Member States’ ambassadors to the European Union (Coreper) are expected to approve, on Wednesday 21 October, the EU Council’s negotiating mandate with the European Parliament on proposals for targeted amendments to EU financial regulations, put forward by the Commission in July to foster post-Covid-19 economic recovery (see EUROPE 12535/11).
As a reminder, the package includes changes to: - the Markets in Financial Instruments Directive (MiFID II); - the Prospectus Regulation; - the Securitisation Regulation; - and the Capital Requirements Regulations (CRR). The amendments aim to reduce unnecessary administrative burdens in EU legislation in order to facilitate the recapitalisation of EU companies in the financial markets, while maintaining investor protection.
According to the compromise texts prepared by the German Presidency of the EU Council, dated 16 October and copied to EUROPE, the EU Council should maintain the Commission’s main proposals and add two further major amendments.
MiFID II. The Commission has proposed to reduce certain administrative burdens on experienced investors in business-to-business relationships under the Markets in Financial Instruments Directive (MiFID II). In particular, they will no longer be required to carry out certain assessments regarding product governance for certain types of products considered “as non-complex”.
The EU Council’s text recognises that product governance requirements may restrict the sale of non-complex bonds, whereas the issuance of bonds is crucial to enable companies to raise capital and overcome the Covid-19 crisis.
Therefore, governance requirements applicable to more complex products should not apply to non-complex products when they are marketed or distributed on a simple execution basis.
In addition, the EU Council text specifies that eligible counterparties have sufficient knowledge of financial instruments and that there should therefore be an exemption from the product governance requirements applicable to financial instruments exclusively marketed or distributed to this category of clients.
Furthermore, the EU Council proposes an amendment that was not part of the Commission’s initial proposal, namely to postpone the date of transposition of Directive (EU) 2019/878 on measures applicable to investment firms to 26 June 2021, in order to align it with the date of application of the amendments to Directive (EU) 2019/2034. This would, in the EU Council’s view, provide greater legal clarity and a uniform legal framework for investment firms.
Prospectus. The German compromise text maintains the Commission’s proposal to create a “EU Recovery Prospectus” this would be an abridged prospectus, easy for issuers to produce, easy for investors to read and easy for the competent national authorities to monitor.
According to the text, the regime would be temporary and would expire 18 months after the date of application of the proposed Regulation. It could be used by issuers that have been listed for at least 18 months and would benefit from the EU passport mechanism, subject to certain restrictions.
The EU Council also supports the Commission’s proposal to raise, for a limited period of 18 months, to 150 million euros (instead of 75 million euros) the threshold for exemption from the prospectus requirement for certain types of offers for these institutions.
In addition, the EU Council wished to include in the legislative package an amendment to the Transparency Directive (2004/109/EC), which would give Member States the possibility to carry forward for one year (see EUROPE 12578/21) the obligation for European companies listed on a regulated market to publish their annual financial report in the European Single Electronic Format (ESEF).
Securitisation. The EU Council text also maintains the extension of the framework for simple, transparent and standardised (STS) on-balance-sheet synthetic securitisations. The originator of this type of synthetic securitisation retains ownership of the underlying exposures, unlike traditional securitisations, where these exposures are normally sold to another entity.
As regards securitisations of non-performing exposures, the EU Council concluded that the final legal text should, in principle, be aligned with the international standards still being developed by the Basel Committee on Banking Supervision.
As the standards are expected to be finalised in November 2020, some paragraphs of the CRR Regulation have been put in square brackets in the compromise text, to allow further discussions on these provisions after the finalisation of the international standards.
The German Presidency hopes that the recovery package will be adopted by the end of the year (see EUROPE 12575/30). It hopes to be able to start negotiations with Parliament as early as November. (Original version in French by Marion Fontana)