RegZonewww.law-now.com/regzone

June 2011

EU regulatory guide

A Regzone guide to the latest developments

Regzone materials are intended for clients and professional contacts of CMS Cameron McKenna LLP. They are intended to simplify and summarise the issues covered and must not be relied upon as giving definitive advice. Further information, including a list of our offices, can be found at www.cms-cmck.com © CMS Cameron McKenna LLP 2010. All rights reserved.

EU regulatory reform – a RegZone guide to the latest developments

A RegZone guide for financial institutions about the new EU regulatory regime. Post-crisis EU reforms involve replacing the 2010 regulatory institutions with more powerful EU authorities and implementing an extensive programme of new legislation. The first and second sections of this guide analyse these changes to the EU regime and the new EU institutions under the ESRB and ESFS – including the new European Supervisory Authorities – which came into being on the 1st January 2011. The third section provides a detailed report on the EU Commission’s work programme.

This guide is constantly being updated. The latest version is available on the RegZone website: visit http://www.law-now.com/regzone.

Index

1. The new European System of Financial Supervision – institutional reform within the EU

2. Charts to demonstrate the institutional reforms

a. European institutions (the 2010 position)

b. European institutions (the 2011 position)

3. EU Commission’s Financial Services Proposals

4. Contacts

The new European System of Financial Supervision – institutional reform within the EU

Background

Lord Turner described the 2010 EU regime for the regulation of financial institutions as ‘unsafe and untenable’. The financial crisis and the Icelandic banks fiasco have exposed serious weaknesses in the system. In 2008 Lord Turner posed the policy question – should reform of the EU be directed at ‘more Europe’ or ‘less Europe’. Institutional reform at the EU level has now been agreed. The Commission has also published its extensive work program (a sort of post crisis Financial Services Action Plan). Our report on the EU Commission’s work programme can be found here.

So far, the trend is clearly for ‘more Europe’ not less. Initially described as ‘decaffeinated,’ the European Parliament has negotiated additional powers for the new EU agencies. However, domestic regulators, such as FSA / PRA will continue to supervise firms and will not be replaced by a pan-European supervisory body (as the ABI had proposed for the insurance sector). Nonetheless, the new ESFS will have important consequences for all regulated firms.

The reforms

On 23 September 2009, the European Commission adopted legislative proposals aimed at addressing regulatory weaknesses at the micro- as well as macro-prudential level through the creation of a European System of Financial Supervisors (ESFS) and a European Systemic Risk Board (ESRB).

These proposals were fiercely debated by the European Parliament and Council. An agreement on the draft regulations establishing the ESRB and ESMA was finally reached on 2 September 2010 following intensive negotiations. The Council endorsed the agreement on 7 September and the European Parliament –following agreement by all member states - subsequently adopted the texts of the draft regulations on 22 September 2010.

The new supervisory structure came in on 1 January 2011.

Whilst there are discussions about treaty changes to deal with the Euro crisis (and the enhanced arrangements for the single currency under the EFSF - the European Financial Stability Fund and Facility), the ESFS and ESRB are being established without any changes to the EU Treaty. In contrast, the UK, for example’ is passing domestic legislation to enshrine a new financial stability objective and to give the new domestic authorities broader powers to achieve this goal. The European Commission not only avoided any treaty change, it also shoe-horned the new EU legislation into article 95 of the EU Treaty, so that it could be passed on a qualified majority basis (and could not be blocked by a single or small group of states). (The UK’s House of Lords favoured legislation under Article 308 requiring unanimous approval which they felt would have provided a more secure basis (less open to legal challenge) for the new legislation.) Institutional structure charts We have prepared a chart to show the new European institutions and their roles and relationships. We have also included an additional chart to enable you to compare the new institutional structure with the previous position at the EU level. To view these charts on our RegZone, please click here and here. The ESFS

The ESFS is based around three new European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA). These have been created by the transforming the existing level 3 committees for the banking, insurance and occupational pensions and securities sectors (CEBS, CEIOPS and CESR). For the first time, each of these bodies will have its own internal resources (rather than being dependant on work by the national supervisors) and have staffed up their offices in London, Frankfurt and Paris respectively.

Framework legislation and detailed EU rules will continue to be made at level 1 through the EU Lamfalussy process (which involves Commission, Parliament and Council) and, at level 2, by the Commission working with the existing sectoral committees and taking advice from the level 3 ESAs.

The role of the ESAs will involve both policy coordination and detailed rule setting, and the coordination of supervision of individual firms. The ESAs will have an enhanced role at level 3 and will produce technical standards for the detailed application of the rules at level 1 and 2. The Commission has published a list of possible areas for this type of detailed harmonization. The scope of these powers is limited by the legislation (at levels 1 and 2) concerned and by the need for many measures to be adopted by the Commission.

The ESAs will be involved in international discussions and liaison with regulators outside the EU. In addition, the ESAs have new powers (as well as taking over all the functions of the existing level 3 committees). Many of these powers involve coordinating national authorities and their supervision of individual firms and groups through:

- The coordination of supervision of firms/groups across borders by several national regulators/supervisory

authorities including colleges of supervisors and the exchange of information between those authorities;

- Collection of information (e.g. for stress testing or for the ESRB); and

- Working to establish a common supervisory culture across the national bodies of all member states, for example, by peer reviews.

Guidelines and instructions. There will also be a role for the ESAs in ensuring the consistent application of EU rules. The ESAs are empowered to issue guidelines and recommendations to national supervisors or individual financial institutions. Where EU rules are incorrectly implemented, the ESAs may advise the Council to issue instructions to the national supervisor. Failing corrective action, the ESAs have the option to issue instructions directly to the individual institution concerned.

Emergency action. In an emergency (defined as a situation which seriously jeopardises the stability of financial markets), the ESAs are able to adopt decisions requiring national supervisors to take specific remedial action. They have the power to temporarily prohibit or restrict certain financial activities or harmful products, and may ask the Commission to introduce legislation to prohibit such activities or products permanently. The Commission, ESRB and ESAs are empowered to ask the Council to declare an emergency.

Tiebreakers. There are various situations where ESAs have powers to resolve disagreements between national regulators, or otherwise enforce decisions on national authorities. Where agreement cannot be reached, the ESAs are able to intervene, at their discretion, and impose legally binding mediation on national supervisors. If the authorities remain unable to reach a consensus, the ESAs may impose binding supervisory decisions. Such decisions may be directly applicable to individual financial institutions.

Sectoral powers. The ESAs have roles dictated by their sector remit. For example, ESMA has exclusive supervisory powers over Credit Rating Agencies registered in the EU. In addition, the ESAs will perform EU-wide risk assessments and stress tests to assess the vulnerabilities and overall resilience of the relevant EU sector. In this respect, post crisis stress testing of the EU banking and insurance sectors has already been undertaken. The ESAs are also invested with the authority to temporarily prohibit or restrict certain financial activities that threaten the orderly functioning of the European financial system in cases specified in sectoral legislation. An example of how this discretion might be used would be in the adoption of harmonised temporary bans on short selling on EU securities markets, rather than each domestic regulator acting of its own accord. The ESAs can operate either by qualified majority or on a simple-majority basis. The Commission, European Parliament and Council will review the position after three years to consider whether, amongst other things, the ESAs’ powers should be strengthened.

The ESRB

The ESRB role is more as a forum for coordination and discussion without formal powers. It comprises principally of heads of the European Central Bank (ECB), national central banks, ESAs and national supervisors and will be chaired by the President of the ECB for the first five years. It has no legal personality and no legal powers over member states, and in the exercise of its broad, macro-prudential function, the ESRB will merely issue warnings and recommendations. Its mandate is to monitor and predict risk in various areas, including in the banking sector, in relation to asset bubbles and with respect to market infrastructures.

The ESRB has the task of identifying any potential systemic risks and issuing recommendations to the country, group of countries or ESA concerned. These warnings and recommendations will be colour-coded, according to a system the ESRB will devise, to illustrate the type and degree of risk in question. If an addressee of an ESRB recommendation does not comply with the recommendation, it will need to explain the reasons for its non-compliance. Further, if the ESRB does not consider the explanations to be convincing, it will have the possibility of informing the Council of Ministers. The ESRB President will brief senior members of the European Parliament as well as the chair and vice-chairs of the Parliament’s Economic Affairs Committee through regular confidential discussions. The ESRB will also work closely with the ESA bodies, presenting them with the necessary macro-prudential input to assist in the carrying out of their supervisory functions.

The expected impact Policy/rule-making – an even more standardised EU rulebook for FIs

The aim is to increase (even further) the harmonization of the rules applicable to FIs across the EU; the objective is a ‘single rulebook’ applicable in each country with common guidance and interpretation. This will be achieved by

- More direct EU legislation by regulation (which takes effect without any national implementation) rather than by directives (which require member states to adapt their national legislation/rules). This will mean member states will lose the ability to finesse EU rules to fit their domestic requirements and policy. It will also mean that firms and trade associations will need to be alive to (and be seeking to influence) emerging EU proposals at an earlier stage

- Maximum harmonization. The trend is towards maximum harmonization and away from national discretions and gold-plating.

- Increased delegation under the Lamfalussy process. As we have seen with Solvency II, there is an increasing use of framework style legislation with many of the key issues being left to the European Commission under the level 2 procedures.

- More detailed standards set at the EU level via the ESAs; this further harmonisation will apply to micro-prudential/financial regulation of firms and other areas such as conduct of business.

The new chair of the EBA, Andrea Enria, has been anxious to stress that the EBA will use the ‘true power’ of a single set of rules to impose more uniform oversight on banks. The new approach will be more ‘top-down’ with the senior people at the EBA engaging in real policy discussions, taking decisions and making things happen.

The sovereignty debate The new ESAs (acting on a majority – single or qualified – vote) can overrule national regulators and issue directions to firms in various situations. The mechanisms by which these powers are exercised, reviewed and appealed are extremely convoluted – a classic European balancing act between the national and EU bodies. Nonetheless, there are real concerns about the notion of a majority of continental countries being able to overrule the UK regulators in this way. The areas are limited, in normal times, to interpretation of established EU rules, inter-regulatory supervisory disputes and prohibition of toxic financial products as dictated by sectoral legislation. However, EU legislation often leads a lot to “interpretation” and in an emergency, a majority within an ESA has even greater powers. The last UK government made much of the fiscal override – a convoluted appeal process to block an exercise of the ESA’s emergency or tiebreaker powers. These appeal and review processes may make the ESA’s powers difficult to exercise, at least quickly. It is difficult to know what in practice the UK might or might not be able to block under the fiscal override. It seems that the previous and current UK governments have been out-manoeuvred – about the loss of sovereignty. The Coalition government will no doubt say that they were unable to stop the loss of sovereignty (which was a matter of concern for UK parliamentary committees). In reality, the EU already makes the rules for the regulation of financial institutions by majority vote – so the UK has no veto or special privilege even though it hosts the EU’s major financial centre in the City of London. There are, however, clear benefits for UK firms in that the new regime should lead to a more level playing field, with some member states being forced to improve local supervision and their compliance with EU rules. Firms will also need to consider the impact on policy-making and rule interpretation – this will be a significant further move from FSA/UK authorities to the EU (and the requisite “majority” of its members). Supervision

There will be greater co-ordination between domestic supervisors in different member states -

- Particularly in relation to their regulation of cross-border/international firms/groups.

- Firms will be more aware of/involved with the arrangements for their supervisory college of EU regulators.

- ARROW-type visits and inspections may involve the authorities of several member states and the relevant ESA.

- Firms may need to report to the relevant ESA (directly or via their local supervisor), for example, in relation to information that is required by the ESRB.

- ESAs may provide advice to the European Parliament, the Council and the Commission regarding the prudential assessments of cross-border mergers and acquisitions.

- Closer coordination via the ESAs should assist firms in dealing with cross-border issues such as the approval of a single internal model for use at group and solo/subsidiary levels.

The future:

Every three years, the Commission will report on the functioning of the new ESAs, in particular on whether to combine the separate supervision of banking, securities, and insurance, on the benefits of having all the ESAs headquartered in one city and on whether the ESAs should be given further supervisory powers.

EU institutions

Lamfalussy process

EU legislators:

• Council of Ministers • European Parliament• European Commission• Advisory committees for banking, insurance and securities

Committees of European regulators

• CEBS• CESR• CEIOPS

Institutional reform: European institutions (the 2010 regime)

International co-ordination

ESRB will represent EU internationally + assist equivalence decisions

Lamfalussy process

European Systemic Risk Board

ESRBECB umbrella - includes central banks of non Euro Zone

European System of Financial Supervision

ESFS ESAs (European Supervisory Authorities)

nodnoL - )ABE( ytirohtuA gniknaB naeporuE snoisneP lanoitapuccO dna ecnarusnI naeporuE

Authority (EIOPA) - Frankfurt European Securities and Markets Authority (ESMA) - Paris

EU institutionsEU legislators:

• Council of Ministers • European Parliament• European Commission• ,gniknab rof seettimmoc yrosivdA

insurance and securities

provides data from fi rm supervision

reports on systemic risk / risk mitigation

Institutional reform: the new European institutions and the 2010 reforms

EU Commission’s Financial Services Proposals

Initiatives for Commission Adoption and Agreement

Initiatives and Key Dates for Commission Adoption and Commission Proposals for Endorsement by the Council and European Parliament The table below represents the forthcoming proposals on financial services regulatory reform from the Commission, which were released as part of its Commission’s Work Programme for 2011. The schedules of these proposals have been updated following the release of the EC’s overview of proposed financial services legislation in February and other announcements. The table contains the key dates for the adoption of proposals and proposed dates for the endorsement by the Council and European Parliament together with dates for non-legislative proposals. For more information, please also refer to our commentary on ‘The new European System of Financial Supervision’, which includes analysis on the impact of the new legislation below.

Initiatives Detail and Dates Useful Links

Access to Minimum Basic Banking

Initiative on access to minimum basic banking services

A consultation was held in late 2010 and the Commission published responses to the Consultation Paper in February 2011. Commission dropped majority of its initiatives in this area in June 2011. Recommendation on access to basic account announced 18 July 2011.

EU Commission Consultation Paper, Oct 2010 Press Release on Commission's Backing Down, 22 June 2011 EU Commission Press Release, 18 July 2011

Single Market Act

The Single Market Conference took place in Brussels on 8 February 2011. Consultation on The Single Market Act closed on 28 February 2011. The Commission published its Single Market Act: 12 Levers paper on 13 April 2011 EESC published its response to Single Market Act proposals on 3 May 2011 The EC Council launched its conclusions and listed priorities on 12 July 2011

A New Strategy for the Single Market, May 2010 Public Consultation on Single Market Act Overview of Responses to Consultation Commission's Paper: Single Market Act: 12 Levers More information on The Single Market Act European Economic and Social Committee Response Council Conclusions on the Single Market Act, 12 July 2011

Alternative Investment Fund Managers Directive

Directive Text published 13 May 2011 EP approval 27 May 2011 AIFM Directive adopted 1 July 2011

Directive Text, May 2011 Directive text (Official Journal) ESMA Consultation Paper, July 2011

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Alternative Investment Fund Managers Directive

ESMA issued consultation paper on 14 July 2011 on all aspects of level 2 implementing measures in the directive save for those covered by the consultation paper detailed below. Responses were due by 23 September 2011. A public hearing was held on 2 September 2011. ESMA issued a consultation paper on 23 August 2011 on supervision and third country entities in respect of AIFMD, an open hearing on which was held 26 September 2011. Technical advice from ESMA due by 16 November 2011. Responses to a draft of this advice were published on 14 September 2011. The AIFM Directive should be transposed into national law and applied by Member States by May/June 2013.

Speech at AIMA Forum Commission's Homepage for AIFM Directive RegZone Report on AIFM Directive FSA AIFMD Directive Summary Responses to draft technical advice from ESMA to EU Commission

Audit Policy

Consultation on Audit Policy – Lessons from the Crisis

EU Commission consulted on whether audits provide all necessary information and whether supervision at European level would be useful. Responses and Green Paper published February 2011. EP legal affairs committee approved Green Paper on 24 May 2011 EU Commission to issue concrete proposals by end 2011.

Consultation Paper Commission Green Paper Link to EBA Letter commenting on audit implications of IAASB financial reporting proposals, 1 June 2011.pdf

Capital Requirements (also see Solvency II)

Revision of the Capital Requirements Directive

CRD III (covering amendments addressing capital requirements for the trading book and re-securitisation, disclosure of securitisation exposures, and remuneration policies) came into force on 1

January 2011.

Commission consultation on capitalisation of bank exposures to central counterparties closed 9 March 2011 The legislative proposal to transpose Basel III into EU law (CRD IV) published 20 July 2011 Capital requirement rules under Capital Requirements Directive to come into effect by end 2011.

Consultation Document for Revision of Capital Requirements Directive Commissioner Barnier's statement on Basel III and Capital Requirements Directive EP Financial Services Committee CRD IV Briefing Paper ECB presentation on Basel III and the Real Economy Consultation Paper on Capital Requirements re Counterparty Risk EP press release EU Commission FAQ on CRD IV, 20 July 2011 RegZone Article on Capital Requirements FSA Capital Requirements Directive

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Summary

Corporate Governance

Corporate Governance in Financial Institutions

Consultation on Corporate Governance in Financial Institutions closed September 2010. Green Paper consultation on Corporate Governance generally closed 22 July 2011. EP non-legislative resolution on Corporate Governance in Financial Institutions, 11 May 2011

Green Paper on Corporate Governance in Financial Institutions Summary of Responses to Green Paper Commission Homepage on Corporate Governance in Financial Services Institutions RegZone’s homepage on Corporate Governance in Financial Institutions European Corporate Governance Forum EP Report, March 2011 EP non-legislative resolution on Corporate Governance, 11 May 2011

Credit Rating Agencies

Revision of Credit Rating Agencies Regulation (EU-level supervision of CRAs)

The new EU regulatory framework for Credit Rating Agencies came into force on 7 December 2010. Credit Rating Agencies’ registration and supervision now by ESMA. ESMA published consultation paper on endorsement of third country CRAs on 18 March 2011. Final report on consultation published 18 May 2011 CRA II published 11 May 2011 Further amendments to the CRA regulation expected in Q4 2011. ESMA has signed a co-operation agreement with Japanese FSA re supervision of credit rating agencies EP resolution: Credit Rating Agencies, Future Perspectives, 8 June 2011 ESMA published list of registered and certified Credit Rating Agencies, 4 August 2011 ESMA published consultation paper on information to be provided to it by credit rating agencies under regulation, 19 September 2011 Further proposal expected September 2011 to address lack of competition and sovereign debt ratings.

Consultation Paper on Revision of Credit Rating Agencies Regulation Consultation Paper on Endorsement of Third Country Credit Rating Agencies CESR 2010 Annual Report on Credit Agencies Link to speech by ESMA Chairman, 16 May 2011 Link to ESMA Technical Advice on Fees for CRAs, 17 May 2011 ESMA Final Report on Application of Endorsement Regime, 18 May 2011 Link to ESMA Press Release re Japanese FSA co-operation, 6 June 2011 EP Resolution, 6 June 2011 ESMA Credit Ratings Agencies List ESMA Consultation Paper, 19 September 2011

Crisis Management – Recovery & Resolution

Crisis management in the Financial Sector

Various consultation papers have been published by EU Commission ESMA published summary report on

Communication on a new EU framework for crisis management in the financial sector

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mapping contingency measures in January 2011 EU legislative proposals for banking resolution and recovery framework due September 2011 EC to publish guidelines in December 2011 for rescue and restructuring of financial institutions to ensure continuity when present rules expire. Target date for introduction of new rules for rescuing and restructuring of EU banks (speech by Joaquin Almunia), 1 January 2012.

Consultation Paper on Crisis Management in the Banking Sector EU Press Release on Crisis Management ESMA Report on Mapping Contingency Measures Commission's Homepage on Crisis Management in Financial Sector Speech by Joaquin Almunia

Bank of International Settlements Progress Report, 6 July 2011

Deposit Guarantee Schemes

Revision of the Deposit Guarantee Schemes Directive

In July 2010, the Commission adopted a legislative proposal for revising the Deposit Guarantee Schemes Directive. The European Central Bank published its opinion in February 2011. EP economics committee approved revised compensation limits in May 2011. EP: plenary session for adoption of proposals scheduled for 12 October 2011. Proposals to be adopted by member states by end 2012.

Commission Homepage on Deposit Guarantee Schemes EU Commission's Proposals on Deposit Guarantee Schemes Summary of the Impact Assessment for Revision of the Deposit Guarantee Schemes Directive ECB Opinion, Feb 2011 FSA Deposit Guarantee Schemes Directive Summary Press Release re EP approval of revised limits, May 2011

Derivatives

OTC Derivatives reform

In September 2010 the Commission adopted a new regulation on OTC derivatives including rules on central counterparties (CCPs) and trade repositories. The European President published a compromise text proposal on 29 April 2011. EP Economics Committee approved draft on 24 May 2011. EP adopted Committee draft 5 July 2011. EP delayed its vote on the European Market Infrastructure Regulation (EMIR) until September 2011. The European President published a compromise text proposal on 15 September 2011 It is envisaged that the new rules on OTC derivatives, central counterparties and trade repositories will come into force at end of 2012.

RegZone Article on OTC Derivative Reform Commission's Homepage on OTC Derivatives Reform ECB Opinion on Proposals for OTC Derivatives, Central Counterparties & Trade Depositaries, January 2011 EP Regulatory Report, 19 April 2011 EU Presidency Compromise Text Proposal, 29 April 2011 FSA EMIR Summary EP Consolidated Text, 5 July 2011 EU Presidency Compromise Text Proposal, 15 September 2011

Measures on Short

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Selling/Credit Default Swaps EU Commission proposed Regulation on short selling and credit default swaps, September 2010. EP held first reading on the Regulation, 14 March 2011; it is envisaged that this will apply from 1 July 2012. European finance ministers agreed position on short-selling and credit default swaps for negotiation with EP on 17 May 2011. EC Council published proposed Regulation on 17 May 2011, with date for coming into effect of 1 July 2011. EP endorsed report restricting right to purchase Credit Default Swaps to those owning related sovereign bonds. 4-7 July 2011. On 9 August 2011, ESMA published an updated table of measures adopted by authorities within EU on short-selling. ESMA released a statement on short-selling, 11 August 2011

EU Commission Homepage on Short Selling and Credit Default Swaps European Central Bank Opinion, March 2011 European Council Press Release, 17 May 2011 Council of the EU Proposed Regulation, May 2011 EP Tabled Legislative Report, 6 June 2011 EP Consolidated Text adopted 5 July 2011 ESMA List of Measures Adopted re Short Selling, 9 August 2011 ESMA statement, 11 August 2011

Financial Conglomerates Directive

Revision of the Financial Conglomerates Directive

EU Commission proposed to amend existing rules governing supervision of financial conglomerates in August 2010. Presidency compromise text for proposed revision of Financial Conglomerates Directive published June 2011. EP reading, 5 July 2011 Revision of Financial Conglomerates Directive to come into effect during 2012.

Commission's Homepage on Supplementary Supervision of Financial Conglomerates Consultation on Revision of the Financial Conglomerates Directive Proposed Directive Revising the Financial Conglomerates Directive FSA Financial Conglomerates Directive Summary Presidency Compromise Text, June 2011 EP reading, 5 July 2011

Financial Sector Taxation

Legislative and Non Legislative initiatives on Financial Sector Taxation

In October 2010, EU Commission set out ideas financial sector taxation. EU Commission launched consultation in February 2011. Responses published and summarised on 24 May 2011. Economic and Social Committee opinion published 14 June 2011 EU Commission published proposal for a Directive on a Common Consolidated Corporate Tax Base on 16 March 2011. The Brussels Tax Forum discussed ways in which the financial services

Commission's Homepage on Taxation of the Financial Sector Commission Consultation Paper, February 2011 Responses to Consultation, May 2011 Summary of Responses to Consultation, May 2011 Commission's Communication on Taxation of the Financial Sector EU Commission Proposal for Directive on Common Consolidated Corporate Tax Base

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sector could make a ‘fairer contribution’ to taxation on 28 March 2011.

EU Commissioner's Speech at Brussels Tax Forum Economic and Social Committee Opinion, 14 June 2011

Innovative Financial Instruments

Initiatives on innovative financial instruments for the Multi-Annual Financial Framework

EU Commission published staff working paper in April 2010 ECFIN due to publish communication on innovative financial instruments in Q3 2011.

EU Commission Staff Working Paper 2010

Insurance Guarantee Schemes

Legislation on Insurance Guarantee Schemes

Consultation on Insurance Guarantee Schemes closed November 2010. Summary of responses published February 2011 European Economic and Social Committee opinion published 5 May 2011 European Economic and Social Committee opinion on White Paper published 27 July 2011 EU Commission confirmed no Europe-wide Scheme envisaged, July 2011 EU Commission legislative proposals now expected in autumn 2012

Commission's Homepage on Insurance Guarantee Schemes White Paper on Insurance Guarantee Schemes Summary of consultation responses Draft Impact Assessment accompanying White Paper on Insurance Guarantee Schemes EESC Insurance Guarantee Schemes Page with link to Opinion 5 May 2011 Economic and Social Committee Opinion, 27 July 2011 FSA Insurance Guarantee Schemes Directive Summary

Insurance Mediation Directive Revision (IMD2)

Insurance Mediation Directive revision

Consultation on revision of the Insurance Mediation Directive closed 28 February 2011. Summary of responses published on 4 April 2011. IMD2 Commission proposals expected February 2012 Implementation of IMD2 anticipated 2013-2014

Commission's Homepage on Insurance Mediation Directive Consultation Document on revision of the Insurance Mediation Directive Summary of Responses to Commission Consultation, 4 April 2011 Current European Legislation on Insurance Mediation

Investor Compensation Scheme Directive

Revision of the Investor Compensation Schemes Directive (see also Deposit Guarantee Schemes above)

EP published draft report, 25 January 2011 ECON Committee approved report, 12 April 2011 EP adopted ICSD on 5 July 2011 Proposals are anticipated to come into effect by the end of 2012.

Commission's Homepage on Investor Compensation Schemes Proposed Directive Amending Investor Compensation Scheme Directive Summary of the Impact Assessment European Central Bank Opinion, Feb 2011 RegZone Page on Consumer Protection:

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FOS, Complaints handling, Compensation and Collective Action FSA ICS Directive Summary EP Director-General Briefing Notes June 2011

Market Abuse Directive

Revision of the Market Abuse Directive

EU Commission’s proposals on revision of Market Abuse Directive delayed to October 2011 MAD level 3 guidelines expected by end of 2011.

Consultation Paper on revision of Market Abuse Directive EU 2011 Programme FSA Homepage on Market Abuse RegZone Article on Enforcement Fines from FSA Market Abuse Directive Simon Morris' Interview on Bloomberg on Recent Dawn Raids FSA Market Abuse Directive Summary

MiFID

Review of the Markets in Financial Instruments Directive

Extensive 2010 consultation on MiFID review. EU Commission launched consultation in December 2010 and set out views on 24 February 2011. In December 2010 the EP published the provisional text of a resolution passed by MEPs on regulation of trading in financial instruments. Rapporteur (to write report for ECON committee) appointed 10 May 2011. EMSA produced opinions on waivers from pre-trade transparency (MiFID requirement), 10 August 2011 EU Commission’s review of MiFID directive due 19 October 2011.

Commission's MiFID Homepage Commission's Consultation Paper on MiFID Review Responses to Consultation Paper The International Swaps and Derivatives Association response to Consultancy Paper EP resolution of 14 December 2010 on regulation of trading in financial instruments. FSA MiFID Summary ESMA opinions, 10 August 2011

Occupational Retirement Pensions

Review of the Directive concerning Institutions for Occupational Retirement provisions (IORP)

EU Commission published report on key aspects of IORP in April 2009 and Green Paper in Jul 2010. Green Paper adopted by EP in February 2011. EIOPA launched consultation on IORP review in July 2011, deadline 15 August 2011 European Economic and Social Committee published opinion on proposed revision to EIOPA and ESMA powers, 23 July 2011

European Commission 2009 report on IORP European Commission Green Paper, July 2010 EP Resolution, Feb 2011 EIOPA Consultation Paper, 8 July 2011 CEA Key Messages re IORP review consultation Committee Opinion on EIOPA powers

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Commission proposals expected December 2012.

Omnibus Directive

“Omnibus II” Directive

On 19 January 2011 the Commission proposed draft Directive revising the “Omnibus II” Directive to complete framework of financial supervision in Europe. EP approved new supervisory framework in September 2010. New European Supervisory Authorities established December 2010: ESMA, EIOPA, EBA and ESRB. Proposed “Omnibus II” Directive makes amendments to Level 1 of Solvency II. A Fourth Presidency Compromise Paper on the amendments was published 14 June 2011. Omnibus II report scheduled for EP committee adoption, 22 November 2011 EP adoption of Omnibus II Directive scheduled for 17 January 2012.

Proposed Omnibus II Directive Original Omnibus Directive Regulation Establishing the European Insurance and Occupational Pensions Authority (EIOPA) Regulation Establishing the European Banking Authority (EBA) Regulation Establishing the European Supervisory and Markets Authority (ESMA) Regulation on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board European Council Regulation conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board 4

th Presidency Compromise Paper, June

2011

PRIPS

Packaged Retail Investment Products

Consultation on Packaged Retail Investment Products November 2010 - January 2011. New rules on Packaged Retail Investment Products will fit in to EU Commission’s review of MiFID. EU Commission commented in March 2010 that scope of PRIPS may be narrowed to disclosure only. Legislative proposals for standardising pre-contractual information for retail investors expected Q3 2011 EC Directive to be produced in February 2012.

Commission's Homepage on Packaged Retail Investment Products Consultation Paper on Packaged Retail Investment Products Responses to Consultation Paper RegZone Article on Packaged Retail Investment Products

Prospectus, Listing and Transparency Rules

Prospectus Directive amendments

Amending Prospectus Directive came into force 31 December 2010. ESMA published responses to consultation, 29 July 2011 ESMA provided technical advice to EU Commission 4 October 2011. EU Commission will adopt delegated acts by end 2011.

Commission's Homepage on Prospectus Directive review Directive Amending the Prospectus Directive ESMA Call for Evidence ESMA List of Responses, 29 July 2011 RegZone Article on New Prospectus

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Amending directive to reduce burden on insurers expected April 2012. Member States have until 1 July 2012 to implement the new amendments.

Rules FSA Prospectus Directive Summary ESMA technical advice on delegated acts

Revision of Directive on Transparency Obligations of listed companies

Throughout 2010 the Commission conducted a consultation on a review of the Directive on Transparency Obligations of listed companies. European Council Directive adoption 11 October 2010. Commission proposals for Directive amendments due October 2011.

Commission's Homepage on Transparency Requirements for a Listed Company Consultation on Review and Harmonisation of Transparency Requirements for Listed Companies Report on the Application of Transparency Requirements FSA Transparency Directive Summary

Third Country Prospectus Issuers

On 23 March 2011, ESMA published a framework on the way in which third country issuers can meet PD requirements. Prospectuses from non-EU countries drawn up in accordance with third country legislation can have a ‘wrap’ added, so that documents meet EU PD requirements.

ESMA Public Statement FSA Handbook Rule 4.2.1

Responsible Mortgage Lending and Borrowing

Regulation on Responsible Mortgage Lending and Borrowing

EU Commission consultation on ‘Responsible Lending and Borrowing in the EU’ in June 2009 followed by working paper in July 2010. EU Commission proposal for Directive on credit agreements relating to residential property, 31 March 2011. Staff working paper summarising Impact Assessment, 6 April 2011 Economic and Social Affairs Committee opinion published 14 July 2011 EP report on credit agreements relating to residential properties scheduled for adoption in committee, 24 October 2011.

Public Consultation on Responsible Mortgage Lending and Borrowing Responses to Consultation Commission's working paper of July 2010 Proposed Directive on Credit Agreements on Residential Property

Sanctions

Communication on sanctions in the financial services sector

EU Commission consultation on review of sanctions in the financial sector closed 19 February 2011. EU Commission is to decide on legislative proposals during 2011.

Commission's Homepage on Sanctions Commission's Consultation on Sanctions in the Financial Sector Commission's Press Release on Sanctions in Financial Sector December 2010 Summary of the Impact Assessment

Securities

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Harmonisation of Securities Law

Second consultation on harmonisation of securities law closed 21 January 2011. Securities Law Directive was due July 2011, but delayed, probably to May 2012. Legislation to be transposed by Member States by the end of 2013.

EU Commission's Homepage on Harmonisation of Securities Law Responses to Consultation Paper Consultation Document on Legal Certainty of Securities Holding and Dispositions Geneva Securities Convention Hague Securities Convention ESMA Securities & Markets Stakeholder Group

Regulation on Central Securities Depositories (CSD’s)

EU Commission consultation on Central Securities Depositories closed 1 March 2011. Legislative proposals on Central Securities Depositories expected October 2011.

Commission's Homepage on Central Securities Depositories Consultation on Central Securities Depositories EU 2011 Programme

SEPA

Regulation on SEPA (Single European Payments Area)

In December 2010 the EP proposed Regulation establishing technical requirements for credit transfers and direct debits in Euros. Second SEPA benchmarking study due to take place mid-2011. A second edition of the White Paper on remote payments planned for Q3 2011.

ECB report, 7 April 2011

Technical requirements for credit transfers and direct debits adopted in committee 7 July 2011, due for adoption by EP in plenary session 26 September 2011

Commission's Homepage on Single European Payments Area Proposal for Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros Summary of Impact Assessment First Implementation Report on SEPA Roadmap ECB opinion, 7 April 2011

Solvency II

Solvency II Directive

Solvency II Directive adopted in 2009. EU Commission consultation November 2010. Final advice to be provided by end July 2011 on equivalence of first wave third country supervisory regimes Introduction of calculation of new risk sensitive capital requirements plus level 2 technical measures planned for Q4 2011 Implementation measures on capital requirements for insurance undertakings to be agreed on by end 2011 Insurers must submit their Solvency II capital models for approval between

Commission's Homepage on Solvency II FSA's Solvency II Homepage Consultation on Level 2 Implementation of Solvency II Responses to Consultation Commission Legislative Proposals list Updated Timeline on Level 2 Implementation of Solvency II FSA Solvency II Project Summary European Timeline chart produced by FSA European Council Presidency Compromise text, June 2011

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“end March 2012 and mid-2013” Deadline for insurers to be subject to Solvency II rules has been postponed to 1 Jan 2014 See above “Omnibus II” Directive.

Supervision

Supervision package (European Systemic Risk Board and European Supervisory Authorities) – see also ‘Omnibus II’ Directive above.

European Systemic Risk Board (ESRB) and the three European Supervisory Authorities (ESAs) came into being on 1 January 2011. Having launched the new supervisory authorities, EU Commission adopted legislative proposals to clarify new powers bestowed on them. See above ‘Omnibus II’ Directive. EU Commission proposals for amending directive on supplementary supervision of financial entities within financial conglomerates (amending Directives 98/78C, 20002/87 EC and 2006/48 EC) published 16 August 2010. Draft Report on amending directive by EP Committee 6 December 2010.

Commission's Homepage on Financial Supervision Statement by Commissioner Barnier EBA Official Website ESMA Official Website EIOPA Official Website RegZone Article on the new European System of Financial Supervision Commission amending directive proposal Draft EP Committee Report European Central Bank Opinion on Draft Directive Amendments for Supplementary Supervision of Financial Entities in a Financial Conglomerate Speech by Jean-Claude Trichet, President of the ECB, 17 February 2011

UCITS

Amendments to UCITS Directive, UCITS IV

FSA and HM Treasury consultation on implementation of UCITS IV Directive closed 21 March 2011. ESMA launched consultation on UCITS exchange-traded funds and Structured UCITS, responses were due by 22 September 2011 Amendments to UCITS Directive due December 2011.

FSA and HM Treasury Consultation Paper on the implementation of UCITS IV Recast UCITS Directive CESR's technical advice on level 2 measures relating to UCITS CESR's level 3 guidelines RegZone Article on new UCITS IV regime Commission's Implementing Measures (2 Regulations & 2 Directives) ESMA Consultation Paper on UCITS exchange-traded funds and structured UCITS FSA UCITS Directive Summary

Last updated 04 October 2011

Contacts

Paul Edmondson Partner, Financial Services T +44 (0) 20 7367 2877 E paul.edmondson@cms-cmck.com

Simon Morris Partner, Financial Services T +44 (0) 20 7367 2702 E simon.morris@cms-cmck.com

Ash Saluja Partner, Financial Services T +44 (0) 20 7367 2734 E ash.saluja@cms-cmck.com

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