Banking and Finance
Publication of the Order of December 8, 2017 concerning the blockchain
On December 9, 2017, Order no. 2017-1674 of December 8, 2017 was published, relating to the use of a shared electronic recording system for the representation and transmission of financial securities.
This Order creates a legal regime for the transfer of ownership of financial securities by a shared electronic recording system (blockchain).
Henceforth, it is specified that the registration of securities as provided for in Article L. 228-1 of the Commercial Code and of financial securities as provided for in Article L. 211-3 of the Monetary and Financial Code, is possible by a shared electronic recording system.
The effects will be identical to the book entry and the use of the shared electronic recording system will not create a new obligation.
A Decree of the Conseil d'Etat will have to define the conditions under which the financial securities may be registered in a shared electronic recording system, and in particular the necessary guarantees regarding authentication which must be at least equivalent to those presented by a registration in a securities account. The Order will come into force no later than July 1, 2018.
Publication by the AMF of a guide for "AIF" investment advisers relating to the impacts of MIF 2
On October 25, 2017, the AMF published an educational guide for AIF composed of seven fact sheets:
- the impacts of the MIF 1 and MIF 2 Directives on AIF; and
- the strengthening of the AIF authorisation and monitoring procedure;
- the governance rules for AIF and the prevention of conflicts of interest;
- independent investment advice;
- the governance of financial instruments;
- the strengthening of customer information; and
- the assessment of the adequacy of products or services.
Although the MIF 2 rules do not apply directly to AIFs, some will nevertheless be implemented in the AIF national regime (governance of financial instruments, content of the adequacy assessment, etc.).
The provisions relating to AIFs are applicable as of January 3, 2018 and will be integrated within the RGAMF.
Consultation of the AMF on theInitial Coin Offerings"ICO" and launch of theUniversal Node to ICO's Research & Network "UNICORN" programme
On October 26, 2017, the AMF published a consultation aimed at gathering stakeholders' views on various possible framework approaches.
The AMF specified that ICOs are reserved for an informed public and that the nature of the tokens issued on the occasion of an ICO must be understood to assess the related risks (loss of capital, liquidity, fraud/money laundering, legal risk, etc.)
In this context, the AMF proposes three options in its consultation for governing ICOs:
- to promote a good practices guide on the basis of existing legislation;
- to extend the scope of existing texts to include ICOs as offers of securities to the public;
- to propose a new legislation, adapted to ICOs.
At the same time, the AMF is initiating a programme of support and analysis of these ICO operations, called UNICORN.
This UNICORN programme is intended to provide players with a regulatory framework allowing for supervision, protection of investors and the development of ICO operations.
Within this framework, the AMF will receive the initiators (French or foreign entrepreneurs and their advisers) of projects to discuss the legal and economic issues and the challenges of these new alternative financing methods. The AMF has also indicated that in the coming year it will publish and impact study on these new forms of financing.
Capital Markets - Derivatives
Publication by the ESMA of a Consultation Paper on the calculation of positions by central repositories under the EMIR Regulation
On November 15, 2017, the ESMA published an advisory document for trade repositories to ensure the harmonisation and consistency of the calculations performed by trade repositories under Article 80(4) of the EMIR Regulation.
These calculations must be done in an appropriate format according to a consistent method and timetable.
The guidelines of this consultation are intended to ensure that the competent authorities receive consistent and harmonised information on derivative positions held by counterparties and to ensure the quality of the data made available to the competent authorities.
For this purpose, the ESMA proposes four categories of calculation:
- Position Set (all derivatives concerned);
- Collateral Set (all collateral paid/collected);
- Currency Position Set (the Position Set is expressed in a relevant currency); and
- Currency Position Collateral Set (the Collateral Position Set is expressed in a relevant currency).
Trade repositories have until January 15, 2018 to submit their comments and responses to the ESMA.
Exchange of variation margin for currency exchange forward contracts (physically settled FX forwards
On November 24, 2017, the European Supervisory Authorities ("ESA") published a statement highlighting the lack of international harmonisation regarding the exchange of variation margin for physically settled FX forwards and their exclusion from other jurisdictions. The ESA propose to limit the exchange of variation margin obligation for this type of financial instrument.
The ESA are currently performing a review of Delegated Regulation no. 2016/2251 to adopt amendments to this Regulation by aligning the variation margin rules for physically settled FX forwards in the different jurisdictions. After the finalisation of the ESA review, the draft amendments will be submitted to the European Commission.
As regards the difficulties that end users face in the exchange of variation margins, the ESA want the national authorities to apply their supervisory powers in a proportionate manner.
EMIR Review - European Council comments on the proposal to revise the EMIR Regulation
Since September, the European Council has commented several times on the European Commission's proposal to revise the EMIR Regulation.
Among the various amendments we draw the reader's attention to the following points:
- the latest comments of December 11, 2017 substantially amend the comments of November 15, 2017 by the deletion of the paragraph relating to the application of variation margins for physically settled FX forwards only between credit institutions authorised in accordance with Directive no. 2006/48. Finally, the market debate concerning the treatment of physically settled FX forwards and their potential exemption from the margin variation should be dealt with at the level of the delegated regulations and not at the EMIR level; the ESA will propose a draft amendment to this effect to be submitted to the European Commission;
- the last version of December 11, 2017 validates the abolition of ad hoc securitization structures as a financial counterparty as originally planned in the first versions of the draft; and
- within the framework of clearing obligations, non-financial counterparties must, within 4 months after notification of the exceeding of clearing thresholds, draw up a clearing documentation.
The revision of the EMIR Regulation will come into effect 20 days after its publication in the Official Journal of the European Union "OJEU". Some of the provisions of the revised Regulation will only enter into force according to a specific timetable between 6 and 18 months after the publication date.
Publication by the AMF of an instruction on position limits for commodity derivatives traded on Euronext
The AMF has issued an instruction, pursuant to Article 580-1 of the AMF General Regulation and Articles 3 and 15 of Delegated Regulation no. 2017/591, determining the limits of positions for liquid and non-liquid commodity derivatives traded on Euronext.
New progress on recognition of European and US trading platforms
On December 6, 2017, the European Commission adopted an equivalence position recognising the compliance of certain trading platforms authorised by the Commodity Futures Trading Commission (CFTC) with respect to the trading obligation for derivatives.
This decision allows counterparties subject to the MiFID II Regulation to trade derivatives subject to the trading obligation, such as interest rate swaps and credit default swaps on platforms approved by the CFTF, such as Designated Contract Markets "DCMs" and Swap Execution Facilities "SEFs". The European Commission has recognised 14 DCMs and 23 SEFs as being equivalent to European trading platforms.
In addition, the CFTC is in favour of adopting a registration exemption on the SEF platforms of European MTFs and OTFs.
Update of the ESMA Q&As for commodity derivatives under MiFID II and MiFIR and of the ESMA Q&As for the EMIR Regulation and post-trade obligations under MiFID II and MiFIR
On November 13 and December 15, 2017, ESMA updated its Q&As regarding commodity derivatives, in particular by providing details on the calculation of positions and their reporting regime, as well as details on the nature of OTC transactions to be taken into consideration for the purposes of the draft Delegated Regulation of December 1, 2016 specifying the criteria for determining whether an activity should be regarded as incidental to the main activity.
On December 14, 2017, the ESMA also updated two Q&As, one relating to post-trade obligations under MiFID II and MiFIR, the other concerning the EMIR Regulation.
The first update specifies the segregation level for indirect clearing. The ESMA has stated in this regard that clearing members must open segregated accounts for each of their clients with the central counterparty. This update has been included in the Q&As relating to the EMIR Regulation.
The Q&As relating to the EMIR Regulation have also be amended by incorporating two new questions concerning Article 9 of the EMIR Regulation, relating to reporting obligations in relation to variation margins.
Publication of the order on asset management and debt financing
On October 5, 2017 Order no. 2017-1432 of October 4, 2017 on the modernisation of the legal framework of asset management and debt financing was published in the Official Journal.
This Order creates a new category of securitization vehicles known as specialised financing vehicles "SFV" belonging to the AIF category and falling under the ordinary regime of securitization undertakings.
The Order stipulates that securitization undertakings as well as SFVs will now be able to avail themselves of the Dailly assignment.
In addition, some foreign assignees whose activity is identical to that of certain French entities (credit institutions, finance companies, etc.) will now have the possibility to acquire unmatured debt (related to their credit activity).
These two provisions of the Order constitute derogations from the banking monopoly.
The Order will enter into force on January 3, 2018, with the exception of its provisions relating to custodians of securitization undertakings, which will enter into force on January 1, 2019.
Directive on the distribution of insurance: postponement of the date of implementation
On December 20, 2017, the European Commission proposed to postpone the date of implementation of Directive 2016/97/EU (the "DDA Directive") on the distribution of insurance for 7 months, to October 1, 2018.
However, the Member States still have to transpose the DDA Directive into national law by February 23, 2018 at the latest. The European Commission is, however, working on a proposal to postpone the transition date.
Although the European Parliament and the Council still have to vote in favour of the postponement, several professional associations have already welcomed this postponement.
Directive on the distribution of insurance: publication of two delegated regulations in the OJEU
On December 20, 2017, two delegated regulations were published in the Official Journal of the European Union:
- Delegated Regulation 2017/2358 concerning product monitoring and governance requirements for insurance companies and insurance distributors; and
- Delegated Regulation 2017/259 concerning information requirements and rules of conduct applicable to the distribution of insurance-based investment products
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