EU COUNCIL PRESIDENCY PRIORITIES

Belgium has assumed Presidency of the Council of the EU for H1 2024. From a finance perspective, the following were notable inclusions on its programme of priorities (in advance of European elections this summer): banking union (focusing on the bank crisis management and deposit insurance (CMDI) proposal); capital markets union (focusing on the Retail Investment Strategy, the Listing Act, and financial literacy); sustainable finance (in particular finalising work on the ESG ratings proposal, and on the Corporate Sustainability Due Diligence Directive); energy and climate transition; digital transition and cyber resilience; and sanctions against Russia.

PLANNED EUROGROUP STATEMENT

The H1 2024 Work Programme of the EU Council's Eurogroup was announced in mid-January by Minister for Finance Paschal Donohoe (in his capacity as Eurogroup President). The Eurogroup plans to agree a statement proposing the direction for the future of European capital and financial markets at both national and EU level, and present it to the Euro Summit in Spring 2024.

PLANNED ESMA CONSULTATIONS

ESMA's planned 2024 consultation papers include Q1 2024 consultations on guidelines on the due diligence requirements under the EU Securitisation Regulation; MiCA guidelines and technical standards; RTS on position management controls and ITS 4 on position reporting as part of the MiFID review; RTS under EU Green Bond Regulation; and guidelines on internal controls for ESMA supervised entities (credit rating agencies, trade repositories, data reporting service providers, securitisation repositories and benchmark administrators).

T+1 SETTLEMENT

While any EU move towards T+1 settlement is not imminent, it is on the European Commission's list of medium-term priorities over the next few years and the recent Speech by Commissioner McGuinness at a Commission Roundtable on the shortening of the settlement cycle in the EU sets out what the Commission is looking at in the background on this particular issue.

AML - AMLA

Following joint public hearings on 30 January 2024, with the EU Member States (including Ireland) who applied in November 2023 to host the new central EU AML/CFT supervisor (AMLA), the European Parliament and EU Council will vote on AMLA's location on 22 February 2024.

This also follows the successful conclusion in January 2024 of trilogues on the remaining two elements of the new AML/CFT package (the 'single rulebook' regulation, and the directive).

For more information, read our insights here:

AML - CAYMAN ISLANDS

Commission Delegated Regulation (EU) 2024/163 which will remove the Cayman Islands (and Jordan) from the list of high-risk third countries for AML/CFT purposes comes into force on 7 February 2024.

AML AND CRYPTO – 'TRAVEL RULE' GUIDELINES

The EBA's consultation on new Guidelines on preventing the abuse of funds and certain crypto-assets transfers for money laundering and terrorist financing purposes closes on 26 February 2024.

This relates to the Recast Transfers of Funds Regulation, the one part of the European Commission's 2021 AML / CFT package that has been finalised and published in the Official Journal so far. It comes into force at the end of 2024, at the same time as MiCA (the markets in crypto-assets regulation).

Under the Recast Transfers of Funds Regulation, crypto-asset service providers (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'). The 'travel rule' Guidelines that are the subject of this EBA consultation set out the steps that payment service providers (PSPs), intermediary PSPs, CASPs and intermediary CASPs should take to detect missing or incomplete information that accompanies a transfer of funds or crypto-assets. They also detail the procedures all these providers should put in place to manage a transfer of funds or a transfer of crypto-assets that lacks the required information.

BANKS - DISCLOSURE OF CLIMATE-RELATED FINANCIAL RISKS

The Basel Committee on Banking Supervision's consultation on the disclosure of climate-related financial risks closes on 29 February 2024.

In the consultation, the BCBS looks for feedback on a new Pillar 3 disclosure framework for climate-related financial risks, to complement the work of the International Sustainability Standards Board and others, and to provide a common disclosure baseline for internationally active banks. The Annex to the consultation contains draft disclosure tables on governance, strategy and risk management and on transition risk, physical risk and concentration risk. It also contains draft templates on potential formats for banks' quantitative disclosures for consultation and for items that would be subject to jurisdictional discretion.

The BCBS has signposted its plans to publish a revised / final proposal in H2 2024. It is looking at a potential implementation date of 1 January 2026.

BANKS – INTERNAL MODELS

The EBA's public consultation on its draft Regulatory Technical Standards (RTS) on the conditions for assessing the materiality of extensions and changes to the use of internal models as well as to the subset of the modellable risk factors applicable under the 'fundamental review of the trading book' (FRTB) rules closes on 29 February 2024.

These RTS are part of the Phase 4 deliverables under the EBA roadmap for the new market and counterparty credit risk approaches.

BANKS – MINIMUM REQUIREMENT FOR OWN FUNDS AND ELIGIBLE LIABILITIES (MREL)

The Single Resolution Board's Public Consultation on the future review of MREL closes for feedback on 13 February 2024.

The SRB's consultation focused on the following issues:

  • The SRB wants resolution authorities to be ready to deploy more than one resolution tool and has suggested that strategies combining bail-in and transfer tools or the bail-in tool alone could be developed to provide greater optionality.
  • The SRB is looking at the amount necessary to sustain market confidence after resolution (in the light of the early 2023 turmoil in the banking market). In particular, it is looking at the criteria underpinning the setting of the market competence charge at the level of a subsidiary in a banking group.
  • The SRB wants industry feedback on its approach to intensifying its monitoring activities in respect of new MREL issuances.
  • The SRB is working on a set of principles that it will consider when determining which liabilities could be deemed as likely to be excluded from bail-in in resolution on a discretionary basis.
  • The SRB is suggesting (as part of its analysis of long-term MREL-related policy considerations) that an alternative to the current approach to calibrating MREL might be a new methodology with a harmonised floor and a single adjustment driver. It is also suggesting that the calibration of a bank's MREL might be linked to that bank's resolvability assessment.

CROWDFUNDING

Commission Delegated Regulation (EU) 2024/358 comes into force on 11 February 2024. It sets out RTS under the EU Crowdfunding Regulation on:

  • The information that crowdfunding service providers (CSPs) must disclose to investors about the methods used to calculate the credit score for crowdfunding projects and to suggest the price for crowdfunding offers.
  • The factors that CSPs must consider to ensure fair and appropriate pricing of the loans they facilitate on their platforms.
  • The information and factors that CSPs must consider when assessing the credit risk for a crowdfunding project or project owner and conducting a loan valuation at different points in the life cycle of the loan.
  • The governance arrangements that CSPs must have in place to support information disclosure to investors and the risk management framework.

DIGITAL FRAUD AND BANKING

The Basel Committee on Banking Supervision's discussion paper on digital fraud and banking closes for feedback on 16 February 2024. It gives a high-level assessment of the supervisory and financial stability implications of digital fraud for the global banking system.

EU CREDIT SERVICERS – COMPLAINTS-HANDLING

The EBA's public consultation on its draft guidelines on complaints handling by credit servicers under the EU Credit Servicing Directive closes on 9 February 2024. The EBA proposes to apply the requirements of the existing Joint Committee Guidelines on complaints-handling to credit servicers (those requirements include complaints management policy, complaints management function, registration, reporting, internal follow-up, provision of information and procedures for responding to complaints).

INSURANCE – CLIMATE-RELATED RISKS

The second IAIS consultation in a series that aims to promote a globally consistent supervisory approach to climate-related risks closes on 23 February 2024. The consultation covers issues related to market conduct supervision and climate scenario analysis. In particular, the IAIS is inviting feedback on two draft papers: one on climate risk market conduct issues in the insurance sector and the other on climate risk scenario analysis in the insurance sector.

MARKETS IN CRYPTO-ASSETS REGULATION (MICA)

The EBA's suite of November 2023 consultations under MiCA close on 8 February 2024. These cover the following:

  • Draft RTS specifying the criteria for determining the composition of supervisory colleges for each issuer of a significant asset referenced token (ART) or of a significant e-money token (EMT). The draft RTS also specify the general conditions for the functioning of supervisory colleges under MiCA.
  • Draft RTS specifying the methodology to be applied by issuers of ARTs and of EMTs denominated in a non-EU currency for reporting transactions associated to uses of these tokens "as a means of exchange", together with draft ITS specifying the related reporting requirements.
  • Draft Guidelines on recovery plans to be drafted by issuers of ARTs and EMTs (setting out the requirements with respect to the format of the recovery plans and the information to be included in them).
  • Draft RTS specifying the adjustment of own funds requirements and stress testing of issuers of ARTs and EMTs.
  • Draft RTS specifying the procedure and timeframe to adjust its own funds requirements for issuers of significant ARTs or of EMTs.
  • Draft RTS specifying the highly liquid financial instruments in the reserve of assets under MiCA, together with Draft RTS further specifying the liquidity requirements of the reserve of assets under MiCA.
  • Draft RTS specifying the minimum contents of the liquidity management policy and procedures under MiCA.
  • Draft Guidelines on liquidity stress testing under MiCA.

MIFID II/MIFIR AMENDMENTS

The amendments to MiFID II and MiFIR (mainly dealing with the establishment of consolidated tapes and banning payments for order flow) were formally approved by the European Parliament on 16 January 2024. The next steps are formal approval from the EU Council, and then publication in the Official Journal (expected in February / March 2024). The texts adopted by the Parliament which are now due for endorsement by the EU Council, are here (amendments to the MiFID II Directive) and here (amendments to the Markets in Financial Instruments Regulation).

PAYMENTS – INSTANT CREDIT TRANSFERS IN EURO

Following political agreement in trilogue, the European Parliament vote on the proposed regulation for instant credit transfers in euro has been scheduled for 5 February 2024. It will then need to be approved by the EU Council before being published in the Official Journal.

SETTLEMENT

ESMA's December 2023 Consultation Paper on technical advice to the Commission on the penalty mechanism under the Central Securities Depositories Regulation (CSDR) runs until 29 February 2024.

ESMA is seeking evidence and data on the effectiveness of the current penalty mechanism in discouraging settlement fails and incentivising their rapid resolution. It is also looking for feedback on various preliminary proposals including alternative methods for calculating cash penalties (such as progressive penalty rates).

It plans to give its technical advice to the Commission by the end of September 2024.

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.