Looking Ahead: European Developments
ESG – OMNIBUS SIMPLIFICATION PACKAGE
We expect to see the European Commission’s proposed omnibus simplification package, aimed at simplifying sustainability reporting obligations under the EU Taxonomy Regulation, the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive on 26 February 2025. It is likely to involve changes to the Level 1 text in each case. Given the detailed technical work involved in drafting the changes, it is possible that the publication date might slip. This is a key deliverable under the Commission’s European Competitiveness Compass, launched on 29 January 2025.
BANKS – RESOLVABILITY
The Single Resolution Board’s consultation on the operational guidance for banks on resolvability self-assessment closes on 7 February 2025.
The consultation is part of the SRM Vision 2028 strategy to ensure that European banks are equipped for the future and crisis-ready, based on a revised methodology encompassing lessons learnt from crisis cases, best practices and the testing of banks’ capabilities. Under the SRB’s Expectations for Banks, banks are expected to be able to demonstrate that they are resolvable and prepared for crisis management.
The consultation focuses on a self-assessment template that banks are expected to complete each year.
CAPITAL REQUIREMENTS REGULATION – RETAIL DIVERSIFICATION METHODS
The EBA’s consultation on its draft guidelines that will specify proportionate retail diversification methods to be eligible for the preferential risk weight under the standardised approach for credit risk (mandate under Article 123 (1) of the Capital Requirements Regulation (CRR), as amended by the CRR III Regulation) closes on 12 February 2025.
CAPITAL REQUIREMENTS REGULATION – STRUCTURAL FX POSITIONS
The EBA has published a consultation paper with draft regulatory technical standards (RTS) on the treatment of structural foreign exchange (FX) positions under Article 104c of the CRR (as amended by the CRR III Regulation) and on reporting of structural FX positions closes for comments on 7 February 2025.
Under the CRR III Regulation, the EBA is required to develop these RTS to ensure a harmonised interpretation and implementation of the treatment of structural FX positions.
The draft RTS set out the policy framework for the treatment of structural FX positions, which broadly retain the provisions in its 2020 ‘own initiative’ guidelines on the treatment of structural FX under Article 352(2) of CRR.
CRYPTO – MICA – CENTRAL AML / CFT CONTACT POINTS
The EBA’s public consultation on draft RTS specifying the criteria according to which crypto-asset service providers (CASPs) under the regulation on markets in cryptoassets (MiCA) should appoint a central contact point to ensure compliance with local AML / CFT obligations of the host Member State closes on 4 February 2025.
CASPs can provide services in other Member States through establishments other than branches. Once established, CASPs have to comply with local AML/CFT obligations, even if their establishments aren’t obliged entities for AML / CFT purposes. This can make the AML/CFT supervision of services provided through these establishments difficult.
The draft RTS set out the criteria for determining the circumstances in which the appointment of a central contact point is appropriate, as well as the functions of those central contact points. Because the same considerations apply to electronic money issuers (EMI) and payment service providers (PSPs) as they do to CASPs, the EBA plans to retain the structure and approach set out in Commission Delegated Regulation (EU) 2018/1108 and extend existing provisions to CASPs (leaving the provisions that apply to EMIs and PSPs unchanged), while also introducing new provisions for CASPs where this is necessary in light of their business model and operation.
CRYPTO – MICA – SUITABILITY ASSESSMENTS
The joint ESMA / EBA guidelines on suitability assessments under MiCA apply from 4 February 2025.
They incorporate (in one document) Joint Guidelines on the assessment of the suitability of the members of the management body of issuers of asset-referenced tokens (ARTs) or CASPs, together with Joint Guidelines on the assessment of the suitability of the shareholders or members, whether direct or indirect, with qualifying holdings in issuers of ARTs or CASPs.
EUROPEAN SINGLE ELECTRONIC FORMAT
The 2024 update (Commission Delegated Regulation (EU) 2025/19) to the ESEF Regulation (Commission Delegated Regulation (EU) 2019/815) comes into force on 4 February 2025. The ESEF Regulation as amended by the latest update applies to annual financial reports containing financial statements for financial years beginning on or after 1 January 2025
This follows ESMA's recent publication of the related 2024 materials.
INSURANCE – MASS-LAPSE INSURANCE AND REINSURANCE TERMINATION CLAUSES
EIOPA’s consultation on two annexes that it plans to add to its 2021 Opinion on the use of risk-mitigation techniques by insurance undertakings closes on 7 February 2025.
The first annex provides additional guidance to supervisors on the treatment of mass-lapse reinsurance, promoting greater supervisory convergence across Europe in the context of evolving risk mitigation methods through the use of reinsurance.
The second annex addresses specific terms of reinsurance agreements’ termination clauses that can compromise the effective transfer of risk. This incudes termination clauses in reinsurance agreements that absolve the reinsurer from its share of legitimately incurred losses within the reinsurance treaty period.
INSURANCE – GLOBAL MONITORING EXERCISE
The consultation paper from the International Association of Insurance Supervisors (IAIS) on ancillary risk indicators in the global monitoring exercise (GME) closes for responses on 3 February 2025.
As part of the GME, the IAIS carries out an annual assessment (the individual insurer monitoring (IIM) assessment) that looks the possible concentration of systemic risks at the level of individual insurers, using a specific assessment methodology to evaluate these activities and exposures.
The IAIS may use ancillary indicators as part of the IIM assessment for additional context.
The consultation seeks feedback on an additional set of ancillary indicators concerning credit risk, derivatives, reinsurance and mark-to-model assets. It is also considering amendments to its existing set of liquidity metrics.
INSURANCE – NAT CAT RISKS AND PREVENTION MEASURES
EIOPA’s consultation paper on a blueprint for an awareness tool for natural catastrophe (Nat Cat) risks and prevention measures closes for feedback on 28 February 2025.
EIOPA’s proposed tool would focus on the Nat Cat exposure of buildings across the EU and relevant prevention measures, together with the property insurance-related implications. It hopes that the tool could produce a summary or checklist containing messages on citizens’ risk scores, the reduction of risks, issues to consider in insurance coverage and recommendations on issues to discuss with insurance providers or brokers.
One of the points under consideration is whether insurance product information documents provided under the Insurance Distribution Directive should contain a link to enable policyholders to check their Nat Cat risks and related prevention measures.
INSURANCE – SOLVENCY II CONSULTATION UPDATES
EIOPA second batch of consultation papers on technical standards, guidelines and a report, in each case relating to changes being made by the Solvency II Amending Directive, close for responses on 26 February 2025. This second batch comprises:
- Consultation paper on a report on biodiversity risk management by insurers.
- Consultation paper on proposed RTS on the management of sustainability risks including sustainability risk plans.
- Consultation paper on guidelines regarding the notion of diversity for the selection of members of the administrative, management or supervisory body.
- Consultation paper on revised guidelines on undertaking-specific parameters.
- Consultation paper on revised guidelines on market and counterparty risk exposures in the standard formula.
- Consultation paper on revised implementing technical standards on the lists of regional governments and local authorities' exposures who are to be treated as exposures to the central government. Among other matters the proposed amendments would remove UK entities.
LISTING ACT - MARKET ABUSE REGULATION
ESMA’s December 2024 consultation (which followed a request for technical advice from the European Commission) sought feedback following changes to the EU Market Abuse Regulation (MAR) and the Markets in Financial Instruments Directive II (MiFID II) introduced by the Listing Act. The consultation closes on 13 February 2025 and ESMA will deliver its technical advice to the Commission before the 30 April 2025 deadline.
Regarding MAR, ESMA sought feedback on:
- a non-exhaustive list of protracted process and the relevant moment of disclosure of the relevant inside information (together with some principles to identify the moment of disclosure for protracted processes that aren't included on that non-exhaustive list).
- a non-exhaustive list of examples where there is a contrast between the inside information to be delayed and the latest public announcement by the issuer.
- a methodology and preliminary results for identifying trading venues with a significant cross-border dimension, for the purposes of establishing a Cross Market Order Book Mechanism.
For more information on the changes to MAR under the Listing Act, read our insights here: Listing Act published in Official Journal: Update on changes to Prospectus and Market Abuse Regulations (debt securities) and EU Market Abuse Regulation: Listing Act changes relevant to debt capital markets
LISTING ACT - MIFID II
ESMA’s December 2024 consultation (which followed a request for technical advice from the Commission) sought feedback following changes to MAR and MiFID II introduced by the Listing Act. The consultation closes on 13 February 2025 and ESMA will deliver its technical advice to the Commission before the 30 April 2025 deadline.
Regarding MiFID II, ESMA’s sought feedback on proposals relating to:
- a systematic review of the relevant provisions in Commission Delegated Regulation 2017/565 to ensure that a multilateral trading facility (MTF) (or a segment of it) to be registered as an SME Growth Market complies with the relevant requirements in MiFID II (as amended by the Listing Act); and
- some conditions to meet the registration requirements for a segment of an MTF, as specified in MiFID II (as amended by the Listing Act).
MIFIR – DPE REGIME
Following the MiFIR review, the responsibility for reporting OTC transactions will move from systematic internalisers (SIs) to new designated publishing entities (DPEs).
ESMA has reminded market participants that:
- the new regime for the reporting of OTC transactions for post-trade transparency purposes becomes fully operational on 3 February 2025; and
- the quarterly publication of SI data will be discontinued with immediate effect.
Before the MiFIR review, many investment firms opted in to SI status so that they could report trades for their clients (leading to disproportionate requirements on those firms when not dealing on own account on a systematic basis).
Under the DPE regime (see ESMA’s public statement here), national competent authorities can grant DPE status to investment firms. DPEs, when they are party to a transaction, will need to make these transactions public through an approved publication arrangement.
PRE-HEDGING
IOSCO’s Consultation on Pre-Hedging closes on 2 February 2025.
Pre-hedging is the practice undertaken by some dealers of using information from a client about an anticipated transaction as a risk management tool to buy or sell related inventory to manage the risk of assuming the position associated with the anticipated transaction.
In the consultation, IOSCO proposes to define pre-hedging as “trading undertaken by a dealer, in compliance with applicable laws and rules, including those governing frontrunning, trading on material non-public information/insider dealing, and/or manipulative trading where: (i) the dealer is dealing on its own account in a principal capacity; (ii) the trades are executed after the receipt of information about an anticipated client transaction and before the client (or an intermediary on the client’s behalf) has agreed on the terms of the transaction and/or irrevocably accepted an executable quote; and (iii) the trades are executed to manage the risk related to the anticipated client transaction.”
In 2023, ESMA published its final report on feedback received to a 2022 call for evidence that it had run on pre-hedging. In that report, it had noted its view as being that “…pre-hedging is a voluntary market practice which might give rise to conflicts of interest or abusive behaviours, it doesn’t feel that the practice should be banned at this stage but will continue to monitor it.”
SUSTAINABLE FINANCE
The EU Platform on Sustainable Finance’s draft report on activities and technical screening criteria to be updated or included in the EU Taxonomy, with a related call for feedback, closes on 5 February 2025.
The draft report contains recommendations specific to the Climate Delegated Act; new activities mandated by the European Commission, and further recommendations for climate change adaptation.
The latter recommendations include ‘do no significant harm’ criteria for certain 'adapted' activities, a climate change adaptation headline ambition statement, an analysis of sectors most vulnerable to physical climate risks (to be prioritised for inclusion as 'adapted' activities in the future), and progress on a conceptual approach to nature-based solutions’ inclusion in enabling the climate change adaptation objective.