With 2015 drawing to an end, it is time to have a look at what the New Year will bring in European financial services legislation. In the past month, several European Union (EU) institutions and authorities have published their work plans for 2016. While these programmes are not definite, and some diversions can be expected in the coming year, they do offer a good preview of what to expect in the European legislative arena.
European Commission’s Priority: Capital Markets Union
The European Commission, the executive arm of the EU, published its 2016 Work Programme on 27 October. The title, ‘No time for business as usual’, is telling. The Commission is making clear that urgent action is needed in several aspects of EU legislation, and highlights the need to speed up some of the policy-making processes.
The Work Programme underlines that the Commission’s focus in 2016 will be on the Capital Markets Union (CMU). As noted in my earlier blog post, the CMU initiative is an umbrella framework that consists of both legislative and nonlegislative proposals. In line with the CMU Action Plan, the Commission’s 2016 Work Programme notes that one of its “priority pending proposals” is the Regulation creating a European framework for simple, transparent, and standardised securitisation.
Unevenly applied financial services legislation in the Member States has been stated as one of the main barriers to the development of pan-European capital markets. The Commission has taken note and launched in September a public consultation that attempts to identify possible inconsistencies, incoherence, and gaps in financial rules, as well as unnecessary regulatory burdens and factors negatively affecting long-term investment and growth. Once the consultation closes in January 2016, the Commission will report on the main findings and next steps by mid-2016.
Upcoming Legislative Reviews
The Work Programme states that the Commission will publish a legislative proposal to revise the Prospectus Directive at the end of 2015 or at the beginning of 2016. The Commission will also begin a legislative review of the European Venture Capital Funds (EuVECA) Regulation and European Social Entrepreneurship Funds (EuSEF) Regulation to improve the take-up of these funds without reducing the level of investor protection. The Commission notes that while these specialist venture capital investment funds have been available since 2013, only a small number of funds set up as EuVECA and EuSEF have so far been launched.
In addition, over the next year the Commission will evaluate the Financial Conglomerates Directive (FCD) to assess whether the Directive can be considered ‘fit for purpose’. The FCD aims at the supplementary supervision of regulated entities that form part of a financial conglomerate, i.e., groups with licenses in both the banking and the insurance sector, by focusing on potential risks in those entities. The Commission also aims to make “more progress” on the proposal for Enhanced Cooperation on Financial Transaction Tax (FTT), though does not specify how and when that progress can be achieved. Further steps will also be taken to complete the European Banking Union.
Market Abuse Legislation Implementation
The Commission Work Programme also lists financial services laws that will become fully or partially applicable in 2016. Following the post-2008 financial crisis ‘regulatory tsunami’, the key focus of these legislations is on investor protection. For example, the Market Abuse Regulation, which among other things explicitly bans the manipulation of benchmarks, will enter partially into force on 3 July 2016. The Directive on criminal sanctions for market abuse (‘Market Abuse Directive’), which complements the Market Abuse Regulation by requiring all Member States to provide harmonised criminal offences of insider dealing and market manipulation, will become fully applicable in the EU on 3 July 2016. The Regulation and Directive thus form a legislative package on market abuse that focuses on slightly different areas.
At the end of next year, on 31 December 2016, the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs) will become partially applicable in the EU. The undertakings for collective investments in transferable securities (UCITS) key investment information document (KIID) will be exempted for another three years and will be subject to the PRIIPs Regulation only in 2019. The Directive on the coordination of laws, regulations, and administrative provisions relating to UCITS regarding depositary functions, remuneration policies, and sanctions will become applicable on 18 March 2016.
Interestingly, the Commission does not mention the possible central counterparty recovery and resolution (CCP R&R) legislation anywhere in its Work Programme. In the previous months, it was widely expected that the Commission would propose the CCP R&R legislation at the end of 2015 and begin the political discussions in early 2016.
ESMA to Focus on Technical Standards
In addition to the Commission, the European Securities and Markets Authority (ESMA) recently published its 2016 Work Programme. The pan-European Authority is responsible for the supervision of certain EU-based entities, such as credit-rating agencies and trade repositories, ensuring supervisory convergence between national supervisory authorities, as well as developing the so-called Level II technical standards for EU financial services legislation.
In its 2016 work plan, ESMA notes that enhancing supervisory convergence in Europe will be one of its key objectives in the coming year. ESMA will produce a supervisory convergence work programme and continue its cooperation with national, Member State authorities.
ESMA will also focus on the drafting of the so-called Level II technical standards on the Markets in Financial Instruments Directive and Regulation (MiFID/R II). By the end of 2016, ESMA will have to draft between 15 and 18 MiFID/R II technical standards. ESMA is also expected to write MiFID/R II guidelines and Q&As to help with the consistent implementation of the legislation across the EU Member States. ESMA will also carry out IT work to facilitate the data collection and reporting mandated under MiFID/R II.
The other Level II work includes drafting regulatory and implementing technical standards under the Securities Financing Transactions Regulation (SFTR). The standards comprise the definition and format of reports to be submitted to trade repositories (TRs); the information to be made available to national supervisors; and the information to be provided to ESMA for TRs to be registered for SFTR purposes. ESMA will also produce a report on the evaluation of the Short Selling Regulation and continue the development of the credit-rating agencies single rulebook by the end of 2016.
In a press release, ESMA notes that it still continues to struggle with the lack of resources, which may mean that they may not be able to finish everything noted in the work plan. The challenges posed by the resource constraints was also noted in my earlier blog post.
Consumer Protection and Financial Innovation Priorities
To finalise the roundup of recent work plans, the Joint Committee of the European Supervisory Authorities (ESAs) published its 2016 Work Programme on 5 October. The Joint Committee, which represents the common visions of ESMA, the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA), will focus on consumer protection and financial innovation in 2016.
As part of those priorities, the ESA Joint Committee will develop draft regulatory technical standards on disclosures for PRIIPs. The technical standards will focus on the content and presentation of the Key Information Document (KID), the revision and review of the KID, and the timing of the delivery of the KID.
The ESA Joint Committee will also continue in 2016 its assessment of financial advice automation to consider which, if any, regulatory and/or supervisory measures should be taken.
Following the publication of the work programmes, it is clear that the regulatory landscape in Europe will keep on evolving in the coming year. It is laudable that all three work programmes analysed have placed more focus on investor protection and the removal of cross-border investment barriers. However, only this time next year will we know how much progress has been made in practice. CFA Institute will continue to actively follow these issues in the coming year, and when useful, engage with policy makers on the topics of interest on behalf of our members
European Commission’s Priority: Capital Markets Union
The European Commission, the executive arm of the EU, published its 2016 Work Programme on 27 October. The title, ‘No time for business as usual’, is telling. The Commission is making clear that urgent action is needed in several aspects of EU legislation, and highlights the need to speed up some of the policy-making processes.
The Work Programme underlines that the Commission’s focus in 2016 will be on the Capital Markets Union (CMU). As noted in my earlier blog post, the CMU initiative is an umbrella framework that consists of both legislative and nonlegislative proposals. In line with the CMU Action Plan, the Commission’s 2016 Work Programme notes that one of its “priority pending proposals” is the Regulation creating a European framework for simple, transparent, and standardised securitisation.
Unevenly applied financial services legislation in the Member States has been stated as one of the main barriers to the development of pan-European capital markets. The Commission has taken note and launched in September a public consultation that attempts to identify possible inconsistencies, incoherence, and gaps in financial rules, as well as unnecessary regulatory burdens and factors negatively affecting long-term investment and growth. Once the consultation closes in January 2016, the Commission will report on the main findings and next steps by mid-2016.
Upcoming Legislative Reviews
The Work Programme states that the Commission will publish a legislative proposal to revise the Prospectus Directive at the end of 2015 or at the beginning of 2016. The Commission will also begin a legislative review of the European Venture Capital Funds (EuVECA) Regulation and European Social Entrepreneurship Funds (EuSEF) Regulation to improve the take-up of these funds without reducing the level of investor protection. The Commission notes that while these specialist venture capital investment funds have been available since 2013, only a small number of funds set up as EuVECA and EuSEF have so far been launched.
In addition, over the next year the Commission will evaluate the Financial Conglomerates Directive (FCD) to assess whether the Directive can be considered ‘fit for purpose’. The FCD aims at the supplementary supervision of regulated entities that form part of a financial conglomerate, i.e., groups with licenses in both the banking and the insurance sector, by focusing on potential risks in those entities. The Commission also aims to make “more progress” on the proposal for Enhanced Cooperation on Financial Transaction Tax (FTT), though does not specify how and when that progress can be achieved. Further steps will also be taken to complete the European Banking Union.
Market Abuse Legislation Implementation
The Commission Work Programme also lists financial services laws that will become fully or partially applicable in 2016. Following the post-2008 financial crisis ‘regulatory tsunami’, the key focus of these legislations is on investor protection. For example, the Market Abuse Regulation, which among other things explicitly bans the manipulation of benchmarks, will enter partially into force on 3 July 2016. The Directive on criminal sanctions for market abuse (‘Market Abuse Directive’), which complements the Market Abuse Regulation by requiring all Member States to provide harmonised criminal offences of insider dealing and market manipulation, will become fully applicable in the EU on 3 July 2016. The Regulation and Directive thus form a legislative package on market abuse that focuses on slightly different areas.
At the end of next year, on 31 December 2016, the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs) will become partially applicable in the EU. The undertakings for collective investments in transferable securities (UCITS) key investment information document (KIID) will be exempted for another three years and will be subject to the PRIIPs Regulation only in 2019. The Directive on the coordination of laws, regulations, and administrative provisions relating to UCITS regarding depositary functions, remuneration policies, and sanctions will become applicable on 18 March 2016.
Interestingly, the Commission does not mention the possible central counterparty recovery and resolution (CCP R&R) legislation anywhere in its Work Programme. In the previous months, it was widely expected that the Commission would propose the CCP R&R legislation at the end of 2015 and begin the political discussions in early 2016.
ESMA to Focus on Technical Standards
In addition to the Commission, the European Securities and Markets Authority (ESMA) recently published its 2016 Work Programme. The pan-European Authority is responsible for the supervision of certain EU-based entities, such as credit-rating agencies and trade repositories, ensuring supervisory convergence between national supervisory authorities, as well as developing the so-called Level II technical standards for EU financial services legislation.
In its 2016 work plan, ESMA notes that enhancing supervisory convergence in Europe will be one of its key objectives in the coming year. ESMA will produce a supervisory convergence work programme and continue its cooperation with national, Member State authorities.
ESMA will also focus on the drafting of the so-called Level II technical standards on the Markets in Financial Instruments Directive and Regulation (MiFID/R II). By the end of 2016, ESMA will have to draft between 15 and 18 MiFID/R II technical standards. ESMA is also expected to write MiFID/R II guidelines and Q&As to help with the consistent implementation of the legislation across the EU Member States. ESMA will also carry out IT work to facilitate the data collection and reporting mandated under MiFID/R II.
The other Level II work includes drafting regulatory and implementing technical standards under the Securities Financing Transactions Regulation (SFTR). The standards comprise the definition and format of reports to be submitted to trade repositories (TRs); the information to be made available to national supervisors; and the information to be provided to ESMA for TRs to be registered for SFTR purposes. ESMA will also produce a report on the evaluation of the Short Selling Regulation and continue the development of the credit-rating agencies single rulebook by the end of 2016.
In a press release, ESMA notes that it still continues to struggle with the lack of resources, which may mean that they may not be able to finish everything noted in the work plan. The challenges posed by the resource constraints was also noted in my earlier blog post.
Consumer Protection and Financial Innovation Priorities
To finalise the roundup of recent work plans, the Joint Committee of the European Supervisory Authorities (ESAs) published its 2016 Work Programme on 5 October. The Joint Committee, which represents the common visions of ESMA, the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA), will focus on consumer protection and financial innovation in 2016.
As part of those priorities, the ESA Joint Committee will develop draft regulatory technical standards on disclosures for PRIIPs. The technical standards will focus on the content and presentation of the Key Information Document (KID), the revision and review of the KID, and the timing of the delivery of the KID.
The ESA Joint Committee will also continue in 2016 its assessment of financial advice automation to consider which, if any, regulatory and/or supervisory measures should be taken.
Following the publication of the work programmes, it is clear that the regulatory landscape in Europe will keep on evolving in the coming year. It is laudable that all three work programmes analysed have placed more focus on investor protection and the removal of cross-border investment barriers. However, only this time next year will we know how much progress has been made in practice. CFA Institute will continue to actively follow these issues in the coming year, and when useful, engage with policy makers on the topics of interest on behalf of our members
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