CUBE RegNews: 28th June

Eva Dauberton

Eva Dauberton

News Editor

EBA and ESMA release joint guidelines on ART issuers and CASPs management bodies and shareholders under MiCA 


The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have released joint guidelines on the suitability of members of the management body and the assessment of shareholders and members with qualifying holdings for issuers of asset reference tokens (ARTs) and cryptoasset service providers (CASPs) under the Markets in CryptoAssets regulation (MiCA). 


Some context 

Under MiCA, members of the management body of an issuer of ART or of a CASP have to be of sufficiently good repute and possess, individually and collectively, the appropriate knowledge, skills and experience to manage the applicant issuer. 

Failure to meet these requirements can lead to refusal of authorisation. 

Additionally, proposed acquisitions of direct or indirect qualifying holdings in authorised ART issuers or authorised CASPs are subject to prior prudential assessment, requiring proposed acquirers to be assessed against five suitability criteria. 


Key takeaways 

The guidelines outline the different elements that should be considered in conducting the suitability assessment of the members of the management body of issuers of ARTs or of CASPs and shareholders and members with qualifying holdings in issuers of ARTs or of CASPs. Guidance is provided on the information to be considered as part of the suitability assessment as well as the method of conducting the assessment. 

The guidelines should be used by CASPs, issuers of ARTs and competent authorities when carrying out the assessment of the requirements set out in MiCA regarding the suitability of members of management bodies, shareholders or members with direct or indirect qualifying holdings and persons who wish to acquire such qualifying holdings. 


  • Joint guidelines on the suitability assessment of the members of the management body of issuers of ARTs or of CASPs 

The guidelines specify the requirements and harmonise the suitability assessment of the members of the management body of issuers of ARTs and of CASPs, when applying for an authorisation respectively under Article 18 or 62 of MiCA and on an ongoing basis. 

It provides common criteria to assess the knowledge, skills, experience, reputation, honesty and integrity of members of the management body, as well as if they can commit sufficient time to perform their duties to ensure sound management of these entities. 


  • Joint guidelines on the suitability assessment of shareholders and members with qualifying holdings in issuers of ARTs or of CASPs 

These guidelines aim to harmonise the suitability assessment of the shareholders and members with direct or indirect qualifying holdings in issuers of ARTs and CASPs, when applying for an authorisation respectively under Article 18 or 62 of MiCA. The guidelines also aim at providing clarifications on the circumstances giving rise to a qualifying holding, such as the notions of acting in concert, indirect shareholders, significant influence and decision to acquire and on the methodology to assess the suitability of the proposed acquirer in case of a proposed acquisition in an authorised issuer of ART or CASP. 


Next steps 

These guidelines apply from 2 months after the publication date of the guidelines in all EU official languages. 

 

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CFTC extends comment period for proposed amendment to event contract rules  


The Commodity Futures Trading Commission (CFTC) has extended the deadline for public comments on its proposal to amend its event contract rules. The new deadline for submitting comments is 8 August 2024. 

  

Some context  

The proposed amendment seeks to clarify the types of event contracts falling under the Commodity Exchange Act (CEA) Section 5c(c)(5)(C) and are considered contrary to the public interest. These contracts may not be listed for trading or accepted for clearing on a CFTC-registered entity. 

Specifically, the proposed amendments include: 

  • Further specifying the types of event contracts involving 'gaming.' 
  • Aligning certain language with the statutory text.
  • Making technical changes to enhance clarity and organisation within the rules. 


Next steps  

The notice of proposed rulemaking was published on 10 May 2024. The original comment period, supposed to end on 9 July 2024, has been extended to the new deadline of 8 August 2024. 

 

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CFTC staff issues a no-action letter regarding swap reporting obligations for swaps transitioning from CDOR to CORR 


The Commodity Futures Trading Commission's Division of Market Oversight (DMO) and Division of Data (DOD) have issued a staff no-action letter regarding certain Part 43 and Part 45 swap reporting obligations for swaps transitioning under the ISDA LIBOR fallback provisions from referencing the Canadian Dollar Offered Rate (CDOR) to referencing the risk-free Canadian Overnight Repo Rate Average (CORRA) following the cessation of CDOR after 28 June 2024. 


For Part 45 swap reporting obligations, DMO and DOD will not recommend the CFTC take enforcement action against an entity for failure to timely report the change in a swap's floating rate. The letter covers floating rate changes made under the ISDA LIBOR fallback provisions from CDOR to CORRA, provided that the entity uses its best efforts to report the change by the applicable deadline in Part 45 and reports the required information no later than five business days from, but excluding, 2 July 2024. 


For Part 43 swap reporting obligations, DMO and DOD will not recommend the CFTC take enforcement action against an entity for failure to report the change in the floating rate for a swap modified after execution to incorporate the ISDA LIBOR fallback provisions to transition from referencing CDOR to referencing CORRA. 

 

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EBA updates monitoring of Additional Tier 1, Tier 2 and TLAC/MREL eligible liabilities instruments 


The European Banking Authority (EBA) has released an updated report on the monitoring of Additional Tier 1 (AT1), Tier 2, and total loss-absorbing capacity (TLAC) as well as the minimum requirement for own funds and eligible liabilities (MREL) instruments of European Union (EU) institutions. 

The update includes new guidance on the prudential valuation of non-CET1 instruments and other aspects related to the terms and conditions of the issuances. 


Key takeaways 

The report: 

  • Clarifies that the prudential valuation of capital instruments should reflect their actual loss absorbency capacity. 
  • Addresses the approaches followed by some institutions to timely reflect foreign exchange effects on AT1 instruments classified as equity from a prudential perspective and stresses the need for a consistent application over time when these approaches are used. 
  • Specifies the conditions under which different loss absorbency mechanisms (conversion and write-down) and trigger levels can operate simultaneously within the same institution. 


Other aspects covered in the report include clarifications and recommendations on the redemption of own funds and eligible liabilities instruments, early redemption clauses, and the need to include contractual bail-in recognition clauses in own funds instruments issued under English law. 

 

The EBA will continue to monitor the quality of the AT1, Tier 2, and TLAC/MREL instruments and is prepared to provide additional guidance if necessary. 


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MAS issues notice 134 on recovery and resolution planning for insurers 

  

The Monetary Authority of Singapore (MAS) has issued notice 134, which outlines the recovery and resolution planning requirements for notified insurers and notified designated financial holding companies. This notice follows a consultation issued on 29 September 2023, and will come into effect on 1 January 2025. 

  

MAS expects all insurers to develop a Recovery and Continuity Plan (RCP) to identify necessary actions that can be taken to restore their financial position and ensure their viability during times of severe stress. However, at present, this notice focuses primarily on domestic systematically important insurers (DSIIs) due to their significant impact on the overall financial system. 

Thus, for now, notified insurers are considered DSIIs. 


Click here to read the full RegInsight on CUBE’s RegPlatform    

 

HKMA and IA share findings from premium financing inspection exercise 


The Hong Kong Monetary Authority (HKMA) and the Hong Kong Insurance Authority (IA) have released the findings of a joint inspection exercise on premium financing. 


Some context 

After implementing supervisory standards and requirements on premium financing on 1 January 2023, the IA and HKMA conducted a joint inspection exercise in late 2023. 

The objectives were to evaluate the industry’s compliance with the standards, understand the current market trends in the higher interest rate environment, and identify areas that may require further regulatory attention. 


Key takeaways 

The regulators found that: 

  • Authorised insurers and licensed insurance intermediaries generally complied with the standards and made efforts to assess customers’ circumstances regarding their use of premium financing. 
  • Most authorised insurers applied a more cautious threshold than the standards when determining if a customer is at risk of over-leveraging and rejected applications that posed such a risk. 
  • The newly introduced disclosure requirement, “Important Facts Statement - Premium Financing” (IFSPF), was widely adopted across all intermediaries’ channels. 


However, the regulators identified specific issues in individual cases. 

The circular’s annexe provides a detailed overview of the observations. 


Click here to read the full RegInsight on CUBE’s RegPlatform    

 

SEC's Office of the Investor Advocate outlines objectives for fiscal year 2025 


The Office of the Investor Advocate of the US Securities and Exchange Commission (SEC) has submitted a report to Congress outlining its objectives for the fiscal year 2025.  


Some context  

Established in February 2014 under Section 4(g) of the Securities Exchange Act of 1934, this independent office aims to assist retail investors by identifying areas that would benefit from rule or regulation changes, addressing investor concerns, analysing the impact on investors, and proposing regulatory changes to the Commission or Congress.  


Key takeaways  

Besides continuing investor engagement and developing further investor research, in the fiscal year 2025, the office aims to:  

  • Enhance Ombuds services to resolve SEC and self-regulatory organisation (SRO) related queries.  
  • Evaluate the impact of technological changes on broker and adviser standards of conduct.  
  • Explore ways to increase transparency and investor access to private markets.  
  • Encourage innovative and effective disclosure through investor testing, especially for complex products and private markets. 

 




Click here to read the full RegInsight on CUBE’s RegPlatform