by other types of financial institutions; (iii) work is hindered by a lack of consistent data on financial exposures to climate risks and difficulties translating climate change outcomes into changes in those exposures; and (iv) some authorities report having set out – or being in the process of setting out – their expectations as to firms’ disclosure of climate-related risks though microprudential supervision is still in its early stages. The FSB will conduct further work by October 2020 to assess the channels through which physical and transition risks could impact the financial system and how they might interact. Particular focus will be given to the potential amplification mechanisms and cross-border effects, and to prioritising channels that could materialise in the short-to-medium term. The FSB will also consider the scope for work to assess available data through which climate-related risks can be monitored, as well as any data gaps.


1.2 Recovery and resolution

(i) EU

SRB: Operational guidance for operational continuity in resolution and FMI contingency plans

Status: Final

The SRB published operational guidance for OCIR and FMI contingency plans. The guidance on OCIR provides further clarification to banks on how to implement SRB’s expectations related to service identification and mapping, assessment of operational continuity risk, mitigating measures such as having adequately documented, resolution-resilient contracts, appropriate management information systems and governance arrangements. The guidance on FMI contingency plans sets out the SRB’s expectations with regard to the minimum content of FMI contingency plans prepared by banks. Each bank is expected to develop an FMI contingency plan in line with the recommendations published by the FSB in the Guidance on Continuity of Access to FMIs for a Firm in Resolution of July 2017. The operational guidance provides further details on a possible outline of the contingency plan, as well as an indicative phase-in across FMI service providers. The SRB states that its focus is on business continuity and supporting the economy and is prepared to give banks the flexibility they may need to implement the ‘Expectations for Banks’ on an individual basis.

Operational guidance for operational continuity in resolution

Operational guidance for FMI contingency plans




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EBA: Technical standards on impracticability of contractual recognition of bail-in



The EBA published a consultation paper on its draft RTS and ITS on the impracticability of contractual recognition of write-down and conversion powers and related notifications as laid down in the BRRD II. The draft RTS define: (i) the conditions under which it would be legally or otherwise impracticable for an institution or entity to include the contractual term for the recognition of the bail-in; (ii) the conditions for the resolution authority to require inclusion; and (iii) the reasonable timeframe for the resolution authority to require the inclusion of the contractual term for the bail-in recognition. The draft ITS specify uniform formats and templates for the notification to resolution authorities of contracts meeting the conditions of impracticability defined in the draft RTS. After the consultation period, the EBA will deliver the final draft RTS and final draft ITS to the EC. The EBA will hold a public hearing on the draft RTS and draft ITS via conference call on Wednesday 30 September 2020 from 10am CET.

Annex 1 – impracticability notification template

Annex 2 – impracticability notification instructions


EBA: Consultations on technical standards under the BRRD


Deadline for the submission of comments: 23/10/2020 and 24/10/2020

EBA published a consultation paper on its draft RTS specifying the methodology to be used by resolution authorities to estimate the Pillar 2 (P2R) and combined buffer requirements (CBR) at resolution group level for the purpose of setting the minimum requirement for own funds and eligible liabilities (MREL) under the BRRD. In particular, the EBA proposes a pragmatic approach aiming to create a framework to improve accuracy in setting the MREL requirement, without requiring sub-consolidation at resolution level and without blurring the lines of responsibilities between competent and resolution authorities in the capital setting process. The EBA intends to send the final draft RTS to the EC, by December, for endorsement. Furthermore, the EBA published a consultation paper on its draft ITS on specifying uniform reporting templates, instructions and methodology for the identification and transmission of information on MREL by resolution authorities to the EBA. Once finalised, the EBA will send the draft ITS for the EC to endorse. The deadline for comments for both these consultations is 24 October. On 27 July, the EBA also published a consultation on its draft RTS specifying methods to avoid instruments indirectly subscribed by the resolution entity, for the purpose of meeting the minimum requirement for MREL applicable to entities that are not themselves resolution entities, hampering the smooth implementation of the resolution strategy. Under these draft RTS, a general deduction framework applies in the general case, and a “fall-back” solution applies where the deduction approach cannot apply. The deadline for comments for this consultation is 23 October.

Setting MREL

Reporting of MREL decisions

Indirect subscription of MREL


1.3 Stress tests/Macroprudential topics

(i) EU

EBA: Update on the 2021 EU-wide stress test timeline, sample and potential future changes to its

framework

Status: Final

The EBA announced that it has agreed with the Board of Supervisors (BoS) on the tentative timeline and sample of the 2021 EU-wide stress test. The exercise is expected to be launched at the end of January 2021 and its results to be published at the end of July 2021. The 2021 EU-wide stress test will be carried out at the highest level of consolidation on a sample of 51 banks, of which 39 are from the Euro Area, covering broadly 70% of the banking sector in the euro area, each of the non-Eurozone

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Member States and Norway. The tentative sample includes the banks that were going to participate in the postponed 2020 stress test, with some adjustments to ensure sufficient coverage in terms of total assets as well as to reflect changed conditions for specific institutions. A final decision on potential changes to the framework is expected to be taken in Q2-Q3 2021, while the implementation of any potential change will be possible for the 2023 EU-wide stress test.


AFS: Report on financial stability

Status Final

The Financial Stability Committee (Ausschuss für Finanzstabilität – AFS) published its seventh report to the German Parliament on the financial stability in Germany. The AFS is the central body for macroprudential supervision in Germany and consists of three representatives each from the Federal Ministry of Finance, the Deutsche Bundesbank and BaFin. The report shows that, in addition to risks in the German banking sector and life insurance companies, the AFS has, in the past financial year, addressed, inter alia, risks in the real estate market, cyber risks and the impact of stablecoins on financial stability. A particular focus of the AFS’ deliberations was the possible consequences of the coronavirus pandemic for the risk situation in the German financial system.




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2. Covid-19

(i) EU

ECB: Recommendation on dividend distributions during the COVID-19 pandemic and repealing

Recommendation ECB/2020/19

Status: Final

The ECB extended its recommendation to banks to not pay dividends and to not buy back shares until January 2021. The ECB will review whether this stance remains necessary in the fourth quarter of this year. Once the uncertainty requiring this temporary and exceptional recommendation subsides, the ECB states that banks with sustainable capital positions may consider resuming dividend payments. This will also apply when they are operating below the Pillar 2 Guidance (P2G) capital level. As a precondition, banks’ projected capital trajectories must demonstrate that their capital positions are sustainable in the medium term. The ECB has also issued a letter to banks asking them to be extremely moderate with regard to variable remuneration payments, for example by reducing the overall amount of variable pay – where this is not possible, banks should defer a larger part of the variable remuneration and consider payments in instruments. The ECB expects credit institutions to adopt extreme moderation with regard to variable remuneration payments until 1 January 2021. The ECB will continue to assess banks’ remuneration policies as part of its Supervisory Review and Evaluation Process (SREP), in particular the impact that such policies may have on a bank’s ability to maintain a sound capital base. The ECB continues to encourage banks to use their capital and liquidity buffers for lending purposes and loss absorption. The ECB commits to allow banks to operate below the P2G and the combined buffer requirement until at least end-2022, and below the liquidity coverage ratio (LCR) until at least end-2021, without automatically triggering supervisory actions. The ECB will grant high non-performing loan (NPL) banks an additional six months to submit their NPL reduction plans to provide banks with additional time to better estimate the impact of the Covid-19 pandemic on asset quality. Banks are nevertheless expected to continue to actively manage their NPLs. The ECB also issued a letter to banks communicating its expectations that banks have in place effective management practices and sufficient operational capacity to deal with the expected increase in distressed exposures. Among other things, this states that the ECB expects Significant Institutions to follow supervisory actions: (i) provide sustainable solutions or support in an efficient and timely manner; (ii) take timely action to minimise any cliff effects; and (iii) have a clear understanding of the risks that they are facing and devise an appropriate strategy, ensuring that early arrears are managed in a timely manner. Further details on the supervisory measures are explained in the updated FAQs. The PRA has also published a statement to confirm that it will undertake its assessment of firms’ distribution plans beyond the end of this year, in Q4, which will be based on the current and projected capital positions of the banks.


ECB: Analysis on banking sector resilience to stress caused by coronavirus

Status: Final

The ECB published a results overview of their Covid-19 vulnerability analysis of banks directly supervised within the Single Supervisory Mechanism (SSM). The results show that the Euro area banking sector is resilient to the stress caused by Covid-19. The vulnerability analysis focused on two scenarios set out in the ECB’s June staff macroeconomic projections. In the central scenario, which already foresees a harsh recession, banks’ average Common Equity Tier 1 (CET1) ratio deteriorated only by 1.9 percentage points to 12.6% from 14.5%. As a result, the ECB states that banks could continue fulfilling their role of lending to the economy. In the severe scenario, banks’ average CET1 is depleted by 5.7 percentage points to 8.8% from 14.5%. In respect of this scenario, the ECB states that several banks would need to take action to maintain compliance with their minimum capital requirements, but the overall shortfall would remain contained.


ECB: Update on the FAQs on its supervisory measures in reaction to the coronavirus

Status: Final

The ECB once again updated its FAQs on the supervisory measures in reaction to the coronavirus.


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EC: Commission Delegated Directive (EU) .../… amending delegated directive (EU) 2017/593 as regards

the regime for research on small and mid-cap issuers and on fixed-income instruments to help the recovery

from the COVID-19 pandemic

Status: Adopted by the EC

The EC has adopted the Commission Delegated Directive (EU) .../… amending delegated directive (EU) 2017/593 as regards the regime for research on small and mid-cap issuers and on fixed-income instruments to help the recovery from the Covid-19 pandemic.


EC: Legislative proposal amending MiFID and consultation on amendments to MiFID delegated Directive

Status: Final

As part of the capital markets recovery package, the EC adopted a legislative proposal for a Directive amending MiFID II as regards information requirements, product governance and position limits to help the recovery from the Covid-19 pandemic. In its FAQs, the EC states that there are three main parts to the amendments: (i) new rules which mean that the level of information provided to clients, in particular professional clients such as large corporates and financial institutions, will now be more targeted to their needs; (ii) changes to derivatives rules for which the underlying value is a commodity, such as gas or electricity; and (iii) rules guiding the provision of research on small and mid-cap companies and on fixed-income instruments will be partially revisited. The amendments will need to be transposed into national laws before they are applicable. Also, the EC has published a public consultation on a draft Delegated directive, which proposes amendments to the MiFID II delegated Directive on the regime for research on small and mid-cap issuers and on fixed-income instruments, the deadline for comments being 4 September.

EC Consultation – Draft Directive

EC FAQs


EC: Legislative proposal amending the Securitisation Regulation

Status: Final

As part of the capital markets recovery package, the EC adopted a legislative proposal amending the Securitisation Regulation, to increase banks’ capacity to provide loans to households and companies by extending the simple, transparent and standardised securitisation to on-balance sheet securitisation. The proposed amendments to the Securitisation Regulation: (a) extend the simple, transparent and standardised (STS) securitisation framework to on-balance sheet synthetic securitisation as this type of securitisation is an important risk management tool for bank lending to corporates, in particular SMEs; and (b) remove regulatory obstacles to the securitisation of non-performing exposures (NPEs) to enable broader use of securitisation by banks to free their balance sheets from NPEs. FAQs have also been published on the securitisation framework.

EC FAQs – Securitisation Framework


EC: Report on the creation of a specific framework for simple, transparent and standardised synthetic

securitisation, limited to balance-sheet synthetic securitisation

Status: Final

The EC published its report to the EP on the creation of a specific framework for simple, transparent and standardised synthetic securitisation, limited to balance-sheet synthetic securitisation.




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EC: Legislative proposal amending the CRR

Status: Final

As part of the capital markets recovery package, the EC adopted a legislative proposal to amend the CRR as regards adjustments to the securitisation framework to support the economic recovery in response to the Covid-19 pandemic. This includes three targeted amendments aiming at increasing the overall risk sensitivity of the EU securitisation framework that would make the recourse to the securitisation tool more economically viable for institutions within a prudential framework adequate to safeguard the EU financial stability: (i) provide for a more risk-sensitive treatment for STS on-balance sheet securitisation, in line with the EBA recommendation included in its “Report on STS framework for synthetic securitisation”; (ii) remove the existing regulatory constraints to the securitisation of non-performing exposures (NPEs) embedded in the current framework; and (iii) amend Article 249(3) which introduces an additional eligibility criterion for the recognition of unfunded credit protection for institutions applying the standardised approach to calculate capital requirements for securitisation exposures, to enhance effectiveness of national public guarantee schemes assisting institutions’ strategies to securitise NPEs in the aftermath of the Covid-19 pandemic. The EC states that the changes will reinforce the role of securitisation as a tool available to institutions to maintain and possibly even enhance their lending capacity.


EBA: Guidelines on the pragmatic 2020 supervisory review and evaluation process in light of the COVID‐19

crisis

Status: Final

The EBA published guidelines that make available to competent authorities a special procedure for the SREP for the year 2020 in response to the Covid-19 pandemic. The risk-driven approach put forward by these guidelines builds on the existing requirements of the CRD and the SREP guidelines and adapts them to the exceptional circumstances of the pandemic, while ensuring the exercise of supervisory judgement to the greatest possible extent. These guidelines elaborate on the key aspects of SREP for this year: (i) focus of the pragmatic SREP; (ii) overall SREP assessment and scoring; (iii) supervisory measures; and (iv) conduct of the SREP in cross-border contexts. Competent authorities may continue to apply the SREP guidelines as they currently stand, if they wish to do so. Due to the urgency of the matter and the limited focus of these guidelines on Covid-19

pandemic‐related features, as well as the continued validity of the SREP guidelines as they stand, the EBA has decided not to carry out public consultations. The guidelines apply immediately.


EC: Best practices for relief measures in the context of Covid-19

Status: Final

The EC published a document to facilitate the convergence and implementation of relief measures offered to consumers and businesses in the context of the Covid-19 crisis. The best practices are aimed at insurers as well as for bank and non-bank lending to consumers and businesses. The best practices cover several issues, including: (i) payment moratoria for consumer and business loans, and for insurance contributions; (ii) enabling safer cashless payments while ensuring cash payments remain available for those who need them; (iii) ensuring loans aimed at mitigating the impact of coronavirus are provided swiftly, and that the fees and interest rates incurred are fair; and (iv) ensuring legitimate insurance claims are processed and paid out as quickly as possible.


EBA: Statement on resolution planning in light of the Covid-19 pandemic

Status: Final

The EBA published a statement on supervisory reporting and Pillar 3 disclosures in light of the Covid-19 pandemic. With the statement the EBA intends to reiterate the importance of resolution planning in times of uncertainty to ensure that resolution stands as a credible option in times of stress. The EBA advises that resolution authorities: (i) in cooperation with supervisory authorities, reflect on whether the current uncertainty could result in changes to resolution plans including the preferred resolution strategy and resolvability assessment; (ii) continue promoting institutions’ efforts to enhance their capabilities and increase their resolvability by removing impediments to resolvability; (iii) take into account the impact of Covid-19 on banks and

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their business models when taking decisions on the minimum requirement for own funds and eligible liabilities (MREL); and (iv) use and test resolution colleges as the main fora to exchange information and share decisions in these times of stress.


ESMA: Public statement on the external support within the meaning of Article 35 of the MMF Regulation

Status: Final

ESMA published a statement on external support under Article 35 of the Regulation on money market funds (MMF Regulation) in light of actions by financial markets authorities to mitigate the impact of the Covid-19 pandemic on financial markets. ESMA explains that the market liquidity brought by certain measures taken by central banks and securities and markets regulators may have indirectly benefitted MMFs through the intermediation of credit institutions, including through the purchasing of short-term assets held by MMFs. The statement seeks to clarify the potential interaction between the intermediation of credit institutions and the requirements of Article 35 on external support. ESMA clarifies that MMFs may enter into transactions with third parties, including affiliated or related parties, provided the requirements of Article 35 of the MMF Regulation are met. ESMA also aims to coordinate the supervisory approaches of national competent authorities in light of these and any future liquidity challenges for MMFs in the context of the current crisis.


EBA: Report on the implementation of selected COVID-19 policies

Status: Final

The EBA published a report on implementation of selected Covid-19 policies. The Report provides clarity on the implementation of the EBA’s Guidelines on legislative and non-legislative moratoria on loan repayments, by addressing a number of interpretative questions and presents an overview of the general payment moratoria in place in the EU based on notifications sent to the EBA. In addition, the Report also includes considerations on the Covid-19 issues, which can arise in applying the operational risk framework. The report sets out common criteria that aim at providing clarity on the supervisory and regulatory expectations regarding the treatment of Covid-19 operational risk losses in the capital requirement calculations. The Report also encourages credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements. As a significant number of policy issues have arisen and will continue to arise in the context of the EBA’s monitoring of the implementation of Covid-19 policies, the EBA expects to update the Report at a later stage.

BaFin’s comment on this Report


ECB: Supervision Blog: ‘Supervising the new normal’

Status Final

The ECB published a blog post written by Kerstin af Jochnick (ECB Supervisory Board Member). The blog post summarises the adaptations the ECB has made to its supervisory approach so as to help banks deal with the immediate fallout from the crisis, while allowing the ECB to continue to monitor emerging risks. It also highlights important aspects that both banks and supervisors should reflect on in relation to post-Covid-19 planning: (i) banks need to maintain the efforts to repair their balance sheets, as experience from the previous financial crisis suggests that well-capitalised banks were more likely to continue to lend through the cycle – non-performing loans are very likely to increase in the future, particularly once the effects of the mandatory payment moratoria decreed by several euro area governments expire; (ii) banks need to have in place tight loan deterioration monitoring and management strategies which enable them to identify risks at an early stage; (iii) Covid-19 is likely to accelerate some of the trends which were already under way before the crisis including digitalisation as an integral part of banks’ business models, and more acute challenges to profitability – consolidation could be one way of successfully dealing with this and can also help reduce the current excess capacity in the European banking system and deepen the banking union by fostering private risk-sharing; (iv) crisis management and resolution frameworks for banks still need to be strengthened and the process through which non-viable banks exit the market needs to be improved, in particular for banks that are not subject to resolution and are liquidated under different national insolvency regimes – coherent outcomes across the union are needed with an EU level liquidation tool still lacking; and (v) extending government guarantees to banks and decreeing payment moratoria for banks’ customers have temporarily reinforced the linkages between domestic banking systems and their respective sovereigns - it is



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important that these distortions to the level playing field do not become entrenched, and that the exit from these national measures is carried out in a coordinated manner.


(ii) International

FSB: Report on the financial stability implications of COVID-19 and policy measures taken

Status: Final

The FSB published a report to the G20 Finance Ministers and Governors on the financial stability implications of Covid-19 and policy measures taken. The FSB states that it continues to support international cooperation and coordination on the Covid-19 response underpinned by the FSB principles, specifically by: (i) assessing vulnerabilities in the global financial system, to support assessments of the appropriateness of financial policy responses and potential adjustments; (ii) regularly sharing information on policy responses and supporting domestic assessments of the use of policy measures taken; and (iii) coordinating the response to policy issues, including measures that standard-setting bodies (SSBs) may take to provide, or give guidance on, flexibility available to authorities and firms within existing international financial standards. The FSB will provide a further update on member authorities’ and SSBs’ Covid-19 responses, its financial stability risk assessment and its work on the effectiveness of policy responses by November, ahead of the G20 Summit.


FSB: Statement on the impact of COVID-19 on global benchmark reform

Status: Final

The FSB published a statement on the impact of Covid-19 on global benchmark reform. The FSB maintains its view that financial and non-financial sector firms across all jurisdictions should continue their efforts in making wider use of risk-free rates in order to reduce reliance on IBORs where appropriate, and in particular to remove remaining dependencies on LIBOR by the end of 2021. Also, the FSB states that LIBOR transition remains an essential task that will strengthen the global financial system. As the G20 in its February communique asked the FSB to identify remaining challenges to benchmark transition by July and to explore ways to address them, the FSB will publish a report in response later this month.


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3. Brexit

(i) EU

EBA: Calling on financial institutions to finalise preparations for the end of the transitional arrangements

between the EU and UK

Status: Final

The EBA published a press release, calling on financial institutions to finalise preparations for the end of the transitional arrangements between the EU and UK. The EBA states that financial institutions wishing to operate in the EU and offer services to their EU customers should ensure they have obtained the necessary authorisations and effectively establish themselves before the end of the transition period.

Furthermore, financial institutions affected by the UK withdrawal from the EU should provide adequate information to their EU customers regarding the availability of services after the end of the transition period. The press release also covers: (i) finalisation of preparations and effective establishment in the EU as agreed with relevant competent authorities; (ii) preparedness of payment and electronic money institutions; and (iii) communication to customers on any relevant actions undertaken as part of financial institutions’ contingency planning affecting the availability and continuity of their services, or whether they plan to cease offering services to the EU-based customers after the end of the transition period.


ESMA: Telling market participants to continue preparations for the end of the UK transition period

Status: Final

ESMA published a note urging financial market participants to finalise preparations and implement suitable contingency plans in advance of the end of the United Kingdom’s (UK) transition period on 31 December 2020.


EPC: Getting ready for the end of the transition period

Status: Final

The European Payments Council (EPC) published a press release confirming preparations for the end of the transition period in respect of SEPA. As of 1 January 2021, the UK will maintain participation in the SEPA geographic scope. This means that the SEPA Credit Transfer (SCT)/SEPA Direct Debit (SDD) rules applicable to transactions from/to non-EEA jurisdictions are also applicable to SCT/SDD transactions with the UK. The EPC therefore requests all payment service providers to implement without delay measures to ensure a continued smooth processing of cross-border SEPA payments involving a UK-based SEPA payment scheme participant after 31 December 2020. The EPC confirms that additional transaction details are needed for SEPA transactions to be executed or settled as of 1 January 2021 involving a UK-based SEPA payment scheme participant. The EPC warns that the lack of these additional transaction details may lead to rejected transactions or potential other issues from the scheme participant receiving the payment message. Therefore, the EPC strongly recommends each SEPA payment scheme participant to identify as soon as possible its customers with incoming and outgoing cross-border SEPA transactions involving both a UK and an EEA payment account, and to inform all customers concerned about the need to provide this extra SEPA transaction data as from 1 January 2021.


EC: Communication on readiness at the end of the transition period between the European Union and the

United Kingdom

Status: Final

The EC updated its webpage on getting ready for the end of the Brexit transition period. The EC is reviewing – and where necessary updating – the over 100 sector-specific stakeholder preparedness notices it published during the Article 50



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negotiations with the UK. In relation to financial services the EC has updated notices on: (i) asset management; (ii) banking and payment services; (iii) consumer protection and passenger rights; (iv) credit rating agencies; and (v) the EU emissions trading system.

Readiness notices webpage

Notice - asset management

Notice - banking and payment services

Notice - consumer protection and passenger rights

Notice - credit rating agencies

Notice – EU emissions trading system (EU ETS)


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4. Market regulation/Conduct rules

4.1 Benchmarks

(i) EU

EC: Legislative proposal amending the Benchmarks Regulation (BMR) addresses LIBOR cessation risks

Status: Final

The EC published a legislative proposal amending the BMR as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation, as part of the capital markets recover package. The proposal makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. Furthermore, the proposal introduces various tools to make sure that the phase-out of a widely used interbank rate does not unduly affect the banking sector’s capacity to provide funding to EU companies and therefore jeopardise a key objective of the Capital Markets Union (CMU). The three main pillars to the proposed BMR amendments are as follows: (i) a new statutory power, whereby the EC designates a replacement rate if and when a benchmark whose cessation would result in significant disruption in the functioning of financial markets in the EU ceases to be published; (ii) the statutory replacement rate will, by operation of the law, replace all references to the “benchmark in cessation” in all contracts entered into by an EU supervised entity; and (iii) for contracts not involving an EU supervised entity, Member States are encouraged to adopt national statutory replacement rates. The EC has also published an impact assessment report on the proposal, as well as an executive summary of the report.

EC Impact Assessment Report

EC Executive Summary – Impact Assessment Report


ECB: Public consultation on the publication by the ECB of compounded term rates using the €STR



The ECB published a consultation to seek feedback on its consideration of publishing compounded €STR rates. The publication would take place on a daily basis shortly after the €STR publication. Published maturities could range from one week up to one year. A daily index, making it possible to compute compounded rates over non-standard periods, is also envisaged as part of the publication. The consultation seeks feedback from market participants and benchmark rate users about a number of parameters that would be applied when publishing these compounded values.


ECB: Report on preparations for benchmark rate reforms

Status: Final

The ECB published good practices for banks to prepare for benchmark rate reforms, as well as the results of its industry-wide assessment of banks’ preparedness for the reforms. The results show that while banks are generally well aware of the complexity of the reforms and the challenges involved, their level of preparation leaves room for improvement, and that banks are generally behind schedule in implementing risk mitigation measures. The assessment of the survey results, which was conducted by ECB Banking Supervision, revealed that banks had focused more on the transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR) than on the risks associated with the reform of the euro interbank offered rate (EURIBOR). To assist banks in their preparation, the ECB’s good practices: (i) outline how banks can best structure their benchmark-rate related governance; (ii) identify benchmark rate related risks; and (iii) create action plans and documentation in relation to the



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reforms. The ECB states that given the widespread use of benchmark interest rates such as EONIA, EURIBOR and LIBOR in financial contracts, it is also critical that banks update the contracts that reference these rates in good time.

ECB Industry-wide Assessment Results


(ii) International

FSB and BCBS: Supervisory recommendations for benchmark transition

Status: Final

The FSB and BCBS jointly issued a report presenting to the G20 insights on remaining challenges to LIBOR transition based on surveys undertaken by the FSB, the BCBS and IAIS. The report sets out recommendations for authorities to support financial institutions’ and their clients’ progress in transitioning away from LIBOR. Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions. The report includes three sets of recommendations to support LIBOR transition: (i) identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions; (ii) facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue; (iii) coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fall-back language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.


4.2 MiFID/MiFIR

(i) EU

ESMA: Opinion on determining third-country trading venues for the purpose of transparency under MiFID

II/MiFIR

Status: Final

ESMA updated the list of third country venues (TCTVs) in the context of the opinion on post-trade transparency under MiFIR, following new requests from the industry. The review is now finalised and ESMA has published: (i) an updated annex to the opinion related to post-trade transparency, with the list of venues with a positive or partially positive assessment; and (ii) additional guidance on the implementation of the list of TCTVs.

Annex

Guidance on the annex


ESMA: MiFID II/MiFIR Annual Report under Commission Delegated Regulation (EU) 2017/583 (RTS 2)

Status: Final

ESMA published the MiFID II/MiFIR Annual Review Report, which suggests that the EC should move to the next stage for the: (i) criterion ‘average daily number of trades’ used for the quarterly liquidity assessment of bonds; and (ii) trade percentiles that determine the pre-trade sizes specific to the financial instrument for bonds. ESMA does not recommend moving to the next stage for the trade percentiles that determine the pre-trade sizes specific to the financial instrument for other non-equity financial instruments. ESMA has prepared an amended version of the applicable regulatory technical standards as foreseen in RTS 2. The amended RTS are expected to be adopted and published in the OJ.


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ESMA: Opinion on waivers from pre-trade transparency

Status: Final

ESMA published an opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under MiFIR. In the process of assessing the compliance of notified waivers with the MiFIR pre-trade transparency requirement for equity and non-equity instruments, ESMA noted a number of recurring issues and thus considers it necessary to provide guidance in this opinion. The opinion is meant as a clarification of the MiFIR requirements and does not create any new obligations for NCAs or market participants. The opinion covers issues relating to: (i) specific types of waivers, including large-in-scale, order management facility and negotiated transactions waivers; (ii) combinations of different types of waivers; and (iii) applying for pre-trade transparency waivers. The opinion, ESMA explains, replaces the guidance of the Committee of European Securities Regulators and ESMA’s opinions on waivers from pre-trade transparency under MiFID I.


ESMA: First Review Reports on the MiFIR transparency regime

Status: Final

ESMA published first review reports on the MiFIR transparency regime. The first Report reviews the regime for equity instruments and contains proposals for targeted amendments regarding the transparency obligations for trading venues, specifically the double volume cap mechanism. It also includes recommendations on other key transparency provisions, in particular the trading obligation for shares and the transparency provisions applicable to systematic internalisers (SIs) in equity instruments. The second Report reviews the pre-trade transparency obligations applicable to SIs in non-equity instruments. ESMA has also published a timeline of upcoming MiFID II review reports.

Report for equity instruments

Report for non-equity instruments

ESMA Timeline


ESMA: Second report on sanctions under MiFID II

Status: Final

ESMA published a report which provides an overview of the applicable legal framework and the sanctions and measures imposed by NCAs under the MiFID II framework during 2019. The report notes that NCAs imposed a total of 371 sanctions and measures in 2019 of an aggregated value of about EUR1.8m. Due to differences in the identification of sanctions and measures for the purpose of the reporting to ESMA and the length of the enforcement processes, the data does not provide at this time the basis for detailed statistics, clear trends or tendencies in the imposition of sanctions and measures. The information in the report will contribute to ESMA’s work aimed at fostering supervisory convergence in the application of MiFID II.


ESMA: Updated opinion on ancillary activity calculations

Status: Final

ESMA published an updated opinion on ancillary activity calculations under the MiFID II Directive. Article 2(1)(j) of MiFID II provides an exemption from its scope for persons dealing on own account or providing investment services in specific cases, including where their activity is an ancillary activity to their main business (provided certain conditions are met). Commission Delegated Regulation (EU) 2017/592 further specifies the criteria for establishing when an activity is to be considered as ancillary for this purpose. In particular, it lays down rules for calculating the overall market trading activity, which ultimately determines whether an activity is ancillary and, as a consequence, whether a market participant falls within the scope of the MiFID II Directive. With the updated opinion, ESMA provides the estimation of the market size of various commodity derivatives, including metals, oil and coal, as well as emission allowances for 2019.




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ESMA: Update on its MiFID II and MiFIR transparency topics Q&As

Status: Final

ESMA published an update on its Q&As on MiFID II and MiFIR transparency topics.


ESMA: Update on its Q&A on MiFIR data reporting

Status: Final

ESMA published an updated Q&A on MiFIR data reporting. With this update, ESMA has added a question on transaction reporting (section 22) with a question (no. 13) in relation to a scenario where an investment firm executes a reportable transaction through an execution algorithm provided by another investment firm.


4.3 Capital markets union

EC: Timing for its work on the Capital Markets Union (CMU)

Status: Final

The EC has published Executive Vice-President Dombrovskis’ remarks at the ECOFIN press conference. In his remarks, Mr Dombrovskis states that the Covid-19 pandemic has injected urgency into the CMU because the strength of economic recovery will depend on well-functioning capital markets and access to market financing. A fully fledged CMU will also be vital for mobilising much-needed long-term investments in new technologies and infrastructure, to tackle climate change and to deliver Europe’s Green Deal and Digital Agenda. In its CMU action plan which it intends to present in September, the EC will look at topics such as SME access to finance, market infrastructure, and measures to get savers in Europe to invest more through capital markets.


EC: Capital Markets Union (CMU) for people and businesses – new action plan



The EC began consulting on a roadmap with regards to a communication on the CMU action plan. The roadmap lists the CMU’s aims which include: (i) improving the ecosystem for capital raising for EU businesses, using new technologies where appropriate with special focus on SMEs; (ii) supporting the creation of a more efficient pan-European capital markets architecture; (iii) promoting greater retail investor participation and a better savings allocation; and (iv) promoting cross-border investment and ensuring better integration. The roadmap highlights that, due to Covid-19, mobilising all the financial resources will be essential to an economic rebound, as public funding and bank lending will not be sufficient to cater for the immense funding needs. Recent geopolitical developments such as Brexit and threats to multilateralism exacerbated by the Covid-19 pandemic make the CMU project more urgent than ever and should give it renewed political momentum. The indicative publication date is Q3/Q4 2020.


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4.4 Consumer protection rules

(i) EU

EC: Consumer credit agreements – review of EU rules



The EC published a consultation to gather views on four initiatives that the EC plans to propose in 2020 and 2021: (i) a New Consumer Agenda which will provide a new EU strategic framework for consumer policy in key priority areas and will also take into account the impact of the Covid-19 pandemic on consumers; (ii) empowering the consumer for the green transition; (iii) the review of the Consumer Credit Directive; and (iv) the review of the General Product Safety Directive which will aim to update the directive to account for the challenges brought by new technologies and online selling.


4.5 Packaged retail and insurance-based investment products (PRIIPs)

(i) EU

ESAs: Outcome of ESA review of the PRIIPs Delegated Regulation

Status: Final

The Joint Committee of the ESAs published a letter to the EC setting out the outcome of their review of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). Following a consultation in October 2019, a final report was submitted to the three Boards of Supervisors of the ESAs in June 2020. The draft RTS was adopted at the EBA and ESMA Boards on the basis of qualified majority voting. At the EIOPA Board, although a large number of members agreed with the draft RTS, it did not receive the support of a qualified majority. Those Board members that did not support the RTS generally argued that a partial revision of the PRIIPs Delegated Regulation is not appropriate at this stage, prior to a comprehensive review of Regulation (EU) No 1286/2014 as envisaged in Article 33 of the Regulation. A number of Board members also indicated that for investment funds they would prefer the past performance graph from the UCITS key investor information document to be included in the PRIIPs KID itself, rather than in a separate publication. Given that the draft RTS was not adopted by the three ESA Boards, the ESAs are not in a position to formally submit an RTS to the EC.

Final draft report


4.6 Securities financing transactions

(i) EU

ESMA: Consultation on calculation of positions under SFTR



ESMA is consulting on draft guidelines on the calculation of positions by trade repositories (TRs) under the SFTR. The aim of the guidelines is to ensure consistency of position calculation across TRs, with regard to the time of calculations, the scope of the data used in calculations, the data preparation, the recordkeeping of data and the calculation methodologies. High-quality position data is necessary for the assessment of systemic risks to financial stability by the relevant authorities. These guidelines



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will also ensure a consistent methodology is used under EMIR and SFTR, while still reflecting the specificities of SFT reporting. ESMA aims to finalise the guidelines in Q4 2020/Q1 2021.


4.7 Short selling

(i) EU

ESMA Decision (EU) 2020/1123 renewing the temporary requirement to natural or legal persons who have

net short positions to temporarily lower the notification thresholds of net short positions in relation to the

issued share capital of companies whose shares are admitted to trading on a regulated market to notify the

competent authorities above a certain threshold in accordance with point (a) of Article 28(1) of the Short

Selling Regulation


ESMA’s decision 2020/1123 (of 10 June) was published in the OJ. The decision renews the temporary requirement for natural or legal persons who have net short positions in shares admitted to trading on an EU regulated market to notify the competent authorities if their position reaches or exceeds 0.1% of the issued share capital in accordance with point (a) of Article 28(1) of the SSR. The decision entered into force on 17 June and applies until 17 September.


4.8 Transparency requirements/Shareholder requirements

(i) EU

ESMA: ESEF Reporting Manual

Status: Final

ESMA updated its Reporting Manual on the European Single Electronic Format (ESEF). The ESEF Reporting Manual is aimed at all market participants involved in the implementation of the requirements set out in the ESEF Delegated Regulation, and in particular in the first-time preparation of IFRS consolidated financial statements in the technical format, Inline XBRL.


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5. Market infrastructure

5.1 Custody rules

(i) EU

ESMA: Preparing a new RTS to further postpone CSDR settlement discipline

Status: Draft

ESMA announced that it is working on a proposal to delay the entry into force of the CSDR settlement discipline regime until 1 February 2022. This is due to the impact of the Covid-19 pandemic on the implementation of regulatory projects and IT deliveries by CSDs and came as a request from the EC. This measure would be additional to the delay foreseen in ESMA’s final report on the RTS on postponing the date of entry into force of the RTS on settlement discipline (adopted in May by the EC) until 1 February 2021. ESMA aims to publish the final report on further postponing the date of entry into force of the RTS by September. The EC has also published a letter it sent to ESMA relating to the entry into force of the RTS, inviting ESMA to consider further postponement of its entry into force in light of the impact of Covid-19 and if ESMA decides to postpone it, to present a proposal for amendment to the EC. Following the endorsement of the amending RTS by the EC, it would then be subject to the non-objection of the EP and of the Council.


ESMA: Updated CSDR Q&As

Status: Final

ESMA published an update on its CSDR Q&As. ESMA has added a question (7(b)) in relation to Settlement Discipline (Part III) on Buy-in timeframes. In it, ESMA clarifies that, for the purpose of initiating a buy-in process, the concept of “business days” under the CSDR refers to the definition given in the rules of the securities settlement systems where the settlement fail occurred.


5.2 EMIR

(i) EU

EC: Set of Regulations with regard to Central Counterparties

Status: Adopted by EC

The EC announced the adoption of three Delegated Regulations supplementing EMIR concerning CCPs established in third countries (TC-CCPs) by updating its webpage on implementing and delegated acts relating to EMIR. The Delegated Regulations supplement respectively: (i) Regulation (EU) No 648/2012 with regard to fees charged by the European Securities and Markets Authority to central counterparties established in third countries; (ii) Regulation (EU) No 648/2012 with regard to the criteria that ESMA should take into account to determine whether a central counterparty established in a third country is systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member



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States; and (iii) Regulation (EU) No 648/2012 with regard to the minimum elements to be assessed by ESMA when assessing third country CCPs’ requests for comparable compliance and the modalities and conditions of that assessment.

Commission Delegated Regulation (EU) …/... supplementing EMIR with regard to fees charged by the European Securities

and Markets Authority to central counterparties established in third countries

Commission Delegated Regulation (EU) …/... supplementing EMIR with regard to the criteria that ESMA should take into

account to determine whether a central counterparty established in a third-country is systemically important or likely to

become systemically important for the financial stability of the Union or of one or more of its Member States

Commission Delegated Regulation (EU) …/... supplementing EMIR with regard to the minimum elements to be assessed

by ESMA when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of

that assessment


ESMA: Report on the third EU-wide CCP Stress Test

Status: Final

ESMA published a report on the results of its third EU-wide CCP stress test exercise which confirms the overall resilience of EU CCPs to common shocks and credit, liquidity and concentration risks. This states, among other things, that the exercise was completed while the EU experienced a major and unprecedented crisis with the Covid-19 outbreak. ESMA, in coordination with the NCAs, closely monitored the impact on EU CCPs, which remained resilient through the crisis, despite the increased market volatility and operational risk.

Q&A on the Report


ESMA: Letter to EC on draft Commission Delegated Regulation supplementing EMIR on fees charged by

ESMA to third-country CCPs

Status: Final

ESMA published a letter from Steven Maijoor, Chair of ESMA, to Valdis Dombrovskis, Executive Vice President of the EC, responding to the EC’s consultation on a draft Delegated Regulation supplementing EMIR with regard to: (i) tiering criteria; (ii) comparable compliance; and (iii) fees charged by ESMA to third country central counterparties (TC-CCPs). ESMA appreciates that the EC duly considered the technical advice ESMA provided shortly after the adoption of EMIR 2.2 and recognises that the targeted but important deviations from this advice that are proposed in the draft delegated acts aim to simplify the assessments for tiering and comparable compliance, while enhancing their predictability, and to further harmonise the fee framework for TC-CCPs with the rest of ESMA’s supervised entities. However, in the letter, ESMA outlines a few concerns with the proposals on: (i) comparable compliance – specifically that it will only be granted where the tier 2 CCP complies with the relevant minimum requirements of EMIR; (ii) tiering – specifically that the proposed level of the thresholds might incentivise certain CCPs to take business decisions for the purpose of avoiding the application of the tier 2 regime; and (iii) fees – specifically that the fees proposed for TC-CCPs puts at risk ESMA’s capacity to repay the advance that ESMA has received in 2019 and 2020 under the EMIR 2.2 legislative financial statement.


ESMA: Updated Q&A on the implementation of the Regulation (EU) No 648/2012 on OTC derivatives,

central counterparties and trade repositories (EMIR)

Status: Final

ESMA published an update on its Q&A on the implementation of EMIR. It includes an updated Q&A on the frequency of reports, under Article 9 of EMIR.


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6. Anti-money laundering

(i) EU

EP: New measures to stop money laundering and terrorist financing

Status: Final

The EP published a resolution which welcomes the EC’s Action Plan on how to fight effectively against money laundering (ML) and terrorist financing (TF) and highlighted the most pressing changes needed to achieve an efficient EU framework. To promote better implementation and cooperation, MEPs: (i) deplored the incorrect and patchy implementation of the Anti-money laundering/ Combating Terrorism Financing (AML/CTF) rules in member states; and (ii) call for a zero-tolerance approach and infringement procedures against member states who lag behind in transposing the rules into national law. To enhance effective use of data, MEPs: (a) call for the EC to address the persisting lack of quality data to identify ultimate beneficial owners by setting up interconnected and high-quality registers in the EU with high standards of data protection; (b) call for a widening of the scope of supervised entities to include new and disruptive market sectors such as crypto-assets; and (c) reiterate that non-cooperative jurisdictions and high-risk third countries must be immediately blacklisted.

EP Resolution

EP Press Release


EC: Extending deadline for feedback on AML and CTF Action Plan

Status: Final

The EC updated its webpage on its AML and CTF Action Plan to state that it has extended the deadline for feedback on the Action Plan. The new deadline is 26 August.


(ii) International

FATF: 12-Month review of the Revised FATF Standards on virtual assets and VASPs

Status: Final

FATF published the findings of its 12-month review of its revised AML/CTF standards on virtual assets and virtual asset service providers (VASPs). The report finds that, overall, both the public and private sectors have made progress in implementing the revised FATF Standards with 35 out of 54 reporting jurisdictions confirming. FATF has not identified any fundamental issues requiring changes to the revised FATF Standards. FATF will: (a) continue its enhanced monitoring of virtual assets and VASPs and undertake a second 12-month review by June 2021 – by this time, jurisdictions will have had two years to transpose the revised FATF Standards on VASPs into law and the VASP sector will have had time to implement travel rule solutions globally; (b) release updated Guidance on virtual assets and VASPs; (c) continue to promote the understanding of ML/TF risks involved in transactions using virtual assets and the potential misuse of virtual assets for ML/TF purposes by publishing red flag indicators and relevant case studies by October 2020; (d) continue and enhance its engagement with the private sector, including VASPs, technology providers, technical experts and academics, through its Virtual Assets Contact Group; and (e) continue its programme of work to enhance international cooperation among VASP supervisors.


BCBS: Guidelines on sound management of risks related to money laundering and financing of terrorism

Status: Final

The Basel Committee on Banking Supervision published an updated version of its guidelines on sound management of risks related to money laundering and financing of terrorism, with guidelines on the interaction and cooperation between prudential



34

and AML/CFT supervisors. These guidelines are intended to enhance the effectiveness of supervision of banks’ money laundering and financing of terrorism (FT) risk management, consistent with and complementary to the goals and objectives of the standards issued by the Financial Action Task Force (FATF) as well as principles and guidelines published by the Basel Committee. These guidelines specifically target banks, banking groups (Parts II and III respectively) and banking supervisors (Part IV).


FATF: Report to the G20 Finance Ministers and Central Bank Governors on so-called stablecoins

Status: Final

FATF published a report setting out its analysis of the AML/CFT issues relating to stablecoins. FATF found that stablecoins share many of the same potential risks as some virtual assets by virtue of their potential for anonymity, global reach and layering of illicit funds. FATF notes that the revised FATF Standards clearly apply to stablecoins and a range of the entities involved, depending on the design of the stablecoin and the activities of the entity. FATF considers the preventative measures already required of intermediaries are sufficient and therefore the revised FATF Standards do not need further revision at this time. To mitigate against potential risks however, FATF proposes: (i) to call on all jurisdictions to implement the revised FATF Standards on virtual assets and virtual asset service providers (VASPs) as a matter of priority; (ii) to review the implementation and impact of the revised Standards by June 2021 considering whether further updates are necessary; (iii) to provide guidance for jurisdictions on so-called stablecoins and virtual assets, as part of a broader update of its Guidance – setting out how AML/CFT controls apply to stablecoins, including the tools available to jurisdictions to address the ML/TF risks posed by anonymous peer-to-peer transactions via unhosted wallets; and (iv) to enhance the international framework for VASP supervisors to cooperate and share information and strengthen their capabilities, in order to develop a global network of supervisors to oversee these activities.


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7. Payments

7.1 Payment supervisory law

(i) EU

EC: Bank charges for cross-border payments in the EU



The EC adopted a legislative proposal for a new Regulation on cross-border payments in the EU and is now submitting it for consultation. The purpose of this proposal is to undertake a codification of Regulation (EC) No 924/2009 on cross-border payments in the EU. The new Regulation will supersede the various acts incorporated in it while fully preserving the content of the acts being codified and hence does no more than bring them together with only such formal amendments as are required by the codification exercise itself. The proposed Regulation will now be considered by the Council of the EU and the EP, who will operate under the accelerated legislative process that applies to codification proposals. The EC intends for the new Regulation to enter into force on 20 April 2021.


(ii) International

CPMI: Enhancing cross-border payments: building blocks of a global roadmap

Status: Final

The CPMI published its Stage 2 Report as part of the G20’s three-stage process to develop a global roadmap for enhancing cross-border payments. The report identifies a set of building blocks where further joint public and private sector work could enhance cross-border payments: (i) focus area A – commit to a joint public and private sector vision to enhance cross-border payments; (ii) focus area B – coordinate on regulatory, supervisory and oversight frameworks; (iii) focus area C – improve existing payment infrastructures and arrangements to support the requirements of the cross-border payments market; (iv) focus area D – increase data quality and straight through processing by enhancing data and market practices; and (v) focus area E – explore the potential role of new payment infrastructures and arrangements. Analysis undertaken by the Task Force has identified important interdependencies between building blocks that will be assessed further to inform the Stage 3 roadmap and beyond. Furthermore, it is emphasised that extensive engagement with all relevant private and public sector stakeholders will be needed to make progress in enhancing cross-border payments. It is also stated that a comprehensive set of delivery milestones involving both the public and the private sector, together with monitoring, is essential to ensure success. The CPMI has also published a technical background report, providing supplementary analysis. Additionally, the FSB has published a letter (dated 10 July) sent to the G20 Finance Ministers and Central Bank Governors welcoming the report, as well as confirming its plan to publish the final report in October.

Stage 2 report to the G20

Technical background report

FSB letter




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7.2 Bank accounts/Payment services

(i) EU

EC: Decision on interpretation of Payments Account Directive (PAD) in conjunction with the EU Anti-

Money Laundering Directive (AMLD)

Status: Final

The European Ombudsman published a decision by the EC on how recital 47 and Article 1(7) of PAD should be interpreted in conjunction with Article 14(4) of AMLD. The Office of the Ombudsman of the Republic of Latvia (Latvian Ombudsman) understood that, when opening and using a payment account with basic features, a credit institution must comply with provisions of the AMLD, in particular, article 14(4) thereof. However, the Latvian Ombudsman was of the view that article 14(4) of the AMLD provides a broader set of reasons for refusing to open an account with basic features, than recital 47 of the PAD. Thus, the European Ombudsman, on 22 June, asked the EC (among other things) how recital 47 and Article 1(7) of the PAD should be interpreted, in conjunction with Article 14(4) of the AMLD. The EC is of the opinion that there is no contradiction between recital 47 and article 1(7) of the AMLD. The EC also noted that recital 47 of the PAD is in line with the AMLD, which requires an obliged entity to refrain from establishing a business relationship when it is unable to comply with the customer due diligence requirements. The EC also stated that it is not aware of any EU legal mechanism that would allow consumers, who cannot open a bank account with basic features due to non-compliance with the AMLD, to undertake essential payment transactions.


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8. Institutional supervisory framework

(i) EU

ECB: Organisational changes to strengthen banking supervision

Status: Final

The ECB announced organisational changes to strengthen banking supervision. It comprises strengthening the cooperation between bank-specific and thematic supervisory teams, creating a new structure to reinforce supervisory strategy and risk function, ensuring consistency of supervisory outcomes and the reorganisation to foster transparency and predictability of supervisory actions.


ECB: Guide on the supervisory approach to consolidation in the banking sector



The ECB published a guide for consultation that aims to clarify its supervisory approach to consolidation projects involving euro area banks. The ECB will make use of its supervisory tools in order to facilitate sustainable consolidation projects. Specifically, the ECB will, for example: (i) not penalise credible integration plans with higher capital requirements; and (ii) accept the temporary use of existing internal models, subject to a strong roll-out plan. The ECB aims to clarify how supervisors use their powers with respect to consolidation projects.




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9. Investment funds

(i) EU

ESMA: Translations for guidelines on liquidity stress testing in UCITS and AIFS

Status: Final

ESMA published the official translations for guidelines on liquidity stress testing in UCITS and AIFS.

English version


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10. Contacts

Financial Services Regulatory

Dr Alexander Behrens

Key contact | Partner

Tel +49 69 2648 5730 alexander.behrens @allenovery.com

Stephan Funck

Of Counsel

Tel +49 69 2648 5791 stephan.funck @allenovery.com

Frank Herring

Of Counsel

Tel +49 69 2648 5310 frank.herring @allenovery.com

Woldemar Häring

Senior Associate

Tel +49 69 2648 5541 woldemar.haering @allenovery.com

Valeska Karcher

Senior Associate

Tel +49 69 2648 5312 valeska.karcher @allenovery.com

Lennart Dahmen

Senior Associate

Tel +49 69 2648 5901 lennart.dahmen @allenovery.com

Kai Schadtle

Associate

Tel +49 69 2648 5768 kai.schadtle @allenovery.com

Lukas Wagner

Associate

Tel +49 69 2648 5906 Lukas.wagner @allenovery.com

Derivatives, Structure Finance and Financial Services Regulatory

Derivatives and Structured Finance, Debt Capital Markets

Dr Stefan Henkelmann

Partner

Tel +49 69 2648 5997 stefan.henkelmann @allenovery.com

Martin Scharnke

Head of ICM Germany

Tel +49 69 2648 5835 martin.scharnke @allenovery.com

FOR MORE INFORMATION PLEASE CONTACT

allenovery.com

Frankfurt

Bockenheimer Landstraße 2 60306 Frankfurt am Main Germany

Tel +49 69 2648 5000 Fax +49 69 2648 5800

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