On 16 December 2020 the Council of EU Ministers (the Council) agreed package of amendments to European financial services legislation – Capital Markets Recovery Package – including targeted amendments to MiFID II (so called MiFID “quick fix”). The key changes to the MiFID II regime include:

  • Investor protection and research: agreed amendments include simplification of certain requirements, including cost and charges disclosures, in order to facilitate the provision of investment services and investment in the EU economy without compromising investor protection. In addition, a targeted exemption has been agreed to allow banks and financial firms to bundle research and execution costs when it comes to research on small and mid-cap issuers. This is intended to increase research coverage for such issuers, thereby improving their access to capital market finance.
  • Commodity derivatives: legislators agreed to simplify the position limits regime for commodity derivatives by limiting it to critical or significant contracts, with the exception of agricultural products, in particular products used for human consumption. Commodity derivatives will be considered as critical or significant where the sum of all net positions of end position holders constitutes the size of their open interest and is at a minimum 300 000 lots on average over one year. ESMA is mandated to develop regulatory technical standards to specify the agricultural commodity derivatives and create a list with critical or significant commodity derivatives subject to position limits. Exempted from position limits regime will be positions held by, or on behalf of, a non-financial entity, and which are objectively measurable as reducing risks directly relating to the commercial activity of that non-financial entity ad such positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue. Also, the legislators extended the exemption to positions held by, or on behalf of, a financial entity that is part of a predominantly commercial group and is acting on behalf of a non-financial entity of this predominantly commercial group and which are objectively measurable as reducing risks directly relating to the commercial activity of that non-financial entity.
  • Ancillary activity exemption: the agreed amendments include changes to Article 2(1)(j) MiFID II that sets conditions for exemption for persons dealing on own account in commodity derivatives or emission allowances or derivatives thereof, or providing investment services, other than dealing on own account, in commodity derivatives or emission allowances or derivatives thereof to the customers or suppliers of their main business. According to the amended provisions, the Commission is mandated to adopt – by 31 July 2021 – delegated acts setting out the criteria determining when an activity is to be considered to be ancillary to the main business at a group level. Among other, the criteria are to reflect whether the net outstanding notional exposure in commodity derivatives or emission allowances or derivatives thereof for financial settlement traded in the EU, excluding such instruments traded on a trading venue, is below an annual threshold of EUR 3 billion, whether the capital employed by the group to which the person belongs is predominantly allocated to the main business of the group or whether the size of those activities does not exceed the total size of the other trading activities at group level.

The amendments now have to be formally approved by the European Parliament in a plenary vote, following which the text will be published in the EU Official Journal. Member States will have 12 months to transpose the revised provisions to their national legal frameworks.

In addition, together with the MiFID “quick fix” the Council also confirmed targeted amendments to Prospectus Regulation , to the General Securitisation Regulation and to the CRR securitisation framework. In respect of amendments to Prospectus Regulation, legislators have agreed to establish a new ‘EU recovery prospectus’ to make it easier for companies to issue capital. This shorter prospectus will be available for capital increases of up to 150% of outstanding capital within a period of 12 months. In respect of amendments to securitisation framework, will be extended to cover synthetic securitisations. In addition, the new rules remove regulatory obstacles to the securitisation of non-performing exposures (NPEs). This is done by broadly aligning NPE rules with international standards and ensuring their prudential soundness, while at the same time allowing originating banks to use risk-sensitive modelling practices.