Head of Public Affairs & Policy for the European Association of Corporate Treasurers (EACT)
Following an initial period of reflection and public consultation, EU policymakers are now ready to launch many of the set pieces of financial regulation for the current legislative mandate. At the same time, the severity of the Covid pandemic in the EU and the impact it has already had on the economy has motivated policymakers to make narrow adjustments to a number of pieces of securities markets and prudential regulation to ease burdens on investment firms, banks, and companies.
To that end, policymakers in the European Parliament’s Economic and Monetary Affairs Committee (ECON) and the representatives of Member States in the Council of the EU (Council) are currently negotiating changes to the Markets in Financial Instruments Directive (MiFID 2) and the Prospectus Regulation. These changes would – amongst other things – ease product governance requirements for investment firms marketing instruments to professional clients and expand the scope of corporates who can benefit from hedging exemption from the commodity position limits regime to those that have financial counterparties within their group. The changes to the Prospectus Regulation would ease the prospectus requirements for equity issuance by companies that have already been listed for more than 18 months on a regulated market.
In parallel to this, EU policymakers are negotiating targeted amendments to the EU Benchmarks Regulation that would enable the European Commission to adopt statutory fallback rates for Libor (in the main currencies) for contracts governed by the law of any EU Member State that have not been renegotiated by the definitive cessation date of Libor. As part of the same review, EU policymakers are creating the conditions under which to designate non-EU FX spot rates in non-deliverable currencies (e.g. Taiwanese Dollar, South Korean Won, Indian Rupee, Philippine and Argentine Peso) as exempt from the EU Benchmarks Regulation. This would mean that these rates can be used even after the end of the current cut-off date of 31 December 2021 beyond which users in the EU are not permitted to use non-recognised non-EU benchmarks.
Looking ahead to the remaining months of 2020 and the first quarter of 2021, a dense regulatory/policy calendar awaits, covering a number of significant areas for corporate treasury. These include a new retail payments strategy for the EU, a proposal for an EU Green Bond Standard, and the overhaul of the EU’s Anti-Money Laundering framework.
Following public consultations earlier in the year, the European Commission has presented a new retail payments strategy for the EU focusing on increasing digital and instant payments on a pan-EU scale, creating an innovative and competitive retail payments market, ensuring interoperability in payment systems and support infrastructure, and increasing the efficiency in international payments and remittances. As part of this, the European Commission – as early as November 2020 – could propose draft legislation to make the uptake of the SEPA Instant Credit Transfer (SCT Inst.) mandatory for payment service providers (PSPs) by end 2021.
Towards the end of 2020, the European Commission will also propose the creation of a voluntary EU Green Bond Standard. This label is intended to harmonise and standardise the issuance, reporting, and verification process for green bond issuance in the EU. For bonds to be issued under the EU Green Bond Standard, the funded projects will likely have to comply with the EU’s Sustainable Taxonomy. Overall, however, the new label is likely to streamline green bond issuance and help reduce some of the procedural burdens and costs associated with green bond issuance so far. Beyond that, the European Union is furthermore set to become the largest issuer of green bonds in the coming years, with Commission President Von der Leyen indicating that 30% of the EU’s 750 billion euro Covid-19 recovery fund will be raised through green bonds.
Early 2021 will subsequently see the European Commission propose reforms to the EU’s AML framework, with a focus on harmonising current requirements across all Member States to prevent divergent interpretation of rules and imposition. As part of these reforms, policymakers will also explore expanding the scope of the EU’s AML provision to include virtual asset providers as obliged entities and potentially create a single EU AML supervisory authority for the largest financial entities.
With this, a tightly packed regulatory agenda at EU level awaits in the coming months and years that will change the environment that treasurers operate in.