to the point: financial regulation | 03/2024

The LMA provided information that the EMMI has released the final results of its public consultation paper on Enhancements to EURIBOR's Hybrid Methodology, launched in October last year (summary here). The proposed changes included reformulating Level 2.3 and discontinuing Level 3 ("expert judgment") to ease the burden on contributing institutions and attract more banks to the panel. The feedback from participants was positive regarding the redefinition of Level 2.3 components, introduction of eligibility tests, and discontinuation of Level 3 contributions. Additionally, stakeholders prompted the introduction of an additional control parameter to address exceptionally adverse market conditions. The EMMI has decided to implement the new methodology and associated governance framework gradually. The migration of Panel Banks to the revised calculation methodology is expected to start around mid-May 2024 and will span a six-month period.

The ECB has announced changes (statement here) to its operational framework for implementing monetary policy following a review initiated in December 2022. These changes are aimed at ensuring that the framework remains appropriate as the Eurosystem balance sheet normalises. Key principles and parameters have been established for implementing monetary policy and providing central bank liquidity as excess liquidity in the banking system gradually declines over the coming years. These amendments acknowledge significant changes in the financial system and monetary policy in recent years. The revised framework aims to ensure that policy implementation remains effective, robust, flexible and efficient as the balance sheet normalises.

At the end of March, the ESMA started a consultation on Draft Regulatory Technical Standards (RTS) for the registration and supervision of external reviewers under the EU Green Bond Regulation (EuGB). The consultation aims to define principles for the registration and supervision of entities aiming to become external reviewers of EU Green Bonds. These principles include (i) senior management and analytical resources, (ii) sound and prudent management, including avoidance of conflicts of interest, (iii) knowledge and experience of analysts, and (iv) the outsourcing of assessment activities, forms, templates and procedures for the provision of registration information. The ESMA consultation aims to further improve the regulatory standard for sustainable debt in Europe and is addressed to all stakeholders, including investors, issuers and trade associations. The RTS and ITSs derived from the consultation are intended to be submitted to the European Commission by 21 December 2024.

The ESMA has released its first Final Report under the Markets in Crypto-Assets Regulation (MiCAR), aiming to enhance clarity and predictability in the crypto-asset market. The report focuses on promoting fair competition among crypto-asset service providers (CASPs) and ensuring a safer environment for investors within the EU. Key proposals include requirements for authorisation of CASPs, information needed for financial entities intending to provide crypto-asset services, criteria for assessing acquisitions of qualifying holdings in CASPs, and guidelines for handling complaints by CASPs. The ESMA has submitted the Final Report to the European Commission (EC) and stands ready to provide further advice and technical guidance upon request. More information about the timeline for MiCA implementing measures and the transitional period can be found here.

The EBA has published the final draft of Regulatory Technical Standards (RTS) outlining requirements, templates and procedures for handling complaints received by issuers of asset referenced tokens (ARTs). Developed in collaboration with the ESMA, these RTS fulfil a mandate under the Markets in Crypto-Assets Regulation (MiCAR). They cover aspects such as complaints management policy and function, information provision to ART holders, investigation procedures and communication of investigation outcomes. Following a public consultation, the EBA made targeted amendments to enhance clarity and align more closely with the ESMA's RTS on complaints handling for crypto-asset service providers. These draft RTS, mandated by Article 31(5) of the MiCAR, will enter into force 20 days after publication in the Official Journal of the European Union.

The ECB Governing Council has released a statement emphasising the urgent need to advance the Capital Markets Union (CMU) and outlining five key reasons for supporting and enhancing it. These are:

1. achieving a single market for capital is essential for mobilising private investments needed for green and digital transitions, enhancing productivity, and ensuring the EU's competitiveness in a changing geopolitical landscape;
2. deeper and more integrated capital markets are necessary to foster the emergence and expansion of innovative European firms, thereby driving technology dissemination and productivity growth across the region;
3. progress towards CMU would enhance private risk-sharing across the euro area, stabilising growth during local shocks and mitigating financial fragmentation;
4. a continent-wide capital market would strengthen the international role of the euro, reinforcing the EU's ambition for open strategic autonomy and insulating Europe from global economic volatility;
5. integrating capital markets would benefit the EU's banking sector by facilitating cross-border financial services activities and widening the investor base for capital market-based funding instruments, making European banks more resilient.

The Eurosystem welcomes the implementation of the Commission's second CMU Action Plan and emphasises the need for concrete actions to foster capital market integration and development at the European level. Specific priorities include ensuring the EU securitisation market plays a role in transferring risks, harmonising corporate insolvency rules and addressing the debt bias in taxation. Additionally, the Eurosystem will contribute significantly to CMU in the area of financial market infrastructure, promoting the attractiveness of listing in the EU, and ensuring households and citizens benefit from the CMU. Furthermore, targeted actions such as the establishment of a European Single Access Point are welcomed to advance CMU goals. Urgent and decisive action is needed to make real progress in integrating and developing EU capital markets, alongside efforts to remove barriers within the Single Market and promote European innovation.

The EBA has released its final Guidelines on national lists or registers of credit servicers, aimed at Competent Authorities managing these lists or registers. The Guidelines outline the content, accessibility and updating deadlines for the lists or registers. They require basic information about credit servicers, accessibility 24/7 without prior registration, and free availability. Competent Authorities must update the lists regularly, with stricter deadlines for critical updates. Following public consultation, the EBA clarified provisions and added minor requirements, including the availability of lists in English and downloadable format. These Guidelines align with Directive 2021/2167 on credit servicers and credit purchasers, ensuring transparency and a level playing field across the EU.

The proposed draft amendment to Act No. 370/2017 Coll., on Payment Systems extends the application of Section 255 of the Act to entities providing services related to virtual assets. The amendment introduces a list of scenarios allowing a credit institution to terminate a payment account contract, including situations where the use of the payment account is in breach of AML laws.

The proposed amendment to the Insurance Distribution and Reinsurance Act reflects the CJEU judgment of 29 September 2022 in Case C-633/20 TC Medical Air Ambulance Agency, which concerns the interpretation of Directive (EU) 2016/97 of the European Parliament and of the Council on insurance distribution (IDD). The CJEU held that the activity of policyholders offering, for remuneration, to participate in a group insurance policy with an entitlement to an insurance benefit constitutes insurance distribution within the meaning of the Directive. In order to carry out this activity, the policyholder will have to obtain the relevant authorisation, set up the internal rules and procedures, and comply with all rules of conduct and information obligations imposed on insurance intermediaries. Furthermore, such entities will have to be listed in the Czech National Bank's register.

The Austrian Ministry of Finance recently circulated a draft legislative proposal to amend the Austrian Staff Provision Funds Act (Link), which is currently under review. If passed, this will, among other things, broaden the categories of eligible assets for Austrian Staff Provision Funds to permit the following:

1. senior loans to credit institutions with a CRR risk weight of 20 % up to a maximum of 10 % of an investment & risk pool's assets ("VRG"), subject to a counterparty limit of at most 2 % per single credit institution;
2. an increased bucket of 7.5 % for investments in alternative investment funds (AIFs) (up from the current 5 %), if this is stipulated in the respective Staff Provision Fund's investment policy and an additional capital guarantee reserve is endowed; and
3. direct investments in derivative products, which are not acquired for hedging purposes, up to a maximum of 5 % of an investment & risk pool's assets (currently only permitted via wrapper structures). Again, this must be stipulated in the respective Staff Provision Fund's investment policy and an additional capital guarantee reserve must be endowed.

Banks in disputes with borrowers who have taken out a loan in Swiss francs withdraw from claims for remuneration for the use of capital or from claims for valorisation, but do not relinquish their pursuit of the return of the capital once the loan agreement has been cancelled. According to the President of the Polish Bank Association, there is no consideration for the banks to withdraw their counterclaims in full, as banks cannot give up their capital once the loan agreement has been cancelled. Thus, the banks will merely modify the lawsuits by withdrawing either the claim for remuneration for the use of capital or the claim for valorisation, leaving the main claim for the return of capital unchanged.