EU Financial Regulation
AML/CFT - AMLA
The third political trilogue on the planned EU Anti-Money Laundering Authority (AMLA) took place on 14 November 2023, and at least one more trilogue meeting will take place this month. The EU Council Presidency is keen to finish the negotiations on this part of the AML package before the end of the year. A key outstanding point is how the decision will be made regarding where AMLA will be located, and which institutions will be directly supervised by AMLA in the first wave. Considerable progress was also made at the fifth round of trilogues for the 'single rulebook' AML Regulation on 29 November 2023 and it is possible that provisional political agreement will be reached by the end of 2023.
AML - BENEFICIAL OWNERSHIP
The Financial Action Task Force’s consultation on its proposed updates to its Risk-Based Guidance to Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements closes on 8 December 2023. The consultation is focused on express trusts and how ‘similar legal arrangements’ can be identified - FATF will consider the feedback received at its February 2024 Plenary.
BANKS – EBA 2023 RISK ASSESSMENT REPORT
The EBA has confirmed that its 2023 Risk Assessment Report and transparency exercise with bank-by-bank data will be released on 12 December 2023.
CRYPTO-ASSETS - MARKETS IN CRYPTO ASSETS REGULATION (MICA)
ESMA’s second consultation package under MiCA will close for feedback on 14 December 2023. This package covers six sets of regulatory technical standards (RTS) and two sets of implementing technical standards (ITS) on:
- The content, methodologies and presentation of sustainability indicators and adverse impacts on climate.
- Continuity and regularity in the performance of crypto asset services.
- Offering pre- and post-trade data to the public.
- Content and format of order book records and recordkeeping by crypto-asset service providers.
- The technical means for appropriate public disclosure of inside information.
- Machine readability of white papers and the register of white papers. The RTS and ITS cover standard forms, formats and templates of white papers, and the data necessary for the classification of white paper.
ESMA expects to publish a final report and submit the draft RTS and ITS to the European Commission for endorsement by 30 June 2024 at the latest. It will publish a third consultation package containing the remaining 18-month mandates under MiCA in Q1 2024.
Separately, the deadline for responding to the Commission’s consultation on four draft delegated acts under MiCA is 6 December 2023. These four draft Commission Delegated Acts specify:
- Certain criteria for classifying asset-referenced tokens (ARTs) and e-money tokens (EMTs) as significant.
- The procedural rules for the EBA to exercise the power to impose fines or periodic penalty payments on issuers of significant ARTs and EMTs.
- The criteria and factors that ESMA, the EBA and competent authorities must consider in relation to their product intervention powers.
- The fees charged by the EBA to issuers of significant ARTs and EMTs.
The Commission plans to adopt the delegated acts before the application of the relevant parts of MiCA on 30 June 2024.
EMIR – CCP FEES
ESMA’s public consultation on the revision of the Delegated Regulation regarding fees charged to Tier 1 third country central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR) now closes on 8 December 2023 (extended from 10 November 2023). Feedback received will feed into ESMA’s technical advice to the European Commission on changes to the Delegated Regulation on fees charged to third country CCPs.
EMIR REFIT
The European Parliament hopes to begin trilogues with the EU Council on EMIR Refit before the end of the year, following the adoption of its negotiating position. The active account proposal is proving to be the most contentious topic – the most recent suggestion from the EU Council is for a certain proportion of clearing activity to take place in the active account based on the bank or other counterparty’s portfolio of derivatives contracts (no specific thresholds have been given). The European Parliament broadly supports the active account requirement, but is suggesting that the requirement be phased in gradually after the Commission carries out a cost-benefit analysis.
EURIBOR
The consultation paper published by the European Money Markets Institute (EMMI) with proposed changes to the hybrid methodology for EURIBOR closes for feedback on 11 December 2023.
INVESTMENT FIRMS
Commission Implementing Regulation 2023/2526 under the Investment Firms Directive comes into force on 10 December 2023. It amends the implementing technical standards (ITS) in Implementing Regulation (EU) 2022/389 which contains templates for the publication of information that competent authorities have to disclose, such as the composition of own funds and the own funds requirements by type of requirement. The new Commission Implementing Regulation amends Annex IV of the 2022 Implementing Regulation to include data on the composition of own funds and own funds requirements by type of requirement for those investment firms that qualify as small and non-interconnected.
LEVERAGED LOANS AND CLOS
IOSCO’s Consultation Report on Leveraged Loans and CLOs Good Practices for Consideration closes on 15 December 2023. It proposes 12 good practices for market participants, grouped under 5 headings:
- Origination and refinancing.
- EBITDA and loan documentation transparency.
- Strengthening alignment of interest from loan origination to end investors.
- Addressing interests of different market participants throughout the intermediation chain.
- Ongoing disclosure of information.
IOSCO plans to finalise the good practices by Q1 2024.
OPERATIONAL RESILIENCE
The European Commission’s consultation on two draft delegated acts to be adopted under the regulation on digital operational resilience for the financial sector (DORA) closes for feedback on 14 December 2023.
The draft delegated acts supplement DORA by:
- Specifying the criteria for the designation of ICT third-party service providers as critical for financial entities (CTPPs).
- Determining the amount of the oversight fees to be charged by the lead overseer to CTPPs and the way in which those fees are to be paid.
The Commission intends to adopt the delegated acts in Q2 2024 (it is required to do so by 17 July 2024 under the terms of DORA).
SECURITIES MARKETS
The deadline for investment firms and credit institutions to bring the Central Bank’s Industry Communication: Conduct Risk Assessment of Telephone and Electronic Communications to the attention of board members, senior management and relevant staff is end-Q4 2024. Issues identified by the Central Bank included failures to amend policies and procedures to take account of remote or hybrid working, insufficient monitoring of communications, ineffective breach monitoring functionality, and a lack of clear policies and procedures for breach reporting. The importance of addressing the issues set out in the Industry Communication was addressed by Patricia Dunne, the Central Bank’s Director of Securities and Markest Supervision, in her recent speech in which she also emphasised the importance of firms reviewing relevant policies and procedures, assessing their monitoring of electronic communications, and ensuring that staff receive adequate training.
SECURITISATION
We may see a consultation paper from ESMA later this month on revisions to its loan level disclosure templates.
SETTLEMENT
ESMA’s Call for Evidence on the shortening of the settlement cycle closes on 15 December 2023.
According to ESMA, the Call for Evidence will help it assess the costs and benefits of a possible reduction of the settlement cycle in the EU, and identify whether any regulatory action is needed to smoothen the impact for EU market participants of the planned shortening of the settlement cycle to T+1 in other jurisdictions (such as the US).
ESMA will publish a feedback report during 2024 and submit it to the European Commission. It may give an earlier report to the Commission to identify possible regulatory actions to address the impact of the US move to T+1. A potential move to T+1 is expected to be an item for consideration by the European Commission in the medium-term.
SOLVENCY II DIRECTIVE
Commission Implementing Regulation 2023/894 and Commission Implementing Regulation 2023/895 come into force on 31 December 2023.
The first updates the supervisory reporting templates for (re)insurers, particularly in relation to reporting of cyber risk, climate risk, cross-border business and splitting reporting of non-life products by line of business, as well as changing the reporting requirements for captive (re)insurers. The second updates the procedures, formats and templates for (re)insurers to publish their annual Solvency and Financial Condition Report, for both individual (re)insurance undertakings and groups.