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Lithuanian Presidency RoundUp H2 2013

  • Data protection
  • MiFID/MiFIRR
  • Bank Recovery and Resolution
  • Omnibus II
  • Portability Directive
  • Market Abuse Directive
  • UCITS V
  • Anti-discrimination
  • EU Audit Reform
  • Clinical Trials Regulation

Data Protection Directive

The Lithuanian Presidency prioritised work on the Data Protection Regulation, organising a high number of Council Working Groups and discussing this file at the Justice and Home Affairs Council meetings in October and December. Discussions focused on the concept of the ‘one stop shop’ and the Presidency was hoping to reach at least a ‘partial general approach’ on this Article. However, no agreement was reached at the last JHA meeting in December.

The incoming Greek Presidency has expressed its commitment to continue work on the data protection files, highlighting the need to intensify work on the Data Protection Directive (not just the Regulation). There is still huge political pressure for Council to reach a general agreement as soon as possible, in order to be able to enter trilogues, with a view to agreeing the final text of the Regulation before the European Parliament elections in May 2014. However, Member States expressed their commitment to reach agreement in Council by 2015, insisting that more time is needed to ensure the detail of the provisions in the Regulation are workable.

A progress report can be found here.

MiFID/MiFIR

On June 21, 2013 the Irish Presidency reached a general approach on MiFID II and MiFIR. This gave the Lithuanian Presidency a mandate on which to negotiate in trilogues (with the European Parliament, and the European Commission). This has been one of the Lithuanian’s priority issues, and trilogue negotiations between the European Commission, European Parliament and Council of Ministers have taken place almost weekly throughout the second half of 2013.

The issues discussed so far include:

  • Scope: Based on the European Parliament’s agreed text, the Presidency has attempted to explore the possibility of insurance PRIPS being included in the scope of MiFID. This has proved one of the more controversial aspects of the negotiations, with considerable reaction from the insurance industry and insurance regulatory bodies across the EU.
  • Corporate governance: parties agreed to adopt the CRDIV approach for the level of sanctions, and to introduce additional safeguards as defined in MAR
  • Market structure: agreement has been reached along the lines set out in a Presidency non-paper on trading obligations, including on scope, safeguards and trading obligation rules. A technical group has been mandated to finalise the drafting of the relevant provisions;
  • Commodities: position limits have been heavily debated, in particular whether or not these should be dealt with at Level 1 or by ESMA at Level 2;
  • Investor protection: there was agreement that the commission ban should only be for independent investment advisors and portfolio managers, subject to further restriction of the notion of "minor non-monetary benefits" in the technical group.  Clarifications were made to the definitions of complex/non-complex.
  • Transparency: Agreement has been reached on transparency for non-equities, whilst for pre-trade transparency for equities, one of the most controversial areas, parties have agreed on a preliminary approach, which is to be finalised at a technical level.

It has not been possible for an agreement to be reached before the end of the Lithuanian Presidency - the main issues outstanding being access, third country regime, commodities and scope. All trilogue parties are working to try and get agreement before the European Parliament closes in April for elections. This will be a priority issue for the Greek Presidency. The next trilogue meeting is scheduled for January 14, 2014.

Omnibus II Directive

On November 13, 2013 trilogue parties reachws an agreement on Omnibus II. This follows several months of negotiation since a report by EIOPA (following an impact assessment on the matching adjustment on long term guarantees products) was published earlier this year, and several years since the original proposal was put forward by the European Commission. The key points to note are:

  • Matching adjustment: Most restrictions, such as on BBB investment, ring-fencing, and the cap on the long term average spread have been removed. It can be used for life and non-life, although details need to be addressed further in level 2.
  • Equivalence: The criteria to allow third countries to be deemed temporarily equivalent have been minimised to a sufficient degree, and can last for 10 years and can be renewed for another 10 years.

The dates of transposition (March 31, 2015) and entry in to force (January 1, 2016) were also agreed and have since appeared in the official journal.

Bank Resolution and Recovery

On December 12, 2014, the trilogue parties (European Parliament, Council of Ministers and Commission) reached an agreement. All the issues have now been agreed and a text is being consolidated. There are a few technical meetings happening to tidy up the text technically. However, the following headline issues have been agreed:

  • Unsecured depositors (over €100,000) would be bailed in last.
  • Bail-in would apply until at least 8% of a bank’s total assets had been lost.
  • Only then could the resolution authority allow a bank’s access to resolution fund money.
  • The directive as a whole is to enter in to force 1 January 2015, with the bail-in tool applying from 1st January 2016.

The following key points are of particular interest to ABI member firms as investors in bank debt:

  • Trigger conditions: The EBA will provide guidance on interpretation of the different circumstances when an institution shall be considered to be failing or likely to fail.  However, resolution authorities are not required to provide guidance on how they will judge trigger conditions.
  • Bail in tool: Bail in will be applicable to all liabilities of an institution, excluding covered deposits, secured liabilities, client money or assets held on behalf of UCITs and AIFs, liabilities to institutions (except those in the same group) with original maturity of less than 7 days etc.; Uninsured deposits of up to €100,000 are excluded from eligible liabilities.
  • Creditor Hierarchy: The text clearly sets out how the creditor hierarchy must be respected when utilising the bail-in tool; however, the resolution authority will still have the discretion to exclude certain liabilities from being bailed under a certain circumstances including where it is necessary to limit widespread contagion and the effective functioning of financial markets. The Commission will issue delegated acts that will set out further the circumstances when exclusions are necessary.
  • Resolution Fund: Member states will be required to establish a national resolution fund to absorb losses and recapitalise a failed institution; use of the resolution funds will only be used after 8% of total liabilities and own funds have been bailed; the fund will only contribute up to 5% of total liabilities including own funds of the institution under resolution measured at the time of resolution action.

Subject to the final technical wording, the compromise was formally approved by the Council’s COREPER (Ambassador level) on December 19, 2013.

This file was a top priority for the Lithuanian Presidency.

Portability Directive

Discussions of the Portability Directive (dating back to 2007) were reignited by the Irish Presidency early in 2013.  Following the member state agreement to a "general approach" text on June 20, 2013, the Lithuanian Presidency was able to pick up negotiations in trilogues with the European Parliament.

An agreement was reached on November 26, 2013. The scope of the Directive has been reduced since the Commission proposal in 2005 from full portability of pensions to rules covering the acquisition and preservation of pension rights when employers change jobs between countries in the EU. The compromise text also encourages member states to apply similar rules to internally mobile workers as those moving cross-border. As expected, the vesting period has been agreed at three years, which is a compromise struck in the Council in the past few months. The compromise is further likely to endorse a two-year reference period within which a worker can move to employment in another member state.

Once formally adopted, member states will have four years to transpose the Directive into national law. The agreement can be found here.

Market Abuse Directive

On December 10, 2013, there was a provisional agreement reached on the main elements of the draft Directive on Criminal Sanctions for Market Abuse (CSMAD). The agreement is now expected to be confirmed by the European Parliament in plenary in February 2014.

The agreed legislation imposes a minimum jail sentence of four years for insider dealing and market manipulation and two years for improper disclosure of information. It also requires Member States to ensure that inciting as well as aiding and abetting criminal offences is punishable. The UK currently opts out of the requirements of this Directive, and already has more stringent requirements.

Read a copy of the final compromise here.

UCITS V

In December there was also an agreement reached in the Council, with a “general approach” approved on December 4, 2013. Following this agreement, trilogue negotiations (between the European Parliament, Council and the European Commission) can commence. There has been no introduction of caps on variable remuneration, and no significant changes on remuneration. As the European Parliament’s negotiating position (although more hard fought) is also without bonus caps, it is virtually impossible for this to be introduced (and then agreed) going forward in trilogues.

Depending on the progress of the outstanding banking union files, there is a possibility that the Greek Presidency will commence trilogues on UCITS V in the coming weeks.

A copy of the Council’s UCITS V ‘general approach’ can be found here.

Anti-discrimination Directive

The Lithuanian Presidency did not prioritise work on the Directive on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation (the Anti-discrimination Directive), with only very few working group meetings taking place in the second half of 2013.

The Lithuanian Presidency has now published the Progress Report on this file. The only new development is the proposal that there should be only one definition of ‘discrimination’ (covering both (a) education and social protection, and (b) access to goods and services). The report confirms that there have been no discussions on the provisions related to financial services, and that there has been little progress towards reaching agreement on the Directive as a whole – several Member States continue to maintain reservations with the scope and provisions of the Directive.

The ABI will follow closely any discussions that might take place under the incoming Greek Presidency and lobby HMT, GEO and the UK Attaché accordingly, as well as contributing to any Insurance Europe lobbying. It is unlikely that the Greek Presidency will prioritise work on this draft Directive.

The text can be found here.

EU Audit Reform

Trilogue negotiations continued under the Lithuanian Presidency, and on 18th December, an agreement was reached. The key points agreed are:

  • listed companies, insurers and banks are required to change auditors after 10 years, but are allowed a further 10 years with tendering
  • there is a cap of 70 per cent on non-audit service fees, a “blacklist” of certain types of advisory services, and limits on tax advice and services linked to the financial and investment strategy of the audit client
  • these rules will be phased in over several years

Commissioner Barnier’s proposals in 2010 had been much more drastic and their watering down reflects successful ABI and Insurance Europe lobbying.

A summary of the agreement can be found here.

Clinical Trials Regulation

Negotiations on the Clinical Trials Regulation continued under the Lithuanian Presidency and on 20th December a trilogue agreement was reached. The main points related to insurance are:

  • Article 72(1) maintains compulsory insurance for clinical trials in general, but Article 72(2) leaves some discretion up to the Member States regarding compensation systems
  • Article72(3) removes “low intervention” clinical trials from the compulsory scheme
  • Article 73 which sought to introduce National Indemnification Mechanisms (NIMs) has been deleted. All references to NIMs have been removed in the agreed text

This represents a significant improvement for insurers who seek to offer cover for clinical trials. The ABI and Insurance Europe have lobbied hard for a positive outcome, especially to ensure that the Regulation does not establish NIMs.

A copy of the agreed text can be found here.


Last updated 01/07/2016