Explanatory Memorandum to COM(2017)537 - Amendment of Directive 2014/65/EU on markets in financial instruments and Directive 2009/138/EC on Insurance and Reinsurance (Solvency II)

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dossier COM(2017)537 - Amendment of Directive 2014/65/EU on markets in financial instruments and Directive 2009/138/EC on Insurance and Reinsurance ...
source COM(2017)537 EN
date 20-09-2017


1. CONTEXTOFTHEPROPOSAL

• Reasons for and objectives of the proposal

This proposal forms part of a package of measures with the purpose of enhancing the supervision of EU financial markets by improving the operation of the system of European Supervisory Authorities (ESAs) and accelerating and completing the Capital Markets Union. This proposal concerns the supervision and powers of the European Securities and Markets Authority (ESMA) and provides for the transfer of certain supervisory powers currently vested with the national competent authorities.

The Markets in Financial Instruments Directive 2014/65/EU (MiFID II)1 introduces a new type of services that are subject to authorisation and supervision: Data Reporting Services (DRSs) operated by Data Reporting Services Providers (DRSPs). The effective circulation, monitoring and reconstruction of trading data was not addressed in Directive 2004/39/EC on markets in financial instruments (MiFID I)2. This led to EU trading data that was neither consistent nor of adequate quality to monitor whether the objectives of MiFID were being properly achieved. In addition, trading data was not made available at reasonable cost throughout the EU by the relevant trading venues.

Since inconsistencies in quality, formatting, reliability and cost have a detrimental effect on data transparency, investor protection and market efficiency, MIFID II intends to improve the quality and accessibility of trading data by setting a standard format for trading data that is easy to consolidate, readily understood and available at a reasonable cost, and by imposing formal organisational requirements on data reporting services providers (DRSPs) and requiring them to be authorised by their national authority.

Given the cross-border dimension of data handling, the benefits of pooling data-related competences - including potential economies of scale - and the adverse impact of potential divergences in supervisory practices on both the quality of trading data and on the tasks of data reporting service providers, it is appropriate to transfer the authorisation of, and the supervision on, data reporting service providers from national authorities to ESMA.

The current proposal is therefore limited to transfer the powers to authorise and supervise those entities from national competent authorities to ESMA by inserting those powers in Regulation (EU) No 600/2014 on markets in financial instruments (MiFIR)3 without bringing any further change to the substantive rules applicable to DRSPs including the conditions for authorisation and organisational requirements initially established by MIFID II. As a consequence, the relevant provisions pertaining to the DRSPs set out in MiFID II are deleted.

Contents

1.

Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and


Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).

2.

Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in


financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive

3.

2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC


(OJ L 145, 30.4.2004, p.

1).

4.

Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on


markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p.

2

3

In addition, this proposal also concerns the role of EIOPA in the approval processes for internal models.

The Solvency II Directive (Directive 2009/138/EC4) provides that in accordance with the risk-oriented approach to the Solvency Capital Requirement (SCR), it is possible, in specific circumstances, for insurance and reinsurance undertakings and groups, at the level of either individual undertakings or groups, to use internal models for the SCR calculation, rather than the standard formula. These internal models are subject to supervisory approval. Despite the valuable work carried out by EIOPA on supervisory convergence as regards internal models, major inconsistencies remain with regard to the requirements of competent authorities for internal models, and difficulties exist in reaching joint agreements on group internal models within colleges of supervisors.

Divergence in the supervision and approval of internal models leads to inconsistencies and creates an uneven level playing field amongst market participants. The proposal therefore promotes supervisory convergence by enhancing EIOPA's role with regard to internal models, through provisions on cooperation and information sharing, coupled with powers for EIOPA to adopt Opinions in this area, and to contribute on its own initiative to the settlement of disputes between supervisory authorities, including through binding mediation.

• Consistency with existing policy provisions in the policy area

The current proposal is consistent with other pieces of Union law including those which confer direct powers to ESAs:

• Consistency with other Union policies

This proposal does not affect other Union policies.

2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY

• Legal basis

The proposal is based on Article 53(1) and 62 of the Treaty on the Functioning of the European Union.

• Subsidiarity (for non-exclusive competence)

According to the principle of subsidiarity (Article 5.3 of the TFEU), action on EU level should be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the EU.

The substantive authorisation and supervision are already covered by MiFID II and hence substantive has been conferred to the Union level. The only modification brought about by this proposal is that ESMA instead of national competent authorities will be responsible for the authorisation of DRSPs and their supervision. In this regard, financial markets are inherently cross-border in nature and are becoming more so. Financial markets data intensity is also growing rapidly. Enhanced efficiency of handling data relevant aspects of the MIFID II framework is called for to meet these challenges. By transferring authorisation and

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335,

4

supervision of data service reporting providers to ESMA, one can ensure uniform conditions for trading data and trade reporting channels, and at the same time allow national competent authorities to free up resources for supervision of the end-users of the data.

The principle of supervisory approval for internal models is already contained in the Solvency II Directive .The modifications brought about by this proposal seek to enhance EIOPA's role in order to achieve greater supervisory convergence in this area, in particular for insurance groups present in several EU Member States, whilst leaving the power to approve such applications with the supervisors and as applicable, the supervisory college.•

Proportionality

The proposal takes full account of the principle of proportionality, being adequate to reach the objectives and not going beyond what is necessary in doing so. It is compatible with the proportionality principle, taking into account the right balance of public interest at stake and the cost-efficiency of the measure.

Choice

of the instrument

This proposal amends a Directive of the European Parliament and of the Council adopted on the basis of Article 53(1) of the TFEU and a Directive of the European Parliament and the Council adopted on the basis of Article 53 and 62 TFEU. A proposal for a Directive is therefore required to amend both these Directives.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS ANDIMPACTASSESSMENTS

• Impact assessment

The proposed amendments to these Directives are of a very limited nature and given the recent implementation and application of these Directives, the changes do not justify the carrying out of any separate evaluation.

• Regulatory fitness and simplification

The one-stop shop offered for authorisation and supervision by virtue of amending MiFID II and MiFIR will contribute to reduce regulatory burden, including for smaller DRSPs. The powers and competences of competent authorities with respect to DRSPs will be transferred to ESMA. This single authorisation and oversight framework will result in substantial simplification for DRSPs with cross-border presence and reduction of administrative burden.

As regards Solvency II, supervisory convergence contributes to streamlined application processes and requirements across the Union, reducing an unlevel playing field, in particular for insurance groups.

• Fundamental rights

The right of due process and right of defence have been safeguarded notably through a clear procedural framework and judicial control of investigatory measures where required by national judge, and of final decisions under this Regulation by the Court of Justice.

4. BUDGETARYIMPLICATIONS

This is covered by the amendments to MiFIR and the amendments to the EIOPA founding Regulation.


5. OTHERELEMENTS

• Detailed explanation of the specific provisions of the proposal

Article 1 of the proposal sets out amendments that are required for the transfer of current powers and competences vested in the competent authorities to ESMA, which will be responsible for the authorisation and supervision of firms that intend to carry out data reporting services.

These amendments comprise the modification and the deletion of several sections of MiFID II, including Title V pertaining to the DRSPs, Section D of Annex I and powers of competent authorities to impose sanctions on DRSPs.

Article 2 of this proposal includes the amendments to the Solvency II-Directive to give EIOPA a greater role to contribute to supervisory convergence in the area of internal model application, and comprises changes with respect to information sharing regarding such model applications, the possibility for EIOPA to issue Opinions in relation to that matter, as well as for EIOPA to assist in the settlement of disputes between supervisory authorities, either at their request, on its own initiative or, in certain circumstances, at the request of concerned undertakings.

The amendments also provide that EIOPA should prepare annual reports on this matter. This will allow close monitoring of the situation regarding internal model applications, including bringing to light any outstanding concerns with regard to supervisory convergence in this area.

This Article also aligns some parts of Solvency II (Article 231(3) and 237(3)) with changes to the EIOPA founding Regulation contained in the Commission's proposal for that Regulation on binding mediation. In addition, this Article applies the necessary amendments to Article 248 i of Solvency II on binding mediation, removing references to a previous dispute settlement procedure with CEIOPS (the Committee of European Insurance and Occupational Pensions Supervisors), which has been superseded by EIOPA.

5.

Articles 3 and 4 set out


transposition and entry into force provisions.