MALTA FINANCIAL SERVICES AUTHORITY (MFSA) UPDATES
The European Commission's Digital Finance Package
The MFSA has issued a circular on the European Commission's Digital Finance Package which includes:
- A Digital Finance Strategy
- A Retail Payments Strategy
- Legislative proposals on crypto-assets; and
- Legislative proposals on digital operational resilience
The Commission's Digital Finance Strategy establishes how the EU will go on to aid the digitisation of financial services in the coming years. The strategy's four key concentrations comprise in:
- Removing the fragmentation in the 'Digital Single Market'
- Adapting the EU regulatory framework to facilitate digital innovation
- Promoting data-driven finance; and
- Addressing the challenges and risks of digitisation
The Commission will eventually propose to harmonise rules on customer onboarding and to build on its upcoming review of eIDAS (Regulation EU No 910/2014) to implement a cross-border framework for digital identities. The need for additional harmonised licensing and passporting regimes, as well as the need to establish an EU digital finance platform to foster cooperation between private and public stakeholders, will also be explored.
The Retail Payments Strategy focuses on providing European citizens and businesses with safer, faster and more reliable payment services, to further promote and encourage e-commerce. This Strategy seeks to establish a fully-integrate retail payments system in the EU, including instant cross-border payment solutions. Such a system would make euro payments with other non-EU jurisdictions easier.
The Commission's proposal for the regulation of crypto-assets has been analysed in more depth here.
The Commission's vision also includes legislative proposals on digital operational resilience set out to ensure that all participants in the financial system have the needed safeguards to mitigate cyber-attacks and other ICT risks. The Commission has thus published a text for the proposal for a Regulation on Digital Operational Resilience for the Financial Sector. This proposed Regulation comprises governance related requirements, ICT risk management obligations, ICT related incident reporting, digital operational resilience testing, ICT third party risk and information sharing.
For more information: https://www.mfsa.mt/publication/digital-finance-package/
EUROPEAN SECURITIES AND MARKETS AUTHORITY (ESMA) UPDATES
ESMA Announces Update to Reporting Under the Money Market Funds Regulation
ESMA has updated some validations of technical instructions required for reporting under the Money Market Funds Regulation (MMFR).
MMF managers are obliged to submit data to National Competent Authorities (NCAs) as per Article 37 of the MMFR. NCAs are in turn to transmit such data to ESMA. It is important to note that the proposed changes are not related to the published XML schemas. The changes add on new warning type validations or comprise clarifications on already existing validation rules. Such changes are intended to help fix inconsistencies or ease the understanding of the rules. Moreover, these updates on validation rules shall have no effect on data processing.
The Impact of Brexit on MiFID II/MIFIR and the Benchmarks Regulation
ESMA has updated two statements on its approach to the application of key provisions of MiFID II/MiFIR and the Benchmark Regulation (BMR).
- The Impact of Brexit on MiFID II/MiFIR
In this first update, ESMA details its approach to the application of some MiFID II/MIFIR provisions after the end of the Brexit Transition Period on the 31st of December 2020.
The C(6) Carve-Out
As a consequence of Brexit, a derivative contract relating to electricity or natural gas that is exclusively produced, traded and delivered in the UK will no longer be qualified as a wholesale energy product after the end of the transition period. Thus, it will no longer be eligible to the C(6) carve-out stipulated by MiFID II. Moreover, if a wholesale energy product is not traded on an EU OTF after the end of the transition period, the product will likewise cease to be eligible for the C(6) carve-out.
However, such contracts may be categorised as financial instruments as per certain provisions under MiFID II.
Post-Trade Transparency and Position Limits
After the transition period ends, trading venues established in the UK will no longer be considered as EU trading venues. After the 1st January 2021, transactions concluded on a UK trading venue shall start to be considered as OTC-transactions and shall be subject to post-trade transparency requirements as per MiFIR.
Commodity derivatives dealt on UK trading venues may moreover, subject to adhering to certain conditions, be categorised as EEOTC contracts for the EU position limit regime.
Additionally, investment firms established in the UK will likewise not be considered to be EU investment firms and will be classified as counterparties established in a third country. Consequently, EU investment firms are required to make public transactions concluded OTC with UK counterparties through an APA set up in the EU.
- The Impact of Brexit on the BMR
ESMA has also issued a statement in relation to the consequences of Brexit for ESMA to register benchmark administrators and third country benchmarks under the Benchmark Regulation.
After the transition period ends, UK administrators included in the 'ESMA register of administrators and third-country benchmarks' are to be deleted from such register. The BMR will no longer apply to UK benchmark administrators. However, those UK administrators that were originally included as EU administrators in the register shall qualify as third country administrators.
This change in the register shall have no effect on EU27 supervised entities to use the benchmarks provided by those third country UK administrators. Third country benchmarks during the BMR transitional period, may still be used by supervised entities in the Union, given that the benchmark is already used in the Union as a reference for financial instruments, financial contracts or for measuring the performance of an investment fund.
The BMR transitional period ends on the 31st December 2021 and is applicable to the abovementioned third country benchmarks endorsed or recognised in the UK.
ESMA Publishes Draft Rules for Third-Country Firms Under New MiFIR and MiFID II Regimes
ESMA has published a conclusive report containing draft regulatory and implementing technical standards ('RTS and ITS') on the provision of investment services and activities in the EU by third-country firms under MiFIR and MiFID II.
The changes comprise novel reporting requirements for third-country firms to ESMA on a yearly basis. ESMA may, in turn, also have the discretion to ask third-country firms to provide data relating to all orders and transactions in the EU. Moreover, new annual reporting obligations from branches of third-country firms to National Competent Authorities (NCAs) have also been introduced.
In addition to Article 46(7) and 46(8) of MiFIR, ESMA has developed a:
- Draft RTS to clarify the information third-country firms are to provide to ESMA for the registration in the ESMA Register of third-country firms and, furthermore, to specify the information third-country firms are to yearly report to ESMA; and
- Draft ITS to specify the format in which the information for the registration of the firm and for the annual report to ESMA should be submitted.
The IFD further amends MiFID II to include more reporting obligations on third-country branches to Member State authorities where they are constituted. As per Article 41(5) of MiFID II, ESMA developed a draft ITS to clarify and specify the format in which the new information provided by the aforementioned Regulation is to be reported to NCAs by branches of third-country firms.
EUROPEAN CENTRAL BANK (ECB) UPDATES
ECB Intensifies Its Work on a Digital Euro
The ECB has published a detailed report on the potential issuance of a digital euro. A digital euro would be an electronic form of central bank money accessible to all citizens and firms, much like banknotes, but in a digital form. The ECB intends that this digital euro complements cash and not replaces it.
A number of scenarios that would require the issuance of a digital euro have been identified: an increased demand for electronic payments in the euro area that would require a European risk-free digital means of payment; a significant decline in the use of cash as a means of payment in the euro area; the launch of global private means of payment that might raise regulatory concerns and pose risks for financial stability and consumer protection; and a broad take-up of CBDCs issued by foreign central banks. A digital euro is intended to provide citizens with free access to a simple, harmonised, trusted and risk-free means of payment while also supporting Europe's drive towards continued innovation.
For more information: https://www.ecb.europa.eu//press/pr/date/2020/html/ecb.pr201002~f90bfc94a8.en.html
Proposal for a Regulation on Markets in Crypto-Assets
The European Commission, as part of its Digital Finance Package, has recently released a Proposal for a Regulation on Markets in Crypto-Assets (MiCA). The proposed Regulation is part of a wider EU Digital Finance Strategy which aims to support the digital transformation of finance in the coming years, while regulating its risks. Indeed, MiCA is part of the Commission's recent legislative proposals on crypto-assets.
The Commission has also proposed a pilot regime for market infrastructures that trade and settle transactions using DLT. The pilot regime will operate under a 'sandbox' status and will allow for derogations from existing rules as DLT solutions operate in a controlled environment.
MiCA seeks to redefine crypto-related terms and create a regime for those currently unregulated crypto-asset categories. MiCA shall be applicable to issuers of crypto-assets and crypto-asset service providers.
Issuers of crypto-assets are to adhere to a new set of requirements in order to offer crypto-assets to the public or seek an admission of such crypto-assets to trading on a trading platform for crypto assets. It is moreover important to note that a service provider shall amount to a 'crypto-asset service provider' depending on whether such an entity provides services which amount to 'crypto asset services' as per MiCA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.