May 12, 2020 |
The Houthoff Financial Regulatory team closely monitors the developments on the financial markets and within financial supervision. In this News Update, we have rounded up a few important recent developments.
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Recently, the first cautious easing of the coronavirus measures was announced. In the meantime, the steady stream of publications by supervisors and legislatures on measures to give financial enterprises operational and financial flexibility continues. Several overviews of the relevant measures are available. For example, on 16 April 2020 the Dutch Central Bank (De Nederlandsche Bank, “DNB“) published an overview, that will be regularly updated, on coronavirus measures introduced by financial supervisory authorities in the Netherlands and Europe that impact on banks, insurers and pension funds.
In view of this, this News Update highlights a few important developments, both related and unrelated to coronavirus, on the financial markets and within financial regulation and takes a closer look at these developments.
ESAS – CONSULTATION ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE DISCLOSURE RULES
On 23 April 2020, the three European Supervisory Authorities (“ESAs“), the European Banking Authority (“EBA“), the European Insurance and Occupational Pensions Authority (“EIOPA“) and the European Securities and Markets Authority (“ESMA“) issued a Consultation Paper on proposed environmental, social and governance (“ESG“) disclosure standards for financial market participants, advisers and products. These standards were developed under the EU Regulation on sustainability-related disclosures in the financial services sector (“SFDR“). The standards are aimed at strengthening protection for end-investors, improving disclosures to investors from a broad range of financial market participants and financial advisers, and improving disclosures to investors regarding financial products. Feedback to this consultation is welcome before 1 September 2020.
The SFDR empowers the ESAs to develop Regulatory Technical Standards (“RTS“) on the content, methodology and presentation of ESG disclosures both at entity level and at product level. In addition, the consultation paper contains proposals under the recently agreed Regulation on the establishment of a framework to facilitate sustainable investment (“Taxonomy Regulation“), on the do no significant harm principle. Entities must disclose the main adverse impacts that investment decisions have on sustainability factors on their website. The sustainability characteristics or objectives of individual products should be disclosed in the pre-contractual and periodic documentation of financial products and on the website.
By way of example, this measure would, if applicable this year, focus on disclosure on the treatment of lenders and borrowers, employees and other stakeholders during the coronavirus pandemic, alongside continued attention to climate change and diversity. The full text of the Consultation Paper can be found here.
EUROPEAN COMMISSION – BANKING PACKAGE TO FACILITATE LENDING TO EU HOUSEHOLDS AND BUSINESSES
On 28 April 2020, the European Commission (“Commission“) adopted a banking package to help facilitate bank lending to EU households and businesses. The aim of this package is to ensure that banks can continue to lend money to support the economy and help mitigate the significant economic impact of the coronavirus. It includes an Interpretative Communication on the EU’s accounting and prudential frameworks, as well as targeted ‘quick fix’ amendments to EU banking rules.
The Commission proposes exceptional temporary measures to alleviate the immediate impact of coronavirus-related developments by:
• adapting the timeline of the application of international accounting standards on banks’ capital,
• treating public guarantees granted during this crisis more favourably,
• postponing the date of application of the leverage ratio buffer; and
• modifying the way of excluding certain exposures from the calculation of the leverage ratio.
It also proposes advancing the application date of several agreed measures that incentivise banks to finance employees, small and medium-sized enterprises and infrastructure projects.
Furthermore, banks and supervisory authorities are encouraged to make use of the flexibility in the EU’s accounting and prudential frameworks. For example, the flexibility available in EU rules when it comes to public and private moratoria on loan repayments (EBA guidelines of 2 April 2020) is confirmed. Areas where banks are invited to act responsibly are also highlighted, for example by refraining from making dividend distributions to shareholders or adopting a conservative approach to the payment of variable remuneration.
This is an attempt to embed anti-cyclical measures for the lockdown and 1.5 metre economy, though it could also hint at a more general alleviation of the ever-increasing requirements for banks. If it turns out that certain accountancy and regulatory rules are not optimal throughout the economic cycle, these changes may become permanent. More information on the proposed banking package can be found here.
AFM – RECOMMENDATIONS FOR STRONGER EUROPEAN CAPITAL MARKET UNION
On 29 April 2020, the AFM published the position paper Working towards open and sustainable capital markets in Europe that serve the real economy – next steps for CMU in which it makes the following recommendations:
• supporting initiatives that preserve the EU as an open and attractive place for EU and non-EU financial services companies to do business.
• encouraging the Commission to ask ESMA to explore a European ban on inducements.
• suggesting that member states build up an adequate and sustainable pension system that will help retail investors to indirectly enter the capital markets by means of savings for their retirement. According to the AFM, this will also strengthen the capital market union and increase funding options for companies across Europe. The AFM thinks it would be worth exploring both public and private sector options to improve pension adequacy in member states with less-developed pension systems.
• supporting the work carried out by the Commission under the EU Action Plan on Financing Sustainable Growth and encouraging the convergence of regulatory standards, and calls for attention to the consistent implementation of such standards in the EU. Since transparency is key for the functioning of the financial markets, according to the AFM, more and better reporting of non-financial information by companies should be encouraged.
• encouraging the Commission to analyse both the positive and negative aspects of the current passporting system and to look for solutions that will empower National Competent Authorities to effectively protect investors domestically. If appropriate, the AFM thinks ESMA could also be granted additional powers to effectively enforce supervisory convergence in this area.
• proposing developing a standardised method of assessing the effectiveness and allocation of supervisory powers that can be used in the review of existing regulation and during the development of new regulations.
The full text of the position paper can be found here.
Compliments of Houthoff – a member of the EACCNY.