Regulatory trends under CMU, what is on our plate? ICMA Conference 9 th November, Luxembourg Benoit Sauvage Senior Adviser ABBL
Page 2 Agenda • The starters – Regulations soon to be live • The Meal – Regulations under development • The Desert – Regulations not yet released
Page 3 Starters • MIFID II – Texts are final at EU level, but there are constant releases – Key focus on the ESMA Target Market – Impact of S.I. rules on medium sized Investment Firms • PRIIPS – A very welcomed project that missed a key turn somewhere – Delay or not delay? What is the impact? • SFTR – Third pillar of transaction reporting
Page 4 Starter MIFID II • State the obvious: It is definitely more than MIFID I – It forces documentation of processes at an unseen level – From a macro-perspective: how will the provisions of financial services evolve => reduction of risks means less products, less services – Wrongly calibrated SI rules implies that more IF than expected will fall under SI status and unexpectedly more when dealing in illiquid instruments – The transparency menu for costs and charges may lead to a redistribution of cards – Raises the bar, notably through training and qualification – Quid of interactions with new tools (robot- advice…)
Page 5 Starter PRIIPS • Delay or not delay • We assume that 80 to 90 % of RTS will remain • Size of the project is huge and requires new tools to comply on a continuous basis, could “old finance” support it? • Issues would remain on the production side: – Access to data, instantaneity of production • Issues would remain on the distribution: – Access to the KIID (from 3 rd parties)
Page 6 Starter SFTR • Securities financing transaction reporting Regulation • For regulators to have a full picture of each and every financial transaction • Expend the success of EMIR Trade Repositories to track the reuse of assets (REPO among others) • One caveat: interactions with a NCB in the context of monetary policy • There are more fields to report than under MIFIR/EMIR
Page 7 Meal • Prospectus • Securitisation
Page 8 Meal – Prospectus regulation • 3 key areas: A battle for triggers – Digital age prospectus & level playing field – SME financing access to market – Wholesale finance What’s happening on 2 ndary markets • Focus for Luxembourg and EU – Freedom of choice of place of issuance – A sustainable model for wholesale stakeholders on the issuing and buying side • Trilogues have started! – With bit of luck will close soon
Page 9 Meal Securitisation • A big EU project! – Supported by ECB, financial industry, EU Com, MS ! – Conceptually: free some balance sheet to lend more and spread risks • Issue: how to reconcile pro-business with high risk avoidance? – Like for highways: speed limit at 130 km/H or 10 km/H? – EU Com text – EU Council – EP text
Page 10 Meal Securitisation • Securitisation in the EP s till so-so in favour: – No differentiation of origin/quality of loans – Basis assumption seems to be that the STS scenario is the new minimum normal, but treated like it is barely acceptable – May have a retention ratio above 10% – Drags on for months • From pragmatic point of view how to reconcile the 3 versions of the EU texts in trilogue?
Page 11 Desert • Warning this part is based on estimates, best guesses and oral communications • Recovery and Resolution of FMIs • Report on financial services consultation • EMIR II • AIFMD II
Page 12 Desert FMI Recovery and Resolution • Proposal Should be released before year end – Focus on preparing a plan for recovery and resolution, but highly uncertain (how many CCPs have failed?) – Build on the BRRD template – Some surprises: • A committee of supervisory authorities should be set up to manage the crisis, but may be composed of >100 participants • The supervisory authority has to get involved in the drafting of the plan in a kind of sign-off of the proposals • Plans should not expect (assume) any form of tax payer intervention or NCB access
Page 13 Desert Financial Service Conclusions • Should build a programme for review of regulations • Ensure that there is consistency across regulations… • Delivery of concrete results may be challenging: – Solve the equation: jobs + growth =/≥ risk taking
Page 14 Desert CRD V, EMIR II and AIFMD II… • CRD V, Basel IV for end of year in theory – Impact on the loan book • EMIR II scheduled at best for end of Q1 – Could tackle scope of EMIR (focus on systemic risks) – Improve reporting mechanism – Increase global convergence/coherence • AIFMD II probably somewhere around end of Q2 – Depositary requirements, CSDs interactions – Clustering by fund types • Soon will start the reviews of the regulatory wave + potentially regulations in crowd funding, peer-to- peer…
Page 15 Pousse café • What impact for the EU Acquis? • What impact on figures (MIFID II reporting, market transparency, EMIR…)
Page 16 Thank you, questions? Benoit Sauvage Senior Adviser ABBL Sauvage@abbl.lu
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