European Union: Banking, Finance And Insurance Letter - September-October 2018

Capital markets

ESMA withdraws MiFID I automated trading guidelines

On September 26, 2018, the ESMA Supervisory Board decided to withdraw the MiFID I guidelines of February 24, 2012 relating to systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities.

This decision comes after the entry into force, on January 3, 2018, of the MiFID II Directive, replacing MiFID I, which already incorporates the concepts set out in these 2012 guidelines.

As a reminder, these guidelines particularly addressed the following issues:

  • organisational requirements for electronic trading systems of regulated markets and multilateral trading facilities;
  • organisational requirements for electronic trading systems of investment firms (including trading algorithms);
  • organisational requirements for regulated markets and multilateral trading systems to promote a fair and orderly trading process in an automated trading environment;
  • organisational requirements for investment firms to promote a fair and orderly trading process in an automated trading environment;
  • organisational requirements for regulated markets and multilateral trading systems to prevent market abuse (including market manipulation) in an automated trading environment;
  • organisational requirements for investment firms to prevent market abuse (including market manipulation) in an automated trading environment;
  • organisational requirements for regulated markets and multilateral trading systems where members/actors and users provide direct access to the market/sponsored access;
  • organisational requirements for investment firms that provide direct market access and / or sponsored access.

Publication of new indicators for trading platforms

On September 27, 2018, ESMA announced the future publication of two new indicators (Completeness Ratio and Completeness Shortfall) for trading platforms detailing the provision of double volume cap (DVC) data and bond liquidity.

ESMA considers that the provision of complete, accurate and timely data is essential for the proper implementation of MiFIR and compliance with its requirements.

More specifically:

  • the completeness ratio: is an indicator of the performance of a particular platform taken separately, independently of the performances of other platforms. This ratio is calculated by dividing the number of records received from a platform by the total number of records expected on that platform for the relevant period. A record corresponds to a biweekly report for the DVC and one day for bond liquidity;
  • the shortfall ratio: is an indicator of the performance of a platform compared to other trading platforms. It reflects the percentage (relative to other platforms) of missing records for which a platform is responsible.

These two new indicators will help trading platforms to provide complete and accurate data in a timely manner, providing performance information on the timeliness and completeness of the delivery of their data.

The indicators were first published on October 8, 2018 for DVC data and October 31, 2018 for bond liquidity.

Analysis of derivatives outstandings in the EU by ESMA

On October 18, 2018, ESMA published its first annual statistical report on the derivatives market in the EU.

ESMA estimates that based on the data available to it through the reporting imposed by EMIR Regulation, the European market for derivatives cleared in clearing houses amounts 660 trillion Euros, i.e. 660 billion billion Euros.

This report is the first overview of the EU's derivatives markets.

The primary objective of this data analysis is to contribute to the risk assessment carried out by ESMA in order to facilitate the control of entities by both national and European supervisory authorities and to strengthen the convergence of supervision.

The report consists of three sections:

  • market supervision: analysis of structures and trends of European derivatives during each reporting period, based on indicators developed for risk management;
  • statistical methods devoted to specific issues in the analysis of data relating to derivatives; and
  • derivatives market statistics: a complete list of indicators and measures currently followed by ESMA.

A major step forward to raise awareness of the issues and macroeconomic risks of one of the world's largest markets.

Banking

Competent court in matters of tort liability of issuers of financial securities

On September 12, 2018, the Court of Justice of the European Union "CJEU" issued a decision concerning the determination of the competent court in matters of liability of issuers of financial securities pursuant to the Brussels I Regulation.

In specie, a London bank issued certificates in the form of bearer bonds, initially subscribed by institutional investors who subsequently sold them on the secondary market to retail investors, particularly Austrian investors. However, some of the money invested in the certificates by said Austrian investors was lost due to a pyramid fraud system.

One of the Austrian investors therefore brought an action against the issuing bank before the Commercial Court of Vienna, Austria, for the payment of damages on the basis of the tort and contractual liability of the bank, in particular due to the incompleteness of the information in the bank's prospectus.

The court declared that it lacked jurisdiction and this decision was upheld on appeal. On appeal from the investor, the Austrian Supreme Court, in turn, asked the CJEU for a preliminary ruling on the following question:

"Under Article 5 (3) of Regulation [No 44/2001], what is the competent court for extracontractual claims for liability arising from the prospectus when:

  • the investor has taken his investment decision caused by the incomplete prospectus at his home, and
  • on the basis of this decision, he transferred the purchase price of the security acquired on the secondary market from his account held by an Austrian bank to a settlement account held by another Austrian bank, where said purchase price was then transferred to the seller on behalf of the applicant?".

Several answers could be given; could it be considered that it was:

  • the court in whose jurisdiction the investor is domiciled?
  • the court in whose jurisdiction is located the registered office of the bank or its branch managing the applicant's bank account from which it transferred the invested amount to the settlement account?
  • the court in whose jurisdiction is located the registered office of the bank or its branch managing the settlement account?
  • one of these courts, at the choice of the applicant?
  • none of these courts?

The Court reiterates that the liability arising from incomplete information of the prospectus is tort liability. The Court then proceeds with an analysis of the concept of "place where the harmful event occurred or is likely to occur". Thus, the Court recalls that this concept: "cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere; and this concept does not refer to the place of the applicant's domicile where the centre of his assets is located, on the sole grounds that he has suffered a financial loss there resulting from the loss of elements of his assets which occurred and was undergone in another Member State".

The CJEU upholds the applicant's request by confirming, in particular after studying a body of evidence and in accordance with its previous case law, that the place of occurrence of the damage is the place where the bank account on which the applicant performed the transaction and on which said loss directly occurred is located; thus, the Austrian court was competent.

This judgement is an opportunity to clarify once again the framework of the liability of issuers due to their prospectus and to recall the criteria applicable to the definition of the place of occurrence of the damage. By this solution, the CJEU reinforces the protection of investors by recognising the jurisdiction of the courts of the location of the bank used to carry out the investment transaction (and therefore generally their home).

The AMF, through these various recommendations, addresses the following points:

  • issuers must take into account any vote cast through a voting document or form that meets legal and regulatory requirements;
  • the facilitation of the exercise by proxyholders of instructions received from their principals, by the delivery by issuers to proxyholders who so request at the general meeting of a reasonable number of voting boxes;
  • the recommendation to shareholders and issuers using the services of a bailiff at meetings to require that he specifies in his report the extent and limits of his mission;
  • the fight against the billing of costs deterring shareholders from voting or registering in registered form;
  • strengthening the trust of market players in the management of votes, by recommending the development by the players concerned of a methodological guide to the treatment of votes at general meetings.

The AMF also proposes legislative and regulatory adaptations concerning the transparency of proxy and correspondence voting (timestamping, electronic confirmation of receipt, confirmation of the taking into account of shareholders' votes or reason for not taking it into account, publication of the number of votes rejected when the results are announced).

These various recommendations are intended to strengthen the rationae of collective decision-making for the benefit of shareholders but create operational constraints as well as additional causes of liability for issuers.

Collective management

Publication by the French Financial Management Association "AFG" of statistics on Responsible Investment in the French asset management industry

Responsible Investment brings together the investment strategies of management companies that comply with the Environmental, Social and Governance (ESG) criteria.

At December 31, 2017, responsible investment in France amounted to 1,081 billion Euros and continues to grow. This growth is accompanied by an increase in the quality of management processes, notably through the communication of ESG practices by managers and investors, and the creation of labels by the Ministry of the Economy and Finance and the ecological and inclusive transition (ISR and TEEC label).

This trend is not a transitory or endemic effect; there is a trend at European level that is part of the implementation of the European Commission's action plan on sustainable finance.

Even if the strategies employed remain rather rudimentary for the moment considering the novelty of this typology of investments (selection of investments meeting as far as possible the specifications of responsible investment), the coming years will be the occasion to develop more sophisticated strategies incorporating greater diversification of ESG companies as well as ESG investment categories.

Insurance

EIOPA publishes a decision on the cooperation of the competent national authorities in the supervision of the insurance distribution of intermediaries and insurance companies

On October 10, 2018, EIOPA published its decision to replace the Luxembourg Protocol, which was to be substantially revised following the new regulatory framework for the distribution of insurance services.

This decision aims to strengthen cooperation between the competent national authorities and more specifically to improve the exchange of information to ultimately protect the interests of consumers and the effectiveness of supervision.

Gabriel Bernardino, President of EIOPA, said in this context that effective and close cooperation between the competent authorities is essential for the conduct of preventive measures relating to supervision and risk management. It is more important than ever to achieve strong objectives of cooperation between the competent national authorities to ensure an appropriate level of consumer protection throughout the European Union.

Letter from the ESAs relating to IRFS 17 in insurance contracts

On October 18, 2018, the three ESAs sent the European Financial Reporting Advisory Group "EFRAG" a letter of approval of IFRS 17 standards on insurance contracts.

The three ESAs have always emphasised the importance of replacing the current accounting system, IFRS 4, which entered into force in 2005, intended as a temporary measure that allowed the maintenance of certain grandfather clauses of different incompatible accounting practices. IFRS 4 was therefore not consistent with its objective of transparency and comparability of financial reporting by insurance companies at the heart of the project of the union of capital markets.

In this context, the ESAs monitored EFRAG's approval processes and expressed some reservations (lack of transparency in decision-making, lack of depth in some of the technical analyses of the EFRAG group of experts).

The ESAs emphasise that completing the approval process in a timely manner is particularly important, in particular because of the possible option for insurance companies and financial conglomerates (carrying out an insurance activity) to defer the application of IFRS 9 (relating to financial instruments) until January 1, 2021, effective date of IFRS 17.

This is why the ESAs recall the attention that EFRAG must give to compliance with deadlines, without which the application of the IFRS standards could be disorderly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions