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.
Sustainable finance: New initiatives
On 11 December 2019, the European Commission presented the European Green Deal. It is a roadmap that aims to pave the way for Europe to become “the world’s first climate-neutral continent by 2050”. One of the key components of this deal is to foster more sustainable investments. Following this goal, on 14 January the European Commission and the Council introduced the European Green Deal Investment Plan (EGDIP) and the Just Transition Mechanism (JTM), including a legislative proposal to establish the Just Transition Fund (JTF).
The EGDIP aims to facilitate and incentivize public and private sustainable investments. In total, the plan should mobilize at least one trillion euros over the next decade with key support by the European Investment Bank (EIB).
The JTM consists of three pillars and aims at mitigating distributional concerns of the green transition by concentrating on affected regions and sectors. The JTF constitutes the first pillar of the JTM. It will provide between 30 and 50 billion euros of funding from the EU’s regional policy budget granted to the regions and sectors that are most affected by the transition. The other two pillars of the mechanism are the Just Transition Scheme under the program „InvestEU“ to mobilize private investments and a public loan facility with the EIB. The Commission will hold a Sustainable Investment Summit on an annual basis to monitor the progress on the transition path.
On a related note, promoting sustainability became also a key priority for the European Securities and Markets Authority (ESMA). On 6 February 2020, ESMA published its strategy on sustainable finance. The strategy explains how environmental, social and governance (ESG) factors will be integrated into activities of the European supervisory authority.
The report highlights several key priorities: i) the completion of the regulatory framework on transparency obligations through the disclosure requirements, including providing technical standards; ii) giving an account of trends, risks and vulnerabilities (TRV) of sustainable finance; iii) analyzing the financial risks stemming from climate change; iv) harmonizing national supervisory practices on ESG factors; v) helping to develop and maintain the EU sustainable finance taxonomy; vi) ensuring ESG guidelines are followed by supervised entities.
Also, the European Parliament works on a related topic. On 24 January 2020, it published a provisional agreement for the proposed Taxonomy Regulation. It establishes a unified classification system ('taxonomy') on what can be considered an environmentally sustainable economic activity. The details of the legislative proposal were outlined in the SAFE Regulatory Radar December.
As a next step, the Council of the EU is expected to formally adopt a final compromise agreement at first reading and the European Parliament will adopt it in plenary at the second reading.
Capital Markets Union: New guidelines to harmonize the provision of financial information
On 4 February 2020, ESMA amended its guidelines on the enforcement of financial information under the Transparency Directive. The amendments’ goal is to harmonize the provision of financial information across member states of the European Economic Area (EEA). The guidelines require national competent authorities (NCAs), such as the Federal Financial Supervisory Authority (BaFin) for Germany, to harmonize how to select issuers for an examination, how to undertake examinations, as well as the duration of the examination. Moreover, ESMA points out that NCAs should ensure the effectiveness of financial information enforcement as well as adequate independence from the government, issuers, auditors, and other market participants.
The updated guidelines aim to strengthen supervisory convergence across the EEA. They are designed to prevent regulatory arbitrage and thus contribute to investor protection. The amendments will enter into force on 1 January 2022.
Financial supervision: ESMA suggests amendments to the trading obligation under MiFIR
On 7 February 2020, ESMA published a final report proposing several amendments to the Markets in Financial Instruments Regulation (MiFIR). ESMA recommends aligning the scope of entities subject to the clearing obligations for derivatives under EMIR and the trading obligations for derivatives under MiFIR.
This report is a consequence of EMIR Refit that changed the scope of counterparties subject to clearing obligations for derivatives, while the scope of entities subject to the trading obligation for derivates under MiFIR has not been adopted.
In detail, ESMA makes three recommendations to the European Commission based on the results of its public consultation: i) aligning the scope of non-financial counterparties, ii) aligning the scope of financial counterparties and iii) creating a stand-alone suspension mechanism for the Derivatives Trading Obligation.
Based on the ESMA report, the European Commission will submit its report to the European Parliament and the Council by 18 December 2020.
Current public consultations
Anastasia Kotovskaia is Research Assistant at the SAFE Policy Center and currently pursuing a Ph.D. in Law at Goethe University.