Looking Ahead: European Developments - Horizon Scanner: Finance, December 2024

NEW EUROPEAN COMMISSIONER BEGINS WORK

Following the European Parliament's approval of the incoming EU Commissioners (Parliament approves the "von der Leyen II" Commission (European Parliament)), and the subsequent approval by the European Council, the incoming EU Commission formally began work from 1 December 2024.

The new Commissioners include Maria Luís Albuquerque: the Commissioner for Financial Services and the Savings and Investments Union. Priorities already outlined for the new Commissioner by Commission President Ursula von der Leyen for the next 5 years include:

• Developing a European Savings and Investments Union, including banking and capital markets. Unlocking digital finance and harnessing sustainable finance will be key aspects of that part of the role.
• Tackling the fragmentation of capital markets by helping to design simple and low-cost savings and investment products at EU level (and looking at the feasibility of tax incentives for those products).
• Reviewing the regulatory framework to ensure that innovative and fast-growing EU start-ups can finance their expansion while ensuring financial stability. This may include work on risk-absorbing measures to bring in private funding from commercial banks, investors and venture capital.
• Looking at how to scale up sustainable finance, in particular transition finance and climate resilience. Exploring ways to promote the development and transparent categorisation of financial products and services with sustainability features. Focusing on the implementation of the sustainable finance framework, ensuring that it is easy to comply with and report on.
• Working at international level to ensure that the EU remains a global leader in sustainable finance.
• Exploring further measures to increase the availability of venture and other risk capital, promoting the scaling up of investment funds, and removing barriers to the consolidation of stock exchanges and post-trading infrastructure.
• Ensuring that the rules applicable to the financial sector are adequately enforced. Working to improve the supervisory system at EU-level.
• Further developing the Banking Union. Identifying a way forward on the European Deposit Insurance Scheme.
• Focusing on the macroprudential aspects of non-bank financial institutions.
• Working on measures to unlock bank financing, including through the revival of securitisation.
• Ensuring that EU rules give appropriate protection to consumers and retail investors, and working on a strategy for financial literacy.
• Continuing work on improving digital finance and payments, implementing an open access framework and continuing to monitor new opportunities and risks arising from digital technologies. Assessing artificial intelligence deployment in the financial sector. Ensuring a robust retail payments infrastructure.
• Ensuring implementation and enforcement of the AML / CFT package and preparing for the launch of AMLA.
• Strengthening the strategic approach to sanctions.

For more information, read our insights here: EU Financial Services: Key points to watch for the rest of 2024.

AML/CFT

The public consultation that was announced in October 2024 by the Financial Action Task Force (FATF) on whether revisions are needed to the FATF Recommendations to better align them with measures to promote financial inclusion closes on 6 December 2024. FATF's proposed revisions aim to better promote financial inclusion through increased focus on proportionality and simplified measures in the risk-based approach, and to give countries, supervisors, and financial institutions greater confidence and assurance when implementing of simplified measures.

CAPITAL REQUIREMENTS REGULATION / DAISY CHAINS DIRECTIVE

Commission Implementing Regulation (EU) 2024/1618 applies from 27 December 2024. It amends existing implementing technical standards (ITS) regarding the supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL) in light of the changes introduced by the Daisy Chains Directive

Read our insights here: 'Daisy Chains' Directive published in Official Journal.

CREDIT RATING AGENCIES

ESMA plans to submit technical advice to the Commission by the end of December 2024 arising from its consultation paper on proposed changes to Annex I of the Credit Rating Agencies (CRA) Regulation and Commission Delegated Regulation (EU) 447/2012 on the demonstration of compliance of credit rating methodologies.

The Commission asked ESMA, in June 2024, for technical advice on amendments to the CRA regulatory framework. In particular, the Commission asked for advice on how Annex I (Independence and Avoidance of Conflicts of Interest) and the Commission Delegated Regulation could be updated to ensure that relevant ESG risks are systematically captured in credit ratings and improve transparency on the inclusion of ESG risks by CRAs in credit ratings and rating outlooks.

CASPS AND MICA

The Markets in Crypto-Assets Regulation (MiCA) has applied to issuers of asset reference tokens (ARTs) and e-money tokens (EMTs) since 30 June 2024. It will apply to crypto asset service providers (CASPs) from 30 December 2024. Read the MiCA update in our Irish Developments section for more information on the Central Bank's authorisation process for CASPs.

Regarding the transition period for firms that (on 30 December 2024) have already been providing crypto services (the transition period in Ireland is 12 months), ESMA has updated its MiCA Q&A regarding the status of entities providing crypto-asset services during that period. It clarified that, while MiCA allows CASPs that provide their services in accordance with applicable law before 30 December 2024 to continue to do so until the end of the applicable transition period or until they are granted an authorisation under MiCA, that won't make them CASPs for MiCA purposes, and the "requirements of MiCA are therefore not applicable to them until they are granted an authorisation pursuant to Article 63".

In related developments:

• Commission Implementing Regulation (EU) 2024/2861 comes into force on 3 December 2024. It contains ITS on the technical means for the appropriate public disclosure of inside information and for delaying the public disclosure of that information.
• Commission Implementing Regulation (EU) 2024/2902 comes into force on 18 December 2024 and will apply from 1 January 2025. It sets out ITS for the application of MiCA regarding the reporting relating to ARTs and EMTs denominated in a currency that isn't an official currency of a Member State.
• Commission Implementing Regulation (EU) 2024/2545 comes into force on 16 December 2024. It sets out ITS for the application of MiCA regarding standard forms, templates and procedures for the cooperation and exchange of information between competent authorities.

CASPS, THE RECAST WIRE TRANSFERS REGULATION AND AML

Regulation (EU) 2023/1113 (the Recast Wire Transfers Regulation) applies from 30 December 2024 (having gone through the EU legislative process at the same time as MiCA). It recasts the previous regulation on information accompanying transfers of funds to include the information on originators and beneficiaries that accompanies transfers of crypto-assets. CASPs will be required to collect, and make accessible, certain information about the originator and the beneficiary of crypto-asset transfers operated by them to ensure traceability (known as the 'travel rule'). CASPs will also be required to implement related appropriate internal policies, procedures and controls. There are limited exclusions, such as person-to-person transfers conducted without a CASP, or between CASPs acting on their own behalf.

The Recast Wire Transfers Regulation also amended the Fourth Money Laundering Directive to make CASPs, which are authorised under MiCA, the subject of the same AML/CFT requirements and AML/CFT supervision as credit and financial institutions.

The EBA has issued new Guidelines on the so-called 'travel rule'. The Guidelines, which will also apply from 30 December 2024, specify the information that should accompany a transfer of funds or crypto assets and also list the steps that payment service providers, intermediary PSPs, CASPs and intermediary CASPs should take to detect missing or incomplete information, and what they should do if a transfer of funds or a transfer of crypto-assets lacks the required information. The EBA has also published Guidelines on risk-based AML/CFT supervision of CASPs, and Guidelines for CASPs to effectively manage their exposure to ML/TF risks. It is finalising its work on Guidelines on internal policies, procedures and controls to comply with restrictive measures that apply to CASPs as well as other financial institutions.

EU GREEN BOND STANDARD (GBS) REGULATION

The EU GBS Regulation will be directly effective in Ireland from 21 December 2024. Domestic Irish regulations will be needed regarding administrative penalties and other appropriate administrative measures for breaches of the Regulation – these are expected shortly.

There will be a transitional period to facilitate the provision of services by external reviewers while ESMA is putting its registration and supervision framework in place (that period will run from 21 December 2024 to 21 June 2026).

A small number of the Regulation's provisions will not apply until 21 June 2026 (relating to the equivalence framework for third country external reviewers).

ESMA plans to submit final draft technical standards to the European Commission by 21 December 2024 arising from its consultation earlier this year on the first batch of its technical standards under the EU GBS Regulation. That consultation covered mandates relating to the registration and supervision of external reviewers including:

• Criteria to be assessed at the time of registration relating to senior management, board members and analytical resources.
• Criteria to assess sound and prudent management and management of conflicts of interest.
• Criteria for assessing knowledge and experience of analysts.
• Criteria applicable to outsourcing of assessment activities.
• The standard forms, templates and procedures for the provision of registration information.
• The remainder of ESMA's mandates under the EU GBS Regulation will be addressed in a second consultation package to be published in Q1 2025.

For more information on the EU GBS Regulation, read our insights here:

EU Green Bond Regulation published in Official Journal: key points for issuers

EU Green Bond Standard: Final approval

INSURANCE

The outcome of EIOPA's 2024 EU-wide stress test for the insurance sector will be published in December 2024. The sample for the stress test included 48 undertakings from 20 Member States, covering > 75% of the EEA market in terms of total assets.

LISTING ACT

The Listing Act package was published in the Official Journal on 14 November 2024.

It comprises three pillars:

• A Regulation (Regulation (EU) No 2024/2809) amending the EU Prospectus Regulation, the EU Market Abuse Regulation and the EU Markets in Financial Instruments Regulation (MiFIR).
• A Directive (Directive (EU) No 2024/2811) amending the EU Markets in Financial Instruments Directive (MiFID II) as regards investment research.
• Directive (Directive (EU) No 2024/2810) on multiple-vote share structures in companies that seek admission to trading of their shares on a multilateral trading facility.

The Regulation that amends EU Prospectus Regulation and EU Market Abuse Regulation is of particular note for debt issuers. For more detail on the upcoming changes to EU PR and EU MAR, read our recent insights here:

EU Prospectus Regulation: Listing Act changes relevant to debt capital markets.

EU Market Abuse Regulation: Listing Act changes relevant to debt capital markets.

Listing Act published in Official Journal: Update on changes to Prospectus and Market Abuse Regulations (debt securities).

ESMA has published a Consultation Paper on draft technical advice under the EU Prospectus Regulation and a Call for Evidence on Prospectus Liability, each in connection with the Listing Act changes to the EU Prospectus Regulation. These follow a request for technical advice from the Commission on:

• the content and format of the full prospectus, including a building block of additional information to be included in prospectuses for debt securities offered to the public or admitted to trading on a regulated market that are advertised as taking into account ESG factors or pursuing ESG objectives; and
• the criteria for the scrutiny and the procedures for the approval of the prospectus, including proposed amendments to Commission Delegated Regulation 2019/980.

On the first bullet point above, this relates to two key limbs of the Listing Act changes to the EU Prospectus Regulation that will apply from 5 June 2026: the standardisation of the format and sequence of information in a prospectus (the detail is to be included in Commission Delegated Acts) and the requirement for ESG disclosures in respect of debt securities advertised as taking ESG factors into account or as pursuing ESG objectives (again, Commission Delegated Acts will set out the information to be included). As part of that consultation paper, ESMA is also consulting on proposed changes to Commission Delegated Regulation 2019/979 concerning the update of the data for the classification of prospectuses.

The Call for Evidence on Prospectus Liability relates to the call, in the Listing Act, for an analysis of liability for the information given in a prospectus and an assessment of whether there's a need for further harmonisation. The Listing Act also calls for proposals of amendments to the liability provisions to be presented if relevant.

The consultation and the call for evidence both close on 31 December 2024. ESMA will publish its final technical advice to the Commission in two separate final reports in Q2 2025. That will then feed into the preparation by the Commission on delegated acts on the format and content of debt securities prospectuses, and the related ESG disclosures.

MIFIR / MIFID II REVIEW

ESMA's July 2024 third consultation package under the MiFIR / MiFID II review focused on equity transparency, volume caps, circuit breakers, systematic internaliser notifications, equity consolidated tape providers, and post-trade transparency flags for non-equity instruments.

In December 2024, it expects to submit its final technical advice to the Commission on changes to Commission Delegated Regulation 2017/567: ESMA recommends substituting free-float with market capitalisation, setting a market capitalisation threshold of at least €100 million for liquidity determination, classifying certain financial instruments as illiquid, using the number of trading days on the most relevant market in terms of liquidity to calculate various trading parameters, and adding provisions for IPO days to ensure consistent application of transparency parameters.

It also plans to submit the final draft technical standards to the Commission in December 2024 in respect of:

• Equity transparency (changes to RTS 1 and Commission Delegated Regulation 2017/567): this includes proposals to amend the calculation of average daily turnover, average daily number of transactions, and introduce market capitalisation as a parameter. Enhancements to pre-trade and post-trade transparency obligations are also included.
• Equity consolidated tape provider (CTP) (new RTS on input/output data): this includes specifications for data to be provided to and disseminated by CTPs, including core market data for both pre-trade and post-trade transparency.
• Flags for non-equity transparency (changes to RTS 2): this introduces new deferral flags based on transaction size and liquidity, and additional flags for sovereign debt instruments.

ESMA plans to submit final draft technical standards arising from its May 2024 public consultation on draft technical standards related to CTPs, other data reporting service providers and the assessment criteria for the CTP selection procedure under MiFIR to the Commission by 29 December 2024.

SECURITISATION

Stakeholders across the EU securitisation industry are finalising their responses to the Commission's 8-week targeted consultation on the functioning of the EU securitisation framework which contains 167 questions and closes on 4 December 2024.

Among the questions posed by the consultation are whether the jurisdictional scope of the EU Securitisation Regulation should be more clearly set out in the Level 1 text (questions of jurisdictional scope have been a long-running theme – read our update on the ESAs 2021 opinion on jurisdictional scope, and the Commission's responses here: Securitisation Regulation: European Commission publishes long-awaited Report). The Commission has also sought feedback on whether the definitions of "securitisation" and "sponsor" should change. Due diligence and transparency/disclosure are the subject of a number of detailed consultation questions.

We also expect to see the following shortly:

• The report from the European Supervisory Authorities under Article 44 of the EU Securitisation Regulation which, among other matters, is expected to address Article 5(1)(e) (which has been the subject of combined submissions from industry bodies such as AFME and the ICMA).
• ESMA's feedback statement on its December 2023 consultation on possible changes to its regulatory technical standards and ITS on disclosures.
• A consultation from ESMA on guidelines on the due diligence requirements in Article 5 of the EU Securitisation Regulation.

SETTLEMENT / MOVE TO T+1

As announced in the joint ESMA / European Commission / ECB statement on 15 October 2024, details of a governance structure will be published shortly which will oversee and support the technical work involved in the move to T+1 – currently planned for 11 October 2027.

For more information, read our insights here:

T+1 Settlement: Next Steps (EU governance structure)

T+1 Update: ESMA recommends move to T+1 on 11 October 2027

SETTLEMENT / CENTRAL SECURITIES DEPOSITORIES REGULATION (CSDR)

One of the three aspects of the CSDR Refit consultation package published by ESMA in July 2024 related to technical advice on the scope of settlement discipline – this dealt with ESMA's proposals regarding the underlying cause of settlement fails that are considered as not attributable to the participants in the transaction, and the circumstances in which operations are not considered as trading. It plans to publish a final report and submit its technical advice to the Commission by 31 December 2024.

Final reports in respect of the two sets of technical standards which also formed part of that consultation package (information to be provided by European CSDs to their national competent authorities for review and evaluation, and information to be notified to ESMA by third-country CSDs) are expected to be submitted to the Commission in mid-January 2025.

Other planned ESMA CSDR-related consultations will follow in the coming months (covering settlement discipline, measures to prevent settlement fails, deferred net settlement).

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.