At the end of each month, the SAFE Regulatory Radar highlights a selection of important news and developments on financial regulation at the national and EU level.
Capital Markets Union: Recovery Package to mitigate the impact of the Coronavirus crisis
On 24 July 2020, the European Commission adopted a Capital Markets Recovery Package that contains targeted amendments to the Prospectus Regulation, the Markets in Financial Instruments Directive (MiFID II), and securitization rules. The package constitutes a part of the European Coronavirus recovery strategy and aims to support companies to recover from the crisis.
Regarding the changes to the prospectus regime, the Commission introduced a new type of short-form prospectus – "EU Recovery Prospectus"– for companies with a track record in the public market. The goal of this temporary prospectus form is to facilitate the recapitalization of companies.
Changes to MiFID II strive to remove disproportionate administrative burdens for investors. Furthermore, the Commission amended the MiFID rules affecting energy derivatives markets to help the development of euro-denominated energy markets.
Amendments to the Securitisation Regulation and the Capital Requirements Regulation extended the framework for simple, transparent, and standardized (STS) to on-balance-sheet synthetic securitizations. Moreover, the Commission removed some regulatory obstacles to the securitization of non-performing exposures.
The changes to the Prospectus Regulation and the Securitization Framework are directly applicable in the member states whereas the amendments to MiFID II need to be transposed into national laws.
Lending market: amendments to the Benchmark Regulation ahead of LIBOR phase-out
On 24 July 2020, the European Commission proposed targeted amendments to the EU Benchmarks Regulation (BMR) in light of the phase-out of the London Interbank Offered Rate (LIBOR) at the end of 2021. LIBOR reflects the average rate at which major banks can obtain unsecured funding in a specified currency for a particular time in the London Interbank Market. The legislative proposal seeks to avoid a legal vacuum and the negative effects on the banking sector’s capacity to provide funding to EU companies after the phase-out of LIBOR.
According to the proposal, the Commission would get a new statutory power to design a replacement rate of LIBOR in all contracts and financial instruments that mature after 2021. This power of the Commission would only apply to contracts concluded by supervised entities under the BMR. For contracts not under the EU supervision, member states are encouraged to adopt national statutory replacement rates.
As a next step, the European Parliament and the Council have to review the Commission’s proposal and may propose amendments.
Capital Markets Union: EBA technical standards on disclosures and reporting
On 3 August 2020, the European Banking Authority (EBA) published its final draft Implementing Technical Standards (ITS) on disclosure and reporting on total loss absorbency capacity (TLAC) and the minimum requirements for own funds and eligible liabilities (MREL) for global systemically important institutions (G-SII). These standards aim to facilitate the use of information by market participants and regulatory authorities, necessary to understand and monitor the TLAC and MREL of the respective entity. The guidelines further try to increases efficiency for institutions when complying with disclosure and reporting obligations.
A month earlier, EBA presented new ITS on public disclosures and revised its final draft ITS on supervisory reporting. The guidelines follow the changes in the revised Capital Requirements Regulation (CRR2) and the Prudential Backstop Regulation and foster market discipline.
The disclosure ITS aims to optimize the Pillar 3 policy framework for credit institutions by providing templates for disclosures of key metrics, risk management objectives and policies, own funds, and prudent valuation adjustments (PVAs). The reporting ITS covered new reporting requirements on counterparty credit risk, net stable funding ratio, and non-performing exposures minimum coverage.
The first disclosure and reporting reference dates under new guidelines will be 30 June 2021.
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Anastasia Kotovskaia is Research Assistant at the SAFE Policy Center and currently pursuing a Ph.D. in Law at Goethe University.