Compliance & Regulatory Watch by Initio

1. Regulatory
newsletter June 2019
1/5
Regulatory update
Credit Risk Link
EBA launches consultation on technical
standards on the standardised
approach for counterparty credit risk
▪ The European Banking Authority (EBA)
launched today a consultation on four draft
Regulatory Technical Standards (RTS) on the
Standardised Approach for Counterparty
Credit Risk (SA-CCR). These draft technical
standards specify key aspects of the SA-CCR
and represent an important contribution to
its smooth harmonised implementation in
the EU.
▪ EBA proposes methods for the mapping of
derivative transactions to risk categories, a
formula for the calculation of the supervisory
delta of options mapped to the interest rate
risk category and a method for determining
whether derivative transactions are long or
short in their risk drivers.
MiFID II Link
ESMA launches call for evidence on
position limits in commodity derivatives
under MiFID II
▪ The call for evidence seeks the views of
stakeholders on the impact of position limits
and position management controls in
commodity derivatives markets. Section 3 of
the call for evidence provides a summary of
the position limit regime under MiFID II and
seeks views on the potential impact of
position limits on liquidity, market abuse and
orderly pricing and settlement conditions in
commodity derivatives markets. Section 4
discusses the impact of position management
controls on commodity derivatives markets.
Section 5 looks forward at potential
improvements to the existing framework.
Brexit Link
FCA confirms extension of the
Temporary Permission Regime deadline
▪ The FCA has today confirmed the deadline for
notifications for the temporary permissions
regime (TPR) will be extended to the end of
30 October 2019. TPR would allow EEA-based
firms passporting into the UK to continue new
and existing regulated business within the
scope of their current permissions in the UK
for a limited period, while they seek full FCA
authorisation.
▪ It will also allow EEA-domiciled investment
funds that market in the UK under a passport
to continue temporarily marketing in the UK.
The deadline for applying to the Trade
Repository and Credit Ratings Agencies has
also been extended to the same date. For EEA
payment services and e-money firms, the
notification window for temporary
permission is closed, but it will open again
under the relevant HM Treasury Regulations
on 31 July and end on 30 October.
Regulatory
Reporting
Link
European Supervisory Authorities
consult on draft ITS on reporting of
intragroup transactions under Financial
Conglomerates Directive
▪ On 22 May 2019, the Joint Committee of the
European Supervisory Authorities (EIOPA,
EBA & ESMA) published a consultation
paper on draft implementing technical
standards (ITS) on the reporting of intragroup
transactions and risk concentration under
Article 21a(2b) and (2c) of the FCD.
▪ The aim is to offer a single framework of
requirements for the reporting due by
financial conglomerates subject to
supplementary supervision in the EU, thereby
helping coordinators and other relevant
competent authorities to identify relevant
issues and exchange information more
efficiently, reducing costs and fostering a
level playing field across EU conglomerates.

2. Regulatory
newsletter June 2019
2/5
▪ It provides the foundation for the full
harmonisation of reporting, with one single
set of templates, one single embedded
dictionary using common definitions and
even one single set of instructions to fill in the
templates.
Sustainable
Finance
Link
ESMA appoints chair for its newly
created co-ordination network on
sustainability
▪ The European Securities and Markets
Authority (ESMA) published a press release
announcing it has established a Coordination
Network on Sustainability (CNS). The CNS is
intended to foster the coordination of
Member State national competent
authorities’ (NCAs) work on sustainability.
▪ It will be responsible for the development of
policy in this area with a strategic view on
issues related to integrating sustainability
considerations into financial regulation.
▪ Ana María Martínez-Pina Garcia, Vice-Chair of
the Comisión Nacional del Mercado de
Valores (Spain) has been appointed as chair
to the CNS for two years.
EMIR Link
ESMA updates Q&As on EMIR
implementation
▪ The European Securities and Markets
Authority (ESMA) published an updated
version of its Q&As on the implementation of
the European Markets Infrastructure
Regulation (EMIR).
▪ The updated Q&As comes up to:
− the procedure for financial counterparties
and non-financial counterparties to notify
that they exceed or no longer exceed
clearing thresholds;
− the responsibility for the status of
counterparties;
− the clearing obligation;
− a new Q&A on the clearing start date for
‘category 3 and 4’ (see articles 4a and 10 );
− OTC derivatives novations;
− the population of the field “clearing
obligation”.
MiFID II Link
ESMA updates Q&As on MiFID II &
MiFIR investor protection
The updated Q&As provides answers on.
▪ Best execution
Reporting on the trading mode acc. to RTS27,
on ‘passive’ and ‘aggressive’, orders for firms
using quote-driven systems to have client
orders executed.
▪ Information on costs and charges
Ex-ante information in case of sell orders and
of telephone trading;
Use of assumed investment amounts for ex-
ante information in relation to investment
services and/or products with non-linear
charging structures; and,
Use of ranges and maximum amount /
percentages for ex-ante information.
Money
Markets
Link
ECB provides a one-off spread between
€STR and EONIA
Spread between €STR and EONIA is calculated
at 8.5 bp. The spread is to be used by EMMI in
new EONIA methodology as of 2 October
2019.

3. Regulatory
newsletter June 2019
3/5
Sector update
Insurance Link
EIOPA publishes a report following its
thematic review of the use of Big Data
Analytics in motor and health insurance
▪ The report identifies among other things:
− Increased use by insurers of new data
sources such as social media profiles and
telematics data alongside traditional data
sources. This use of combined types of data
is creating opportunities for increasingly
tailored products and services.
− Credit, driving and claims scores created
with algorithms by third party data vendors
has grown.
− The use of Big Data Analytics is leading to a
greater number of smaller risk pools.
− 3% of firms are now using tools such as
artificial intelligence or machine learning;
while 24% are at proof-of-concept stage in
applying such tools.
− Robo-advisors and chatbot applications are
gaining momentum in the market. The
‘Internet of Things’ will drive greater use of
usage-based insurance products.
Banking Link
Basel Committee reports on Basel III
implementation progress
▪ The Basel Committee on Banking Supervision
today issued the Sixteenth progress report on
adoption of the Basel regulatory framework,
which sets out the adoption status of Basel III
standards for each Committee member
jurisdiction as of end-March 2019. It includes
the Basel III post-crisis reforms published by
the Committee in December 2017 and the
finalised market risk framework published in
January 2019. These reforms will take effect
from 1 January 2022.
▪ Member jurisdictions have made further
progress in implementing standards for which
the deadlines have already passed. These
include, notably, the revised securitisation
framework and the leverage ratio based on
the existing exposure definition. However,
the report also shows that progress has been
limited in the implementation of other
standards, which in a number of jurisdictions
have yet to be finalised and put into effect,
such as the Net Stable Funding Ratio (NSFR).
Cross sector Link
DTCC white paper offers vision for
central clearing in US treasury cash
markets
▪ The Depository Trust & Clearing Corporation
(DTCC), the premier post-trade market
infrastructure for the global financial services
industry, today announced the release of a
new white paper that explores the current
structure of the U.S.
▪ The paper looks at initiatives – both
implemented and planned – from DTCC’s
subsidiary Fixed Income Clearing Corporation
(FICC) and how they will promote the growth
of central clearing including the Sponsored
Membership Program and the Centrally
Cleared Institutional Triparty (CCIT) Service. It
also explores several proposals to support the
growth of central clearing activity, including:
− Advancement of the FICC Start Leg Repo
Initiative to include compared same-day
starting repo transactions in eligible netting
securities in the risk management,
novation, guarantee and settlement in the
DVP Service benefit
− Expansion of capabilities to designate
Locked-In Trade Sources to allow for
additional trading volume to be centrally
cleared through FICC
Asset
Management
Link
EFAMA’s comments on Joint Research
Centre’s (JRC) technical report on EU
ecolabel

4. Regulatory
newsletter June 2019
4/5
▪ The EFAMA welcomes the European
Commission’s initiative to develop an EU
Ecolabel for retail financial products. The
organisations sees this as an opportunity to
create a coherent European approach and
promote sustainable investments among
retail investors.
▪ Given the wider context and current focus of
the “Ecolabel”, the EFAMA believes it makes
most sense to confine the label to
environmental sustainability. Nevertheless, it
is agreed that some minimum safeguards
pertaining to a product’s social and
governance-related sustainability should be
provided for.
Focus
Crypto-assets Link
ECB paper warns of regulatory arbitrage
on crypto-assets
▪ With crypto-assets gaining in prominence,
the European Central Bank has set up task
force to examine their potential implications
for monetary policy and the smooth running
of market infrastructures and payments, as
well as the stability of the financial system.
▪ Currently, the task force says crypto-assets do
not pose a threat because their combined
value is still small and their linkages to the
financial sector are limited. The regulatory
framework also means that the likes of
Bitcoin can also not be used to conduct
money settlements in systemically important
financial market infrastructures (FMIs).
Crypto-assets Link
French Regulatory Agency AMF sees
14,000% surge in crypto-related scam
enquiries since 2016
▪ The French stock markets regulator AMF has
seen over a 14,000% surge in enquiries
related to fraudulent crypto offers in 2018 as
opposed to 2016, the agency wrote in a new
annual report released May 7.
▪ In the report, the Autorité des Marches
Financiers specified that the number of
enquiries associated with crypto-related
scams online has surged to over 2,600 in 2018
from only 18 similar enquiries in 2016.
▪ With that, the amount of fraudulent online
offers in other industries such as foreign
exchange (forex) and binary options have
significantly decreased, the AMF noted. As
such, fraudulent offers concerning
investment in forex and binary options
triggered a total of 3,768 enquiries in 2016,
with the number having decreased to 968
enquiries in 2018.
Crypto-assets Link
IOSCO requests feedback on key
considerations for cross-border crypto
regulation
▪ The board of the International Organization
of Securities Commissions agreed to publish a
consultative paper regarding the challenges
that market regulators face when providing
investor protection to those trading digital
assets.
▪ The report sets out key considerations that
are intended to assist regulatory authorities
in evaluating CTPs within the context of their
regulatory frameworks. The primary topics
covered include:
− Access to CTPs;
− Safeguarding participant assets;
− Conflicts of interest;
− Operations of CTPs;
− Market integrity;
− Price discovery; and
− Technology.

5. Regulatory
newsletter June 2019
5/5
Crypto-assets Link
Audit companies predict more fund
administrators will enter the crypto
space
▪ As the cryptocurrency market has matured,
more fund administrators are becoming more
open to servicing crypto assets and could
begin working more with clients in the future,
according to a new report by PwC.
▪ Results also highlighted that funds tend to be
domiciled in the same jurisdictions as
traditional hedge funds, with the top three
jurisdictions named as the Cayman Islands,
the US and the British Virgin Islands.
▪ It further discussed there is a lack of
‘traditional’ fund administrators in the crypto
asset space as most funds use relatively small
fund administrators for net asset value (NAV)
calculations.
▪ The PwC report also found that crypto hedge
funds had median returns of -46 percent
during 2018.