News Update Financial Regulatory
Reporting incidents, anti-money laundering, sustainable finance and more
12 January 2021
12 January 2021
In this News Update, we inform you on the obligation to report incidents immediately, analyse some EU anti-money laundering developments, and update you on the secondary legislation associated with the Taxonomy Regulation. Finally, we highlight some other important financial regulatory publications.If you wish to stay informed, you can subscribe to the News Update Financial Regulatory.
AFM – Call for reporting incidents immediatelyThe Dutch Authority for the Financial Markets ("AFM") recently called on the companies under its supervision to report incidents immediately. Due to the coronavirus outbreak and the increase in working from home, integrity and information security risks at companies have increased. This is why the AFM is drawing attention to the statutory obligation to report incidents that pose a serious threat to the sound and controlled conduct of business. Based on incident reports, the AFM can respond to developments in the sector and contribute to the adequate functioning of both the market and individual companies. In the coming period, the AFM will pay extra attention to this obligation including through discussions with branch associations and by pointing out this obligation to individual companies. In the future, the AFM may also investigate compliance with the obligation to report incidents. We note that reporting incidents does not always lead to enforcement measures.
Financial undertakings (and pension funds and trust offices) that obtained a license from the Dutch Central Bank (De Nederlandsche Bank, "DNB") must report incidents to DNB.
For more information about incidents, we refer to our article (in Dutch) in VAST (Verzekeringsrecht, Aansprakelijkheid, Schade en Toezicht).
If you have any questions about reporting incidents or other facts or material changes in your business that you must report to the AFM or DNB, or if you need assistance with fulfilling your reporting obligations, do not hesitate to contact us.
EBA – Activities on anti-money laundering and countering terrorist financingSince 1 January 2020, the European Banking Authority ("EBA") is solely responsible for leading, coordinating and monitoring anti-money laundering and countering terrorist financing ("AML/CFT") efforts across the entire EU financial sector. The EBA aims to take a leading role in developing AML/CFT policy within its mandate and supporting its effective implementation with a view to fostering a proportionate, risk-based approach to AML/CFT that is implemented consistently and effectively by competent authorities and financial institutions across the EU. To that end, the EBA recently launched the following publications:
- On 14 December 2020, the EBA published an Opinion on how to strengthen the connection between the EU legal frameworks on AML/CFT and deposit protection. In this Opinion, the EBA identifies ways to mitigate the risks of money laundering and terrorist financing ("ML/TF") during bank failures. This includes better cooperation between all authorities involved, as well as improved information flows from the failed bank and to depositors.
- On 15 December 2020, the EBA published its first Report on the progress made to set up colleges to enhance supervisory cooperation for AML/CFT purposes. The EBA praises the effort made, but also highlights that more active participation from the public authorities is needed. The EBA monitors the work in the AML/CFT colleges and provides technical support.
- On 17 December 2020, the EBA published the methodology for carrying out risk assessments on risks such as emerging ML/TF risks under Article 9a of the revised EBA Regulation. This includes a critical look at the capabilities and resources of the public authorities to respond to potential risks as well as to intervene early and in a coordinated manner to manage those risks across the EU. The review and publication process of the outcome of each risk assessment is set out in the paper.
European Commission – Draft delegated regulation TaxonomyIn our News Update of 6 October 2020 on Climate Change, we analysed the Taxonomy Regulation (Regulation (EU) 2020/852), that entered into force last July. Subsequently, on 20 November 2020, the European Commission ("Commission") published a corresponding draft delegated regulation for feedback until 18 December 2020.
This draft delegated regulation relates to the technical screening criteria for the environmental objectives of climate change mitigation and climate change adaptation. The criteria set out in the Taxonomy Regulation are detailed in the annexes to the delegated regulation. The draft delegated regulation clarifies whether specific economic activities qualify as sustainable and therefore whether investment in them can also be considered sustainable. Given the extensive lists of technical screening criteria, the level of detail and the highly technical nature of the subject matter, carrying out an assessment requires time, a thorough analysis and potential external consultation, even if the large amount of information is fairly easily available. In short, the assessment is an exercise to be taken seriously and requires judgment.
The delegated regulation will apply from 1 January 2022. In the intervening period, those concerned may familiarise themselves with the criteria and prepare for their application. A draft delegated regulation laying down the technical screening criteria for the other environmental objectives should be drawn up and consulted in 2021. These should apply from 1 January 2023.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our last News Update was published:
- Given the persisting uncertainty about the economic impact of the coronavirus pandemic, the European Central Bank called on banks to refrain from or limit dividends until 30 September 2021. DNB has indicated that it is following this recommendation and that it is considering it also applicable to less significant institutions under the direct supervision of DNB. In connection with this, the European Systemic Risk Board has revised and extended its Recommendation on restriction of distributions and calls for extreme caution regarding distributions so that they do not put the stability of the financial system and the recovery process at risk. DNB has indicated it continues its support for this recommendation.
- Regarding implementing the new prudential framework for investment firms, the EBA published a package of seven final draft Regulatory Technical Standards. The EBA also launched a public consultation on its new Guidelines on investment firm remuneration policies and a public consultation on its new Guidelines on investment firm internal governance.
- The European Insurance and Occupational Pensions Authority ("EIOPA") published a consultation on the Statement on supervisory practices and expectations in case of breach of the Solvency Capital Requirement and a consultation on insurers’ key performance indicators on sustainability for non-financial reporting. In a set of related discussion papers, EIOPA sets out a methodology for potentially including climate change in the Solvency II standard formula when calculating natural catastrophe underwriting risk and highlights the challenges of non-life underwriting and pricing in light of climate change. EIOPA also published the results of its peer review on the cooperation between supervisory authorities in the EU on the supervision of cross-border activities of insurance undertakings, and its sensitivity analysis of climate change related transition risks in the investment portfolio of European insurers. In addition, EIOPA submitted its Opinion on the Solvency II 2020 Review to the Commission. Finally, in its December Financial Stability Report, EIOPA outlines key financial stability risks and vulnerabilities for the insurance and pension sector and recommends that any dividend distributions should not exceed thresholds of prudency.
- The European Securities and Markets Authority published the final report on its guidelines on outsourcing to cloud service providers and launched a consultation seeking input from market participants on the impact of requirements under MiFID II/MiFIR regarding algorithmic trading, including high-frequency algorithmic trading.
- The Single Resolution Board ("SRB") published a paper outlining its expectations for how banks engaging in mergers and acquisitions can ensure resolvability. The SRB also published a dashboard to give a comprehensive overview of the Minimum Requirement for Own Funds and Eligible Liabilities across the banks under the SRB’s remit, which will be followed by regular quarterly reports. The SRB also published a standardised data set to ensure that the minimum needed data is available to support a robust valuation for bank resolution.
- The AFM launched a public consultation on a regulation to restrict placing turbos on the market, distributing them or selling them to retail investors. Furthermore, the AFM published the report Marktindrukken, outlining market developments for intermediaries between financial products providers and consumers.
- DNB announced that, from 2021 onwards, it is using an updated supervisory approach, called ATM. Furthermore, on 12 December 2020, the Algemeen Boetetoemetingsbeleid DNB (DNB's General Policy on the method of setting fines) came into force, providing clarity on how DNB determines the amount of an administrative fine in a specific case. DNB also published the Leeswijzer beleidsuitingen DNB (DNB's reading guide to policy statements) which explains the status of the DNB's most common policy statements.
- The AFM and DNB published the feedback report The transition to alternative benchmark rates, which sets out the main findings of an information request of the AFM and DNB to a selection of Dutch banks, pension funds, insurers, and asset managers to monitor the worldwide transition to alternative interest-rate benchmarks.
- In a letter of 27 December 2020, the Dutch minister of foreign affairs informed the Dutch House of Representatives of his view on the deal for the future relationship of the EU and the UK. In relation to financial services, it remarked that market access is not part of the deal, but rather should be based on equivalence frameworks and that parties have agreed to enter into a Memorandum of Understanding before March 2021 which will set out the basis for future collaboration in this area.
If you have any questions about the impact of the dividend restrictions on the fundraising capabilities of banks and potentially other financial institutions or about any of the climate change related subjects, we are happy to discuss alongside our Banking & Finance colleagues.