Background

On 4 October 2018, the European Securities and Markets Authority ("ESMA") lastly updated its questions and answers' document on the practical application of the Alternative Investment Fund Managers Directive (the "Q&A", available here).

What's new?

On 30 October 2018, the ESMA issued an updated table of the AIFMD Memoranda of Understanding signed by the authorities of the EU Member States with those outside the EU (the "MoUs Table").

The MoUs Table is available here.

What's next?

The ESMA will continue to update the table of AIFMD MoUs as further supervisory cooperation arrangements are signed.

Background

The Commission delegated regulation (EU) No 231/2013 supplementing Directive 2011/61/EU of the European Parliament and of the Council (the "AIFMD", available here) with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision applies since 22 July 2013 (the "Regulation 231/2013", available here). In particular, Article (11)(d)(iii) of the AIFMD requires that where a depositary delegates safekeeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Article 99 of the Regulation 231/2013 clarifies how this obligation shall be fulfilled.

The Commission delegated regulation (EU) 2016/438 supplementing Directive 2009/65/EC of the European Parliament and of the Council (the "UCITS Directive", available here) with regard to obligations of depositaries applies since 13 October 2016 (the "Regulation 2016/438", available here). In particular, Article 22a(3)(c) of the UCITS Directive requires that where a depositary delegates safekeeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Article 16 of the Regulation 2016/438 details how this obligation shall be fulfilled.

On 20 July 2017, the ESMA published its opinion on asset segregation and application of depositary delegation rules to CSDs (ESMA34-45-277 – the "ESMA Opinion", available here).

On 12 July 2018, based on the ESMA Opinion, the European Commission adopted the following two delegated regulations (the "Delegated Regulations"):

• Delegated regulation amending the Regulation 231/2013 as regards safekeeping duties of depositaries (C(2018) 4377 final – the "Delegated Regulation for AIFs", available here); and
• Delegated regulation amending the Regulation 2016/438 as regards safekeeping duties of depositaries (C(2018) 4379 final – the "Delegated Regulation for UCITS", available here).
• The Delegated Regulations provide that the starting date of application of the final texts should be deferred for 18 months (vs. 6 months during the consultation process) after publication in the OJEU.

What's new?

On 30 October 2018, the Delegated Regulation for AIFs and the Delegated Regulation for UCITS were published in the OJEU (respectively the "Regulation 2018/1618" and the "Regulation 2018/1619").

The Regulation 2018/1618 is available here.

The Regulation 2018/1619 is available here.

What's next?

The Regulation 2018/1618 and the Regulation 2018/1619 will enter into force on 19 November 2018.

They will both apply as from 1 April 2020.

Background

The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering ("ML") or terrorist financing ("TF") applies since 26 June 2017 (the "4AMLD", available here).

On 9 July 2018, the Directive (EU) 2018/843 of the European Parliament and of the Council amending the 4AMLD entered into force (the "5AMLD", available here). Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the 5AMLD by 10 January 2020.

Against this background, the European Commission (the "Commission") considers that existing instruments at EU level (in particular the Council "Framework Decision 2001/500/JHA", available here) are neither comprehensive nor sufficiently coherent to be fully effective. At the operational level, the Commission notes that the differences in the definitions, scope and sanctions of ML offences affect cross-border police and judicial cooperation between national authorities and the exchange of information.

On 21 December 2016, the Commission issued its proposal for a directive of the European Parliament and of the Council on countering ML by criminal law (COM(2016) 826 final – the "Commission Proposal", available here). The Commission Proposal aims to achieve this objective by implementing international obligations in this area, including the "Warsaw Convention" (available here) and the relevant "FATF Recommendations" (available here). In particular, the Commission Proposal (i) establishes minimum rules concerning the definition of criminal offences and sanctions relating to ML, and (ii) removes obstacles to cross-border judicial and police cooperation by setting common provisions to improve the investigation of ML related offences.

On 7 June 2018, the Council of the EU (the "Council") announced that it reached an agreement with the European Parliament (the "Parliament") concerning new rules on using criminal law to counter ML (the "Agreement", available here).

On 12 September 2018, based on the Commission Proposal and the Agreement, the Parliament adopted a legislative resolution on the proposal for a directive of the European Parliament and of the Council on countering ML by criminal law (the "Draft Directive", available here). On 11 October 2018, the Council also adopted the Draft Directive (the "Press Release", available here).

What's new?

On 12 November 2018, the Draft Directive was published in the OJEU (the "6AMLD").

As a reminder, the main changes introduced by the 6AMLD are summarised below:

• New definition of a "criminal activity" and ML offences;
  • "Criminal activity" means any kind of criminal involvement in the commission of any offence punishable, in accordance with national law, by deprivation of liberty or a detention order for a maximum of more than one year or, as regards Member States that have a minimum threshold for offences in their legal systems, any offence punishable by deprivation of liberty or a detention order for a minimum of more than six months;
  • The list of 22 predicate offences include insider trading and market manipulation, tax crimes relating to direct and indirect taxes (as laid down in national law), and cybercrime;
  • Any act of ML shall be criminalised if committed intentionally and with the knowledge that the property was derived from criminal activity. Being an accomplice, inciting and attempting to commit a ML offence shall also constitute a criminal offence punishable by penalties;
  • Member States may adopt or maintain more stringent rules in that area (e.g. Member States may provide that ML committed recklessly or by serious negligence constitutes a criminal offence); and
  • Member States should ensure that certain types of ML activities are also punishable when committed by the perpetrator of the criminal activity that generated the property ("self-laundering").
• Sanctions and aggravating circumstances;
  • Member States shall ensure that ML is punishable by a maximum term of imprisonment of at least 4 years for offences referred to in Article 3(1) and (5) of the 6AMLD;
  • Additional sanctions may be imposed by judges together with imprisonment (e.g. fines, temporary prohibition from engaging in commercial activities, etc.);
  • Legal persons shall be held liable for any offence referred to in the 6AMLD when committed by a person holding a certain position within the organisation for their benefit;
  • Aggravating circumstances should apply to offences linked to criminal organisation or to offences conducted in the exercise of certain professional activities; and
  • Member States may define aggravating circumstances on the basis of the value of the laundered property or of the nature of the offence (e.g. corruption, drug trafficking, etc.).
• Freezing and confiscation;
  • Member States shall take the necessary measures to ensure, as appropriate, that their competent authorities freeze or confiscate, in accordance with Directive 2014/42/EU (available here), the proceeds derived from and instrumentalities used or intended to be used in the commission or contribution to the commission of the offences as referred to in the 6AMLD.
• Jurisdictions and cooperation;
  • Member States may establish/extend jurisdictions over ML offences based on both territorial and nationality-based factors; and
  • Where a ML offence falls within the jurisdiction of more than one Member State and where any of the Member States concerned can validly prosecute based on the same facts, the Member States concerned shall cooperate in order to decide which of them will prosecute the offender, with the aim of centralising proceedings in a single Member State.
• Investigative tools - Sufficient staff and targeted training, as well as resources and up-to-date technological capacity, should be made available to those responsible for investigating and prosecuting ML offences.

The 6AMLD is available here.

What's next?

The 6AMLD will enter into force on 2 December 2018. As indicated in Article 12(1) of the 6AMLD, Article 1(b) and Article 2 of the Framework Decision 2001/500/JHA shall be replaced with regard to the Member States bound by the 6AMLD.

Member States shall transpose the 6AMLD into their national legislation by 3 December 2020.

The Commission shall, by 3 December 2022, submit a report to the Parliament and to the Council, assessing the extent to which the Member States have taken the necessary measures to comply with the 6AMLD.

The Commission shall, by 3 December 2023, submit a report to the Parliament and to the Council assessing the added value of this Directive with regard to combating ML as well as its impact on fundamental rights and freedoms. Based on that report, the Commission shall, if necessary, present a legislative proposal to amend the 6AMLD.

Background

The regulation (EU) 2016/1011 of the European Parliament and the Council of the EU on indices used as benchmark in financial instruments and financial contracts ("BMR") applies since 1 January 2018 (available here).

On 30 March 2017, the ESMA published a final report on various draft technical standards under BMR (ESMA70-145-48 — the "ESMA Draft RTS ", available here).

What's new?

On 5 November 2018, based on the ESMA Draft RTS, the following 10 RTS supplementing BMR in relation to administrators of benchmarks and competent authorities were published in the OJEU (altogether the "Commission Delegated Regulations"):

• Commission Delegated Regulation (EU) 2018/1637 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS for the procedures and characteristics of the oversight function (available here);
  • Composition of the oversight function;
  • Characteristics and positioning of the oversight function;
  • Procedures governing the oversight function; and
  • Annex entitled "Non-exhaustive list of appropriate governance arrangements".
• Commission Delegated Regulation (EU) 2018/1638 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS specifying further how to ensure that input data is appropriate and verifiable, and the internal oversight and verification procedures of a contributor that the administrator of a critical or significant benchmark has to ensure are in place where the input data is contributed from a front office function (available here);
  • The scope of the Regulation is limited to administrators of critical and significant benchmarks;
  • Appropriate and verifiable input data; and
  • Internal oversight and verification procedures of a contributor.
• Commission Delegated Regulation (EU) 2018/1639 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS specifying further the elements of the code of conduct to be developed by administrators of benchmarks that are based on input data from contributors (available here);
  • Description of input data;
  • Persons permitted to act as submitters;
  • Policies to ensure that a contributor provides all relevant input data;
  • Policies on the use of discretion when contributing input data;
  • Record-keeping policies;
  • Systems and controls;
  • Reporting of suspicious input data; and
  • Management of conflicts of interest.
• Commission Delegated Regulation (EU) 2018/1640 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS specifying further the governance and control requirements for supervised contributors (available here);
  • The Regulation does not apply to supervised contributors which contribute data only for non-significant benchmarks;
  • Control framework that a supervised contributor is required to have in place;
  • Controls on submitters and training for submitters;
  • Management of conflicts of interest;
  • Record-keeping requirements; and
  • Expert judgement policies.
• Commission Delegated Regulation (EU) 2018/1641 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS 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 on the procedures for making material changes in the methodology (available here);
  • The scope of the Regulation is limited to administrators of critical and significant benchmarks;
  • Key elements of the methodology used to determine a critical or significant benchmark;
  • Details of the internal review and approval of the methodology; and
  • Material changes to the methodology.
• Commission Delegated Regulation (EU) 2018/1642 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements (available here);
  • The Regulation specifies the further criteria to be considered by competent authorities under Articles 25(3) of BMR.
• Commission Delegated Regulation (EU) 2018/1643 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS specifying further the contents of, and cases where updates are required to, the benchmark statement to be published by the administrator of a benchmark (available here);
  • General disclosure requirements concerning the benchmark statement (as referred to under Article 27 of BMR);
  • Specific disclosure requirements for regulated-data benchmarks, for interest rate benchmarks, for commodity benchmarks and for critical benchmarks; and
  • Updates of the benchmark statement.
• Commission Delegated Regulation (EU) 2018/1644 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS determining the minimum content of cooperation arrangements with competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent (available here);
  • Each set of cooperation arrangements (as referred to under Article 30(4) of BMR) established between the ESMA and the competent authority of any third country shall contain the same minimum requirements regarding the forms and procedures to be used for the exchange of information.
• Commission Delegated Regulation (EU) 2018/1645 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS 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 European Securities and Markets Authority (ESMA) (available here); and
  • An administrator located in a third country shall when applying for recognition pursuant to Article 32 of BMR provide the information listed in the Annex to the Regulation;
• Commission Delegated Regulation (EU) 2018/1646 of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to RTS for the information to be provided in an application for authorisation and in an application for registration (available here).

Legal or natural persons applying for authorisation or registration of an administrator of benchmarks pursuant to Article 34 of BMR shall provide the information listed in Annex I and II to the Regulation, depending on the characteristics of the applicant or of the benchmarks provided and intended for use in the Union.

What's next?

The Commission Delegated Regulations will enter into force on 25 November 2018 and will apply from 25 January 2019.

Background

The Regulation (EU) 2016/1011 of the European Parliament and of the Council on indices used as benchmark in financial instruments and financial contracts applies since 1 January 2018 (the "BMR", available here). The BMR is relevant for any investment fund that uses any benchmark to assess its performance, to define asset allocation of its portfolio, or to compute its performance fees.

The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the BMR (the "BMR Implementing and Delegated Acts", available here).

The general public, financial market participants, competent authorities and other stakeholders can submit to the European Securities and Markets Authority (the "ESMA") questions on the practical day-to-day application of the BMR requirements. The ESMA provides answers to these questions by publishing updates to its dedicated questions and answers document (ESMA70-145-11 — the "Q&A Document").

On 27 September, the ESMA published the version 9 of the Q&A Document including Q&A in its Part 5 on definitions, Part 7 on authorisation, registration and endorsement and Part 8 on requirements for users of benchmarks.

What's new?

On 7 November 2018, the ESMA published the version 10 of the Q&A Document (ESMA70-145-11 – the "Updated Q&A Document").

The updated Q&A Document included a new Q&A in its Part 5 on definitions (Q&A 5.11 on page 15) in which the ESMA provides a clarification that the reference to an index in a bilateral agreement on the interest to be paid on exchanged collateral under various OTC derivatives does not amount to "use of a benchmark".

The ESMA explains that according to definition provided in Article 3(1)(7)(b) of the BMR the "use of a benchmark" can be the determination of the amount payable under a financial instrument or a financial contract by referencing an index or a combination of indices. Counterparties often exchange collateral under a bilateral agreement for a variety of over-the-counter ("OTC") derivatives (some of which may be "financial instruments" which are specified by Article 3(1)(16) of the BMR). According to the ESMA, the calculation of interest to be paid on these exchanged collateral is not equal to the determination of the amount payable under a financial instrument and therefore does not amount to the "use of a benchmark".

The Updated Q&A Document is available here.

What's next?

The ESMA will periodically review this Q&A Document and update it where required.

Background

The Regulation (EU) No 909/2014 of the European Parliament and of the Council of the EU on improving securities settlement in the EU and on central securities depositories ("CSDs") applies since 1 January 2015 (the "CSDR", available here).

The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the CSDR (the "CSDR Delegated Acts", available here).

The general public, market participants and national competent authorities can submit to the European Securities and Markets Authority (the "ESMA") questions on the practical application of any of the CSDR requirements. The ESMA provides answers to those questions by publishing updates to its questions and answers' document on implementation of the CSDR (ESMA70-708036281-2 — the "Q&A Document", available here).

On 27 September 2018, the Q&A Document was updated adding new Q&A in relation to book entry form requirements, organisational requirements (general) and settlement discipline.

What's new?

On 12 November 2018, the ESMA updated its Q&A Document (ESMA70-708036281-2 – the "Updated Q&A Document") as follows:

• Part II on CSD includes two new sub Q&A added to Q&A 9 relating to provision of services in another Member State (on pages 22-23):
  • Q&A 9(b) confirms that under Article 23(3)(b) of the CSDR, the "programme of operations" to be provided by the CSD should cover both the core and ancillary services it intends to provide in the host Member State; and
  • Q&A 9(c) clarifies that under Article 23(3)(e) of the CSDR, where relevant, the CSD should provide an assessment of the measures it intends to take to allow its users to comply with the national law at least for each type of financial instruments in respect of which it intends to provide the services referred to in points 1 or 2 of Section A of the Annex to the CSDR (it is listing the core services of CSDs: (1) initial recording of securities in a book-entry system ('notary service') and (2) providing and maintaining securities accounts at the top tier level ('central maintenance service'));
• Part III on settlement discipline includes three new sub Q&A added to Q&A 3 relating to the calculation of cash penalties (on page 26):
  • Q&A 3(b) clarifies which rate should be applied for the calculation of cash penalties: (1) in case the reason for the settlement fail is applicable to the leg of the transaction which delivers the cash (the 'cash rate') and (2) in case the reason for the fail is applicable to the leg of the transaction which delivers the securities (the 'securities rate');
  • Q&A 3(c) confirms that cash penalties should be applied in the case of settlement fails where the instructions are put on hold by the receiving participant; and
  • Q&A 3(d) clarifies that the, more lenient, penalty rates for small and medium-sized enterprise ("SME") growth market instruments should only apply if the particular trade has actually taken place on an SME growth market (in order for these penalty rates to apply, the same information identifying the relevant SME growth market should be included in the field related to the place of trading in both corresponding settlement instructions).

The Updated Q&A Document is available here.

What's next?

The ESMA will continue to develop the Q&A Document in the coming months and will review and update it where required.

Background

The Regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on OTC derivatives, central counterparties and trade repositories applies since 16 August 2012 ("EMIR", available here).

Under Article 5 of EMIR, the European Securities and Markets Authority (the "ESMA") is mandated to develop and submit to the European Commission (the "Commission") draft regulatory technical standards ("RTS") specifying, inter alia, the date or dates from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies and the minimum remaining maturity of the OTC derivative contracts referred to in Article 4(1)(b)(ii) of EMIR.

The RTS on the clearing obligation, which mandate a range of interest rate and credit derivative classes to be cleared, are currently included in 3 Commission Delegated Regulations supplementing EMIR (together – the "3 Delegated Regulations on the Clearing Obligation under EMIR"):

• (EU) 2015/2205 which is in force since 21 December 2015 (available here);
• (EU) 2016/592 which is in force since 9 May 2016 (available here); andCommission Delegated Regulation (EU) 2016/592 of 1 March 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the clearing obligation (Text with EEA relevance)
• (EU) 2016/1178 which is in force since 9 August 2016 (available here). Commission Delegated Regulation (EU) 2016/1178 of 10 June 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the clearing obligation (Text with EEA relevance)

On 29 March 2017, the UK notified the European Council of its intention to withdraw from the EU. Consequently, unless another date is established, EU law will cease to apply to the UK from 30 March 2018. The clearing obligation laid down in EMIR does not take into account such eventuality.

To address the situation where a UK counterparty may no longer be able to provide certain services across the EU, counterparties in the EU might decide to novate their non-centrally cleared OTC derivative contracts by replacing the UK counterparty with an EU counterparty. However, by doing this, they may trigger the clearing obligation for these contracts, therefore facing costs that were not accounted for when the contract was originally entered into.

In this context, stakeholders have asked for a general grandfathering for OTC derivative contracts, and an exemption from certain requirements stemming from EMIR. Given the urgency to provide a regulatory solution to facilitate the transfer of contracts to counterparties located in the EU in view of the withdrawal of the UK from the EU, where counterparties decide to do so, the ESMA has not conducted any open public consultation on this matter.

What's new?

On 8 November 2018, the ESMA published its final report on the draft EMIR RTS on the novation of contracts for which the clearing obligation has not yet taken effect (ESMA70-151-1854, the "Draft ITS").

The Draft ITS propose to amend each of the 3 Delegated Regulations on the Clearing Obligation under EMIR. In particular, in the context of the UK’s withdrawal from the EU, they propose to introduce a limited exemption from clearing obligation in order to facilitate the novation of certain non-centrally cleared OTC derivative contracts to EU27 counterparties during a limited time-window.

The Draft ITS propose to allow UK counterparties to be replaced with EU ones without triggering the EMIR clearing obligation in respect to the newly novated contracts. This limited exemption is to ensure a level playing field between EU counterparties and the preservation of the regulatory and economic conditions under which the contracts where originally entered into.

The Draft RTS are available here.

What's next?

The Draft ITS are submitted to the Commission for endorsement in the form of Commission delegated regulation. Following the endorsement, they will be subject to the review of the Parliament and of the Council.

The final Commission delegated regulation shall enter into force on the day following that of its publication in the OJEU. It shall apply from the date following that on which EU law ceases to apply to the UK; however it would only apply if the UK leaves the EU without the conclusion of a withdrawal agreement – a no deal scenario.

Hence, the window for the novation of non-centrally cleared OTC derivative contracts which fall under the scope of the Draft RTS would be open for 12 months following the withdrawal of the UK from the EU. Because of the 12-month time to benefit from the exemption, the ESMA has stated that counterparties can start repapering their contracts ahead of the application date, making the novation conditional upon a no-deal UK's withdrawal from the EU, given the conditional application date of the Commission delegated regulation in which the Draft RTS would be endorsed.

Background

On 3 April 2018, the ESMA published its report entitled "Enforcement and Regulatory Activities of Accounting Enforcers in 2017" (the "2018 Report", available here).

On 26 September 2018, the ESMA released its annual work programme asserting where it will direct its attention for 2019, in line with its objectives (the "2019 WP", available here). In the 2019 WP, the ESMA committed to contributing to the set-up of high-quality accounting standards, which would include providing enforcers' views on new IFRS pronouncements and amendments.

What's new?

On 26 October 2018, the ESMA issued a public statement entitled "European common enforcement priorities for 2018 annual financial reports" (ESMA32-63-503 – the "Public Statement").

More specifically, the common enforcement priorities for 2018 year-end are:

• Specific issues related to the application of IFRS 15 Revenue from Contracts with Customers;
• Specific issues related to the application of IFRS 9 Financial Instruments; and
• Disclosure of the expected impact of the implementation of IFRS 16 Leases.

The ESMA also highlights specific requirements relating to the sections of the annual financial report other than financial statements, such as the disclosure of non-financial information and the application of ESMA guidance on Alternative Performance Measures ("APMs"), as well as particular importance placed on disclosures on the impact of Brexit.

The Public Statement is available here.

The related Press Release is available here.

What's next?

The ESMA and European national enforcers will monitor and supervise the application of the IFRS requirements as well as any other relevant provisions outlined in the Public Statement, with national authorities incorporating them into their reviews and taking corrective actions where appropriate.

In addition, the ESMA will collect data on how European listed entities have applied the priorities and the ESMA will report on findings regarding these priorities in its report on the 2019 enforcement activities.

Background

The Regulation (EU) N0 596/2014 of the Parliament and of the Council on market abuse applies since 3 July 2016 ("MAR", available here).

Article 19(11) of MAR states that "a person discharging managerial responsibilities [PDMR] within an issuer shall not conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public according to: (a) the rules of the trading venue where the issuer’s shares are admitted to trading; or (b) national law".

On 1 October 2018, the ESMA lastly updated its questions and answers' document on MAR (the "Q&A v12", available here). In the Q&A5.3, 5.4 and 5.5, the ESMA clarified the conditions laid down in points (a), (b), (c) of Article 17(5) of MAR.

What's new?

On 12 November 2018, the ESMA updated the Q&A v12 (ESMA70-145-111 – the "Q&A v13").

More specifically, the new Q&A 7.10 clarifies the non-applicability of the prohibition contained in Article 19(11) of MAR to the issuer itself ("Since the actions of the PDMR, in their capacity of director or employee of the issuer, are not PDMR transactions for the account of a third party but transactions of the issuer itself").

However, the ESMA notes "that any transaction carried out by the issuer during a closed period should be carefully treated, as the issuer remains subject to the prohibition of insider dealing contained in Article 14 of MAR. Therefore, where the issuer is in possession of inside information relating to its own financial instruments, it will be prevented from trading on them unless it had established, implemented and maintained the internal arrangements and procedures laid down in Article 9(1) of MAR".

The Q&A v13 is available here.

What's next?

The ESMA will continue to develop and review its Q&A on MAR where required.

Background

Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments applies since 3 January 2018 ("MiFIR", available here). Article 40 of MiFIR addresses temporary intervention powers of the European Securities and Markets Authority (the "ESMA"). Under certain conditions, the ESMA may prohibit or restrict in the EU the marketing, distribution or sale of certain financial instruments or financial instruments with certain specified features, or a type of financial activity or practice.

On 22 May 2018, the ESMA adopted 2 decisions under Article 40 of MiFIR (ESMA35-43-1135, the "Notice on Decisions", available here). On 1 June 2018, the ESMA decisions were published in the OJEU as:

• (EU) 2018/795 — to temporarily prohibit the marketing, distribution or sale of binary options ("BOs") to retail clients in the Union, applicable from 2 July 2018 for 3 months (the "Decision 2018/795 on BOs", available here); and
• (EU) 2018/796 — to temporarily restrict contracts for differences ("CFDs") in the Union, applicable from 3 August 2018 for 3 months (the "Decision 2018/796 on CFDs ", available here). This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

On 24 August 2018, the ESMA published a press release informing that on 22 August 2018, its Board of Supervisors agreed to renew prohibition on BOs for further 3 months from 2 October 2018 (ESMA71-99-1026 — the "Press Release on BOs", available here). The ESMA had also agreed on the exclusion of a limited number of products from the scope of the measure.

On 28 September 2018, the ESMA published a press release informing that on 26 September 2018, its Board of Supervisors agreed to renew the restriction on the marketing, distribution or sale of CFDs to retail clients for further 3 months from 1 November 2018 (ESMA71-99-1041, the "Press Release on CFDs", available here). This renewal includes the following:

• Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying;
• A margin close out rule on a per account basis. This will standardise the percentage of margin at which providers are required to close out one or more retail client’s open CFDs;
• Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;
• A restriction on the incentives offered to trade CFDs; and
• A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

On 28 September 2018, the ESMA also updated its on 1 June 2018 published questions and answers document concerning application of its temporary product intervention measures on the marketing, distribution or sale of CFDs and BOs to retail clients (ESMA35-36-1262 — the "Q&A", available here).

On 1 October 2018, the ESMA issued a notice informing that on 21 September 2018, it adopted a decision under Article 40 of MiFIR to prohibit the marketing, distribution or sale of BOs to retail clients (ESMA35-43-1391 — the "Notice on BOs", available here) and that it has been published in the OJEU as the Decision (EU) 2018/1466 renewing and amending the temporary prohibition in Decision 2018/795 on BOs, which applies from 2 October 2018 for 3 months (the "New Decision 2018/1466 on BOs, available here").

What's new?

On 31 October 2018, the ESMA issued a notice informing that on 23 October 2018, it adopted a decision under Article 40 of MiFIR to restrict the marketing, distribution and sale of CFDs to retail clients (ESMA35-43-1397 – the "Notice on CFDs") and that it has been published in the OJEU as the Decision (EU) 2018/1636 renewing and amending the temporary restriction in Decision 2018/796 on CFDs (the "New Decision 2018/1636 on CFDs).

The Notice on CFDs is available here.

The New Decision 2018/1636 on CFDs is available here.

What's next?

The New Decision 2018/1636 on CFDs applies since 1 November 2018 for a period of 3 months.

On 9 November 2018, the ESMA updated its Q&A providing clarification on the application of the temporary product intervention measures in relation to the prominence of the risk warning (Question 5.13 on pages 14-15) and further clarifying what is considered "payments for the purpose of entering into a CFD" (Question 5.2 on page 9) (available here).

Background

The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here). They include Commission Delegated Regulations:

• (EU) 2017/589 supplementing MiFID II with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading ("RTS 6", available here);
• (EU) 2017/578 supplementing MiFID II with regard to regulatory technical standards specifying the requirements on market making agreements and schemes ("RTS 8", available here); and
• (EU) 2017/580 supplementing MiFIR with regard to regulatory technical standards for the maintenance of relevant data relating to orders in financial instruments ("RTS 24", available here).

The general public, market participants and competent authorities can submit to the European Securities and Markets Authority (the "ESMA") questions on the practical application of MiFID II and MiFIR in relation to market structures topics. Since 18 November 2016, the ESMA provides answers to those questions by publishing updates to its questions and answers' document on MiFID II and MiFIR market structures topics (ESMA70-872942901-38 – the "Q&A Document", available here).

On 4 October 2018, the Q&A Document was lastly updated adding new Q&A to Part 3 on direct electronic access ("DEA") and algorithmic trading and Part 5 on multilateral and bilateral systems.

What's new?

On 14 November 2018, the ESMA updated its Q&A Document (ESMA70-872942901-38 – the "Updated Q&A Document").

The ESMA added a new Q&A 29 (on page 30) to Part 3 on DEA and algorithmic trading. The ESMA clarified that the requirement imposed on market markers to post simultaneous two-way quotes of comparable size does not restrict the ability of market makers to voluntarily post additional liquidity on either side of the order book.

The ESMA further explained that it is not the intention of RTS 8 to prevent market makers that have live two-way quotes from adding further liquidity in the order book on a voluntary basis. Market makers are free to discretionarily post additional quotes on either side of order book in addition to the "simultaneous two-way quotes of comparable size and competitive price" imposed by Article 2(1)(b) of RTS 8 which addresses the content of a binding written market making agreements. Only quotes that are posted to fulfil the obligations imposed by the market making agreement should be flagged as such in field 8 ('liquidity provision activity') of Table 2 ('details of orders') of the Annex of RTS 24 and field 3 ('liquidity provision activity') of Table 3 ('information relating to outgoing and executed orders') of Annex II on content and format of order records of RTS 6.

The Updated Q&A Document is available here.

What's next?

The ESMA will continue to develop the Q&A Document in the coming months and will review and update it where required.

Background

The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here).

The general public, market participants and competent authorities can submit to the European Securities and Markets Authority (the "ESMA") questions in relation to the MiFID II and MiFIR transparency topics. Since 3 October 2016, the ESMA provides answers to those questions by publishing updates to its questions and answers' document on MiFID II and MiFIR transparency topics (ESMA70-872942901-35 – the "Q&A Document", available here).

On 4 October 2018, the Q&A Document was lastly updated amending the answer to an existing Q&A on default liquidity status of bonds and adding 2 new Q&A on classification of derivatives on derivatives for transparency purposes and on scope of the pre-trade transparency waiver.

What's new?

On 14 November 2018, the ESMA updated its Q&A Document (ESMA70-872942901-35 – the "Updated Q&A Document") Part 2, which includes general Q&A on transparency topics as follows:

• Adding two new sub Q&A to Q&A 7 (on pages 22-23). The new Q&A concern definition of request-for-quote ("RFQ") systems:
  • Q&A 7(b) clarifies which quotes should be made public in a RFQ system;
  • Q&A 7(c) clarifies that an RFQ system cannot be construed as a two-step process where (i) an RFQ is initiated and quotes are received in response to that RFQ, and (ii) the transactions are ultimately executed following a bilateral confirmation with one of the respondents; and
• Modifying Q&A 10 (on pages 24-26) on pre-and post-trade transparency in RFQ systems, in particular, clarifying: (i) how should trading venues, approved publication arrangements ("APAs") and consolidated tape providers ("CTPs") make data (pre-and/or post-trade data) available free of charge 15 minutes after publication and ensure non-discriminatory access to the information; and (ii) what practices are not compatible with the requirement to make data available free of charge and ensure non-discriminatory access to the information.

The ESMA also updated Part 7 of the Q&A Document, which includes Q&A on systematic internaliser ("SI") regime adding a new Q&A 11 (on pages 60-61). The new Q&A concerns obligations applicable to SIs in instruments that are not traded on a trading venue ("Non-TOTV").

The Updated Q&A Document is available here.

What's next?

The ESMA will continue to develop the Q&A Document and will review and update it where required.

Background

The Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds ("MMFs") applies since 21 July 2018 (the "MMF Regulation", available here), with transitional provisions in relation to existing UCITS and AIFs laid out in Article 44 of the MMF Regulation.

Article 37 of the MMF Regulation provides that the ESMA shall develop draft implementing technical standards ("ITS") to establish a reporting template containing all the information managers of MMFs are required to send to their competent authority ("CA").

The Commission implementing regulation (EU) 2018/708 laying down ITS with regard to the template to be used by managers of MMFs when reporting to CAs applies since 21 July 2018 (the "Delegated Regulation 2018/708", available here).

Following the publication of the Delegated Regulation 2018/708, the ESMA has worked on draft guidelines and IT guidance that will complement the information included in the ITS, in order for managers of MMFs to have all the necessary information to fill in the reporting template they will send to the CA of their MMF on a quarterly basis (or on an annual basis for a MMF whose assets under management in total do not exceed EUR 100 million).

What's new?

On 13 November 2018, the ESMA launched its consultation concerning draft guidelines on the reporting to CAs under Article 37 of the MMF Regulation (ESMA34-49-144 – the "Consultation Paper").

In the Consultation Paper, the ESMA is seeking the views of (i) MMF managers and their trade associations, (ii) AIFs and UCITS managers and their trade associations, and (iii) institutional and retail investors (and association of such investors) investing in MMF, on a list of questions listed in the Annex I.

In particular, the ESMA highlights the following points:

• In order to reduce the cost of compliance, managers of MMFs subject to yearly reporting pursuant to Article 37(1) of the MMF Regulation are allowed to report on a quarterly basis;
• The potential situations in which the managers of MMFs do not have any information to report on MMFs should be listed exhaustively;
• For the calculation of the thresholds referred to in Article 37(1) of the MMF Regulation, the NAV should be measured when the corresponding data is made available on a quarterly basis (last day of the quarter);
• The ESMA asks feedback on the proposed definitions of the various fields of the reporting table;
• The ESMA also asks stakeholders to check whether any eligible assets would be omitted from the annex to the draft guidelines (table entitled "CFI codes for eligible securities"); and
• Stakeholders can also comment on any other additional issues concerning any of the sections of the draft guidelines (i.e. general principles MMF characteristics, portfolio indicators, stress tests, information on the assets, information on the liabilities, and information on LVNAV) and various fields in the reporting template.

It is to be noted that the Annex IV to the Consultation Paper contains the full text of the draft guidelines on reporting to CAs (and its annex).

The Consultation Paper is available here.

What's next?

Comments on the Consultation Paper shall be submitted to the ESMA by 14 February 2019.

In the Consultation Paper, the ESMA "confirms that managers would need to send their first quarterly reports mentioned in Article 37 to NCAs in Q1 2020 (and not in July 2018). In addition, there will be no requirement to retroactively provide historical data for any period prior to this starting date of the reporting".

As a reminder, the consultation deadline for submitting comments to the ESMA draft guidelines on stress test scenarios under the MMF Regulation is 1 December 2018 (ESMA34-49-131, available here).

Background

The Regulation (EU) 2017/2402 of the European Parliament and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised ("STS") securitisation will apply as from 1 January 2019 (the "Securitisation Regulation", available here).

On 19 March 2018, the ESMA closed its consultation on the draft technical standards on disclosure requirements, operational standards, and access conditions under the Securitisation Regulation (ESMA33-128-107 – the "CP on disclosure requirements and operational standards", available here).

On 23 May 2018, the ESMA closed also the following two consultations:

• Consultation on the ESMA's technical advice to the European Commission (the "Commission") on fees for securitisation repositories ("SRs") under the Securitisation Regulation (ESMA33-128-212 – the "CP on SR fees", available here); and
• Consultation on the draft technical standards on the application for registration as a SR under the Securitisation Regulation (ESMA33-128-109 – the "CP on SR application requirements", available here).

What's new?

On 13 November 2018, the ESMA issued a set of technical standards and guidance in relation to SRs under the Securitisation Regulation, as follows:

• Following-up on the CP on SR fees, the ESMA issued its final technical advice to the Commission (ESMA33-128-505 – the "Final Technical Advice", available here). In this context, the ESMA further clarified the following requirements:
  • SR registration fees should be adjusted in order to more closely track applicants' turnover;
  • In case of a material change in the provision of services (i.e. a change in the classification of a SR from "low" to "high" turnover), the ESMA will charge the difference between the initially paid registration fee and the higher applicable registration fees resulting from that material change (this arrangement is in line with the fee arrangements under EMIR and SFTR); and
  • Due to its internal budgetary processes, the ESMA has clarified provisions concerning the annual supervisory fee for a given year (n) for a SR registered on or after 1 October 2018 of the previous year (n-1).
• Following-up on the CP on disclosure requirements and operational standards and on the CP on SR application requirements, the ESMA issued its final report (ESMA33-128-488 – the "Final Report", available here)
  • The Annex IV to the Final Report (on page 61) contains the text of the draft regulatory technical standards ("RTS") on SR operational standards for data collection, aggregation, comparison, access and verification of completeness and consistency;
  • The Annex V to the Final Report (on page 74) contains the text of the draft RTS specifying the details of the application for a registration of a SR; and
  • The Annex VI to the Final Report (on page 97) contains the text of the draft implementing technical standards ("ITS") with regard to the format of applications for registration of SRs according the Securitisation Regulation.
• Specific guidance consisting of a set of reporting instructions (ESMA33-128-585 – the "Reporting Instructions", available here), and an interim STS notification template (ESMA33-128-585a – the "Notification Template", available here), pending the development of the ESMA’s STS register in the coming months;

Statement providing additional information to facilitate market participants' understanding of several aspects of the ESMA's near-term implementation of the Securitisation Regulation (ESMA33-128-577 – the "Statement", available here).

What's next?

The ESMA has submitted the Final Report and the Final Technical Advice to the European Commission for endorsement. These items will contribute to delivering a regulatory rulebook for European securitisation markets.

The Securitisation Regulation will begin to apply on 1 January 2019.

Background

The Regulation (EU) 236/2012 of the EU Parliament and of the Council on short selling and certain aspects of credit default swaps applies from 1 November 2012 ("SSR", available here).

In accordance with Article 2(1)(j)(v) of SSR, "competent authority" means in relation to a financial instrument that encompasses shares, the competent authority for that financial instrument, as defined in Article 2(7) of the Commission Regulation (EC) No 1287/2006 ("Regulation 1287/2006", available here) implementing especially Article 25(3) of the Directive 2004/39/EC ("MiFID I", available here).

The Commission delegated regulation (EU) 2017/590 ("Regulation 2017/590", available here) supplementing the regulation (EU) No 600/2014 of the European Parliament and of the Council ("MiFIR", available here) with regard to regulatory technical standards for the reporting of transactions to competent authorities applies since 3 January 2018. In this context, Article 25(3) of MiFID I has been substituted by Article 26(1) and (2) of MiFIR, as supplemented by the Regulation 2017/590. However, the formal reference in SSR to the Regulation 1287/2006 has not changed.

On 28 May 2018, the ESMA lastly updated its questions and answers' ("Q&A") document on SSR (the "Q&A v5", available here). In particular, the ESMA has revised a pre-existing answer regarding locate arrangements, further specifying the requirements for "easy-to-borrow and purchase" lists.

What's new?

On 14 November 2018, the ESMA issued the 6th iteration of its questions and answers' document on SSR (ESMA70-145-408– the "Q&A v6").

In the new Q&A 4.10, the ESMA clarifies that the identification of the relevant competent authority ("RCA") under Article 2(1)(j)(v) of SSR, following the entry into application of MiFIR, is no longer made under the Regulation 1287/2006 but under the Regulation 2017/590 for the reporting of transactions to competent authorities.

"As a consequence, the RCA for SSR purposes coincides with the national competent authority of the most liquid market in terms of liquidity for transaction reporting purposes that is published by the ESMA under the Financial Instrument Reference Data ("FIRDS") section of its website (available here). Therefore, the notification of net short positions in shares (Article 5 of SSR), the public disclosure of significant net short positions in shares (Article 6 of SSR) and the restrictions on uncovered short shales in shares (Article 12 of SSR) have to be submitted to the national competent authority of the jurisdiction that appears in FIRDS as 'Upcoming RCA'".

The Q&A v6 is available here.

What's next?

The ESMA will continue to develop and review its Q&A on SSR where required.

Background

The CSSF is most notably the Luxembourg competent authority of the prudential supervision of professionals of the financial sector (i.e. investment firms, specialised PFS and support PFS), undertakings for collective investment ("UCI"), UCITS, specialised investment funds ("SIF"), investment company in risk and capital ("SICAR").

On 22 December 2017, the Grand-Ducal regulation of 21 December 2017 relating to the fees to be levied by the CSSF was published in the Memorial A N° 1121 (the "2017 Regulation", available here in French). The 2017 Regulation applies since 1 January 2018. In particular, Article I (F.) relates to the fees to be levied by the CSSF concerning PFS.

On 8 July 2018, the Grand-Ducal Regulation of 2 July 2018 amending the 2017 Regulation in relation to certain provisions of the "MiFID II Law" (available here only in French) and the "BMR Law" (available here only in French) entered into force (the "2018 Regulation", available here only in French).

What's new?

On 24 October 2018, the CSSF updated its Frequently Asked Questions' Document on how to obtain authorisation as PFS (the "FAQ Part I").

With regards to the new question 19 entitled "What costs are involved for the assessment by the CSSF of an authorisation request as a PFS?", the CSSF provides the following clarification:

In accordance with [Article I (F.)(1) of] the Regulation 2017, as amended, "a single lump sum of EUR 15,000 shall be charged for the examination of each authorisation request by a new PFS. This fee amounts to EUR 8,000 for the examination of an authorisation extension request for an existing PFS, which implies adding one or several additional statuses".

The FAQ Part I is available here (in English) and here (in French).

What's next?

The CSSF will continue to update its FAQ on PFS as and when required.

Background

The regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data applies since 25 May 2018 ("GDPR", available here).

In this context, Articles 6 and 23 of GDPR provide that Member State law may restrict by way of a legislative measure the scope of the obligations and rights laid down especially in Articles 12 to 22 and 34 of GDPR. Such restrictions shall fulfil the following conditions:

• The restriction shall respect the essence of the fundamental rights and freedoms and is a necessary and proportionate measure in a democratic society to safeguard one of the limited objective listed in Article 23(1) of GDPR; and
• Any legislative measure shall contain specific provisions at least, where relevant, as to the elements listed in Article 23(2) of GDPR.

On 20 August 2018, the Luxembourg law of 1 August 2018 implementing certain provisions of GDPR entered into force and repealed the Luxembourg law of 2 August 2002 on the protection of persons with regard to the processing of personal data ("Loi du 1er août 2018 portant organisation de la Commission nationale pour la protection des données [CNPD] et du régime général sur la protection des données" or the "GDPR Implementing Law", available here only in French). In particular, Articles 12 to 14 of the GDPR Implementing Law give the CNPD new regulatory powers in relation to GDPR (most notably the powers defined in Article 58 of GDPR).

The latest coordinated version of the Luxembourg organic laws concerning the Commission de Surveillance du Secteur Financier ("CSSF") and the Commissariat aux Assurances ("CAA") are respectively available here (the "CSSF Law") and here only in French (the "CAA Law").

What's new?

On 22 October 2018, the Luxembourg Minister of Finance submitted the new bill 7373, which amends the CSSF Law and the CAA Law with regard to certain GDPR restrictions, to the Luxembourg Parliament (the "Bill 7373").

The purpose of the Bill 7373 is twofold:

• To supplement the general restrictions provided for in GPDR with specific restrictions within the area of CSSF's and CAA's competences, with a view to ensuring in all cases the effective exercise of the CSSF's and CAA's missions in the Luxembourg, European and international frameworks; and
• To ensure at the same time a high degree of protection of personal data by providing protective provisions (guarantees), which are intended to compensate for a specific restriction.

More specifically, the Bill 7373 proposes to introduce the following new Articles into the CSSF Law and the CAA Law:

• Article I of the Bill 7373 would add a new Article 3(c) and Articles 16-1 to 16-9 into the CSSF Law;
• Article II of the Bill 7373 would add a new Article 5(4) and Articles 13-1 to 13-9 into the CAA Law, and amend the Annex III to the CAA Law for reference purposes; and
• Article III of the Bill 7373 would add a new Article 105(17) and Article 154(13) into the CAA Law for reference purposes.

The Bill 7373 is available here (only in French).

What's next?

As a first step, the Luxembourg Conference of Presidents should order the referral of the Bill 7373 to the parliamentary Finance and Budget Commission for discussion.

Background

On 5th November 2018, the Royal Decree dated 15th October 2018 has been published, modifying the Royal Decree of 7th March 2006 on securities lending from certain UCIs in order to comply with the Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012. The Royal Decree also implements article 38 of the Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012.

What's new?

The Royal Decree aims to introduce additional measures that Belgian public UCIs may, under certain specific conditions, apply as part of their liquidity management. The Royal Decree introduces three liquidity tools, which Belgian public UCIs and management company can now use: swing pricing, anti-dilution levy and redemption gates mechanisms as defined in the Royal Decree.

What's next?

The UCIs or management companies, which want to use one or several of these mechanisms, will have to modify their documentation according to these new regulation requirements. They must establish previously a policy defining the application conditions of this/these mechanism(s), taking care of potential conflicts of interest, which could result from their use. Depending on the mechanism, the relevant policy must be mentioned in the prospectus, in the periodical reports, and / or in the articles of association or management regulation of the UCIs.

Background

The Securities and Futures Commission (SFC) commenced a thematic review of selected licensed corporations (LCs) to assess their risk governance and oversight framework as well as their risk management practices. The review comprises three work streams focusing on the underlying risks of LCs’ remote booking models, operational risk and data risk, with the aim of providing further guidance for LCs to cope with these evolving risks.

LCs should exercise due skill, care and diligence, and have the operational capabilities to protect their operations and clients. Effective resources should be deployed and procedures should be implemented to properly manage the risks to which LCs are exposed, and information should be provided to management to adequately manage the risks.

The SFC notes that the growing complexity of trading and business models, extensive use of technology, greater reliance on big data and more challenging liquidity conditions all pose increasing risks to financial institutions in Hong Kong. We expect LCs to evaluate the risk management processes periodically to ensure that they adequately manage the risk of losses, whether financial or otherwise, resulting from fraud, errors, omissions and other operational and compliance matters.

What's new?

Sufficient management oversight is crucial to ensure that proper risk management is thoroughly integrated into LCs’ businesses and brought to the forefront of their corporate strategies. Most importantly, LCs should allocate risk mitigation responsibilities and tasks to staff under their risk management framework. As risk management is one of the core functions under the Manager-In-Charge (MIC) regime, the SFC plans to take this opportunity to assess the risk governance and oversight frameworks of selected LCs as well as the roles and responsibilities of MICs of risk management.

What's next?

Format of the thematic review shall be as follows:

• questionnaires will be sent to selected LCs in Hong Kong;
• the SFC will analyse the responses to identify any red flags suggesting potential concerns or instances of non-compliance;
• LCs will be selected for meetings and on-site inspections, which will involve the SFC meeting with key personnel and inspecting internal controls and risk management activities; and
• existing SFC regulatory requirements will be compared to those of other major financial market regulators. Market practices will be assessed to identify good practices or common issues.

(Click here to download the document)

Background

On 13 December 2016, the Luxembourg Parliament passed legislation implementing Country-by-Country Reporting ("CbCR") requirement for Luxembourg entities that are part of a Multinational Enterprise ("MNE") Group. The CbCR legislation transposes into Luxembourg law part of the three-tiered standardised approach to transfer pricing documentation introduced in Action 13 of the OECD/G20 Base Erosion and Profit Shifting ("BEPS").

What's new?

On 14 November 2018, the Luxembourg tax authorities informed applicants of the CbCR that the automatic exchange relationship between China and Luxembourg will be in place as of the declarable fiscal year commencing on or after January 1, 2017.

The link is available here (only in French).

What's next?

A FAQs is available on the Luxembourg Tax Authorities’ website for more information.

Background

On 5 December 2017, the ECOFIN Council (the "Council") published its conclusions on the EU common list of non-cooperative jurisdictions in tax matters, also referred to as the "blacklist".

This initiative forms part of the EU’s broader agenda on furthering tax transparency, fair taxation and the implementation of anti-BEPS measures with the dual aim of raising the level of good global governance and tackling tax fraud, evasion and avoidance.

What's new?

On 6 November 2018, the Council removed Namibia from the EU's list of non-cooperative tax jurisdictions.

As a result, the list is now down to five non-cooperative jurisdictions whilst a total of 65 jurisdictions are now actively cooperating with the EU in implementing tax good governance standards.

The link is available here.

What's next?

American Samoa, Guam, Samoa, Trinidad and Tobago and the US Virgin Islands remain on the list of non-cooperative jurisdictions.

The list is revised at least once a year, but the code of conduct group can recommend an update at any time.