Council of the European Union
COVID-19 – Council adopts Directive amending MiFID II and Regulation amending Prospectus Regulation – 15 February 2021
The Council of the EU has adopted a proposed Directive amending the MiFID II Directive (2014/65/EU) to assist the EU’s recovery from the pandemic, following political agreement reached between the Council and European Parliament on 9 December 2020. The adopted text includes amendments to simplify information requirements and reduce the information on costs and charges that must be provided to professional investors and eligible counterparties. The new rules will also allow banks and financial firms to bundle research and execution costs when it comes to research on small and mid-cap issuers.
The amending Directive is expected to be published in the Official Journal of the European Union (OJ) before the end of February 2021 and will enter into force on the day after its publication. Member states will be required to transpose the Directive into national law within nine months of that date. The measures will become applicable 12 months after the entry into force of the Directive.
The Council of the EU has also adopted a proposal for a regulation amending the Prospectus Regulation (2017/1129) as regards an EU recovery prospectus to make it easier for companies to raise capital to meet their funding needs, while ensuring adequate information is provided to investors.
The amending regulation is expected to be published in the OJ before the end of February and will enter into force on the twentieth day following its publication.
Adopted text of amendments to MiFID II
Regulation amending Prospectus Regulation
Press release
Official Journal of the European Union
EMIR – Delegated Regulations on clearing obligation and risk mitigation published in OJ – 17 February 2021
The following Delegated Regulations made under European Market Infrastructure Regulation (648/2012/EU) (EMIR) have been published in the Official Journal of the European Union (OJ):
- Commission Delegated Regulation (EU) 2021/236 amending regulatory technical standards (RTS) laid down in Commission Delegated Regulation (EU) 2016/2251 as regards to the timing of when certain risk management procedures will start to apply for the purpose of the exchange of collateral. The amendments relate to the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts and the implementation of the initial margin requirements; and
- Commission Delegated Regulation (EU) 2021/237 amending RTS laid down in Commission Delegated Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 as regards the date at which the clearing obligation takes effect for certain types of contracts. Under Article 4(2) of EMIR, intragroup transactions may be exempted from the clearing obligation in certain circumstances, and the amendments propose to extend the exemption for intragroup transactions relating to the clearing obligation to allow more time for the Commission to adopt the necessary equivalence decisions.
Both Delegated Regulations will enter into force on 18 February 2021.
Commission Delegated Regulation (EU) 2021/236
Commission Delegated Regulation (EU) 2021/237
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CRR – Commission Implementing Regulation amending ITS on closely correlated currencies publishes in OJ – 18 February 2021
Commission Implementing Regulation (EU) 2021/249 (Amending Regulation) has been published in the Official Journal of the European Union (OJ).
Implementing Regulation (EU) 2015/2197 contains implementing technical standards (ITS) on closely correlated currencies, reflecting a mandate set out in Article 354(3) of the Capital Requirements Regulation (575/2013/EC) (CRR). Under the standardised approach for market risk, firms may hold lower own funds requirements for foreign exchange risk against matched positions in two currencies where there are considered as closely correlated.
The Amending Regulation replaces the text of the Annex to Implementing Regulation (EU) 2015/2197 to update the list of closely correlated currencies, and will enter into force on 10 March 2021.
Commission Implementing Regulation (EU) 2021/249
European Securities and Markets Authority
MiFID II – ESMA publishes decision on non-controversial opinions on commodity derivatives position limits – 17 February 2021
The European Securities and Markets Authority (ESMA) has published a decision of its board of supervisors on delegating the issue of opinions relating to setting of position limits under Article 57 of the MiFID II Directive (2014/65/EU) (MiFID II).
The board of supervisors has delegated to the ESMA chair the tasks of:
- assessing the compatibility of position limits with the objectives of Article 57(1) of MiFID II and with the methodology for calculation established in Commission Delegated Regulation (EU) 2017/591; and
- issuing any non-controversial opinions relating to the intended position limits on behalf of ESMA.
The objective is to alleviate the administrative burden on ESMA staff, NCAs and members of the board of reviewing the opinions.
ESMA decision on non-controversial opinions on commodity derivatives position limits
HM Treasury
Supporting the wind down of critical benchmarks – HM Treasury publishes consultation paper – 15 February 2021
HM Treasury has published a consultation paper on the potential incorporation of a legal ‘safe harbour’ that would act as a “helpful contingency in reducing the potential risk of contractual uncertainty and disputes in respect of certain legacy contracts referencing or relying upon a benchmark” where the relevant benchmark has been designated or subject to a change in methodology pursuant to the FCA’s enhanced powers to oversee the orderly wind down of critical benchmarks outlined in the Financial Services Bill (FS Bill).
The FS Bill amends the Benchmarks Regulation ((EU) 2016/1011) (as it has become part of domestic law under the European Union (Withdrawal) Act 2018) to enable the FCA to designate a benchmark that is unrepresentative or is at risk of becoming unrepresentative under Article 23A, with the result that its use is prohibited by virtue of Article 23B, except where legacy use is permitted by the FCA under Article 23C. The Article 23A benchmark may be published under a changed methodology, which may no longer be representative of the underlying market or economic reality that the benchmark sought to measure, using powers under Article 23D, in order to facilitate an orderly cessation.
In short, HM Treasury seeks views on whether there is a case for introducing a legal safe harbour and “if it is warranted, the design and scope of any such legislation”. In addition to the possibility of providing users of a critical benchmark with a legal safe harbour, HM Treasury is also considering whether there is a case for providing legal protections for the administrator of a critical benchmark, in particular when it publishes a critical benchmark that has been designated as an Article 23A benchmark and may be subject to a change in methodology under Article 23D.
The paper makes clear that the government’s position remains that contracts should transition away from LIBOR voluntarily, wherever possible.
The consultation closes on 15 March 2021.
Consultation paper
Bank of England
Supporting transition in sterling non-linear derivatives referencing GBP LIBOR ICE Swap Rate – Working Group publishes paper - 12 February 2021
The Bank of England Working Group on Sterling Risk-Free Reference Rates has published a paper setting out a potential methodology using SONIA-based rates which could form a replacement for GBP LIBOR ISR, including several worked examples. The paper is intended to support market participants to transition non-linear derivatives, structured products and cash market instruments that reference the GBP LIBOR ISR, in line with the target milestones in the Working Group’s roadmap and priorities for 2021, mentioned in the item above. It is noted that the replacement formula described in the paper could be adapted to other markets where the discontinuation of the relevant ISRs is likely to trigger similar challenges.
Working Group Paper on supporting transition
Updated webpage
Recent cases
Bankia SA v Unión Mutua Asistencial de Seguros (Case C-910/19), 11 February 2021
Preliminary ruling, Article 3(2) and Article (6) of the Prospectus Directive
Advocate General Richard de la Tour has delivered an Opinion in relation to a request for a preliminary ruling concerning the interpretation of Article 3(2) and Article 6 of the Prospectus Directive (2003/71/EC) (Prospectus Directive). The questions referred by the Supreme Court, Spain, are whether an inaccurate prospectus may provide the basis for a qualified investor to bring an action for damages, and whether evidence that a qualified investor is aware of the issuer’s true situation may be adduced from the existence of commercial or legal relations between them.
In the Opinion of the Advocate General, Article 6 must be interpreted as meaning that, where an offer of shares to the public for subscription is directed at both retail and qualified investors, and a prospectus is issued, an action for damages arising from the prospectus may be brought by qualified investors, although it is not necessary to publish such a document where the offer concerns exclusively such investors. Moreover, in the event of an action for damages brought by a qualified investor on the grounds of an inaccurate prospectus, Article 6(2) of the Prospectus Directive does not preclude that investor’s awareness of the true situation of the issuer being taken into consideration.
Opinion of Advocate General Richard de la Tour on Bankia SA v Unión Mutua Asistencial de Seguros (UMAS) (Case C 910/19)
Please see the Beyond Brexit section for an item on the introduction of draft auctioning legislation relating to the UK Emissions Trading Scheme.
