to the point: financial regulation | 04/2024

The ESMA recently released its inaugural overview of the EU securities financing transactions (SFT) markets, offering a comprehensive look at the landscape based on data reported by market participants. The report aims to support the ESMA's financial stability objective by tracking developments in the repo market and providing crucial risk metrics for its monitoring framework on securities financing transactions. Key findings from the report include, among others:

1. SFT Markets Overview: The total outstanding exposure of SFTs stood at EUR 9.8 trillion in September 2023. Repos comprised the majority at EUR 6.7 trillion (68 %), followed by securities lending at EUR 2.3 trillion (23 %), buy-sell back at EUR 743bln (8 %), and margin lending at EUR 124bln (1 %);
2. Repo Market Participants: Banks dominate the repo markets, accounting for 52 % of repo amounts. They are primarily concentrated in a few EEA jurisdictions, with France as the primary domicile holding significant shares of both EEA repo borrowing and lending;
3. Cross-border Linkages: Around 41 % of repo amounts observed are between EEA counterparties, indicating strong cross-border connections. Notably, there are robust links with the UK, with significant amounts of repo borrowing and lending between EEA and UK entities; and
4. Clearing & Settlement: A majority (61 %) of repo transactions remain uncleared, with most processed bilaterally. Only a small portion (6 %) are managed with a third party;
5. Repo Collateral Use: Government bonds are the primary collateral used in repos. The cleared segment predominantly employs EEA sovereign bonds, while the non-cleared segment exhibits slightly more collateral heterogeneity.

EBA has released its final Guidelines on the application of the group capital test for investment firm groups. These Guidelines aim to standardise the application of the group capital test across the EU, promoting a level playing field, as the key aspects of the Guidelines include:

1. Harmonised criteria: The Guidelines establish unified criteria to address the existing diversity in applying the group capital test, ensuring consistency;
2. Assessment criteria: Competent Authorities will evaluate the simplicity of the group structure and the risk posed to clients and the market. Simplified assessment is envisaged for groups comprising small and non-interconnected investment firms;
3. Quantitative and qualitative criteria: Both quantitative (e.g. number of undertakings and levels within a group) and qualitative (e.g. clear ownership structure) criteria are outlined in the Guidelines; and
4. Methodology for third-country undertakings: The Guidelines provide a methodology for Competent Authorities to assess the adequacy of own funds requirements for third-country undertakings of EU groups.

• The development of these Guidelines falls under the EBA's mandate to ensure consistent supervisory practices within the EU and the uniform application of Union law. The group capital test is outlined in Regulation (EU) 2019/2033, with criteria for its use specified in paragraphs 8(1) and 8(4) of the Regulation.

The EBA has released its final Guidelines on the resubmission of historical data within the EBA reporting framework. These Guidelines establish a standardised approach for financial institutions to rectify errors, inaccuracies or changes in reported data, aligning with the supervisory and resolution reporting framework developed by the EBA. Key points of the Guidelines include:

1. General approach: The Guidelines aim to minimise the need for resubmission of historical data, emphasising corrections for the current reporting date and historical data for past reference dates, typically spanning at least one calendar year;
2. Exceptions: Clear circumstances are outlined under which resubmission may not be necessary;
3. Importance: Ensuring consistency and data quality is emphasised, benefiting competent authorities, resolution authorities and the EBA; and
4. Feedback integration: Feedback received during public consultation has been incorporated into the Guidelines, leading to clarifications and adjustments. Notably, the precision requirement for monetary data in the EBA filing rules has been refined.

The Government is now discussing the Draft Act to be adopted in connection with the implementation of European Union regulations in the field of digital finance and sustainability financing. The Draft Act builds on the Digital Finance Act by transposing Directive (EU) 2022/2556 of the European Parliament and of the Council of 14 December 2022 as regards the digital operational resilience of the financial sector. The proposal also implements the European Green Bond Regulation.

Following consultations with the Czech National Bank, the Financial Analytical Office (FAO) issued a general opinion including model cases to clarify the interpretation of the concept of a "client" when providing certain banking services.

The analysis of whether certain persons can be considered as acting on behalf of the client  and to identify them is demonstrated in the following cases:

1. a bank employee (in the role of respondent institution) accessing a correspondent account of another bank (in the role of correspondent institution);
2. the employee of a corporate entity in whose favour a bank customer's authorisation to debit that customer has been issued;
3. the employee of a legal entity in whose favour a bank customer has been authorised to execute MT101 instructions via SWIFT for that customer's account;
4. the beneficiary as a legal entity, or its employee, who is not a client of the bank, but in whose favour the bank is to provide performance under an issued bank guarantee, where the beneficiary has requested performance under the terms of the guarantee;
5. the principal as a legal person, or its employee, who is not a customer of the bank but who gives the bank an order for payment under an export letter of credit directly to the beneficiary without the intermediary of the issuing bank; and
6. a legal entity, or an employee thereof, disposing of a payment terminal for the purpose of accepting payment cards, entering the amount into the payment terminal, depending on the price of the goods, which is requested to be debited from the payment account of a customer of the bank.

The new Hungarian law aligns the national legal framework with the EU Regulation 2023/1114 on markets in crypto-assets (MiCA) and covers the issuance, offering and trading of crypto-assets, as well as the supervision and sanctions of crypto-asset service providers. The new law also amends other Hungarian laws related to the financial sector, such as those on credit institutions, investment firms, collective investment schemes, payment services and consumer protection, to accommodate the new rules and definitions on crypto-assets and crypto-asset services.

Polish Supreme Court has reached important decisions on loans denominated in Swiss francs. The Supreme Court's resolution dealt with several key issues, including prohibited contractual provisions in loan agreements. The court stated that if prohibited conversion clauses are removed, the contract cannot remain in force unless the other elements of the contract are sufficient to determine the rights and obligations of the parties. It was also pointed out that the commencement of the limitation period for the bank's claims for repayment of the amounts paid under the loan takes place after the borrower questions whether it is bound by the provisions of the agreement. In addition, the Court stated that neither party may claim remuneration for the use of the capital during the period from the time the wrongful service was rendered until the time of delay in its return. The Supreme Court's resolution sparked extensive discussions in the legal community and comments from the Association of Polish Banks