On 24 May, the European Commission adopted a package of measures on retail investment (the “Retail Investment Strategy” or the “Proposal”) This initiative is part of the European Commission’s 2020 Capital Markets Union Action Plan.

The Proposal includes an amending Directive, which revises the existing rules laid down in the Markets in Financial Instruments Directive (MiFID II), the Insurance Distribution Directive (IDD), the Undertakings for Collective Investment in Transferable Securities Directive (UCITS), the Alternative Investment Fund Managers Directive (AIFMD) and the Directive on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), as well as an amending Regulation, which revises the Regulation on packaged retail investment products and insurance-based investment products (PRIPPS).

Among its objectives, it is worth noting that the European Commission’s own press release notes that the Proposal addresses “potential conflicts of interest in the distribution of investment products by prohibiting inducements for all execution-only sales (i.e., sales where no advice is provided) and ensuring that financial advice is in the best interests of retail investors. Transparency and stricter safeguards will also be introduced in cases where inducements are still allowed”. In this vein, Valdis Dombrovskis, Executive Vice-President of the European Commission, in his speech following the publication of the Retail Investment Strategy said that it is proposed to ‘prohibit inducements or commissions on sales of investment products without advice, or what are known as “execution-only” sales, where no financial advice is given’.

This settles, at least until the final wording of the Commission’s proposed regulation is adopted, the question of whether the charging of inducements (retrocession fees) on advisory services will continue to be allowed, since, according to the European Commission’s position, they will be prohibited only for pure marketing services. In any case, the Proposal establishes some additional transparency requirements, among which it is worth highlighting:

• For sales where advice is given, it is proposed to replace the current criteria with a new test specifying the duty of advisors to act in the best interests of the client.
• Where inducements are permitted, it is proposed to require distributors to inform clients about what inducements are, their costs and their impact on investment performance.

On 30 May, the dissolution of the Spanish Parliament and the announcement of general elections on 23 July 2023 were published in the Official State Gazette.

These early elections have had a major impact on the national legislative landscape, as they have led to the interruption of all ongoing parliamentary work: (i) on the one hand, all the draft bills that were in the pipeline have lapsed; (ii) on the other hand, the regulations whose processing was expected to begin shortly and be completed before December 2023 are also at a standstill.

The following list includes a summary of the regulations that will affect financial regulatory matters, the processing of which is postponed until, at least, Q4 2023: (i) the Draft Law regulating customer services; (ii) the Draft Law creating the Independent Administrative Authority for the Defence of Financial Customers for extra-judicial resolution of conflicts between financial institutions and their customers; or (iii) the Draft Organic Law amending Organic Law 10/1995, of 23 November 1995, of the Criminal Code, for the transposition of directives on combating fraud and counterfeiting of non-cash means of payment and market abuse, and Organic Law 7/2014, of 12 November 2014, on the exchange of information on criminal records and consideration of criminal judgments in the European Union.

On 14 June, the CNMV announced the entry into force of Article 63 of Law 6/2023 on Securities Markets and Investment Services (“LMVSI”). That transfers the responsibility for verifying the listing requirements for non-equity securities, such as fixed income, warrants and promissory notes, to national financial market supervisors.

In a public statement published on 19 June, the CNMV confirmed the adoption of the Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing. These Guidelines seek to establish the procedures and methodologies for the supervisory review and assessment and risk management of investment firms.

On 5 June, the CNMV issued two statements informing market participants of the Commission’s adoption of the Guidelines on certain aspects of MiFID II suitability requirements and the Guidelines on certain aspects of MiFID II remuneration requirements, and that it will take both into account when conducting its supervisory activities.

On 9 May, the CNMV published two papers assessing the impact of climate change on investment funds and securities issuers, respectively.

• The first article addresses the issue of measuring the transition risk in investment funds and provides a methodology to measure the impact of the ecological transition on the value of the investment funds’ assets.
• The second article analyses the evolution of the levels of greenhouse gas emissions among Spanish securities issuers and provides a further report on the degree of alignment of their emission reduction targets with the objectives set forth in the Paris Agreement.

On 19 June, the CNMV published its annual report for the financial year 2022, which provides a detailed analysis of market developments and the status of investment services firms.

As we announced in the last edition of our Newsletter, following the approval by the plenary of the European Parliament on 20 April of the Regulation on Markets in Crypto-assets, and amending Regulations (EU) No. 1093/2010 and (EU) No. 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (“MiCA”), on 18 May, the Council approved the final text of MiCA, which will now be published in the Official Journal of the European Union.

MiCA will be applicable since 30 December 2024, with the exception of the e-money token and asset-referenced token issuance regimes, which will apply from 30 June 2024.

On 28 June, the European Commission presented a series of proposals aimed at adapting the legislative framework for payment services to the evolution that has taken place in the sector due to the development of new digital solutions that are increasingly used and in demand, such as “open-banking”. These proposals aim to enable such developments while ensuring consumer protection, security of data transfers and the competitiveness of the EU financial sector.

In this respect, the Commission has proposed two packages of measures:

• the review and modernisation of PSD2, which will become PSD3, and the development of a Payment Services Regulation (PSR); and
• a proposal for the development of a regulatory framework for access to financial data that will establish rights and obligations for the management of the exchange of customer data in the financial sector that extends beyond payment accounts.

On 16 May, the following Regulations were published in the Official Journal of the European Union.

• Commission Delegated Regulation (EU) 2023/944 of 17 January 2023 amending and correcting the Regulatory Technical Standards (RTS) laid down in Delegated Regulation (EU) 2017/587 as regards certain transparency requirements applicable to transactions in equity instruments; and
• Commission Delegated Regulation (EU) 2023/945 of 17 January 2023 amending the Regulatory Technical Standards (RTS) laid down in Delegated Regulation (EU) 2017/583 as regards certain transparency requirements applicable to transactions in non-equity instruments.

Both regulations entered into force on 5 June.

On 28 June, the European Commission presented two proposals concerning the digital euro package:

• Proposal on the legal tender of euro banknotes and coins: this proposal seeks to ensure the acceptance of and access to euro banknotes and coins throughout the euro area, protecting citizens’ freedom of choice and the financial inclusion of vulnerable groups. Member States should ensure widespread acceptance of and sufficient access to cash.
• Legislative proposal for a legal framework for the digital euro: The ECB is considering the introduction of a “digital euro” as a complement to cash to facilitate the adaptation of the EU financial system to the digitalisation of the economy.

On 23 May, the European Parliament announced that it had reached an agreement with the Council on the European Single Access Point (“ESAP”). The institutions announced that ESMA will establish and operate the ESAP within 42 months of the entry into force of the Regulation of the European Parliament and of the Council establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability, which is currently being proposed.

On 27 June, the EU Council issued a press release announcing the provisional agreement reached between the negotiators of the Council and the European Parliament on amendments to the Capital Requirements Directive and Regulation in order to strengthen the financial position of credit institutions in the Union.

In this regard, we note that the negotiators have agreed to: (i) limit the variability of bank capital levels calculated using internal models; (ii) improve the fit and proper assessment of members of institutions’ management bodies and key function holders; and (iii) establish a harmonised framework for the assessment of the suitability of members of institutions’ management bodies and key function holders. A transitional regime for crypto-assets and requirements for branches of foreign credit institutions were also agreed upon.

The European Parliament and the Council have reached a provisional agreement on a new Directive on financial services contracts concluded at a distance.

This proposal for a Directive aims to simplify and modernise the legislative framework applicable to the remote marketing of financial services. At the same time, it extends the scope of the Consumer Rights Directive to cover financial services contracts concluded at a distance.

The European Parliament and the Council will now have to formally adopt this political agreement.

On 6 June, the European Council and the Parliament reached a provisional agreement regarding the EU legislative proposal to accelerate and facilitate access to financial information by national competent authorities in order to strengthen the regulatory framework for the prevention of money laundering and the financing of terrorism (“AML/TF”) in the EU. The agreement must now be endorsed by Member States’ representatives prior to its adoption by both the European Council and Parliament.

On 17 May, the European Commission announced that the list of high-risk third-party jurisdictions with strategic deficiencies in their policies for the prevention of money laundering and terrorism financing has been updated. The update adds Nigeria and South Africa to the list and removes Cambodia and Morocco.

On 17 May, the European Commission adopted a draft Memorandum of Understanding with the UK Government establishing a framework for structured regulatory cooperation in the area of financial services. Once signed, it will lay the foundations for voluntary financial regulatory cooperation between the European Union and the United Kingdom.

This framework will take the form, among other measures, of the creation of the Joint EU-UK Financial Regulatory Forum, which is set up as a platform to facilitate cooperation and dialogue on financial services.

These Guidelines published on 23 May, aim to shed light on the process by which authorities assess applications for the acquisition of qualifying holdings in credit institutions.

On 11 July, ESMA published a Final Report revising the technical standards on the EU passporting regime for investment services pursuant to Article 34 of MiFID II. In this paper, ESMA proposes (i) to amend the technical standards to expand the information that investment firms will be required to provide when applying for the EU passport; and (ii) to renew the passport notification templates in order to provide national competent authorities with more detail on the intended cross-border activities of the applicant firm.

ESMA has submitted the Final Report to the European Commission, which must decide whether to proceed with the review.

On 11 July, ESMA updated the Committee of European Securities Regulators (CESR) Q&A document on the interpretation of the concept of advice under MiFID II, in order to align it with the new business models and recent technological developments. The update was carried out through the issuance of a Supervisory briefing aimed at guiding the activity of investment firms as well as national competent authorities in their supervisory activities.

The Supervisory briefing covers mainly the following aspects:

• the provision of personal recommendations and whether other forms of information could constitute investment advice;
• guidance on when recommendations will be viewed as based on a view of a person’s circumstances;
• perimeter issues around the definition of personal recommendation; and
• issues around the form of communication, including use of social media posts.

On 24 May, ESMA published the Final Report on the conclusions of the Common Supervisory Action (CSA) conducted in 2022, together with the national competent authorities (NCAs) of the Member States, on the supervision of asset valuation rules under Directive 2009/65/EC (“UCITS”) and Directive 2011/61/EU (“AIFMD”).

On 16 June, the ESAs launched a public consultation on the first package of policy products to be issued in the context of the entry into force of Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on the digital operational resilience for the financial sector (“DORA”). Said package include four sets of draft Regulatory Technical Standards (RTS) and one set of draft Implementing Technical Standards (ITS). These instruments aim to ensure a consistent and harmonised legal framework in the areas of ICT risk management, major ICT-related incident reporting and ICT third-party risk management. The public consultation will remain open until 11 September 2023.

On 13 May, ESMA updated its Q&A on Directive 2009/65/EC (“UCITS Directive”) and Directive 2011/61/EU (“AIFMD Directive”). Among the new features and/or clarifications introduced, we highlight the following:

• UCITS Directive: (a) Member States may authorise management companies to provide portfolio management services under a discretionary and individualised mandate, provided that such portfolios include one or more of the instruments listed in Section C of Annex I to the repealed Directive 2004/39/EC; (b) UCIS that intend to cancel the marketing arrangements in a Member State will have to comply with the notification obligations under Article 93a.1 of the UCITS Directive, even if there are no investors in such State; and (c) UCIS management companies may not rely on the passport regime to provide only ancillary services, but must provide them in connection with the management of UCIS.
• AIFMD Directive: (a) only entities authorised as investment firms, credit entities, UCIS management companies, AIF management companies or those acting as tied agents may engage in pre-trading on behalf of an EU AIF management company; (b) unless otherwise provided by national law, AIF management companies of AIFs under Article 3.2 of the AIFMD are not subject to the requirements applicable to pre-marketing; and (c) AIF management companies may not rely on the passporting regime to provide only ancillary services, but must provide them in relation to the management of AIFs.

On 26 May, ESMA announced the updating of two of its Q&A documents: (i) the Q&A on Directive 2011/61/EU (AIFMD Directive); and (ii) the Q&A on Regulation (EU) 2020/1503 (Crowdfunding Regulation).

On 11 July ESMA issued an Opinion in relation to certain product intervention measures implemented by the CNMV, in particular: (i) restrictions on the marketing and advertising of CFDs (contracts for difference); and (ii) the introduction of initial and close-out margin requirements for high-risk financial products that may lead investors to lose more than invested. In the Opinion, ESMA considers that the measures adopted are justified and proportionate to their objectives.

In addition, ESMA invites national competent authorities in other Member States to monitor the marketing, sale and distribution of CFDs and the impact of other high-risk products in their national markets to assess whether there are risks to retail investors similar to those identified by the CNMV.

On 1 June, the ESAs issued a report in which they analyze the phenomenon of “greenwashing” in the financial sector, and amongst other things, propose a unified definition of the concept in order to standardize its interpretation.

Said report proposes the following definition: “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants”.

On 25 May, ESMA published a statement reporting the observation relative to an increase in the offering by investment firms of products and/or services that fall outside the scope of EU financial services regulations and that are offered to investors as investment alternatives to financial instruments (such as crypto-assets, gold, real estate or other commodities).

In the same, ESMA warns investment firms offering such services that they must adopt all measures required by applicable law to ensure that investors are aware of the non-regulated nature of the services and, consequently, that they cannot benefit from the protections afforded by regulation to regulated products.

On 26 May, ESMA launched the Public Register of Derivatives subject to the clearing obligation under Article 6 of Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR).

The registry can be accessed through the following link.

On 13 June, the EBA issued the final Guidelines on Resolvability Testing of Financial Institutions, which are addressed to financial institutions and resolution authorities.

Among other issues, the Guidelines require institutions to submit a resolvability self-assessment at least every two years, to set out how they meet the resolvability and transferability capabilities and how they have gained assurance of their adequacy.

On 21 June, the EBA published its final draft amending the Implementing Technical Standards (ITS) on the disclosure of supervisory information. The ITS specify the format, structure, content and annual publication date of the supervisory information to be disclosed by competent authorities in relation to their supervisory activities.

On 5 June, the EBA published the final draft Implementing Technical Standards (ITS) on the benchmarking of credit risk, market risk and IFRS9 models for the 2024 benchmarking exercise.

On 12 May, the EBA published a draft Regulatory Technical Standard (RTS) on the scope and methods of consolidation of groups of investment firms under Regulation (EU) 2019/2033 of the European Parliament and of the Council.

The RTS is the last regulatory element of the EBA Roadmap on investment firms, published in June 2020.

On 12 June, the EBA updated the list of other systemically important institutions (“O-SIIs”) in the EU. These institutions, together with globally systemically important institutions (“G-SIIs”), are identified by the relevant authorities on the basis of harmonised criteria. The list is based on year-end 2022 data and 180 banks were identified as systemically important.

On 31 May, the EBA launched a public consultation on amendments to its Guidelines on money laundering and terrorism financing risk factors, in order to extend their scope of application to crypto-asset service providers (“CASPs”).

Interested parties may make contributions until 31 August 2023.

On 13 June, the European Commission proposed a new package of measures to strengthen the foundations of the EU’s sustainable finance regulatory framework. The aim is to ensure that it continues to support businesses and the financial sector in relation to the climate transition, including simplifying the framework and providing guidance for compliance with sustainability-related disclosure rules, while encouraging the private financing of transition projects and technologies.

This package includes the following tools:

• A Delegated Taxonomy Regulation.
• A proposal for a regulation of ESG ratings providers.
• Measures and instruments aimed at facilitating regulatory compliance.

The CNMV has published the results of the review of the first phase of the implementation of ESG regulations in CIS in a statement issued on 4 May.

This review is part of the CNMV’s goal of monitoring the implementation of ESG regulations in the transparency regimes and investment policies of CIS. This first phase of the review focused on the adequacy of investment fund managers’ practices in the case of funds registered with social or environmental characteristics or with a sustainable investment objective as of March 2022.

Below, we highlight the most salient conclusions reached by the CNMV regarding CIS vis-a-vis Articles 8 and 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“SFDR”):

• CIS under Article 8 SFDR: The CNMV notes that, except for the case of thematic funds, where greater precision is appreciated, Article 8 CIS tend to use terms that are too generic when setting out the valuation criteria for the selection of their investments and the ESG characteristics promoted by the CIS. In this regard, it considers that greater specificity is desirable.
• CIS under Article 9 SFDR: The CNMV notes that many of the CIS in question refer to the UN Sustainable Development Goals (“SDGs”) as generic criteria for the selection of investments. Therefore, it points out that it would be desirable to be more specific in determining the objectives to be achieved within the SDGs themselves, using relevant metrics and parameters.

On 16 June, the European Commission issued a statement to clarify how institutions should take into account the requirements for compliance with the minimum safeguards under Article 18 of Regulation (EU) 2020/852 (the Taxonomy Regulation).

On 5 May, the Ministry of Economic Affairs and Digital Transformation announced the opening of a public hearing on the Preliminary Draft Law regulating the framework for corporate disclosure on environmental, social and governance issues, which aims to implement CSRD Directive. Participation in this public hearing was allowed until 25 May.

On 27 June, the Financial Action Task Force (“FATF”) published the fourth edition of its review of the implementation of the measures to prevent money laundering and terrorism financing relating to digital assets and digital asset-related service providers.

On 23 June, the FATF updated its list of jurisdictions under increased monitoring. The list includes jurisdictions where strategic deficiencies in their AML/CFT regimes have been identified, and they have committed to actively engaging with the FATF to resolve these deficiencies within the agreed deadlines. In this revision, the FATF has included Croatia, Cameroon and Vietnam.

On 6 June, representatives of the European financial and insurance industry (AMICE, EACB, EAPB, EBF, EFAMA, ESBG, EUSIPA, Insurance Europe) gathered to launch a joint statement on the EU Retail Investment Strategy. In the report, they share their concerns about it, even if, they share the EU’s objectives of promoting retail investment and the digitalisation of the financial markets.

On 31 May, the Bank of International Settlements (“BIS”) published a report setting forth guidelines for the prudential treatment of crypto-assets, based on the results of public consultations previously conducted by the BIS.

On 25 May, the European Systemic Risk Board (“ESRB”) published a report addressing the potential systemic implications of crypto-asset markets and proposing measures to address the risks arising from both crypto-assets and decentralised finance.

On 23 May, IOSCO published a report on the matter, in which it includes 18 recommendations to regulators to promote consistent standards and foster the functioning of global markets. These recommendations fall mainly into the following areas: (i) conflicts of interest; (ii) market manipulation; (iii) cross-border risks; (iv) custody; (v) operational risk; and (vi) retail distribution.

On 12 May, IOSCO published a document of Good Practices Relating to the Implementation of the IOSCO Principles for Exchange Traded Funds (IOSCO Principles for the Regulation of Exchange Traded Funds).

On 6 June, the Association for Financial Markets in Europe (“AFME”) announced the update of the “MiFID II product governance (PG) and Packaged retail investment and insurance products Regulation (PRIIPs) regimes: An approach for the Equity-Linked markets” protocol, in order to incorporate the changes to the EU product governance regime that entered into force on 22 November 2022, set forth in the amendments to the MiFID II Delegated Directive (Delegated Directive (EU) 2017/593) and the ESMA Guidelines on MiFID II product governance obligations.