The discussions on the European Commission proposal on the so-called “MiFID Quick Fix”, which also includes proposed amendments to the Prospectus Regulation and the Securitisation Regulation and corresponding changes to the Capital Requirements Regulation (CRR) are progressing.
Following an initial Council Working Group meeting on 3 September, EU Member States’ representatives reconvened on 17 September to discuss draft compromise proposals put forward by the German Council Presidency. In the meantime, German MEP Markus Ferber, appointed as rapporteur of the legislative file by the European Parliament Economic and Monetary Affairs Committee (ECON), has circulated a draft
report. It is expected that both co-legislators can find agreement on their respective positions by the end of October 2020 and commence trilogue negotiations shortly thereafter.
Set out below is an outline of the proposed amendments by both the European Parliament rapporteur and the Council Presidency below.
In its draft report, which only considers the proposed amendments to MiFID II ((EU) 2014/65), Markus Ferber listed initial proposed amendments to the Commission proposals. In general, Ferber proposes amendments that would further alleviate the administrative burden on investment firms. The draft report was submitted to the other members of ECON on 22 September and feedback is due by 30 September 2020.
In particular, the draft report proposes the following amendments to the Commission proposal:
- Cost and charges: To expand the exemption for investment firms from providing the disclosure of costs and charges to professional clients and eligible counterparties to all MiFID services instead of all but investment advice and portfolio management.
- Best execution: To suspend the application of the annual publication of best execution reports by investment firms contained in Commission Delegated Regulation (EU) 2017/576) in addition to the suspension of the best execution reports provided by trading venues under Commission Delegated Regulation (EU) 2017/575.
- Product governance: To exempt “plain vanilla bonds”, UCITS and shares traded on regulated markets from product governance provisions, in addition to bonds with make-whole clauses.
- Mode of client communication: To delete the limitation that costs and charges information must be transmitted to clients in electronic format to allow transmission in paper format as well.
- Loss reporting: To add the provision in Article 62 of Commission Delegated Regulation (EU) 2017/565 obliging investment firms doing portfolio management to inform the client if the value of their portfolio drops by more than 10 percent (which the Commission proposes to increase to 20 percent) to the MiFID level 1 text.
- SME investment research: the rapporteur proposes to move the text of Delegated Directive (EU) 2017/593 to the MiFID II level 1 text and to put the market cap threshold at EUR 10 billion.
- Ancillary activity exemption: concerned with the level of autonomy granted to Member State national competent authorities (NCAs) in the Commission’s proposal, the rapporteur proposes to give ESMA the power to provide guidance on this issue.
The proposals amending the Prospectus Regulation and the Securitisation Regulation will be considered by two other rapporteurs. In the case of the Prospectus Regulation amending proposal, Ondřej Kovařík (ECR, CZ) has been designated rapporteur, and for the Securitisation Regulation amending proposal, this is Paul Tang (S&D, NL). To date, none of the rapporteurs has published a draft report.
In advance of the 17 September Council Working Party meeting, the German Presidency circulated a note discussing revised amendments to the MiFID Quick Fix proposal. In general, the proposed amendments stayed largely in line with the Commission proposal. Nevertheless, the Presidency proposed to exempt plain vanilla bonds and UCITS from the product governance requirements in execution-only situations as well as instruments sold exclusively to eligible counterparties, which is largely in line with Ferber’s draft report. On loss reporting, the temporary suspension of best execution reports and investment research, the Presidency now proposes to follow the original Commission proposal.
With regard to the Commission proposal on an EU Recovery Prospectus, the Council Presidency has come back from the idea of capping the use of the prospectus and is now following the Commission proposal on this issue. In contrast, the Presidency proposes, amongst others, to delete the reference to NCAs in relation to public disclosure obligations of issuers. It also suggests adding new items under the information that must be disclosed by the issuer in the EU Recovery Prospectus, such as information on legal and arbitration proceedings, a statement of capitalisation and indebtedness and information on related party transactions. Finally, in addition to increasing the threshold for prospectus-free issuances of a number of debt securities by credit institutions to EUR 150 million, the Presidency proposes to apply it in relation to admission to trading as well.
With respect to the proposed amendments to the Securitisation Regulation, the Presidency proposed a number of amendments:
- To add an extra point in Article 26e(9) stating that collateral can be held in the form of cash by a third-party credit institution or the originator if that cash is segregated and distinguished from the assets of the third-party credit institution or originator.
- To keep simple forms of synthetic excess spread (SES) in the list of simple, transparent and standardised (STS) securitisations-criteria for synthetic on-balance sheet securitisations, as specified in Article 26e(6) of the Securitisation Regulation, but to limit the scope of Article 270 of the Capital Requirements Regulation (CRR) to those transactions that do not involve any forms of committed SES. The European Banking Authority would get the powers to monitor the use of a differentiated capital treatment of STS synthetic on-balance sheet securitisations;
- To add a new Article 494c CRR introducing a grandfathering rule for outstanding senior positions in synthetic on-balance sheet securitisations to which originator institutions have applied the Article 270 CRR currently applicable.
- On non-performing exposures securitisations, the presidency acknowledges the broad support for introducing a dedicated prudential treatment, but wants to wait for the adoption for the corresponding Basel standard before adopting such a provision.