IOSCO and CPMI Publish Fifth Update on Implementation of the PFMI

On 23 July, the International Organization of Securities Commissions (“IOSCO”) and the Committee on Payments and Market Infrastructures (“CPMI”) published its fifth update on the implementation of the principles for financial market infrastructures (“PFMI”). The report indicates that 21 out of the 28 covered jurisdictions have now completed their adoption of implementation measures for all FMI types, compared to 20 jurisdictions in the previous update, but that some jurisdictions continue to encounter issues in the adoption of measures for trade repositories and central counterparties. IOSCO and CPMI note that this will be the last published report focusing on the level 1 assessment and that monitoring efforts will continue to focus on “assessing the completeness and consistency of jurisdictions’ implementation measures with the PFMI (Level 2 assessments)” and “the consistency in the outcomes of such frameworks (Level 3 assessments).”

EBA Publishes Assessment of European Secured Notes

On 24 July, the European Banking Authority (“EBA”) published a report following the European Commission’s call for advice on a new product called “European Secured Notes” (“ESNs”), which “may provide a useful funding option to banks engaged in lending to SMEs [small and medium-sized enterprises] and infrastructure projects.” The report discusses: (i) the potential size of an ESN market; (ii) the potential impact of ESNs on asset encumbrance; (iii) the asset performance and pool eligibility criteria of ESNs for small and medium-sized enterprises and infrastructure bonds; (iv) the applicable structure and features of ESNs; and (v) the potential regulatory treatment of ESNs. The EBA notes that SME ESNs could be structured as a dual recourse instrument, similar to covered bonds, under a “more restrictive framework” due to the potentially high-risk profile. The EBA states that it does not recommend the creation of infrastructure ESNs due to the dual recourse structure, and instead recommended that the Commission “investigate the case for a new distinct asset class for high-quality project finance loans in the form of a standardized EU infrastructure bond.”

FSB Publishes Statement Regarding Interest Rate Benchmark Reform

On 12 July, the Financial Stability Board (“FSB”) published a statement on reforms to the interbank offered rates (“IBORs”), and the development of overnight risk-free, or near risk free, rates (“RFRs”) and term rates. The FSB notes that while overnight RFRs are “robust because they are anchored in active, liquid underlying markets . . . an overnight RFR may not, however, be the optimal rate in all the cases where term IBORs are currently used.” Instead, the FSB notes that term rates may play a role in certain situations, including through the use of RFR-derived term rates, or term rates derived from other liquid markets.

FSB Publishes for Consultation Draft Cyber Lexicon

On 2 July, the FSB published for consultation a draft cyber lexicon comprised of 50 core terms related to cyber security and cyber resilience in the financial sector. The cyber lexicon seeks to: (i) promote “cross-sector common understanding of relevant cyber security and cyber resilience terminology”; (ii) “assess and monitor financial stability risks of cyber risk scenarios”; (iii) increase “information sharing as appropriate”; and (iv) support “work by the FSB and/or standard-setting bodies to provide guidance related to cyber security and cyber resilience, including identifying effective practices.” The consultation period closes on 20 August 2018.


European Commission Adopts Amending Delegated Regulations on Safekeeping Duties of Depositaries Under UCITS and AIFMD

On 12 July, the European Commission adopted two amending delegated regulations on the safekeeping duties of depositaries for funds under the Undertakings for the Collective Investment in Transferable Securities Directive (“UCITS”) and for funds under the Alternative Investment Fund Managers Directive (“AIFMD”). Amendments to the delegated acts include, among others: (i) the addition of “factors that should determine the frequency of reconciliation between the depositary’s financial securities accounts and internal records and those of the third parties to which safe-keeping functions have been delegated”; (ii) a requirement that depositaries maintain a “record opened in the name of a [UCITS client/management company or AIFM client/management company] showing that the assets kept in custody by a third party belong to a particular [UCITS/AIFM] client”; (iii) a provision prescribing the “minimum details that should feature in the contract between a depositary and a third party on delegation of custody of assets”; and (iv) clarification of asset segregation requirements for custodians. The European Parliament and Council have two months to object to the amending delegated regulations before they will enter into force.

EMIR – ESMA Issues Statement On Clearing Obligation for Pension Scheme Arrangements

On 3 July, ESMA issued a statement on the clearing obligation for pension scheme arrangements (“PSAs”). ESMA notes that there is a timing gap between the expiration of a temporary exemption introduced by the European Market Infrastructure Regulation (“EMIR”) for certain PSAs from the clearing obligation and the potential implementation of a new exemption envisioned by the European Commission’s 4 May 2017 proposal to amend EMIR. In light of this, ESMA indicated that it “expects competent authorities to not prioritise their supervisory actions towards entities that are expected to be exempted again in a relatively short period of time.”

UCITS and AIFMD – ESMA Updates Q&As on the Application of the UCITS and AIFMD

On 23 July, ESMA updated its Q&As on the application of UCITS and AIFMD.

  • The UCITS Q&As includes four new Q&As regarding: (i) the “calculation of issuer concentration limits pursuant to Article 52 of the UCITS Directive”; (ii) “UCITS investing in other UCITS with different investment policies”; (iii) the “supervision of branches of UCITS Management Companies providing MiFID investment services”; and (iv) the “reuse of assets by a UCITS depositary under Article 22(7) of the UCITS Directive.”
  • The AIFMD Q&As include one new Q&A regarding the “supervision of branches of AIFMs providing MiFID investment services.”


EIOPA Publishes Report Regarding Failures of Insurance Undertaking

On 17 July, EIOPA published a report examining the leading causes of insurers’ “failures and near misses” and to enhance supervisory knowledge on the prevention and management of insurance undertaking failures. The report examines the topic against the backdrop of the financial crisis and analyzed information contained in the EIOPA database, which has a sample of 180 affected insurance undertakings in 31 European countries dating from 1999 to 2016. The report concludes that: (i) the two most common causes of a failure or “near miss” of insurance undertakings relates to “the risk that management or staff lack the necessary skills, experience or professional qualities” and “the risk of inadequate or failed systems of corporate governance and overall control”; (ii) the primary cause of failures or near misses for “core” insurance and financial risks relates to risk associated with “technical provisions evaluation,” “investment/asset liability management,” “the market,” and fraud; and (iii) the most commonly reported early signs of a failing insurance undertaking relates to “the deteriorating capital strength and/ or low solvency margin of the undertaking.”

Solvency II

On 16 July, EIOPA published a letter (dated 13 July 2018) sent from EIOPA Chair Gabriel Bernardino to European Vice-President for the Euro and Social Dialogue Valdis Dombrovskis submitting for endorsement draft implementing technical standards (“ITS”) proposing amendments and corrections to the following two Commission implementing regulations:

  • European Commission implementing regulation ((EU) 2015/2450) establishing ITS regarding the templates for the submission of information to the supervisory authorities; and
  • European Commission implementing regulation ((EU) 2015/2452) establishing ITS regarding the procedures, formats, and templates of the solvency and financial condition reports.

On 24 July, EIOPA published an updated risk dashboard based on Solvency II data obtained in the first quarter of 2018. The updated risk dashboard indicates that “risk exposure of the insurance sector in the European Union remains stable overall with a decline in macro and insurance risks and an increasing trend in market risks.”

IAIS Publishes Launches Consultation on ComFrame and ICS Version 2.0

On 31 July, the International Association of Insurance Supervisors (“IAIS”) launched two consultations regarding: (i) the draft overall Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”); and (ii) the risk-based Global Insurance Capital Standard (“ICS”) Version 2.0. The consultation period for both consultations closes on 30 October 2018.

  • ICS: The IAIS is seeking comments regarding the monitoring period and the technical aspects of the design and calibration of the ICS Version 2.0 ahead of the ICS Version 2.0’s expected completion in late-2019. Specifically, the IAIS is seeking comments regarding: (i) “the expectations for the IAIS and supervisors during the five-year monitoring period of the reference ICS and additional supplementary reporting”; (ii) the reference ICS components, such as “the market-adjusted approach to valuation, criteria for qualifying capital resources and the standard method for determining the ICS capital requirements”; (iii) “the additional reporting . . . of GAAP with Adjustments (GAAP Plus) and other methods of calculation of the ICS capital requirement, including internal models”; and (iv) the “incremental costs and benefits of the ICS for internationally active insurance groups (“IAIGs”).”
  • ComFrame: The IAIS is seeking feedback regarding the overall ComFrame, which has been divided into four sections for the purposes of the consultation, including: (i) the introduction to ComFrame; (ii) ComFrame material integrated into insurance core principles (“ICPs”) 5 (suitability of persons), 7 (corporate governance), 8 (risk management and internal controls), 9 (supervisory review and reporting), 10 (preventive measures, corrective measures and sanctions), 12 (exit from the market and resolution), and 25 (supervisory cooperation and coordination); (iii) ComFrame material integrated into ICPs 15 (investments) and 16 (enterprise risk management for solvency purposes), and additional questions for ICP 16 and ComFrame materials in ICP 16; and (iv) newly developed ComFrame material integrated into ICP 23 (group-wide supervision) regarding the “criteria used to identify IAIGs,” “the supervisory principles used for the identification of the Head of the IAIG,” and “the scope of group-wide supervision for an IAIG.”

EIOPA Publishes Discussion Paper on National Guarantee Schemes

On 30 July, EIOPA published for comment a discussion paper on resolution funding and national insurance guarantee schemes (“ISGs”) as a follow up to EIOPA’s opinion on the harmonization of recovery and resolution frameworks for (re)insurers across the EU. In its opinion, EIOPA recommended that there should be a minimum degree of harmonization with regards to the recovery and resolution framework for insurers across the EU. EIPOA is now seeking comments regarding the potential recovery and resolution framework for insurers across the EU, as well as the potential structure and design of ISGs, including scope, funding, and coverage. The consultation period closes on 26 October 2018.

EIOPA Launches EU-Wide Thematic Review on the Use of Big Data

On 6 July, EIOPA launched an EU-wide thematic review on the use of big data as a follow up to the European Supervisory Authorities’ (“ESAs”) cross-sectional review of the use of big data published in March 2018. According to the press release, the aim of the review is to collect “empirical evidence on the use of Big Data by insurance undertakings and intermediaries along the whole insurance value chain,” with a particular focus on “the motor and health insurance markets.” EIOPA plans to publish the key findings from the review in the first quarter of 2019.

EIOPA Launches EU-Wide Thematic Review on Consumer Protection Issues in Travel Insurance

On 17 July, EIOPA launched an EU-wide thematic review on consumer protection issues in travel insurance. According to the press release, EIOPA will focus on the “impact of emerging distribution and business models on consumers and, more broadly, on the insurance industry.” EIOPA plans to publish the key findings from the review in the first quarter of 2019.


EIOPA Publishes New Q&As

From 11 July to 16 July, EIOPA published several new Q&As regarding:

  • Commission Implementing Regulations laying down ITS relating to: (i) information requirements and conduct of business rules applicable under the Insurance Distribution Directive; (ii) product oversight and governance requirements for insurance under the Insurance Distribution Directive; (iii) the lists of regional governments’ local authorities to be considered as entities such that exposures to them are to be treated as exposures to the central government of the jurisdiction in which they are established under Solvency II; and (iv) procedures formats and templates of the solvency and financial condition report;
  • The Insurance Distribution Directive relating to: (i) the requirements for Product Oversight and Governance arrangements; and (ii) additional regulatory requirements for Insurance-based Investment Products;
  • Guidelines relating to: (i) the use of internal models; (ii) the loss-absorbing capacity of technical provisions and deferred taxes; and (iii) the look-through approach;
  • Solvency II relating to interest rate risk, unit-linked contracts, the combination of insurance subgroups, and the treatment of financial guarantees as a risk mitigation technique; and
  • Risk-free rate technical information relating to: (i) credit and currency adjustments; (ii) extrapolation; (iii) financial market data; (iv) general questions; (v) matching adjustment; and (vi) volatility adjustment calculations. 

On 20 July, the ESAs published updated Q&As on the Packaged Retail and Insurance-based Investment Product’s (“PRIIPs”) Key Information Document (“KID”). The updated document contains three revised Q&A regarding: (i) whether a KID needs to be published on the public section of a website; (ii) how performance and costs figures should be presented in a KID if the recommended holing period of the PRIIP is less than one year; and (iii) if the moderate scenario shows a total loss of capital or even a negative return, whether this should be used to present the costs, in which case the Reduction-in-Yield would suggest no or very low costs. The ESAs also published a flow diagram for the risk and reward calculations in the PRIIPs KID.



On 13 July, ESMA published a consultation paper proposing amendments to the tick size regime under the Markets in Financial Instrument Directive (2014/65/EU) (“MiFID II”) and Commission delegated regulation (2017/599/EU) (“RTS 11”). According to the consultation paper, under RTS 11, the minimum tick size applicable to shares and depositary receipts is calibrated to the average daily number of transactions on the most liquid market in the EU. ESMA recognizes that such metrics may not be well suited to instruments where the main pool of liquidity is located outside of the EU because the mandatory tick size for such instruments may be calculated based only on a subset of the overall trading activity. As such, the proposed amendments would allow the relevant national competent authority for a specific share, with its main pool of liquidity outside the EU, to adjust the average daily number of transactions in order to take into account more comprehensive trading data and ensure that trading in the share is not unduly constrained and does not create disorderly trading conditions. The consultation closes on 7 September 2018.

On 24 July, ESMA published a follow-up report regarding oversight by national competent authorities of the MiFID II suitability requirements. The report provides an update on progress made by national competent authorities since the 2016 peer review report on compliance with the MiFID suitability requirements (ESMA/2016/584). According to the press release, the follow-up report “identifies improvements in the supervision of the requirements by [national competent authorities] through thematic reviews and on-site inspections, [as well as] improvements to IT systems to identify firms operating on a branch or freedom of service basis.”

On 12 July, ESMA updated its Q&As on investor protection and intermediaries topics under MiFID II/MiFIR. The updated document contains two revised Q&As regarding: (i) inducements for research; and (ii) “the provision of investment services and activities by third country firms.”

On 30 July, ESMA updated its Q&As on temporary product intervention measures under MiFIR regarding the marketing, distribution, or sale of contracts for differences and binary options to retail clients. The updated document contains two revised Q&As regarding whether securitized derivatives and structured finance products are within the scope of the contracts for differences and binary options decisions published by ESMA, which temporarily prohibits the marketing, distribution or sale of such products to retail clients.


On 12 July, ESMA updated its Q&As on temporary product intervention measures under MiFIR regarding the marketing, distribution, or sale of contracts for differences and binary options to retail clients. The updated document contains one revised Q&A regarding the prohibition on the marketing, distribution, or sale of binary options to clients established outside the EU and non-EU nationals.


On 11 July, ESMA published its sixth consultation paper on the clearing obligation under EMIR. The consultation paper seeks public comments regarding an amending draft regulatory technical standard (“RTS”) relating to the treatment of intragroup transactions with a third country group entity. In particular, ESMA is seeking comments on a proposed extension of the temporary intragroup exemption. The consultation period closes on 30 August 2018.

On 12 July, ESMA updated its Q&As on data reporting topics under EMIR. The updated document contains two revised Q&As regarding: (i) whether a fund (e.g. UCITs, AIF, or unincorporated funds) should be considered as the counterparty to a derivative transaction in the context of EMIR, or whether it should be considered the fund manager; and (ii) the legal entity identifier. A new case for the reporting of derivatives has also been added to Part IV of the Q&A, which explains the procedure for reporting to trade repositories in a transaction scenario involving portfolio management companies.

Benchmarks Regulation

On 13 July, the European Commission adopted several delegated regulations establishing a number of RTS under the EU Benchmarks Regulation (2016/1011/EU). These delegated regulations include:

  • Delegated Regulation (C(2018) 4425) specifying further the governance and control requirements for supervised contributors;
  • Delegated Regulation (C(2018) 4426) for the form and content of the application for recognition with the competent authority of the Member State of reference and of the presentation of information in the notification to ESMA;
  • Delegated Regulation (C(2018) 4427) determining the minimum content of cooperation arrangements with competent authorities of third countries whose legal framework and supervisory practices have been recognized as equivalent;
  • Delegated Regulation (C(2018) 4430) for the procedures and characteristics of the oversight function;
  • Delegated Regulation (C(2018) 4431) specifying further how to ensure that input data is appropriate and verifiable, and, where the input data is contributed from a front office function, specifying the internal oversight and verification procedures that the administrator of a critical or significant benchmark has to ensure are in place at the contributor;
  • Delegated Regulation (C(2018) 4432) specifying further the elements of the code of conduct to be developed by administrators of benchmarks that are based on input data from contributors;
  • Delegated Regulation (C(2018) 4434) specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements, including, among others, “vulnerability of the benchmark to manipulation”; “nature of the input data”; “conflicts of interest”; the administrator’s size, structure, and degree of discretion; impact of the benchmark on markets; and complexity and importance of the benchmark;
  • Delegated Regulation (C(2018) 4435) specifying further the information to be provided by administrators of critical or significant benchmarks on the methodology used to determine the benchmark, the internal review and approval of the methodology, and the procedures for making material changes in the methodology;
  • Delegated Regulation (C(2018) 4438) for the information to be provided in an application for authorization and in an application for registration as a benchmark administrator; and
  • Delegated Regulation (C(2018) 4439) specifying further the contents of, and cases where updates are required to, the benchmark statement to be published by the administrator of a benchmark.

On 17 July, ESMA updated its Q&As on the Benchmarks Regulation. The updated document contains two revised Q&As regarding: (i) whether “a calculation agent [should] be considered a user of benchmarks if it is appointed by an issuer of securities”; and (ii) “whether a benchmark [can] qualify as a ‘regulated-data benchmark’ if a third party is involved in the process of obtaining the data.”

Prospectus Regulation

On 17 July, ESMA published a final RTS specifying the implementation of certain provisions of the EU Prospectus Regulation, including those relating to: (i) “key financial information to be disclosed by issuers for the prospectus summary”; (ii) “data for classification of prospectuses and the practical arrangements to ensure that such data is machine readable”; (iii) “advertisements disseminated to retail investors”; (iv) “requirements to publish supplements to a prospectus”; (v) “publication of a prospectus”; and (vi) “arrangements for the notification portal used for passporting prospectuses.”

On 13 July, ESMA published two consultation papers regarding the Prospectus Regulation. The consultation period closes on 5 October 2018 and ESMA will deliver technical advice to the European Commission and publish the final reports by 31 March 2019.

  • The first consultation paper seeks comments regarding proposed draft technical advice on the minimum information that must be provided in the context of offers/admissions to trading of securities related to takeovers, mergers, and divisions if an issuer decides not to publish a prospectus.
  • The second consultation paper seeks comments regarding proposed draft guidelines on risk factors that national competent authorities should consider as part of their review of prospectus risk factors.

Securitization Regulation

On 16 July, ESMA published draft RTS and ITS under the Securitization Regulation. According to the cover letter, the published technical standards include: (i) “draft RTS specifying the information that the originator, sponsor and [securitized special purpose entity] are required to provide in order to comply” with the ‘simple, transparent and standardized’ (“STS”) notification obligations under Article 27(6) of the Securitisation Regulation”; (ii) “draft ITS to establish the templates to be used for the provision of the STS notification (Article 27(7) of the Securitisation Regulation)”; and (iii) “draft RTS specifying the information to be provided to the competent authorities in the application for the authorisation of a third party to assess the compliance of securitisations with the STS criteria (Article 28(4) of Securitisation Regulation).”

Credit Rating Agency Regulation

On 18 July, ESMA published supplementary guidance on the application of the endorsement regime for non-EU credit ratings under the Credit Rating Agencies Regulation (“CRA” Regulation). The supplemental guidance adds a new section to ESMA’s 2017 Guidelines on the application of the endorsement regime under the CRA Regulation and clarifies how an EU credit rating agency can ensure than an endorsed credit rating issued by a third-country credit rating agency satisfies the “as stringent as” test under the CRA Regulation. The supplemental guidance becomes effective from 1 January 2019.

On 19 July, ESMA published a consultation paper regarding its revisions to its 2015 Guidelines on the submission of periodic information to ESMA by CRAs. Noting that “the timing, frequency, and format of the information submitted in accordance with the 2015 Guidelines is no longer capable of supporting ESMA’s supervisory processes in an efficient and effective manner,” ESMA proposes to: (i) introduce “a revised approach to determining a CRAs’ reporting obligations, that is based upon ESMA’s internal risk assessment”; (ii) utilize “greater differentiation in the reporting frequencies for CRAs”; (iii) provide “more specific reporting instructions for a number of existing reporting requirements”; (iv) introduce “a number of new periodic reporting requirements to support ESMA’s supervisory activities, [and] to reduce the need for ESMA to submit ad-hoc requests for information; and (v) introduce “standardised reporting templates for a number of new and existing reporting requirements.” The consultation period closes on 28 September 2018 and ESMA will published the final guidelines before the end of 2018.

FSB Publishes Self-Assessment Questionnaire Regarding Designation as a UPI Service Provider

On 16 July, the FSB published a self-assessment questionnaire regarding the unique product identifier (“UPI”) and requested responses from entities wishing to be designated by the FSB as a UPI service provider in relation to over-the-counter (“OTC”) derivatives transactions. The FSB has requested that each prospective UPI service provider present a business and self-governance plan that explains how the respondent would: (i) meet the key governance criteria and provide for the relevant governance functions; and (ii) meet the Technical Guidance provided by the FSB. The consultation period closes on 4 September 2018.

ESMA Publishes Systematic Internaliser Calculations Template

On 20 July, ESMA published the template that will be used to “publish the first set of figures necessary for investment firms to assess whether they are systematic internalisers in specific financial instruments” on 1 August 2018, as required under MiFID II. ESMA published the template to assist firms in the implementation of the systematic internaliser regime.

ESMA Publishes Peer Review Methodology

On 20 July, ESMA published its peer review methodology describing its methodology for reviewing the activities of national competent authorities.


FSB Report to G20 Regarding Crypto-Asset Markets

On 16 July, the FSB published a status report delivered to the G20 Finance Ministers and Central Bank Governors on the work of the FSB, CPMI, IOSCO, and the Basel Committee on Banking Supervision (“BCBS”) on crypto-assets. The report indicates that: (i) the “FSB, in collaboration with CPMI, has developed a framework and identified metrics to monitor the financial stability implications of crypto-assets markets”; (ii) the “CPMI has conducted significant work on applications of distributed ledger technology, and is conducting outreach, monitoring, and analysis of payment innovations”; (iii) “IOSCO has established an initial coin offering (“ICO”) Consultation Network to discuss experiences and concerns regarding ICOs”; and (iv) the “BCBS is quantifying the materiality of banks’ direct and indirect exposures to crypto-assets, clarifying the prudential treatment of such exposures, and monitoring developments related to crypto-assets and FinTech for banks and supervisors.”

European Parliament Publishes Study Regarding Competition in the Fintech Ecosystem

On 10 July, the European Parliament published the results of a study regarding potential competition issues in FinTech. The study notes that the issues either have not occurred or have not been detected by competent authorities, and thus far, are hypothetical in nature. Issues identified include, among other things: (i) the generation of network effects, such as the “risk that multi-sided network effects enable a large platform to be insulated from competition from smaller platforms with fewer participants and can create barriers of entry”; (ii) those relating to interoperability, as “an active pursuit of non-interoperability can act as a deterrence with anticompetitive effects if access to the market is difficult or costly”; (iii) those relating to standardization, as standardization may result in “an oligopoly where providers may take the opportunity to agree on features of the service to split the market between them”; (iv) the lack of access to data between competitors; and (v) computer algorithms resulting in anti-competitive practices, such as promoting “tacit collusion” in an attempt to maximize profits.


o    12 August: EIOPA survey on InsurTech closes.

o    4 September: FSB consultation closes regarding entities wishing to be designated by the FSB as a UPI service provider in relation to OTC derivatives transactions.

o    7 September: ESMA consultation closes regarding amendments to the tick size regime under MiFID II.

o    28 September: ESMA consultation closes regarding its revisions to its 2015 guidelines on the submission of periodic information to ESMA by credit rating agencies.