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.
Commission clarifies commercial terms for clearing services for OTC derivatives under EMIR
On 2 June 2021, the European Commission adopted a Delegated Regulation setting out specified conditions under which commercial terms for clearing services for over-the-counter (OTC) derivatives should be considered as fair, reasonable, non-discriminatory, and transparent (FRANDT). The regulation follows the changes introduced by the European Market Infrastructure Regulation (EMIR) reform (EMIR Refit) and aims to facilitate access to clearing services for counterparties and to enhance the transparency of commercial terms. New rules will have an impact on clearing members and clients who provide clearing services in the EU (clearing service providers).
In detail, affected institutions must meet several requirements in order to classify their commercial terms as FRANDT. Among others, they must ensure transparency of the on-boarding process which is a procedure of establishing contractual terms and operational processes of clearing services. Clearing service providers must publish a detailed description of the on-boarding process on their webpage, including information about the different steps of that process, the timeline, and the key documentation. Furthermore, the delegated regulation specifies requirements for the risk control assessment, disclosure of commercial terms and fees as well as prices and pass-on costs. It is also explained that a clearing service provider may refuse a clearing order only in exceptional cases and with a justification of the reasons in written form.
The delegated regulation was submitted to the European Parliament and the Council for endorsement and will apply to commercial terms in contracts within 12 months from its entry into force.
New criteria and requirements for eligible liabilities and own funds
On 26 May 2021, the European Banking Authority (EBA) updated its Regulatory Technical Standards (RTS) on own funds and eligible liabilities.
The revised Capital Requirements Regulation (CRR2) included eligible liabilities instruments into the CRR regime and mandated EBA to prepare the standards applicable to eligible liabilities instruments to ensure a consistent regulatory approach.
The RTS align the provisions regarding eligible liabilities with the legislative changes and provide some explanations that liabilities can be qualified as eligible liabilities instruments if they meet the following criteria: the absence of funding for the acquisition of ownership of eligible liabilities by the resolution entity; the absence of incentives to redeem; and the need for the resolution authority’s prior permission for the reduction of eligible liabilities. Moreover, the RTS specify the procedural rules for the national competent authorities (NCAs) and resolution authorities (NRAs) in relation to the prior permission regime. Under the new rules, the threshold to determine the general prior permission was increased from three percent to ten percent of the total amount of outstanding eligible liabilities instruments.
After the formal adoption, the standards will be binding and directly applicable in all member states.
ESMA specifies market data obligations under MiFID II and MiFIR
On 1 June 2021, the European Securities and Markets Authority (ESMA) published its final Guidelines on the MiFID II and MiFIR market data obligations. This non-binding document strives to provide clarity for market participants regarding the requirement to provide market data on a reasonable commercial basis (RCB) and the requirement to provide market data 15 minutes after publication (delayed data) free of charge.
ESMA notes that availability and easy access to market data in a fair and non-discriminatory manner is essential for market participants as it should deliver a comprehensive overview of trading activities. In this context, ESMA recommends using clear and unambiguous terms in market data policies and publishing all relevant market data information in standardized publication format. The guidelines also foresee that market data providers should prepare documented cost accounting methodologies and demonstrate how the price of market data is calculated. Moreover, affected institutions must describe different categories of customers in their policies and explain which fees are applied as well as to avoid multiple billing.
The final guidelines will apply to NCAs, trading venues, consolidated tape providers, publication arrangements, and systematic internalizers from 1 January 2022.
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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.