News Update Financial Regulatory
6 April 2021
In this News Update, we discuss developments in determining administrative fines by financial regulators. We also discuss consultations by EBA on changes to Guidelines on risk-based AML/CFT supervision and by the ESAs on Taxonomy-related product disclosures. Finally, we highlight some other important financial regulatory publications.If you wish to stay informed, you can subscribe to the News Update Financial Regulatory.
Developments in determining administrative fines by financial regulatorsVarious financial regulators are currently determining or revising their policies for fixing the amount of an administrative fine in a specific case.
As mentioned in our 12 January 2021 News Update, the Dutch Central Bank (De Nederlandsche Bank, "DNB") did this by determining its Algemeen Boetetoemetingsbeleid DNB (DNB's General Policy on the method of setting fines) that came into force on December 2020.
On 2 March 2021, the European Central Bank ("ECB") published its Guide to the method of setting administrative pecuniary penalties that outlines the principles and methods for calculating the administrative fines used to sanction banks for breaches of prudential requirements. The guide clarifies that the ECB sets the fine level in relation to the severity of the breach, and to ensure proportionality, the size of the supervised entity. Breaches can be classified into five categories: minor, moderately severe, severe, very severe and extremely severe. The category a breach falls into depends on a combination of two factors: the impact of the breach and the degree of misconduct. The ECB may increase or reduce the base amount to account for all mitigating and aggravating circumstances and ensure that the fine is proportionate, effective and dissuasive.
On 25 March 2021, the Dutch Authority for the Financial Markets ("AFM") launched the consultation on the revision of its policy on determining administrative fines (with explanatory notes in Dutch). According to the AFM, the current policy is partly outdated and no longer fully in line with the law and regulations. The consultation runs until 30 April 2021. The AFM expects to publish the final version in the Dutch State Gazette (Staatscourant) and on its website in mid-2021.
The AFM and DNB have published several fines over the last few months, indicating that this instrument (and its publication) is gaining importance. For example, the AFM recently published fines imposed on Today's Tomorrow and its director for breaching the rules on sound business standards, and to operators of the platform 24option.com for, among others, providing investment advice without the required licence. DNB recently published fines imposed on a natural person because trust services were provided on a professional or business basis without a licence, and on MUFG Bank for exceeding the large exposure limit. On 30 March 2021, the European Securities and Markets Authority ("ESMA") published a case where the power to impose fines was applied at the EU level. ESMA fined five entities in the Moody’s Group €3.7 million and issued public notices for breaches of the Credit Rating Agencies Regulation regarding independence and the avoidance of shareholder conflicts of interest.
If you have any questions on determining administrative fines by financial regulators, do not hesitate to contact us or our Investigations & Public Enforcement colleagues Vincent Affourtit and Frank Mattheijer.
EBA - Consultation on changes to Guidelines on risk-based AML/CFT supervisionOn 17 March 2021, the European Banking Authority ("EBA") launched a public consultation on changes to its Guidelines on risk-based supervision of credit and financial institutions’ compliance with anti-money laundering and countering terrorism financing ("AML/CFT") obligations. The consultation runs until 17 June 2021.
The revised Guidelines focus on helping the supervisors identify and manage ML/TF risks more effectively, including the risks that may arise from de-risking practices in some sectors or Member States by providing greater detail on ML/TF risk assessments. These require a robust supervisory strategy and plan based on these risk assessments. The Guidelines also set out how supervisors can choose the most effective tools to support different supervisory needs and objectives. Moreover, the Guidelines stress the importance of cooperation between different supervisors as well as with other stakeholders, such as Financial Intelligence Units.
The EBA also published its 2021 Opinion on ML/TF risks in the EU financial sector and its revised ML/TF Risk Factors Guidelines to address de-risking practices based on evidence gathered in its call for input.
DNB also adjusted its Guideline on the Anti-Money Laundering and Anti-Terrorist Financing Act and the Sanctions Act, reflecting the legislative amendments that came into force in 2020.
ESAs - Consultation on Taxonomy-related product disclosuresOn 17 March 2021, the EBA, the European Insurance and Occupational Pensions Authority ("EIOPA") and the ESMA ("ESAs") issued a consultation paper seeking input on draft regulatory technical standards ("RTS") regarding disclosures of financial products investing in economic activities that contribute to an environmental investment objective, defined by the Taxonomy Regulation.
The proposed draft RTS aims to (i) facilitate disclosures to end investors regarding the investments of financial products in environmentally sustainable activities, and (ii) create a single rulebook for sustainability disclosures under the Regulation on sustainability-related disclosures in the financial services sector ("SFDR") and the Taxonomy Regulation. The consultation paper includes additional taxonomy-related disclosures that concern information about which environmental objectives the investments of the product contribute to, and information about how, and to what extent, the activities funded by the product are Taxonomy-aligned. This consists of two elements: (i) a graphical representation of the taxonomy-alignment of investments of the financial product and a key performance indicator calculation for that alignment, and (ii) a statement that the activities funded by the product that qualify as environmentally sustainable, are compliant with the detailed criteria of the Taxonomy Regulation. The ESAs also propose to standardise the presentation of the disclosures by amending the templates for the pre-contractual and periodic disclosures proposed in the draft RTS under the SFDR, by adding a new section that includes the disclosures required under the Taxonomy Regulation.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in March 2021:
- The ban on non-EEA insurers providing services in the Netherlands entered into force. In our 4 June 2020 Special News Update and in our 3 November 2020 News Update, we discussed a proposed change in the Financial Supervision Act (Wet op het financieel toezicht, "Wft") which would ban life insurers and non-life insurers from outside the European Economic Area ("EEA") from providing services in the Netherlands. After the bill was rubber-stamped by both the Dutch House of Representatives and the Dutch Senate, it entered into force on 17 March 2021.
- On 8 March 2021, the Dutch Ministry of Finance launched the consultation of the Implementing Act on Directive (EU) 2019/2162 on the issue of covered bonds and covered bond public supervision (with accompanying explanatory memorandum, both in Dutch). The consultation period ended on 5 April 2021.
- DNB updated the messaging about climate and environment-related risks being a standard part of the assessments of individuals at banks, insurers and pension funds (see our March 2021 News Update). This temporary initiative appears to have been made permanent.
- The EBA published a consultation paper on its revised Guidelines on recovery plan indicators, a consultation paper on Guidelines for institutions and resolution authorities on improving resolvability, a consultation paper on its revised Guidelines on the stress tests conducted by national DGSs under the Deposit Guarantee Schemes Directive, a consultation paper on its Guidelines on a common assessment methodology for granting authorisation as a credit institution, a consultation paper on draft implementing technical standards on Pillar 3 disclosures on Environmental, Social and Governance risks, its final revised Guidelines on ML/TF risk factors and its final draft Implementing Technical Standards on the supervisory reporting and disclosures of investment firms.
- Following the completion of its analysis of all published general good rules on registration and professional and organisational requirements that could potentially be non-compliant with the Insurance Distribution Directive ("IDD"), the EIOPA published an overview table with information on the adjustments made to general good rules in different EU countries. The EIOPA also launched a consultation on revised Guidelines on the use of the Legal Entity Identifier and published Q&As regarding the legal interpretation of IDD's provisions.
- The ESMA published updates of its Q&As on the following topics: the Central Securities Depositories Regulation, the Prospectus Regulation, the EU Benchmarks Regulation, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive, and the Market in Financial Instruments Directive and Regulation ("MiFID II" and "MiFIR"). The ESMA also published its Final Report on the review of transaction and reference data reporting obligations under MiFIR, its advice to the European Commission ("Commission") on applying administrative and criminal sanctions under MiFID II/MiFIR, its advice to the Commission related to data reporting service providers, and its Final Report on advice under Article 8 of the Taxonomy Regulation, which covers the information required from non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive.
- The ESAs published a joint opinion on the jurisdictional scope of the obligations of the non-EU parties to securitisations under the Securitisation Regulation ("SECR") and Q&As on cross-sectoral aspects of the SECR.
- The UK Government announced that discussions between the EU and UK on the text of the Memorandum of Understanding ("MoU"), which was agreed in a Joint Declaration on Financial Services Regulatory Cooperation alongside the Trade and Cooperation Agreement, have now been concluded. It is expected that the formal steps required to be undertaken on both sides before signing can be done expeditiously. The MoU will create the framework for voluntary regulatory cooperation in financial services between the EU and the UK.
If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk and Roel Theissen.